Thursday, August 9, 2018

Economic and market review - 1

"The intelligent are to the intelligentsia what a gentleman is to a gent."
—Stanley Baldwin (English, 1867-1947)
Word for the day
Calescent (adj)
Growing warm; increasing in heat.
Malice towards none
Why no one is taking Varun Gandhi seriously?
 
First random thought this morning
A 6 X 6 temporary shelter has transformed into a massive temple structure, housing 108ft tall Hanuman statute in past two decades or so. It is not in a forest or some hidden by lanes of an unauthorized neighborhood. This is right in the center, at one of most busy crossings, of the city. In fact, in past one decade or so it has become the symbol of Delhi, insofar as the Bollywood movies are concerned. A metro train passing by this statute is one of the most common scene in any movie shot in the city.
About 200meters away from this place, tucked in a reserved forest land close to sensitive radio installations of security agencies, is the allegedly unauthorized Asharm of jailed Asaram.
And suddenly, High Court is asking who permitted all this!

Economic and market review - 1

In recent weeks, a number of experts have warned markets against avoidable exuberance. The markets have though brushed aside all warnings and risk assets, including the much maligned Bitcoins, have registered impressive gains.
A host of global macro data has already hinted that the global growth is threatened by the trade related tensions building in various pockets of global economy.
Besides, the process of normalization of non-conventional monetary policies, in practice since the last global financial crisis, has also begun in right earnest. US Fed has already withdrawn the QE completely and raised interest rate multiple times in past 4yrs. ECB is scheduled to end QE by the end of 2018 and has already hinted at rate hikes next year. BoJ has also given signals about beginning of a tightening cycle as early as from 2019.
Back home, the economy has recovered from the impact of demonetization and GST. The consumption demand has been encouraging in past few quarters. However, there is little to suggest that the economy can gather enough velocity to break past the current rate of growth in near future.
Inflation is already running higher the RBI's comfort level. Elevated energy prices and slower are constraining both current account and fiscal balance.
Fiscal constraints have also slowed down public spending, which has supported the growth in past three years.
The current earning season has mostly been a mixed bag. On aggregate basis, the earnings look marginally below the street estimates. However, there have been pockets of strong growth. As per Motilal Oswal Securities, "Consumption recovery continues with most of the FMCG companies highlighting rural outperformance vs. urban. 2] Within Banks, Private Banks have seen some margin pressures while PSU Banks have reported moderation in fresh slippage generation. NBFC’s post another quarter of healthy core performance. 3] Auto companies have missed profitability estimates led by RM cost pressures and lower other income while demand outlook remains healthy. 4] In IT the demand is showing gradual improvement with continued outperformance of Tier II companies vs. Tier I. 5] Cost pressures have marred the profitability of Cement companies even as volume growth remains in –line.
Foreign flows have mostly been negative in past few months, even though in past couple of weeks the selling pressure seems to have eased a bit. Domestic fund flows have also tapered in past 3months, even though SIP flows have sustained.
In past 6months Indian equities have mostly shown a divergent trend. While the benchmark indices have scaled new highs, the broader markets have underperformed conspicuously. In past couple of week, however, the broader markets have done reasonably well. In next few days, I shall discuss all these trends in some detail.

Wednesday, August 8, 2018

There Is Something About Mary

"War would end if the dead could return."
—Stanley Baldwin (English, 1867-1947)
Word for the day
Mufti (n)
Civilian clothes
Malice towards none
No jobs, no reservation.
Matter settled and disposed.
 
First random thought this morning
There must be thousands of Indians staying illegally in Europe, Americas, Africa and Middle East. What should be done with them?
Is there anything wrong, if the local people and politicians speak against them in threatening voices and harass them in violation of international laws?

