Next-gen reforms: Not in this generation - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Next-gen reforms: Not in this generation

Sep 21, 2002

It was another bad week for domestic equity markets. The week started with the Government deferring a decision to hike FDI limits. By the weekend, international rating agency, S&P, downgraded the country's debt. U.S markets went into free fall, as fears of the economy sliding into recession grew. Let's hope this mid life crisis for the party with a difference is brief. Halfway into its terms at office, the cogs do not seem to be holding together, or so at least it seems, over the past one month. At such times, conspiracy theories flourish, as they make popular readings. But the incidents could just be random with not much to read into. But that then would not be popular…

Having come to power on the plank of offering a 'fresh form of governance', 2002 year-to-date has not gone right for the ruling party. Their secular beliefs were questioned, as Vishwa Hindu Parishad (VHP) -- hindutva family member -- attempted to once again bring Ayodhya into mainstream politics. This has been followed with the outbreak of the Madhu Sharma expose and petrol pump allotment scam. However, the biggest blunder has been handling of the Gujarat riots.

Having been in opposition for most of its political life, the ruling party now seems to be realizing the corrupting effects of 'power' or 'the fear of the lack thereof'. Morals, then, die an obvious death. Having said that, cognisant of the travails of governance, the opposition party, this term, has been a responsible opponent. Considering both parties now have experience in running the country, one hopes, going forward, the opposition is constructive.

Coming back, the political challenges now seem to be having an affect on the economic agenda of the Government. As mentioned in our earlier report, deferring privatisation of public sector (PSU) oil companies by three months was a big disappointment Read More. This has been followed by a decision to not permit foreign direct investments (FDI) in the retail sector. Surely, retail is not a strategic sector? While the Government could tow the line that it only followed the recommendations of the N.K Singh committee report, the same report also suggested hike in FDI limit for aviation, telecommunication and insurance sector. But the Government has deferred a decision on the same. In fact, as per reports, the Government is thinking of having the FDI report reviewed by a committee. The move smacks of convenience and lack of political will and consensus to move forward on tough second generation reforms.

That said, power struggles within the top echelons of the party could be leading to such performance. The rift seemed fairly visible, as the disinvestment tussle was played out in the media. We reckon, the second line of leaders in the party seem to have got a scent of a chance at the top job in the next election. The prime minister, as per reports, is unlikely to contest a second term while the deputy prime minister is a hard-liner and may not find favour with coalition partners. At the same time one could categories the contending lobbies into ministers picked from the industry -- those with professional background. And professional politicians -- those who have dedicated their careers to the party, that too at a time when being in Government was a distant dream. However, the former have been winning accolades from the intelligentsia, which could sway popular perceptions. Consequently, the old boys club feeling threatened of being sidelined could be stalling further progress of the other group.

India has been held victim for far too long, as ruling parties have tried to get their act together. The incumbent government does not have the luxury of time. Waiting for politicians to resolve their differences is no longer an alternative.

At the end of the trading week, leading international rating agency, S&P, downgraded the country's domestic currency debt to junk status. Essentially, Government borrowing from domestic markets is considered to be an unsafe investment avenue. The numbers, however, do not seem to justify the move; India's debt to GDP ratio has been stable and interest rates are declining, which could reduce the servicing burden. The move seems to reflect the above-mentioned belief. The international investment community could be applying pressure tactics to expedite the reforms programme.

Domestic bourses have been listless with no positive triggers in sight. We have mentioned in our earlier reports, external stimulus from U.S markets is unlikely to come through. The Dow Jones index has once again fallen below 8,000 levels. Having said that, considering the strengthening domestic economy in FY03 year-to-date and the economy being largely domestically driven, the upcoming second quarter earning season could positively surprise.

Equitymaster requests your view! Post a comment on "Next-gen reforms: Not in this generation". Click here!


More Views on News

6 Indian Companies Betting Big on Drones (Views On News)

Dec 8, 2021

The drone manufacturing sector is expected to achieve turnover of Rs 150 bn in the next three years.

The Top 6 Artificial Intelligence Plays in India (Views On News)

Dec 6, 2021

Investors looking to tap into AI theme need to keep an eye on tech firm leveraging the power of AI are making things possible.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

How to Pick Stocks Based on Management Quality (Profit Hunter)

Dec 9, 2021

Find out why management quality should be quantified.

The IPO Rush Continues in December. Will the Trend Last in the Coming Months? (Views On News)

Dec 9, 2021

The IPO market has seen an upswing in 2021. What should investors do?

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 9, 2021 (Close)