2010 should get a Sehwagian start - Straight from the Hip by J Mulraj
» INVESTING IN INDIA  
Investing in India - Straight from the Hip by J Mulraj
2010 should get a Sehwagian start A  A  A

PRINTER FRIENDLY | ARCHIVES
2 JANUARY 2010



It seems that, come Monday, stockmarkets should take off in Sehwagian style. Globally, the fiscal and monetary stimuli packages of US, China, and European countries, have succeeded in stanching panic and in replacing consumer demand to propel economic growth. The US economy will grow at 3.5% in 2010, the fastest since 2004, according to Dean Maki, the Chief Economist at Barclays and voted the best forecaster. He expects US consumers to come back into spending mode in the second half of 2010. China is set to expected to grow at 9.5% in 2010. At the start of the year, nobody is worried about the effects on inflation of the excess money supply; that issue would be tackled later. Its the equivalent of the new year party goer's unconcern about a hangover whilst enjoying his tenth drink!

-------Straight FromThe Hip In A New Avatar-------
Your favourite equitymaster column - Straight From The Hip is now available on your mobile phone!

You can now access Straight From The Hip and some of our other columns - Today's Market, The 5 Minute WrapUp and The Honest Truth without being tied down to your computer. You can read them at your convenience. At the airport. In the car. Between meetings. Whenever, wherever.

Just type in http://m.equitymaster.com on your internet enabled mobile phone and you will reach the mobile version of our website, specially created for you.

Do visit it and give us your feedback on this service. We look forward to hearing from you.

Wish You A Very Happy & Prosperous New Year!

-----------------------------------------------------------------

India, too, is a good story. Profits of the 30 sensex stocks are expected to grow at over 45% in Q3, and at a faster clip in Q4. This will generate buoyant tax revenues for the Government, which, together with the proceeds from its disinvestments, would help in controlling its fiscal deficit. PSUs that are going in for follow on offers include NTPC, RECL and NMDC, all of which should be well received. Thus, when foreign fund managers make fresh allocation of their resources, one can expect increased allocations for emerging markets and, within them, for China and India. So the market should set off on a Sehwagian start.

Last week, a shortened one with public holidays on Monday and Friday, saw the BSE-Sensex gaining 104 points, and ending the year at 17464, and the NSE-Nifty adding 22 to end the year at 5201. Over the calendar year, the sensex has gained a slurpy 81% and the Nifty 78%. Global investors cannot ignore this. To put the matter in perspective, at the end of 2008, two of the top money managers, viz. Barclays Global Capital and State Street, each managed $2 trillion, or more than twice India's GDP! The pool of financial assets of the developed world is around 4 times their combined GDPs.

One of the largest items contributing to India's high fiscal deficit is the subsidy on petroleum products, including petrol, diesel, kerosene and LPG. There is little justification for subsidising the first two, but in multiparty democracies like India, once any Government introduces some measure, a subsequent Government finds it difficult to correct it, if it finds the measure to have outlived its utility. The usual way to wriggle out of such commitments is to appoint expert committees and accept their recommendations if political expediency allows.

We seem to be moving towards a phase out, or removal, of petrol and diesel subsidies. PNGRB (Petroleum and Natural Gas Regulatory Board), the regulator, has sent a notice to Government and oil marketing companies (OMCs, or IOCL, HPCL and BPCL) asking why these competition marring subsidies should continue, since they have resulted in private players, who are denied such subsidies, such as RIL, Essar and Shell, from conducting retail business. A Government spokesman, in its defence, made a bizarre averment that petrol and diesel were out of PNGRB's purview! Pray what, then, is the petroleum regulator supposed to be doing?

With political opposition in a state of disarray, and with companies like RIL, Essar and Shell lending their weight, it seems that petrol and diesel prices would be hiked, thereby reducing the subsidy burden of the Government. It would, of course, temporarily affect sales of automobiles, but that is as it should be. The resultant reduction of the fiscal deficit would be welcomed by the investment community.

