Is it TINA alone?

Thought for the day

"Women thrive on novelty and are easy meat for the commerce of fashion. Men prefer old pipes and torn jackets.'

‑ Anthony Burgess (English, 1917-1993)

Word for the day

Shrive (v)

To grant absolution to (a penitent).

To impose penance on (a sinner).

Malice towards none

The award for Best Global Jumlebaaz goes to— PM Narendra Modi!

ohhh... sorry...sorry

it goes to- President  Donald Trump!

First random thought this morning

From 10k feet above, the entire unrest in DU appears to be part of a desperate strategy of CPI (M) to regain some relevance in Indian politics.

Unfortunately for them, they could only motivate some anti BJP voices. No support for communists agenda.

The meddling by Congress in the matter shall only further erode the already diminished support base of the party

AAP could be an unintended beneficiary here.

Is it TINA alone?

A deeper analysis of the current behavior of Indian stock market would need to examine at least two factors:

(a)   How much is the role of TINA (There Is No Alternative) in the rise in inflows into the Indian equities?

In past three years we have seen marked acceleration in the domestic flows into the Indian equities. More importantly, the rise in flows has been accompanied by the acceleration in the institutionalization of the investment process.

A much higher proportion of flows is now coming through regulated institutional investors like mutual funds, portfolio managers, pension schemes, etc. Thus is quite unlike the past instances when the investors preferred to invest themselves.

Even more importantly, a significant part of the fresh flow appear to be committed for longer term. Steady rise in SIP (Systematic Investment Plan) and pension fund contributions indicates towards this trend.

Given the longer term nature of inflows, the investment managers are in a better position to take investment calls on relatively smaller and midsized companies where the business cycle are more volatile & comparatively untested, but growth potential is significantly higher as compared to the larger stable businesses. The market breadth therefore is deeper and broader this time.

It is worth examining whether this higher allocation to the equity and related instruments, marks a structural change in the behavior of Indian household investors, or it is just due to TINA factor, as real estate is in bad shape, informal credit market is in shambles, deposit rates have fallen, tax arbitrage for equity has widened, and gold has become very volatile and unpredictable.

Insofar as the global investors are concerned, a rally in developed markets did prompt a move towards these markets from emerging markets. However, given the remarkable stability of Indian rupee , resilient growth, improving macro, and relatively well regulated market, they have remained overweight on India.

It is worth examining, how would they react if RBI does let INR slip to 70-71/$ level, as has been suggested by many experts.

(b)   Indian equities are not cheap by any standard. Relative to their developed market peers these may appear fairly valued, but not 'cheap'. The case for re-rating of Indian equities needs to be examined carefully.

Is the macro stability enough reason for re-rating; or we need to see improvement in earnings' outlook also?

In my view, if TINA is amongst the key factors driving equity prices, a great deal of caution is needed. I do not see any case for sustainable re-rating of Indian equities as yet.

This time it's different

Thought for the day

"He said it was artificial respiration, but now I find I am to have his child.'

‑ Anthony Burgess (English, 1917-1993)

Word for the day

Scapegrace (n)

A complete rogue or rascal; a habitually unscrupulous person; scamp.

Malice towards none

Next time the Supreme Court hears the BCCI case, it must keep in mind the case of CBCF (popularly known as the censor board).

The people from the trade are not always the best regulators.

First random thought this morning

At the end of the battle of Kurukshetra, the victorious Pandava brothers argued amongst themselves as to who should get the credit for their victory.

Krishna suggested that Barbarika's (Bhima grandson also worshiped as Khatu Shaym ji) head, which had watched the whole battle from a hilltop should be allowed to judge.

Barbarika's head suggested that it was Krishna alone who was responsible for the victory. Barbarika replies, “All I could see were two things. One, a divine chakra spinning all around the battle field, killing all those soldiers. The other was Goddess Mahakali, who spread out her tongue on the battle field and consumed all the sinners as her sacrifice".

And some, who claim to be saviors of Hindu Dharma, and great devotees of Krishna and Kali, still insist Pakistan killed Gurmehar's father.

This time it's different

My recent interactions with investors and businesspersons have convinced me that the current market up move is distinct in some sense.

Historically, most bull markets have been driven by high hopes and fueled by greed of investors. Asset prices correct sharply as hopes are belied and fear overtakes the greed.

