Wednesday, 28 October 2009
The stimulation of the economy on the back of the financial crisis in the form of eased liquidity remains nearly constant. The powers that be, have been crying hoarse that it is still not time to repeal the stimulus given during the crisis. One fails to understand, why should the government not stimulate the economy constructively on a continuous basis? Why should the government only think of monetary measures when fundamental shift in stimulating the economies are needed?
The best form of stimulus would be to encourage individual savings and collective investments.
Now, what does one make of this credit policy? The policy may have said many things in words but as far as deeds are concerned, it is very clear. The Governor does not think anything is wrong and he does not want to rock the boat when everything is to the Government's satisfaction.
What do we expect in the market? The markets are more concerned with the slow growth expectations. We have already witnessed sluggish growth in corporate sales, this may start affecting the margins and profits in the next quarter. That is the fear in the minds of the players in the market now. The markets have also gone up on one way street for most part of the last year and the time for profit booking is ripe now.
So BOOK PROFITS AND DON'T WAIT TILL THE MARKETS TOP OUT.
Wednesday, 29 July 2009
What does all this mean to the common man and to the person who would like to invest his money in his own business or the business managed by somebody through the stock exchange? let's take a hard look at this issue.
Monday, 6 July 2009
I was spot-on, in saying that no fireworks could be expected.
Now let see some of the important budget provisions and find out what they mean for you, me and the financial markets.
1. India Infrastructure Finance Corporation Limited (IIFCL) has been granted flexibility in raising finances and lending to infrastructure projects, meaning that it has been left to fend for itself.
2. The allocation for NHAI has been increased by 23%. Good move this would help in the development of national highways.
3. Farmers, the darlings of the politicians (that's not because they are voters but because most of the parliamentarians and politicians are farmers themselves!) have been offered an interest subvention @ 7% and a 1% subsidy for prompt payment (this means the effective borrowing rate fr farmers is 6% and they are not required to pay income tax too). It pays to be a farmer in India.
4. The Market development assistance for exporters in the form of interest subvention on pre-shipment credit extended up to 31st March 2010. Our finance ministry expects the global crisis to blow over by then and then we will be charging the same interest rate for our exporters as other manufacturers.
5. SARAL-2 will be introduced this year. Have you ever heard of a simplified simple tax form. here it is!
6. NREGA the wonder child of Congress (How come the name does not start with Nehru-Gandhi name?) has been allocated Rs.39100 crores (Rs. 391,000,000,000) this year. Lets do a small analysis. NREGA guarantees 100 days of gainful employment for one individual in every household in rural areas and pays Rs. 100 per day per head. This amounts to wages of Rs. 10000 per household for a year. So if Rs.391 billion have to be spent then this money is expected to cater to 39.1 million households, out of approx 197 million households as per the official census of 2001. The corollary of this is that 20% of our population is in abject poverty and is not capable of raising Rs.10000 per household in rural areas. If this is true then Shame on us. If this is not true then, there seems to be a problem with the way our government works.
7. A national mission on women's literacy is being set up and it will help in reducing illiteracy amongst women in the next three years. WOW a commendable job.
8. Students who take loans for education will enjoy a moratorium on interest payments till they finish their course. That is a great thing and it will go a long way in helping poor students to educate themselves.
9. A public Private Partnership is being envisaged in managing the good old employment exchange. That is a great idea, all you private placement consultants and naukri.com better watch out big brother has just entered the fray and he will gobble you up.
10. The Unique Identity Number project has been allotted Rs. 1.2 billion to start its operations. That will kick start the operations but we need more money to count the number of people in this country and provide smart cards for each of them.
11. GROSS FISCAL DEFICIT is expected to be 6.8% of GDP and the Gross State Domestic Product limit has been raised to 4%. Mr. Finance Minister Sir, your targeted Fiscal deficit was 3% and you went on to stretch it to 6.8%. How can you expect your counterparts in the State Governments who take pride in profligacy to contain themselves to 4%?
12. Direct Taxes: Individual Income tax slab at the lowest level has been raised by Rs.10000 for male individuals and women. The lowest slab for senior citizens has been raised to Rs. 240,000, a raise of Rs. 15,000. For the HNIs the surcharge of 10% is abolished. Here the people in the middle tax bracket seem to have got the wrong end of the stick.
13. Fringe Benefit Tax has been abolished. Now your company will allow you to go on tour and spend money and not worry about paying FBT on part of the amount you spent on that junket.
