CBDT, learn from IRCTC

While some of us may wail over poor internet penetration extending the longevity of high cost off-line systems, IRCTC is proving otherwise. To the uninitiated, IRCTC is India’s online railway reservation facilitator. One look at this report over its results is an eye opener. With the increasing penetration and use of the internet, IRCTC’s ticketing revenue has seen a remarkable increase over the past 3 years ( From Rs 7.04 billion (2006-07) to Rs 17.44 billion (2007-08) and to Rs 39.66 billion last year.

Just wondering. What if CBDT allows Income Tax assesses (and not-yet assesses) to pay a presumptive tax (say a base rate of 10% of total income) online and ask no further questions unless they have incontrovertible proof of evasion? I am sure people will have lesser incentive to evade taxes and that will widen the tax base and reduce the total cost of tax collection which currently is steep and getting steeper.

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Tweaks and twaddles - is that enough?

As I see the government coming out with serial reform tweaks (FDI norms, Preferential allotments) and bureaucratic twaddles, I worry that we’re operating far beyond our economic knowledge. Every time the administration releases an initiative, I read different reports with diverse opinions. I worry that we lack the political structures to regain fiscal control. Deficits are exploding, and the government clearly wants to restrain them. But there’s no evidence that the UPA / NDA or the non-aligned rest have the courage or the mutual trust required to share the blame when tough decisions are to be taken.

All in all, I can see why the markets are nervous and dropping. And it’s also clear that we’re on the cusp of the biggest political experiment of our lifetimes. If Obama is mostly successful, then the global skepticism natural to conservatives will have been discredited. We will know that highly trained government experts are capable of quickly designing and executing top-down transformational change. If they mostly fail, then liberalism will suffer a grievous blow, and conservatives will be called upon to restore order and sanity.

It’ll be interesting to see who’s right. But I can’t even root for my own vindication. The costs are too high. I have to go to the keyboard each morning hoping Barack Obama is going to prove me wrong.

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NTMA - asking for bankruptcy

India’s bond market is nowhere near the maturity level of its equity markets. Reasons are not so hard to seek since equity offers ownership while debt carries an obligation to repay. When a debt paper is issued and if it is held till maturity, the obligation to repay rests with the issuer. But if it is allowed to be traded, the issuer gets back in the picture only if the instrument allows recourse. Naturally, when it comes to soverign (or Public Debt raised by Government) debt, our policy makers played safe and entrusted RBI to be the custodian, issuer, manager and Regulator of its financial needs. It suited just fine.

Earlier in the 2007-08 Budget, the monetary and debt management aspects of RBI is sought to be separated. On Friday, the government released a draft Bill to create a statutory corporate body called the National Treasury Management Agency (NTMA) to carry out debt management, cash management and management of contingent and other liabilities of the Centre and states – in the process stripping RBI of this responsibility. Former Finance Secretary S.Narayanan blows the whistle in his Livemint column.

Primarily Mr.Narayanan’s concerns are –

(a) Moral hazard – Minus the regulatory oversight by RBI, that it has ably executed for the last 60 years, NTMA functioning under the budget division of the ministry could become a carte blanche for Finance Ministers to raise funds at will. The propensity for excessive borrowings by the Governments are well documented in the past. Our budget deficits are a direct result of that profligacy.

(b) Mortgage of sovereignty - The draft Bill envisages that government bonds will be available for sale in India and abroad. It means that for the first time since independence, we will be offering sovereign bonds to overseas investors. Earlier, finance ministers and governments have shied away from this, for committing a sovereign to a debt that can be called outside the country has been a very sensitive and emotional issue. It has been a principle so far that the sovereign, the state, would not issue debt overseas.

(c) Fiscal discipline – It will in effect, empower immature policy makers to design debt instruments that they hardly understand. The recent mortgage crisis in the US that is still playing out, breaking banks after banks in the process, stands ample testimony to all likely outcomes.

As the citizen of this country, we’re already exposed to the recursive cycles of inflation and deflation. As a nation of savers, we are already parking most of our savings with the Governments (Post Office savings, PF, PPF, NSS, NSC, RBI bonds, Sr.Citizen bonds etc.) A tradeable bond market will only enable some dubious corporates to stick their trash debt paper to some unsuspecting and gullible public. We know the allegiances of Finance Minister Chidambaram, Petroleum Minister Murli Deora, Telecom Minister A.Raja et al. Now we don’t want self-imposed bankruptcy added to that. Do we?

