Do it yourself

Wednesday, September 3, 2014

Why bother about things you can't help

Thought for the day

” Let the one among you who is without sin be the first to cast a stone. "

- Jesus Christ

Word for the day

Cavil (int. verb)

To raise trivial objections; also, a trivial objection

(Source: Dictionary.com)

Teaser for the day

If religion of Sanskrit is Hindu, what is the religion of English, Urdu, Tamil, Bangla, Malyalam, Sindhi, Gujarati, Marathi, Punjabi, French, German....?

Why bother about things you can't help

I am fortunate to have critics who are most charitable in their criticism. For past two weeks especially they are leaving nothing to imagination., Some of them have even picked up selective Punjabi expletives to express their frustration with me.

Their main objection is to my nonchalance to seemingly exciting events and data, e.g., Ukraine, Pakistan, Gaza, ECB stimulus, Fed tightening, etc. My point is that anything which can be clearly seen by the last person standing on the street (that is me) is not worth bothering about. So is not which even the likes of Yellen and Draghi cannot see.

I like to factor in my strategy all that is known and/or expected, whether quantifiable or not, and keep enough flexibility to accommodate any black swan that may chose to visit unannounced. This saves me from reacting to every news headline or getting excited over every hint of trouble.

I understand it is unfair to use this column to take on my critics, but who said life is fair!

Now coming back to normal business, I have been emphasizing that the Indian economy may not sustainably return to the path of high growth (8%+), in next 5years unless the virtuous cycle of "higher income - saving - consumption - investment - income" gets kick started. So far we have not seen any evidence of this happening.

The upward revision in growth estimates so far is coming from expectation of faster execution and administrative efficiencies. New investments are not on the horizon of analysts and economists so far.

The corporate profit growth in past couple of quarters is also mostly driven by cost efficiencies and better export demand. There is no evidence of pricing power returning to producers or material rise in consumer demand.

In my (over) simplistic assessment the following pieces need to fall in place before the virtuous growth cycle led by investment and credit is kicked in.

(a) More money needs to flow in the hands of consumers so that consumption demand and household savings could grow at faster rate.

(b) Credit worthiness of enterprise engaged in high gestation capital intensive infrastructure projects needs to improve.

(d) Enabling industrial, fiscal and sustainability policy environment needs to be firmly put in place.

(e) Monetary policy needs to ensure that the foreign flows are not used to feed asset price bubble like during 1991-1995 and 2003-2007 but are strictly channelized to built productive assets and social & physical infrastructure.

In next few days, I shall discuss these points in some more detail. All suggestions, comments and views (even with expletives) are welcome at vijaygaba.investrekk@gmail.com

Tuesday, September 2, 2014

Solve the puzzle

Thought for the day

”For if you love those who love you, what reward have you? Do not even the tax collectors do the same?"

- Jesus Christ

Word for the day

Bletting (n)

The ripening of fruit, especially of fruit stored until the desired degree of softness is attained.

(Source: Dictionary.com)

Teaser for the day

Pakistan gets its own AAP moment.

There are lesson for all - Anna, Quadri, Kejriwal, Imran, Manmohan, Sharif and Modi!

Solve the puzzle

In past couple days some market commentators and analysts have made seriously buoyant forecasts about Indian equity markets, almost disregarding the global unease about the bond and equity rallies in developed markets. It certainly feels good to hear calls for 10000 Nifty level in next 6-7months translating into 25% return from the current levels.

The latest trigger for the bulls is the GDP data for 1QFY15, which came at 5.7%, though not unexpectedly. As I suggested yesterday, the stream of latest data, including GDP data for 1QFY15 and PMI numbers for past 6months, support optimism about "worst is over". There is however little to suggest that the virtuous cycle of higher savings, investments, credit and consumption is likely to get kick started tomorrow morning.

I feel the latest GDP data needs to be seen in this context. Even a prima facie look at the CSO press release of 1QFY15 GDP data raises some questions. For example, consider the following:

(a) Good rabi crop is reflected in strong Agriculture growth. But this number is corroborated by private consumption which fell, continuing the trend of past many quarters.

(b) Strong growth in construction sector growth did not reflect in banking and real estate sector growth. From other data we know that infrastructure construction, especially roads, has not done well in that period.

(c) Government consumption expenditure rose, perhaps due to election related spending. However, considering that over 60% government spending is done on social sector, the decline in social sector growth is difficult to explain.

(d) Rise in investment also is not corroborated by decline in financing, banking and insurance sectors. The credit growth number for the corresponding period also do not confirm this.

