'Bull in an India shop' - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
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1 AUGUST 2009


The growth of the Indian economy is, like Onida TV, the neighbours' envy and the owner's pride. Imagine what we could do if we had good planning, good governance (both public and corporate) and proper regulation. During the past week we see plenty of examples.

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MSRDC is realising that the toll collection for the Bandra Worli Sea Link does not justify the Rs 1640 crores spent on it. The annual toll collection is estimated at Rs 65 crores. Which means that it would take 25 years just to recoup the cost, forget about maintenance expenditure and forget about a return. The high cost, in turn, is the result of poor conceptualisation, several design changes and higher cost. Increasing the toll from Rs 50 per car will reduce demand, which is not price inelastic. Since MSRDC is a Government body, this means that new ways will be found to tax the citizen for the loss.

Take electricity, for which 2.6 m. suburban customers have, after protest, obtained the right to switch to Tata Power as supplier. The country is spending over $ 100b. to set up generating capacity sufficient to maintain the over 8% GDP growth that is possible. Yet nobody talks about the over 40% transmission and distribution losses, aka theft of power (or is it the other way around?).

The fiscal deficit runs amok, because subsidy schemes, once launched, can never be reviewed or terminated. Politicians don't have the ***** to do so. It is the consumers, both individual and corporate, who pay through higher interest rates as the Government crowds them out with its borrowing to meet the deficit. The RBI Governor last week exhorted banks to reduce their interest rates, and housing loan rates for loans below Rs 1 m. have been cut 1%. So it is either non Government borrowers who who pay the price or it is banks, who have to reduce their NIMs (net interest margins).

Mayawati is busy spending on non productive, ego boosting assets like statues instead of productive assets like roads or education, which would help the citizens of UP more. Absence of proper food storage results in a loss of foodgrains of Rs 50,000 crores a year! Compare this with the allocation on NREGS of Rs 30,000 crores.

The private sector airlines have joined hands to protest. They are incurring huge losses and are threatening that unless the Government discusses ways in which these can be brought down, they would not operate flights on Aug 18. Cumulative losses last year were around Rs 10,000 crores. They claim aviation turbine fuel cost in India is twice that abroad, an offshoot, again, of the skewed pricing policies of petro products. Ironically, IOC hiked ATF prices the same day!

The petroleum ministry is also increasingly embroiled in the dispute between the Ambani brothers over an agreement between RIL, the operator for the KG basin, to supply gas for 28 years to RNRL, at an agreed price of $ 2.34/mbtu. The Ministry has now taken, some 5 years after the signing of the agreement, the stand that since gas is a national property, it cannot be the subject of a private arrangement. Anil Ambani, of RNRL, maintains that under the production sharing contract (PSC), the operator, viz. RIL, has the right to fix prices. The Government determined price of $ 4.20 is only for determining the Government's share of royalty. The Supreme Court is to take up the hearing on a fast track basis, which ought to have been done years ago. Gas is going to increasingly power India's economic growth. Anil Ambani says the hitherto gas finds in KG basin by RIL are estimated to be only 4% of the total. Both Finance and Law Minister have supported the stand of the Petroleum Minister that gas is a national resource. The matter should have been settled long ago because it is of vital importance to the economy. The gas flow from the KG basin can make a significant dent in the fiscal deficit.

The other major corporate news of interest is the $ 23 b ongoing merger of Bharti Airtel and MTN. Cross border mergers are especially tricky; in this case the fact that a lot of MTN customers are in Iran and other countries not viewed favourably by the US, a lot of big US investment banks with TARP obligations, are finding it tough to become advisors in the deal. Bharti is meeting with regulators to seek permission to list the stock abroad; Indian stocks cannot have multiple listings but only GDRs can be offered.

The BSE-Sensex fell during the first 3 days of the week, then rallied sharply to end the week up 291, at 15670. It is seductively poised just below a crucial resistance level of 15,750 which it seems likely to break through in the coming week. After that the proverb may well change to 'bull in an India shop'. It can become quite a wild ride up another 2000 points or more.

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.

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7 Responses to "'Bull in an India shop'"
arun kapoor
Aug 10, 2009
market will run up so speedly because everybody every body sitting in shot. this fall or correction is not effected reliance industries. . nifty is down 260 points and reliance only 110. market should touch by 27th august 2009 nifty 4880 Like 
mdbangard
Aug 7, 2009
no comment Like 
RM BHANSALI
Aug 3, 2009
Good time to earn dividend ,book desired profit and accumulate low price good companies. Like 
mahipal singh
Aug 1, 2009
Beautiful comments i like it very much. Like 
Shankar Ramani
Aug 1, 2009
Is there really a fundamentally strong reason for the sensex to go up 2000 points? The earnings season is nearing its end and many investment gurus are predicting a correction before the further upmove. Also experts at equitymaster also agree that the economy is yet to turn around and everyone in the stock markets seems to think that we are in a strong bull market. Are these ideal signs to indicate that the market in fact is going to correct itself by 10% until the fundamentals become stronger to break through 15750 resistance levels? Mr. Mulraj - are you being fearful when everyone is greedy? Like 
SAKHEER HUSSAIN
Aug 1, 2009
Dear Sir,
While everybody is talking about State's spending that will boost economy,Maywati goes to this stunning extent of "statueing"(new synonym for stimulating)our economy! "The Real Estate Cartel of India" has emboldened other sectors to follow suit to form "Cement Cartel of India","steel Producers Cartel of India" and "Private Airlines Cartel of India". There is no surprise in a democracy with so many business magnets as MPs in Rajyasabha and Loksabha. In this context, do you still hold views against Trade Unions of workers?
Like 
vinod gupta
Aug 1, 2009
iam afraid that indian markets are building to another sharp fall, it is liquidity driven rise perhaps the money stacked abroad is coming into india as the holders are afraid that govt might take action. the valuaions by And large are becomin crazy as seen by pe ratio and more EV/EBITDA AS PMPARED TO INTERNATIONAL STANDARDS. I AM KEEN STUDENT OF MARKETS FOR THE LAST 40 YEARS NOW BASED IN SINGAPORE. I HAVE MY OWN DATA BASE OF 300 INDIAN COMPANIES AND SEVERAL SINGAPORE COMPANIES WHICH HAS HELPED ME IN THIS CONCLUSION. THE RE IS HIGH LEVEL OF HYPE AND EVEN BAD MONSOON HAS BEEN IGNORED Like 
  
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