Do it yourself

Tuesday, December 19, 2017

Gujarat elections - 3

Thought for the day

"Find enough clever things to say, and you're a Prime Minister; write them down and you're a Shakespeare."

—John Milton (English, 1608-1674)

Word for the day

Apopemptic (adj)

Pertaining to leave-taking or departing; valedictory.

Malice towards none

Who won the Gujarat elections?

First random thought this morning

Many of the arguments of studio experts and Congress sympathizers on news channels were totally ridicules. For example, one of the common argument was that BJP is nervous therefore Modi & Shah had to put so much effort. It's like Sri Lanka pleading that our bowling attack is weak, therefore India should not play Virat Kohli and Rohit Sharma against us.

I think, BJP should be appreciated for not taking any election (even local body) lightly and making an all out effort to win, which Congress does not.

The other most ridiculous argument is that Gujarat election should be seen as revival in the fortunes of the Congress party.

An Investor's Diary

True to the exit polls and a majority of opinion polls, BJP won assembly elections in the hill state of Himachal State and key western state of Gujarat. The elections were marked as "key" because Gujarat is the home state of both, the Prime Minister Narendra Modi and BJP President Amit Shah, and the results were keenly watched as a reflection on the popularity of the inarguably two most powerful persons in the country at present.

The Gujarat results, though clearly in favor of BJP, are being seen with a variety of prism by everyone.

The anti BJP camp is taking it as clear sign of the revival of the fortunes of the Congress party. Liberal and elites are terming it a setback for PM Modi, citing lesser BJP performance as compared to 2014 Lok Sabha election and 2012 assembly elections. BJP is marketing it as a grand success and show of peoples' solidarity with PM Modi.

In my view, these election results have far more serious repercussions for the Congress Party, then the analysts are currently projecting. The gains for BJP are also much more than what most analysts are attributing presently.

From credibility to existential - Crisis worsens many degree for Congress

In my view, the outcome of recently concluded Gujarat elections, significantly deepens the crisis for the Congress Party. The crisis which was mostly seen as the crisis of credibility and organizational capabilities, shall turn to the existential threat. Consider this:

(a) Gujarat is one of the five large states, besides Tamil Nadu, West Bengal, Bihar and Uttar Pradesh, in the country where the post independence political history has been clearly divided into pre and post Congress periods.

The Congress Party dominated the politics in TN (upto 1967), West Bengal (upto 1977), UP & Gujarat (upto 1989) and Bihar (upto 1990). But since then it has failed to even come closer to forming a government in any of these large states. Odisha definitely seems the sixth State going this way.

These six states account for more than half the voters in the country. With Congress taking 3rd or 4th spot in these large states, the chances of it rebuilding an organization that will help it win National elections is more than remote.

(b) The Gujarat elections were contested with strong economic headwinds, business disruption (Demonetization and GST), massive social unrest and discontentment over issues like unemployment, unremunerative farm prices etc. The loss of Congress Party, shall render these issues less potent in the forthcoming elections in states like Karnataka, MP, and Chhattisgarh, and save BJP from 15yrs of anti incumbency in MP and Chhattisgarh.

(c) The Congress Party has apparently funded the local caste based groups in Gujarat in these elections. Congress is now left with no credible local leadership of its own. If the past practice is a guide, Rahul Gandhi may not be visiting the State anytime in near future.

These people have already established their brand identities on Gujarati electoral landscape, at the expense of Congress (financial and political). In next five years, this shall definitely take the shape of a local opposition to BJP. Congress could not have done worse.

(d) With Sonia Gandhi out of active politics, the Congress Party shall lose its role as the fulcrum of the probable grand opposition alliance against BJP. Considering that the Congress Party has mostly failed in transferring votes to its alliance partners in last UP and Bihar elections, it loses its place as the principal opposition party. With Rahul coronation as the President (who has given up traditional "Secular" garb in this election), the chances of splinter groups like NCP and TMC coming back to its fold have also dissipated.

(e) The Congress Party needs to appreciate that people join active politics to satisfy their aspirations for gaining power and recognition. If people feel that by joining Congress party, they cannot win elections or become minister etc., they would not waste their time on it.

In the current scenario, the Congress Party shall not be in a position to impart any position of power to its workers. Even most of its stalwarts shall be losing their privileged Rajya Sabha seats and attendant benefits. We may never hear about these erstwhile stars again, once they vacate their posh Lutyen's Bungalows.

