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One more push for infrastructure

Jul 13, 2009

In this issue:
» Manmohan Singh gets 'hands-on' with infrastructure
» 'Maharatna' status to be awarded to handpicked PSUs
» Goldman Sachs' big profit bonanza
» Bernanke to spell out US' exit strategy
» ...and more!!

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Just how much seriousness the UPA government is planning to view infrastructure with was on display recently when it was announced that there will be a new committee on infrastructure with its members being the cabinet ministers holding important infrastructure related portfolios, and its head being none other than the Prime Minister, Dr. Manmohan Singh himself. As per a leading daily, this move is a throwback to the Indira Gandhi era when the then finance minister used to consult industry captains on ways of improving the infrastructure in the country and the arrangement is likely to be the same this time around as well.

Besides, the new committee will also seek to 'fast-track' the implementation of infrastructure projects and monitor their performance. While the committee is likely to take decisions on all infrastructure projects with ticket size of more than Rs 1.5 bn, there are talks doing the rounds that the sum is too small and it should be increased to more than Rs 5 bn for road projects and above Rs 10 bn for other infrastructure projects to make it more effective. Of course there is the age old question of whether the new committee will be able to achieve much given that the country has a dismal record in such matters. Hopefully, better sense prevails this time around.

The Indian real estate sector was among the hardest hit by the global credit crunch. No wonder then, companies from this space now seem to be saying, "If retail investors don't give us money, the institutional investors will." That would explain why Qualified Institutional Placements (QIPs) is the buzzword these days.

As per a leading business daily, 67 companies have passed board resolutions for raising money from QIPs. This is more than the number of QIPs in the last 3 years put together! In terms of money raised, more than Rs 600 bn is slated to be raised this year, as against Rs 370 bn in the last 3.

However, we are doubtful of how much of this Rs 600 bn can actually go through. It is highly unlikely that institutional investors will blindly invest in every company that comes their way. Interestingly, the SEBI formula for pricing QIPs - average of high and low prices of the preceding 2 weeks - will also cause problems because of the recent volatility in stock markets.

 Chart of the day
India needs to give serious consideration to electricity generation or we will never reach the inflection point to long term sustainable growth…

Data Source: BP Statistical Review 2009

Many government PSUs have long complained of a lack of autonomy and unnecessary delays when it came to making investment decisions. The government finally seems to be working on this and is now, as per a DNA Money report, looking to set the ball rolling by granting 'Maharatna' tag to some profit making PSUs. The proposal, which is still in the preparatory stages, will allow such 'Maharatna' firms to make investment decisions of up to Rs 50 bn without government approval, a move that will surely give a boost to quick decision making in PSUs who have had to leave out many an opportunity on account of delays in receiving government approval.

Goldman Sachs, which only recently paid back US government bailout money, is expected to post a snazzy profit of more than US$ 2 bn for the June quarter of this year. Its expected results, which are scheduled to come out tomorrow, have left people wondering how the company could rebound so drastically only months after the financial industry was shaken to its foundations. An article about Goldman in a recent New York Times issue has an interesting description of the firm, and goes like this - 'On Wall Street, where money is the ultimate measure, Goldman is both revered and reviled. Its bankers and traders are sometimes referred to as the Bandits of Broad Street. An executive at a rival bank characterized Goldman traders as "orcs," the warlike creatures of Middle Earth in Tolkien's, The Lord of the Rings.'

Just last week we spoke about how the minister for road transport and highways, Mr. Kamal Nath, has announced plans to spend almost Rs1,000 bn for construction of 12,000 km of highways in the current financial year. We also spoke of how this could give a big fillip to many sectors catering directly or indirectly to the infrastructure space. But whether these plans could be relied upon was the big question. Now, reports of the first impediment to these plans have already come in.

Some restrictive bidding norms that the government has put in place threaten to put a big spoke in the wheel as they block investment of at least Rs 100 bn in roads and highways. One of these norms is that an application for a bid would be disqualified if an investor or its associates holds at least 5% in another company, which is applying for the same project. But many of the companies that intend to bid for road projects have common investors who hold more than 5% in them and this is holding them back. The time it takes for the government to resolve this issue and have a relook at these restrictive norms will determine how much of a delay takes place on this account.

As the developed economies of the West reel under recession, demand for technology, especially IT, has been beaten out of shape over there. However, times such as these have done a good job of bringing emerging economies like India and China into the limelight. India is now seen not only as low-cost, good-quality IT service provider, but also as a fast-growing market for IT services.

