Wednesday, 28 October 2009

"If it isn't broken dont fix it" says RBI

That seems to be the mantra from our venerable Governor of the RBI. this credit policy is just a tweak with respect to raising the SLR to 25%. All the other rates have been maintained at the same level. RBI's review has pared down the GDP growth outlook of 6%.
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.

Wednesday, 29 July 2009

Annual Credit Policy and its effects.

The Reserve Bank of India has come out with its annual policy document which we popularly refer to as the credit policy. This time theRBI has maintained the bank rate at 6.0% repo at 4.75% and reverse repo at 3.25%. It has also maintained the CRR at 5% of the net time deposits. The GDP forecast has been pegged at 6% and inflation is being expected to hover at 5%. RBI also expects that the gross fiscal deficit to be at 6.8% up from 2.7% in 2007-08 and 6.2% in 2008-09.
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.
If the Government thinks that inflation is to hover around 5% and the popular discounting rate is 4.75% then it is committing itself to a regime of negative real interest rates. This is bound to result in capital flight, capital flight means that FIIs (the temporary or the hedge fund type) are bound to pull out part of their money weakening the Rupee and strenghtening the Dollar. A weaker rupee will mean fuel prices will go up in India and bring down the profitability of oil companies. Exporters like software companies and other export oriented companies will do well due to the competitive pricing available to them.
Capital flight could also result in sudden contraction of the money market making liquity remote and thus pushing down inflation. But, that is just a pipe dream given the way the Indian economy operates. Indian economy has more resilience and is bigger in the unorganized sector than the organized sector, that will increase the woes of the government by supplying more and more of M3 for the government to keep absorbing if the government wants to keep a check on liquidity.
Another pertinent point that has been brought out time and again by various experts is about the inflation based on WPI and CPI. This time the RBI document itself has thrown its hands up in despair and is wondering why WPI and CPI are not showing positive correlation as they were earlier. The answer is simple! people have changed their consumption habit and manufacturers have changed their consumption habits too, but the RBI has not changed its basket of commodities for a long time. Times are changing but the measures are not changing with the times and thats the trouble!!
Stock markets have been having a great time for the time being. Technically speaking, the nifty has to cross and close above 4640 to signal a distinct break out. If the NIFTY breaks out then we can look forward to going back to the old highs of 6000 on the NIFTY. Fundamentally, things are not so rosy, with negative real interest rates, weakening Rupee, a large fiscal deficit and a ruling PE of 20, its going to be hard for the markets to put up a brave face and trudge the bull mountain.
From here the view is more pessimistic than optimistic.

Monday, 6 July 2009

India Budget 2009

If there can be a perfect example for a damp squib, this is it! my earlier post I had opened a discussion on the role of media in creating a hype about the union budget and had also mentioned what can be realistic expectation of the new regime.

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 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

Will the FM deliver?

If you happen to watch the business channels these days, all of them want to sensationalise and make news of something there is no news about. these news channels survive on sensationalising the banal. That's exactly the thing they are doing with the upcoming budget. they have already labeled it as the "Big B" (The original Big B must be squirming at the thought of this unlikely and banal competition).

What can be reasonably expected by the budget?

1. Income tax slabs will be raised to make way for the 6th pay commission. may be the lowest slab will be up from Rs.150000 to 200000.

2. A broad and vague statement about GST to be introduced will be spoken of with a deadline of three to four years so that the listeners will feel good about some progress in the administration and the practitioners will also feel good that it is not coming soon yet.

3. A proposal for disinvestment to bridge the gap in the fiscal deficit will also be talked of and an arrangement of selling equity in PSUs to other PSUs will be taken up to satiate the views of people hankering for fiscal prudence. Whether it is fiscal prudence to disinvest by transferring the money from one pocket of the government to the other pocket is a debatable point.

4. The recent success of farm loan waiver in the electoral hustings is bound to cast its shadow (or should I call it lustre) on the budget and there will be a constituency which would hanker for more of the same. This constituency will surely be catered to, and an announcement in some form or the other can be expected out of this budget too.

5. NREGS will also become a mainstream project of the government, given the keen interest of the family in the project. An announcement of extension and raised "deficit funded" programme can be expected on this subject.

6. Securities Transaction Tax, the slow poison affecting the stock markets and the Commodities Transaction Tax the poor cousin of the STT will remain the same and no reprieve on these items can be expected.

