Monday, April 6, 2015

Fast and furious

Thought for the day
"After all is said and done, more is said than done"
-          Aesop (Greek, 620-560BC)
Word for the day
Malarkey (n)
Speech or writing designed to obscure, mislead, or impress;
(Source: Dictionary.com)
Malice towards none
Imagine if there was 24*7 media to report Gandhi vs. Subhash, Nehru vs. RML/Kriplani, Indira vs. Syndicate, Morarji vs. Jagjivan Ram, and Rajiv vs. V. P. Singh.
Kejriwal vs. PB/YY would have looked like a non-event in that case.

Fast and furious

In a refreshing 8 day break from routine activities, I travelled to tribal areas of Central India covering 12 districts of Maharashtra, Chhattisgarh, Madhya Pradesh and Jharkhand. During my discover India trip in summer of 2013 I had to skip these areas due to Naxalite attack on local Congress leaders.
Along with the teams of Equal India Foundation and couple of more NGOs, I traversed through the interior most areas in Bhandara, Gondia, Seoni, Mandla, Bilaspur, Korba, Sitapur, Gumla and Ranchi belts.
The larger objective was to assess the mood of tribal people over recent legal changes regarding land acquisition and mine & mineral development policies. However, I spent some time assessing the economic, social, cultural and political changes taking place in the area.
I would like to briefly share my observations and findings with the readers.
*         The tribal populace in general is poorly informed (mostly misinformed) about the recent changes in laws relating to land acquisition and mines & mineral development.
*         The socio-economic changes that are taking place in these areas are much faster and furious as compared to the changes taking place in urbanized areas.
*         The conflict between generations regarding preservation of environment, culture and traditions is rising much faster.
*         Politically BJP has definitely lost some ground in MP and Chhattisgarh. The ground is fertile for AAP kind of political movement in these states. Especially in Chhattisgarh, where tribal population outnumbers the non-tribal urban population, the existing strong NGO network could be easily exploited to set up a political organizational very fast. Congress still appears to be de-motivated, though Vyampam scam has provided some fuel to local leadership.
*         Bihar elections are not just about Bihar for both BJP and Congress.
Extreme confusion prevails over legal changes
Insofar as the latest changes on land acquisition law and law relating to mine & mineral development, the local population is poorly and mostly mis-informed. A large number of functionaries of political parties, administration, and various NGOs operating in the area are campaigning aggressively but not in an objective manner. The information campaign is mostly motivated and colored with vested interests.
The people, mostly poor (extremely) & illiterate are disillusioned and are feeling lost between contradictory claims and counter claims. Interestingly, Most of them refuse to believe that no money may actually flow into bank accounts.
The detailed findings and suggestions on this aspect will be presented in a report being prepared by the concerned NGOs, that I will be happy to share with my readers in due course.
The brief points worth noting in this regard are however as follows:
(a) The local populace in general is not at all against industrialization. The younger generation in fact is enthusiastic about the prospects of better employment opportunities near home.
(b) The colonial model of resource exploitation adopted so far is the primary cause of worry.
(c)  The governments and the civil society functionaries have mostly failed in protecting the interests of local populace in their negotiation with industrialists and project developers.
Socio-economic changes - fast and furious
The most interesting observation during this trip was the furiousness of the socio-economic changes that are taking place in the tribal milieu. I found the rate of change much faster than metro cities.
In these areas, the consumption pattern, communication, jargon, daily schedule, commitment towards families, environment, traditions, culture etc. all are changing at perhaps the fastest rate in history.
(a) The people are definitely much more aware about the "civilized" world outside their forest.
(b) The effects of better connectivity, electricity and mobility are conspicuous.
(c)  The younger generation is constantly at conflict with the older generation on the questions of loyalty and devotion to the "Forest God" and tribal traditions.
