Vijay Kumar Gaba

Friday, November 6, 2015

Economics in India is politics agnostic

Thought for the day

"One of the advantages of being disorderly is that one is constantly making exciting discoveries."

—A. A. Milne (English, 1882-1956)

Word for the day

Coriaceous (adj)

Of or like leather.

(Source: Dictionary.com)

Malice towards none

Kailash Vijayvergiya is always misinterpreted.

Wonder why he speaks at the first place!

First random thought this morning

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

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

Economics in India is politics agnostic

Many readers have raised doubts over my view that in India economic policies and therefore financial markets are politics agnostic. I am though not inclined to modify my opinion. I would rather like to reiterate what I have said on many earlier occasions.

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

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

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

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

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

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

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

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

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

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

Thursday, November 5, 2015

Beyond Bihar elections

Thought for the day

"If one is to be called a liar, one may as well make an effort to deserve the name."

—A. A. Milne (English, 1882-1956)

Word for the day

Landloper (n)

A wanderer, vagrant, or adventurer.

(Source: Dictionary.com)

Malice towards none

The amount of honking, indecent gestures and road rage - a disciplined driver has to face on Delhi or Mumbai roads is sufficient evidence of growing intolerance in the Indian society.

First random thought this morning

I find my teenage daughter becoming increasingly intolerant these days. She would protest vehemently against most trivial of the things.

Perturbed, I decided to talk to her and straighten out the things. I was speechless, when she presented her reasoning. She said, "I must protest to everything, trivial or important, so that in future when I protest against something important, you should not tell me that I had not protested against such and such thing a few years back and hence I have no right to protest now."

"Protest today to secure the right of protesting in future" - seems to be the mantra!

Beyond Bihar elections

Some readers have sought my views on economic and financial market implications of the results of ongoing Bihar state assembly elections.

It has been my consistent view that Indian economy and therefore financial markets are mostly neutral to the political parties and variety of coalitions of such parties.

In fact the most euphoric periods in Indian equity markets occurred during most politically instable periods. Morarji Desai (1977, FM H. M. Patel, Bureaucrat – FERA dilution, Gandhian socialism, Mandal Commission), V. P. Singh (1989, FM Madhu Dandavate, Socialist – tax reforms, social justice), Chandrasekhar (1990, FM Yashwant Sinha, Bureaucrat, fiscal commitment, government exiting non-strategic businesses) PV Narsimha Rao (1991, FM Manmohan Singh, Economist – economic liberalization, Industrial delicensing, LERMS, financial sector reforms), Devegoda/I. K. Gujaral (1996, FM P. Chidambaram, Lawyer turned politician – dream budget, tax reforms), Vajpayee (1998, 1999, FM Yashwant Sinha, Jaswant Singh – divestment of government monopolies like roads, power, coal, NELP, NHDP, SEZ, nuclear program) and Manmohan Singh (2004, FM P. Chidambaram – RTI, MNREGA) were all coalition governments supported by socialists/communists (including JDU/RJD), full of internal contradictions and inherently unsustainable.

Not incidentally, these were periods when many key economic reforms were conceived and implemented to accelerate economic growth. Therefore, assumption that any change in political equation post Bihar polls would materially impact the primary trend of Indian economy or markets would be unreasonable and without much basis.

Nonetheless there would be some short term implications of the Bihar result the impact of which might be felt next week.

If NDA wins Bihar elections

(a) The market may move higher due to covering of short positions created in anticipation of NDA loss. Nifty may rebound to the recent high of 8330 in this scenario.

(b) The opposition parties may adopt even more belligerent posturing in the winter session of the Parliament, undermining the even slender chances of any breakthrough on key economic legislations like GST. Wary of growing influence of BJP, the principal parties in poll bound states of West Bengal (2016), Tamil Nadu and Uttar Pradesh (2017), may also take aggressive position against the government proposals.

If Grand Alliance (GA) wins Bihar Elections

(a) The market may witness fresh selling. However, the short covering at lower levels may limit any dramatic fall in benchmark indices.