But in the current instance, I do not see much hope in the air. The usual euphoria that is usually seen with broader market indices at all time high, is conspicuous by its absence.

Greed and fear more or less are in balance.

But still prices are moving higher!!!

The move to replace 86% of country's currency in a single swap; a strong drive by taxation authorities to enforce compliance has confounded the small and medium sized businesses. Their entire business model that was based on poor tax compliance, lack of transparency, and informal financing stands challenged. Imminent implementation of GST also adds to the uncertainty for them. Outlook for both private consumption and investment therefore remains clouded.

Severe correction and illiquidity in real estate market has eroded the wealth effect by a good measure.

Despite bumper crops across North Indian planes, the farmers do not appear enthusiastic, as crop prices have plummeted. The specter of El Nino, that impacted monsoon for two consecutive years, reappearing in late summer this year is also looming large on their psyche.

Financial sector is still struggling with humongous burden of non-performing assets. Though, the rate of accretion has slowed down notably in past couple of quarters, the recoveries of NPLs has not been encouraging by any measure.

To the contrary, new pockets of potential stress are emerging especially in power and telecom. The capacity utilizations remain low, and managements are not guiding any material pickup in next few quarters.

Bankers are also not sure about the repercussions of the shakeout in 'start-up" and "E-commerce" space. Lenders' direct exposure to these sectors may not be large, but personal credit to the employees who would lose their jobs could potentially bring some pain.

RBI has already indicated that the monetary easing cycle may be over for the time being. In fact, there are some voices already making a case for tightening of monetary policy, as higher global commodity prices, a stronger USD (as Fed hikes), and likely rebound in agri inflation, could raise inflationary expectations.

The macro advantage in terms of control over twin deficits and inflation could therefore also wane to some degree later this year.

The rally in stocks prices needs to be analyzed in light of these constraints.

....to continue

A visit down memory lane

Thought for the day

"Violence among young people is an aspect of their desire to create. They don't know how to use their energy creatively so they do the opposite and destroy.'

‑ Anthony Burgess (English, 1917-1993)

Word for the day

Meritorious (adj)

Deserving praise, reward, esteem, etc.; praiseworthy.

Malice towards none

An equity analyst's comment on La La Land's performance at Oscars - "Results below expectation, all positives priced. Downgrade to Hold."

 

First random thought this morning

The latest round of elections is drawing to close. In next two weeks we would know the broad winners and losers. The local body elections in this round have mostly gone in favor of BJP. A win for BJP in UP will decimate the Congress Party, and we may see a fresh round of desertions. Whereas a win for SP-Cong alliance will keep it alive, though still on life support system.

in the meanwhile the side shows (Punjab, Uttrakhand, Goa and Manipur) may throw burst some firecrackers, the smoke of which will last for few weeks.

In the meanwhile an AAP senior leader claimed that they are in driver's seat in Punjab and Congress is coming third!!!

A visit down memory lane

Global equity markets have been largely buoyant for past five months. They look distinctly tired now.

There are more words of caution than encouragement for traders and investors alike. To the trend followers this hint of fear is the only supporting factor for staying fully invested in the market. Otherwise, it is hard to find much rationale for sustainability of current market levels.

To the contrary, there are enough indications suggesting that the markets will have strong reasons to correct sharply in the coming months.

I say this for both domestic as well as global markets.

A quick recap of events since July 2007 will show that the global markets have corrected sharply at least on four occasions. The triggers were collapse of a large bank (Lehman Bros), fiscal crisis in some peripheral European economies (Portugal, Ireland, and Greece), debt ceiling crisis in US and CNY devaluation by China.

Though, the "whatever it takes" approach adopted by central banks in US, Europe, and Japan since 2010 provides comfort that the financial markets may not freeze this time, unlike 2008-09, it is evident that the central bankers might have already spent all arrows in their quivers. Moreover, none of them appears keen to continue with the non-conventional monetary policies in vogue since 2010.

So a less negative outcome of crisis is all that is assured. But there is little positive in the air.

We dreaded Grexit. But we already have Brexit.

With IMF and ECB crutches, Greece looks only a shade better than 2011. The situation can revert to pre bailout position in no time.

We were jittery when CNY was devalued last year. Since then CNY has been depreciating. Formal announcement of Trade War with US, may prompt PoBC to devalue it more, rather dramatically.

