Do it yourself

Tuesday, May 5, 2015

Lost my Way

Thought for the day

"The secret of getting ahead is getting started."

- Mark Twain (American, 1835-1910)

Word for the day

Aver (v)

To assert or affirm with confidence; declare in a positive or peremptory manner.

(Source: Dictionary.com)

Malice towards none

Running, running 'til the fear is gone, don't know where I'm going

Don't know if I'll make it home, tell Mama I'm sorry

I know that I've made mistakes, tell her it ain't easy

I'll see her on judgment day, I lost my way

I lost my way, yeah, I lost my way, yeah

("Lost My Way" - Lecrae, King Mez & Daniel Daley)

Lost my Way

Amitabh Bachchan is inarguably a living legend today. Almost all Indian film lovers accept him as Maha Nayak (super hero). But there was a time in 1990s when his fans were deeply disappointed in him. Many were shocked to see his decline from the invincible position he commanded through the decades of 1970s and 1980s.

A brief and miserably painful excursion in politics, death of mentor Manmohan Desai and a disastrous business venture (ABCL) left the super hero broke financially, weak physically and disturbed emotionally.

In that phase of adversity, he made many attempts to recover. But each attempt would push him further down, like he was stuck in quick sand. Each failed film was followed by even a worst one. He did projects like Toofan, Ajooba, Jadugar abd Lal Badshah, which were thoroughly unworthy of a super star.

Friends deserted him and government authorities persecuted him. In that hour of frustration and dismay he got the company which he might have avoided usually. Fortunately, he soon found his way out of the black hole and was finally rid of the avoidable company.

I find Rahul Gandhi in somewhat similar situation as the Big B found himself in 1990s. He is defeated, doing one bad project after another and is keeping avoidable company.

Consequent to BJPs overwhelming victory in the general elections of 2014, the Indian political spectrum has lost its equilibrium. The traditional Right has intruded into the central territory. The traditional Left has been squeezed out to fringes. And the traditional Center has become too crowded with less space and larger number of claimants.

Rahul Gandhi does not seem to be clear which part of the spectrum he wants to start his comeback trail with. One day he is seen exploring the extreme right with trek to Kedarnath. The other day he is seen at the left corner talking about landless labors. And then suddenly he crops up at the middle discussing the plight of middle class home buyers!

Poorly mixed concoction of Gandhi and Marx

A study of the history of Indian politics would suggest that unlike western democracies only an abysmal minority of Indian voters are strongly committed to a political or socio-economic ideology.

The political discourse in India is usually dominated by contemporary issues and personalities. The economic issues raised during elections are mostly confined to the slogan of poverty alleviation. In recent times corruption has also become a popular electioneering slogan.

Perhaps, no political party seems to have taken issues of poverty alleviation or corruption seriously. Therefore no one has bothered even to outline a conceptual or ideological framework for solving these problems.

Ideologically, the Congress Party abandoned the most acceptable and perhaps most suitable Gandhian Socialism in favor of Nehruvian Socialism that was a poorly mixed concoction of Leninist central planning (central ownership and management of resources and businesses) and British colonial legacy (discretionary patronage to the faithful and loyal).

The model was certainly at cross-purpose with the constitutional federal structure. Poverty, poor governance and corruption were natural off-springs of this system.

BJP started with Deen Dayal Updhaya's Integral Humanism. However, in 1990s it adopted Gandhian Socialism (which is not too far moved from the Integral Humanism) as the principal doctrine. The present leadership has however presented again a poorly mixed concoction of Integral Humanism and Laissez-faire model used by some developed economies principally USA.

Politically leadership preaches "Human Being" as the fulcrum of policy making. Whereas the executive is more focused on "Business" and "Macroeconomics" as the central theme. The conflict is for everyone to see. The consequence is that we seem to be moving in no direction.

The people at the left end of the spectrum exercised significant sway on the bottom of the pyramid in Indian society since independence. They controlled most of labor unions. Though divided between Marx, Lenin and Mao they still were the preferred choice of landless, oppressed and intelligentsia. There was a time when being poor, intelligent (economist, thinker, poet) or rebellious meant being communist.

The things however began to change in late 1980s post dismantling of USSR and the German wall. The Lenin and Marx were relegated to the history lessons. The economic reforms initiated in China under Deng Xiaoping's supremacy, further pushed back the traditional Marxists.