(e) Gold might have contributed much to lower imports number. Oil import is also lower. Both these are not sustainable.

(f) Mining growth is purely due to lower base, as the coal and iron ore production data does not confirm this sharp rise.

(g) The shortages in power supply belie the spectacular rise in electricity and gas production.

(h) Rise in manufacturing and exports could be due to other economies doing well rather than Indian economy doing well. Lower consumption number confirms this.

I would like this puzzle to get resolved before changing my investment strategy from overweight consumption and exports to overweight investment and credit. For now I am sitting tight. I shall though look at rebalancing my portfolio this month to take care material outperformance in certain stocks.

Sunday, August 31, 2014

It's not UPA vs. NDA

Thought for the day

” Do not be anxious about tomorrow, for tomorrow will be anxious for itself. Let the day's own trouble be sufficient for the day."

- Jesus Christ

Word for the day

Osculate (v)

To kiss

(Source: Dictionary.com)

Teaser for the day

Hindu, Hindi, Indian, Bhartiya, Hinduness, Hindutava, Indianness, Bhartiyata - What is the debate actually?

It's not UPA vs. NDA

India GDP expanded 5.7% in 1QFY15, confirming the trend witnessed in past couple of quarters. This is highest rate of growth in nine quarters.

Though the long term growth trajectory, considered necessary for substantial investment in building additional capacities and generating sustainable employment is expected to remain stuck at 6% for at least 3 more years, it is comforting to note that the economy has perhaps already hit the rock. The trend from here most likely will be positive, though the trajectory may be flatter and speed may be slower than desired.

A notable feature of recent macro economic data is the continuity. The data has been consistent in degree and direction of growth for past many months. This suggests that (a) the bottoming of economy is firm and sustainable; and (b) it's not UPA vs. NDA or MMS vs. NaMo, it is rather about Indian economy, entrepreneurs, consumers and investors.

The new government has certainly enthused business and consumer confidence. The global investors are also certainly more positive about investing in India as compared to past 3-4years. But it may be due to a variety of factors. For example, (a) Indian economy is bottoming at a time when most peers like Brazil, Russia, Indonesia etc. are going downhill and China is stagnating; (b) India offers one of the best yields amongst non-junk rated sovereigns; (c) given that India has taken hard decisions on fiscal discipline, rates and inflation, amongst emerging markets it is widely seen as having best cushion against a recurrence of 2008 like collapse.

...to continue tomorrow

Thursday, August 28, 2014

No free rides

Thought for the day

” When you have got an elephant by the hind legs and he is trying to run away, it's best to let him run. "

- Abraham Lincoln (American, 1809-1865)

Word for the day

Rusticate (v)

To go to the country

(Source: Dictionary.com)

Teaser for the day

Is Modi relying too much on Japan? or Vice versa is also true?

No free rides

Yesterday I called 50people randomly selected from my phone book to ask "what if Google, Facebook, Wikipedia, WhatsApp, and Yahoo are not available from tomorrow morning?". The reactions were unusually but expectedly uniform. I could imagine that all of them had expression "are you mad?" and "Do ya even realize what're you talkin' 'bout?"

Not surprised, I followed this up with a supplementary "what is all these service providers start charging for their services?" Now the silence was deafening. The unease was palpable.

No one could deny the critical role these services play in our day to day life. The utility is unquestionable. But we are accustomed to enjoy these services for free. We have never planned paying for these.

I am sure that if I have to directly pay for these services, I will cut down the usage by at least 75%. The sense I got from the people I called, most of them will be very discrete in using these services.

I believe that this "for free" attitude of ours has introduced serious problems in Indian economy. Not only consumers, but investors and industrialist are also often seen on the lookout for freebies.

We all appreciate that serious economic inefficiencies have crept in the system due to schemes like tax Free zones, free food, free electricity, free water, free air, free mines, free tickets/passes, interest free, etc. These schemes invariably lead to misallocation of capital, regional imbalances, lower productivity, misuse, wastage, leakages and various forms of corruption.

The classic example is sudden rise in markets value of a company which announces a bonus issue of shares. Theoretically, a bonus issue causes no change in the intrinsic value of a company. In fact post bonus issue the company has enlarged equity base to service, which in some cases could be disadvantageous to shareholders.

The PPP model of infrastructure development in India also appears to be an outcome of this "For Free" seeking mindset. The projects are often undertaken under the model with 5:95 equity to debt ratio. It is popularly believed that some promoters even avoid putting 5% equity using scrupulous methods. In case project is successful, they make lot of money. However, if the project fails, the loss is absorbed by the lenders (mostly public sector banks) and tax payers.