(f) Anyone taking comfort in Congress's improved performance in Gujarat, may please analyze the outcome 2009 and 2014 Lok Sabha elections; or the performance of Sri Lankan cricket team in Dharamshala ODI and Mohali ODI a few days ago.

Significant victory for BJP

The outcome of these elections, on the back of massive victory in UP earlier this year, shall afford BJP an legitimate opportunity to market Demonetization, GST and all other economic policies as "success" in the successive state election leading upto 2019 general elections. BJP shall discount it as a positive in forthcoming elections, leaving no credible agenda with opposition.

The victory shall also enthuse the BJP workers and supporters, who were getting disenchanted in past one years. It will also silence many detractors.

Those concerned about BJP's underperformance in Gujarat, may please consider - huge economic headwinds, disruptions due to Demonetization and GST, massive social unrest against the incumbent government, anti incumbency of 22yrs, departure of Narendra Modi from the state politics, and then evaluate BJP's performance. Evaluating the performance against the Amit Shah's claim of 150 seats is totally naive. (Comments not welcome)

Gujarat Elections - 1

Gujarat Election - 2

Friday, December 15, 2017

It's all economics stupid!

Thought for the day

"Nothing profits more than self-esteem, grounded on what is just and right."

—John Milton (English, 1608-1674)

Word for the day

Deasil (adv)

Clockwise or in a direction following the apparent course of the sun: considered as lucky or auspicious.

Malice towards none

Manish Tiwari + Kapil Sibal + Digvijay Singh + Manishankar Aiyer + et. al. = Sambit Patra

First random thought this morning

The desperation shown by BJP in the ongoing Gujarat elections is completely beyond comprehension.

This election is a fight of survival for the Congress Party. Whereas for BJP it should have been just another election. If Congress were to lose this election, like Bihar, UP, TN, WB, they would have lost another state forever, as the a local alternative is likely to emerge by 2022. Whereas, if PM had not invested his personal ego there, the BJP could have been easily assigned the adverse outcome to the local leadership's failure in carrying forward NaMo's legacy.

But as things stand today, Congress is at win-win situation, and BJP may just get an pyrrhic victory.

It's all economics stupid!

The common understanding is that the market price of an asset is function of demand and supply for such asset at that point in time.

The demand and supply for physical assets, e.g., real estate, metals etc., is relatively less volatile and therefore more predictable, as compared to the financial assets.

The financial assets are more liquid, mostly dematerialized (not needing any physical transfer), well regulated and easy to transact. The market for these assets therefore see wider participation. Especially in case of stock markets, people from cross sections of the society transact. A vast majority of these traders/investors may not have any relation to, or practical experience of, the underlying businesses they are transacting in.

Even the professional portfolio managers mostly rely on the opinions of the business analysts who may only have "the acquired" knowledge of the underlying businesses. In fact a lot of analysts are seen acquiring the business knowledge purely through the "management guidance" and related "material easily available on internet" or from various "research vendors". The conviction in "the equity trade" is therefore usually much lower than transaction in the related physical asset. (Trivia: Imagine you being treated by a self trained medical professional, who acquired skills through internet searches and interacting with other medical professionals, some of which were like him only)

The demand-supply equilibrium in this case is therefore too unpredictable and may shift dramatically in very short term, apparently for no relevant reason.

It is not surprising that in the case of stock markets, many times the demand and supply equilibrium does not necessarily reflect the underlying business fundamentals. The collective wisdom of the participants here is materially influenced by the emotions and constraints of third parties.

For example, the actions of a fund manager may be influenced by the emotions of the ultimate investor. Similarly, the action of a trader may be materially influenced by the lender who has financed his transaction.

This divergence of market price and business fundamentals is seen by many as an opportunity to make extraordinary profit, based on assumption that market price and business fundamentals will eventually converge. In common market parlance these people are referred as "contrarian investors".

Many contrarian investors have made big fortunes from their investing style. But the fact is that in many cases, the money they made may have just been a function of their ability to stay invested through the market cycle, rather than anything else.

Sharp market movements due to political events, is just another case of a completely unrelated and irrelevant factor influencing the market prices.

If anyone mentions the political changes (or lack of it) as a risk for a business and therefore market, he/she may just not have any understanding of the basic principles of investing.

For example, if someone believes that a particular company based in Gujarat is doing well because of the patronage of BJP government in the state, and may face trouble due to change in political regime, he should never have invested in such a business, in the first place. A business that is contingent upon political patronage to survive and grow, could not be investment grade by any standard.

