Wednesday, April 22, 2015

I hate you like I love you

Thought for the day

"My mother said to me, 'If you are a soldier, you will become a general. If you are a monk, you will become the Pope.' Instead, I was a painter, and became Picasso."

-          Pablo Picasso (Spanish, 1881-1973)

Word for the day

Atticism (n)

Concise and elegant expression, diction, or the like.

(Source: Dictionary.com)

Malice towards none

One thing the Congress Party has certainly not learned in past fifteen years - It is tough to beat Narendra Modi in Bhashan Bazzi!

I hate you like I love you

The controversy over applicability of MAT to book profit of foreign portfolio investors is unfortunate; though it is not new and perhaps not the last one to erupt.
In past 15yrs the markets have faced the brunt of concentrated selling, whenever the government of day or the regulators have raised the issues such as misuse of DTAA with Mauritius, money laundering in the garb of foreign portfolio investment, and taxation of foreign investor at par with domestic investors.
Unfortunately, on no occasion the government or the regulator could withstand the pressure. The sharp fall in the equity prices and currency would almost instantaneously invite a retraction of the thought.
Five things stand out clearly from this trend:
(a)   The ghost of the collapse of Thai Baht and consequent trouble in Asian economies in late 1990's has left a lasting impact on Indian psyche.
(b)   We have miserably failed in managing the paradox - Cursing the influence of foreign culture and capital on India and sparing no occasion to invite, welcome and embrace anything foreign.
       It reminds me the love and hate relationship between Lord Krushna and Gopis of the Brij pradesh. Gopis would curse Krushna and vow daily that they would not give into his charms. But the hatred and resistance would last only till the time they heard the magical notes of his flute.
(c)   In past 25yrs of their presence in India, foreign portfolio investors (FPI) have frequently caused huge volatility in Indian markets. We have not seen any credible plan to manage this phenomenon.
(d)   We have not been able to decouple the long term real investment (FDI) and relatively short term FPI investment. The latter though much smaller leads the trend of flow in the former.
(e)   Despite tough stance of FM Arun Jaitely on issue of applicability of MAT on FPIs, a 10% further fall in market will see a retraction.
China’s RRR cut reeks of desperation
The People’s Bank of China (PBoC) is “desperate” to control Shanghai’s red-hot equity rally, analysts said, after the central bank slashed the reserve requirement ratio (RRR) on Sunday.
The 100 basis-point RRR cut to 18.5 percent is the biggest since 2008 and comes in response to a sharp selloff in stock futures on Friday after the China Securities Regulatory Commission (CSRC) tightened margin trading rules. The CSRC aims to cool Shanghai’s stock market, which is up over 30 percent year to date at seven-year highs. Futures plunged during late trading on Friday, with the China A50 futures contract down 6 percent in New York.
“After the announcement on Friday, stock futures were looking horrible so something needed doing to put a floor under that from a short-term point of view. But everybody’s going to take a look at this and say ‘hold on, why are they [PBoC] overreacting so strongly?’ People are going to start sensing desperation here,” Paul Gambles, co-founder of MBMG Group, told CNBC on Monday.
Indeed, policy watchers were scratching their heads over the series of conflicting announcements. The PBoC is scrambling to ensure stability in China’s notoriously volatile share market, said Mark Andersen, global co-head of Asset Allocation at UBS CIO Wealth Management.
