Politicians play 'I-hide-you-can't-seek' - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Politicians play 'I-hide-you-can't-seek' 

A  A  A

In this issue:
» You can't question a politician's ill-gotten wealth
» Swapping taxpayers' cash for trash
» Plan for tax-holidays for gas producing cos.
» Lehman is hiring
» ...and more!

"Those who try to lead the people can only do so by following the mob," said the Irish poet and dramatist Oscar Wilde. How painful is it to see this not being followed in India, which boasts of its democratic status. Time and again, our politicians have taken law into their own hands and for their own benefit. And this time it is no different.

As reported by The Times of India, the Prime Minister's Office, widely seen as leading the Indian government towards transparency, has decided to withhold information related to assets of ministers and their relatives under the Right to Information Act.

We ask, will information regarding the properties of ministers and their relatives, if divulged, compromise national security? The answer is an obvious 'no'! We see this as a plain case of shielding the corrupt by the corrupt.

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The World Economic Forum (WEF) meet at Davos ended yesterday. Bloomberg terms it as the 'grimmest Davos ever'. This is given that the meetings, which were originally aimed to arrive at measures to shape the post-crisis world, ended in members pointing fingers at the culprits (the US at large) that created the crisis in the first place. "The search for scapegoats and the worst economic prospects since World War II resulted in a gathering marked by fear, anger and bitterness, a far cry from the usual search for consensus," goes a statement on Bloomberg in a report discussing the takeaways from the meet.

"We should not trust these bankers," moaned Nassim Nicholas Taleb, author of 'The Black Swan'. "Look at their track record. The only way to stop the process is for the government to own those banks," he concluded. Economists present at the meet also questioned Obama's US$ 819 bn stimulus plan, which they believe will sow the seeds of the next crisis based on unmanageable government deficits and massive inflation.

At his concluding speech at Davos, Nobel laureate Joseph Stiglitz said any decision by the US President Obama to establish a so-called 'bad bank' to rid financial companies of toxic assets risks swelling the national debt. He believes that Obama's plan would leave taxpayers paying for years of excess lending by banks.

Stiglitz said, "That amounts to swapping taxpayers' cash for trash. You shouldn't chase good money after bad. We're talking about a national debt that's very hard to manage."

Under pressure from a deteriorating business environment, Infosys, India's second largest and most respected software company is planning to slash variable pay of its employees. The company has over 105,000 employees on its rolls and it pays them variable salary depending on the company's, unit's and individual's performances. So, while employees benefit if the performance of the company exceeds targets, they have to contend with less when the company's performance is below expectations.

Petroleum minister Murli Deora has reportedly indicated that the government is working on granting tax incentives for companies on production of natural gas from oil blocks awarded to them. This includes a possible 7-year tax holiday for gas producing companies. This would be highly beneficial for companies like Reliance Industries, who are set to define India's natural gas industry with their large scale discoveries. These plans might ruffle feathers given that the minister is said to be a close friend of the elder Ambani brother.

In the meanwhile, Mr. Deora has urged the Ambani brothers to end their feud in national interest. However, the reconciliation between the brothers seems a remote possibility given the bitterness that has marked the dispute.

Led by a slew of poor results from corporate India, the Indian stock markets closed weak today. Realty, banking, and metal stocks led today's decline. The benchmark BSE-Sensex closed with losses of almost 360 points. India's trade figures for the month of December 2008 were released today. The country's exports have declined (by 1.1%) for a third straight month in December as the global recession has reduced overseas orders. Imports increased by 8.8%, thereby widening the trade deficit (excess of imports over exports).

Among other key Asian stock markets, while China and Taiwan were up, losses marked trading in Hong Kong, Singapore, and Japan. Stocks in Europe have also opened on a weak note.

China has emerged as the best performing among key stock markets around the world in January 2009. One of the key reasons could be that the Chinese markets were closed for the first two and last five trading sessions of the month - first on account of the new year, and second on account of the country's own new year. 2009 is 'year of the ox' for the Chinese. We hope it is a 'year of the bull' for global stock markets that have seen bearish sentiment over the past few months.

Source: Yahoo Finance

The stakes in aggressive growth are high. And so are the costs of failure. Reliance must know that. The company's retail business, Reliance Retail, has brought down curtains on its cash and carry format (wholesale business), at least for the time being, in order to conserve cash. Unlike most other players who have formed joint ventures with international retail giants, Reliance Retail has been operating on its own. Now, considering that heavy investments are less likely to fetch better returns on account of the bleak macro outlook, the company seems to have decided not to burn cash.

After the British and their pound, it's time for the Russians and their ruble to feel the pressure of economic slump. As reported on Bloomberg, Russia's currency has weakened to below the central bank's target exchange rate of 36 per dollar, its lowest level in a decade. The ruble has been brought down to its knees as the slump in oil prices over the past six months has weakened the Russian economy.

They say quality gets its due. This has been proven true at least in the global banking sector. According to Brand Finance Global Banking 500, a review of the top financial services brands in the world measured by both brand strength and brand value, select banks have climbed up the ranking ladder by the sheer virtue of their business practices. And some Indian banks have followed this trend too. It may be noted that global financial companies lost 51% of their market capitalisation or US$ 3.9 trillion in 2008. Despite being part of this group, while HSBC retained its top position in the ranking, Wells Fargo dramatically ascended five places to the third rank.

India escaped the worst global financial bloodbath with narrow bruises, giving a boost to the rankings of financial institutions from the country. SBI, the largest Indian banking entity, was the only Indian institution to figure in the top 100 rankings. Banks such as Canara Bank, OBC, PNB and UBI have made their debut in the Top 500 list this year, while HDFC Bank and Axis Bank climbed up the charts. At the same time, ICICI Bank's aggressiveness did not save it from losing nearly 40 ranks despite its size.

As per an article written for a leading business daily by the eminent columnist Swaminathan Ankleshwar Aiyar, Mayawati has the best chance of becoming India's next Prime Minister. Mr. Aiyar believes that there will be a hung parliament after the upcoming general elections. This will make post-election tie-ups the key to power. This is where Mayawati's Bahujan Samaj Party (BSP) scores over everyone else.

She is acceptable to the all the major national parties - Congress, BJP and the Left. Her only non-negotiable ideology is the 'dalit' cause, providing her with the flexibility to enter into a coalition with any of them. All of them will eventually need the BSP to come to power. In return, Mayawati can be a likely choice for India's highest government position.

Interestingly, as per probabilities put up my Aiyar, while Mayawati has a 40-45% of becoming the next Prime Minister, the chances for Manmohan Singh and L.K. Advani are 25-30% and 10-15% respectively!

04:54  Today's investing mantra
"Stop trying to predict the direction of the stock market, the economy, interest rates, or elections." - Warren Buffett
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