Similarly, if someone believes that NDA lose in 2019 elections could be disastrous for the economy, and therefore stock markets, is only too naive. There is absolutely no empirical evidence of a particular party or person driving the economy or markets in a democratic setup, anywhere in the world.

In fact, an in-depth research would show that most government economic policies are driven by businesses, and not vice versa.

Beyond political rhetoric, analyze the following instances:

(a) FDI in insurance and pension was politically a massive contentious issue for over two decades. But, when it did happen, there was not even a token protest. The reason is that for two decade, FDI in insurance was only a theoretical probability. Given the level of accessibility (roads, communication connectivity, banking etc) and affordability, no one would have been seriously interested in investing in this business.

Same is true with FDI in retail trade also. Imagine how a global retail store would have functioned in India with pathetic internet speed, poor electricity supply, multitude of complex taxation laws, movement restrictions etc.

(b) How GST could have happened 10yrs ago, when the fiber connectivity was still poor and banking infrastructure pathetic.

(c) Gujarat could not have become an export hub for automobile and import hub for hydrocarbons, if the ports at Mundra, Dahej and Kandla were not developed. The Narmada dam and Bt Cotton have changed the fortune of Gujarat farmers, not any political party. (If someone wants to argue that any particular party made Bt Cotton and Sardar Sarovar happen, I am not at all interested in listening. I find this argument perverse and violent.)

In past two weeks, no one has asked me about the deteriorating macroeconomic fundamentals and falling FPIs interest in Indian equities. All that I see in my mail box is who will win Gujarat elections and how market will react to this.

I have patiently answered all the queries. But my strong belief remains that elections are totally irrelevant and unrelated event. Totally not worth bothering about.

Thursday, December 14, 2017

Some random thoughts

Thought for the day

"He that studieth revenge keepeth his own wounds green, which otherwise would heal and do well."

—John Milton (English, 1608-1674)

Word for the day

Wanderjahr (n)

A year or period of travel, especially following one's schooling and before practicing a profession.

Malice towards none

How to bring Vikas in India?

Grow Taiwanese mushrooms that sells @US$1200/kg.

First random thought this morning

The allegation of BJP leadership that Pakistan is trying to influence Gujarat elections has distinct reflection of the recent episode of US-Russia spat of interference in presidential elections.

But from a different viewpoint, this also indicates complete Congressization of BJP. During 1970s and 1980s, it was very common for the Congress leadership to blame everything wrong occurring in the country on "external forces", implying Pakistan.

Some random thoughts

Unsuitable boy

From reading recent research reports on Indian companies and industry segments, I get a feeling that the Chinese authorities' commitment to conserve environment is one of the key drivers behind the bullish sentiments.

I understand it like this.

There is this good looking guy who is very indulgent, has proven criminal tendencies, and is financially very unstable. Sick by his ways of life, his wife decides to divorce him. Hearing the news, the parents in the locality queue up in front of his house with request to marry their daughters.

Ominous, undesirable, unsustainable, ridicules.

Taking the easy road

In the blockbuster Hindi movie DDLJ, the heroine is deeply in love with a guy against the wishes of her father. Her mother is afraid of her husband’s retribution and advises the two lovers to elope. But the hero, who is equanimous and noble, tells her that the path suggested by her appears easy but it would lead nowhere. He would rather prefer the path of courage, honesty and integrity which though arduous definitely leads to the desired goal.

Swami Jagadatmananda in his famous work “Learn to Live” extolled the readers - the sincerity and honesty of the means to achieve a goal is equally important as the goal itself.

Our government however usually does not concur with this thought. It rather prefers to take the easy road.

Banning the condom TV commercials between 6AM to 10PM, one such easy way of getting out of a tough situation. The right way could have been to discuss with the latex manufacturers and marketers to make commercials educative and plain, rather than seductive. The effort should be complemented by making it mandatory for all schools to educate children (12yr and above) about safe sex.

Padmavati is another such tough situation from which the government is trying to wriggle out taking the easy road.

Not guilty till caught

A number of teen deaths have been reported from across the country which were motivated by the mobile game Blue Whale. (Mis)Use of mobile phones for watching pornography has also been a matter of intense, legal, legislative and social debates.

TRAI has fixed minimum age of obtaining a mobile connection as 18yr (the legal age for entering into a legally enforceable contract).