(d) Besides, mobile phone, Maggi, pasta, detergent, mosquito repellent, biscuit, fried snacks, tea, cigarette, scented hair oil, fairness cream, nylon/polyester, denim, condoms, tooth brush, deodorants, pirated DVDs could be found abundantly in use in villages situated 5-7kms away even from the kuccha MNREGA road.
(e)  The use of plastic and thermacol containers and plates in place of earthen pots and banana leaves is rising at ominous pace.
(f)   The thatched roof is giving way to tin sheets. This is increasing the average temperature through reflection of sun rays, and endangering the small and soft vegetation that holds the soil tight in the surrounding areas. Similar development in hill areas has been cited as one of the primary reasons for rise in instances of landslides.
(g) Through repatriation of money and merchandise from the immigrants, the barter economy is metamorphosing into a market economy, to the detriment of local artisans and cottage industry.
(h)  Social infrastructure is still in shambles. Health and education infrastructure is mostly limited to primary level. The quality of teachers and health workers is pathetic.
Generation X is moving out and bringing in changes
We have previously seen this in Punjab, Andhra Pradesh, Kerala etc. where the young people just wanted to move abroad. At whatever cost.
The tribal areas of Central India are witnessing the same phenomenon. The youth, who is exposed to city life, just want to move out, at whatever cost. Lack of education and skills mostly lands them in exploitive jobs like construction labor, domestic help etc. in metro cities.
The wealth transfer through repatriation of money by these immigrants is accelerating and ushering vital changes in villages. The government is mostly absent in this endeavor.
An interesting finding here is that unlike Punjab and Andhra Pradesh where the father was a rich land lord and the child wanted to emigrate abroad, here the father is poor and helpless guy and the child is trying to make his life better.
In Punjab and Andhra Pradesh the parents were not dependent on the emigrated child and therefore could live life at their own terms.
Here the child wants to dictate terms. This is giving rise to conflict. Industry and politicians are seeing this conflict as an opportunity and want to push through their motivated agenda. This would have not be possible if the Generation X was as loyal and devoted to the nature and environment as the previous generations have been.
Politics - BJP weaker, opportunity for AAP type movement
Lastly, I tried to assess the impact of recent allegations over state leadership of BJP in Chhattisgarh and MP.
In both states anti incumbency seems to be setting in fast. The mishandling of various allegations of scams by the state governments has added to the anti BJP mood.
However, fortunately for BJP the elections are not around the corner and the principal opposition Congress is still in declining phase. BJP therefore has ample opportunity to set the things in order.
The general feeling amongst learned people in the area is that if BJP losses in Bihar, whether due to opposition uniting against it or due to infighting amongst its local leadership, it will reflect badly in all three central states (MP. Chhattisgarh and Jharkhand).
A poor show by Congress, though expected, might pave way for yet another non-BJP non-Congress front at national level thereby making revival of Congress even more challenging.
Chhattisgrah and Jharkhand have a unusually large civil society setup. A large number of NGOs supported by local and foreign funds operate in the states. Most of these NGOs have a natural left leaning, though right wing RSS affiliates also have material and reputed presence in the area.
Creating an AAP kind of movement in these states would not be difficult. In fact it could be done much faster than Delhi.
It would be interesting to see if a local Kejriwal emerges in next three years.
Trivia
As per media reports the conscience of the nation is deeply hurt by the racist remarks made by BJP minister from Bihar.
In my view this racism is deep rooted in our society. The proof is that "fairness cream" is one of the fastest growing cosmetic product in both male and female categories!
The BJP top leadership has warned its elected representatives to mind their language while talking in public, but no one dare told anyone not to have racial, casteist and religious prejudices.
The protesting Congress dealt with Shriprakash Jaiswal and Beni Prasad Verma in similar fashion last year and Abhijit Mukherjee in 2010.
JDU has defended Sharad Yadav only recently.
The list is endless and so is the malice.