(b) The efforts to repeat the Bihar GA experience in other states may accelerate. We may see some dissent amongst NDA constituents. The opposition parties may adopt even more belligerent posturing in the winter session of the Parliament.

(c) The government may have to become more flexible in its approach to economic reforms and engage more with opposition parties.

Wednesday, November 4, 2015

2H2015 trend may continue in 1H2016

Thought for the day

"The third-rate mind is only happy when it is thinking with the majority. The second-rate mind is only happy when it is thinking with the minority. The first-rate mind is only happy when it is thinking. "

—A. A. Milne (English, 1882-1956)

Word for the day

Desultory (adj)

Digressing from or unconnected with the main subject; random:

(Source: Dictionary.com)

Malice towards none

If the betting market is to be believed, Pappu Yadav with 5-8 seats may emerge the real king maker in Bihar.

Considering that no party has so far spoken anything against him publically, it is safe to assume that everyone sees friend in him.

First random thought this morning

Rabid is a strong word in political context. It becomes even stronger if the government is finding it hard to build consensus around key economic legislations like GST. Regardless it has been used and the consequences shall follow.

What bothers me more is that the terminology has been used as part of the suggestion that the current dispensation at the centre is more "tolerant" to the opposing views than the previous ones.

I do not care much about the people returning the awards and honors, but would certainly stop for a moment and think if Gulzar is trying to say something.

2H2015 trend may continue in 1H2016

Yesterday I highlighted a variety of factors that are bothering the Indian markets (see here).

Among these reasons, I feel the fundamental reasons are cyclical in nature and should correct themselves in normal course of the economic and business cycle.

The domestic macroeconomic factors are supportive but the global economic slowdown appears more secular in nature. So the adjustments are going to much longer time.

The political factors are permanent in nature and need not be bothered about too much, in my view.

The technical factors are therefore more critical from near term viewpoint.

As I suggested earlier also (see here), the benchmark indices are close to the tipping point on monthly charts. The current correction is not bothering me. What bothers me more is the potential persistence of it.

In my view, if Nifty fails to close materially above 8300 by December end (monthly closing) 8450-8500 range will become a very strong resistance for 1H2016. Meaning, we may have another low to negative return year.

Tuesday, November 3, 2015

Five reasons markets are nervous

Thought for the day

"Weeds are flowers too, once you get to know them."

—A. A. Milne (English, 1882-1956)

Word for the day

Ferhoodle (n)

To confuse or mix up

(Source: Dictionary.com)

Malice towards none

The hot topics these days is "intolerance". USA, RBI, Moody's, Intelligentsia, Artists, Politicians, Media, Twitterati, and the government - all are talking about this.

The more I hear the debate - the more intolerant I'm becoming.

First random thought this morning

"Heads I'll go, tail I won't"....."Ooops! its tail."...... "No I'll take best of three:)" ....."Ooops! it's tail again(:"....."It's final now. I'll take best of five:)"

Remember playing this trick to yourself ever.

Many politicians play this trick by terming each state legislative election a "semi-final" before next general election.....30 semi finals to what itself could be described as semi-final if the incumbent wins!!!!

Many habitual punters (euphemistically called short term investors) too play this game every time their bets go sour.

Five reasons markets are nervous

The enthusiasm seen amongst market participant during early October has cooled down in past few trading sessions. A variety of factors are responsible for sudden dampness in the sentiments.

A discussion with some senior market participants brings out the following five prominent factors bothering the investors in Indian equities, though not necessarily in the same order:

(1) The corporate performance has not been encouraging. The investment demand was not expected to witness any major recovery, but the consumption demand also appeared to have surprised the market negatively.

The most worrisome part is that the management's of leading companies in both the segments (capex as well as consumption) are not hopeful of any major improvement in near future. Some exporters though have expressed hope of improvement, but the global economic sluggishness is making it difficult to accept their guidance at par. Despite relative attractiveness, the chances of any material re-rating of Indian equities therefore appear dim.