“They want to see markets go up to some extent, but not out of control. With some of this margin financing, they want to see a relatively stable capital market with property prices falling so they don’t mind equity prices moving up a bit to support the broader economy, but they don’t want to see bubble territory,” Anderson said.
The PBOC ‘needs’ markets
The magnitude of Sunday’s RRR cut confirms that authorities have become increasingly dependent on equity markets, economists say.
Beijing is using the stock market to stimulate innovation and entrepreneurship and channel liquidity to the real economy to hedge economic downside risk, as well as to facilitate deleveraging of state-owned enterprises, HSBC said in a report. “[The RRR cut] is a political goal to create wealth effects in both A- and H-share markets.”
This past weekend was a replay of recent events, according to Macquarie Securities. Three months ago, the CSRC rolled out margin financing curbs on a Friday, only to back down Monday night after markets slumped.
These about-turns in policy aren’t surprising though “as policy makers need equity markets more than ever,” the bank said.
Time to cash out
“Crazy things like a 100 bps RRR cut are not going to help confidence. It’s going to make people respond in the short term, but people will remain negative in the long-term,” said MBMG’s Gambles, who recommends investors to cash out now.
(Reproduced from Contra Corner)
Will Kaisa's default trigger more defaults?
Kaisa Group Holdings Ltd. captivated Wall Street by minting fortunes from troubled real estate in China.
Now the developer is in trouble itself -- and the question is how far the pain will spread.
On Monday, the news came that many had been dreading for months: The company, caught up in an anti-corruption probe, is buckling under its debts as a slumping real estate market weighs on the entire Chinese economy. After missing $52 million in interest payments, Kaisa, once a stock market darling, now confronts an uncertain future.
It’s a remarkable comedown for a company that burst onto the scene in 2007 as billions poured into Chinese real estate. Its troubles, long in coming, have set investors on edge and have many asking if Kaisa is a one-off or the start of something worse. Just last week, Standard & Poor’s warned that “more defaults cannot be ruled out,” saying it’s concerned profitability in the Chinese property sector is faltering.
“More than one big developer is going to go under,” said Erik Gordon, a professor at the University of Michigan who examines legal issues in corporate and sovereign debt restructuring efforts. “Busts follow booms. There’s no reason for it to be any different in China.”
While reaction to the default was muted in Chinese markets on Tuesday, the saga has sparked jitters among the country’s corporate bond investors on multiple occasions over the past several months. (Bloomberg)
Trivia
The Japanese drug maker Dai-ichi Sankyo bid Sayonara to India by off loading its entire ~9% stake in Sun Pharmaceutical Limited. This obviously raises a big questions - "WHY?".
The true answers to this will however be known only when some big shot at Dai-ichi or Sun publishes his biography or memoires, perhaps a decade or two later.
Some possible answers are:
(a)   Ranbaxy was a nightmare, which some big shot at Dai-ichi just could not bear any longer.
(b)   Dai-ichi found Sun to be an expensive and had better alternatives.
(c)   Sun refused to accommodate desired number of Dai-ichi representatives on the board.
(d)   Dai-ichi management knows something bad about either Sun or Dai-ichi, that the public would come know in due course.
Anyways, Singh brothers must be having a good laugh.
 
