Vijay Kumar Gaba

Wednesday, April 2, 2014

Necktie and plastic chappals

Thought for the day

“I've had a few arguments with people, but I never carry a grudge. You know why? While you're carrying a grudge, they're out dancing.”
-Buddy Hackett (American 1924-2003)

Word for the day

Puerile (adj)

Childishly foolish; immature or trivial

(Source: Dictionary.com)

Teaser for the day

What is wrong with “Vote Bank” politics?

Necktie and plastic chappals

It is heartening to see that an effort is being made to divert the election debate to substantive issues like inflation, employment, development and growth from mostly redundant issues like communalism and dynastic politics.

Though the economic issues are being raised mostly to besmirch each other and not to debate the pertinence of economic policies of various groupings to the current context, it still is better than personal slandering and mudslinging.

I firmly believe that there is little to distinguish between the core economic policies of UPA and NDA; though NDA perhaps has a better implementation track record to showcase.

“Crony capitalism” is at the core of the whole debate. Congress and BJP have accused each other of pursuing crony capitalism. Communists and neo socialists (e.g., BSP, TMC and AAP) have accused both the national parties and the supporting (traditional) socialist parties as well for promoting the cause of a few at the expense of 1.26bn Indians.

I believe that the debate is completely misdirected, for (a) it leaves the biggest scam out of the purview of debate and (b) it does not focus on “crony socialism”, which to my mind has harmed the country more than anything else.

Maintaining the negative real rates for households (household inflation minus term deposit rate) for a long period is the biggest scam perpetrated on the poor people of this country. The inflation tax, as I call it, paid by poor and middle class savers for cheaper financing of “crony socialism” and unscrupulous businessmen, has caused tremendous damage to the basic fundamentals of the Indian economy.

It has resulted in wasteful public expenditure, misallocation of capital, and unsustainable economic growth that is visible only in the statistics. Not many social and qualitative indicators corroborate the kind of growth politicians from both sides of the fence are claiming to have delivered.

For years, poor and middle class households have probably funded almost the entire subsidy bill of the government through this inflation tax. Whereas it is common knowledge that large part of subsidies has historically gone to enrich a few. For records Rajiv Gandhi put it at 95%. Current claims range between 80-90%.

“Crony socialism” is a term I often use to define the Congress brand of election focused socialism, now pursued by almost all the political parties. The best way to understand the term you need to see a typical municipal school child in Mumbai or Delhi wearing a worn necktie, torn shirt, and plastic or rubber Chappal.

Politicians and administrators have sought to achieve the equality between government and private schools by prescribing a necktie as part of uniform for poor kids who cannot even afford a pair of canvas shoes!

In my view the debate should be on “how to improve the level of education in government schools” and not on “who is the supplier of the neckties”.

Readers can send their views, comments, criticism to the author at vijaygaba.investrekk@gmail.com

Follow @VIJAYGABA

Tuesday, April 1, 2014

No indication of a sustained revival as yet

RBI governor maintained status quo on his policy stance.

The governor said that he does not see further tightening in the near term.

He cautioned that "Lead indicators do not point to any sustained revival in industry and services as yet."

RBI expects FY15 growth in the range of 5-6% with downside risks.

The RBI also reduced the availability of overnight funds from its repo window for banks and increased the amount that banks may borrow from its term repo window in a bid to reduce lenders' reliance on short-term central bank funding.

We see little economic case for lower rates in 12months, unless the global and Indian economies take a yurn for the worse and it becomes absolutely necessary to provide monetary stimulus to sustain even 5% growth trajectory.

Trading strategy and themes

Thought for the day

“Economists perform the same function as shamans and witch doctors in tribal societies, who regard the entrails of some animal and predict the future, which generally corresponds to what the chief wants to hear. Economists are far more advanced than that, of course. We painstakingly gather data and develop complex computer models to show what our politicians want to hear.”
-John Mauldin (American, 1951- )

Word for the day

Entrails (n)

Internal parts of anything
(Source: Dictionary.com)

Teaser for the day

Both BJP and Cong promising reforms, i.e., incremental changes to existing policies. We need revolution, complete change, not reforms.

