Do you agree with the govt's step to check corruption? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Do you agree with the govt's step to check corruption? 

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In this issue:
» 2012 a year of M&A?
» Manufacturing cos ageing top tier
» Will RBI maintain status quo?
» Marc Faber: US Bonds Should Carry 'Junk Rating'
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00:00
 
The government has come under the hammer for a number of scams. The widespread corruption amongst politicians and government employees has tarnished the countrys image. To such an extent that investors have become wary of putting their money in India. As a result, the Prime Minister decided to take action and formed a GoM (Group of Ministers) on corruption. And this GoM has come up with an ingenious way to check corruption. Their proposal is to sell the land that the government has.

As per the GoM, land deals in India are characterized by the lack of transparency as well as subjectivity. This leads to corruption and scandals as there are high stakes involved and it is a known fact that larger the sum involved, greater the chances of misconduct. The most famous of these being the Adarsh Housing Scam. The policy is aimed on 'land alienation' by the government agencies and seeks to remove the discretionary powers of individual ministers and government bureaucrats.

The new policy has another underlying agenda, besides the 'noble' one. The government is the largest land owner in the country. It has land piles in the most prime areas of the country. The value of these land parcels can help the government in earning thousands of crores in revenues. In fact one of the biggest reasons for coming out with the policy was because the scams and scandals have prevented the government from realizing the true value of its assets.

It is a good idea to frame policies that aim at removing discretionary powers from the hands of few. However, it would be better to look at policies that can benefit the entire country in the long run. Land acquisition hassles have caused more than one company to either defer or cancel their expansion plans. The Singur case for Tatas is a case in point for this. The government would do better to come up with better policies for overall land acquisition rather than just looking at a new avenue to fill its own coffers.

Do you think the governments decision to sell the land parcels owned by it is a good way to combat corruption? Share your comments with us or post your views on our Facebook page / Google+ page.

01:30  Chart of the day
 
It is that time of the year again when companies declare their quarterly financial results. True that quarter results are very short term trends but they are still watched with much interest by the entire investor community. However, this quarter, the trend is expected to be somewhat disheartening. With most companies raising their selling prices, the revenues are expected to be strong. But higher input prices as well as high interest burden continue play spoilsport on the net profits side. But things are not as bad as what they were in September, when most companies witnessed a decline in net profits. However, it would still take time for profits to outperform sales like they did in December 2010.

Data source: Equitymaster data
* Data for quarter ended December 2011, is based on results declared to date


02:00
 
Despite fears of a slowdown in the Indian economy, mergers and acquisitions (M&As) are slated to do well in 2012. One of the reasons for this is that there were many private equity (PE) investments made in 2007-08 in a variety of sectors and so the investment cycle is set to end in 2012 fuelling more deals. The sectors that are likely to see the most activity include pharma, IT, real estate and infrastructure. 2011 was a good year for PE deals and the ones that topped the list included Bain Capital and government of Singapores acquisition of 30% in Hero Investment for US$ 848 m followed by Apax Partners acquisition of a stake in iGate for US$ 480 m. Further, most of the M&A was inbound, which means that Indian companies appetite for acquisitions abroad was on the wane. So 2010 saw fewer deals but at higher valuations, while in 2011 although the number of deals were higher, the total value of these lagged that in 2010. So even if there is optimism for healthy M&A deals this year, whether they will be able to keep up with the pace of what was witnessed in the last two years remains to be seen.

02:40
 
It is said that the change is the only constant in life. The transformation that has taken place in engineering jobs in the country is certainly a proof of this. Back in the 70s and 80s, a factory shop floor was perhaps the most sought after job for freshly minted engineering graduates. But over the years, factors like increasing automation and outsourcing of services led to the luring away of these engineers towards shiny and air-conditioned offices. And as a consequence, talent pipeline of the manufacturing services did not get built up adequately enough. This then lead to the predominance of grey hairs in top and mid management levels.

As per a leading daily, the chickens of this shortcoming are now coming home to roost. There exist quite a few companies which would bid farewell to a stream of retirees in the coming years. At the same time, they would struggle to bring in adequate replacements for them. But these firms are not losing sleep over the issue. Till the time they rebuild a strong talent pipeline, they are opting for options like extending retirement age and fast tracking promotions. This certainly takes care of the problem from a near term perspective. However, it is how they address the problem in the long run that will determine the direction their profitability takes we believe.

03:15
 
With headline inflation dropping and food inflation in the negative zone, all eyes are on the Reserve Bank of India (RBI) in tomorrows policy review. The general hope is that rates would be cut in the third quarter review of monetary policy. In the December review, the central bank pressed the pause button. It also indicated further rate cuts if inflation moderated. However despite food inflation slowing, inflation of manufactured goods is still on the higher side. Being conservative as always, the central bank may prefer waiting till inflation moderates further before taking any decisive action. The RBI may thus maintain status quo in the latest review. Growth may be sacrificed to ensure stable prices.

03:40
 
If you have so far been unperturbed by the junk rating status of some European economies, watch out for this one! According to famed investor Marc Faber, even the US government bonds deserve a rating no better than 'junk. The publisher of Gloom, Boom and Doom report has some good reasons to back his opinion. The US national debt currently runs more than US$ 15 trillion. This is more than the country's gross domestic product (GDP). But there is more to it! The unfunded liabilities such as future obligations to entitlement programs like social security and medical care sum up to an unprecedented debt obligation for the US government. Chances are that it may never be able to meet them. Hence investing in the so-called 'safe haven US Treasuries is one of the most risky bets according to him. While Faber has been citing his bullish view on commodities and precious metals for a while now, he also does not see a collapse in equity markets. That is primarily because of the likelihood of the US Feds continuation with easy monetary policy.