Age conditions (minimum 13yrs of age) are in place for using popular social media apps like Whatsapp and Facebook.

Regardless, a number of TV commercials show school going minor children owning and using mobile phones.

It is also a common practice amongst school teachers to form a Whatsapp group of their students, even if the students are of less than 13yrs of age and hence not legally permitted to use mobile phone and social media apps.

Recently, I happened to meet minor son of a very senior police officer posted at IT Cell. The child has a personal mobile phone and is present on all social media sites!!

I confronted the officer that recent amendments to the Motor Vehicle Act, make the parents responsible, if their unlicensed minor child is found driving their vehicle. Why a similar law should not be made to punish the parents who allow mobile connections taken in their name to be used by their minor wards.

I wonder what is the punishment, if a child lies about his/her age to open a Whatsapp or Facebook account?

The point I am trying to raise is that "Compliance" needs to be developed as a habit in citizens and not as a "Condition", if we want to have a civilized society that respects each others' rights and everyone adheres to their duties and obligations.

Crimes like domestic violence, crime against women, tax evasion, disregard for traffic rules, violation of environmental laws, littering at public places, will exist and perhaps continue to rise till the belief in the principle of "not guilty till caught" is allowed to sustain.

Wednesday, December 13, 2017

Set the clock right

Thought for the day

"Truth never comes into the world but like a bastard, to the ignominy of him that brought her birth."

—John Milton (English, 1608-1674)

Word for the day

Dundrearies (plural noun)

Long, full sideburns or muttonchop whiskers

Malice towards none

"When nothing is done, nothing is left undone."

—Zen Proverb

First random thought this morning

From W. C. Bonnerjee (1885) to Acharya J. B. Kriplani (1947) to Rahul Gandhi Gandhi (2017), the Indian National Congress has travelled a long distance.

A cursory glance at the list of Congress Presidents from 1885-2017 (see here) shows that it is the only second instance that the party president post has moved from one relative to the other. The first instance was not truly handover as Rajiv Gandhi was elected party president after the demise of Mrs. Indira Gandhi. So the latest transfer of power is the truly first instance of dynastic transition. Things have not been as bad these are made to look. Nonetheless, the damage has already been done in 20yr leadership of Mrs. Sonia Gandhi.

Set the clock right

A lot has already been said, reiterated, doubted and clarified regarding the provisions of the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill). I do not think I can add any value by discussing the provisions of the Bill.

I would therefore like to address a related but larger issue.

In my view, what FRDI essentially seeks to do is to bring all financial institutions, regardless of their ownership structure, under a common surveillance mechanism, so that a prompt action could be initiated.

This is in line with the best global practices adopted post global financial crisis (GFC) a decade back.

This is also critical in view of the recurrent episodes of huge amount of NPA accumulation, threatening the financial stability and hampering the growth of the economy.

From this viewpoint, this legislative is not only important but necessary also.

Insofar as the provisions relating to "Bail-In" are concerned, in my view, the tradition in India, especially in post independence era, is to follow the legal and commercial practices prevalent in the western hemisphere, sometime promptly, but in most cases with a lag. Any financial and bankruptcy resolution in the developed world would normally have a 'bail-in" provision. In some cases it has already been used in past one decade. It is therefore inevitable that the depositors and savers in India will have brace up for this potential risk.

However, given that most of the banking and insurance business is likely to remain in public sector for next 10years at least, the implicit sovereign guarantee shall give some comfort to the depositors.

I would however like the government to clarify the following before implementing this Bill.

(a) Has the Nationalization of Banks and Insurance business in India, outlive its stated objective? If the objectives have been met, why not close the chapter and privatize the PSBs, SBI and public sector insurance companies. And if the government has failed in achieving the objectives of adequate capitalization, financial inclusion, regional and social equity, depositors' security, and regulated lending, why not admit the failure and privatize it.

(b) For past many decades, the poor people have subsidized the large bank borrowers, through long bouts of negative rates and frequent bail-outs. How do the government proposes to compensate them. Why not give the ownership of banks to employees and small depositors.

Comments welcome.

Tuesday, December 12, 2017

"Bail-In" keeping people awake at night

Thought for the day

"They also serve who only stand and wait."

—John Milton (English, 1608-1674)

Word for the day

Pervious (adj)

Open or accessible to reason, feeling, argument, etc.

Admitting of passage or entrance; permeable, e.g. pervious soil.

