Are election manifesto of political parties relevant?

Apr 7, 2014

In this issue:
» US finally regains the jobs lost in the recession
» Sun Pharma acquires Ranbaxy, becomes biggest Indian pharma firm
» Cement makers Lafarge, Holcim agree on merger plan
» Why new government will not be able to push through big infra projects?
» and more....

Indians have begun voting in the world's biggest election. The nine-phase ballot begins today and concludes on 12th May. Votes will be counted on 16th May. Some 814 m voters, 100 m more than at the last elections in 2009 are eligible to vote at 930,000 polling stations, up from 830,000 polling stations in 2009.

In their anxiety to win the Lok Sabha election, Indian political parties promise the moon in their manifestos. Every political party comes out with a manifesto containing glorious promises at election time. One wonders whether the average voter even knows about the existence of such texts or understands their implications.

The two main national parties (Congress and BJP) have released their manifestos. Let us look at some of the main highlights of their manifestos. The Congress manifesto promises a new right to health, policies to lift 800 m people into the middle class and GDP growth rate of more than 8% in the next three years. The Congress also promised an agenda to create 100 m more jobs for the youth. On the question of reviving economic growth, which had decelerated in the last few years of the Congress-led government, the party's manifesto is categorical about a host of progressive measures such as those on a flexible labour, expeditious introduction of GST and the simplified direct taxes code, both of which should enhance the economy's efficiency.

After an embarrassingly long delay, the BJP finally released its manifesto today. The party has listed its objectives in various categories. The party will immediately attend to inflation, employment, entrepreneurship, bringing back black money in foreign accounts and tackling policy paralysis. In its promises to tackle corruption, the BJP has said that it will focus on public awareness, e-governance and rationalisation of the tax regime. The party also promised to bring the GST tax regime in the country and while re-affirming its stand on no FDI in multi-brand retail, said it was open to FDI in all other sectors to raise employment in the nation.

Election manifestos may have lost their earlier importance. But a closer look at them does reveal a lot about a political party's own assessment of where it went wrong and what its future policy directions will look like.

Election manifestos shouldn't be reduced to such promotional pamphlets. It should explain how a party plans to reach their goals. We need the two national parties to tell us, unambiguously, where they stand on all issues confronting the country. Granted, that all promises made in a manifesto are unlikely to be kept. However, the documents will give us, the voters of India, a glimpse into the current thinking of the two national parties.

The main point is that manifesto of political parties promises too many things at once - in an attempt to cover all bases but at the cost of credibility. It is true that political outcome is a key event for stock markets. But there are other factors like global liquidity and valuations which are even more influential and can determine the fate of the market irrespective of political turmoil.

We believe that investing in equities based on a change in government is highly speculative. A change of the ruling party would only lift sentiments and stock prices in the short term but would do nothing to solve India's long term problems. For that we need real, tough reforms.

So while the near term environment looks uncertain for stocks, there could be ample of opportunities elsewhere to build wealth. We are happy to announce that Mark Ford, who is a very successful American publisher, entrepreneur and real estate investor, will soon be giving us a peek into his best wealth building ideas, thrice a week through The Daily Reckoning.

Do you think that the manifestos released by political parties are relevant today? Let us know in the Equitymaster Club or share your comments below.

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 Chart of the day
Even as the fundamentals of Indian economy remain weak, the Indian stock markets are touching new highs. One of the key reasons fuelling the rally is the election season. Markets are hoping that a new and business friendly Government post elections will revive the Indian economy and investment cycle. However, as an article in Firstbiz suggests, those who are pinning up hopes on the new Government are likely to be let down. As per a survey by JP Morgan, around 80% of the stalled projects (by value) are stuck because of the state specific issues. The biggest hurdle in the way of these projects is land acquisition. And that is a primarily state subject, beyond the jurisdiction of Central Government. The projects where Government at the centre might make a difference form just 8%. These are the projects stuck mainly because of lack of environmental clearances. Another major block for projects is lack of raw materials and shortage of coal and gas. Power sector, which is one of the key victims, is unlikely to witness material change either as pricing by state electricity boards remains a state issue.

Another main block to the revival of investment cycle is credit crunch. We all know that the banking sector is already overburdened with bad loans. As fiscal health remains shaky, recapitalization and hence a revival of capex cycle seems far. As such, investors would do better by having realistic expectations from the new Government. Further, they should use a bottom up approach while investing in stock markets and should not get carried away by the current stock market rally.

New gov might not be able to revive big infra projects

The US economy celebrated an important milestone last month. Moneynews reports how the US economy regained all the private sector jobs it lost during the great recession of 2007-09. It has been a painfully slow process alright but the 8.8 million jobs that were shed have all been employed back. Analysts though are far from celebrating. For the simple reason that these numbers do not take into account the growth in population since then. As a result, unemployment ratio still remains lower than expected.

There's another complain we have with this jobs data. Since it is the entrepreneurs of the economy that are responsible for job creation, they need the right information to take their decisions. And this right information is nothing but things like expectations of the future business environment, interest rates and inflation. But is the information they are receiving correct? We don't think so. The whole economic growth is a mirage we believe and so are current interest rates which have been deliberately kept near zero levels. Consequently, the jobs that have been added so far could well have been added as a result of this illusion. And hence there's a strong chance that jobs could once again start to perish should the reality begin to unravel.

