Do you wish to donate to BSNL etc....the Air India way?

In this issue:
» Diesel causes consumption of petroleum products to shoots up
» How accurate is the IIP number?
» Property market woes continue?
» What lies ahead for Indian IT?
» ...and more!

---------------------------- Yet Another Bailout... Speak out before it's too late! ---------------------------

When millions don't even have food to eat, our government is busy bailing out companies...

And this time, again, it's Air India.

This PSU gets a Rs 4,000 crore equity infusion... funded by the taxes we pay.

Not to mention the huge debt restructuring is basically a bailout in a different garb. And this runs into tens of thousands of crores.

Is this government really made up of our representatives or is it on the payroll of those corporate giants?

We at Equitymaster feel strongly about this cause, and thus have started an Urgent Poll where you can read all about this and cast your vote to make your voice be heard!

We strongly recommend every Indian, who wants to make a change, to take a look at this.

Click Here to read more and cast your Vote... Before it's too late!

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00:00

We all work very hard to earn a living in this country. After all each of us have numerous responsibilities that we need to discharge. Taking care of our daily expenses, food, clothing, housing, education, etc. But there is one more thing that we seem to be working hard for. This is to bailout the government owned enterprises.

That's right. This is being done by using our tax money to bailout those companies that are going under thanks to the government's own ridiculous policies. The way this works is that first the government will come up with policies and regulations to milk the cash out of its rich companies. Over time these eventually lead the company to the point of bankruptcy. The government will then create a hue and cry to make it look like the entire country would be in doldrums if the PSU goes under and is not bailed out. This way it lays a foundation to ensure that a huge corpus of cash is allocated to bail the company out. Now naturally the huge corpus of cash comes out of the cash that has been collected through taxes. That is your and our hard earned money.

This is exactly what has happened in the case of Air India. The government has decided to bail out the ailing national carrier with an infusion of Rs 300 bn through equity and cash. It has also approved the restructuring of the Rs 180 bn of the company's debt. The company has been going through bad times due to increasing operating costs which it was unable to pass through due to increasing competition in the sector. And when the company was already in a bad shape, the aviation minister decided to go ahead and order expensive aircrafts, all funded by debt naturally. The additional interest burden sent the company deep in red. But obviously it had nothing to worry about. The government has decided to rescue it with our tax money

And this has just paved the path for more bailouts. There are several PSUs that are bleeding. The list is long and illustrious. For example, the national wireless companies Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) have been in the red for quite some time.

But is this what we pay tax for? The answer is no. The money collected through tax is meant to fund public services for the benefit of the citizens of the country. This includes roads, water works, electric utilities, health services, etc. Not to bailout ailing companies.

Do you disagree with the government using your taxes for bailing out the PSUs? Share your views with us or you can also comment on Facebook page / Google+ page.

If you do then raise your voice by participating in our Ban Bailouts campaign

01:30		Chart of the day

Petroleum products are a perennial headache for the government. Some times because of the price swings in international crude oil prices. Some times because of rise in domestic consumption of these finite resources. This is because petroleum products gulp down a significant chunk of subsidies. So their prices and consumption have a strong binding on government finances. The latest news is that diesel consumption for the financial year 2011-12 (FY12) is estimated to have grown by a whopping 11.9% year-on-year (YoY). This is likely to have caused growth in consumption of petroleum products by 4.9% YoY. It is noteworthy that this is the highest growth in the last four years. High subsidy makes diesel cheaper in comparison to its competing fuels. Between FY07 and FY12, the share of diesel in the petroleum products basket has grown from 35.5% to more than 43%. It goes without saying that such growth in consumption is giving jitters to the government.