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Tuesday, April 21, 2015

Are we ready for Gen Y?

Thought for the day

"Only put off until tomorrow what you are willing to die having left undone."

-          Pablo Picasso (Spanish, 1881-1973)

Word for the day

Brio (n)

Vigor, Vivacity

(Source: Dictionary.com)

Malice towards none

In the national interest, the PM should start each day by publically apologizing to all aggrieved by sundry comments, remarks, tweets, writings etc. of all members of BJP, NDA allies and other friendly organizations.

Are we ready for Gen Y?

Historically, the Indian entrepreneurs have been constricted by the culturally strong agriculture mindset. The hard working and intelligent people missed the entire industrial revolution as a consequence. To some extent the colonial rule could be held responsible. But largely it was the mindset that was responsible.
Most entrepreneurs did not think long term, hence did not invested much in R&D activities. They would rather import technology and pay royalty for it.
Furthermore, most entrepreneurs were easily satiated. Complacency would easily meander through their enterprise. A few which had travelled, worked or studied abroad did only think big.
The governments also preferred less consumption over more production. You needed to pay annual license fee for owning a radio set and bi-cycle. Long queues for cement, sugar, scooters, telephone, cars, kerosene, diesel, passport, were order of the day and not much protested about.
The generation post Maruti 800 is not so constricted by this mindset. And particularly those born post 1991 have not seen experienced these queues. These people were born with color TV beaming many channels through satellite in their homes.
This post 1991 generation is now coming out of business schools. These young men are global in their vision, hungry in their stomach, and have resources to take risk. They do not stutter while talking about billion dollar. Their role models are likes of Jeff Bezos, Steve Job, Larry Page and Mark Zukerberg.
Anyone could see the change not only through Flipkart and Snapdeal, but through traditional businesses like Haldiram.
These are the people who will define the economic history of India in 21 century.
The question is whether our systems are ready to support these young entrepreneurs.
Capital markets are not yet ready
The primary function of the capital market is to provide an organized platform to entrepreneurs who have business ideas and want capital to fund the execution of their business ideas.
The secondary market for securities through which various entrepreneurs have raised money in past (popularly known as stock market) is an essential part of the capital market. It is this part that helps in discovery of current price of the issued securities and also seeks to facilitate trade in such securities.
Price discovery and liquidity are thus two primary functions of stock markets. These two functions usually supplement each other. Adequate liquidity is pre-requisite for an efficient price discovery. A fair price discovery mechanism on the other hand augments the liquidity through a wider and deeper participation.
An investor in corporate securities therefore needs to bother about two things:
(a)   Whether the entrepreneur in whose business the investors is investing is his money, has a viable business idea, is competent enough to profitably execute that business idea and economic environment is supportive to him.
(b)   Whether he will be able to liquidate the investments so made at a fair price, whenever desired, subject to any statutory lock-in restrictions.
Since 1991, the market regulator and government have played no role in pricing of the transaction between the issuer and investors. Despite an overwhelming number of issuer failing in achieving their business goals as stated in the offer documents, or even changing their goals altogether, the regulators have refrained from imposing any restrictions on pricing of public offer of securities. Caveat emptor is the rule followed in latter and spirit.
However, same is the not the case with secondary market operations. (a) Except for prescribing a minimum "25% public holding" norm, there is no market mechanism to ensure adequate liquidity for the publically traded securities; and (b) There are restrictions in fair price discovery in form of daily circuit limits.
Consequently, the stock market in India lacks depth and breadth. The skew in the traded volume at stock exchanges is worrying. Even at current elevated level of market activity, top 100 stocks account for over 75% volume at NSE. More than 50% of the listed securities do not trade on daily basis.
In an admittance of failure to control market manipulation and malpractices of "operator-promoter" combine, daily movement limits ranging from 2-20% are imposed on all stocks not traded in derivative segment.
Politicians are not yet ready
The Aam Aadmi Party (AAP) is reflection of this change. It has successfully demonstrated that the 1990's generation could defeat the traditional politician comprehensibly. Given the opportunity these people will show that they could assimilate the modern milieu much better and manage the affairs of the state accordingly. (It is pertinent to clarify that the author sincerely believes that Arvind Kejriwal is constricting the growth of the idea of AAP to service his personal ego and aspirations.)
Whereas the traditional politicians are refusing to even acknowledge the change. They are still stuck in medieval history and skeptical of anything foreign.
·         The debate over FDI is marred by this mindset.
·         The whole debate over secularism vs. communalism emanates from it.
·         The whole debate over gender equality, women security, social justice, and racism germinates in this mindset.
Feudal Giriraj Singh is pulling the maverick Modi back.
Feudal Digvijay SIngh will not let Rahul Gandhi set himself free.
Feudal Mulayam and his brother are constricting Akhilesh.
Trivia
Considering the communist leanings of Neta Ji, BJP's emotions for him raise doubts.
Is it a case of enemy's enemy my friend; or
It is just "let's try we have nothing to lose"!
The indications so far are that it is going to be hell of a mudslinging match that will leave all red faced in the end.
 
 
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Monday, April 20, 2015

Shenanigans of a redeemer

Thought for the day
"I'd like to live as a poor man with lots of money."
-          Pablo Picasso (Spanish, 1881-1973)
Word for the day
Grubstake (n)
Money or other assistance furnished at a time of need or of starting an enterprise.
(Source: Dictionary.com)
Malice towards none
You would not know if you were dead. Only others would know.
It's same for stupidity.