14. Commodities Transaction Tax is abolished. I don't know what to say. the government keeps banning commodities trading whenever it sees a flare-up in commodities prices. So the right question would be which commodity is being allowed to trade right now to understand the impact of abolishing CTT. Any way removing CTT will help commodity exchanges and help stock brokers to start commodity terminals as a hedge against the failing fortunes in the stock broking industry.
15. Minimum Alternative Tax: the MAT under which corporate growth has been swept under by the previous finance minister has just got bigger. MAT has been increased to 15%. There is no incentive for tax management using the growth=depreciation route now. THE SINGLE LARGEST REASON FOR THE STOCK MARKETS TO REACT THE WAY THEY DID IN RESPONSE TO THE BUDGET.
16. Thankfully there have been no major changes in indirect taxes.
17. GST to be operational from 1st April 2010. Good move. GST to be bifurcated to central GST and State GST. BAD MOVE. This means we are going back to the good old days when we had central sales tax and state sales tax. so in Karnataka instead of CST and KST we will have CGST and KGST. (How to share the spoils of the tax revenue amongst the centre and the state could have been kept in wraps and a common GST would have been better)
That's about it. As far as disinvestment is concerned, no specific announcement was made.
Moral of the story: More the things change, more they remain the same. The 1991 wave of reforms was not of Congress manufacturing, but out of compulsion of the IMF. Now that the economy is strong enough to withstand the perils of global financial meltdown we can do it our way, the NEHRUVIAN WAY. In fact, at one time the Finance Minister was singing paeans to Mrs. Indira Gandhi, for having the grand vision of financial crisis 40 years back and resorting to nationalisation of banks.
WOW I am very happy that we had such visionary leaders who could predict turmoils four decades ahead. Our FM needs to read a little of modern economics and find out that this financial crisis happened to US because the Glass Steagall Act was repealed in 1999. There was no way how our Prime Minister could envision that this would happen in 1979.
Now for the markets, the immediate support for the markets is 3800 on the NIFTY. Nifty has to fill the gap it created on that euphoric morning after the budget first. Then lets see if a plunge protection team is formed and whether it works else we will see the October 2008 bottoms again.
Tuesday, 30 June 2009
Tuesday, 9 June 2009
The Nifty has relentlessly gone up from 2550 pre-elections to 4500 post elections and has made a lot of investors richer. What should one make of this near doubling of the nifty? May I remind you of the October lows (i.e. 2008 October). In the last eight months majority of the front line stocks have posted phenomenal returns, Reliance, SBI, RCOM, Reliance Capital, Reliance Infra, Reliance Industrial Infra, Suzlon, the list goes on...
Has the economic outlook changed so drastically that the despair of the markets has gone and the economic boom is right round the corner? Has the global financial crisis blown over? Does a change in the leadership in Government (in this case no change) make such a difference that people will throng to the stock markets and buy whatever comes their way at whatever the price? We have heard that markets are irrational but are they so irrational that they DOUBLE IN EIGHT MONTHS?
Given these circumstances, we can reach to two conclusions.
1. The markets were artificially brought down and a panic situation was artificially created so that gullible people sold out at lower prices. The economic situation had not worsened at all and everybody was crying WOLF.
2. The economic situation has really worsened and there seems to be hope that things will turn around. This hope has made the markets rebound and get ready for scaling new heights. The worst is over and out and things will be great once again. Our PM also corroborates this statement that India has the capacity to grow at 9% p.a. despite the slowing growth world over.
I would like to leave these question open for discussion...
Please feel free to leave your comments at the end of the blog.
Tuesday, 19 May 2009
A decisive win for the UPA has brought back the bulls in the market with a long list of wishes.
1. Easing of FDI norms for Insurance sector.
2. Reform in the banking sector (especially on the labour laws side)
3. Disinvestment from public sector undertakings to make up for the deficit brought about from last year's doles.
4. Dismantling of the Administered Pricing mechanism for petroleum products.
5. Easing of interest rates and making credit available to the industry.
6. Boosting exports by implementing a new export promotion policy.
7. Spending more money on health, infrastructure and education.
8. FDI in the aviation sector.
If the market can be easily manipulated with 300 crores then it is a very shallow market. We first need stock market reforms and we need a regulator not an opinion maker in the regulators seat.
All the best.
Saturday, 16 May 2009
What about the markets? Nifty will be on a new Government honeymoon from Monday and will surely scale up to 3950. It faces a technical resistance there (may be the market may not like the new cabinet or the new FM). If this resistance is breached then we can safely assume (FII Gods and world markets willing) to go up to 4250 in this pre-budget rally. By the way, we are in for a fresh budget from the new Government, the February charade was just a vote-on-account. A vote-on-account is just a permission from the outgoing parliament to splurge for three more months.