Insofar as the Lohiaites (socialist parties occupying the left of the center space in Indian politics) are concerned, they deserted both Lohia and his ideologue Gandhi as soon as they came into power. Degenerated into motley feudals they mostly have no commitment to any economic idea and mostly follow Congress agenda.

In next couple of days I shall discuss what Rahul Gandhi is doing wrong and how he could redeem Congress out of current mess.

Trivia

By out rightly rejecting the points made by Arun Shourie, and even disparage him, BJP has proved his point.

The people who have observed L. K. Advani closely, would confirm that he is not the one who could be silenced easily. Be sure, that we would hear the echo of Mr. Shourie's views in LKA's memoires which would be published within few months of PM Modi relinquishing PMO.

On the smaller screen, Arvind Kejriwal has made a full proof plan to hold central government responsible for all his failings.

He is instigating BSES to disrupt the electricity supply to Delhi when temperature would be running at 45C and blame central government for the misery of people.

Similarly, Manish Sisodia, is planning to disrupt the student's life by proposing a separate education board for Delhi.

Monday, May 4, 2015

Rift too wide and deep to ignore

Thought for the day

"A man may imagine things that are false, but he can only understand things that are true, for if the things be false, the apprehension of them is not understanding."

- Isaac Newton(English, 1642-1727)

Word for the day

Maudlin (adj)

Tearfully or weakly emotional; foolishly sentimental

(Source: Dictionary.com)

Malice towards none

The Thakur from UP is in news again!

Not a good omen.

Rift too wide and deep to ignore

The recent prints of manufacturing data from China, Japan, and EU have raised concerns in all quarters. The US picture is still mixed, but definitely less buoyant than what it was five months ago when the talks of summer 2015 Lift gained currency.

Back home, the contraction in core sector in March, the first in 17 months, put a question mark on the government's claim of removing supply side bottlenecks to improve manufacturing and augment employment opportunities. The core sector growth in FY15 at 3.5% was slowest since 2.8% of FY09.

Though it may be slightly early to pass a judgment as conditions in mining, power, steel and cement etc. may improve post coal mine allocations and new gas allocation mechanism that came into effect recently. Nonetheless anticipating a dramatic improvement looks tough as of now.

To make the matter worse, the outlook for monsoon this year is cautious and global oil prices have shot up sharply. This clouds the inflation and rate outlook.

Under the circumstances, it is pertinent to take note of the concerns expressed by the federation of Indian Export Organizations (FIEO) regarding plummeting exports. The apex body of exporters has warned that the figures that are coming in are very worrying. The exports during FY16 are seen reaching even last year's figures of $310 billion, save for a miracle.

As per reports the container exports from Ludhiana in the first 15 days of April fell 26.83% over the year-ago period. A sharp INR appreciation against Euro and Yen has negatively impacted export margins and competitiveness of Indian exports vis-a-vis peers like China.

In these circumstances, the suggestions of goal incongruence between RBI and government of many key issues is extremely disturbing. Though both parties have strongly denied the presence of any rift, it is too wide and deep for everyone to see.

Entangled wool and a Papad

Travelling to remote areas of Himachal Pradesh in late 1980s, I came across this brilliant personal behavior assessment methodology used by the tribal people.

The elders of the families would get together to discuss the matrimonial alliance of their wards. The prospective groom is given a bunch of badly entangled wool and the prospective bride is given a very thin Papad and a pitcher fully filled with water.

The boy is asked to untangle the wool and make a ball of it. How fast and neatly the boy could do the task determines how wise, patient, industrious, competent and resolute he is.

The girl is asked to roast the Papad and walk on a straight line with the water filled pitcher on her head. A cleanly roasted Papad is taken as proof of patience and grit. A successful straight walk without spilling the water, proves the qualities like strength, focus, determination, dedication, and self-control.

Applying this logic to some key ministers of the government, we find that they have entangled the wool even more. A little more messing up would create knots that would render the entire bunch of wool useless.

The Papad they have roasted is half burnt. They are also not walking straight and letting the water to spill.

Three major problems that I could comprehend are as follows:

(a) There is insufficient conceptual clarity on the economic model this government seeks to implement and the path that needs to be taken to achieve the goal. The conflict between free market economy, gandhian socialism, and cultural nationalism is palpable. There is sincere attempt on the part of the prime minster to resolve the conflict and discover a middle path. However, there is little sign of any resolution at this point in time.