04:10
 
The recently released quarter numbers by the Indian IT (Information Technology) majors did not surprise investors as it was expected on account of the positive effects of rupee depreciation. But what did surprise them was their performance in the European region. For quite some time now, industry experts have been talking about the uncertain economic scenario in the Euro region. Therefore, a sluggish growth was expected from it. However, the European adversity seems to have come out as a boon for the Indian software industry. The robust growth reported by the Indian IT majors from European region says so. Not only this, but these companies have added many big names in their client kitty from the region.

The obvious reason for this is that at the time of crisis, the European clients are forced to consider off-shoring due to its cost efficiency. In addition, these clients are showing confidence in the Indian IT majors as they are now capable of executing complex projects on the back of developing capabilities, both organically and inorganically. All this is a welcome sign for the Indian software sector.

04:45
 
In the meanwhile, the Indian stock markets continued to trade within a narrow band. At the time of writing, the BSE Sensex was 6 points (0.04%) below the dotted line. Stocks in the metal and energy sectors were witnessing maximum losses. Barring Japan, nearly all the other stock markets in Asia were closed today. Japan closed the day in the red.

04:45  Today's Investing Mantra
"Risk comes from not knowing what you're doing." - Warren Buffett
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21 Responses to "Do you agree with the govt's step to check corruption?"

RITA SHAH

Sep 2, 2012

ABSOLUTELY NO.THIS SHALL ACCELERATE MORE CORRUPTION 100%

Like (1)

Subhash Gupta

Jan 29, 2012

I donot agree with many of your critical statements. Like.

" Investors have stopped investing in India because of corruption."

Investors major factor for investment is policies which will favour them make money on their investments."

Secondly it is only improvement and transperencies in system which will curb corruption. Politically and for getting publicity and emotional sympathy it is always prudent to criticize the party in power. In my opinion it is better to improve the system of selling Govt land to avoid chances of corruption in the deals.

Like (1)

Narayan Krishna

Jan 23, 2012

As usual the Central Govt comes up with skewed priorities like the present one. The selling of land will create additional scams as no politician would like to leave this huge pie! A lot of our people live below poverty lines and a good number in slums in urban areas in totally wretched conditions. Why not use some of these lands in building infrastructure for the homeless people. Of course now, that Aadhar project is also going well, this could be used as a safeguard for allotments to such needy persons. The whole of India has very few sanitation facilities and some of the lands could used to setup such with the help of NGOs. We feel outraged when some foreigner comments on our conditions, but what effort we as a whole have taken to better these conditions.

Like (2)

Alok Kumar Jha

Jan 23, 2012

This government seems to be in the hands of some insanes.What is point of selling government land assets (probably to DII/FII and there is 100% FDI in land assests?)? It should focus on value creation for the country and not for selling it at throughaway proces. It does not seem that this cabinet is headed by an economist;perhaps the most unfortunate case for all of us!

Like (2)

Ram Awatar Kaklasaria

Jan 23, 2012

This step of the Govt is not for checking corruption but it is for making quick money and to loot the country somewhat officially.
If the Govt wants to really chek the corruption then the corrupt people are required to be severely punished and higher the position of the corrupt person more severe should be the punishment and ministers being masters should be punished maximum if found to be corrupt.
Anna Hazare's 'Jan Lokpal' can become the starting point. Govt should accept Anna's demand in totality.
Patriot people Like Swami Ramdev, Acharya Balkrishan and such other people who are doin g good service to the country should be encouraged instead of harassing them by the Govt and its various agencies.
Certain talented people like Abhishekh Manu Shinghavi( son of great late Shri LM Singhavi), Digvijay Singh are doing are doing disservice to our nation by their present approach by siding directly/ indirectly with the corrupt people. The should look into their concscience for the wrong they are doing with their country.
It is really pity that a so called honest person saradar Manmohan Sing is indirectly helping corrupt people in giving all help in looting 'Bharat Mata' and becoming a silent onlooker towards the divide rule policy of the so called good goverance and providing security to minority community.
All this required to be changed throu gh patriotism and sacrifice by all of us.

Like (3)

sethu

Jan 23, 2012

the only solution is to elect people with integrity as MLas and MPs first.If these guys are honest,IAS,IPS would become honest.when these lots become honest lower bureaucacy will automatically become less corrupt.So it is in the hands of people who vote to elect the govt.But will that happen? Till then corruption can not be controlled.

Like (2)

Shekar

Jan 23, 2012

Government selling land through the GoM - Who are these guys trying to hoodwink, they are a bunch of selfish rogues who don't give a damn about what happens to the country or its citizens. We need politicians who will be above personal wealth accumulation and power mongering. Unless these two conditions are met there is no hope for India or Indians. We need somebody like Abdul Kalam who has been the only clean person that we have seen who neither hankered after power nor tried to enhance his personal wealth. Unfortunately we are unable to see anybody like him in the horizon at this moment.

Like (1)

Vakharia

Jan 23, 2012

1) Sell only for specified list of activities/business that serves larger public usages (than malls with A/c that have luxury items that brings in wealthy and mightly only and thereby increases rentals at adjacent places and thereby makes it costlier to liver for ordinary peoples, etc)
2) Sold land cannot be resold/leased for 25 years or kept ideal for above 1 year

Like (1)

Govindaswamy Dhayalamurthy

Jan 23, 2012

It would have been more meaning full, had GoM has suggested
means to ensuring transparency

Like (1)

George

Jan 23, 2012

Todays India have made people of Govt. organizations and bodies are richer than any other private or family organizations prevailing in India. Now if Govt planning to sell its vast majority of land in different parts of India, then these Govt. people including MLAs/ MPs/ Ministers are the one who is going to buy these lands pushing the ordinary citizens into waste-bin!

Like (1)
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