The full exploitation of gas discoveries, once the pricing dispute has been sorted out (the Supreme Court judgement in the RNRL -RIL dispute is awaited, with arguments over) would further contribute to reduction of subsidies. The fertiliser subsidy would virtually vanish. RNRL has stated that RIL would be making an additional profit of Rs 30,000 crores, being the difference between the Government determined price of $4.20 and the agreed price of $2.34. However, this amount would basically be a time arbitrage. Under the production sharing contract with the Government, the operator (RIL in this case) has to recover its investment, and a fixed return, fetching a higher % of revenue until this is reached. After its recovery of investment is so done, the operator's share falls drastically for the remaining period of the licence, and the Government's share proportionately rises sharply. The interests of the Government and of RIL are thus aligned in this manner.

In addition to the huge planned capital investment in roads and in power sector, by these ministries, we are moving ahead with other large investments. Two agreements were signed between India and Japan last week, for the DMIC (Delhi Mumbai Industrial Corridor) project. This is a huge project to invest some Rs 360,000 crores, to create integrated investment and industrial areas in six states, with a railway freight corridor connecting them.

As the economy grows, consumption of basic stuff like steel also increases and India is set to become the 2nd largest steel producer in a decade.

There will, of course, be pitfalls along the way. Inflation is to raise its ugly head - airfares are expected to go up 25% shortly, and steel prices by 3-4%. There are concerns about what would happen once fiscal and monetary stimuli are withdrawn; would individuals step in again? How would US and other countries repay their debts? Japan's debt is 220% of its GDP, and it has an aging population. Even in the US, the post IInd World War baby boomers are going to retire this year, and there would be fewer workers paying for larger retirees. Countries like Iran and Afghanistan are huge problems and the break out of hostilities between Iran and a nervous Israel cannot be ruled out.

For now, just sit back and enjoy the start on Monday.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.
© Equitymaster Agora Research Private Limited

Get Straight from the Hip
directly in your mail box.
Just enter your e-mail address » 

Read our Privacy Policy and Terms Of Use.

 
 