7. Some superficial and cosmetic changes can be expected in the indirect taxes system to make it look market friendly. Here the phrase "look market friendly" is important.

8. Education seems to be the new frontier where the government will show its keen interest. especially Higher education, rightly so when we have a former UGC chairman as the Head of the cabinet. More central universities, IITs, NITs, can be expected to be announced in this budget. We can also expect at least 5 universities to get a substantial largess to augment their resources.

9. Defence expenditure would go up by 20%, this has become an annual feature now with the prevailing Geo-political situation.

10. Setting up of a new force of the type of NSG/RAF may be announced to combat internal insurgents.

11. Some politicians are vying for a special status for the Hyderabad-Karnataka region, Bihar, etc., these may see the light of the day and some package can be expected for Hyderabad-Karnataka region and Bihar in an attempt to woo non-congress voters there.

On the topic of special status, one thought crosses the mind, Article 370 gives a special status to J&K and politicians from congress have been talking about a similar status to Telangana, Goa north-east, etc. Does this mean that we are heading towards a decentralised system of governance? Are we heading towards a federal system with a weak centre and strong regional states? only time will tell.

So, if this is reasonably expected of the budget in general, one has to stop and think whether it is really the "BIG B " as our media wants us to believe. I remember economic times portraying a caricature of honourable Shri. P Chidambaram as the superman during the 1997 budget. Ten years ago it was for the print media to raise the hype, now its the turn of the electronic media to do the same. The reach and impact of electronic media is deeper and broader. If the media starts encouraging false hopes and sensationalising no news as BIG NEWS then the nation will be in for a big surprise. It seems that the present electronic media has taken upon itself the mantle of changing the opinions in the country. This type of sensationalism in the electronic media and instant justice meted out to people via the media will not get them anywhere. People are bound to realise sooner or later that the "BIG B" is also same as the case of "prince stuck in the bore well" or "A man who prophesied his death" or "leopard in somebody's house" or "injured tigress on the road". All these media stories took up nearly 48 hours of national TV space at one time or the other leaving aside grave issues like hoisting of the Pakistan flag at Srinagar.

Any way This budget as I see it is going to be a non-event and I pray that I will be proved wrong. Over to Honourable Shri Pranab Mukherjee to to the Honours.

Tuesday, 9 June 2009

New Government Old Politics

I am writing this after a long time. In the meanwhile as the powers that be changed and exchanged their jobs, me too changed the job (you can find out about it on my profile). The last month has proved it again that as more things change, they remain the same. The Loksabha saw the first skirmish of what was to come in the next five years. DMK and UPA do not seem to see eye to eye on the disinvestment issue. That caused the stock markets to lose 500 point on the sensex and gain 450 points in a matter of two days. Now, was this a predetermined trading strategy is any body's guess.

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


The Indian stock markets hit two circuits and were closed for the day. It was an unprecedented thing that happened.

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.
Additional reading

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

Foot in the mouth disease affects me

The UPA has won. It just needs either SP or BSP to lend a hand to the HAND. Dr. Singh will be KING again and keep the seat warm for the heir apparent. Now the question shifts to who will handle which portfolio? PC will have to reboot through the Rajya Sabha. Laluji has a strength of TWO so he has no hopes of making it to the cabinet.

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

Waiting to Exhale

The Great Indian Election Drama of opposing postures is coming to an end tomorrow. All those who thought that the third front and the UPA are different will be in for a rude shock when they will muster all their might to come to power and bury their so called differences under the carpet of secularism.
If you notice the election campaign this year, there were four formations.
1. The United Progressive Alliance: which was not united at all and a splinter went up to forming a fourth front. The alliance was characteristic of unabashed sycophancy and unbridled faith in the first family of India. This alliance also made last ditch efforts to salvage its well wishers by using the CBI to give clean chit to all the well wishing offenders. You must notice one fact that majority of parties forming a part of this front have a common last name i.e. Congress and they root for a common last name too. i.e. Gandhi.
2. The National Democratic Alliance: which was non democratic to say the least. This alliance brought up non-issues when the real issues were not received well by the public. They understood late in the campaign that short and direct television campaigns without the "creative" was the order of the day. They have still not understood that they have to become an inclusive party and not an exclusive party to come to power. Here inclusive means more members and keeping the doors open for new members. Now that the contentions of Article 370, Ram Mandir and Uniform civil code have been kept in the deep freezer there is actually no ideological difference between the two national parties.
3. The Third Front: Means a bunch of regional satraps broken away from the congress of yore. these parties are really drifters with the only aim to get into power. They prefer to call themselves more secular than the Congress or the UPA and they also profess to speak for regional aspirations. Their slogan is to oppose congress in the states and truck with the congress in the centre.
4. Fourth Front: This is a group of parties broken away from all the three fronts with the USP of being away from the congress, the NDA and the Third Front. they would like to jump to the highest bidder post results.
I had not blogged for a long time because of the "Aachar Sanhita" which i had imposed on myself, so that my clouded political views should not add to the political confusion in the minds of the readers.