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"Never even try"

Dr.Jaimini Bhagwati calls for public sector (government controlled) Credit Rating Agencies (CRA) to deliver objective evaluation of security instruments in the interest of investors.

His concern is genuine since there is just the three globally recognized CRA – S&P, Moody’s and Fitch that run the show. (In India we have CRISIL, ICRA and CARE and that’s it.) He explains how the flawed rating processes of S&P helped rate sovereign rating of GOI bonds lower than that of ICICI bank at one time, an year or so ago. His case – CRAs are paid by issuers and hence there are limitations to the level of objectivity an investor can expect out of them. Need of the hour, therefore is establishment of an Indian public sector CRA to increase competition and provide benchmark standards.

I take off from there. Then what happens? Like PSU oil companies, populist interest will upend commercial imperatives. Our politicians will call the shots. Will RIL bonds get a bad rating if Murli Deora is the Minister in charge? Look how he made GOI intervene in the ongoing dispute between RIL and RNRL in the matter of KG gas distribution. Now imagine Amar Singh at helm – ADAG group companies could be awarded ratings equal or better than sovereign ratings of GOI bonds. Reliance Capital will run M/o Finance, SEBI and Company Affairs. Every shift in incumbency will influenze the rating outlook. Are investor interests protected or are they imperiled as the saga of ambivalence plays out?

Today CRAs have authority but no responsibility. I suggest a participative method – make them what I call `backstop underwriters’ by entrusting a portion of underwriting obligations to CRAs, making them own up to their ratings. This is how it works. If the rating awarded is downgraded within say, a year of issuance or if the issuer defaults in its commitment to the retail investors within that period, then CRA will have to step in and bailout the investor. Investors will be glad to pay a small nominal premium for that reassurance. That way, CRAs can augment their income (fee for backstop underwriting besides rating fee) and ensure the objectivity of their processes as well. Investors get a toe in the door and Issuers save on the retail portion underwriting fee as well. Win win?

Bringing a politician have only complicated issues everywhere. Look what’s happening in appointments of PSU / Nationalised Bank Chairmen, Central and State Police Administration and frequent transfers among Income-Tax bigwigs. Think of Shibu Soren at the helm and imagine what would Anil Agarwal of Sterlite get away with? I go “Never even try”.

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The serial bailout ?

Following Wall Street rescue, the opportunistic bug seems to have bitten battered Indian businesses. Politicians, the chief patrons of Indian business turn willing side kicks. Recently Praful Patel wanted Airlines to be bailed out until Chidambaram refused to play ball. He just stopped short of restricting it to friend Vijay Mallya (Kingfisher Airlines) and by extension Naresh Goel (Jet Airways) to limit tax payer burden. Air India, the government run airline never mattered to him as much even as it was notching up losses for several years now and making do with ageing airplanes. It suited his friends better to let the country’s premier Airline to bleed. But it just worked out the other way round – the private airlines began to bleed.

So what to do now? Ha, we take a leaf off Wall Street rescue staged by Hank Paulson, ex Goldman Sachs dealmaker. Bail the airlines out too.

Last week, the stock of Las Vegas Sands Corporation collapsed. Bankruptcy seems a real possibility. Indeed, the whole casino gambling industry in Nevada is facing the worst crisis in at least a generation, maybe ever. Casino gambling directly employs more people than the domestic automobile industry. Add in the supply chain for both industries, and casinos still employ almost half as many people as the automobile sector.

So what about a bailout for the casino industry? Ridiculous! Right? What next? Bailout Matka, then drug dealers, Mafia…? [Dr.Vijay Mallya is a liquour baron!]

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Now it's Amar Singh - ADAG dance

With the Left gone, Politics in India has become a lot easier to grasp. It is no longer Congress+Left Vs. BJP+Allies. It is now split between the Reliance family factions - Mukesh Ambani camp Vs.Anil Ambani camp. Here is my earliest prediction. Look at how Amar Singh, SP general secretary rips Finance Minister P. Chidambaram and Petroleum and Natural Gas Minister Murli Deora at a media briefing Saturday.

