If there's a will, there's a highway - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

If there's a will, there's a highway 

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In this issue:
» Transport minister sets ambitious targets
» Dollar is back in demand
» All eyes on the "Aam Aadmi"
» CMIE predicts 6.6% growth for India
» ...and more!!

If his interview was anything to go by, sectors and stocks related to the road sector should be the ones to watch out for over the next 3-4 years. We are referring to Road Transport and Highways Minister Kamal Nath's appearance on a leading TV channel yesterday where he displayed a steely resolve to get things going in a ministry that has been marred with setbacks and controversies galore in the not so recent past. At a separate forum, Nath was also heard saying that if the country has to catch up with building the basic infrastructure, a target of 20 km per day will have to be set.

Just to put things in perspective, this target comfortably eclipses the 11 km per day road construction that the NDA government achieved in its peak and was supposed to be the best ever. Given that the NHAI (National Highways Authority of India) could not attract bidders for most of its projects for lack of commercial viability, the latest target seems a tall order indeed even for someone of the reputation of Kamal Nath, unless of course he comes up with some 'innovative ways' for financing the road projects.

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Also, while such talks are all fine, India now requires urgent implementation of these plans. Specifically, roads are core to a nation's progress by being the harbinger of better supply chain and thereby increased productivity. If India were to move faster on its road to progress, the government needs to be more than willing to add more and more of highways and expressways to the country's extensive road network.

That the rally in risky asset classes like equities and commodities had gone too far and too fast was well known. It was only a matter of some steady stream of dire news from some big institution of repute to tone down expectations a bit. And what better institution than the global economic body, the International Monetary Fund (IMF). As per a leading daily, Dominique Strauss-Kahn, the IMF Chief has warned the developed nations not to roll back the fiscal and monetary incentives given to their respective economies as a large part of the worst may not be over just yet.

Not only this, the European Central Bank, in its latest financial stability review has stated that the banks in the Euro-zone could face write-downs nearing US$ 300 bn and this may potentially delay any talk of recovery that is doing the rounds.

Obviously, these shockers do not seem to have gone down well as risky assets like equities and commodities have received a thrashing in recent times with investors piling on to the relative safety of the US dollar and government bonds. Consequently, while equities and commodities have corrected, dollar has strengthened against most of the major currencies. This move though is likely to be rather short lived as we believe that the dollar is in for some serious structural weakness, which might see its value erode consistently going into the next few years. Hence, reversals like these should be looked upon as an opportunity to invest in asset classes that appear attractive over the long run like gold and emerging market equities.

Here's another reason why the global economic recovery may still be vulnerable after all. Money, the raw material that helps produce virtually all of the nation's goods and services is still in short supply in US, the world's largest economy. As per CNN, the 21 biggest recipient of the government's capital injection also known as TARP funding reduced their lending to American consumers and businesses by 7% in the month of April. While the banks argue that there aren't just enough people to lend to, the borrowers on the other hand argue that credit is indeed tough to come by. Whatever be the case, the one who is clearly suffering is the US economy, as slower lending and higher GDP growth do not necessarily go hand in hand.

Numerous projections have already been made on what India's GDP growth is going to be going forward but the latest one from CMIE (Centre for Monitoring Indian Economy) suggests that the Indian economy would grow by 6.6% in FY10 despite a decline in exports. In fact, readers would do well to recall that Prime Minister Dr. Manmohan Singh had earlier stated his conviction that the economy would expand by at least 7% during the current fiscal.

What will fuel the economy is resilience and strong growth in the domestic market. What is more, once exports start picking up, a combination of growth in exports and the domestic market will be instrumental in India replicating its scorching growth of 9% before the eruption of the global crisis. And when is that expected to happen? In FY10, as estimated by the CMIE. Some semblance of a recovery has started taking place as reflected in the IIP numbers, which reported a marginal 1.4% growth in April 2009 as against a 2.3% decline in March 2009. No wonder then with a stable government already at the centre, an economic recovery would be just what India needs to enhance its growth story going forward.

