Apologies for my silence - The Honest Truth By Ajit Dayal

Apologies for my silence

18 NOVEMBER 2015

It has been a long time since I penned my thoughts and views in "The Honest Truth".
Honestly, I have not stopped thinking.
Nor have I lost interest in the truth - or in being honest!

But I may have had a severe episode of speechlessness of the kind that affected P. Chidambaram - the Finance Minister of the previous Congress government.
I recall Mr Chidambaram's statement when the RBI Governor ignored his pleas to reduce interest rates. There is a time for silence, he had remarked, and a time to speak. This, he proclaimed, was a time to be silent.

So, taking a leaf out of his philosophy, I decided to stay "silent".
I was stunned by the huge expectations of the BJP's victory in the May 2014 general elections under the stewardship of Prime Ministerial candidate, Narendra Modi.
I was silenced.

The victory was hailed a "Modi win" which, arithmetically, it was. (The current Finance Minister correctly noted that Bihar was an "arithmetic" loss. In the national election in May, 2014 the regional parties got 50% of the national votes - but they were fragmented - so they got few seats. In Bihar the regional parties got together in a maha coalition so they won maha big. Elections are always about arithmetic and vote banks. Ask Indira Gandhi: she was decimated by another maha coalition, which included the BJP, in 1977.)

But this is not an analysis about the elections and trying to figure out who won or who lost and why they won or lost. Some key indicators of the Indian Samvat 2071 Year - which ended on November 10, 2015 have a story to tell. As astute observers have noted, there is a "narrative" and there is the story.

Table 1: Did lower oil save India?
Index / Commodity 22-Oct-14 10-Nov-15 Gain/Loss
S&P BSE-30 Index 26,787 25,743 -3.90%
BSE Mid-Cap Index 9,116 10,689 +17.26%
BSE Small-Cap Index 10,390 11,048 +6.33%
BSE 200 Index 3,266 3,296 +0.92%
Quantum Long Term Equity Fund (Growth) 37.15 37.46 +0.83%
Quantum Equity Fund of Funds (Growth) 22.31 24.29 +8.84%
Gold per 10 gms (INR) 27,481 25,582 -6.91%
Gold per troy ounce (USD) 1,241 1,090 -12.22%
Oil per barrel (USD) 80.52 44.21 -45.09%
INR / USD 61.28 66.31 -8.21%

Source: Bloomberg

Note: Quantum Long Term Equity Fund buys mostly large cap stocks; Quantum Equity Fund of Fund identifies equity mutual funds managed by other fund houses with a different approach to investing including some funds that may invest specifically in small cap / midcap stocks. Never invest in any Fund unless you have fully understood the product and the various risks associated with that Fund.

Saved by lower oil prices?

After having been run into the ground by the Congress, the Indian economy was reeling. Furthermore, sentiments towards India were very negative. Bad luck and events beyond the control of any Indian government made matters worse in 2013. Oil was trading at over USD 100 per barrel and this was bad for India's import bill. There were fears that Ben Bernanke would raise interest rates, which meant that India would need to borrow foreign exchange to pay for expensive oil at more punitive interest rates. With stock markets going nowhere and real estate in a sideways move, gold and fixed deposits saw huge inflows. Since India imports gold, that was another pressure point on the foreign exchange reserves. By September 2013, India was in a sort of "potential current account crisis" and the Indian currency fell by over 10% in a matter of weeks.

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Enter the BJP, the Gujarat model, and Prime Minister Modi.
The perception was that a revolution was near at hand.

Now, some 18 months after the euphoria of the Modi win, everyone is more sober.
Only the most fanatical supporters of Modi will still be waving the Modi flag - and the rootless NRIs looking for connectivity with the land of their birth.

The fact is that much good has been done: schemes to help the poor have been introduced and expanded beyond what was started by the Congress government.
FDI in insurance - a Congress proposal - has been passed.
Some procedures have been streamlined.
Corruption at the central government level is reportedly lessened but sceptics maintain that state governments have become more corrupt. But even this half-victory is far better than the thuggery allowed under the Congress rule.

States are being asked to take the lead in many reforms (labour and land).
Many NRIs are waving flags at rallies organised to greet the Prime Minister in a dizzying geographical criss-cross of the world stage.
Inflation is down and the RBI has reduced interest rates by 0.75% this year.
The INR had strengthened dramatically after the Modi win but is now close to where it was in September 2013: the US Dollar has been a strong currency.

Stocks had surged and are still way above where they were during the mini-crisis of 2013.

Retail investors, who had pulled out of the Indian stock market after the BRIC story collapsed with a thud in 2008, are now investing in the stock markets in record numbers. Real estate as an investment avenue is dead. Gold has gone nowhere and many are frustrated at its flatness.

Flipkart, Coffee Cafe Day, and Indigo have flourished in valuations over the past year (beware investor!). Even though the Modi government cannot take credit for that, a feel good factor always helps the narrative.

Women and the girl child will be given separate toilets: crucial for a society that does not treat its women well.
There is now a 0.5% service tax to make India cleaner (does this mean that many corrupt people get cleaned out, too?). Though the clean India campaign began with a flourish, it seems to have lost its drumbeat. Maybe this new tax will help buy some more brooms and employ real people to do the real clean up. The industrial lobbyists and their spouses had their photo-op moments and are back to doing what they know best: find a way to milk the system for their next billion of wealth.