"I am not asking for my pound of flesh. We are against anti-people policies. Deora's behaviour is disgusting. He should come clean on whether he is a corporate honcho [for Mukesh Ambani's RIL] or a minister".

Regarding Chidambaram, Singh said: "Under his stewardship, price rise and inflation have happened."

Politics never baffle me. In fact they help me balance my portfolio by just looking at the daily news headlines. If Murli Deora is in the limelight, go buy Mukesh Ambani’s RIL, RPL stock. Of late Samajwadi Party and Amar Singh steal the show. It’s time to trade loyalties. Remember how Sahara group was let off by RBI recently? Go long on ADAG group – Reliance Capital, Reliance Infrastructure, R-Com, RNRL, Reliance Power, Adlabs.

What about the Indo-US nuclear deal? That has never been the central issue except for the Left. Nobody ever had a clue whether it is good or bad for the country. The comrades led by Prakash Karat just opposed all things American as if the Left is run by the Chinese – financially if not ideologically. Ideology is in severe short supply amongst the communists now. Want proof? See where China parks its surplus - rushing to hold stake in Blackstone Private Equity, the capitalist moniker.

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Does anyone remember how to laugh?

More on socializing capitalism…. Governments in India tend to be unduly charitable in an election year. A sort of mind game the ruling coalitions play on the electorate so that the voters’ recent memory will be only of the government’s generosity – that helps beat the anti-incumbency factor. This year, our UPA government came out with the biggest of them all – farm loan waivers of about $18 billion and further $3 billion largesse to govt. employees by accepting generous recommendations made by the VIth pay commission. I’ve already blogged about that here.

Both commercial and cooperative banks in the state are facing the problem of loan default during the 2007-08 fiscal and the amount defaulted could be around Rs 5,000 crore. The percentage of recovery for cooperative banks is just around 10 per cent, while for commercial banks it is 10 to 30 per cent, he added.

Now there’s the outcome. Banks to which farmers owed all this money have stopped paying up and they face a liquidity crisis. They may not be able to pay their depositors if Government does not infuse large doses of capital into these cash starved banks immediately. This will bite them badly since the intention of the government was to announce the waiver scheme early (before the code of conduct enforced by the Election Commission kicks in) and win the farmers / govt. employees’ votes. When it comes to replenishing the banks, it needs to deal with the problem only if it gets another term at office [that is increasingly looking unlikely, given the rising inflation, crude price impact and slow growth rates] or smartly leave it for the new incumbent to deal with it and collapse under its weight before long. But who ever thought it will come back to haunt them so soon...

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The untouchables

Call them new age Al Capones... Inflation never bothers them. Liquidity crunch never gets anywhere near them. They are hugely wealthy private money lenders that step into a turf where all other sources fear to tread. Distinguished only by the clout of their enormous wealth and political connections, they keep a low profile that new age private equity moneybags can never come to terms with. Neither have they the glamour of a venture capitalist or of angel investors which they clearly are not, because they don't waste time on spreadsheets. When banks, financial institutions and other lenders retreat, they make their mark.

Their businesses could be as seedy as that of a Matka (betting syndicates) operator or as legit as that of a diamond merchant that provide them with a front and with an unmatched liquidity that opens up in times of distress to industries that find it hard to raise institutional credit. The real estate property developers and film makers often turn to them to finance their operations as these are deeply capital intensive businesses where cost and time overruns are quite common. Non availability of formal credit in time would mean instant death for the project. Expectedly interest rates range anywhere between 24% – 36% p.a. dependent mainly upon the level of desperation in the market and the number of seekers.

Life must be a lot easier for these guys. They lend on mutual references. What could be their business process? Terms like due diligence, anti-dilution provisions, valuation snafus, dividend recaps, exit worries don’t mean much to them. Funny that the mainstream lenders have such elaborate risk management tools, diligence checks and what not - only to face periodic business cycles at regular intervals to do them in by way of stock market collapse, subprime crisis and oil price surges :-)

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Sahara is too big for RBI to pull up

Sahara group has always been mired in controversy. With no clear lineage of its monumental wealth and sudden emergence into the league of rich and famous, interests spanning from Financial Services to Airline (now divested) to real estate to entertainment and broadcasting, its source of funds has always been questionable. The publicized information that it aggregated small amounts from poor workmen and hawkers on a daily collection routine certainly didn’t cut.