Now that the elections are over and the ban on exit polls has been removed, Amateurs like me can hazard a guess as to what will happen to the results. I am Hazarding this guess just for the heck of it and my guess is going to influence my strategies in the market.

Now for predictions: I think the house will be evenly divided between three fronts. if you combine the third and the fourth fronts. Left parties will gain enough seats so that they cannot be ignored in the formation of a government. I think all "secular" parties will come together to form the new government and probably this formation will also be given a new name as UPA will not be acceptable to come constituents (probably because of the word PROGRESSIVE in it!). This formation will lobby hard for the leadership of the government and a new face will emerge as the contender for the PM's post. It will be either Pranab Mukherjee or P Chidambaram. Congress would not give away the PM's post at all. If congress is forced to give away the PM's post then they will not participate in the government and will lend support from the outside only to pull the rug in the next Eighteen months. So, it is certain that it will be a congress led government without Dr. Singh as the PM and Left parties participating in the government.
Now for the markets. As I had written in my previous post the Nifty lingered around the 3600 mark until the election results and now it will take a decisive turn. If the Left parties form a part of the government then brace yourself for Nifty touching 1760 and if they do not participate in the government then it would be 4250 and beyond.
So all eyes on KARAT / BARDHAN/ YECHURY.

Friday, 17 April 2009

The NEMESIS of Technical analysts!

Technical analysts in the stock markets and other financial markets rely on past data and charts made out of past data. They find patterns in these charts and follow them to such an extent that they believe that these patterns are gospel truth. Actually these charts are a reflection of the "mass psychology" or the collective mind of the players in the stock markets. There is a proliferation of technical analysts in the markets these days because market men have started to increasingly believe that with the advent of the Internet and the real time television media there is no incentive for any kind of fundamental analysis.
Fundamental analysis is akin to finding value hidden from the average investor. A Fundamental also depends on the past financial data and past experiences with the management of the companies, apart from his / her prognosis about the state of the economy, sector, industry and the company.
Technical analysts tend to forecast the behaviour of the markets depending upon the patterns that these charts make and the levels of the prices. Most technical analysts read the same books and follow the same theories therefore they tend to conclude the same things. The only force that acts against them is the regulatory force like a government or the central bank which can change the course of the markets by setting a new agenda or by directing the economy in a new direction. When ever a market falls to a large extent and there is general despair in the markets, usually the government or one of its arms comes out to support the market. This team that starts working against a trend to stem out the despair is called "The Plunge Protection Team". All the technical analysts who are gloom and doom specialists are wary of this plunge protection team. Some times this team over reacts to the situations and gets into high gear at the fall of a hat. sometimes it takes its own time, not recognising impending dangers and acts too late and in too small measures (that's what happened last year and that's why the markets became bear friendly).
The moral of the story is that, the best type of analysis suited for the markets is something called techno-fundamental analysis which also keeps its eyes open for regulatory changes, world wide happenings and market movements. because in "mass psychology" the government is not part of the "mass". So, i think we can say that the regulator is the nemesis of the technical analyst.
Now for my take on the markets: NIFTY is expected to go forward in its bullish journey up to 3600 and then take a pause for the election results. The results of the General elections will then set the agenda further until then its wait and watch. A short straddle on the NIFTY at 3500 would be ideal for the time being up to April expiry.

Wednesday, 25 March 2009

Have the Bulls come back to pasture?