(b) Like media, many organs of the government are also suffering from the "Breaking News Syndrome". Everyone rushes to claim birth of child, even where the prospective parents have not even met each other.

The consequence is that the debate is distracted easily and the process gets miscarriaged prematurely.

In my view, if the proposals like NJAC, Land Acquisition, Resettlement of Kashmiri Pundits, Public Debt Office etc. were discussed internally and with stakeholders in detail before claiming brownie points in public, the chances of success would have been higher.

These problems are not insurmountable. I hope, these will be overcome sooner than later. But till then, markets will remain jittery.

After Delhi assembly, the West Bengal local body elections have indicated that Modi-Shah combine may not be invincible. A defeat in Bihar assembly will send strong confirmatory signals.

FPIs - call their bluff now

In past two decades a lot of emphasis has been given to the foreign portfolio investors (FPI) making investments in the Indian equities.

As I have mentioned in my earlier post, we have seen few instances of irrational boom and bust cycle driven by collective withdrawal of FPI money. 1998 post nuclear blast exodus, 1999-2001 dotcom bubble and bust, 2006-2009 easy credit driven boom and bust are some major incidences.

However, I am not aware of any scientific study that shows long term positive correlation between the performance of Indian economy and/or equity prices and the direction of FPI flows.

However, there is enough anecdotal evidence to show the damaging impact of the excessive volatility caused by their collective actions.

An elementary study of the trends in Foreign investments in the listed companies in India gives the following results:

(a) Since 1993, the cumulative FPI investment in Indian equities is Rs8344bn (US$171bn). In INR terms they have earned an absolute return of 440% over this period. In USD term the return is lower at 316%. This compares with over 1000% return in Sensex during the period from 1993-and now.

(b) During 1993-2014 period Sensex has given negative return in 7 calendar years. Whereas the FPI flows have remain positive in all but 3 calendar years. The meaning outflows were seen only during 2008 (Rs530bn). On other two occasions flows were nominal - Rs7bn in 1998 (post nuclear blast economic sanctions) and Rs27bn in 2011 (post CWG/coal scam and fear of EU disintegration). (see chart on next page)

(c) Foreign investors have preferred to invest in secondary market and have avoided participating in Indian businesses (see table on next page):

* Foreign holding in Indian listed companies is about 34%. Only 9% of this is classified as promoter holding (or FDI). Rest 25% is FPI.

* In market cap wise top 10 Indian companies, the foreign promoter holding is just 1.4% (only one company, viz., Bharti Airtel). Whereas the FPI holding in these companies is 42%.

* In foreign holding wise top 10 Indian companies, the foreign promoter holding is 61% vs. FPI of 25%.

* In private Indian companies (ex MNC) foreign promoters holding is just 4% vs. FPI holding of 29%.

Prima facie it appears that foreign investors have avoided partnering with Indian promoters, and preferred to invest in companies where they exercise control over the management. Also, they have mostly found India an attractive investment destination in past two decades, regardless of political instability, corruption, poor corporate governance, and no-ease of doing business. Why do we need to kneel before them after every sale of US$1bn?

Interesting reads:

A 60-Year Trend Of Exploding Money And Imploding Growth

An Even More Dismal Science

16 Signs That The Economy Has Stalled Out And The Next Economic Downturn Is Here

Bank of Japan is beginning to part with reality

Trivia

Another round of tariff cuts in telecom services. The private players have cut national roaming charges and public sector MTNL makes all call during night free.

A similar price war is happening in airfares.

Both Big Bazaar and Reliance Retail are at war in retail discounting.

The point to ponder is whether this marks Achhe Din for consumers or the consumers will have to indirectly pay for the indulgence of these vendors!

Wednesday, April 29, 2015

What is it we really want?

Thought for the day

"Tact is the art of making a point without making an enemy."

- Isaac Newton(English, 1642-1727)

Word for the day

Veridical (adj)

Truthful; veracious; corresponding to facts; not illusory; real; actual; genuine.

(Source: Dictionary.com)

Malice towards none

Indians have this natural tendency to support the underdog and humble.

BJP knows it well. They have seen this in 2009 MMS vs. LKA contest.

Do we believe what we know?

What is it we really want?

