Technologies as solutions - 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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PRINTER FRIENDLY | ARCHIVES
10 OCTOBER 2009


Just like open ended mutual funds have made investors' focus short term, so, perhaps, has 5 year democracy made political focus short term. They care little about strategic planning for the future, unsure, as they are, about being re-elected. Their policies leave, in their wake, messes for others to clean up, since they lack the political will to take necessary but unpopular action.

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The cleaning up is left to judiciary, as evidenced by the Supreme Court judgement compelling transporters to use cleaner CNG, instead of diesel adulterated with subsidised kerosene, which was asphyxiating Delhi. The politicians nor the bureaucrats had the gumption to take on the mafia that benefitted from such adulteration (they still don't! and continue with an incorrect subsidy delivery mechanism).

Technologies are also coming to the rescue, but politicians, again, are slow to adopt them, for want of a long term interest in bettering society. Consider, e.g. inclusive banking. There is much talk about banking not having reached the majority of villages, as setting up a brick and mortar bank is unviable. This has many social consequences. One is the excessive reliance on usurious money lenders, with the consequent suicide of farmers unable to service such usurious debt obligations. Another is the huge appetite for gold/silver in the absence of safe alternatives to store savings (with banking services, financial products, such as equity, could replace, over time, savings in bullion).

As per the Economist of Sep 26, mobile phones can, if allowed, become banks. In Kenya, telecom operator Safaricom has launched M-PESA, a mobile money service, in 2007, and it has changed lives. Money can be transferred via sms, quickly, efficiently and cost effectively, without needing to set up brick and mortar branches. This is inclusive banking! Why has India not adopted it? Because of 'security concerns' (what if terrorists use it to transfer funds for funding their operation?). This concern is easily addressed by setting a limit on the amount transferred; just as ATMs have a limit on withdrawals.

Should mobile money be permitted, as, indeed, it ought, it would provide a fillip to the telecom sector. Telecom stocks were hit last week, after TRAI asked telcos to offer tariff plans based on 'per second' billing. Right now it is 'per minute' billing; hence the customer is billed even for a call lasting a second. Another fillip to the stocks would come from the long awaited auction of 3G spectrum, in December. They would then be able to offer a host of value added services. From January the telecom space would become interesting as mobile number portability (MNP) kicks in. The freedom this gives customers to switch from an existing operator to another one, would witness a lot of churn. It would result in even more competitive tariff plans and better customer service.

Mobile phones are also being used by farmers, e.g. to turn on/off their water pumps, through a device called Nano Ganesh.

Kamal Nath, Minister Roads, Transport and Highways, who is undertaking a transformative investment programme of Rs 3 lac crores in the road sector, wants a single road tax which will allow free movement of freight across states. The fact that we are unable to prevent stoppage of trucks at border crossings, in order that the State collects octroi, is a crying shame. It poses a senseless hurdle to the advantages of the huge domestic market provided by the federated structure. The border checkpoints are, basically, toll booths for corruption. The single road tax, if it helps supplant the asinine octroi system, would indeed be a boon. Here, again, RFID technology can help in identifying the cargo. This enables movement of vehicles without stopping, and the data contained on the RFID chip to be read by a scanner.

Basically, India has to undergo huge structural reforms. It is untenable that the 60% of the population that is dependant for its livelihood on agriculture, gets only 18% of national income. Something has to give.

So, for me, a rise in food inflation is a welcome trend, not a worrying one as expressed by most economists. Provided the additional income goes to the farmers and not to middlemen or hoarders. As yet, there is no worry of rising food, or other prices, and so the Government is continuing with an accommodative monetary policy. Australia became, last week, the first G20 country to increase interest rates. Others will follow. When they do, it would reduce relative attraction of equity versus debt.

The social impact of such an iniquitous distribution of national income manifests itself in Maoist/Naxal violence which resulted in the death of 27 policemen in Maharashtra, their gruesome beheading in AP, and declaration of war on them by the state. Investors ought to be alarmed at this turn of events.

In corporate news, the RIL v/s RNRL battle continues to hold centre stage. The Supreme Court is to begin final hearings on Oct 20, having obtained written arguments from all sides. Meanwhile, RIL's Mukesh Ambani dropped a bombshell last week when he declared that the MOU between the two brothers was signed by him in his personal capacity and thus is not binding on RIL. There is also a viewpoint that since the MOU between brothers is not an arms length transaction, the deal would be subject to approval by Government. This is what the Supreme Court would have to adjudicate on. RIL gave a 1:1 bonus, as a reward to shareholders on completion of two giant projects, the KG basin gas find and the refinery project.

Infosys came out with better-than-anticipated results for the second quarter to Sep, with a 3% rise in income and a 7.5% increase in PAT to Rs 1540 crores. The market, however, was not enthused.

Grasim was also beaten down after it spun off its cement business prior to a merger with Ultratech; investors would now view it as a company making VSF, and a holding company for the cement business. Bharti was hammered after the per second billing recommendation of TRAI.

Over the week the BSE-Sensex lost 491 points to close at 16642. Major contributors to this fall were Bharti (with 165), Infosys (with 97), RIL (with 75) and Reliance Communication (with 67). Those who lifted the sensex were ITC (58) and HUL (32). The NSE-Nifty lost 137 points to end at 4945.

The coming week will end in Divali, so here's wishing readers a Happy Divali but don't expect any fireworks in the stockmarket. It ought to be a sideways movement.

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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2 Responses to "Technologies as solutions"
Shanti Kumar Damani
Oct 11, 2009
Sir,
Maharashtra is the ONLY state in entire INDIA which levies octroi and it is the most corrupt system in the whole of M'tra. The politicians, more particuylarly the Congress govt., just cannot survive without this corrupt practice. shame on one of the porgreesive state , now languishing at No. 7 as a state to do business. Just wait after the elections, when the politicians and corrupt bueurecrats levy stamp duty on premises given on lease. Bombay's Nariman Point is going to be most effected.\
Thanks - damani
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Mahesh Shah
Oct 11, 2009
Basically India has to undergo huge structural reforms. It is untenable that the 60 percenrage of the population that is dependant for its livelihood on agriculture gets only 18 percentage of national income. Something has to give

Mr J Mulraj THE RULE OF 80 20 applies here also.80 percentage of Population will have 20 percentage National Income WHILE 20 percentage of Population will have 80 percentage of National Income UNFORTUNATE BUT TRUE You can study the figure of Developed Countries also
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