We are at the threshold of another debt ceiling debate. March 15 is the date when the previous relaxation expires.

We dreaded a Trump victory, fully aware that an American president is far less powerful than popularly believed. US as a society is least nationalist. But that is certainly not true for Germany and France. Imagine a German Trump and/or French Trump and/or Italian Trump, at a time when UK formally begins to withdraw from the common European market.

On domestic front, the incumbent government shall complete 3years in May. From October onwards, we enter a critical election phase (Gujarat, MP, Chhattisgarh) that will last till next general election.

All said and done, there is little sign of industrial recovery on the ground. The specter of El Nino revival is already looming large on the horizon. Services, especially construction, are showing no sign of pick up, despite elections and higher budgetary allocation.

So what may keep market higher.....to continue tomorrow

In rush for gold, don't leave the family behind

Thought for the day

"Only on the edge of the grave can man conclude anything."

—Henry Adams (American, 1838-1918)

Word for the day

Excoriate (v)

To denounce or berate severely; flay verbally:

to strip off or remove the skin from, e.g., Her palms were excoriated by the hard labor of shoveling.

Malice towards none

Recent newspaper reports have frequently proclaimed that Yamuna is dead and Ganga is good only for walking on Ghats, and dangerous if you take a dip.

I did not see anyone's blood boiling over this.

Neither self claimed protectors of Hindu interests; nor the custodians of Ganga-Yamuni tehjeeb; nor any politician; and nor those NGOs who have gulped billions in the name of cleaning the two rivers.

First random thought this morning

Nowadays everything happening or not happening is seen as a referendum on PM Modi.

The AIDMK crisis in Tamil Nadu, Assembly elections in various states, Municipal elections in Maharashtra, tax collection under various disclosure schemes, economic growth, farmers' suicide, employment generation, etc. etc. - for everything PM Modi is directly accountable and responsible. So much so that the incumbent chief minister of UP is accusing PM of not creating enough jobs in his state.

At first it seems ridiculous. How a single person could be held accountable for all things happening (or not happening) in a country of India's size. But then you realize, it's actually his doing. He centralized everything to PMO and started proclaiming "I did that" and "I did this".

In rush for gold, don't leave the family behind

In past few days, I have written about my views about the problems with the current development paradigm of the country. Some readers have objected to my views, as being overly cynical. Some have gone to the extent of terming my views nearly Maoist. I do not want to waste my time and energy in offering them any clarification or justification.

I may however make it very clear that I firmly and unconditionally believe in free markets. I strongly oppose the crony socialism as well crony capitalism.

The point I have tried to raise in my recent posts is that the quasi colonial model of development, that our successive governments have adopted, is not desirable. Considering the diversity of our country, and character of our democracy, we need to follow a participative model of development, where the local communities are made equal partner in the process of development. The focus of development should be people and not markets.

I may cite two simple examples (there are 100 others) to elucidate my point.

(1)   Most of the highways in the country appear to have been planned without consulting the people whose life shall be affected by these highways. They are just informed about the decision taken by government authorities. These people are also not engaged in the construction process.

I am not getting into the question of land acquisition here.

The highway planning is totally market oriented. It mostly ignores people. The authorities plan how much people will gain from highways in terms of better market access. But they seldom consider that highway will not only take the produce and people out of one place. It also will bring in people and goods from outside. And this inflow of people and goods could affect the life of people tremendously, through immense social, economic and cultural impact. In many cases to the extent of trauma.

(2)   A few months ago, reports suggested (see here) that Niti Ayog has made a strategy to win 50 medals in 2024 Olympics.

A government obsessing so much about Olympic medal sounds inappropriate (for lack of a proper word) to me. In my view, the government should focus on the integrated growth policy for the country's children. This policy should, inter alia, deal with issues like basic education, health, character building, vocational skill & training and building advanced infrastructure for promoting excellence in various fields. It must be ensured that all children engage in some physical activities to stay healthy and develop good habits like team spirit, punctuality and discipline. If some child has the ability he/she will compete and win medals. But this cannot be a policy objective.

The government has three ministries - Sports and Youth Affairs (implying that sports is only for youth); Child and women welfare (implying child is responsibility of only mother and has nothing to do with sports); and HRD (implying sports has nothing to do with human resource development). This explains the point I am trying to make.