Source: Business Standard * For the period from April to February

01:50

It's a good thing that as researchers, we don't worry too much about month-on-month or ever quarter-on-quarter fluctuation in production numbers. We are more concerned about what the long term trend looks like. But for those who do, the frequent revisions put out by the Government must be getting really irksome. Take the case of January IIP (Index of Industrial Production) numbers which have now been revised down to 1.1% from 6.8% initially. The culprit this time around was sugar production which was over reported by a whopping 131%. Well, we can understand a slippage of the order of few percentage points. But it is beyond us as to how a figure as large as 131% went unnoticed. Clearly, the data collection agency needs to put some serious thought into how it collects and reports its figures. Frequent revisions are not only denting its reputation but is also causing a lot of damage to firms and decision makers who put a lot of money at stake based on the former's numbers.

02:25

Sky rocketing property prices and high interest rates lowered the sales volumes in the property market. Stretched balance sheets of developers and slowdown in volumes signaled that prices were bound to correct. But they hardly have. That's because the developers have been able to meet their cash flow requirements through debt restructuring. They know that the current scenario is a temporary phenomenon. Once the interest rate environment improves, the demand would bounce back soon. They are also confident that the current market has the potential to absorb higher prices. And that is also reflected in the absorption rates. Absorption rate is the rate at which homes are being absorbed (sold) in the market in a given period. Say for example 100 homes are available to be sold in a given month. And the buyers buy 10 homes per month. This gives an absorption rate of 10% (10/100) or an absorption period of 10 months (100/10). While the current absorption rate in top cities gives comfort to the builders, the moot question is for how long? Higher prices will ultimately impact absorption. This suggests that the property market is headed for hard landing. May be the inevitable is just procrastinated for a while.

03:05

Days of under-promising and over-delivering for the IT (Information Technology) bellwether Infosys Ltd seem to be over. At least this is what the company's financial performance during the past several quarters suggests. The IT major kick-started the result season for the Indian IT industry on a very disappointing note. The company reported a 4.8% quarter-on-quarter (QoQ) decline in its sales and a 2.4% QoQ decline in its net profits. The volumes in the consolidated IT services business declined by 1.5% sequentially. Considering the uncertainty in the global demand environment and the management's cautious guidance for the quarter, the result is not that surprising. However, what is more worrisome for the whole sector is that the management continues its cautious outlook with regards to the future. It has given a lower guidance for the financial year ending March 2013 (FY13). In US dollar terms, the company expects just 8%-10% year-on-year growth in revenues for FY13.

The guidance is lower than the growth projections estimated by most of the industry experts. Does this indicate a painful year ahead for the IT sector? We do not believe so. Companies such as Tata Consultancy Services (TCS) and HCL Technologies have been growing well in the recent past. The managements of these companies have been optimistic about the healthy deal pipeline in the sector. If the global economic environment does not deteriorate further, we can expect a better performance from other large players in the ensuing quarters.

03:40

If you are shocked by the government's inaccuracy in reporting industrial growth (IIP) numbers, here is more. Neighboring growth engine China too has reported slowest growth rate in 3 years. Now that may not really be a consolation for us. But that the easy liquidity is having no impact on China's growth prospects either is noteworthy. The government and corporate are pressurizing the Reserve Bank of India (RBI) to ease liquidity. Lower interest rates are expected to make bank credit more accessible and boost industrial growth. The Chinese central bank has already made these efforts. However, the results are disappointing.

The point to take home here is that economic slowdown currently is not just a supply side issue. Overall uncertainty in global markets and slowdown in demand have had an impact on even the fastest growing economies. In China's case, lower demand for exported goods from the US and EU may have hurt. For India, the domestic consumption and investment growth have lagged the historical trend. Thus it will require more than quick fix liquidity solutions to revive the economies from economic slump.

04:30

In the meanwhile, the Indian stock markets are trading flat with a negative bias. At the time of writing, BSE Sensex was down by 3 points (0.02%). Stocks in the technology space have been the main losers. The other major Asian stock markets closed the day on a positive note with Hong Kong and Taiwan leading the gains. European markets have opened the day on a negative note.

04:55

Investing mantra

"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." - Peter Lynch