There Is Something About Mary

In past two months I have received numerous communications criticizing me for irresponsibly criticizing the government. The primary and common theme in all such communications is that the incumbent government has taken many innovative, unprecedented and revolutionary steps for the upliftment of poor, farmers, women and youth.
I would like to close the discussion on this topic with the following reproduction of a conversation from the popular 1998 Hollywood movie "There Is Something About Mary":
"Hitchhiker: You heard of this thing, the 8-Minute Abs?
Ted: Yeah, sure, 8-Minute Abs. Yeah, the exercise video.
Hitchhiker: Yeah, this is going to blow that right out of the water. Listen to this: 7... Minute... Abs!!!
Ted: Right. Yes. OK, all right. I see where you're going.
Hitchhiker: Think about it. You walk into a video store, you see 8-Minute Abs sittin' there, there's 7-Minute Abs right beside it. Which one are you gonna pick, man?
Ted: I would go for the 7.
Hitchhiker: Bingo, man, bingo. 7-Minute Abs. And we guarantee just as good a workout as the 8-minute folk.
Ted: You guarantee it? That's - how do you do that?
Hitchhiker: If you're not happy with the first 7 minutes, we're gonna send you the extra minute free. You see? That's it. That's our motto. That's where we're comin' from. That's from "A" to "B".
Ted: That's right. That's - that's good. That's good. Unless, of course, somebody comes up with 6-Minute Abs. Then you're in trouble, huh?
Hitchhiker: No! No, no, not 6! I said 7. Nobody's comin' up with 6. Who works out in 6 minutes? You won't even get your heart goin, not even a mouse on a wheel.
Ted: That - good point.
Hitchhiker: 7's the key number here. Think about it. 7-Elevens. 7 dwarves. 7, man, that's the number. 7 chipmunks twirlin' on a branch, eatin' lots of sunflowers on my uncle's ranch. You know that old children's tale from the sea. It's like you're dreamin' about Gorgonzola cheese when it's clearly Brie time, baby. Step into my office.
Ted: Why?
Hitchhiker: 'Cause you're fuckin' fired!"
In next few posts, I shall present my thoughts on the current state of economy and markets.

Tuesday, August 7, 2018

Build character, develop method and enhance engagement



"I am one of those who would rather sink with faith than swim without it."
—Stanley Baldwin (English, 1867-1947)
Word for the day
Chevelure (n)
A head of hair.
Malice towards none
Will NRC (National Register of Citizens) also meet the fate of NPR (National Population Register)?
 
First random thought this morning
RBI governor has reportedly said, "The fundamental mission of economists is not to forecast crises but to explain how the mankind behaves in the ordinary business of life and in doing so they do warn of crisis formations, suggest pre-emptive strategies and formulate mitigating policies that address those crises that slip through macroeconomic surveillance."
If we ignore the subtle distinction between "forecasting crisis" and "warning of crisis", this is one of the best defenses put forward to absolve the economist community from allegation of failure to "forecast" and/or "warn" about the 2008 crisis.