Trading strategy and themes

In my view it is clear that we are headed towards a major trading rally in Indian equities over next 12-15months. I will not be surprised if this rally actually transcends into bubble territory as the “US rate hike” clamor gains further momentum. Also there is little doubt that this bubble will also meet the same end as the previous ones, more recently 1998-2000 and 2005-2007.

Having this view in mind, I set my strategy for trading with following assumptions:

1. The new government in India will follow the classical Keynesian method to revive economic growth. Both fiscal and monetary stimuli shall be provided to spur consumption and investment demand. Monetary policy will not be further tightened.

2. Government will raise substantial resources through aggressive assets’ sale to recapitalize struggling public sector banks.

3. US Fed achieves the QE tapering target driven by consistent improvement in housing and job market. US rate hike anticipations lead to stronger USD, and massive rotation from US bonds to risk assets like EM equities.

4. No major geo-political event occurs that would create supply disruption in energy market.

Caveat: Remember, this is trading strategy focused on next 12-15months. It may differ in places from our core investment strategy.

Friday, March 28, 2014

Make hay while sun shine but get back home ahead of cows

Thought for the day

“Don't be afraid of missing opportunities. Behind every failure is an opportunity somebody wishes they had missed.”

-Lily Tomlin (American, 1939 - )

Word for the day

Dandy (n)

A man who is excessively concerned about his clothes and appearance; a fop.

(Source: Dictionary.com)

Teaser for the day

If RaGa, NaMo and AK are all challengers – who is the defender in these election?

Make hay while sun shine but get back home ahead of cows

I had stated earlier that we are witnessing a good trading opportunity in Indian equities. The opportunity is presented by a multitude of factors. The primary being (a) likely reversal of rate cycle in US that may lead to large scale rotation of money out of US bonds and into risk assets including EM equities; (b) maintenance and likely enhancement of monetary stimulus by central banks in Japan, EU and China; (c) cyclical up move in some Indian macro indicators against notable deterioration in other major emerging economies including Russia, Brazil and China; (d) likely change in political regime in the country raising hopes for accelerated economic reforms, faster execution and complete recuperation of administrative paralysis seen in past two years.

But as I said these factors do not confirm any structural change in global or Indian economy in near future. The resulting up move in Indian equities is therefore a trading opportunity much like 1999. Mistaking it for a structural shift or beginning of a secular bull market might be a mistake.

Nonetheless, it is desirable to avail this sizeable opportunity with adequate precautions. Remember, on most earlier occasions such trading rallies have retraced without according any exit opportunity to traders hence causing tremendous losses.

It will not be out of context to quote two recent views of Seth A. Klarman of Baupost Group and Jeremy Grantham of GMO regarding fragility of the current economic and financial environment.

Seth A. Klarman, Baupost Group

“Welcome to “The Truman Show” market. In the 1998 film by that name, actor Jim Carrey is ignorant of the fact that his life is a hugely popular reality show. His every action, unbeknownst to him, is manipulated while being broadcast to millions of TV viewers worldwide. He seemingly lives in an idyllic seaside community where the manicured lawns are always green and the citizens are always happy. These people are, of course, actors. The world Truman inhabits turns out to be phony: a gigantic sound stage created for a manufactured “reality.” As Truman starts to unravel the truth, his anger erupts and chaos ensues.

Ben Bernanke and Mario Draghi, as in the movie, are the “creators” who have manufactured a similarly idyllic, if artificial, environment for today’s investors. They were the executive producers of “The Truman Show” of 2013. A global audience sat in rapt attention before this wildly popular production. Given the U.S. stock market’s continuing upsurge, Bernanke is almost certain to snag yet another People’s Choice Award for this psychological “thriller.” Even in “The Truman Show,” life was not as good as this for investors.

But there is one fly in the ointment: in Bernanke’s production, all the Trumans – the economists, fund managers, traders, market pundits – know at some level that the environment in which they operate is not what it seems on the surface. The Fed and the Treasury openly discuss the aim of their policies: to manipulate financial markets higher and to generate reported economic “growth” and a “wealth effect.” Inside the giant Plexiglas dome of modern capital markets, just about everyone is happy, the few doubters are mocked and jeered, bad news is increasingly ignored, and markets go asymptotic. The longer QE continues, the more bloated the markets is pure Truman Show; according to the Wall Street Journal (12/20/13), the Federal Reserve purchased about 90% of all the eligible mortgage bonds issued in November.