Thursday, March 26, 2015

Land" does not get you votes, "No Land" does - II

Thought for the day
"From the solemn gloom of the temple children run out to sit in the dust, God watches them play and forgets the priest."
-          Rabindranath Tagore (Indian, 1861-1941)
Word for the day
Furtherance (n)
The act of furthering; promotion; advancement.
(Source: Dictionary.com)
Teaser for the day
There should be a gap of three month between election results and swearing in of MP/MLAs.
These three months may be used to impart extensive training to elected representatives in public policy, foreign and federal relations, public speaking, constitution, etc.

Land" does not get you votes, "No Land" does - II

The politically aided agitation over the land acquisition issue has three clear dimensions:
1.     It has provided a common cause to parties and politicians who have been struggling to regain the ground they have yielded to Narendra Modi led BJP in recent times.
2.     It has provided an opportunity to the medium and large farmers to seek maximization of compensation in lieu of their land which is not commercially viable for agriculture due to miniscule yield as compared to current land prices.
3.     It threatens to expose politicians who have indulged in "insider trading" in land acquisition in past.
       Prior to 2013 LARR Act, land acquisition used to be a surprise for the land owners. They would usually come to know about it when the statutory notification was published.
       The "insiders" who would get to know the project details much in advance would accumulate the land in surrounding areas, and sell at much higher prices once the project and the land acquisition was notified. This had been a cause of discontent amongst farmers who were tricked to sell their land cheaper just before the road or industrial project was announced. Barmer in Rajasthan, NOIDA/Mathura in UP, and Gurgaon/Jhhajar in Haryana could just be some small case studies of this phenomenon.
Let me explain the economics of agriculture in India to explain my point:
(a)   The average cultivable land price in 50-100km radius of a city or large industrial project is about Rs5lac/acre, It may though vary between Rs. 1 lac to Rs. 5crore/acre depending upon the location.
       The crop on the land yields less than Rs75000/year for a medium and large farmer. Assuming 2 crops every year, for a small and marginal farmer the yield is Rs25000 to Rs50000 per acre/year, excluding the cost of self labor.
       Pertinent to note here is that a typical landless, marginal or small farmer household deploys 3-4 adults for 6 months in the farm. At ~Rs3000/month minimum wage rate the cost of self labor itself comes to about Rs55000-75000/year.
       If we adjust the yield for one crop loss every three year, lease rent and 18-24% interest that small and marginal farmer pays, agriculture is usually unviable business.
       If we factor in rising labor cost, lower subsidy in input prices (fertilizer, electricity, diesel and water) and slower rise in MSP, the viability gap will likely only increase going forward.
(b)   A large majority of farmer households in India are landless or marginal. Many of these farmers take land on lease. The rent varies from Rs5000/acre to 50% of produce. A lost crop puts such farmers in a debt trap that may take minimum 3years to get out.
       Many of these farmers do agriculture for sustenance. They grow wheat or rice for self consumption only.
       A proper implementation of Food Security Law will ensure food for them at minimal cost. In such a scenario, they will anyway have no motivation to engage in land cultivation.
       Remember, the Gen X of these farmers is no longer enamored by the feeling of Dharti Meri Mata Hai (my land is my mother). The next generation of landless, marginal and small farmers is therefore least likely to prefer agriculture over construction or industrial labor.(Availability of agriculture labor is likely to shrink even further from the current alarming levels).
(c)   Given the low returns, the current generation of medium and large farmers is also not much interested in taking up farming as occupation. Most would want to sell the land or convert it into non-agriculture land.
So, as we can see the reason for farmers' agitation is not that they do not want to sell their land. It is the quantum of compensation that is the issue.
Fighting for this cause could have yielded dividend for AAP in Delhi, because here the farmers are large and rich. Extrapolating this to national level may not work. In fact it may prove counterproductive as this will only alienate the agriculture labor.
A better electoral agenda for the welfare of rural population might therefore be, inter alia:
(a)   Faster and full implementation of food security law.
(b)   Higher wages under MNREGA.
(c)   Better faculties and wages for migrant construction and industrial labor.
(d)   Stringent enforcement of Banami Transcations law to unearth Benami agriculture land in violation of Land ceiling laws and redistribution of such land to landless and marginal farmers.
(e)   Mandatory requirement of employment to landless farmers displaced by the project under consideration.