Build character, develop method and enhance engagement

Anyone who has visited Greece would appreciate how much leverage they derive from their history and mythology. Tourism has indubitably been the mainstay of Greek economy, especially in past two decades. Sun, food, shopping and mythology are mostly what they offer to the tourists from across the world.
Like India, Greece also has a long history, rich culture, inspiring mythology. It had also been under the foreign rules (Ottoman Empire and Nazis). It remained under attack from Persians for long and paid heavily for the long and expensive war campaign of the Alexander. But similarities almost end there.
97% of the Greece is now Orthodox Christian. Only 3000 odd people now worship mythological Greek gods; unlike in India, where people are still steadfastly following their traditions, culture and mythology in their day to day life.
A common man in India identifies Greece with Alexander the great. We, in fact, have one of the most popular ongoing TV serial based on Alexander's invasion of India. But, in Greece you would seldom find people talking or discussing about Alexander. He is mostly a subject of academic discussions in schools, to tell the youth what and how not to do things.
The paradox is that Greek mythology and history provides employment to an overwhelming majority of people, who feel naturally proud of it. Whereas, in India we use history, religion (associated mythology) and cultures to fight amongst ourselves and a significant part of the population feel ashamed about it.
The point is that to make tourism one of the primary sources of employment and revenue in the country, we may need to change a whole lot of basic things.
First of all we urgently need to begin the exercise of building character of our youth. The primary and secondary education must place an overwhelming focus on character building rather than cramming totally useless stuff to pass ill designed examination with unbelievable scores of more than 90%.
The Jugaad mindset (cutting corners for short term benefits without bothering about quality, sustainability, and propriety) needs to be completely eliminated from all walks of life. Education, business, and life need to be driven by thoughtfully designed processes, and governed by a strong sense of ethics and respect for others' life, dignity, safety, rights, preferences, views, opinions, and styles.
Secondly, the State needs to work closely with the people to reorient our legacy (religion, culture, traditions, arts, food etc.) to make it marketable to the global audience as well as the youth of our own country.
This would require shedding the "secular" tag by the State. The State machinery would need to assign religious heads, the responsibility of ushering an Indian renaissance, entitling them with adequate powers, empower them to interpret the religion in the modern context, and engaging them in the task of nation building.
Third, the State should mobilize and motivate people to build or rebuild the tourist attractions of global standards. For example consider the following:
Vrindavan, the place associated with numerous legends relating to Lord Krishna, is one of the most popular pilgrimages in the country.
Unless you are a deeply religious person, a trip to the holy town on a weekend is more likely to feel like a journey to the hell. You would most likely have to deal with:
  • thousands of visitors and hundreds of raucously honking vehicles jostling through the narrow & inadequate lanes and slender by lanes of the town;
  • thousands of rogue monkeys always looking to attack your spectacles and handbags;
  • hundreds of unscrupulous touts in the garb of tourist guides or temple agents persistently trying to fleece you on different pretext;
  • hundreds of stray cows, dogs, pigs etc. jostling for space with human;
  • filthy and stinking open drains overflowing with human waste;
  • thousands of baggers chasing you ominously closely;
  • numerous shops serving food in totally unhygienic conditions;
Despite thousands of people visiting every weekend and spending tons of money, there are no clean urinals, no place where young kids could be nursed, no decent hospital that could be used for emergencies, and virtually no arrangement for disaster management.
The story is not much different in other holy towns like Haridwar, Rishikesh, Varanasi, Gaya, etc.
This does not inspire any confidence. The State need to engage with the local populace, motivate them to agree to a modernization plan for the holy town. The State also needs to engage with the various temple managements (mostly families of priests) and urge them to confine themselves only to performance of rituals. The management of infrastructure and facilities should be delinked with rituals and undertaken by an autonomous board led by the District Magistrate rank officer.
The popular tourist places like Shimla, Mussoorie, Nainital also feel like hell during the summer season.
I guess I have made my point.
I would now like to reiterate the following suggestions, for building/improving the tourism infrastructure in the country:
(a)   Indians spend more than $25bn annually on education and related overseas travel. Creating 5 Special Education Zones (SEZ) with liberal VISA, forex, taxation and real estate ownership rules, and allowing foreign institutions to freely set up campuses in these zones, could potentially reverse this flow. Students from India, far-east, middle-east and Africa who find it difficult to get VISA for US/UK etc., or find that unaffordable, could also benefit from this. Our politicians have spoken about recreating Nalanda and Takshila. This in my view is the easiest way to do that.
(b    Lack of proper infrastructure has traditionally constricted the growth of tourism sector in India. Indian outbound tourists flow is also rising fast. Developing some world class self-contained international tourism centers, e.g., on lines of Macau, Disney, Las Vegas, etc. with liberal VISA, Forex, taxation and real estate ownership rules could potentially reverse these flows.
(c)    Vindavan, Tirupati, Varanasi, Gaya, etc. all have potential to be as desirable, venerable and popular destinations as Mecca, Vatican and Jerusalem. Converting these centers of Indian religion and culture into self contained special zones with international airport, adequate lodging facilities and annual event calendar could get substantial forex revenue.
(d)   Develop at least 1000 tourist places on a variety of themes like adventure, spirituality, yoga, Indian food, traditional arts, history, religion, language learning etc. These should be world class destination with adequate sustainability considerations. Corporate sector could be engaged in this through lucrative tax incentives and mandatory CSR spending.
(e)    Subsidize domestic tourists' transportation cost for visiting far off place in north, north east and south, besides creating decent accommodation to be managed by local youth specially trained for this.
(f)    Establish at least one specialized tourism skill & training institute in every state that will train youth to work in the sector. This should include Indian ethos, language skills, history lessons, food preparation, and driving skills etc.