Like a few glasses of wine with dinner, the usual short-term performance pressures on most investors to keep up with the market serve to dull their senses, which makes it a bit easier to forget that they are being manipulated. But what is fake cannot be made real. As Jim Grant recently noted on CNBC, the problem is that “(t)he Fed can change how things look, it cannot change what things are.” According to John Phelan, a fellow at the Cobden Centre in the U.K., “the Federal Reserve has become an enabler of the financial havoc it was designed (a century ago) to prevent.”

Every Truman under Bernanke’s dome knows the environment is phony. But the zeitgeist is so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end, and no one wants to exit the dome until they’re sure everyone else won’t stay on forever.

A marketplace of knowing Trumans seems even more unstable than the movie sound stage character slowly awakening to reality. Can the clued-in Trumans be counted on to maintain their

complicity or will they go off-script? Will Fed actions reliably be met with the desired response? Will the program remain popular? Could “The Truman Show” be running out of material? After all, even Seinfeld ended.

Someday, the Fed’s show will be off the air and new programming will take its place. And people will debate just how good it really was. When the show ends, those self-deluded Trumans will be mad as hell and probably broke as well. Hopefully there will be no sequels.

Jeremy Grantham of GMO

“Central banks have created an enormous bubble in stocks, by holding rates too low.

We do think the market is going to go higher because the Fed hasn't ended its game, and it won't stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market's mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now...

...But to invest our clients' money on the basis of speculation being driven by the Fed's misguided policies doesn't seem like the best thing to do with our clients' money.

We invest our clients' money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That's how we will pay for this. It's going to be very painful for investors.”

With these cautionary notes, I will discuss my trading strategy on next Tuesday.

Thursday, March 27, 2014

In search of new leadership - II

Thought for the day

“Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.”

-Peter Drucker (American, 1909-2005)

Word for the day

Vigilant (adj)

Keenly watchful to detect danger; wary.

(Source: Dictionary.com)

Teaser for the day

Heard Meera Sanyal and Medha Patekar – AAP candidates from Mumbai.

Both appear standing at opposite ends of the economic policy spectrum.

In search of new leadership - II

As suggested in my clarification yesterday, I believe that we are still some distance from the new bull market. Nonetheless, it is a good idea to prepare the ground and sow the seed well in advance.

I have expressed my opinion in many earlier posts also, that the bull market in Indian equities will commence mostly due to domestic reasons. The global factors, primarily liquidity and soft commodity prices may provide some extra impetus.

Therefore, the positioning has to be based on domestic growth drivers. I would therefore suggest the following areas for finding future leaders.

(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. We 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.

(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.

(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. However, as a matter of strategy we are circumspect about the PSBs. I would therefore suggest private sector lender including select NBFCs..

Public sector banks may though be better prospects for a short term trade. I will discuss it with our trading strategy in next couple of days.

(e) One of the primary premises of our bull case is soft 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) Besides some midcap ideas from textile, auto ancillary, consumer durable are also on our radar.

(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.

It is also desirable to make some money from the current up move that might strengthen even further once the election Euphoria subsides. I would like to term this up move as purely trading opportunity. In next couple of days, I shall present my strategy and ideas for benefitting from this trading rally.

Wednesday, March 26, 2014

Stop press!

Thought for the day

“I always avoid prophesying beforehand, because it is a much better policy to prophesy after the event has already taken place.”

-Winston Churchill (English, 1874-1965)

Word for the day

Fussbudget (n)

A fussy or needlessly fault-finding person.

(Source: Dictionary.com)

Teaser for the day

China slowing, Russia stagnant and Brazil downgraded.

Only “I” of the BRIC seems to be doing well at the moment!

Stop press!

I believe markets are in neutral territory at present. The bear market has ended, but bull market is still some distance away.