"Land" does not get you votes, "No Land" does


Thought for the day

"The water in a vessel is sparkling; the water in the sea is dark. The small truth has words which are clear; the great truth has great silence."

-          Rabindranath Tagore (Indian, 1861-1941)

Word for the day

Larrikin (adj)

Disorderly; rowdy.

(Source: Dictionary.com)

Teaser for the day

What is a fair compensation to someone who has been unlawfully incarcerated for a day, a week, a month, a year, or a decade?

"Land" does not get you votes, "No Land" does

Continuing from yesterday, I would like to draw attention of the people, who are feeling deeply aggrieved by the likely pain the latest Land Acquisition Bill will cause to the farmers, to the following simple points:

(a)   As per 2013 NSSO survey about 83% (80% in 2003) of the total farming households in India are either landless or marginal (holding less than 1 hectare or 2.47 acres cultivable land).

       The total cultivable land in India shrank to 92mn hectare in 2013 (average 0.6hectare per farmer household) from 107mn hectare in 2003 (0.72hectare per farmer household).

       In 2013 the landless and marginal farmers owned 30% of the total cultivable land in the country up from 23% in 2003. This is due to further fragmentation of the land, or lower conversion of their land holdings.

(b)   On the contrary, percentage of medium and large farmer household (owning more than 4 hectares) shrank from 3.5% in 2003 to 2.17% in 2003. The cultivable land owned by these medium and large farmer households shrank from ~35% in 2003 to 24% 2013.

       These are the farmers who sell land to industry and infrastructure projects. And these are the farmers who actually do not cultivate their land themselves. They lease the land to landless or small farmers. These are the farmers who stand to gain or lose from the land acquisition laws.

       Remember, the compensation under the LARR is given to the owner of the land and to the person who is actually cultivating that land. These people lose their employment irrespective of the consent, compensation amount and environment impact.

(c)   From political perspective, 130mn farming households are marginal or landless against just 3mn farmer households are medium to large land owners.
 
...to continue

Tuesday, March 24, 2015

It's not the one you are looking for

Thought for the day
"Emancipation from the bondage of the soil is no freedom for the tree."
-          Rabindranath Tagore (Indian, 1861-1941)
Word for the day
Anthesis (v)
The period or act of expansion in flowers, especially the maturing of the stamens.
(Source: Dictionary.com)
Teaser for the day
Is the "Breaking News" syndrome ripping apart the basic fabric of the society by sensationalizing trivia, or it truly seeks to invoke and give some purpose to the indifferent populace?

