It's just an illusion - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
It's just an illusion A  A  A

19 OCTOBER 2013

With all the scams and examples of bad governance emanating all around, almost on a daily basis, the thought that this Government is actually governing the country is, as the rock band Imagination sang, just an illusion. We have seen how the Government, having sanctioned the NSEL, neglected to monitor it and continues to do so neglect. Now there is evidence that 30% of the Provident Fund accounts lying in its custody, are in the negative, some of which have been fraudulently misappropriated. Now this was managed by EPFO, a Government entity. It would be interesting to see if Finance Minister P Chidambaram, and Secretary, Department of Economic Affairs, MoF, Arvind Mayaram, pass on the blame for this fraud to investors, as they blithely did in the case of NSEL.

Investors across asset classes ought to realise that expecting good governance from the UPA is just an illusion.

And when it, or its agencies, does take action, it is misdirected. The CBI implicated, last week, Kumar Mangalam Birla, in an FIR (first information report) on the ground that he influenced a decision to re-allocate a coal block, which had been originally allocated to a PSU, Neyveli Lignite. This, on the basis of a meeting that Birla had with the then coal secretary, Parakh, universally acknowledged to be an upright officer. Parakh has also been named. As he rightly points out, the then Coal Minister, who signed the order of re-allocation, ought also to be named. He now happens to be Prime Minister.

Meanwhile, the CBI, so prompt in shooting arrows at Birla and Parakh, appears to have none left to persecute the ones implicated in earlier scams, such as A Raja, Suresh Kalmadi and others. What about Hasan Ali, against whom a fine of Rs 40,000 crores was levied in 2011 and who reportedly had $ 8b. in Swiss Banks? Would these investigations ever get completed?

The electorate, however, has seen through this illusion of governance, if results of a survey of voters are anything to go by. The survey predicts the BJP to emerge as the largest party, with 162 seats, and Congress to drop to just 102. The 'couldn't be bothered' attitude towards scamsters and fraudsters, and the quick jumping in defence of them, is surely one of the many factors that have disillusioned voters.

Bad governance ultimately tells on the economic performance of the country. Despite the Government sticking to its stance that India's GDP growth would be 5.5% in 2013-14, the IMF has come out with a more dismal forecast of 4.7%. The IMF also pegs the CAD (current account deficit) at 4.1% of GDP.

The Finance Minister has taken steps to bring down the CAD, chief amongst which is the reduction of gold imports by hiking import duty on it.

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Perhaps the Finance Minister should look at the track record of gold as an investment. Since 1967, when the US Government refused to exchange gold for $ at $ 35/ounce, gold has gone up 37 times, vis a vis 18 times for the Dow Jones average.


At a time when our Finance Minister is dissuading citizens from holding gold, China is doing the opposite. As per this article, in point # 9, the blog says China plans to import another 5,000 tonnes of it, and to make the yuan backed by gold! When it does so, the yuan would topple the US $ as the world's internationally accepted currency. Chidambaram would still be digging for gold in Unnao!

China has, in fact, bought an iconic building in New York from JP Morgan. It is no coincidence that the building houses the largest private sector gold vault in the US. It is also no coincidence that this comes at a time when JP Morgan has set aside, hold your breath, $ 23 b. in legal fees and penalties.

The investment world today, it seems, is meant for large firms and large fund houses to take large bets, using derivatives, to incur large losses, and to use large law firms to fend off large lawsuits and write off large losses, all in the name of small investors! What a laugh!

Now, Indians invest a part of their saving in gold because they are, rightfully, wary of investing in financial assets. They have seen the callous attitude of the Government in the case of NSEL, which is an outright fraud, (the recently arrested former CEO & MD of NSEL, Anjani Sinha, says that the entire Board of Directors, including Jignesh Shah, knew of the fraud as also in the case of EPFO.

More proof, if at all any were needed, of poor governance, comes from the rejection by the UPA Government, of recommendations for greater transparency, made by the Election Commission. The UPA does not agree to a recommendation that political donations made in cash should be given a receipt for it! The conclusion is obvious and is not an illusion.

The FMC, which was supposed to have been regulating the NSEL, now claims that 'borrowers' may have been fronts for siphoning off money. The first thing any responsible Government would do when faced with a scam is to follow the money trail. This is easy to do and would take a few hours. Why has no one done this? Again, the answer is not an illusion. Put simply, the trail probably ends with people who are well 'connected'.

In what is a pathetic display of bad governance, MCX, the commodity exchange which is a part of the same group and is a listed entity, has a 99 year agreement with Financial Technologies, its promoter, under which it has bound itself to using the latter's software, upon penalty running upto Rs 6,200 crores if it ceases to! How such an agreement was signed, what were both the regulator and the independent directors doing at the time, and why such a disclosure has not yet resulted in an immediate ousting of all directors who signed it, is (you got it) just an illusion!

Last week the BSE-Sensex rose 354 points, to end at 20,882, and the NSE-Nifty gained 93, to close at 6,189. The reason for its optimism was the 'deal' entered into by the Republicans and the Democrats in the US, to allow a temporary raising of the debt ceiling, and, by extension, a continuation of the quantitative easing monetary cocaine! This is akin to a junkie hitting a new high when given an unexpected dose of it.

The debt level is too high and needs a structural adjustment which the US leaders are not willing to stare in the face. This is comically explained in this video. Just as in the video, the problem is being passed on to future generations.

So global stock markets will continue getting new highs so long as they continue getting the 'fix' by Janet Yellen. The moment the 'fix' is reduced or stopped, the investment junkies will start, err, yellen. It's just an illusion.

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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6 Responses to "It's just an illusion"
Oct 20, 2013
Taking the country off the gold standard is the easy way out. The US has taken that step and its in an irresponsible spiral into oblivion. No one sees it yet since they are living with an ILLUSION. Or as they say VAPORWARE.
China has worked hard over the last five decades to be the Capitalist Republic of China and has the correct plan of adopting the gold standard.This is the right strategy for it to be the currency leader. As they say hit them where it hurts !
As for its plan to make the yuan the reserve currency, I am not so sure so soon. The US dollar will continue to live off its good will for a while for sure.
In the meanwhile Labionda sang SANDSTORM which also is an ILLUSION.
As for India its always trying to copy the US while following some other philosophy(as with emulating Russia under Nehru cha cha) so we are never sure where we stand if we are a boy or a girl. And we have had only 66 years since being free of the British.
Now while we have a ban on gold import we are trying to import it from under the temples !
Good Luck.
ajay k gupta
Oct 19, 2013
I am unable to understand where the funding for these mobile phones to be issued and how the funding of various compensation awards are funded obviously the tax payers funds.! Like 
ajay k gupta
Oct 19, 2013
very correctly written said,not only this even the opposition [parties not very far, when the case of rti and guilty members came all joined together without any hesitations, the voters have to learn all this. Like 
Oct 19, 2013
The Congress party lets loose it's army of talking heads on national TV every evening who spew out their sycophantic drivel about how:
1.Narendra Modi is a monster
2.The people of India are idiots
3.There is no alternative to Yuvaraj for PM.
4.We are dutybound to make Yuvaraj the Maharaj.

We are also ordered to just shut up and take the freebies being dished out and shout "Long live the Queen of UPA".
Anupam Garg
Oct 19, 2013
The Para from 'the investment world today...what a laugh' is very intelligently written Like 
Oct 19, 2013
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