The current up move is likely to strengthen further. But it is merely a trading opportunity, not to be mistaken for a secular bull market.

Apparently my past couple of posts have caused some confusion amongst readers as to what is my present stance on Indian equities. Some readers have pointed that I have been generally bearish on Indian equities but some recent posts have exuded uber bullishness.

I feel it is appropriate to eliminate all ambiguities, which are completely unintentional, and put things in a clear perspective; before we proceed with our hunt for the sectors or stocks that will likely lead the market in next 12-18months.

1. I believe the primary function of capital markets is to facilitate entrepreneurs in raising risk capital for their ventures. A bull market is a market condition that is generally conducive for raising risk capital at fair price.

In this respect I believe Indian markets are still some distance from beginning of a bull market.

2. The pre-conditions for a bull market in equities include – (a) Greed overcoming fear; (b) lower volatility; (c) lower expected return from bonds; (d) earnings growth led by pricing power (better margins not because of cost control) higher RoE (higher creditworthiness) and RoA (better capacity unitlization); (e) stable macro environment (f) stable political environment and (g) easy liquidity conditions.

Only a few of these conditions are presently favorable. It is though likely that more conditions may turn favorable in next couple of years. But as of now there is little to be bullish about.

3. It has been a common for publically traded equity prices to move up or down materially without substantial change in underlying economic fundamentals. The ICE rally in Indian stock market during 1998-2000 is one such example. Another example would be the massive fall seen post the collapse of Lehman brothers in late 2008.

The current up move in Indian equities, and perhaps global equities too, is a secondary market up move. It is a trading opportunity and should not be confused with a secular bull market.

The drivers of a trading up move in a bearish or neutral market are often different from the likely leaders of the next bull market. In fact such trading up moves are led by the wounded or dead leaders of the past bull market. IT stock rally in late 2000 and early 2001 or bank and commodity stock rally in 2010 are couple of examples of such occurrences.

I believe we might see a massive bubble building rally in Indian public equities in next 12-15months, without actually entering into a bull market. This rally essentially will occur mostly on the back of global flows and political changes in the country.

The trading strategy for this expected rally has to be different from construction of a model portfolio for the next bull market.

I shall outline the strategy accordingly, in next few days.

Tuesday, March 25, 2014

In search of new leadership

Thought for the day

“A man who wants to lead the orchestra must turn his back on the crowd.”

--Max Lucado (American, 1955 - )

Word for the day

Philately (n)

The collecting of stamps and other postal matter as a hobby or an investment

(Source: Dictionary.com)

Teaser for the day

Are political parties waiting for Supreme Court to fix age of retirement for politicians?

In search of new leadership

Usually all new bull markets begin with new leadership with leaders of previous bull markets taking a back seat.

For example, late 1980’s bull market was led by commodities like cement, steel and energy. Then commodities had a bad decade in 1990s. Late 1990’s bull market was driven by new economy businesses like IT, media and communication. For next many years most of these businesses did not do well. Last bull market (2003-2007) was driven by credit and investment theme. Large projects (power, roads, ports, real estate development etc.) their financiers, developers, builders, equipment suppliers and service providers led the charge. The subsequent years have seen decimation of these businesses.

The interesting part is that in most cases financials have travelled the complete boom and bust cycle.

The challenge before us is to hazard a guess which sector or businesses will lead the next bull charge. In my view, it is as difficult a task as it could be. Nonetheless, we must form an opinion, seek conviction for the opinion, and make a strategy congruent to the opinion.

I would like to begin the process with setting the assumptions and deducing what may likely not do well.

Assumption for the next bull market

1. A stable government is formed post May 2014 election results.

2. The new government follows the classical Keynesian method to revive economic growth. Both fiscal and monetary stimuli are provided to spur consumption and investment demand. Monetary policy is not further tightened.

3. Government raises substantial resources through aggressive assets’ sale to recapitalize struggling public sector banks.