In a landmark deal, Sun Pharma has announced the merger of Ranbaxy with itself to create the world's 5th largest generic company. The deal size has been pegged at approximately US$ 4 bn. As per the terms, this will be an all share deal. Thus, the shareholders of Ranbaxy will get 0.8 shares of Sun Pharma stock for every share of Ranbaxy. The deal is subject to the approval of shareholders as well as various regulatory bodies. The deal is expected to be completed by the end of 2014 and synergies are expected to start flowing in from the third year of close. Sun Pharma-Ranbaxy will be ranked after Teva (US$ 9.2 bn), Sandoz (US$ 8.2 bn), Actavis (US$ 6.3 bn) and Mylan (US$ 5.9 bn) in the global generics market. Given that having a low cost advantage is crucial in the generics market, economies of scale is very important and in that sense, the merger will enable both the companies to do just that.

In the Indian market, as individual companies, Sun Pharma was ranked second while Ranbaxy was ranked fifth. Thus, the merger will catapult them to the top of the table ahead of Abbott. Synergies will also be evident as far as the product basket is concerned. This is because Sun Pharma is very strong in chronic therapy segments such as neurology, cardiology, diabetology among others. And Ranbaxy's strength lies in anti-infectives, dermatology and urology. However, the major challenge for Sun Pharma will be to resolve the slew of issues that Ranbaxy has been facing with the USFDA. Among all the Indian pharma companies, Ranbaxy has been the hardest hit with import alerts issued for most of its plants. What more, Ranbaxy's current promoters, the Japanese based Daiichi Sankyo, so far, has not been completely able to pull Ranbaxy out of the mess that it is in. Sun Pharma also has its own set of issues with the USFDA. Thus, the company will have its hands full in terms of resolving issues for both the companies going forward.

As per a leading daily, the world's two largest cement manufacturers, Lafarge SA and Holcim SA, are set for the biggest merger in the cement industry. If the merger goes through, the merged entity would have a market capitalisation of about US$ 55 billion. Does this merger make sense? Let us explain. There are broadly two ways in which a firm can enjoy an economic moat or competitive advantage. One is through pricing power and the other is through cost competitiveness. For commodity companies, there isn't much product differentiation to be able to give them much pricing power. So for such companies, the economic moat arises mainly on the cost front. In other words, to be a successful commodity player you have to be a low cost producer. And one way to be a low cost producer is to have huge economies of scale. In this context, the merger of Lafarge and Holcim would certainly help the two companies rationalize costs. The combined entity would be in a better position to deal with rising energy costs and poor demand that has severely impacted the sector since the 2008 financial crisis.

In the meanwhile, the Indian stock markets that had opened firm, have slipped in the negative territory. At the time of writing, the benchmark BSE-Sensex was down by 110 points (-0.5%). All the sectoral indices were trading in the red with realty and consumer durables stocks being the biggest losers. Most of the Asian stock markets were trading negative with Japan and Hong Kong being the major losers. However, markets in China and Indonesia were trading positive. Most of the European markets opened the day on a negative note.

 Today's investing mantra
"Everyone has the brains to buy stocks, few have the stomach" - Peter Lynch

Today's Premium Edition.

Can Sun Pharma turnaround Ranbaxy's fortunes?

The merger of Sun Pharma and Ranbaxy will create the world's fifth largest generic company. Will this also benefit shareholders?
Read On...Get Access

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5 Responses to "Are election manifesto of political parties relevant?"


Apr 9, 2014

Grossly irrelevant as neither the public nor the media remind the politicians of their manifesto.And even if some misguided soul tries to our wily politicians neatly sidestep the issues.What we lack is not manifestos but the willingness to implement them.And in general laws of the land.kejriwals supporters beat up a man who slapped him.Are they also not guilty of the same act,that of breaking the law. They should have handed him over to police.But who cares ? neither the police ,nor the public and media is only interested in exploiting it ,not safeguarding laws.


Sridhara M G

Apr 8, 2014

Both major parties have manifesto that have too many things. They should have covered 6 - 8 points like Corruption, Nation's security, FDI policy, Taxes & duties, Education, Health and employment. People don't go by promises but by performance of the government. They don't vote looking at the manifesto



Apr 8, 2014

Manifesto is a vision of a party, promise by a party to a common man. It should not be a Joke. Political party should accepts its failures too. Important is Govt. running is essentially by a TEAM not by not possible by any single person. It is a team work.
Media and NGOs and University Professors have the social responsibility to present a clear picture before a common man, by presenting REPORT CARD of each MP and MLA. Also Report Card of parties. then it will be easy to choose legislators of the country.



Apr 7, 2014

I still feel manifestos are important, as it would give a direction to the parties and frame work.Even if they are able to achieve around 75% of they what they commit ,it would do lot to the country and for all those voters who trust the parties and vote.
To have a analogy,manifestos are also like a sales budgets/forecasts projected in the beginning of the financial year to the management in a company and needs constant focus ,reviews and follow ups to achieve.
If it is done with all commitment and sincerity ,it would d wonders.....



Apr 7, 2014

The manifestos are just a document which is forgotten by all the parties as well as public as they are not addressing the real issues faced by the general public.These documents promise so much that is just not possible to make them reality in this country as all the parties are just to make safe their seats/ numbers in the parliament and to hold on to the power by any means.

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