Shenanigans of a redeemer

The recent prints on trade data read with domestic core inflation, indirect tax collection numbers, employment data and result expectations for the quarter ending March 2015 present a clear picture of the state of affairs at this given point in time.
·         The external demand environment is tough and not likely to improve in near term.
·         The domestic manufacturing may have bottomed, but the pickup is still a few miles away.
·         One certain factor in lower core inflation is lack of pricing power.
·         Execution delays continue to reflect poorly on the employment growth.
The incumbent government shall complete its first year in office in four weeks. The report cards presented by various ministers, especially by the Finance Minister in recent speech at Peterson Institute for International Economics, claims to have achieve wonders. I would like to leave the assessment on this to discerning readers.
In past few days, five events have particularly dominated media headlines.
·         PM Modi's yet another "successful" foreign visit. The longest one this time.
·         Congress VP Rahul Gandhi's return from 57day introspection sabbatical.
·         Sania Mirza and Saina Nehwal achieving which no other Indian woman has done so far, viz., No. 1 global ranking in their respective sports.
·         TCS deciding to distribute some of its cash pile to its employees and RIL regaining India's top profit maker position.
·         J&K plunging back into unrest after relatively peaceful decade.
Making PM part of the problem
PM Modi has made friends with many important global leaders like Japanese PM, Australian PM, British PM, Canadian PM and American President.
One wonders whether it is a reflection of the charisma and congenial personality of the prime minister or something else.
The trivia is that if PM were so charismatic, congenial and friendly, why would he fail in making friends with opposition leaders like Rahul Gandhi, Mulayam Singh, Lalu Yadav, Mamta Baneerjee, Naveen Patnaik, Nitish Kumar etc.
The argument of untouchability of BJP is weak. Bharat Ratan Atal Bihari Vajpayee was also a BJP Prime Minister and he was admired and befriended by all opposition leaders.
We need to examine whether these global leaders are smitten by the persona of PM Modi or merely by the irresistible lure of Indian markets in a time when recession is knocking furiously on their respective doors.
In the case of latter, the bonhomie displayed by these leaders calls for greater caution rather than celebration.
It's not the opposition, but the friends on his side of the divide
I have been highlighting since past many months that the incumbent government suffers from all the limitations which constrained the preceding regimes. The majority in Lok Sabha is just an illusory comfort.
If only number of Lok Sabha MPs could bring about the socio-economic metamorphosis we all are longing for (at least in our public discourse), Rajiv Gandhi could have done it long ago.
The only differentiating factor is that the government is led by an experienced politician who is committed, has shown understanding of the problems, has some vision of the solutions and track record of delivery.
Unfortunately, in the course of his election campaign he has raised expectations of the people beyond manageable levels and frequent state elections are not letting him moderate these expectations.
The critics of the prime ministers nonetheless need to appreciate that he is a Valuable Resource of this country. It is for us to decide how best we want to make use of him. We could pull his legs and laugh. Or we could suggest him solutions for the myriad of problems faced by this country and cooperate in implementation these solutions.
This does not require giving a missed call at 1800 266 2020 or attending RSS shakha or subscribing to the frivolity of VHP etc.
The prime minister himself is making all the right noises. He wants people to walk with him on the path to progress. Unfortunately, even his horsemen would not let him do this.
To appreciate what am I saying, just read 100 latest tweets of various minister in his government. They just eulogize the PM, putting on the highest pedestal far away from the people and thus make him the part of the problem rather than becoming themselves part of a solution.
Give him some time and support
One of the most reputable industrialists in the country, Ratan Tata recently, advised his peers not to get "disillusioned and dissatisfied with the new government so fast".
