Wednesday, August 29, 2018

Andhra Pradesh — Moving fast to reach nowhere



Some Food for thought
“Change is like that: you are no longer where you were;
you are not yet where you will get;
you are nowhere exactly.”


Andhra Pradesh — Moving fast to reach nowhere
Almost after two years, I got an opportunity to travel to Vijaywada in Andhra Pradesh Capital region, again. Circumstances permitting, I would never miss an opportunity to visit this very beautiful part of our country, which brilliantly impersonates Mother India, as described in our National Song.
This land is "rich with hurrying streams & dark fields, bright with orchard gleams and cool with winds of delight."
The occasion for visiting Vijaywada this time was wedding of my close friend's son. This meant, meeting a lot of people from various walks of life and plenty of amazing food. I love both.
In the elaborate marriage function, I noticed a number of socio-economic changes that have been widely accepted even by the older generations. Some of these changes are worth highlighting.
Politics in Andhra Pradesh is just like any other state. Any discussion about politics here inevitably leaves a pungent taste in your mouth. But any discussion about the state would be incomplete without highlighting the political landscape.
As I mentioned in the note after my visit to the city 2yrs ago (Smart Cities - Smart People), the fetish for Gold and Silk remains unabated; though the usage of imitation continues to rise.
The problem of obesity seems to be rising much faster than I anticipated. It has almost reached epidemic proportion in my view.
A visit to the Mallavalli village in Bapulapadu block of Krishna district, some 40miles from Vijaywada was quite revealing. I highlight three noteworthy trends.





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 Contest between 'knowledge' and 'belief'

Many communities in Andhra Pradesh, like in Tamil Nadu, traditionally considered marriage within close family auspicious. People were happy to marry their first cousins, uncles and aunts, etc. The primary idea, as I understand, was to not let the family wealth go out of the family and keep the land holdings intact.

However, disintegration of joint families defeated the primary purpose and the undesirable effects of this practice were exposed. Incest and significant genetic disorders were found to be two worst side effects of this widely prevalent practice. Thankfully, people have realized it and are now avoiding marrying in the close relationships.

I think, the Khap Panchayats in the northern states like Haryana, UP and Rajasthan, need to study this transition in Andhra society deeply and may be draw some lessons for their respective communities.

Turmeric, sandalwood and YouTube

Another interesting observation was how the youth is trying to stay connected to traditions with use of technology.

Applying turmeric and sandalwood paste to the bride and groom before marriage is an important ritual in most Indian marriage ceremonies.

In this ritual, the family members apply the antiseptic, antifungal, and antibacterial paste made from freshly grounded turmeric and sandalwood to the bride and groom, followed by a bath with milk, curd and holy water.

The idea is to (a) cure any skin infection the couple might be carrying; and (b) protect the couple from any infection that they might contract meeting with so many strangers during marriage ceremony.

Traditionally, the women of the family, neighborhood and relations, would sing folk songs (a medley of devotional, emotional and naughty songs) while these rituals are being performed. These songs have been traditionally treated as integral part of the ceremony.

In recent years, it has been observed that like many other traditional things, the knowledge of these songs and method performing the ritual has diminished considerably.

In this particular marriage, the young family members decided to take help of technologies and used the folk song videos available on YouTube to perform the rituals.

I must confess, it actually did go very well!
We can debate endlessly, whether culture can survive purely in digital mode, without human touch and efforts. But for now the irrefutable fact is that a part of our culture that is facing extinction has been put on a very effective and inexpensive life support system.

My view is that the digitization of the traditional knowledge and practices shall keep this treasure alive and relevant much longer than earlier anticipated.

The downside is that the digital repertoire of culture is egalitarian and susceptible to manipulation and distortion by the ill-informed, unscrupulous and malevolent.

"Knowledge" vs. "Belief"

It is going to be a keen contest between "knowledge" and "belief".

The digitally preserved traditional knowledge can only connect people to their legacy. It cannot make them believe in the relevance of their legacy to their current context. For that, consistent improvisation and practice would be needed.

After all, you cannot become a professional doctor or engineer just by watching tutorials on YouTube or reading the course books. It takes much more than that.

It would be interesting to watch, how our Generation X strikes a balance and wins this contest.

On a side note, on this trip I realized that Internet is more like Indian ethos. All have an opportunity to seek knowledge and express it in their own way. Followers have complete liberty to choose what they want to follow.

For example, I recently found that there are more than 500 YouTube videos uploaded by Indians strongly prescribing "to eat" and "not eat" garlic.

Watching these videos does not help anyone.

It actually compounds the confusion and indecision.

We would eventually have to find someone (a guru, an elder, or a doctor) who would show you a clear precise path and convince us to tread that path.

Without such guidance, we shall remain travelers to nowhere — always on the move; always in a rush; always busy, doing nothing, going nowhere.
TDP set to get another chance in 2019

The politics in Andhra Pradesh is multi polar.