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And then the splash wedding of its Chairman Subrata Roy's two sons -

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Hardly the cashflow stream that enables its founder Subrata Roy to conduct his sons’ wedding so loud, with unabashed brazenness. Get yourself a rehash of the ostentation. Note the array of guests that lined up. A former Prime Minister (A.B.Vajpayee, despite his famous weak knee), Mulayam Singh, Amar Singh, Bal Thackeray(traveling out of Mumbai after 15 years) et al to celebrities from the world of business, sports and entertainment. If feeding thousands of guests and 140,000 beggars were not enough, the cost of transportation, Z category security and palatial housing of dignitaries (Roy put up three mock palaces) that assembled in small town lucknow should’ve cost a fortune. In fact, it gave credence to the rumors that Sahara group was a politician’s safe haven for their bribe collections and wealthy industrialists’ unaccounted wealth under cover of collections from poor people. With so much `at stake’, it brewed itself into a heady mix – something that can never fail. That should never fail. An untouchable (even by the long arm of law). So what can a poor RBI do? How far could it get?

On June 4, the RBI banned the seedy Sahara group from accepting public deposits on grounds that it was not following the prescribed norms. Yesterday, the regulator promptly changed its earlier decision following Supreme Court-mandated meetings with top Sahara executives on June 12 and June 16 and after Sahara Chairman Subrata Roy had "a meeting" (dressing down?)with RBI officials. The earlier order directing Sahara to stop accepting deposits effective end of this month have now been revised to - hold your breath - another 7 years. A new lease of life (for some of the RBI officials to peacefully retire than for invincible Sahara to sort itself out!) till 2015, leaving enough time for all those who have stashed their wealth to recoup them ;)

Sahara is a big tree; so RBI has to prop it up before it falls and shakes the earth. But not everyone get so lucky. What RBI couldn’t do with mighty Sahara, it does with other NBFCs. Here's RBI getting back with a vengeance. Message : Be big before you are in play ;-)
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Go, celebrate democracy

Dither. Dither. Dither. Looks like this is the new way to govern... The Cabinet Committee on Political Affairs (CCPA) will meet tomorrow at 8 am to consider raising petrol, diesel and cooking gas prices. They still are meeting even as crude prices soar, oil marketing companies bleed, inflation is nowhere near control. PSU Banks and Small savings scheme interest rates are way below inflation rates. Government was quick to cut rates in succession and when it comes to hiking it, they are still “meeting tomorrow” or “under consideration” mode – just as in Oil prices. Go, celebrate democracy!

Here I quote Pritish Nandy

“So angry is the middle class that the Congress is losing every bypoll, every election. Despite having a world class economist as Prime Minister, no one trusts their ability to manage the economy. The excuse is inflation. But what's the single most important factor, apart from increased taxes, that stokes inflation? Fuel prices. Fuel prices impact everything. Yet the common man is never told what the actual cost of fuel is, though we are constantly badgered by statistics that claim the State-owned oil companies are making huge losses to subsidise us. What's hidden from you and me is that there are a whole lot of invisible taxes and duties the Government collects from every litre of fuel sold. In other words, the much maligned Left is right.”

I agree. Left is often right – except in States where they rule (Kerala, West Bengal) where they make sure nothing works.

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Sauce for the goose is (not) sauce for the gander

The Reserve Bank of India (RBI) today barred banks and financial institutions from extending loans to promoters and entrepreneurs, who have siphoned off funds and engaged in frauds for five years to start new ventures.

Farmers?

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Bad Karma of congress catches up; It's rollback time

Inflation woes, dull sentiment, Gujjar pressure, Oil price spiral, election reversal in Karnataka – woof…. enough to drive any Government mad. The current congress government is at least clearly lost on ideas. So what? There is always a roll-back option, like hiking the ECB limit for companies.

