- In this issue:
- » Manufacturing sector after two years of Modi government...
- » Has Warren Buffett taken a U-turn on technology stocks?
- » ...and more!
I was on a vacation last month. To escape the scorching heat of Mumbai, I decided to take shelter in Nilgiris...and booked a ticket to Coimbatore. My final destination was Ooty and Coonor. As the journey date came closer, I was excited to take a break from local train travel in Mumbai and hop on a toy train amidst mountains and lush greenery instead.
Don't worry - I'm not about to go into a travel account and make you look at my pictures. The reason I'm telling you this has to do with the seizure of Rs 570 crore on May 14 in Tamil Nadu state...funds suspected to lure voters.
On the way from Coimbatore to Ooty, the police stopped our cab twice. They asked us how much cash we were carrying. Our answer did not satisfy them. So they checked our bags, and only then we were allowed to carry on.
This was obviously strange for us, so we quizzed our local driver who suggested it was because of the upcoming elections. The week before, a vehicle was seized with Rs 12 crore in cash...going in the direction of a small village to woo voters and buy votes.
It's one thing to read about this in newspapers, but experiencing it firsthand was saddening.
As per Mr Rajan, it is estimated that Rs 500-600 billion in cash would increase with public in the poll bound states. Several hours after the Rs 5.7 billion was seized the other day, the SBI claimed it was an official transfer. Few believe it. And rightly so.
Over the years, despite rising awareness and social media activity, the political parties seem to have gotten even more brazen in their bribes for votes.
Their manifestos are full of freebies rather than policy. 'Gareebee Hataao', education for all, employment for all...are things of the past.
Modern manifestos assure mobile phones to all ration card holders...100 free units of power (with no need to pay electricity bills) ...free lap tops for students of Classes XI and XII...double gold for mangalsutra from the existing 4 grams...Rs 500 coupons for people to buy handloom clothes from state-run Co-optex during Pongal...new farm loans...waiver of farm loans...vehicle subsidies......housing schemes, resolutions to prohibit shale gas projects ...the list goes on.
I'm not sure about the economy, but politicians have indeed 'progressed' and seem to be quite 'upwardly mobile'.
And when it comes to double standards, these parties put anyone to shame. You see, prohibition is another point of focus in the Tamil Nadu election manifesto, to woo women's votes. Interestingly, Tamil Nadu State Marketing Corporation, or TASMAC, a state-owned company that has 29,000 employees and annual revenues of Rs 262 billion, enjoys a monopoly on the sale of liquor. Not to mention TASMAC has been one of the tools to subsidise the freebies by the state political parties.
It's not just Tamil Nadu. Corruption and dole politics is not a one-state phenomenon. Cash has been squandered to purchase votes - at times causing stampedes - across states. Even the central party is not immune to it...though they're approach might be more refined.
A case in point is the popular unemployment allowance scheme, MGNREGA. Almost a decade old now, Mr Modi called the scheme a 'living monument of the Congress party's failure'. However, after two years in power, the Modi government has a different view on it.
Finance Minister Mr Jaitley recently allocated Rs 370 billion, the highest ever budgetary support, to the scheme and promised more. The government is not ready to give up subsidy politics for a growth-led model yet.
This indicates that the government is skeptical about the employment situation in India and the prospect of natural growth in the Indian economy. Those betting on macro tailwinds have reasons to be cautious. Investors should rather do some second-level thinking and bet on something tangible.
Economic growth will be a mirage as long as parties count on subsidies and dole politics instead of real development and empowering citizens. No wonder the public sector banks and PSUs are in dire straits...
Meanwhile crony capitalism and black money go unabated, funding the ambitions of the political parties. When political parties are so brazen, crooks like Vijay Mallya are bound to flourish. Unless the loopholes in the system are plugged, India's fight against corruption, black money, and slow growth will remain a lost cause.
What are your views on the murky vote bank politics in India? Let us know your comments or share your opinions in the Equitymaster Club.
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3:00 Chart of the day
On May 16, 2014, Narendra Modi-led BJP emerged victorious in the general elections. It's been exactly two years since that day. So, one may rightfully ask: Where is the Indian economy headed? Has Modi's economic agenda worked for the economy?
Of course, one cannot have a binary 'yes' or 'no' answer to such a question. But there has be some parameter to judge the business landscape.
The RBI recently published its 32nd round of Quarterly Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for quarter ended December 2015. OBICUS captures actual data from the companies in the manufacturing sector. In all, 1,058 manufacturing sector companies responded in this round of the survey.
Among other factors, one key factor that gives us a good picture about how the demand scenario is shaping up is to see the trend in capacity utilisation rates.
The chart of the day shows the trend in capacity utilization rates across nine quarters from Oct-Dec 2013 to Oct-Dec 2015. It is worth noting that the utilisation rates may not be comparable sequentially as the demand may be affected by seasonal factors. So, a year-on-year comparison may be more appropriate. If you consider the utilisation rate of 72.5% in 3QFY16 (Oct-Dec 2015), it is an improvement from 71.7% a year ago. But it is still lower than the utilisation rates recorded in 3QFY14 (Oct-Dec 2013) when the UPA-II was in power at the Centre.
This reflects that the manufacturing sector is not out of the woods yet despite oil prices being advantageous. While the Modi government may like to revel in the theory that India is a 'bright spot' in a gloomy world, we stand by RBI Governor Raghuram Rajan's realism: In the land of the blind, the one-eyed man is king.
Indian Economy After Two Years of Modi Govt
There have been some reports recently that state that Warren Buffett is backing a consortium to acquire Yahoo Inc's core assets, the American multinational technology company.
Some may be baffled at the idea of Buffett bidding for Yahoo. The Oracle of Omaha has often been vocal about his discomfort with technology companies. He kept away from two internet booms. He never invested a single dollar in close pal Bill Gates' Microsoft.
Is Buffett's IBM investment and now Yahoo's acquisition bid his late entry to the technology sector?
We believe one should not jump to conclusions until the deal structure is revealed. Buffett is known to be an ace deal maker. In several deals in recent years, he made sure he profited even without a surge in stock prices.
An article in Bloomberg aptly states that this time too Buffett may not be betting on the stock's performance, but rather on its continued existence. What more, the assets for sales - including finance, sports, and video sites - are essentially media businesses. And Buffett has had a long history of investments in the media and advertising industry. That's his circle of competence.
After trending lower during most part of the trading session, the Indians stock market pared losses and were trading near Friday's closing level. The BSE Sensex was trading higher by 37 points (0.15%) at the time of writing. Information technology, FMCG and realty sector stocks were the leading gainers. However, banking and telecom stocks were leading the losses. Mid cap and small cap indices were trading marginally in positive territory, each higher by 0.13% and 0.04% respectively.
4:40 Today's investing Mantra
"Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based o-n change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles." - Warren Buffett
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