|»5 Minute Wrap Up by Equitymaster|
On This Day - 10 MARCH 2011
What's wrong with India's PSU divestment policy?
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Take the case of the privatisation and divestment in India as well.
The government has found itself at the wrong side of the debate several times when it came to pricing the issues. Like the case with privatisation of Maruti in 2003, when the government faced flak for over-pricing the issue. Or in some recent cases of follow-on public offerings, where the government deferred the issues just because the 'timing' (alternative for 'time to get high valuations') was not right.
"No, no...we will wait. There is very less time left in this fiscal. We are looking at market conditions." These are some recent comments from India's steel minister on the FPO of SAIL, and speak volumes about why India has consistently missed its divestment targets.
In fact, given that it has postponed the issues of some of PSUs of late, the government is expected to miss its Rs 400 bn divestment target for this year by a huge 50%! Now the question is - how will it fund its welfare schemes that it promised earlier on the back of the divestment proceeds?
The WSJ story captures it right - "The choice of asset pricing (pricing of IPOs/FPOs), in effect, becomes exactly the kind of strategic business decision that governments are fundamentally bad at. That's the very reason governments made another choice-to hand over that asset to the market-in the first place."
Ironical, isn't it?
We know that global crude prices have risen sharply in recent times in the wake of rising tensions in the Middle East. Now how's this for a fact that Middle East forms a majority 70% of India's total oil imports (and India imports 70% of its total oil consumption). This means that the Middle East indirectly decides what we pay for almost 50% of our oil usage in the form of petrol and LPG!
But when the world's largest bond fund PIMCO sheds all its US Treasury holdings, you know that the problem is grave. Its chief fund manager Bill Gross has been critical of the US government's low interest rate policy. But of late he has dumped all US Treasuries from his portfolio citing very low yields to sustain demand for the paper. He believes that the yields of around 1.5% were at historical lows. Not just that, it is also way below the nominal GDP growth of the US economy projected at 5%.
There are several reasons for this. For starters, the US Fed in its zeal to kickstart the floundering economy has neglected the dollar by running huge deficits and printing dollars at the drop of a hat. This has undermined the confidence of several nations who are holding dollar assets or are trading in the currency. The dollar in that sense is no longer being looked upon as secure.
Secondly, other alternatives to the dollar are beginning to look more viable in the form of the Euro and the Yuan. True, the Euro-zone has been plagued by problems of debt as well. But the European Union has not abandoned the Euro and is taking austerity steps, something which the US has shown no signs of doing. With China growing at a stupendous pace, it has increased its might in the international arena and is increasingly doing its trade in Yuan. Thus, unless the US government does something drastic to bring its debt down, it will have to come to terms with the fact that its currency may no longer hold its dominant position in international trade and affairs as it once did.
And given this view, Rogers remains positive on commodities like silver, rice, natural gas, and foreign currencies like the Chinese Yuan.
All other key Asian markets also closed in the red today. While China and Japan were down around 1.5% each, Hong Kong closed weaker by 0.6%.
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