Malice towards none

In states representing more than 50% of the eligible voters, The Congress Party may not even come close to forming a government in next 10yrs at the least.

And some studio experts are intensely debating imminent revival of Congress Party's fortunes!

First random thought this morning

The incumbent government misses no opportunity to claim that national security and integrity is top priority for them and they have zero tolerance on this issue. They have allowed no opportunity to dissipate in showcasing their resolve behind the famous surgical strike in PoK.

There have been many instances where stringent action has been taken on students and artists under stringent Sedition law (Section 124-A IPC), even for making speeches inside university campuses.

But when they publicly accuse some senior politicians to be conniving with Pakistani elements, why do not they back it up with proceedings under Sedition law.

"Bail-In" keeping people awake at night

"Bail-in" is the latest in the series of "threats" presented by the incumbent government to keep people awake at night.

The concerns have arisen from some provisions of the Financial Resolution and Deposit Insurance Bill, 2017, (The FRDI Bill), which was tabled in Parliament this August, have given rise to concerns over protection for bank deposits in the proposed law.

The government recently implemented the Insolvency and Bankruptcy Code (IBC) that aims to promptly resolve the solvency issues of commercial entities in non-financial sector.

On the similar lines FRDI aims to make sure that if a bank, a Non Banking Finance Company (NBFC), an insurance company, a pension fund or a mutual fund faces insolvency, the matter could be resolved swiftly with least disruption to the financial system and various stakeholders. The resolution is proposed to be managed by a new entity namely Financial Resolution Corporation (FRC).

As per the proposed legislation, as and when a need for FRC intervention arises in case of a financial firm, the proceeds from the sale of assets of the failed institution will be distributed in the following priority order: (1) insured depositors (i.e., deposit amount upto Rs one lac insured by Deposit Insurance Corporation), (2) resolution costs, (3) workmen dues and secured creditors, (4) wages to employees, (5) uninsured depositors, (6) unsecured creditors, (7) government dues and (8) remaining secured creditors, (9) remaining debt and dues, and (10) shareholders.

The lower priority of repayment to uninsured depositors (i.e., deposit amount over Rs lac) is what is bothering a lot of depsoitors, especially middle class depositors.

The understand the issue in proper context, the following need to be noted.

(a) As of March 2017, about 62% of the gross household savings in India were in the form of bank deposits and another 25% was in the form of insurance funds.

(b) The bank deposits have seen a sharp jump from 44% on March 2016 to 62% in march 2017, due primarily to demonetization.

(c) Along with deposits, the financial liabilities of households in India have increased to the decade high of 31% (FY16 28%), post demonetization.

(d) The average term deposit in India is about Rs3,53,000 and average savings bank balance is about Rs36,000 as per the latest data available from RBI.

(e) About 70% of all schedule commercial banking bank deposits are held by SBI and Nationalized banks. Private banks hold about 24% and RRBs and Foreign Banks holding 4% each.

(f) The Deposit Insurance Corporation has paid claims amounting to Rs5000 crores since 1962 and has a balance of Rs80,000, sufficient to cover about 92% of all account holders.

(g) Approximately 30% of all bank deposits are insured, in line with the global standards.

(h) If the deposit insurance in enhanced from present Rs1lac limit, the coverage will improve dramatically.

So should someone be worried about his money being used to "bail-in" the bank or NBFC he has deposited money with?

I guess not now. More on this tomorrow.

Friday, December 8, 2017

Gujarat 2017 - 2

Thought for the day

"I received free health care."

—J. K. Rowling (English, 1965-)

Word for the day

Xanadu (n)

A place of beauty, luxury and contentment.

Malice towards none

In case the scaremongering by Hindi News Channels does bother you, please note that an average Indian is likely to die much younger than an average citizen of North Korea, Nicaragua, Bangladesh, Guatemala, Jordan, Syria, Gaza Strip, Iraq, Serbia, Libya and Lebanon, among others.

On the world Life Expectancy Index India stands at 163/224 place, just 4 places ahead of Pakistan.

First random thought this morning

Kapil Sibal is one of the most accomplished law professionals in the country. His father was also an illustrated lawyer. His sons are also doing very well as Senior Counsels. His brother had been one of the most accomplished diplomats.

But why Mr. Sibal is important to Indian politics?

He entered Parliament first, before entering mainstream politics. Has not motivated any social or political movement. He's not known for strongly adhering to any particular political ideology. He's not set any commendable standards of statesmanship, governance, ethical conduct or policy initiatives in past two decades.

