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Crystal ball gazing on reforms

May 20, 2009

The latest guessing game seems to be: Will the new government push ahead with economic reforms? Which sectors will witness reforms and to what extent? We believe the discussion has merit as there are positive indications from Dr. Manmohan Singh himself, who has made it clear that reforms would continue.

The power sector is likely to be among the first sectors to press on with reforms. As per Business Standard, officials in the power ministry are already working on reviving the IPO of the National Hydroelectric Power Corporation (NHPC), which was put on the back burner last September. In fact, follow on offerings are likely in Power Finance Corporation (PFC) and PowerGrid Corporation.

As per the Wall Street Journal, industry body FICCI believes pensions and insurance reforms will be on top of the agenda. The key issue in pension reforms is giving more authority to the pension regulator, which will lay down the groundwork for increased participation from fund managers. The key issue in insurance reforms is allowing foreign insurance companies to increase their stake up to 49% from the current 26%. FICCI also believes that private-sector participation in defense work will also be made easier.

As far as the downstream segment of the Oil & Gas industry is concerned, we believe that the decontrol of fuel prices will not happen any time soon. Given the emphasis that the UPA puts on the common man, the government will think several times before ushering in market determined fuel prices at a time when food prices inflation continues to be high.

Early signs of recovery?
The shipping industry is one of the best places to look at for picking up signals on global economic activity. The steel industry constitutes one of the major shippers of dry cargo. Hence, tracking the Baltic Dry Index, which is the benchmark for freight rates of dry bulk carriers, helps gauge the health of the steel industry. The index had crashed to its 22 year low last December as steel producers cut production. As per a leading business daily, the index has gained 47% this month on the back of revival in steel consumption from the automobile industry.

A great place to look at for signs of revival in domestic economic activity is the advertising industry. Ad agencies report that several companies from sectors like telecom, FMCG and pharma are now upping their ad spends. As per a leading business daily, FMCG players are likely to increase their ad spends by 30% to 50% this year. As a result, ad agencies are receiving requests for pitches. In turn, they are hiring more.


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