It's not the one you are looking for

Caught in traffic jam caused by Congress party workers over the Land Bill issue, I decided to give up and join the small but spirited group. It was nice to be treated with some tea and snacks after a round of sloganeering. The slogans were mostly uninspiring and targeted to please the party President rather than farmers. The usual Sonia ji sangharsh karo hum tumhare saath hain (Sonia ji we are with you in your struggle) appeared rather trite.
An impromptu discussion with some workers from Haryana and Punjab during the tea break was quite revealing. None of the 10 young demonstrators, all from farmer families, had any clue what they were protesting about! Three of them had political ambitions and the rest just tagged along.
After spending well over two hours, I could make out that Congress is dissipating its scarce energy on something that may not yield any electoral dividend for it. To the contrary, by making the land acquisition issue a platform for comeback the party may actually be helping the regional opponents like JDU, SP, TMC, TRS, TDP, Shiv Sena, NC and BJD.
The agitation over land acquisition may have temporarily created some poor sentiments against the NDA government in rural areas, but the Congress Party is in no position to capitalize on it.
The data prima facie suggests that the segment potentially aggrieved by the land law is relatively much smaller to cause material electoral reverses at national level in 2019 general elections. In my sense, for making a comeback, the Congress Party needs a substantial issue that could touch at least 50% of the households and then vigorously pursue it for the next four years.
A stroll back in history would tell the Congress Party that regime changes in India have occurred when the ruling party/group got disconnected with the bottom of the pyramid in pursuit of faster economic growth (or personal ambitions) and opposition could rake in an emotional issue to fill the chasm. It was Mrs. Indira Gandhi (and emergency) Rajiv Gandhi (and Bofors), Narsimha Rao (and JMM bribery case) Atal Bihari Vajpayee (and Aam Aadmi) and Manmohan Singh (and 2G and Coalgate).
2009 victory of Congress party despite all economic mess, occurred due to MNREGA that kept it connected with the poorest amongst poor. The issues like FDI in retail, multiple scams which were seen as pro rich allowed BJP to make an entry on traditional turf and afforded the Congress Party its worst ever defeat in 2014.
The way BJP is going, I believe material improvement in macroeconomic conditions & governance standards, and direct connectivity of leadership with masses, will leave an extremely thin crack for the Congress Party to sneak in. The Congress Party would therefore need an explosive issue to widen the crack; which the land acquisition is certainly not the one.
I will delve a little more on the land acquisition issue in next couple of days, before I leave for a 10day trip to central India to assess the feelings of villagers and tribal people about new land acquisition and mining laws.

Mining for opportunities

Thought for the day
"Gray hairs are signs of wisdom if you hold your tongue, speak and they are but hairs, as in the young."
-          Rabindranath Tagore (Indian, 1861-1941)
Word for the day
Gibber (v)
To speak inarticulately or meaninglessly or foolishly.
(Source: Dictionary.com)
Teaser for the day
Masochism of all governments in India is intriguing. They don't like to do anything unless put on mat by media and thrashed!

Mining for opportunities

Considering the corporate earnings outlook, plateau in the domestic macroeconomic good news, mostly assimilated political & policy environment, and fragile global financial conditions, it is reasonable to believe that we are some distance away from a new secular bull market. Though, it is always a good idea to prepare the ground and sow the seed well in advance; doing it too early may result in total dissipation of effort and resources.
I have opined in many earlier posts also, that the bull market in Indian equities will commence mostly due to cyclical recovery in domestic economy. The global factors, primarily liquidity and soft commodity prices may provide some extra impetus. Readjustment in global capital and currency markets due to reversal of rate cycle in US when most other major economies are continuing to be accommodative, shall continue to cause spells of heightened volatility and uncertainty.
Therefore, the investor positioning in Indian equities has to be based on primarily domestic growth drivers, adequately accounting for higher volatility.
In my view, decent investment opportunities may exist in the following broad areas from a 5+ year investment horizon.
Railways could be to 2015-2020 what roads were to 2003-2007. I would however focus on technology leaders rather than generic stock (wagons and wheels) suppliers. In my view, under the new governance paradigm and rising wage rates, it would be difficult for the contractors to make even normalize profits. Companies with proprietary technologies in process automation and productivity enhancement should be preferred.
Agri productivity as an economic activity will likely enjoy highest priority for the incumbent administration. Focus should again be on technology innovators and market leaders rather than generic fertilizer producers.
Cyclicals. Buy cyclicals and industrials with god balance sheet and decent operating leverage (cement, capital goods, auto and EPC).
Global businesses (IT, pharma, auto & ancillaries) as INR completes its correction over next 12-24months.
Consumers (FMCG, 2wheelers, pharma, textile, finance, media) for demand pick up on rise in employment and general household income level.
To put in simpler words, the investment opportunities may be explored in the following areas:
(a)   Industrial companies with market and technology leadership, strong brand equity and access to global markets. Product companies rather than services companies are more preferable as they gain from inventory correction, pricing power among other things. I prefer the companies with substantial operating leverage and lower financial leverage.
(b)   Consumer companies both in staple and discretionary space which may benefit from rising consumption demand, stable global economy, weaker INR, lower commodity prices.
       Correction in stock prices in this space due to poor rural demand in next couple of quarters may be a good opportunity to accumulate.
       I would prefer a good mix of staples and discretionary products with special reference to the youth. Though, tobacco is something which I would continue to avoid.
(c)   Local units of global corporations that may see larger participation through more investment, hike in stake or transfer of manufacturing operations for regional exports. Heavy engineering companies with proven track record and leadership in railways and defence technology would be my preferred picks.
       A 10% weakness in INRUSD from current level may prompt some buy backs, especially in companies with material cash hoard.
(d)   Financials will inevitably participate in any bull market. Reduced financial stress, better yielding bond portfolio, higher credit demand, geographical spread due to deeper financial inclusion efforts, and recapitalization are some ideas that will drive value of financial stocks higher from FY17 onwards.
       However, as a matter of strategy I continue to remain circumspect about the PSBs. I would therefore suggest private sector lender including select NBFCs
(e)   One of the primary premises of my bull case is softer commodity prices. I would therefore not suggest any global commodity exposure. Domestically however cement could see a major spike up due to better utilization rate. Financially unleveraged large players with good operating leverage could be looked upon.
(f)    Some companies from textile, construction material, auto ancillary, and consumer durable have done amazingly well to acquire technology, market and product leadership in global sphere. These companies enjoy premium valuations, deservedly though.
       A correction in prices from current levels, would be a good opportunity to buy these companies.
(g)   The exporters especially IT and pharma should continue to do well. A correction due to cyclical strength in INR would provide a good entry point.