As the day for announcing the Union Budget is approaching, there are speculations, expectations, apprehensions and hopes all around. In the pre-budget meeting with the party office-bearers, the union Finance Minister, Pranab Mukherjee was inundated with the party's wish-list as well. The demand was for an 'aam-aadmi' centric budget, focusing on four sectors – education, health, infrastructure, and agriculture.

The specifics included increasing the minimum support price (MSP) for crops like sugarcane, giving income-tax reliefs to salaried class, extending benefits to senior citizens and soft-loans for minorities, increasing diesel-subsidy for farmers and fishermen.

It is a welcome sign that infrastructure sector emerged as the first priority, but it is a little sad why nothing was discussed about reforms like disinvestments, amendments in SEZ bills, insurance bills and other finance sector reforms. Though, Finance Minster didn't disclose any specifics of the budget, looked convinced that India can grow at 6-7% in this fiscal. But we believe that putting social and economic reforms on the back-burner might be a big deterrent. ter!

The saga continues…of warring brothers, and their confused stakeholders! We are referring to the continued rivalry between the two Ambani brothers – Anil and Mukesh. And a leading news daily has rightly called the fight a 'tug-of-gas'! In simple terms, the latest battle is between the first brother asking for a higher-than-originally-agreed-upon price for the gas that he will sell to the other, and the second refuting to pay the higher amount.

Now, the second brother (Anil) has got some reprieve as the Bombay High Court has asked the first brother (Mukesh) to sell gas at the originally agreed upon price, which is 44% lower than what he is asking for. This has caused a lot of uncertainty in India's nascent natural gas industry, and could potentially deliver a sharp blow to the fortunes of Mukesh-owned Reliance Industries (RIL).

While RIL had gone to the court to uphold the government-approved price of US$ 4.2 per mbtu (Million British Thermal Units) of gas, the court sanctified the lower price of US$ 2.34 per mbtu (which is also the price as per the original 2005-06 agreement between the brothers). While RIL is now said to be preparing itself to challenge the order before the Supreme Court, whatever be the decision, while one brother is going to benefit tremendously, the other is going to lose out significantly.

At this time though, it's 'Advantage Anil'!


Oil prices since Jan 2009
(Source: CNN)
"We are seriously concerned about the rise in crude oil prices...we have to look for solutions." This is what Mr. Murli Deora, the petroleum minister told reporters after his rendezvous with the finance minister with his Budget wish-list. With crude oil prices rising sharply over the past few weeks, losses of oil marketing companies have been steadily mounting. In the past, the government has relied on three options – issuing oil bonds, raising prices and sharing the burden with upstream companies – to cover up such losses. Deregulation of the oil sector has been the on the cards for a while now. This would significantly help in reducing the subsidy burden on the government (keeping in mind the widening revenue deficit). It's time the government did something more than just paying lip service to the issue.

The BSE-Sensex edged higher by 0.6% today but not before witnessing a rather volatile session. In the process, it also diverted from its Asian peers, most of which were cloaked in a sea of red. Most European markets are also trading in the negative currently.

04:50  Today's investing mantra
"A good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.." - Warren Buffett
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4 Responses to "If there's a will, there's a highway"


Jun 22, 2009



Chandra Karuna

Jun 16, 2009

What is more, once exports start picking up, a combination of growth in exports and the domestic market will be instrumental in India replicating its scorching growth of 9% before the eruption of the global crisis. And when is that expected to happen? In FY10, as estimated by the CMIE.

You mean FY12 ?


A J Wadhwa

Jun 16, 2009

The Comments on Respected Minister for roads is wellcome. !5 Km ?day would be achievable if there is will. Aline on propective Stocks Spealising in Roads would be helpful



Jun 16, 2009


Thanks! Thanks! Thanks!
The reports on the sectors to watch in the near future was not just an interesting read but a too interesting one!
It has become a sort of religion for me to read the mails by equitymaster on a daily basis.

Thanks Team!


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