"He (PM Narendra Modi) is still in the early stages of defining what he hopes to deliver a new India. The implementation hasn't really taken form this year," Tata said recently in a program.
Coming from a seasoned persons like Ratan Tata, this exhort is significant in many ways. To me it highlights five things:
(a)   The business community in the country is restless and beginning to feel disillusioned and dissatisfied by the performance of incumbent government. At an earlier instance HDFC chairman Deepak Parekh had also expressed similar sentiments.
(b)   The government is still some distance away from defining the framework for delivering on the promises made during pre-elections and post election period.
(c)   The government has certainly fallen short on execution in the past eleven months.
(d)   Notwithstanding the popular narrative and rhetoric, wise amongst the herd understand that it is not easy to realize the dream of new India, but it is within the realm of reality nonetheless.
(e)   No single person, party or government could deliver the New India. It has to be a popular movement. Cynicism, opportunism, partisanship aside, the country as a whole would need to support the movement.
       The best example is the effort invested by two young women Temsutula Imsong and Darshika Shah's in cleaning of famous Prabhu Ghat in Kashi. It is for us drive inspiration from these two young women and contribute to building new India or wait for the Modi government to fail just to enjoy a few moments of sadistic pleasure.
Rahul Gandhi has an opportunity
In my view, the space for a sustainable national opposition to NDA is still vacant and the Congress Party is the most preferred and natural choice to fill the void.
Rahul Gandhi has taken a good two month break from active politics. Despite his uninspiring speech at Sunday Kissan Rally, I believe he has the opportunity to make a new beginning. People will forget and forgive all his previous failing if he could reinvent himself and his party.
It will be unfortunate if he squanders this opportunity.
Inspiration vs. reverence
While helping them prepare for their GK class test, I asked my daughters (10 & 12 year old) who inspires them most. Both of them answered in a blink - "Sania and Saina". One could clearly see the twinkles in their eyes.
"What do you think of Narendra Modi?", I asked. "Ain't he also inspiring?" Son of a tea vendor becoming prime minister - "Doesn't he remind you of Cinderella story?"
Stared at my face - as if they were searching for the answer I am expecting - both paused for few minutes and softly uttered "Not really". The indifference in their response conspicuous and bit concerting.
The children who just a year ago had shouted 'Abki Baar Modi Sakar" for more than two months, debated with their friends, even requested me to vote for a Shiv Sena candidate notorious for criminal antecedents - are not inspired by his leadership.
There has to be something wrong. My pursuit to find the truth pushed me to dial a few acquaintances.
The outcome was not surprising. The truth is that people believed Modi to be a redeemer (Taranhaar). He is expected to redeem all the problems faced by the populace. That's his duty.
Prince Gautama followed the path of salvation and became Budha. But no king would wish his son to become Budha.
Corporate performance meets the muted expectations
The result picked up steam last week. TCS met the muted street expectations. Highlighted the challenges in external demand environment. Managed the currency fluctuations well and sustained the pricing. The surprise was the decision to reward employees by generous bonus. We are yet to ascertain whether TCS is finding it hard to stop talent from flowing to more lucrative e-commerce and other IT start-up businesses.
RIL became the largest profit earner in the country once again. The numbers were though not very inspiring. Petrochemical business which was expected to turn corner from the current year is still suffering from low demand and lower margins. Telecom business execution is lagging behind.
Heaven burning again
Both the Modi and Mufti governments have mishandled the situation in the Valley. The people returning after holidaying in Srinagar suggest that the situation there is likely to worsen from here.
An Army brigadier candidly told me - both the governments are not too keen to find a solution. A simpler thing could have been to construct a gated colony of 1000-1500 houses in Srinagar and allot these dwellings to Kashmiri Pundits through a draw of lots, instead of shenanigans of announcing that a "separate township" will be created (with no plan whatsoever on the board).
Some interesting charts
US disinflation may be real
 
