Does the PM mean business for a change? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Does the PM mean business for a change? 

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In this issue:
» How did hot money exodus affect the currency war?
» 1 in every 4 people in the world have paid bribes
» Will this curb rupee-dollar speculation?
» Is the worst over for metal stocks?
» ...and more!


00:00
 
Prime Minister Manmohan Singh is known to be a man of few words. But unlike in 1991, he has hardly let his actions speak for himself over the last few years. On the contrary, he has been accused of being silent even when the economy bore the brunt of corruption and leadership deficit. But as the elections draw near, it seems Dr Singh is keen to prove his critics wrong. In fact, he has chosen to address the most critical problems first and that too in a time bound manner.

As per an article in Economic Times, a committee headed by Dr Singh has set strict timelines for the capex pipeline of steel, textile and aviation sectors. Amongst that is the target of raising annual steel production capacity to 300 m tonnes by 2025. Given that India's steel capacity rose by 36% to 90 m between 2009 and 2012, this seems feasible. The target is also to increase textile exports by 30% in FY14. In addition, an SPV will be created to indigenously develop 70-100 seater civil aircrafts. Thus, focus on corporate capex and exports in a time-bound manner are on the PM's priority list.

We believe that nothing would be better than addressing the problems of investment and trade deficit on a war footing. If corporate capex gets a boost, that would solve the country's job creation and GDP problems. Higher exports on the other hand will solve a multitude of problems ranging from trade deficit to currency devaluation to sovereign rating.

Although it seems that the PM means business this time around, we would rather prefer to wait before cheering. His track record as the PM pales in comparison to his stint as the Finance Minister. Even those who touted Dr Singh as a boon to India were forced to rethink. Hence, while we would not want to hazard a guess on the PM's credibility, we are certainly keeping our fingers crossed for some positive action. We hope that this is more than a shallow promise in the run up to the elections.

Do you think Prime Minister Manmohan Singh's targets will have a meaningful impact on the economy? Please share your comments or post them on our Facebook page / Google+ page

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01:35  Chart of the day
 
Just yesterday, we wrote about why the improved US jobs data was hardly a reason for investors to cheer. That the lower unemployment levels are an indication of underemployment is evident not just in the US but also in the Indian economy. At the same time, the global 2012-13 unemployment data reported by CIA, is a cause for concern. It clearly shows that not just the BRIC economies, but even the ones in the West are struggling with the problem of job creation. While governments may be trying to camouflage the issue by creating jobs for skilled workers, both unemployment and underemployment may create serious social problems if not addressed promptly.

Source: CIA


02:05
 
For those obsessed with quantitative proof, the IMF may provide some solace. It has crunched the numbers and has come to the conclusion that global economy is on a weak footing. Consequently, it has revised downwards the figures for global economic output. How can it be anything else we believe? With the US, Europe and China all sending bearish signals, global economic health can't look all that great. Although the IMF considers Japan as the possible exception to the rule, we beg to differ.

The land of the rising sun has grown alright but the growth has been a result of massive dose of monetary stimulus. And therefore does not have a very strong foundation to it we believe. Thus, when its punch bowl is taken away, it too should show the same trend as other major economies we just highlighted. So, have we entered a phase of low growth or what Bill Gross terms the new normal? Well, it does look like it. Thus, investors should brace themselves for lower returns going forward. Infact, with the Governments interfering the way they are, there should be more focus on the return of capital rather than the return on it.

02:35
 
A few years ago all emerging markets were complaining of currency wars. Most of the blame was placed on US for flooding the markets with cheap money. This money was pushing up the prices of all asset classes in the emerging markets and strengthening their currencies. This had the countries panicking that such an appreciation would hurt their exports. So much so that some of the countries even started imposing capital controls to stem the flow of hot money. But now the same hot money has brought about a completely different concern for the emerging markets. This time around it is again related to their currencies but concerns currency depreciation and not appreciation. Since the US Fed announced its plans to taper of its QE program, the currencies of nearly all emerging markets have tanked. Unfortunately most of these countries do not have adequate muscle power of forex reserves to support their currencies in the forex markets. They have their own imports and debts to think about. As a result the only other option they have is to follow a regime of monetary tightening in their countries. This again is not a preferred option since most of them are grappling with slowing economic growth rates. Unfortunately for us, India falls in this category. We can only hope and pray that the Reserve Bank of India and the government can together help us out of this mess. But will the latter do something about it?

03:03
 
Do you think widespread corruption is a problem peculiar to India alone? If yes, you would be wrong. Greed for money and power is not a particular characteristic of the Indian gene. Rather it is a very universal human flaw. And here's some very telling proof. CNN Money has reported the findings of a recently released survey by Transparency International. About 114,000 people were surveyed in 107 countries. One in every four people across the globe admitted to having paid a bribe in the last one year. Most people believed that the corruption problem has been getting worse. People are no more willing to trust government institutions. In nearly half of the countries, political parties are seen as the most corrupt class. The unholy business-political nexus is also omnipresent as over 50% people believed that their government was controlled by vested interests. Countries such as Libya and Sierra Leone ranked the worst as far as bribery rates are concerned. How about India? As per the survey, India ranks among countries with bribery rates of over 50%. On the other hand, countries such as Australia, Belgium, Portugal, Malaysia, Finland, Denmark and Croatia seemed to have the lowest bribery rates. All in all, this survey should certainly not make us complacent about the corruption problem. We cannot afford to say that corruption is acceptable because it is prevalent across the world.