To accelerate the economic growth in order to generate more employment and improve the quality of life of Indian populace, the country needs huge amount of capital.

Various economists, government agencies and expert committees have suggested that to attain optimum level of employment Indian economy would need to grow 8-10% CAGR for next decade or so.

The capital investment required by private sector to create critical infrastructure to support 8-10% GDP growth is pegged in the range of US$10-12trn over next 10yrs. Energy sector alone may need investment of more than US$1trn over next one decade.

It is well recognized fact that such kind of long term risk capital may not be available internally.

Foreign investment is therefore a pre-requisite for the process of economic planning, development, and growth.

Any debate on path, trajectory and sustainability of growth should therefore begin with this assumption that adequate foreign capital would be available.

A pragmatic economic development and growth plan under the current circumstances should acknowledge the following in the preamble itself:

(a) India needs huge amount of long term risk capital to achieve the goal of fast, equitable and sustainable economic growth and development.

(b) Meeting of this goal is materially contingent upon flow of foreign capital.

(c) Despite unprecedented liquidity sloshing the global financial system, the risk capital that could be for long term to emerging markets like India is scarce and may become expensive as US Fed begins the "Lift".

(d) The long term risk taking foreign capital will come to India at its own terms and not at the whims and fancy of the politicians and myopic bureaucracy.

...do we want to follow the herd?

However, what is true for long term risk capital (commonly known as FDI) may not be true for the short term arbitrage money (commonly known as Foreign Portfolio Investment or FPI).

This is the money that usually is not invested by the owner of the money. Instead professional investors who are paid to maximize the returns for owners of the money, exercise the control over such money.

Their interest in the investment is limited to the remuneration they would get. The remuneration is usually based on the relative performance of the money invested over a small period of time (usually 12 to 36months).

In order to maximize their remuneration, these fund managers would chase the relative outperforming assets in a most secular fashion - with no regional, racial or systemic bias. They would go to communist China, chaotic Russia, democratic India, war torn Africa, vulnerable Chile & Columbia, struggling Dubai, or bankrupt Greece.

As most of them move in a herd, they cheer the market by driving up the asset prices with huge collective inflows in a short span of time.

They inflict severe pain and cause huge volatility by their ruthless collective exit.

There is little evidence to establish their long term positive impact on the investee market or economy. However, there is enough anecdotal evidence to show the damaging impact of the excessive volatility caused by their collective actions.

The south east Asian economies suffered tremendously at their hands during 1990's.

We did also have few instances of irrational boom and bust cycle driven by collective withdrawal of FPI money. 1998 post nuclear blast exodus, 1999-2001 dotcom bubble and bust, 2006-2009 easy credit driven boom and bust are some major incidences.

Besides, we have seen frequent collective actions to pressurize the government and regulators over issues such as taxation (MAT, DTAA) and transparency (P. Note disclosures), etc.

On most occasions the government and the regulators have given in to the pressure, deciding to maintain the status quo. Consequently, (a) many nagging issues have accumulated that would keep the FPIs and agencies at confrontational path for many years; (b) the message to FPI is that Indian government and agencies accord significant importance to the stock market indices and are willing to walk extra mile for a few billion USD of FPI flows.

Currently Indian markets are witnessing yet another instance pressure tactics. The indications are that the government will give in yet again.

Tomorrow I shall examine the trend and role of FPI investments in India.

Interesting reads:

Why Markets Are Manic—-The Fed Is Addicted To The ‘Easy Button’

How Iran Is Winning

Greece €400 Million Short For Wage And Pension Payments, Rushes To Pass Troika-Friendly Laws

Sun Pharma may spend up to $7 billion on M&A

Trivia

Three questions that bothered me yesterday:

1. Why should people be critical of Rahul Gandhi deciding to undertake a journey across India? The country only stand to gain if he gains a better understanding of the country, her people and their problems. No one will miss him in New Delhi. No one would lose anything.

2. Why is it necessary that the home minister gets to know about a natural calamity in the country before anyone else does?

3. Hand on our hearts - How many of us 125cr Indians believe that politicians in general would place the country and humanity before their families and business?

I sincerely believe that not more than a million people will raise their hands to this call.

Then why this hypocrisy? Why we want the same politicians to maintain a facade in public and say things they do not mean? SP leaders were honest and not naive in expressing their concern for their family members!