Some food for thought
"If I can't have too many truffles, I'll do without
truffles."
–Sidonie Gabrielle Colette (French Novelist, 1873-1954)
Word for the day
Synecdoche (n)
A figure of speech in which a part is used for the whole or the
whole for a part, the special for the general or the general for the special.
Example: ten sail for ten ships or a Croesus for a rich
man.
First thought this morning
As expected (see
here) the Congress president, Rahul Gandhi has finally mainstreamed the idea
of Universal Basic Income. The idea had been in air for past few years, but no
national party had committed to it in as many words.
As per some unconfirmed media reports, the former RBI governor
Raghuram Rajan may be guiding the Congress Party in formulation of its
socio-economic agenda. If true, the assertion of Mr. Gandhi may not be an empty
bubble. It may have at least some economic thinking behind it.
Publically, the BJP leaders (top and sundry) may have chosen to
ridicule the idea thrown by Rahul Gandhi. Nonetheless, they must be worried.
Rahul Gandhi is beating them on their own game almost every day.
It was well anticipated that PM Modi shall announce a draft
Minimum Income Scheme before the code f conduct for forthcoming Lok Sabha
elections kicks in.
By announcing this Rahul Gandhi has foxed BJP. If they announce
the scheme, Rahul Gandhi, Mamata Banerjee and Naveen Patnaik et al would claim
credit for it, saying that they forced PM to announce this. If BJP decides to
follow its fiscal dreams and does not do this, it would be risking some more
popularity points for the PM.
Interesting to note, as per the recent popularity survey aired
on India Today TV, Rahul Gandhi has already reduced the 55% gap with PM's
popularity to just 15% in past few months.
Ruling parties in West Bengal and Odisha had already made their
intention public to implement such a scheme on lines with the scheme running in
Telangana. These are incidentally the only two big states where Congress is
trying hard to save its status of principal opposition from BJP.
Chart of Day
10years of poor corporate profitability
Last week couple of domestic brokerages printed interesting
reports highlighting how the ratio of corporate profit to India's GDP has
fallen sharply in past decade, contrary to the trend seen in US for example.
The report published by Motilal Oswal says, "India’s
corporate profit to GDP ratio dropped from 7.8% to 3% over 2008-18. For the
Nifty-500 universe, the ratio has declined from 5.5% to 2.8% – a-15 year low –
over the same period."
The report adds, "The corporate profit to GDP ratio doubled
from 2.8% to 5.5% over 2003-08, with Nifty-500 profits growing at a substantial
31%, 2x the pace of underlying GDP growth (CAGR of 14.5%). This surge was driven
by the export-, investment- and capex-oriented sectors. Over 2003-08, the
global economy was growing at a faster clip, helping the export-oriented
players. Capacity investment across sectors was also significant as investment
cycle took off." Whereas, "Over the last decade, the corporate
earnings distress in India has translated into corrosion in the Nifty-500
profit/GDP ratio from 5.5% to 2.8%."
Analyzing the relative share of various business groups in
corporate profit, the report notes that while the share of foreign firms has
mostly remained stagnate for past 15years, the contribution of public sector
has fallen by over 75% (from 1.8% to 0.4% of GDP). The share of Indian private
businesses has accordingly growth materially (from 0.8% to 2.2% of GDP).
As per a report published by Emkay Research, Corporate profits-to-GDP has declined for India
despite being the fastest-growing economy, while the US has seen a rise. The
analyst concludes that weak profitability for Indian companies reflects low
productivity
Like in the story of "An Elephant and Six Blind Men",
everyone may try to interpret this data from their own viewpoint.
For example, Motilal Oswal analysts are assuming that from a
15year low, the corporate profit share in GDP must bounce back, hence it may a
once in many decade opportunity to make super normal profits for stock
investors; whereas, Emkay Research analysts are circumspect. they believe that
"asset turns and balance sheet
deleveraging are still to reach an inflection point before the virtual cycle
starts to unfold".
Being one of the Blind Men in the game, I too have some views on
this, that I shall share with readers first thing tomorrow morning.