So now it is $50 million for ECBs against the earlier limit of $20 million, which had been mindlessly imposed last August. For (badly bruised) infrastructure sector companies the limit is up to $ 100 million under the approval route. Will it boost the sector, which requires $500 billion of investments? Hardly. But gives some breather for some projects that are nearing completion. For you, to buy top stocks on the cheap ;)

All in cost ceilings have also been generously revised. So much for levels of despair ;) Over six months LIBOR in respect of ECB for average maturity period between 3 – 5 year borrowings is now up to 200 bps, from 150 bps at present. For borrowings more than five years, the cost has been increased to 350 bps from 250 bps at present.

Other conditions - like the existing $500 million annual limit for companies has been left unchanged. So are the end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements.

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Call it bad karma catching up with congress...

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O.P.Bhatt needs to keep his job

Before you could say spunk, SBI blinks.

Yesterday, SBI chief general manager Shyamal Acharya, confirmed that the bank has temporarily discontinued giving loans to farmers for purchase of equipment and said the decision was forced by the high non-performing assets (NPAs) in the segment.

He said NPAs under this head had gone up to 17% of the total outstanding amount of Rs 7,000 crore, and such a high level of NPAs was not sustainable. Loans for tractors, combined harvesters and power tillers constitute a small portion of the loans given by the bank to the farm sector. He said that while loans given against such equipment add up to just Rs 7,000 crore, total lending by SBI to the farm sector is around Rs 43,000 crore. NPAs in the farm loan segment as a whole are just 7%. This is higher than SBI's overall proportion of NPAs - barely 3% on total loans of Rs 4,22,181 crore as on March 31, 2008. However, it is significantly lower than the level on farming equipment loans.

And today, they regret. See how SBI deputy MD & group executive (rural & agri business) Anup Banerji covers the management ass. He says the decision to stop lending was not taken by the board. It was a strategic decision taken by the business unit of the bank. “No communication was given from the ministry to resume lending for tractor loans. There has been no pressure from political parties or the government to roll it back, it was the bank’s decision to do so. Given the reactions the decision evoked, we reviewed it and have decided to continue lending.” When you have a gun held to your temple, that’s how you speak !

SBI chairman O P Bhatt too wants to show obeisance to masters. He too regrets the bank having issued that circular. Poor Mr.Bhatt needs to keep his job until he gets hired by a private equity just as his predecessor A.K.Purwar, currently with Nicholas Piramal Private Equity Fund. Who is he confronting? Even P.Chidambaram couldn’t overrule the whims of Sugar Daddy who is the architect of loan waiver. That’s how he rules Baramati and its voters. By helping his cronies treat bank loans as Daddy’s gift, he let them have those funds for keeps so that he can have recourse to it to fund his and his nephew’s election expense. Now his daughter (Ms. Supriya Sule) too has joined in. No code gets violated and Election Commission cannot raise a finger. Look at Mayawati. Has so much of money to run a mighty sovereign. Ask for source – all *gifts* from Dalit cadres that don’t have money to buy even a decent meal, yet marshal enough resources to shower gifts on their leader to *uplift* the downtrodden –as if they are perched somewhere up.

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Why can’t SBI plead a software bug or shortage of forms or heavy load of applicants (because of the heavy rush to borrow since they don’t have to repay) to explain away non-processing of farm loans? They should learn from their PSU oil marketing cousins. With their backs to the wall, Indian Oil and its sister firms started clipping sales of non-branded fuels in Metros and 16 other cities and stopped giving new cooking gas connections.

Oh yeah, I did digress. But I think it’s par for the course. Once in a while I need to let out my steam. I am shocked by the way our PSU banks and Oil Companies are being run. Instead of letting them align with commercial reality, their managements are browbeaten into submission, punishing the public shareholders that unfortunately end up owning the piece of shit. I am angry just as you are. Know why? I am no farmer and hence no loans to skip. Too bad.

That said, “spunk” is hardly the expression associated with PSU bankers. They are all wimps. Meanwhile as a depositor, you may brood at lower interest rates, as a shareholder you could sulk at piffling dividend yields and capital appreciation? Not until the next tide lifts all boats (that has no connection with earnings growth) – just in case if you’ve survived the recent bust and mounting fuel bills!