Monday, March 23, 2015

Opportunity vs. threat

Thought for the day
"The butterfly counts not months but moments, and has time enough."
-          Rabindranath Tagore (Indian, 1861-1941)
Word for the day
 Collywobbles(n)
A feeling of fear, apprehension, or nervousness.
(Source: Dictionary.com)
Teaser for the day
Why do e-commerce firms need to advertise so much on conventional media like TV and newspaper?

Opportunity vs. threat

People scouting for opportunities to buy or sell stocks in secondary market based on political changes or policy related developments need to exercise extreme caution, in my view.
The policy changes emanating from the changes in political regime, legal interpretations or social developments do create once in lifetime opportunity and threat for the entrepreneurs who are invested or who wish to invest in a particular business opportunity.
The changes usually also create opportunities for the workers who could preempt the likely technological, financial and managerial changes  well in advance and develop the necessary skills to avail early mover advantage in the new paradigm.
These changes sometime also create opportunities for speculators who could rightly preempt the opportunity in the resource shift and place the bets well in advance.
For traders who buy and sell stocks in secondary market for a brief period, the opportunities arising out of political or legal changes are mostly a function of luck. Anecdotally, I have found the luck mostly not favoring the people seeking to make a quick buck from something that has already grabbed the headlines in pink papers.
This leaves us to my community, i.e., people who are interested in investing in good businesses, but for the paucity of time, skills and/or resources we are contend with owing some share of these businesses rather than controlling the ownership and management of these businesses.
Our commitment to these businesses is usually limited the good times and rational market.
We do not usually stick to these businesses if they show any sign of losing leadership in the spheres of market share, product quality and acceptance, financial management efficiency, technology, innovation, etc.
We should not usually stick to these businesses when the market participants show irrational exuberance towards the future prospects of such businesses and start affording valuations that one would not normally associate with such a business.
The question is whether the policy changes that are taking place currently, due to changes in political alignments, legal interpretations and social pressures present any investment opportunity for investors.
Before answering the question it is critical to understand the changes that are taking place in the environment. We need to identify the changes and assess whether these changes are sustainable to result in a business and/or investment opportunity.
In my assessment, the changes that are currently taking place present more threats than opportunities.....to continue