(2) In its latest statement on 28th October, US Federal Reserve has put the rate hike agenda firmly back on track. Consequently, the risk-on rally that took place post Fed's September meeting is fizzling out. Commodities', EM currencies, bonds, gold etc. all have corrected sharply post Fed's latest statement.

The foreign flows have turned negative last week after remaining positive for past three weeks. A December hike might cause a material correction in EM asset prices, including Indian equities and INR.

(3) The political discourse in the country has taken turn for the worst. The incumbent government has been put on defensive over some socio-religious issues, clouding the economic agenda somewhat.

The perception of potential derailment of economic agenda has gained so much currency that even global rating agency Moody's has to take note of it.

(4) The elections in Bihar are proving to be the most bitter in recent times. The rising animosity amongst leaders of various parties is obliterating the chances of wider political consensus on key economic issues. Irrespective of the outcome of Bihar elections.

The expectations from the outcome of winter session of the Parliament are now minimal.

(5) Technically, market has weakened materially. The market momentum is very low as volumes and volatility have fallen materially. On monthly charts, Nifty has formed a strong resistance between 8250-8300 range. Failure to cross this range sustainably by end of 2015, will make this a medium term resistance zone, clouding the market outlook for 2016 as well.

...more on this later this week

Monday, November 2, 2015

Risk off

Thought for the day

"Did you ever stop to think, and forget to start again?"

—A. A. Milne (English, 1882-1956)

Word for the day

Barghest (n)

A legendary doglike goblin believed to portend death or misfortune.

(Source: Dictionary.com)

Malice towards none

Better response to "Award Wapsi" would be to give award to the next in line at that point in time when the respective awards were originally given!

First random thought this morning

A section of society is suggesting that rising intolerance against differentiated "opinions", "viewpoint" or "lifestyle" is "BJP in Power" phenomenon. The point worth examining however is whether intolerance is actually fluttering of people with weaker or no roots and the it was British rule that systematically weakened the "Indian Roots" and no government post independence ahs actually made efforts to reinforce the them.

It is critical to take note of RBI governor's recent argument that "India’s tradition of debate and open spirit of enquiry is critical for its economic progress". Global rating agency Moody's also echoed similar sentiments in a recent report.

Risk off

Post FOMC statement last week, the global "risk-on" rally has sort of halted. Bonds have also corrected along with equities.

EM currencies, including INR, that have gained in October ended the month on a weaker note.

The risk aversion is also visible in reversal of trend in FPI flows. After remaining net buyers for most of the October, they turned net sellers post 28th October.

Globally, the benchmark S&P 500 index is showing distinct weakness. As per Zero Hedge analysis, the last time S&P 500 rallied at such a pace (from an extreme of oversoldness) and reached such an extreme level of overboughtness, things went south rather quickly...(see here)

I have been highlighting for past two weeks that Nifty is also sitting at the tipping point and likely to make a sharp move. The move that started last week may accelerate this week as some major results come out and Bihar election conclude.

I would reiterate that the fall will be a buying opportunity....more on this tomorrow

Friday, October 30, 2015

Beleive what you see

Thought for the day

"New markets could be created by rural potentials, which could lead to rise in the employment."

—A. P. J. Abdul Kalam (Indian, 1931-2015)

Word for the day

Sang-froid (n)

Coolness of mind; calmness; composure

(Source: Dictionary.com)

Malice towards none

Could IndiGo IPO do to the market what Reliance Power IPO did in 2008?

First random thought this morning

Had a chance to meet to a secretary to the Government of Delhi. An average mind, was behaving like a big feudal lord. Treated his subordinate staff like pampered slaves. Had different assistants to hold his briefcase and drive his car. Had a traditional white towel at the back of his chair. When moving out, two people rushed in advance to call the lift and waited there for five minutes forcing the doors open with hands till this "gentleman" arrived.

I know this is a common description of the "Governments" in our country. The question is whether this "feudal attitude" is responsible for policies which are seemingly disconnected from majority of people, even though many law makers and administrators come from this very section of the population.