With fiscal deficit going out of the hands of the government and no new investment forthcoming the new government will have an up hill task of keeping the economy on the growth track. Our banks may not need a stress test but they sure will need some prodding and some loosening of norms for doing their regular job of credit disbursement. Of course they will have to be assured by the new government that the loans they give will not be waived off again and even if they are waived off, they will be compensated fast.
Now you will also see some more woe stories coming from foreign and not so foreign investors about the state of the economy not being conducive for fresh investment. Things like the limits on foreign investment in retail, insurance and MEDIA will be tossed around. These will be bandied around as reasons for the stock markets not performing well.
The MEDIA moguls need a pat on the back with loosening investment norms for all the PR that they have handled splendidly for the first family of India.
This will be the term when Dr. Singh will have to actually demonstrate that the nuke deal will actually fructify into a win-win formula for our country.
If you happen to read my earlier blogs you will notice a sea change in the style of writing. You will find this more blunt and more prophetic (to say the least). That is because, now that I have bungled once on the predictions of the elections results, I have developed a common disease prevalent in the political arena of our country "The Foot in the Mouth disease". Now it doesn't matter if my predictions are right or wrong I was wrong once anyway!
Friday, 15 May 2009
Friday, 17 April 2009
Wednesday, 25 March 2009
Tuesday, 24 February 2009
Tuesday, 17 February 2009
Saturday, 7 February 2009
The debate of whether to bail out individuals or institutions is another matter which needs attention. Do individuals who speculated in the real estate market on account of greed need a bail out or Institution who nourished this greed and found themselves holding "toxic assets" need a bail out?
Lets once again examine the root of all these problems. Lets start with the housing statistics of USA, for a population of 305 million the country has 130 million houses which makes it, one house for every three people in the country. Its a nobrainer that housing supply is more than demand in this country and people have started buying and selling houses for speculative purposes than for dwelling purposes. When real estate is used for speculation then the "reality" of the investment gets lost and becomes a virtual asset. Now tell me if there is any point is letting banks lend to people who want to speculate in the housing trade? isn't it same as lending money to trade in the stock markets? In stock markets when money is lent, the stocks are subjected to a haircut and the haircut is as big as 50% in India, whereas the haircut here was 5% owing to the fact that this was "Real" asset and not a stock! But it turned out to be an "Unreal" one.
Another side of the problem is the propensity of American consumers to consume. Consumption in itself is no taboo but consumption by discounting your future income is a problem. That too using up your future income projections to pay for speculative buying of real estate is a disaster.
If this is the root of the problem, then should the new administration stop housing construction activity and? Should old houses be demolished and new ones built so that a renewal of assets happens and housing supply remains constant? these are the question that need to be answered by the new administration. I, for one would always suggest asset renewal over new asset augmentation that would generate employment and renew the infrastructure. It would also be wise to start a massive Infrastructure renewal plan to kick start the economy. that would surely percolate to other countries and would be an answer to the bulging cash stashed in the banks due to liquidity infusion and hoarding of Cash that has been witnessed in the country.
No amount of bullied interest rate reduction will work as the banks have become risk averse and are taking their own time to sanction loans. Housing and real estate prices are set to spiral downwards as the stratospheric levels of real estate prices are not sustainable in India too, even if the country is deficient of housing that's because of the affordability issues.
Elections in India will be highly entertaining and will have very high educational value.
Saturday, 24 January 2009
Tuesday, 20 January 2009
Now, lets get back to business. Obama has his task cut out for the next two years at least. He has to grapple with failing corporations, there will be a strong appeal for reinstating the Glass Steagall Act, which separated the Investment Banks from the commercial banks. Isn't it curious that after the great depression the Glass Steagall Act effected a separation of commercial banking and investment banking. This act was repealed in 1999 and after the sub-prime crisis the same thing is being undone by allowing investment banks to be treated as commercial banks by giving them access to federal reserves funds and the discount window of the fed.
Next on the agenda will be the choice to bail out corporation or individuals. If the corporations are bailed out will the effect trickle down to individuals? Wouldn't it be practical and better to bail out those in individual debt traps and not bother about the corporations? if corporations are bailed out then it will be assumed that you need to become BIG and make BIGGER mistakes to be bailed out. small (individuals and companies) and smaller mistakes (which actually wipe out the individuals and the small companies) will be left to fend for themselves.