Equitymaster requests your view! Post a comment on "2010 should get a Sehwagian start". Click here!
11 Responses to "2010 should get a Sehwagian start"
Kaycee
Jan 17, 2010
Predictions of this kind is what led to retail investors (the prime target of such articles) seeing their wealth drop by atleast 65%, if not more in the previous year, thanks to predictions at Sensex 21000, when Pundits universally said 'Sensex at 45000 is not an if but only a when!'. They are damn right and wrong; on hindsight, one can well imagine they meant Sensex to touch 45000 in a few decades. Incidentally, once recovery is seen on the horizon, thanks to positive indicators like US consumer spending (India no doubt is an investment attraction in the medium/long term, but with due respect, does not yet call the shots in the world power play, not excluding the stock markets!), no wonder that Sensex surged a slurpy 81% on the back of previous year's sulky 65%!! Retail investors will be well off to ignore such exuberance (volatility is on the floor for weeks, which signals overconfidence in all and sundry, a perfect recipe for a sharp correction - ask Warren Buffet!) & hold their cash for the inevitable correction. Be assured, correction shall be a sharp one within the coming quarter, even if the path to correction were thru further exuberance to 21000 (courtesy, the good apetite today, thanks to FIIs and not fundamentals, at these valuations)! Like 
alok
Jan 11, 2010
By selling LPG at Rs. 350 cylinder govt. is giving Rs. 850 per cylinder subsidy on one LPG cylinder as petrol of Rs. 1200 provided at doorstep will give mileage equal to that given by one cylinder of LPG. If we multiply this subsidy by 150 crore cylinders sold annually total amount of LPG subsidy comes around Rs. 127000 crore. If this subsidy is abolished all problems of India will solve. What will happen to consumer they will be rather benefited. One parabolic solar cooker of 8000 can take care of your cooking needs on 300 sunny days a year i.e. it saves 100 cylinders of LPG or more in 10 years of its life giving LPG at Rs. 80 per cylinder only or even less. A four pot box type solar cooker of Rs. 1862 in the same fashion can give 35 cylinders of LPG at Rs. 50 per cylinder in its 10 years of life span. If govt. gives 100% depreciation on solar cooker along with giving 80C like benefit on these every rich or middle class family will replace unsubsidized LPG use by solar cooking and solar water heating. Nation will be saved.
Dr. Alok Sharma,
Kalimai Santar,
Morar, Gwalior.
Like 
Sanjay Mule
Jan 10, 2010
I think 2010 will be a prosperious year for market and all other indian growth. sensex will touch its another high in this year Like 
sr
Jan 6, 2010
A news paper pointed out that the Indian marriage market would provide a very major stimulus to the economy. Another stimulus is the very shoddy, often made in china, products, with no other competing options, being marketed by our white goods manufacturers/traders. Time was when a ceiling or floor fan would last decades, washing machines would last at least 10 years with minor repairs (and we used to decry the poor quality of Indian products compared to imported)- today they last just for the warranty period and if one is lucky a little beyond. So imagine the millions of such gadgets which require frequent replacement!! The danger of this is only that Chinese products might get the stimulus while beggaring our consumption driven economy.... Like 
SudeshDevgan
Jan 2, 2010
The artcle on "2010 should get a Sehwagian start" is quite informative as well as gives concreet information about the market for the year 2010 January. Thanks for your efforts for putting concerted efforts. Like 
rahul
Jan 2, 2010
sir,can you tell me if we r in growth path then why gov not withdraw stimulus package and have you ever seen foodgrain inflalation like this,this is a cong gov,why rbi support MFs industry indirectly.and as per elliot wave Cwave not started yet,r they start after your dreaming 21000 level.can you send us our all query,i know you dont send us,this is a new style of publicity.
thnx
rahul
Like 
govindkalaga
Jan 2, 2010
The full exploitation of gas discoveries, once the pricing dispute has been sorted out (the Supreme Court judgement in the RNRL -RIL dispute is awaited, with arguments over) would further contribute to reduction of subsidies. The fertiliser subsidy would virtually vanish. RNRL has stated that RIL would be making an additional profit of Rs 30,000 crores, being the difference between the Government determined price of $4.20 and the agreed price of $2.34. However, this amount would basically be a time arbitrage. Under the production sharing contract with the Government, the operator (RIL in this case) has to recover its investment, and a fixed return, fetching a higher % of revenue until this is reached. After its recovery of investment is so done, the operatorís share falls drastically for the remaining period of the licence, and the Governmentís share proportionately rises sharply. The interests of the Government and of RIL are thus aligned in this manner.
I liked this comment along with other comments but as a common simple investor what is the effect you would observe on this notes
then the small investors would be benefitted
with regards
govindkalaga
Like 
RB SINGH
Jan 2, 2010
IGNITION /VOLATILITY MAY COME SOMETIME PRE & POST BUDGET SESSION. NOW VALUATIONS HAVE REACHED TO TOP FROM WHERE THE ONLY WAY SEEN IS DOWNSIDE MIN 20% WITHIN JAN. INFLATION EFFECT WILL BE SEEN ON MONDAY ITSELF. SHORT TERM INVESTORS MUST BE CAUTIOUS OF BURNING THEIR FINGERS. RATHER THEY SHOULD WARM UP AND WAIT FOR CORRECT OPPORTUNITY Like 
Ubed Mansuri
Jan 2, 2010
send me ur Recharch mail Like 
uday Vora
Jan 2, 2010
I think you are right. But, once Sehwag is out,only He knows. Let's hope for the best. Like 
   Next>>
Equitymaster requests your view! Post a comment on "2010 should get a Sehwagian start". Click here!