The same could be said about a majority of parliamentarians today. But that fact does not change the argument.

Gujarat 2017 - 2

Gujarat is one of the five large states, besides Tamil Nadu, West Bengal, Bihar and Uttar Pradesh, in the country where the post independence political history is clearly divided into pre and post Congress periods.

It is pertinent to note that in West Bengal, Gujarat and Odisha Congress has remained the principal opposition party for most of the post Congress period, but never appeared coming close to forming the government. The current Gujarat elections must be seen in this context, in my view.

Anyone expecting a reversal in this trend is mistaken. The Congress party is not an alternative to BJP in Gujarat. A regional alternative is taking place and it may decimate the Congress further in the coming years, just like TMC did in West Bengal, BSP did in UP and JDU did in Bihar.

Now coming to the current elections.

In my Discover India trip in summer of 2013, I had travelled through Gujarat extensively and noted the following:

"(1) The most striking observation was the huge socio-economic disparities especially in semi-urban and rural areas.

People suggested that a large part of prosperity in past two decades has come primarily from two sources

(a) economic boom and bust in developed world that has seen substantial rise in remittances from prosperous overseas Gujarati community; and (b) Narmada water that has resulted in higher agriculture growth and astronomical rise in land prices.

Consequently, it has not led to commensurate employment growth and therefore a large part of the population has not participated in the growth.

(2) However, the real surprise was that the rising disparities in Gujarat are motivating the underprivileged people to do well, unlike Karnataka and Maharashtra where it is resulting in disillusionment and unrest.

(3) Due to enterprising spirit, the household leverage, especially amongst middle and lower middle class is high in Gujarat. “Cash lending” market is vibrant and exploitive.

(4) Most in Rural areas, believed that their Chief Minister is blessed. More than two third believed that the change in weather pattern (more rains, less dust storms) is due to CM only. So much so for the “Gujarat Economic Model”! Exit of Modi from Gujarat may not be seen favorably by rural voters.

(5) I discovered that alcohol business in the state is managed by one of the best supply chains in the country. Global universities which found Mumbai Dabba wala model interesting would be surprised by this, perhaps one of the largest undercover supply chains in the world. RBI trying to curb gold import may also take a lesson from this.

(6) The communal divide is deep in almost all areas. Contrary to popular perception, people believe that but for Modi, the state would have had seen many more riots."

Four years later, many things seems to have changed. The most notable being the following:

(A) The economic disparities have risen even more sharply in past four years since (a) the farm prices have not risen adequately; (b) real estate market has collapsed in many cities leading to material rise in debt burden on neo-entrepreneurs.

(B) The cash lending market has contracted materially in past one year. This has compounded the problem of small businessmen who were dependent on this source of funding for working capital finance.

(C) Anandi Benand Vijay Rupani have been uninspiring leaders and have distanced the rural and tribal population from BJP. This segment of population feels departure of Modi has brought misfortune to them in form of poor crop yields and floods.

(D) Gujarat had been divided on religious lines, unlike the neighboring Rajasthan which is mostly divided on caste lines. However, for the first time we see caste based fissures appearing in Gujarati society.

This has diluted the religion based appeal of BJP. This highlights the fallacy in the Congress strategy, which is trying to appeal voters on religious lines. They have clearly read the voters wrong and ten years too late in taking the soft Hindutava line.

(E) The new automobile center that has developed fast in and around Sanand, has not benefitted poor and lower middle class Gujaratis. These plants are mostly owned by Non-Gujaratis and employ many people from outside. Besides helping the local land owners, it has not benefitted a larger section of the society.

(F) The current generation of middle class Gujaratis is not skilled enough to take jobs outside their family domains. Most of them had entered their family businesses quite early or became "real estate developers", most of which are not doing well. The debt levels are distressing.

(G) The recovery in western economies has actually slowed the inflows through remittances. Stricter visa rules have slowed down the rate of immigration also. That is also worrisome for a section of population.

Now coming to forecast for the current election outcome.

A number of opinion polls have been conducted in Gujarat to gaze the voters' sentiments. Almost all of these polls have suggested a BJP victory. However, there is huge divergence in terms of the scale of BJP victory. The forecast ranges between barely managing the majority (91-99 seats) to an overwhelming majority (131-141 seats).

My sense, based on my discussions with a number of people watching these elections closely, is as follows:

(a) BJP will make the next government in Gujarat.

