"There are two kinds of
fools: those who can't change their opinions and those who won't."
—Josh Billings (American,
1818-1885)
Word for the day
Biophilia (n)
A love of life and the
living world; the affinity of human beings for other life forms.
Malice towards none
By gagging BJP's public
representatives and office bearers, PM Modi is trying to hit millions, who
(a) work for media and cook
biryani using the "masala" provided by BJP men; and
(b) stay glued to TV and
social media and relish the biryani cooked by media!
First random thought this morning
In past couple of years PM Modi has been consistently endeavoring to
redefined his core constituency. He is trying hard to align with farmers, poor,
dalits, etc. He has even added Muslim women to his focus area.
To prove his allegiance to this new constituency, he is often seen
hitting hard on people who are popularly seen working against their interest,
or are perceived to allies of their deemed oppressors, e.g., middlemen,
traders, informal money lenders, chartered accountants, Muslim fundamentalists
and separatists, etc.
The latest attack on medical professionals must be seen in this
context.
Sholay Redux
A plain reading of the latest issue of the popular CLSA report
"Greed & Fear" reminded me of the famous sequence of 1970s
Bollywood blockbuster Sholay, in which the protagonist discusses the marriage
proposal of his friend & his beloved with the guardian Aunty of the damsel.
Read the following excerpts from the report, to assimilate what I
am trying to say:
"Belief maintained."
"GREED & fear finds no material reason to reduce
further the current double overweight in India in the Asia Pacific ex-Japan
relative-return portfolio. India remains the best long-term story in Asian
equities out of all the Asian markets covered by CLSA. Still, GREED &
fear will admit that if portfolio managers’ careers depend on outperforming
the Asian or emerging market benchmarks in the first six months of this
calendar year, they should not be as overweight India as GREED & fear is
since GREED & fear has no conviction that India will outperform in
the first six months of 2018."
"India has certainly not been flavour of the month so far in
2018 with a bond market sell-off and concerns about renewed rupee weakness on
the back of a rising oil price and a rising current account deficit."
"While the rupee has depreciated by 4.1% against the US
dollar since early January, as the current account deficit has increased from
US$11.8bn or 0.7% of GDP in April-December 2016 to US$35.6bn or 1.9% of GDP in
April-December 2017 (see Figure 2). There is also much talk of “fiscal
slippage” amidst fears of a resurgence in “populism” ahead of the general
election due to be held in April-May 2019."
"Of all of the above developments, the general election is by
far the most important on a one-year view since the Indian story would, in GREED
& fear’s view, be badly damaged if the formidable Narendra Modi was not
re-elected."
"...in the near term the risks on the currency are rising given
oil’s continuing rally. It is also the case that the Indian currency does not
look cheap on a real effective exchange rate basis. The Indian real effective
exchange rate has risen by 24% from its low reached in September 2013 to a high
in November 2017 and has since declined by 5%."
"What about “fiscal slippage”? GREED & fear has to
admit to not being so concerned. As previously noted here, corporate and income
taxes in aggregate are rising at a much faster rate than nominal GDP growth and
these two taxes account for 46% of total gross tax revenues. Corporate and
personal income taxes rose by 18.8% YoY in the first 11 months of FY18 (April
2017 – February 2018), compared with 10.4% YoY nominal GDP growth in the first
three quarters of FY18. This seems to be a positive consequence of
demonetisation. It is also the case that the teething problems associated with
the introduction of the Goods and Services Tax (GST) should work themselves out
over a one-year period.
"In this respect, GST was formally introduced on 1 July 2017.
The other point is that the consolidated fiscal deficit (ie including the
states) is improving because the states enjoy an oversized share of GST
revenues relative to the central government (71% to 29%)."
"What about the stock market? Valuations remain high, most
particularly in the mid-cap space, though not as high as they were at the peak
earlier this year. The Nifty Index and the Nifty MidCap 100 Index now trade on
17.5x and 21.3x one-year forward earnings, down from a peak of 18.6x and 25.2x
reached in January and late December respectively (see Figures 7 & 8).
Still the mitigating factor continues to be that corporate profits as a
percentage of nominal GDP remain comparatively depressed, declining from 7.1%
in FY08 to 3.0% in FY17 and an estimated 3.1% in FY18. This reflects the
continuing lack of a new investment cycle. Hence, corporate profits as a
percentage of nominal GDP peaked in fiscal 2008 which was the peak of the last
investment cycle."
"...Indian stock market can move much higher if there is a
renewed investment cycle. The problem, of course, is that convincing evidence
of a new investment cycle remains lacking."
"Still it also remains the case that the commencement of a
new investment cycle becomes much more likely if the NPL overhang in the
banking system, concentrated on the public sector banks as well as “private
sectors banks” with a public sector origin such as ICICI Bank and Axis Bank, is
finally resolved. In this respect, India is now reaching the crunch point since
the 270-day deadline (180 days plus 90 days) is about to be reached this month
for the first tranche of 12 problem assets accounting for 27% of the NPL
problem in terms of the insolvency and bankruptcy mechanism set up by the
bankruptcy statute back in 2016."
"The key question now, amidst widespread scepticism, is
whether the deadlines will be enforced since the whole point of the deadline is
to force decision making and faster resolution."
...more on this tomorrow
No comments:
Post a Comment