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"Let go off all controls, Sardarji (and Pawar boy)"

Why do I welcome decontrol of sugar? Because I have a huge position in sugar stocks in my portfolio :)

That aside, here I found a great ally in that argument. The ET editorial goes controls hurt farmers and industry too. It says our sugar sector has to be freed because –

a) Nearly every aspect of the sugar economy is controlled, often on mistaken assumptions.

b) Ill-timed policies – The govt. banned exports of sugar in 2006 when the global prices were high. That led to a local glut and non payment of farmers’ dues. Govt. can’t fix high cane prices (inputs) and seek to keep product prices low (output) as well. How will the mills pay the farmers?

c) Outdated inflation index - Sugar has to figure low in the inflation index because it is no longer an important household expenditure item. Bulk of the sugar consumption is in the industrial sector. Remove it from the list of essential commodities and treat it like any other product.

d) Meaningless restrictions - Remove distance restrictions between mills. It helps competition and results in efficient price discovery.

e) Lifeline for moneylenders - The statutory minimum price (SMP) for sugarcane and the higher state advised price are fine in theory but do not necessarily protect the farmers. If the mills don’t make profits, they can’t pay farmers on time. This tempts them to get the cane receipts discounted in the market, leaving the local moneylender to make the most of the situation.

So, Dr.M.M.Singh and Pawar boy should sit together and let go of all controls. This is one industry where there is no wastage. Bagasse is used in power generation and molasses is used to make alcohol. Then you have ethanol to mix with petrol to lessen the import bill on crude oil that is inching towards $120 a barrel.

So do it quick. I’ve tipped sugar to my readers earlier. Let me feel like a king :-)
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"Happy Birthday, Krish" - with love from PMO

Felt really sweet this morning. Here is why. The best birthday gift from the Government of India. Finally they chose to free sugar industry from its clutches of control. Hope it comes through.

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The liberalisation will mean mills will be able to sell sugar freely in the market. With no cane area reservation, no price controls, no levy obligations, mills will benefit from a direct link between the prices of cane and sugar. The matter is now under the consideration of Prime Minister Manmohan Singh.

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I see sugar stocks gathering momentum. Precisely the moment I've been waiting for ! If you'd listened to my earlier missives, you too should rejoice :) If not, go buy sugar stocks now. My fave is KCP Sugar Industries. Super stock.

Here are my earlier takes. Have loads of fun - if you are well stocked up on sugar stocks as I am :)

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SEBI in a hurry. Did PMO ask for "status report"?

SEBI today unveiled the guidelines for real estate mutual funds (REMF). For SEBI it’s another feather in the cap. Or is it another job done?

THE FINE PRINT

 Real estate mutual fund schemes can only be close-ended, listed on recognized stock exchanges
 At least 35% investment in ready-to-use projects mandated
 Investment in real estate assets, securities (including mortgage backed securities) capped at 75% of the net assets of a scheme
 Caps to be imposed on investment in a single city, project, securities issued by sponsor or associate companies
 Fund houses need valuation by two valuers every 90 days from date of investment
 Mutual funds cannot transfer real estate assets between schemes
 Have to declare daily NAV

Some doubts still persist.

Does SEBI have the expertise necessary to regulate murky real estate sector? Talk of defective title deeds, dated survey / registry documents, arbitrary valuations, diverse stamp duty assessment norms etc. Investors should do well to approach it with care. I would say “avoid”. It only intends to provide liquidity to developers that have bought land at astronomical prices. Now future cash flow from executed projects depend on affordability of buyers.

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Then two valuers declaring valuation every 90 days. Is it possible in a RE fund? The underlying prices may not vary in that frequency at all. What could be the benchmarks? Who will supply data given that most deals are done on part cash, part cheque basis? Now wait a minute. Don't we clearly see seeds of subprime mess being sown here? Creating layers and layers of instruments that eventually masked the real borrower to the bondholder. Will there be a housing loan waiver like a farm loan waiver? Hope someone nips it in the bud before investors - that have little or no way to discover the ture value of the underlying - burn their ass.

Inflation recently crossed 7%. Global liquidity crisis is not yet completely off our back. Has PMO sought status report from SEBI to *save* the beleaguered sector? We live in times when ministers put in a “friendly word” to cabinet colleagues to “save” companies in trouble!