4. Key fiscal reforms like GST and DTC are implemented in next couple of years.

5. Global economy continues to improve led by G-3 (US, EU and Japan).

6. No disruption is caused by slower growth in China and weaker Yuan.

7. No major geo-political event occurs that would create supply disruption in energy market.

8. US Fed achieves the QE tapering target driven by consistent improvement in housing and job market.

9. US rate hike anticipation drive the risk asset prices higher as safe haven US treasuries fall and USD strengthens.

10. Commodity prices, especially energy, do not spike materially from current levels.

…to continue tomorrow

Readers can send their views, comments, criticism to the author at vijaygaba.investrekk@gmail.com

Follow @VIJAYGABA

Monday, March 24, 2014

What if Modi juggernaut stops short of 7RCR?

Thought for the day

“A line has to be drawn somewhere between what is essential and what is peripheral.”

-Sargent Shriver (American, 1915 -)

Word for the day

Totem (n)

A natural object or an animate being, as an animal or bird, assumed as the emblem of a clan, family, or group.

(Source: Dictionary.com)

Teaser for the day

So many bureaucrats, police and army officers joining electoral politics!

Is it good or bad?

Many of these (or perhaps all) are disgruntled and might have their own agenda.

For example, imagine MoS (defence) V. K. Singh vs. Army Chief or MoS (Home) R. K. Singh vs. CBI Chief!

What if Modi juggernaut stops short of 7RCR?

As things stand today, the following scenarios could materialize on 17-18^th May when counting for votes is completed:

(a) An NDA (pre-poll alliance) majority government led by Narendra Modi. If BJP gets 210 seats on its own.

(b) A new front majority government led by a BJP leader other than Modi. If BJP falls well short of 200 mark.

(c) A new front minority government supported by BJP from outside. If BJP falls short of 200 and decides not to compromise on Modi’s PMship candidature.

(d) A new front minority government supported by Congress from outside. If Congress gets more than 120 seats and BJP is well short of 200.

(e) A new front majority government led by Congress. If Congress gets more than 145 and BJP is well short of 200.

In my view, all these scenarios are possible. The probability of (a) or (b) appears more than 50% and that of (e) is less than 10%.

The relevant question for us however is what happens to economy and therefore markets if the scenario (a) does not materializes. It is important because market opinion presently appears totally biased towards the probability of Narendra Modi leading a stable government post elections.

In my view, irrespective of the outcome of elections some of the structural issues affecting the Indian economy may not find any immediate solution. Food inflation, stress in the financial system especially capital adequacy of PSBs, unemployment, socio-economic inequalities, regional growth imbalances, poor physical infrastructure, etc. are some example, where no improvement may be seen in next few years.

However, with a stable government (with or without Modi) many cyclical issues would get addressed. The business and consumer confidence may improve leading the up move in investment and consumption demand, capital flows may remain steady, trade and fiscal balance may remain within tolerance limits and liquidity conditions may improve. The economic growth may therefore stabilize in below potential 5.5-6.5% band.

The market has already adjusted itself to the new normal lower growth and elevated rate scenario.

The focus of global markets has now definitely shifted to US rate cycle. A rotation from US bonds to equities or other risk assets would be in order. Perhaps it has already begun. A stable government in India (with or without Modi) will attract some of this rotating money. A 1999-2000 type bubble creating rally between 2H2014 and 1H2016 is more probable. In my view, the market participants should be solely focusing on is “what will lead this rally?

What we need is a stable government that would last five years. If Narendra Modi gets to head it I will be happy. If he does not – I’ll not be selling a penny worth of my equities.

Friday, March 21, 2014

Can Modi make a China out of India?

Thought for the day

“The most perfect political community is one in which the middle class is in control, and outnumbers both of the other classes.”

-Aristotle (Greek, 384-322BC)

Word for the day

Susurrant (adj)

Softly murmuring; whispering

(Source: Dictionary.com)

Teaser for the day

Does Crimea offer any lessons for Kashmir or vice versa?

Can Modi make a China out of India?

The limited implications of general elections in terms of industry performance would be better visibility of order flow for capital goods from 2015, improvement in working capital cycle. Improvement in capacity utilization level would depend on the correction in inventory level, pick up in consumption demand and higher government plan expenditure.