 
 US groceries prices fell 0.5% last month, the largest decline in nearly six years.
 
 
Demography explains EU low growth more than anything else
Figures released by the European Union’s statistics agency Thursday show the 28-member bloc  is running low on children, a trend that is set to continue. People aged less than 15 years accounted for 18.6% of the population in 1994, but just 15.6% in 2014. Eurostat estimates the rate of decline will slow in the coming decades, but just 15% of the population will be children in 2050.
 
 
 
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Friday, April 17, 2015

Time to serve the food

Thought for the day
"If it looks like a duck, and quacks like a duck, we have at least to consider the possibility that we have a small aquatic bird of the family anatidae on our hands."
-          Douglas Adam (English, 1952-2001)
Word for the day
Schlemiel (n)
An awkward and unlucky person for whom things never turn out right.
(Source: Dictionary.com)
Malice towards none
PM Modi began his term with a visit to Bhutan. He will complete first year with a visit to China.
In the mean time he has travelled across seven seas and five continents.

Time to serve the food

As per current estimates, the urban population of India is set to rise by more than 400 million people to 814 million by 2050. The country is likely to witness mass urbanization only seen before in China. Most Indian cities today face extreme infrastructure constraints.
In past seven decades we have perhaps developed 25 odd new cities. Besides Chandigarh, almost all new cities like Gurgaon, Gandhi Nagar, Navi Mumbai, Dispur, Secundrabad, New Raipur etc. have evolved as satellite town of a large congested city without much long term planning. Many of these cities are suffering from inadequate civic amenities like water, electricity, parking space, security, etc. Lack of employment opportunities makes people travel long distances and hence problems of pollution and poor quality of life.
Under these circumstances, there are three options to improve life of the people. (a) Provide modern amenities and employment in the 6,50,000 villages of the countries and thus reverse the flow of immigration from villages to cities; (b) create new urban infrastructure and let the manage mass migration of people from villages to these cities; and (c) use a judicious mix of first two options, i.e., improve quality of life in some villages and build new urban infrastructure.
The government of India seems to have opted for the third alternatives. It plans to build 100 smart cities to decongest exiting cities and provide necessary social and physical infrastructure in villages through schemes like PURA (Providing Urban amenities to Rural Areas).
Building smart cities is a good idea. Making 100 of them is even great idea. But we need to understand and accept that smart cities are not merely about technology and infrastructure. It is indeed more about smart people who are dedicated to quality in life and are fully compliant.
I have so far not seen much effort on the part of government or civil society to promote such dedication and enforce compliance. The cleanliness initiative of PM Narendra Modi has the potential to drive an effective mass civic compliance movement, but so far the commitment to this program has been sketchy.
It's already 11PM, serve the food
PM Narendra Modi and his government have invited the entire world to come to India and experience the red carpet welcome. A grand banquet has been organized. Many guests have arrived well in time. The evening started with pleasantries and then began the session of speeches. Many leaders have spoken eloquently. Their views, vision and promises have been received well.
But it is 11PM now. The guests are hungry. They need food. But there is no sign of even appetizers.
...set your house in order
It is widely known that many strategists and fund managers are seriously looking for long term investment themes in programs like Make in India, Development of Smart Cities, Clean India, Digital India, Inland Waterways etc.
To assess the validity of these themes and identify some micro level investment ideas, I decided to gather some information.
After trying with many ministries and departments, I discovered that though the government is already 11month old, its bureaucratic structure is far from established. The churn is still continuing. The roles and accountabilities are not yet finally assigned. In short, the execution team has not yet taken position on the starting blocks.
The pursuit of information took me to the BJP headquarters in New Delhi. Unfortunately, I could not get any bit of the desired information or even any clue as to this information could be obtained.
But what I observed there, made me little skeptical about the dedication and commitment of BJP workers and leaders to the cleanliness and civic compliance. The toilet meant for the use of visitor was dirty and stinking like a typical municipality managed public toilet. Pan Masala sachets, empty cigarette boxes and plastic cups were strewn around garbage bins. The canteen was dirty and filled by house flies. There was a lot of temporary looking permanent structures, which I suppose is to dodge the stringent Lutyens Zone building rules. Most structures were highly energy inefficient and lack proper ventilation.
The Union Minister for Urban Development, who should logically be responsible for delivering smart cities, also happens to be the Minister for Parliamentary affairs. Given the persistent logjam in Rajya Sabha, he naturally spends more time in managing the relations with opposition parties and the unhappy media personnel, as compared to issues like urban development.