For all the "ifs" and "buts", I think the biggest win of the Modi election is that the Congress is kicked out and decimated. India was hurtling into chaos under the Congress.
Sadly, the BJP may be moving India in a similar dismal direction though via a different path.
The BJP has often said that they are first and foremost a religious and cultural organisation.
But that is not the mandate on which they were voted in power. Modi and the BJP sold the people their "economic development" agenda.

India should fear that the Congress will come back. Last week, as the protests on all sides of the "intolerance" issue grew, the sight of Manmohan Singh on national TV probably won the BJP some more empathy and votes!

In addition to the angst over the social agenda of the BJP, the economic obstacles are sobering.
The GST bill - opposed by the BJP when a Congress version was proposing it, and opposed by the Congress when the BJP proposed its modified version - is being sold as some sort of magic wand that will cause India to achieve some take-off stage. I doubt it: the GST may simplify some form filling but I doubt it will reduce prices for most consumers.

The Land Bill has been totally forgotten. Like the GST, each party proposed and opposed the other party's version. Land is critically important - but forgotten! No Smart City can be built unless the dumb land issues are resolved. Jobs in construction are stalled as land is a critical factor for infrastructure projects. Plus the housing surplus has to grow.

The bail out of the power distribution companies is yet another bail-out: it seems to be a habit of every government to rescue the distribution companies rather than address the imbalanced tariffs - this is what is called a structural reform.

India, in my view, has been saved mostly by lower oil prices.
Prime Minister Modi now has 2 choices as he faces the next 42 months of his term: he can veer right and deliver on some of the economic promises made - or veer left and fall prey to the factions which wish to engineer a society which focuses on caste, creed, and religion.
But come to think of it, Lalu Prasad Yadav already beat him to that vote bank game! 😊

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Quantum Long Term Equity Fund and Quantum Equity Fund of Funds Quantum Gold Fund
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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site.

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8 Responses to "Apologies for my silence"

Suresh Ramamurthy

Nov 25, 2015

Hi Ajit

Welcome back. We missed you. Two questions. On the quantum long term growth fund, I don't understand the returns. I invest using SIP and have been doing it for the last 2 years. But the returns are not as you mention. Am I missing something here? On the second point, where are the stock markets heading? Should we invest more or keep funds in some liquid funds ?


Dr Aniruddha Malpani

Nov 23, 2015

Ajit, Good to see you back in action !


Prakash Basrur

Nov 20, 2015

For the last 60 years the "one family" ruling party led us to believe that,
(1) India got Independence only because of the "sacrifice" of Congress leaders ! They made use of this propaganda for 50 long years since then !
(2) But for Nehru's great socialist ( read "communist" ) economic methods of "commanding heights" and "central control" our country would have remained totally backward !
(3) The Communist Party and the "fellow travellers within Congress" steered the country out of abyss !
(4) Whatever service industry growth India has achieved since 1990 ( under Narsimha Rao's stewardship ) was started by the pilot Prime Minister and the ruling family member Rajiv Gandhi ( perhaps because he once handled the "technology" of an aircraft ? ) !
(5) Whatever good happens in the country during the next 50 years should be credited to the Congress Party (who gave us the "freedom" !) and the ruling family !

This seems to be the national psyche creating technique of the "Family" since 1950 and Madam seems to feel Modi as the destroyer of this psyche and so the mother-and-son tirade against Modi !


Prakash Basrur

Nov 20, 2015

Ajit Dayal's key point , that it is the lower crude oil prices that has been of help to Mr.Modi , is correct. However , one vital point of Modi government's actions on the economic front that is not being talked about is that most of those indicate that , unlike Congress govt. , it is not playing to the galleries but , instead , trying to "institutionalise" the outcomes of those decisions for long term sustenance. It was London's "Economist" magazine which made a note of it in one of its lead articles ! In fact Congress , having come to know about its failure on economic front a year before its election downfall , deliberately floated many populist schemes costing the exchequer a lot of unproductive expenditure ! Such economic acrobatics just for the galleries a year before election has been the hallmark of Congress run government and Modi govt. could very well have continued with such populist measures in the first year. Luckily for us they have not resorted to that dubious method of fooling the people !



Nov 19, 2015

Entirely correct sir!!!

Like (1)


Nov 19, 2015

Once again, we are benefitting from a downbeat China narrative and weak oil prices. In a 2 to 3 year timeframe, I suspect it'll again turn against us since we aren't improving except population-wise. And that (demographics) could be a huge negative (instead of a positive) unless they can be usefully educated / trained.

Like (1)

Terence Verma

Nov 19, 2015

Modi may not be able to deliver on the economic promises made, because he does not have the numbers in the Upper House of Parliament. Bihar was critical for that 'real' reason to win.

Like (1)


Nov 18, 2015

The performance of QLTE is nothing to write about for last 1 year , or more . With so many resources available to the AMC, I would expect a much better performance for Quantum which seems to be doing everything right as an AMC .

Like (1)
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