During InvesTrekk team’s latest intensive tour of 73 constituencies in UP, Bihar, Uttrakhand, MP and Delhi, we did notice a sublime support for BJP PMship nominee Narendra Modi (see here for more details). The support however is for Narendra Modi not necessarily for BJP or NDA.

Moreover, from our rather personal interaction with voters we understand that going into the election this time the dominant feeling of voters is that of indignation at 10years of UPA rule; not just exasperation. It is therefore not normal anti-incumbency.

The vote for Narendra Modi will therefore be largely a positive vote rather than a negative vote against the incumbent government; and with this begins the problem. A positive vote comes laced with humongous expectations. The general Modi supporter believes with all his sincerity that he is the divine intervention that will get rid of all the malaise plaguing the country in no time.

Even agnostic voters, showing a tilt towards Modi this time, believe that he would be reasonably successful in transporting Gujarat model of efficient execution to the national scene. Even the detractors are criticizing Modi more in historical context of 2002 Gujarat riots rather than his economic agenda. Though some feeble attempts have been by likes of Arvind Kejriwal of AAP, the criticism is just that – feeble.

We need to evaluate our investment strategy in this context. In simple terms, it involves evaluating three scenarios, viz.,

(a) What will change if Narendra Modi is successful in his campaign to reach 7RCR?

(b) What if NDA forms the next government, but Modi staying back in Gandhi Nagar?

What will change if Modi occupies 7RCR?

A recent Financial Times article suggested that a Narendra Modi victory will make India more Chinese. According to this theory, people are attracted to Modi for the prospect of Deng-style growth. The supporters believe that by sheer force of will Modi may be able to override some of the checks and balances of Indian democracy and introduce some of the clearheadness of growth-driven China. Under a Modi administration, the hope is, land will be cleared, permissions will be granted, and roads and other infrastructure will be built. In short he will do for India in its entirety what he has been able to achieve for Gujarat.

As sated earlier also, from my own interaction with people I found that Modi is being perceived as a divine intervention that would get them rid of all the ills currently plaguing Indian society, politics and economy. Businessmen in particular are expecting that Modi will at the least ensure the following:

(a) Proactive, clean, responsive and business/investment friendly administration.

(b) Proactive administration.

It is expected that by ensuring this he could deliver higher economic growth and lower inflation.

Unfortunately, no one could produce an iota of substantive evidence that would suggest that Modi could meet their expectations in the timeframe they are considering.

As of now, in my view, Modi does appear assertive and has shown tendency to take quick decisions in economic administration matters. A few quick decisions could boost the sagging business sentiment. Fortunately, many other things are already falling in place and may work in his favor.

In my view, the following positives could emerge if Narendra Modi gets to lead the next government with a clear mandate:

(a) Business and investor confidence may recover on the hopes that policy making will be proactive, business friendly, consistent and faster.

(b) Important economic and financial legislations like GST, DTC, Insurance and Pension Bills etc. may get cleared in FY15 itself. In my view, BJP’s opposition to GST is purely political and has nothing to do with their economic ideology.

(c) Important administrative reforms are implemented to uplift the morale of bureaucracy. This is expected to expedite the project execution.

However, contrary to popular sentiment, I do not agree that a Narendra Modi led government could kick start the stalled investment cycle in short term.

I broadly agree with the recently released Credit Suisse strategy report highlighting that “Only a fourth of projects are stuck with the central government, and two-thirds of these are in power and steel, both wracked with massive overcapacity; thermal power utilisation is at two-decade lows. Only state governments can revive power demand. Even elsewhere (roads, railways, etc.), solutions will take years.”

On fiscal front Modi will have two options. (a) Aggressively follow the Keynesian path – QE to spur demand and thus kick start the stalled investment cycle; or (b) Follow a tighter policy – hike taxes, curb government spending, target subsidies, control inflation, and reduce rates to motivate capital flows and investments.

In my view, he will opt for the conventional, time tested and recently successfully employed in western world path of QE. A confrontation with RBI governor, who has been vocally opposed to this path would therefore be inevitable – sending wrong signals to investors.

Given that the 2014 elections are being fought very aggressively, and acrimoniously, I do not see consensus evolving on key social, economic and financial reforms till the tempers cool down, may be two years down the line.