For now I have given up on the this theme. Perhaps I will revisit a year later.
In the context it is pertinent to note the following excerpts from the interview of Ramakant Jha, CEO of GIFT city, Ahmedabad  published by Reuters India and an interview of Rajeev Malik, a senior economists at CLSA, Singapore.
India: A Truck With A Broken Gear Box
"The delay in passing the land acquisition legislation is disappointing, as is the compromised design of the GST—a well-designed GST has the potential of doing for India something similar to what the entry into the WTO (World Trade Organization) did for China. Despite repeated assurances by the government, there are still doubts about the consistency and clarity on India’s tax policies. Worries over retrospective taxation haven’t gone away fully, and the latest issue of tax demands for prior years on international funds investing in India leaves a lot to be desired. The approach towards a critical area like education remains an enigma wrapped around a question mark."
"The Modi government has some meaningful achievements but still appears to be under-performing a key test—the pick-up in economic growth. Further, there is a feeling among investors that the government could have moved faster. The fact of the matter is that either the government overestimated its ability to jump-start growth or underestimated the time needed to fix the multiple factors which had crippled growth. In any case, it is difficult not to be constructive on a secular story like India. However, it is important to reiterate that the much-awaited acceleration in economic growth will be slow and uneven initially. The government is partly a victim of high expectations, unrealistic in some cases. It also comes across as being somewhat defensive for its pro-business approach and is caught in this unnecessary political web of being branded anti-poor. Spreading the fruits of faster growth is the best economic medicine for dealing with poverty. The government should emphasize the benefits of reforms more assertively rather than being defensive about them.
"The Indian economy is a like truck with a messed-up gearbox. More petrol or fresh paint or new tyres or a new driver-cum-mechanic won’t be successful in making it to move faster until the gearbox is fully fixed. Fixing the gearbox will take time. Investment recovery continues to be held back by structural factors, institutional issues, supply-side constraints and policy uncertainty. The banking system is burdened with asset quality issues, while corporate debt overhang constrains a quick turnaround in taking on risk. Corporate balance sheet stress is particularly high in infrastructure and natural resources. Higher private capex will need improved profitability; this again will be slow in playing out. The domestic headwinds are complemented with subdued global demand. The above is not to say that a new investment cycle won’t take shape. To be sure, some of the pieces are already falling into place. But the turnaround will be gradual and uneven. Investors shouldn’t let impatience cloud their judgement."
"The Reserve Bank offered an inconsistent contributing factor of poor monetary transmission of its earlier interest rate cuts for not cutting the repo rate earlier this month. I say inconsistent because poor monetary transmission is hardly a new problem in India. RBI did not raise it as an issue when it was raising interest rates in late 2013.
Governor (Raghuram) Rajan had raised rates by a total of 75 bps (basis points) after coming to RBI but there was hardly any transmission of those into banks’ lending rates.
Does anyone recall the Reserve Bank signalling that it will wait for banks to pass on, say, the first two rate increases before taking a call on further tightening?"
"One critical challenge is that most high-frequency data don’t echo the more favourable signals in the annual GDP data, which also seem to be out of sync with the bottom-up evidence and feedback from corporates. The forecasting challenge is compounded by limited history of the revised data—growth rates for only three years are available. There is some improvement in clearing the backlog of stuck investment projects but the delay in passing the land acquisition legislation is disappointing."
"Government officials badmouth negative actions of rating agencies but become their cheerleaders when an action is favourable. A more balanced approach might help to improve their credibility. Different asset classes— equities, fixed income and currencies— had already priced in improving macro dynamics. Moody’s move—although not without caveats—essentially formalizes that improvement."
100 ‘smart cities’? Getting just one done will be a challenge
Prime Minister Narendra Modi’s plan to build 100 “smart cities” by 2022 to decongest existing urban centres probably will take longer to achieve. Reuters visited the foundations of one of these cities in Gujarat, a finance centre called Gujarat International Finance Tec-City (GIFT).
Situated between the cities of Gandhinagar and Ahmedabad, the government wants the city to double as an international finance centre to rival crowded Mumbai and business hubs such as Singapore and Dubai. It plans to offer drinking water from the tap, automated waste collection and dedicated power supply. [Full Story]
Read the full interview at Reuters India
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