TDP led by N. Chandra Babu Naidu (NCBN) is the ruling and presently dominant party. TDP contested last elections with BJP as NDA constituent, but has separated since.

YSR Congress led by Y. S. Jaganmohan Reddy is the primary challenger to TDP's dominance.

TRS led by K. Chandrashekar Rao, which rules the neighboring Telangana, is trying to make some inroads but remains mostly on the fringe.

INC led by Rahul Gandhi has been marginalized after the accidental death of its tall leader Y. S. Rajasekhara Reddy (YSR) in 2009 and subsequent departure of his son Jaganmohan. No one is talking about revival of the fortunes of INC in the states at present. It may however choose to partner YSR Congress to stay alive in the state.

BJP has always been present in the state on the sidelines. It did manage to do well only when it contested elections in alliance with TDP. This time the chances of that happening are extremely remote.

The general feeling amongst people is that NCBN has performed very badly on most parameters, in past four years. Nonetheless, he has been extremely successful in conveying this message to masses that the total responsibility for his underperformance lies with the central government, which failed to keep its promise of special status to the state and provide adequate funds for development of industrial and social infrastructure in the state.

The people are therefore willing to give him another chance and punish BJP for reneging on its promises and betraying the people of Andhra Pradesh.

Dynasty is accepted and respected

In Andhra Politics, like many other states, dynasty in politics is totally accepted and respected. Unlike the national narrative, no one likes to discuss fall outs of dynastic politics in the state.

NCBN is 68yr old and has many more years in the active politics. But people have started discussing the succession issues at TDP. Most people I spoke to do not consider NCBN's son, N. Lokesh, a minister in Andhra Pradesh Government, to be a worthy successor to NCBN.

Lokesh's wife, granddaughter of NTR, is widely seen as a worthy successor to NCBN.
Focusing on weaknesses, ignoring strengths

Economically, little seems to have changed in two years. (see here).

As highlighted in my cited note, the state government continues to ignore the key strengths of the state to focus on the weaknesses, especially the growth of industrial base.

The construction of the capital city Amravati is progressing at snail's pace. Shortage of funds is the common reason cited for the slow progress.

But there is a sizable section of people who believe that Amravati is being delayed to showcase the Center's apathy towards state, while other cities like Vizag, Vijaywada, Guntur, Tirupati, Eluru etc. are expanding fast.

Unfortunately, in this mindless expansion, no lessons seem to have been learned from the plight of cities like Delhi, Gurgaon, Mumbai, Bengaluru, etc.

We covered the 2km distance from our hotel to the marriage venue in approximately 50mintues. Vijaywada is fast catching up with Bengaluru in terms of traffic, pollution, cacophony, and concretization. The situation may only worsen once the administration fully shifts to Amravati.

A large number of farmers in the area have taken up palm oil farming. Many mango orchards have been converted into palm oil plantations. The yield per acre of palm oil plantation is apparently 2x to 3x that of a mango orchard or paddy field

A mega food park and an industrial park is coming up in Mallavalli area. Reportedly the land was acquired and given to the industrial units for free in 2017. However, so far no production unit has come up in the area. Lack of water is cited as the primary reason for this.

The commercial vehicle maker Ashok Leyland has started the construction of its body building unit here recently.

Completion of these two projects can add materially to the local economy.

The land prices in the area are running around Rs2.5 to 3million per acre. Considering the best net yield of palm oil plantation of Rs80,000/acre, agriculture remains mostly an unviable business, like many other states.

Cash is still the most favored mode of transacting. Almost all people I met were carrying significant amount of cash in their shirt's pocket.

Telgu vs. Punjabi

Andhra Pradesh is a privileged child of nature, much like Punjab. It has one of the most fertile lands, plentiful water, adequate sunshine and rains, long coastline, and industrious people. Except perhaps for the Anantpur district, which is drought prone, the rest of the state is well endowed by the nature.

In Punjab, this endowment of nature made the people complacent.

Assured of two good crops, farmers freely indulged into alcohol and narcotics and lost the hunger for growth. The youth who were ambitious and failed to relate with the parents' complacency started to look for greener pastures outside since 1970s. A long phase of militancy in 1980s further intensified the desire for migrating to Europe and Americas. In past two decades, the passion has degenerated into obsession, causing widespread problems like drug addiction and depression amongst youth.

One can draw many similarities with Andhra society.

Migrating to foreign lands is a passion for youth, gradually transforming into an obsession. Alcoholism is widely prevalent and rising. Gambling is becoming a favorite past time with increasing number of people, as they grow complacent about their farm income.

The differences with Punjab are few but stark.

In Andhra, parents are equally eager to send their wards abroad for study and work, whereas in Punjab parents are generally found to be reluctant.

The immigrants from Andhra are mostly highly educated professionals, or wards of rich people going abroad for studies. In case of Punjab, it was mostly laborers and drivers.