There are many voters who traditionally voted for BJP, but are no longer committed to it. A negligible proportion of these voters is however attracted to Congress. So, most likely they may abstain from voting. In this case BJP may get more than 127 seats (its highest tally so far, attained in 2002).

However, if my reading is wrong and all this dissenters come out to vote, BJP may be reduced to 85-87 and may need support of few independents to form the government.

I would rate the probability of 127+ seats more than 80%.

(b) This may be the last election for Congress as a dominant force in Gujarat. From 2022 onwards a regional set up shall replace Congress as the principle alternative to BJP.

(c) Through their aggressive campaign in past few weeks, Rahul Gandhi has gained admiration of some middle aged tribal and rural women. Narendra Modi on the other hand had lost some supporters in the educated middle class with foreign connections.

Thursday, December 7, 2017

Gujarat 2017

Thought for the day

"The truth. It is a beautiful and terrible thing, and must therefore be treated with great caution."

—J. K. Rowling (English, 1965-)

Word for the day

Logomachy (n)

A dispute about or concerning words.

Malice towards none

Key take away from the recent developments in Ayodhya case:

(a) Only Muslim lawyers should represent Muslim parties in the courts.

(b) The Bench hearing cases involving people from different communities, must comprise Judges representing all the communities involved. Even if it means enlarging bench to 5 or 7 Judges.

First random thought this morning

In the capital city of Delhi, these days it is a common sight to see a number of people wearing face masks. Many people have stopped going for their morning walks. Some of the foreign tourists come to the city advised by their governments to use face masks and take other health precautions, in view of the poor air quality. The clinics of the city are usually full with desperate children struggling with sore throats, running noses, fever and a variety of allergies. The life has become hell for people suffering from respiratory complications like asthma.

The point I am trying to make is that instead of ridiculing Sri Lankan cricketers, it would have been better if everyone had joined them and motivated a white mask revolution aimed at improving Delhi air.

Gujarat 2017

Once again the market talk is overwhelming dominated by elections. Though I am very confident that politics has almost no impact on the markets, or economy for that matter, the intensity of discussion and surreal belief of traders in political developments is surely distracting.

Like before, I am getting unusually high number of requests for my assessment about the forthcoming Gujarat election results. Though I do not find it of any utility, I did make some efforts to make an assessment, just to honor the sentiments of my readers.

But before I say anything about Gujarat elections, I would like to highlight that after BJP got overwhelming majority in UP assembly elections earlier this year, four things have changed: (1) Nitish Kumar abandoned Lalu Yadav and return to NDA fold after a hiatus of 4yrs; (2) GST got implemented; (3) Indian stock market is up about 13% (vs. 18% rise in MSCI Emerging Market Index and ~11% in S&P500); and (4) Bitcoin, which was used by many in India to convert unaccounted cash in wake of demonetization in November 2016, has seen phenomenal rise in its value.

The readers may recall that UP elections were also being discussed and worried about as a make or break even for the PM and stock markets. But the election outcome per se has changed nothing on the ground. I am very confident that the Gujarat elections will not change much on the ground.

However, if I accept the popular argument that a defeat in Gujarat will seriously affect the 2019 campaign of BJP and strengthen the case for revival of the Congress Party, then I would presume that a defeat for BJP in Gujarat will be a very positive event for the economy and hence markets. I say so, because in my view, a defeat in Gujarat will (a) completely eliminate the possibility of any more disruptive reform by the Modi government; and (b) A BJP led government in 2019 where BJP is around 220 in Lok Sabha, would be much more inclusive and forward looking than it presently is.

Now coming to the current elections for the 182 seats of Gujarat assembly.

In past couple of months a number of surveys have been done to assess the mood of Gujarati voters. The outcome has been over-discussed on all media. In past couple of months studio experts have offered their view on prime time TV on daily basis. Based on these surveys and discussions, most of the media savvy population of India now has an opinion about the outcome, i.e., BJP will win the elections, but just about it.

Over past couple of days, I explored my phone diaries and phone contact list and made calls to all my 'contacts' in Gujarat or deeply connected with Gujarat. The 83 people I spoke to are spread over 11 districts across South, Central and Saurashtra regions of Gujarat, Mumbai and Delhi; and belong to diverse fields like trading, farming, industry, politics, education, governance, politics and social sector. In my almost 19hr endeavor, I got some useful insights into the current state of affairs in Gujarat, that may have bearing on the election outcome....to continue tomorrow