This highway - my way

Thought for the day

"Politics, as a practice, whatever its professions, has always been the systematic organization of hatreds."

—Henry Adams (American, 1838-1918)

Word for the day

Craquelure (n)

A network of fine cracks or crackles on the surface of a painting, caused chiefly by shrinkage of paint film or varnish.

Malice towards none

Sasikala seeks transfer to Chennai jail, so that she can run the state government more efficiently.

First random thought this morning

The so called intellectual commentary on the standards of political debate and the narrative of public discourse set by prominent political personalities is amusing.

The regular faces on TV, preposterously claiming to be intelligentsia and rightful custodians of the interests of the billion plus people of this country, are telling us that this degeneration is unprecedented.

Nothing could be far from truth. I can vouch from personal experience that in past three decades, the standard of political debate in India has consistently remained abased. In fact, I like that. Because that assures me that our democracy is functional. Our politicians do actually come from the common populace; they reflect their mindset; and speak their language.

This highway - my way

The young chief minister of Uttar Pradesh has been proudly boasting constructing a super highway in record time. The union minister responsible for highways also loves project his superlative performance in construction of new highways.

I would like to invite both of them to come on a drive with me on highways of Uttar Pradesh, for a reality check.

I had earlier written about the chaotic driving experience on the famous Yamuna Expressway a few years ago.

Trust me nothing has changed in all these years. In fact conditions have worsened materially.

In past couple of months, I have been frequently driving on NH-24, NH-74 and NH125 (all parts of Asian Highway (AH) - 2) in western Uttar Pradesh. I did also drive on the much acclaimed Agra - Lucknow expressway.

These highways have been developed with the objective of accelerating the growth of the country, besides metamorphosing the lives of people living alongside.

Unfortunately, none of the potential beneficiary seems to have been engaged in the whole development process. For them it's like journey to space without any training or preparation. Someone just came to them one fine morning and told them Sir, you are flying to space in two hours from now!

The people living and working alongside highways lack any kind of training. They drive on the wrong side. They ride their horse carts, bullock carts, bicycles, tractor trolleys ominously overloaded with sugarcane, wheat hay, bricks and cattle, & people right in the middle of the highways; and often coming from the wrong side. Wearing headgear for motor cycle riders is a matter of great insult. Audaciously ignoring all requests for 'right of way' by other user of the road is their swagger.

This way they considerably slowdown the traffic, besides endangering the lives of many. No surprises that the accident rate is quite high, and rate of fatalities in the accidents even higher.

High rate of people and animal fatalities on highways has also raised doubts in the minds of many people, about the utility and desirability of highways.

Another striking feature of expressway planning is the total lack of planning at the port of landing. For example, one engineer working at Agra - Lucknow highway told me that the highway is projected to take over 5000 additional passenger vehicles (mostly cars) to Lucknow from delhi, Agra, Mainpuri, Unnao etc. There is virtually no preparation in Lucknow to receive so many additional vehicles and people. No parking. No additional hotel rooms. No public conveniences. Nothing.

This is true for all the towns along side highway, that are expected to get materially higher number of vehicles and people. No one seems to have learned from the chaos in Agra, Mathura and Vrindavan caused due to increased numbers of cars arriving after opening of Yamuna expressway.

...to continue

Could we see a USD100bn Desi food gaint?

Thought for the day

"He too serves a certain purpose who only stands and cheers."

—Henry Adams (American, 1838-1918)

Word for the day

Fress (v)

To eat or snack, especially often or in large quantities.

Malice towards none

The second season of Yadav Family drama in UP will start after Holi. Regardless of the election results.

First random thought this morning

Potato farmers in UP and Punjab are in deep distress. The standing wheat crop promises to further escalate the problem, as prices are likely to fall post harvest. Pulses are now trading below MSP in many states. The pressure to allow import of duty free sugar to overcome the shortfall in production to poor cane crop in southern India, may curtail the honeymoon of sugarcane farmers also. On top of all this, some international agencies are predicting revival of El Nino later in the summer of 2017.

Hope of any remarkable recovery in rural spending might remain elusive, for now at least.

Could we see a USD100bn Desi food gaint?