Punjabi immigrants did not invest much in Punjab, once they got settled in foreign lands. The idea of returning was mostly absent in their minds; whereas Andhra immigrants are investing in their home state. The idea of coming back is always on top of their mind, though they may never actually do that.

I feel, we need to closely watch these trends over next many years. Any convergence with the trends in Punjab should ring alarm bells in Andhra Society and administration.

 

Tuesday, August 21, 2018

Economic and market review - Concluding part

Thought for the day
"If I asked for a cup of coffee, someone would search for the double meaning."
—Mae West (American, 1893-1980)
Word for the day
Prima facie (adv)
At first appearance; at first view, before investigation
Malice towards none
There are two kinds of ecommerce ventures in India - (a) which can get sold to a global giant like Amazon; and (b) which may eventually shut down.
 
First random thought this morning
There is a race to appropriate the social and economic achievements made during past two decades. In particular, the finance ministers from UPA-2 and NDA-2 are at loggerheads over the statistical data about economic performance during 2004-14 and 2014-18 respectively.
In their rather naive sounding arguments, two things stand out conspicuously:
(a)   No one is willing to accept responsibility for the failures and inadequacies; and
(b)   All politicians continue to presume that they can fool all the people all the time.

Economic and market review - Concluding part

Besides the macro improvement and equity valuations, another thing that is conspicuously peaking is the allocation to equity in overall asset allocation.
After rising sharply after the demonetization exercise in late 2016, the growth in mutual fund's asset under management (AUM) has moderated in past few months. Moreover, the allocation to equity fund is at highest in more than a decade and debt allocations have fallen materially. Cash allocation as at the end of FY18 was also lowest in three years.


 




Read with the following other trends in the holding structure of Indian equities, the signals that we get are mostly pointing towards the risk that the markets may be ripe for a meaningful correction.
It may however be pertinent to note that historically (e.g., October 1999- February 2000 and July 2007 - January 2008) such situations have prevailed frustratingly longer.
Regardless, in my view if one is convinced that the risk reward proposition in equity investing is skewed more towards risk, it is always better to take an early position. Because, invariably the market moves at the peak and bottom are very sharp and difficult to participate if someone is not already positioned for such an event. This applies to both the traders and investors, alike.
  • Global flows into equity and debt instruments. As per a CITI Bank report YTD there’s been $96bn (0.5% of AUM) inflows into equity funds globally and $93bn (1.4% of AUM) into bond funds, according to EPFR. That’s a meaningful slowdown from the record inflows in 2017. Moreover, within equity funds, there are some early signs of a rotation towards the US equity funds at the expense of the rest of the world.
  • EM equities have seen $18bn outflows in the last three months. However, 12m rolling flows are still positive ($80bn). Further outflows would be a headwind for EM equities performance which is the most sensitive to fund flows.




  • In the context of India, the share of FPIs in Indian equities (BSE500 companies), has fallen to ~20%, lowest in 3yrs. The share of DIIs and retail in Indian equities has crossed 20%, and is marginally higher than FPIs.
  • The promoters' holding though has inched closer to 50% (49.75%), despite persistent selling by the government.


 
  • Domestic institutions have remained net buyers in the markets with almost US$9bn YTD inflows, offsetting much of the FPIs' selling.
  • Fresh equity issuances have also moderated in June quarter.



Net subscription into mutual funds has significantly moderated in 2018. However, SIP flows have remained strong so far.


Conclusion
(a)   The improvement in macroeconomic conditions in India that started from 2QFY14, has mostly peaked and many parameters like CAD, inflation, rates, forex reserve, INRUSD have started to worsen. Even Fiscal deficit improvement is showing signs of peaking, as GST collections are failing to pickup.
(b)   Most economists have moderated their FY19 GDP growth rates to 7.2-7.4% from earlier 7.4% to 7.6%. FY20 growth estimates are also not very encouraging at present. Widespread floods and drought conditions further cloud the growth outlook.
(c)    Global growth is peaking. US, EU and China are forecast to witness growth moderation in 2019. The risks to the growth are more on the downside as threats of escalation of trade war, no deal Brexit, Turkey and Italy fiscal worsening hang over global financial markets.
(d)   The credit profile of Indian household is worsening with rising debt and stagnant real income. This may make the slowdown in savings rate witnessed over past decade or so, a structural change. This may therefore increase the cost of funding for both the government and corporate borrower on structural basis.
(e)    Indian equity markets have substantially outperformed their EM peers despite real earnings remaining almost flat since 2010, making us the most expensive market in Asia. On most parameters, Indian equity market valuations seem unsustainably high.
(f)    Most signals are mostly pointing towards the risk that the markets may be ripe for a meaningful correction. However, historically, (e.g., October 1999- February 2000 and July 2007 - January 2008) such situations have prevailed frustratingly longer.
Also read Economic and market review