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Itching to hit the familiar turf

Too much money can drive people nuts. Perhaps India’s huge reserves – around $300 billion – has exposed the clueless top dogs at M/o Finance and RBI finally concede their inability to deal with a never before situation of surplus. Looks like they are itching to get it out of the way quickly so that they get back to familiar terrains of penury and economic destitution.

Their strategy? To ride on all their inexperience of fund management and set up India’s sovereign wealth fund (swf) to invest in risky energy and financial assets overseas – on the lines of Singapore, Abu Dhabi and even China.

Vinay B Nair of Wharton Center explains why it is a bad idea.

Politicians are famous for economic apathy. But know what it takes for their lot of under-privileged to buy a strip of paracetamol!

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Ambani-Deora Master stroke

Government is in a fix over closure of petrol pumps by Reliance Industries over denial of subsidy on par with public sector companies, with Oil Minister Murli Deora today admitting that dealing with the situation was not easy – BS report.

Fertilizers and Petro products have always been subsidized in India as these are more a political issue than economic. Are they telling us Reliance Industries and Essar Oil entered the business without doing their math?

Anyways, Government is in a dole-out mood. It recently announced a Rs.60,000 crore farm loan waiver. Followed it up with the 6th pay commission costing about Rs.12,000 crore. Now let’s wait for the climax to play out in this grand conspiracy to favor big business. Screenplay seems ready. Film directed by Ambani-Ruia-Deora trio. First phase already won as per grand plan – Murli Deora re-nominated to Rajya Sabha unopposed.

Time to go long on RIL and Essar…?

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It's the election eve stupid !

Ask me why I don't buy PSU bank stocks. Or why I stock up on sugar stocks...!

If you own any business, you’re supposed to have a say in its affairs. You expect to be consulted, at least by postal ballot, before taking critical decisions. But in PSU banks, it's as if you've surrendered all your equity so that it solely rests with the government. You just commit the capital and shut up. The government plays the big brother and writes off huge loans. It has happened before and it has happened in 2008 budget as well. Farmers owe banks $15 billion that stand as assets in the bank’s books. Last week FM wrote off all of them in one swoop, before you said bottomline.

The finance minister P.Chidambaram walked out from a live post-budget television interview, upset at repeated questions on how the government would fund the Rs 600 billion ($ 15 b) loan waiver by public sector banks he had announced. Of course, he returned to complete the interview.

That’s why I don’t own PSU bank stocks. Exactly why I stock up on sugar… You get it cheap and the business benefits from populist largesse like this. Remember, you live in a democracy and it's the election eve stupid !

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Can't keep my hands off you, baby...

Déjà vu. Earlier it was the NDA government that fingered India's oil marketing companies IOC, HPCL and BPCL. Then the game was between Ram Naik, Petroleum minister and Arun Shourie, Minister for Disinvestment. Ram Naik opposed privatization of Oil PSUs (needed the fleet of cars, trucks and guest houses for his election campaign, used his power to allot petrol pumps and gas agencies to his cronies) whereas pro-reform Arun Shourie (believed the Government had no business in running businesses) was hell bent on privatizing them. As and when Arun Shourie opened his mouth, the markets loved it and stock prices of Oil PSUs went up ; and they tanked when Ram Naik countered – giving you a clear weekly arbitrage opportunity.

Recently the `idearupt' govt. spooked the market cap of Sugar industry - wanting to smart one up on inflation, it banned exports in an year of record output at the cane fields - by over 70%. Now its guns train cement stocks.

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When P.Chidambaram, the Harvard educated, charming Finance Minister of India (FM), spoke to the press after the Budget 2007 presentation in Parliament, he cautioned the Cement companies on profiteering. Cement companies did not heed him and upped the prices citing higher demand and higher input costs. Then came the the May 17 debacle. Hardly had the market recovered in cement stocks from that shock, India’s trade practices regulator MRTPC on Tuesday ordered a probe into the business practices of 14 leading cement manufacturers. These manufacturers colluded to hike prices, alleges a preliminary report by MRTPC’s investigative wing.

Big business is sex and FM is a charmer. Nothing will keep the two away for long…

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