I understand the Prime Minister call for reform of this "For Free" mindset, has disrupted peace in many corporate board rooms.

The independence day exhort of PM to shed "what's for me in this?", "cleanup the filth around you", "focus on quality and sustainability of your business", "make positive contribution to society" clearly shows the intent.

But "Good Days" will come only when and if we are ready for that.

Wednesday, August 27, 2014

"Vote" over "voter" - III

Thought for the day

”Stand with anybody that stands right, stand with him while he is right and part with him when he goes wrong."

- Abraham Lincoln (American, 1809-1865)

Word for the day

Gregarious (adj)

Seeking and enjoying the company of others.

(Source: Dictionary.com)

Teaser for the day

Will the SC ruling on coal block allocation in past two decades mark end of the reign of the Gangs of Wasseypur and Khadi clad Gundey on Indian natural resources?

"Vote" over "voter" - III

The draft report of the Expert Committee on Integrated Energy Policy set up by the Planning Commission submitted in December 2005 explicitly stated that “India faces formidable challenges in meeting its energy needs and providing adequate energy of desired quality in various forms to users in a sustainable manner and at reasonable costs.

India needs to sustain a 8% to 10% economic growth to eradicate poverty and meet its economic & human development goals. Such economic growth would call for increased demand for energy and ensuring access to clean, convenient and reliable energy for all to address human development. To deliver a sustained growth of 8% through 2031, India would, in the very least, need to grow its primary energy supply by 3 to 4 times and electricity supply by 5 to 7 times of today’s consumption. The energy challenge is of fundamental importance to India’s economic growth imperatives (emphasis supplied).

The Expert Committee made suggestions based on the following approach:

(a) Markets that promote competition.

(b) Pricing and resource allocation to take place under market forces under an effective and credible regulatory oversight, as far as possible.

(d) Improved efficiencies across the energy chain.

(e) Policies that reflect externalities of energy consumption.

(f) Policies that rely on incentives and which are implementable

Despite having such a vivid idea about the problems and well documented approach to the solution, the government not only took a divergent route but also did all possible things to scuttle the growth of energy sector.

The NDA government had for once effectively dismantled the administrative pricing mechanism for transportation fuel; de-regulated the oil and gas exploration and production under New Exploration Licensing Policy (NELP); allowed private players in retailing of transportation fuel; privatized power production and related coal mining.

The successive governments however undid most of these steps in the interest of short term political gains. It dithered for many years on revision of market price of transportation fuel and LPG. Failed to implement the coal mining policy; national solar mission remained mostly on papers; nuclear energy program has seen very little progress despite all the political hoopla in 2009; subsidies have been misdirected and mostly remained uncontrolled till tye hot summer of 2013.

A two day trip to rural Bihar, Jharkhand, Eastern UP will prima facie explain how by making people dependent on subsidized kerosene for lighting and cooking purposes, successive governments have successfully broken the spines of millions of households. They walk miles, stand in queue for hours to get a couple of litters of this health hazard fuel. This time and energy could have been spent much more productively, if the government subsidy was well planned, e.g., for roof top solar panel, solar lanterns, solar charging stations closer to their home...to continue tomorrow

Tuesday, August 26, 2014

"Vote" over "voter" - II

Thought for the day

” Some single mind must be master, else there will be no agreement in anything."

- Abraham Lincoln (American, 1809-1865)

Word for the day

Qualm (n)

An uneasy feeling or pang of conscience as to conduct; compunction

(Source: Dictionary.com)

Teaser for the day

What is more important (a) Planning Commission or (b) Commissioning the plans?

"Vote" over "voter" - II

“Although poverty and inequality play a powerful role in shaping our children’s educational opportunities, inequality is not inevitable, and poverty is not destiny,” said Sean Reardon, a professor of education who helped to establish the workshop on Poverty, Inequality and Education at Stanford University to examine the challenges to closing the growing opportunity gap in USA.

While it is popular to examine the state of economy on usual macro parameters like price conditions, growth rate, employment level, trade balance, business confidence, consumer confidence, savings, investments, and productivity etc., in my view the true scale and primary lead indicator of the economic conditions is the level of human development. Especially in a people centric (against resource centric) economy like India, the importance of human stock can hardly be overstated.

I therefore believe that complete failure in developing a strong education, skilling and training system aimed at equalizing the society is a one of the weakest link.