Beleive what you see

In recent past many experts have highlighted that the uncertainty and fear created by US Federal Reserve and its officials through their official and public utterances is causing more harm to the global markets than the eventual reversal of policy direction probably would.

Through its latest statement also, Fed has left the markets guessing. Giving people on both sides of the line some reasons to be excited, Fed admitted that "the pace of job gains slowed" but added that "the global economic jitters from the past three months are now well in the rear view mirror".

Specifically, the complete removal of the line that "recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term" and the addition that the fed is "monitoring global economic and financial developments", excited the market most.

What the Fed statement did not flagged adequately was the problem of secular stagnation in the industrial world despite aggressively loose monetary policies.

The vicious cycle in which slow growth in industrial countries is hurting emerging markets which have traditionally exported capital to the developed world and thereby slowing developed world's growth further. It has to be recognized and fully accepted that post 2008 the capacity of industrialized economies to bear another global shock has diminished materially.

The underestimation of the risks of a global recession when the rates are close to zero and public debts are at historic high levels, could leads to some nasty surprises. Remember, the potency of monetary policy in global context is poorest at this point in time with interest rates lowest and expected to remain that way almost permanently in Japan and Europe.

The scope for fiscal stimuli is also very limited in most of the industrialized and emerging world. With high public debt, moderating tax revenues, slowing income growth and adverse demography, the global economy is positioned precariously with virtually no margin for error.

In Indian context, the recent contest between FMCG majors and the research firm Nielsen is interesting. (see here) While the FMCG firms are confirming what I have been saying for past many months, Nielsen saw green shoots - casting doubts over veracity of data used by policymakers.

Nielsen data suggests the industry is experiencing a strong revival. It estimates that FMCG sales grew 11.8% in the 9M2015 compared to the 6.8% growth the industry experienced during the same months of 2014.

But CEOs of FMCG companies dismiss these estimates as faulty. The market researcher is overestimating growth and is not capturing price cuts accurately, they argue. "There are signs of improvement and the market is not supporting demand revival," said Sunil Duggal, CEO of Dabur.

"We are well into the festive season and two weeks away from Diwali, but there's no visible uptick in consumption. The outlook continues to look challenging," he added.

"Our sense is that demand revival is still a few quarters away," the chairman of another leading foods maker said. "Nielsen is over reporting growth."

Thursday, October 29, 2015

Bihar - 2015 elections may bring no change to the State

Thought for the day

"In a democracy, the well-being, individuality and happiness of every citizen is important for the overall prosperity, peace and happiness of the nation."

—A. P. J. Abdul Kalam (Indian, 1931-2015)

Word for the day

Convive (n)

An eating or drinking companion; fellow diner or drinker.

(Source: Dictionary.com)

Malice towards none

In the eventuality of Grand Alliance victory in Bihar election, MISA Bharti might be Deputy Chief Minister.

The irony is that Ms. Bharti, whose name is a constant reminder of the atrocities perpetrated during emergency, will be sharing power with the Congress Party!

First random thought this morning

Small, rich and without any influence - the Marwari community in Bihar, which has traditionally controlled almost entire trade, industry (mostly food processing business comprising rice mills, oil mills and flour mills), healthcare and hospitality business in the state of Bihar, is a seriously worried lot.

Their traditional party of choice (BJP) is scaring them of Jungle Raaj, whereas the rival JDU/RJD are not assuring them a peaceful existence post elections. I wonder if someone has already booked one way ticket out of Bihar for 8th November!

Bihar - 2015 elections may bring no change to the State

Our team travelled to 27 (out of 38) districts of Bihar, covering all the nine divisions. During our 2week journey we spoke to over 4000 people in 460 villages and towns.

Our interaction with people was completely informal, extempore and unstructured. We discussed a whole lot of issues concerning their personal, community and economic life. Politics was surprisingly not one of the topics that people were eager to discuss; though everyone seems to have a strong political opinion. Despite all poverty, underdevelopment and pathetic civic conditions - people of the State have not given up on the politics.