There have been considerable amount of articles, views and opinions by the experts, economists and others about the onset of the bull market. Let us examine the economic variables and try to reach a conclusion. Mr. Obama and his team of firefighters are working 24/7 to douse the fire that caused the financial meltdown. Other economies of the world seem to have come to terms with the large scale damage and seem to have dusted themselves and got up to traverse their journey to prosperity. The worst seems to be OVER!
In financial market terms: Whenever there is a consensus about a particular trend then the trend reverses and proves them wrong.
Here we are not talking about a trend but about pessimism. Whenever there is pessimism there seems to be a concerted effort to tighten belts, cut costs and generally be frugal. This frugalty will in turn bring down costs but will also bring in a possibility of entering the downward spiral of the economy.
Here we have a different phenomenon happening. India is on a growth path and is on its own trip. This is a country of more than a billion people with high aspirations and a penchant for savings too. As written earlier we have just redefined the hindu rate of growth at a little over 6% from the 3% growth of the past. This growth and the large base created in the last decade will hold it in good stead and will be able to digest the impending political instability.
As far as India is concerned, the bull market will take some more time to really start, the Indian political climate has to stabilise after the formation of the new government. Untill then the market will be range bound between 3000 and 2500 on the NIFTY.
So the conclusion is that, the bull market is round the corner. Let the tide turn in favour of a stable and viable government to confirm the Bull run.

Tuesday, 24 February 2009

WOW what a business model

US of A the big apple is in the doldrums. Europe has followed it in the same lane.people are losing jobs, have already turned over their houses to mortgages and now are queueing up for doles. Where is growth coming from? India and China. India is growing at 6%+ and is hoping to keep this pace for the next few years. So here is a country where per capita income is growing (slowly and steadily). A country where people love cricket and movies. They make around 1000 movies every year and some of them actually go out to become super hits. Recently its reported that the Aamir Khan starrer "Ghajini" had crossed gross collections of 50 crores in a couple of months. That makes it $10 million in a couple of months. This is a great model of business. make movies for an audience which pays anywhere between one dollar to two dollars for watching the movies and the sheer size of the population takes care of the economics. Did somebody say Prahalad? yes that was what the revered guru of management was talking about when he talked about the bottom of the pyramid!
Cut-to-the-present: A British film maker understands this economics and uses the same bottom of the pyramid to make a movie with little known actors to fashion out a nice Indian masala movie of a rags to riches story. Signs up musical geniuses Rehaman and Gulzar and dishes out a fast food like masala movie called "The Slumdog Millionaire". That was the commercial angle, then comes the master stroke of promoting it. As it is said "Business is Marketing" and "Promotion is Everything" or "The content is the medium itself". A deft piece of lobbying is orchestrated by making a famous fashion-magnate-dress-designer to choose the theme of "Jai Ho" for his latest fashion show. Good controversy is created in India over depiction of slums etc. this prepares the ground for the "BUZZ' that needs to be generated for an OSCAR Gambit. Next are the BAFTA and other awards which go to the movie. Since an art form is always intangible and abstract, once the "know alls" or the marketing mavens (sorry Mr. Gadwell for using your term") start endorsing it it becomes fashion to endorse the particular art form. Then perfect hammers become great actors and subtle acting becomes a dead pan expression. So once the buzz is created then its just a matter of time that the judges will be inspired to see the unseen in the movie and give it the award.
So that's what it takes to be an Oscar winner. making a good film is only half the job, marketing it is "THE JOB".
Now why did we start with the state of the economy? lets get back to economics now. Once this movie performs well in India because of the glorious awards and the great story told. we will have a beeline of more Hollywood movies releasing in India, for Hollywood will rediscover the Indian audience and the power of the 300 million English speaking people in the country. So with a movie on Indian slums and a rags to riches story of an Indian boy from the slums our friends in the Hollywood have been able to create an awareness of the Oscars to such an extent that future Oscar ceremonies and Oscar winning movies will all be lapped by the ever foreign-entertainment hungry population of the country.
This is what is called, hitting two birds with one stone. WOW there's no business like show business