03:22
 
The rupee has now crossed the barrier of 60 per dollar. In a desperate attempt to save the rupee, the central bank has come up with a host of measures. One of these will apply to state run oil companies. It is important to note here that the state run oil companies mainly rely on imports to meet the need for crude oil which is quoted in dollars. So far, these companies considered competitive quotes from multiple banks to access dollars. However, Reserve Bank of India (RBI) has opened a special window for these companies now. Through this, the oil companies will be able to centralize their dollar purchase by buying it from a single bank at market rates. We hope the move will curb speculation in rupee and will lend the domestic currency some support.

04:00
 
Stocks from the metal sector have been at the receiving end in recent times. And China is largely the reason for this. The dragon nation's mammoth appetite for commodities is well known. Indeed, it is the world's largest consumer of metals such as copper and aluminium. But its economy is now slowing down. A pair of surveys monitoring China's services as well as the manufacturing sector has clearly displayed weak growth for June. Little wonder then that demand has also dampened. That is why, the weakness in China has played a role in dimming investors' interest for metal stocks in India. But is this pessimism overdone? Could be the case. The negatives with respect to the slowdown in China appear to have been factored in. Thus, if valuations look attractive after the recent correction, there is no reason why some metal stocks cannot be considered as part of one's equity portfolio.

04:30
 
Profit booking in auto and commodity heavyweights has kept the key indices in Indian equity markets well below the dotted line today. The BSE Sensex was trading lower by around 165 points at the time of writing. Other major indices in Asia closed higher today while markets in Europe have opened in the negative.

04:50  Today's investing mantra
"We have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist."- Warren Buffett
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19 Responses to "Does the PM mean business for a change?"

ramachandran tharkabhushanam

Jul 13, 2013

Our PM is silent on all aspects of action. He is silent and hence there are no actions. I do not consider any of these actions worth discussing. They are just read and forgotten. The UPA has failed in all aspects of governance

Like (1)

Brij

Jul 12, 2013

Dear PM -A man of letters but turned in to "HER MASTERS VOICE" All his current action are directed towards vote bank and to garner funds from corporate houses for coming general elections. Nehru- Indira era created mamoth PSU'S in all sectors turning Govt in to business house and creating inspector raj which good luck to India was stopped during last days of Indira when Sanjay esteblished MARUTI and than NARSIMHA RAO came. OUTSOURCING of ADMINISTRATION is the need of hour as the administrators (IAS) have virtually become law in to themselves and at every level justice can only be gotten through court of law-good luck to indians. The increasing incdents of uprisings in tribal areas, people not caring for laws of the land indicate a big frustration among the people. So there has to be somebody who will implment the law in to action.

Like (1)

S.Rajagopalan

Jul 12, 2013

I feel sad for PM.The man who changed the fate of India and its educated people for the better in the 1990's is now sucking his thumb under the instructions of Italy woman and pledging his honesty and self respect to the vested interests.

Like (1)

sudhir adhikari

Jul 11, 2013

It matters not what the Prime Minister wants.It matters more what others of his team want.

Like (1)

heena

Jul 11, 2013

PM does not mean anything. Inaction is itself is an action.

Like (1)

R C Sarangi

Jul 11, 2013

No, it is too late in the day. India is set to sink unless politics and governance changes and changes quickly.

Like (1)

manoharkantak

Jul 11, 2013

Dr.Manmohan Singh our PM is too slow in his actions, a country like India with a population of 125 crores that is not good. Moreover his approach is purely theoretical, and actually that has made India from bad to worse.
His successors have to be matured and fast to act. Do we have any such person ? Yes/No.
So we better wait and watch the show. We cannot do anything but only vote somebody from the available list like ordering in a restaurant from menu card.

Like (1)

Rajagopalan Ramesh

Jul 10, 2013

Given a free hand and enough flexibility, PM will mean business and is capable of implementing his scheme of things. If PM earns his credit and reputation as a Politician, this plan will again be a damp squib and every one of us will be fooled beyond any doubt.

Like (1)

Radheshyam Sharma

Jul 10, 2013

Jawaharlal Nehru proved that a rich man can become the country's Prime Minister;
Lal Bahadur Shastri proved that a poor man can become the Prime Minister;
Indira Gandhi proved that a woman can become the Prime Minister;
Morarji Desai proved that an old man can become the Prime Minister;
Rajiv Gandhi proved that a young man can become the Prime Minister;
I.K. Gujral proved that a gentleman can become the Prime Minister;
Deve Gowda proved just about anybody can become the Prime Minister;
Manmohan Singh has proved that India does not need a Prime Minister

Like (3)

parimal shah

Jul 10, 2013

The target is set for 2025!.
This government knows it will certainly lose elections. It is making future commitments making it difficult for the next government.
Exaples:
Just a few are enough - CAD, Fiscal deficit, Food security bill, Direct Tax benefit (last two are thouroughly and improperly cooked), current account deficiency, Employment guaruntee and so on and on...
I thinkl even God has written off India.

Like (1)
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