Many national newspapers prominently reported yesterday that local sweet and snacks maker Haldiram’s revenues crossed Rs 4,000 crore in FY16. The Indian snack major is now twice the size of Hindustan Unilever's packaged food division or Nestle Maggi and larger than the India turnover of the two American fast food rivals Domino’s and McDonald’s put together.

To me it's like if my daughter scores 95% in her 12th board examination. I would not know whether to celebrate or rue her performance. For, she would do extremely well relative to all her past performances; outperforming my achievement by full 50%. But unfortunately, she would not get admission to any of the reputed colleges!

I admit that indubitably it is no mean feat. But, In a country inhabited by millions of connoisseurs, Haldiram took 80yrs to come into the reckoning. It may take another 50 to match the global scale of its global peers.

Moreover, given that this rising sun sells sweets and fried snacks in the diabetes capital of the world (akin to someone selling combs in the city of bald), some doubts about the sustainability and desirability of its growth are natural.

The question is how we create a $100bn food giant, befitting our country's rich culture, tradition and knowledge of culinary science?

In my view, it is entirely possible. The first step would be to get past the family prides and ego, and work towards consolidation of large 15-20 regional players with the national players like Haldiram, Bikanerwala etc. The second step would be to move focus from mostly celebratory products to day to day healthy regional food served in a convenient packing (easy to carry and eat). Third, step would be to address the mass market at lowest possible price point. Healthy, affordable, convenient food that matches the local taste and preferences could make the combined entity a global player in two decades, in my view.

But that is not the point here.

The point I trying to raise is that 'Food' is one of the greatest strengths of Indian economy.

The ready to eat food business employs many more workers than the textile, leather, gems and jewellery put together. But I have not heard any government incentive, scheme, program to promote this business. (I am rejecting the Shiv Sena's "Shiv Vadapav" scheme in Mumbai as poor political gimmick and Amma canteen in TN as nationalization of food business).

On the contrary, restaurants are frequently subjected to excessive taxation and street food vendors are victimized by municipal authorities.

Also, I observe that this segment is mostly ignored in the missions like Make in India, Skill India, Start up India etc.

Out of the list of priorities, this segment is saddled with many social and economic problems like child labor, food adulteration, poor hygiene standards etc.

As per NSSO report^[1] on the status of employment in India, "he population in the age group 15-59 years, which is considered to be economically active, comprised about 60 per cent of males and 61 per cent of females in rural areas and about 66 per cent each of males and females in urban areas."

However, only about 40 per cent of population participated in the labor force, meaning offered themselves for work. Participation was significantly lower for females than for males in both rural and urban areas.

A large majority (52%) of the workers are engaged in self-employment. Moreover, about one third of workers were under casual labour category. Only 18% were found to be regular salary/wage earners. The share of casual labour in the total workforce of rural areas was about 35 per cent as against the corresponding share of 15 per cent in the urban areas.

This in my view is an alarming situation. Most of the self employed people are either underemployed or employed in disguise, both in urban and rural area. A stroll across the street or any market area would show you a large number of youth pretending to engage in petty jobs as laborer and hawker etc., who work and earn much lower than potential.

All those who vehemently opposed the FDI in multibrand retail trade in the Parliament a few years back, need to go an ask a person who runs a 24*7 daily neighborhood Khomcha, how much he earns after working 17-18hrs a day.

My experience suggests it is much lower than what a counter boy at Big Bazaar earns, in a 10hr shift, in a dignified, secure, and air conditioned environment with no investment risk and without any botheration about the municipal raids.

I have met many fruit and vegetable hawkers in past five years in connection with my NGO work. More than one quarter of them cannot afford to send their kids to even government schools who do not charge any fee, and provide books, uniform and mid day meal for free.

Moreover, overall 49% of all participating workers were engaged in agriculture activities. For female workers the ratio was substantially higher at 63%. A large majority of these workers are self employed with no financial or social security. These are also unemployed or underemployed for a large part of the year.

To harness the potential of Indian youth demographics, it is therefore essential that an integrated approach is adopted to increase employability, employment and productivity level.

Political bickering or prejudices notwithstanding, a serious relook is needed on issues like land reforms, labor mobility, labor laws, skill development, gender equality, integrated rural development, cottage industry, MSME sector, technology innovation and business facilitation.

The incumbent government has made many positive statements in this regard. I hope to see implementation of these ideas in next few years.

---

[1]68th Round Survey (June 2011-June 2012) published in June 2013.