Tuesday, 17 February 2009


We are living history. This must be the only time in the history of India when we have a minister who is PM, FM and External Affairs Minister-all-rolled-into-one. Of course there is supervision by an extra constitutional authority against whom no one in India has the guts to talk. Are we a democracy? are we not a banana republic? are we not a dictatorship? we need to answer these questions as fast as possible if we have to find some semblance of sanity in our country.
Look at the irony of the country, we have a home minister who gives a statement on finance everyday. We have a part time finance minister presenting an interim budget. It cant get any more interim here!
The icing on the cake is the hopes built up by our gullible investors that an part-time finance minister with a mandate to present the interim budget will declare a stimulus package. How can you expect this to happen? The part time finance minister has his hands full in the external affairs ministry as he has to deal with the unprecedented diplomatic offensives from our neighbouring countries.
The election commission was expected to save face by showing readiness to conduct polls as and when the parliament is dissolved or at the end of the term. But internecine rivalry and party politics has also crept into the only non-partisan institution in the country.
The interim budget was, as expected a vote on account to help the government to spend money in the next four months from April 2009 to July 2009 so that the affairs of the state can be carried out smoothly. Expecting too much from this exercise was a wrong thing. As I had written earlier the stock markets would be meandering for a while until the elections. This is the time when the markets will probably bottom out. We can expect the indices to test the October 2008 lows in the meanwhile. The fourth quarter results, annual results and the results of the general elections will help the pessimistic sentiment further.
As far as the expectations of the results of the general elections go, I believe that we will see a completely fractured mandate and we would have a government which would bring in strange partners together and a coalition of opposite ideologies would be in power in for the next eighteen months at least. This period of "interim government" is going to continue for another 18 months now. Unless growth slows down to the "Hindu growth rate" or India heads towards a recession don't expect fireworks in the political arena nor the economic arena. Babus will continue to run the show and ensure that we slip into inactive mode.

Saturday, 7 February 2009

DOLE Time in US and VOTE Time in India

Stimulus packages of the recent times have started to have the "Look and Feel" of socialism. unemployment compensation, food stamps and Subsidized Medical Insurance seem to be from the era of socialistic societies. This further proves the economic management cycle professed earlier. This cycle, as written earlier consists of of "Liberalization, Privatization, Globalization, Nationalization".

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.

Lets get back to India, what ails us here? We are witnessing a slowing growth rate. Our policy makers are trying to bring down inflation by reducing fuel prices. I think we are barking at the wrong tree! India is bound to have inflation around 5-6% and it cannot be stopped because of the substantial portion of the economy is unaccounted for. That's what is called the black economy. Controlling liquidity at the wrong time suffocated the demand and drove interest rates higher in the last six months. With inflation higher than the repo rate we still have a negative real interest rate. With negative interest rate there is no hope for foreign portfolio investment and therefore no hope for the stock markets because the strong hands of FIIs will not buy India!

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.

Stock Markets in India will witness laid back meandering business for sometime now as the country is gearing up for elections. Now non-issues will take centre stage.

Elections in India will be highly entertaining and will have very high educational value.

Saturday, 24 January 2009

State of the Economy and State of the State

Inflation inched up to 5.6% in the last week, it was attributed to the truckers strike during the period of study and all the big names in the financial industry are talking about inflation easing to 2-3% in the next three months. On top of this, these big names are calling for further rate cuts and reduction in statutory ratios for banks. India does not have a Glass Steagall Act, but it is common knowledge that investment banking and commercial banking are kept at arms length in the Indian banking industry. This arms length has significantly shortened in the last five years. In the banking parlance we have a new way of talking about this. Instead of calling these activities investment banking and commercial banking activities we call them by the kind of income they generate and name them as "fee based Income" and "Fund Based Income". Of course some investment banking activities would be fund based activities and therefore they form a grey area.

Now, if the rates are lowered and, what would happen? I happen to run a small "fee based business" and I am drawing this from my own experience. Banks have a PLR range of 12.75% to 13.25% (official RBI figures) and deposit rates of 7.5% to 9.6%, this leads to a margin range of 3.15% to 5.75% on the higher and the lower side. Risk aversion is the rule of the day fr banks these days, bankers these days are wary of giving loans. They prefer to have treasury income rather than interest income. meaning there is a positive bias towards the investment banking conundrum rather than the rig morale of commercial banking. because of the risk aversion I do not expect bankers to lower their PLRs, even if they lower their PLRs they will charge a premium on the PLR for all kinds of customers other than prime customers. Coming to think of it, if we go by the usual definition of the prime customer: steady cash flows, consistent declaration of profits, consistent IT returns, consistent IT payments, etc. i would say majority of Indian customers, individual as well as corporate fall under the sub-prime category. Then what do we do with the lowered PLR? Do we need this PLR only for declaration purpose on the RBI web site? Banks will still have a bad choice of borrowers and therefore will always be risk averse. Therefore expect banks to make more profits but at the cost of taking higher risks. (That's really a nobrainer as more risk only means more profit and there's no such thing as reckless profit)

