"We are punished by our sins, not for them."
—Elbert Hubbard (American,
1859-1915)
Word for the day
Ovine (adj)
Pertaining to, of the nature
of, or like sheep.
Malice towards none
If things go as per plan, it
will likely be NaMo vs NiKu contest in 2019, and a long European vacation for
RaGa.
First random thought this morning
Government wants to sell Air
India. Good intention.
Government wants to consolidate
PSU upstream and downstream petroleum companies. Good idea.
Government wants to consolidate
PSBs. Good strategy.
Government will continue to
exercise control over management of these enterprise. Poor idea.
Why not make a super holding
company. Transfer all government holdings to that company, and let individual
companies be managed professionally, without any interference from the
government.
Beyond Sensex
"Though stock markets in general are meaningless and
indicate nothing in terms of the health of the economy they still function as a
form of hypnosis, or a kind of Pavlovian mechanism; a tool that central bankers
can use to keep a population servile and salivating at the ring of a bell. As I
have mentioned in the past, the only two elements of the economy that the
average person pays attention to in the slightest are the unemployment rate and
the Dow. As long as the first is down and the second is up, they aren't going
to take a second look at the health of our financial system.
Historians and economists often wonder after the fact how it
was possible for so many "experts" and others to miss the flashing red lights leading into
market implosions like that which occurred in 2008. Well, this is exactly how;
within any casino there is an inherent bias towards false hope. Meaning, many
people will invariably ignore all negative factors and past experience because
positivism is more pleasant." —Brandon Smith (click
here to read more)
If I close my eyes to the Sensex graph which is touching new highs
every day, believing in the great Indian turnaround story is not that simple.
One will have to make tremendous effort to sift out the absolute positives that
will make an investor euphoric about Indian economy.
The relative argument — "We are doing better than most
others" or "we are the fastest growing economy" — make one comfortable.
But when put to litmus test, many of these argument sound academic. For
example, Indian economy growing over 7%, the fastest in the world, may be
matter of pride. But is the real per capita income of the bottom 50% of the
population is also growing meaningfully, leave alone the fastest.
The changes in indirect tax structure and greater transparency in
the administration (especially in relation to real estate sector and bankruptcy
proceedings) are two major positives, which I could sift out. Most other
measures, claimed to be landmark reforms, may not actually qualify to be so.
For example, the scheme to provide LPG connection to BPL families,
could easily degenerate into kerosene subsidy type situation, with even larger
burden on the exchequer. Similarly, the UDAY scheme to restructure state
electricity boards could also degenerate like all other previous restructuring
episodes.
The lending rates are falling because of poor credit demand and
wide spread with global markets. This is a cyclical phenomenon and would get
obliterated by play of market forces. Some businesses will gain and some will
lose in the routine process. There is nothing to be structurally positive about
this.
The socio-economic divide is widening at much faster rate than
ever in past seven decades. That is a structural negative to be worried about.
I say it structural because it's a trend in most developed democracies, and
none has been able to solve the conundrum.
Unemployment, underemployment and disguised unemployment are all rising
at an accelerated pace. This could be cyclical phenomenon, but may create some
structural issues like rise in crime rate, cases of depression and other mental
disorders, widening regional disparities, etc.
Coming back to stock markets, the following Sensex EPS forecast
chart from a research report of BofAML, tells you the whole story.
What it shows is that the analysts have always been projecting a rosy
picture of the corporate health. The projections though believed by the market
have been seldom realized.
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