As per a leading business daily, even the Israeli tech companies have started to look beyond the US and Europe markets, and are now vying to partner with India's leading IT companies like TCS, Infosys and Wipro etc. A plethora of Israeli companies like Pegasus, Netwise, Forescout, Inquera and BluePhoenix are said to be looking to tie up with Indian IT biggies for tapping e-governance projects for central railway, postal and defense sectors in India. This clearly indicates the coming of age of the Indian IT industry and its perceived stature in the world.

Ever since the biggest financial crisis since the Great Depression unraveled, the Federal Reserve had been on an overdrive, pumping money into the financial system to thaw the frozen credit markets. That move also raised concerns, that though beneficial in the near term, an expansionary monetary policy would only lead to higher inflation in the future. Also, what is really playing on everyone's minds is till what time the Fed would continue its policy of unleashing money into the system.

There are expectations that the answer to this question will be answered by the Fed chief Ben Bernanke when he reports to Congress next week. Mr. Bernanke then is likely to show how the central bank will exit the biggest monetary expansion in history. While it is still not easy to pinpoint what would be the right time to put the exit strategy into action, the general opinion is that now is the time to atleast give a general idea as to how the same will be implemented. Currently, the economic signals are very mixed indeed. While hopes of an economic recovery had led to the rally in the stockmarkets, the unemployment rate is still high enough to squash all those hopes. Therefore, it will be interesting to see when the Fed will begin to raise interest rates and avert high inflation going forward.

In the meanwhile, the Indian benchmark BSE-Sensex continued to languish in negative territory throughout today's trading session, finally closing lower by 0.8%. Most of the major Asian indices have also ended the day in the negative. The European indices are also trading in the red currently.

 Today's investing mantra
"The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don't always accurately reflect your weight, the markets don't always accurately reflect that information. Usually they are too pessimistic when it's bad, and too optimistic when it's good." - Bill Miller

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9 Responses to "One more push for infrastructure"


Jul 14, 2009

You had mentioned in your article Rs1,000 bn for construction of 12,000 km of highways.
Is it really required that amount of money to build ? Which means you put in Rs 1 billion for 12 kms, is this really CORRECT ? Because as far as I am aware off for the highway for one Kilmometre the expenditure is only about Rs 3.6 / 3.9 crores, so for 12,000 km you need Rs 4320 / 4680 Crores and NOT a Rs 1000 Billion. Which means all the parties (Bid Winners, Contractors, Sub-contractors, sub-sub-contractors and last but not the least the POLITICIANS have their pie, hence, this enormous escalation to FOOL the general public. And if the Govt is hell bent in implementing the projects on fast track which is always the slow track, then projects gets delayed and delayed then the costs gets escalated like the Bandra-Worli sealink.



Jul 14, 2009

RS 1000 bn for 12000 kms of highway! i have been reading this all over, what is the cost of building 1 km of highway?


Amit Ghosh

Jul 13, 2009

Five minutes wrap-up is real informative reserch work based on datas accrued from govt policy in recent times. It will help the investor to know more in detail about the possibilities more particularly about infrastructure projects in the pipeline and the long term benifits from such companies involved in it.Thanks


Krushna Ballav Sahoo

Jul 13, 2009

sir , i found very worthy to reading out all your words.
so i will be feeling greatful to you if you will be sending me some special article to me.
i am posting my comments with a hope of getting so many good response from your side.




Jul 13, 2009

highly professional articles



Jul 13, 2009

Hope you read the articles by Nobel laureate Krugmann in New York Times.He says -and I agree with him- that with the very survival of the U.S.Economy at stake the U.S Govt should pump in a second dose of stimulus money and to hell with the inflation.Once the economy survives inflation can be taken care of.



Jul 13, 2009

Indeed it is worth going in for the wrap up.Every day i yearn to get the msg and before leaving the office I always go thru the article.
Today s main problem is the paucity of electricity in our country.In a county where there is shortage of electricity obviously other shortages are bound to reflect. Once our government seriously promulgates installing new electric generation points our nation would do wonders and the un employment rates shall be drastically down.
As long as the Sensex is concerned :It is time to tread carefully and one should not over indulge keeping short term gains in sight.



Jul 13, 2009




Jul 13, 2009

Sir, You write about "push for infrastructure" and "investment in infrastructure" but what about the quality of infrastructure. Don't you think that if Delhi Metro collapse starts occuring in every city that would be a worst calamity. Did any politician visit the accident site? Did they put a lifetime ban on companies who are involved with such projects? I think the push for infrastructure is only a means to create more Maytas companies and officially transfer taxpayer money to politicians via real-estate developers and so-called infrastructure project developers.

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