Now the STATE of the STATE. All these days we had a government which was running on the steam and momentum provided by the Keynesian pump priming done by the earlier NDA government. The present regime was always waxing eloquent about growth rates and was complacent with doling away the tidings brought about by the higher growth rate. Economies grow or de-grow after a lag of two to three years of taking action on the economic system. now that this government is completing its term of inaction, complacence and profligacy, we have the PMs panel re rating the growth to 7% from the earlier projection of 9%+ growth. Has this been due to the global financial crisis? notwithstanding the global financial crisis the momentum of growth could have been kept up by committing public funds to developing infrastructure, housing, water supply, power generation, electricity supply, primary education, secondary education and other such worthy causes. But all these were given a go-by and the government resorted to the age-old "congress" method of appeasement and cheap populism of subsidising the rich farmer.

After this disaster, now we will be a country with an actually inactive Prime Minister for the next four months. doesn't congress have one able man / woman to entrust the top job? If the PM undergoes a cardiac surgery and has to convalesce for three months, can't this country find a replacement for this honourable man? Do we have no choice left at all? Why should Pranab Mukherjee chair cabinet meeting as the stand-in PM? What happens if we have a 26/11 type of a situation again or if we are forced to go to war with our ever friendly neighbours? Why can't the stand-in PM become the real PM? Where are all the so called strongmen from Bihar, Maharashtra? Why don't they claim a stake for the PM's gaddi now? Why should we rely on a Prime Minister (I have high regards for his stature and ability when he is physically fit) who is undergoing a bypass surgery for the second time and is required to take rest for three months? Can we afford to give a three month medical leave to our Prime Minister during this hour of crisis?

Tuesday, 20 January 2009

Welcome OBAMA

Today we brace ourselves to welcome the greatest event in the history of Mankind. A human being of a different colour is being sworn in as the President of a Country ravaged by discrimination on the grounds of colour. This is an unique even for one more reason, the Man who is being anointed as the President of United Sates of America also reflects true internationalism. He is born of an American woman and an African man, not only diverse in colour but also diverse in citizenship. Apropos! to the citizens of USA for electing the true American Spirit as their flag bearer for the next four years. Another unique thing is happening in these times, All this while a drastic change in the leadership would happen after a large crisis / catastrophe or a revolution. But here we see a slow churning and a slow revolution happening, a drastic change in leadership has come about after a smooth sailing for the last sixteen years for the economy. When Obama was declared elected, the economic fallout of the financial crisis was not yet fathomable.
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


Mr. B Ramalinga Raju, resigned as the chairman of Satyam and admitted to misreporting the finances of the company. There are reports of Rs.5000 crores missing from the cash and bank balances of the company. How did the auditors price waterhouse certify the balance sheet? Did they verify the bank accounts and find out whether the deposits actually existed on 31st March?
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.
Satyam Swaha!!

Tuesday, 6 January 2009

Stimulus package completed?

Remember? I had written about the stimulus package on december 4th. After that I thought that I should take a break in posting data. The entire package came in two stages and now the petrol and diesel prices cut will also come in two phases. Indian polity probably does not believe that the current slowdown is for real therefore the speed of response is that slow.
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

New Year New Problems

New year brings along a new list of problems. India has not been able to convince the world that terror perpetrators were from across the border. Even if they were from across the border the world does not believe that India can undertake "surgical strikes". The outfit which claims responsibility for the Mumbai Massacre wants to rename itself and carry on its business as usual. Israel has been better off at bombing and pounding the Gaza strip and trying to decimate the Hamas. No world leader minds it anyway. Can anybody tell us why this ambivalence with India? Indian Politicians cannot take a stand and firmly talk about terrorism and they want to always colour them with a religious tinge. Criminals are criminals and that is their religion, please don't give them a religious name.
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