SRK, siblings and stockmarket - 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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22 AUGUST 2009


There are, mainly, two things worrying investors these days. One is the failure of the monsoon (half the country is in drought) and its economic impact, and the other is the fear of another terrorist attack, voiced by Prime Minister Manmohan Singh. The third concern, of a continuation of the global economic slowdown, has abated. The US is expected to come out of recession in Q4 of 2009.

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The economic impact of the monsoon would vary between 0.5 to 1% of GDP; the bigger worry is the social impact the drought will have. There is, thankfully, a good stockpile of foodgrains, and, with ample foreign currency reserves, the ability to import them. The possibility that there could be another terrorist attack is the spooky one. The Shah Rukh Khan interrogation at a US airport, threw up, for me, a different set of questions than the ones media threw up locally.

The media attributed it to an indication of racial bias. This may, or may not, be so but that is America's problem. The way I look at it is that, despite the brouhaha raised diplomatically and by the media, the US Government did not berate, haul up or transfer its immigration officials for doing their job. In India, the security apparatus is most fearful of political repercussions if they question a politically connected person. They would get transferred or demoted. Ergo, their ability to stop suspected terrorists for interrogation, a la SRK, much less apprehend them with a lathi pitted against an AK 47, is rather limited. Hence the fear factor of another terrorist attack. If these are to be seriously tackled, the security agencies must not be threatened by politicos and bureaucrats for doing their job and it is up to the Home Ministry to take steps to inculcate confidence.

Also on investors' minds is the continuing dispute over, essentially, the price at which gas would be sold by one of the Ambani siblings to another. The dispute is already having political ramifications, which could worsen, prompting the Prime Minister to advocate restraint on both. On the question of pricing there were, very interestingly, two conflicting views. The Economist of Aug 13, carries an article 'Drowning in it' which talks about estimates of gas reserves in the US going up by 39% over those made in 2006, thanks to the advent of a technology called horizontal drilling, to allow gas to be evacuated from shale oil, which is plentiful in both USA and friendly Canada. This suggests that prices would, over a longer term, come down.

The Financial Times, of Aug 19, in contrast, mentions a hedge fund that has spent millions buying Jan/Feb 2010 call options on gas, at $ 10/mBtu, whilst the spot price is a little over $ 3.

The gas price in India is vastly higher, as indicated by the contract signed by NTPC to buy, over ten years, gas from GAIL at $8.

The dispute between the siblings has to be settled expeditiously, because the ramifications are far wider. Electricity produced from gas produces half the carbon emissions as that produced from coal. Government policy must, therefore, encourage the use of gas instead of coal for power generation. Given the scale of India's energy needs to feed a growing economy, the emission of carbon has to be reduced to the extent possible; hence the sibling dispute assumes global proportions. The case comes up before the Supreme Court on Sep 1 and it would be necessary for the Court to lay down, and enforce, a very tight and strict timetable for its disposal.

The lastest of many twists in this case is the Mint article of Aug 21, which quotes an internal correspondence between Ministry of Petroleum and Natural Gas and of Power, wherein the former maintains that since it is not a party to a gas sale agreement between NTPC and RIL, the parties are free to arrive at the terms themselves. This is contrary to the stand, taken in Parliament, by the Minister, that Government approval is necessary for any sale, as it is the owner of the gas.

Luckily for me, I am a mere columnist and not a judge of the supreme court!

In other corporate news, BSNL, which is the 7th largest telco in the world, is looking at developing its real estate as an income source. It has developed a robust mobile business, but still carries the legacy fixed line network. In the US, landline customers are surrendering them at the rate of 700,000 a month and using only mobiles ("Cutting the cord", Economist, Aug 13).

Bharti Airtel is looking to finalise its cross border merger with MTN, of South Africa (please note, there is no L at the end of the acronym; Bharti would be aghast at the thought of acquiring it!) by mid September, in a complicated $ 23 b. cash and stock deal. Bharti has almost tied up funding for this.

The Finance Ministry is pushing ahead with plans for mandating that all companies must issue at least 25% of their shares to the public. A good idea. Companies like SAIL, MMTC, NMDC, etc, would be compelled to make a follow on offer of stock. So would private sector companies with high promoter holdings like Wipro, Jet, Nirma etc. At a later stage the flood of IPOs may divert funds from secondary market, and thus be a bearish factor, but not now. Foreign investors who have been sitting on the sidelines, would be expected to come in the last quarter of the calendar year.

Last week the market dipped sharply on Monday, led by China, with the BSE-Sensex falling 626 points. It then yo-yoed and ended the week down 170, at 15240. The NSE-Nifty ended the week at 4528, down 51.

The sensex level of 15750 is a resistance that must be breached, by at least 3%, before the bull takes charge again. What will trigger this off? At the moment this is unclear. But it looks likely to happen.

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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1 Responses to "SRK, siblings and stockmarket"
Dalip Singh
Aug 29, 2009
Couldn't be better covered the way it has been.In short Excellent !!! Like 
  
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