Obama regime will also have to think again about the uni polarity of the world. Due to which a great responsibility has been thrust upon the white house. Since there is no visible counterweight to the power of America, a hegemonisitc attitude will jeopardise the delicate balance and may result in America against the world. To take a leaf out of Obama's professed idol and quote "power corrupts and absolute power corrupts absolutely" will not only hold good for individuals but for countries too. So this appeal to Mr. Obama and his regime to understand the the will of a majority of people of the world and also understand that their mandate now is to provide leadership not only to their country but to the world as a whole.
Welcome Mr. Obama, may your tenure be remembered as a path breaking tenure, which would need to "sarve jana sukhino bhuvantu" meaning let all be free and therefore happy.
Wednesday, 7 January 2009
Do the auditors actually audit? or they send the interns to have a ball at company's expense and then tick whatever papers are dished out at them? Do the heads / honchos / partners of the auditors team get a cut on the amount mis-stated? Can we ask these questions to the ICAI or the auditors themselves?
Corporate Governance INDIA ISHTYLE
Take a look at the composition of the boards across the corporate India spectrum. You will find that there is a group of people who specialise in being Independent directors of companies. you will find familiar names on scores of companies. Most of these people are retired bureaucrats, powerful lawyers, retired senior executives from public listed companies, fellow industrialists, etc. the entire operation of appointing independent directors reeks of "You scratch my back and I scratch yours". Independent directors are treated as show pieces and are highly pliable to the whims of the promoters. The Audit committee, Remuneration committee and the Investor Grievance committee seem to work only in letter and not in spirit. Clause 49 report seems to be only a case of filling up a form and submitting it to the exchanges.
If promoters are going to camp with the booty on a continuous basis across the decades, remember MS Shoes, Time Shipping, DLF Cement, scores of vanishing companies, Finance-IT-Bio tech companies. We can only blame the gullible public of India and the slow and inept regulatory system for our woes. This calls for a massive effort on investor education in the interest of the investors and the companies who are doing it right.
Tuesday, 6 January 2009
All through Indian contemporary history economists have derisively chided our economy and called it the hindu rate of growth.
Let us spend some time on this phenomenon of hindu rate of growth.
Indian inaction is legendary by now. Inaction in war, inaction in peace and inaction in strategy. One of our erstwhile Prime Ministers famously quoted "deciding not to do anything is also a decision". Our politicians, most of whom are lawyers are used to biding time and asking for adjournements in courts of law. They bring this innate trait to the governance table and wish away the problems thinking that time is the greatest healer. Since these lawyers are used to asking for time and biding time theie cases and thier governments bide time till the defendant or in this case the economy dies on its own.
Economies do not die as people have their own ingenuity for survival. They somehow survive based on their "jugad" (thats the hindi word for improvisation). This "jugad" keeps the Indian economy from going to the ruins. Since, government is ambivalent about the economy the entrepreneurs themselves find ways to prosper. This leads to slower growth with no incentive to grow faster and farther.
That's why we have the hindu rate of growth. India was pushed by the IMF to liberalise, privatise and globalise its economy as the economy was in trouble, now that the troubles are over and as our ex-FM said "A finance minister of any country would be ready to give his right hand for a slowed down growth of 7% in GDP". Complacency has set in, Government is counting months in power, elections are around the corner and government bides time letting prices to go south (PRICES ARE NOT GOING SOUTH BECAUSE OF SUPPLY AUGMENTATION BUT BECAUSE OF REDUCED CONSUMER CONFIDENCE AND REDUCED EARNINGS) thinking that lower inflation will be good for a return to power for the ruling alliance.
The ruling alliance needs to know that people of India want action not inaction. With the proliferation of communication networks, it is impossible to gag people and run the government on rumour mills and PR programmes. Decisive action is needed and it can only come from men of action. So where are our men of action can anybody stand up to be counted?
Friday, 2 January 2009
Pakistani politicians are one-up on the game of diverting attention and changing the subject if debate. The central subject of terror export was sidelined with the issues of citizenship of the terrorist (I don't know why he is still called a suspect when he was watched live by crores of people committing his crime). Another diversion came from the Indian polity who demanded that a group of 20 people should be handed over to India including people involved in 1993 blasts. This is the undoing of India, our country cannot solve and book a case against bombers for 15 years. The media has access to the alleged Don, bollywood has access and even the police department is believed to have access but our government cannot bring back the alleged Don to India as they have no clue about where he is! Why don't they ask bollywood, or our electronic media?
An interesting case of sentencing a serial killer is a classic example of how our legal system works in India
This man was sentenced to life imprisonment and imposed a fine of Rs.2000. isn't that a petty sum for the seven lives involved? isn't that a petty sum for the three murders he was proved?
Think about it
Happy New year