The ongoing State assembly elections are tough to call. In the course of campaign NDA has lost the early advantage and appears to be losing further ground. After three rounds of elections, the advantage is with Nitish Kumar who is gaining at the expense of BJP. In our assessment, the grand alliance led by Nitish Kumar may comfortably retain power in the state.

The followings are some of our impressions about the ongoing elections in the State.

The campaign

Both the groups [NDA and the Grand Alliance (GA)] are running a completely different campaign.

We found GA having a distinct edge insofar as the effectiveness of the campaign is concerned.

NDA running an elitist campaign

The NDA campaign is technology & capital intensive, relies on blitzkrieg and lacks focus. The key issue of development is routinely diluted with references to regressive issue like caste, betrayal, religion etc.

The extremely poor population of the State is finding the campaign rather elitist and hence repulsive to some degree.

The blatant use of fear psychosis (Jungle Raaj) has also perhaps rubbed the Bihari pride the wrong way.

The communication line between the top to bottom is strictly one way. The strong army of booth level workers (mostly RSS volunteers) is disillusioned as the leadership appears failing in addressing local issues during the campaign. The middle and lower level local leadership, which is connected with voters, is mostly placed in the background at the public rallies and in posters.

NDA campaign appears unwittingly fallen into GA trap, inasmuch as it is mostly focused on misrule of RJD government during 1990-2005. Nitish Kumar who is ruling for past 10yrs and projected as the next Chief Minister by GA, is mostly accused of betrayal.

NDA is perhaps too overconfident about 41 seats which Congress is contesting as part of GA. The focus in these constituencies is also on Lalu Yadav and not the rival Congress Party.

GA's two tier strategy yielding good results

Unlike NDA campaign which is often getting confused about the issues, GA campaign is clear and focused.

Lalu Yadav's RJD is focusing on the traditional issues like caste polarization, secularism, personal attacks etc. Whereas Nitish Kumar is staunchly focused on the contemporary issues of governance, development, employment, and youth etc.

Nitish Kumar is also attacking hard on the (a) traditional Indian psychosis of supporting the challenger and the underdog; and (b) Bihari pride by highlighting the campaign control by "outsider" BJP National President Amit Shah.

Very smartly, Nitish Kumar has pushed the issue of anti incumbency backstage, by successfully projecting himself as a challenger rather than a defender. It is NDA which appears defending the policies of central government, views of fringe elements within BJP and the RSS.

RJD has also been partially successful in projecting Lalu Yadav as the king maker, who has sacrificed his dominant position to support a lesser mortal (Nitish Kumar) in the wider interest of the State and the country.

Issues

Both the principal groups have projected development and governance as the primary issues in this elections. The fringe groups are still appealing to the voters on caste and religious considerations.

However, the focus is often deflected by fringe and parochial issues.

On all such deflections, amongst NDA partners, BJP is left alone to defend their position. In many cases allies like LJP and HAM have even taken a stand indirectly critical of BJP.

Whereas in GA, the division of labor is clear. Lalu Yadav is addressing all the fringe issues, Congress is all out to attack PM Modi and Nitish Kumar is focused on core issues of governance.

Insofar as people are concerned, development is primary issue for a large majority. A section of upper caste feudal elements is though still focused on parochial issues of caste dominance and religious superiority.

A majority of people, especially youth, will consider caste of the candidate only if they believe that he/she will take them forward in socio-economic terms. For so called backward caste voters, accessibility of candidates is primary criteria.

The leadership

The NDA leadership of campaign is perceived to be elitist, dismissive and playing omnipotent.

The GA leadership is perceived to be challenger, protector of Bihari pride, and playing underdog.

The assessment

In our assessment GA led by Nitish Kumar may retain power in the State, and nothing much will change in terms of governance and development in next few years.

Also Read:

A visit to Bihar

Bihar - where all references lose their meaning