Friday, August 3, 2018

Make it a mission

"Clouds come floating into my life, no longer to carry rain or usher storm, but to add color to my sunset sky."
—Rabindranath Tagore (Indian, 1861-1941)
Word for the day
Nubilous (adj)
Obscure or vague; indefinite
Malice towards none
Sidhu gets it, Modi still waiting!
#ImranSwearing-In
 
First random thought this morning
It is commonly to see the countrymen feeling proud over the achievements of even second generation of people who emigrated from India to foreign lands decades ago. Like we recently celebrated Akshay Venkatesh winning the Fields Medal (considered equivalent to Noble price for Mathematics).
Any achievement in the fields of science, arts, sports etc. must be celebrated by the entire humanity, as all such achievements take us a step closer to the Mother Nature. It opens another door of possibilities and show us a new horizon for human potential.
But, we need to introspect, after every achievement of a PIO, and ask ourselves what did we do wrong or failed to do? Why do talented people leave the country to settle in foreign lands?

Make it a mission

Couple of years ago, I had an opportunity to visit the Andhra Pradesh Capital Region, mainly lying between the cities of Vijaywada (Krishna District) and Guntur (Guntur District). Since the demerger of the State, this area has emerged as a new hotspot of economic activity.
I had written about my experience then (see here). However, in the context of my thoughts of the potential for tourism in India, I find it relevant to reproduce the following:
"As the pilot announces the commencement of decent on to the Gannavaram Airport (Vijaywada), the outside view becomes mesmerizing. The lush green paddy fields appear like a large football stadium with green turf. The banana and mango orchards on the sidelines provide the perfect setting. The region is inarguably one of the most beautiful in the country, as good as Goa and Kerala.
Andhra Pradesh has the longest coastline in the country, with a number of serene beaches. The state also has many scared temples like Tirupati Devsthan. Intuitively, tourism, both religious and leisure, should naturally be the mainstay of State's economy.
However, nothing on the ground suggests that anyone is even thinking about this. There are talks of industrial corridors, IT parks, agro parks but nothing on this huge potential.
Manglagiri in Guntur district (15kms from Vijaywada) is a temple town. A very sacred ancient temple of Lord Narsimha (an incarnation of Lord Vishnu) is situated here on a sleeping volcano. The town is also very famous for handloom sarees and dress material.
The town has absolutely no tourism infrastructure. No hotels; narrow lanes; no parking space; no Hindi/English speaking drivers or guides - nothing.
Simlarly, Vijaywada has Kanak Durga Temple, one of the most prominent amongst 52 Shakti Peethas in the country. Again, no tourist infrastructure.
Both these temples, and many others in the region, have the potential to become economic magnets like Tirupati, Vaishno Devi, etc. But does anyone care.
The rural areas in Krishna and Guntur districts are as beautiful as Vietnam, Cambodia and Taiwan (the popular tourist destinations these days). But no one seems to care.
I had the privilege of spending a day with M. Vindo Babu (a road contractor) and his wife Lakshmi Tulsi (an academician). The couple runs a school for 500 children in Vijaywada. 300 of these students are funded by the couple (fee, uniform, meal, post school coaching).
Lakshmi told me that the normal schedule of schools in Vijaywada (and elsewhere in the state) is usually 10-12hrs even for middle classes.
These schools are run as factory for producing medical, engineering and accounting professionals. A large majority of schools even do not offer humanity as a subject in senior classes.
I wonder, without knowledge of their history, geography and Hindi - how these children could be expected to make a career in tourism as a industry!
This factory model of education is also destroying the local arts and cultural traditions - something for which southern Indian states are traditionally reputed for."
The point I am trying to make is that tourism cannot be developed as a mainstream industry, unless:
(a)   We assign a huge premium to our culture, food, traditions, history and religion;
(b)   Development of tourism infrastructure is undertaken on a mission basis; and
(c)    The State plays an active role in the development.
I will share my suggestions in this regard, which of course I have shared with my readers many times earlier, on Tuesday.