It is widely acknowledged that the extant education system is grossly inadequate. The poor standard of education and educators in a large majority of public educational institutes is not only perpetuating the socio-economic inequalities in the country, it is also proving to be a serious challenge to (a) economic growth in terms of shortage of skilled workforce; (b) fiscal consolidation by increasing the dependency ratio of people on the government; and (c) internal security by forcing youth to undertake unlawful and disruptive activities.

A large majority of Indian workers, artisans and laborers acquire their occupation skills and training on the job. Their exploitation aside, the skills they acquire are mostly of poor quality. By the time they realize or try to become independent of their masters, they are already casted in a rigid mold. They are usually their past prime learning age and have no option to chose a different occupation.

With this state of populace, the dream of upgrading 700mn Indians from poverty to middle class will remain only that a dream. The fabled India story that is quintessentially built on the premise of a strong middle class who will earn, consume, save, invest.

The government and the industry needs to understand that a uniform, good quality education system and skilling and training program should be much higher priority than building airports and smart cities. Appointing almost uneducated graduates as teachers to win their votes is sufficient.

CAG also needs to examine whether the government has optimally used the 3% education surcharge collected from all taxpayers, or an alternative mechanism is needed to administer this huge corpus.

Those who are regular visitors to Mata Vaishno Devi Shrine (J&K) from pre Shrine Board days would understand better what I am suggesting here....to continue tomorrow

Sunday, August 24, 2014

"Vote" over "voter" - I

Thought for the day

”The philosophy of the school room in one generation will be the philosophy of government in the next."

- Abraham Lincoln (American, 1809-1865)

Word for the day

Waif (n)

A person, especially a child, who has no home or friends.

(Source: Dictionary.com)

Teaser for the day

Many companies have responded favorably to PM's appeal for contribution to toilet in school project.

Should PM also appeal to all trusts managing places of worship to join the moment?

"Vote" over "voter" - I

One elementary problem afflicting the Indian economy is misdirected political priorities. Successive governments have pursued policies that would fetch them enough "votes" rather than benefit more "voters".

Many would argue this as a quintessential shortcoming of the Westminster "first past the post" electoral system. I would beg to differ. I believe it is incompetence and short sightedness of political leadership in most cases.

Our politicians have sought to control markets for various products and services in the name of national security and social justice. Six decades later there is little substantive evidence to suggest that strategy has been effective in meeting any of the objectives.

I find that mishandling of markets through mostly unwarranted and often misdirected interventions by successive governments has caused serious damage to the economic structure of the country at many places.

In my view, the problem like inflation, adverse balance of payment and infrastructure (especially energy) deficit have their roots in the political follies committed by successive governments.

For example consider the following -

(a) Edible oil industry has mostly been destroyed and sugar industry has not seen any material investment in past 15years and is on the verge of bankruptcy.

(b) Despite having one of the largest reserves globally our imports of coal and iron ore are rising fast.

(c) Over half the population is forced to live without electricity or with inadequate electricity and almost one third of the installed capacity is lying idle.

(d) The PPP model of infrastructure building has mostly been conceived to benefit private partners rather than the public at large. The projects have been undertaken with minimal equity and mostly public debt. Failure of projects have therefore strained the public sector banks and public finances.

(e) The public education system of the country has been distorted beyond repair largely to the benefit of private commercial institution, many of which are dominantly controlled by politicians or connected people.

(f) Most metros including Delhi, Bangalore, Lucknow, Bhopal, Ahmadabad, etc. have no rolling taxi service like Mumbai and Kolkata, forcing people to drive their own cars for short distances.

Telecommunication, information technology, and civil aviation industries have clearly demonstrated that government monopoly over many businesses, in the falsehood of national security, has caused more harm to the economy and people than it has benefitted them.

The incumbent NDA has suggested little precious to alter these conditions. Most of the steps announced so far are incremental and do not propose any substantive departure from the extant line of thinking....to continue tomorrow

Friday, August 22, 2014

Problem of plenty - II

Thought for the day

”Half of the harm that is done in this world is due to people who want to feel important. They don't mean to do harm. But the harm does not interest them. "

- T. S. Elliot (American 1888-1965)

Word for the day

Plaudit (n)

Enthusiastic approval; an expression of praise.

(Source: Dictionary.com)

Teaser for the day

Congress J&K leaders seeks Hindu CM for the state.

Congress CM declare PM untouchable by refusing to share dais with him.

Is this the Antony formula for resurrection of Congress Party?

Problem of plenty - II

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, 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 enquiries 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 couple of 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.

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

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