Thursday, August 2, 2018

Its' Chicken-Egg conundrum

"Bigotry tries to keep truth safe in its hand with a grip that kills it."
—Rabindranath Tagore (Indian, 1861-1941)
Word for the day
Improbity (n)
Lack of honesty or moral scruples.
Malice towards none
When you read the promotional material of the Modi government, you only find what the government did for Muslim society, particularly women. No mention of what they did for Hindutava.
Appeasement!!!
First random thought this morning
BJP's outreach program (Sampark se Samarthan) has gathered significant coverage and evoked mixed response in media and political circles. Through this program BJP aims to reach out to one lakh prominent personalities from various fields and explain to them the achievements of the NDA government led by them.
The more one reads about this, the more one gets a feeling that BJP is taking 2019 general elections too seriously. Like in Mahabharta where both the sides approached all the states in Aryavrata for fighting from their sides, BJP is preempting the support of all "the influential" people.
Would be interesting to see how many of these would actually come out and campaign for BJP; and how many voters would get influenced by these!

Its' Chicken-Egg conundrum

As mentioned yesterday (see here), the domestic tourism in India is still in very nascent stage of evolution. Only a third of the population is making overnight trips outside their home city, that too for an average duration of little over 2days per trip.
Most of domestic tourism revolves around medical treatment, pilgrimage, social purposes, and education. Holidaying and leisure account for a miniscule part of the total travel market.
Few states account for most of the domestic tourism origination and destinations. The rural population is forced to travel for medical and education purposes and spend more than the people staying in urban centers. Moreover, the average budget for a domestic tourist (for non-medical purposes) is a very low to support a profitable tourism infrastructure.
This poses a sort of chicken egg dilemma for the sector.
On one hand, the poor infrastructure and higher costs is driving the affluent and even middle middleclass tourists to overseas locations, and keeps the affluent foreign tourists away from most tourist destinations in the country.
On the other hand, the industry is not able to invest in infrastructure or reduce costs as the number of tourists who can afford to pay for services is very low.
It is also important to consider the following what I learnt from an hotelier in Nainital a couple of years ago. He said, "The number of tourists from smaller towns has increased manifold in recent years. These are not necessarily low budget tourists but do not like to spend on 'room rent' and good food. Their social etiquettes do not really match the traditional tourist, who were essentially urbane and educated. Consequently, the traditional tourists are now avoiding this destination and opting for overseas travel. Mass has overtaken the class. There are frequent traffic jams and brawls. Some upscale property owners are already finding it hard to sustain and many low end property owners are extending their facility in an unauthorized manner with the connivance of the local administration." (see here)
This is very representative of the current status of the industry in most of the places, except perhaps a few pilgrimage centers like Kashi, Tirupati, Haridwar etc.
What also needs to be considered is that if the current trend continues., we might need to develop more than 10k new tourist destinations in next decade, in the states of UP and Uttrakhand alone. Also, if the sustainability and ecological issues if not addressed immediately and very strictly, the situation will be beyond reparation in next one decade and the consequences will indubitably be disastrous.
The government will need to play an active role in this......to continue tomorrow