I want it here, and now! - 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 DECEMBER 2012

We are the now generation.

We want everything here, and now! Unmindful of the consequences for the future.

We want our cars large, and fast. These characteristics are not necessary for our movement, only for our inflated ego. They are disastrous for the environment, and for our tomorrows, but who cares? As pointed out in 'Natural Capitalism', a book downloadable from www.natcap.org, less than 5% of the energy contained in oil is actually used to move the person, which is the primary purpose of transport. About 80% of it is used to move the vehicle (in proportion of weights of vehicle and passenger) and the rest wasted in the conversion process of energy to movement. The lower the proportion of weight of vehicle to passenger, the less is the wastage of energy and the lower is the consumption of imported crude oil.

Our current account deficit is unsustainably high at nearly 5% of GDP, thanks mainly to import of crude oil. Any responsible Government would ensure that large vehicles like SUVs would be discouraged, through punitive taxation. Any responsible Government would ensure that it sets up efficient and affordable public transportation and then discourages private transportation. Mumbai is perhaps the most populous city without a metro system.

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The now generation wants larger and faster cars, and want it now.

Never mind that ice sheets in Antartica and Greenland are melting at an alarming pace thanks to global warming, thereby raising sea levels, and, over time, threatening the existence of whole countries like Bangladesh.

Investors have to look at such trends as political leaders are notoriously callous and slow in responding to them. But if investors anticipate the coming changes, they could get early mover advantage.

Electric cars are one likely alternative to fossil fuel driven cars. The problem is the battery, and in the time taken for refilling the battery and the duration of the charge in it before it needs a recharge. Toyota is now developing a magnesium-ion battery, which will be cheaper, and last longer, than the lithium-ion battery. An Israeli company is working on setting up battery replacement stations, a-la petrol stations, in which the car battery would be replaced with a fully charged one, in minutes. Cars would be sold without the battery ownership; car owners would sign up for battery replacement much like we sign up for different mobile telephony plans based on our usage.

Or consider the internet and mobile telephony. This accounts for 2% of global energy consumption. This is because internet companies have to set up massive server farms, together with back ups, which run 24X 7X 365, guzzling power. But we, the now generation, don't think twice before forwarding inane emails, all of which consume power and add to global warming.

Or consider the impending fiscal cliff in America, which will be ushered in the new year, a month away. This has been hit because the now generation believed in 'live now, pay later' and so consumed more and saved less. The baby boomer generation is now retiring, and are living longer, as a result of which the actuarial calculations of liabilities has gone severely wrong. Pension funds, which include corporate pension funds, public pension funds and those managed by individuals, are underfunded to a horrendous extent. As per this story in Institutional Investor (disclosure: this columnist is India representative for the magazine) the total underfunding is over $ 9 trillion.

In short, Americans would have to save and invest $ 9 trillion if they want to retain the retirement and healthcare benefits they are expecting to have, or, if not, to forgo some of those benefits (a lot, actually, because $ 9 trillion buys a lot of stuff).

This actually presents a huge opportunity for India, if our policy makers can get their act together and unify for the sake of the country. Because India is building its infrastructure (it needs over $ 1 trillion investment in infra) and infrastructure investment provide the steady returns that the long term pension funds desire but don't get. The public transportation systems our cities need, mentioned above, can easily be funded by these pension funds provided we get our acts together and provided our policy makers learn to listen to the market and stop believing that they can control them.

A lot of provideds.

Policy makers ought to have learnt their lesson from the failed auction of spectrum, which found few takers as the minimum price was set too high.

The policy makers would have done well to read this article on the 'Spectrum Crunch that Never Really Was'.

As the article points out, the issue is more about how spectrum is used and not the quantum of spectrum available. There are several technologies that make usage more efficient. The telecom scam began with a scramble for spectrum, and led to an allotment process for it which was found to have been manipulated to the advantage of a few. The estimate of revenue loss then put forward by the CAG, (later proved to be wildly optimistic) created a controversy and a political logjam in decision making. And to think that better utilisation of existing spectrum, with available technologies, could have mitigated the problem, speaks volumes for poor governance.

In corporate news of interest, ICICI Bank managed to raise $250m. through a 5 year bond, offering a yield of 4.07%, which is phenomenal. However, the Rs 1,075 crore, 15 year bond of Oriental Bank of Commerce (of which, interestingly, ICICI Bank was one of the lead managers) devolved to underwriters, because the yield of 8.93% offered by OBC was less than the yield of 9.06% for similar bonds trading in the market. The stark difference in yields and the success of one is indicative of investor perception and branding.

Bharti Infratel is to raise between Rs 3,900-4,500 crores through sale of 189 m. shares. It owns some 34,000 telecom towers and also has a 42% stake in Indus Towers, which owns 110,000 towers. This would be one of the largest IPOs recently made.

If Securities and Exchange Board of India (SEBI) has its way, there would be a lot many IPOs before June 2013, when its deadline to companies to have at least 25% public shareholding expires. This means that the stock of new floatations would increase supply of stock and keep a chek on the rally.

The stockmarket rallied midweek after Moody's affirmed a 'stable' rating for India, and after a Goldman Sachs report put India's GDP growth at 6.5% next year.

The current GDP growth, however, has dipped to 5.3%, a 3 1/2 year low, thanks largely to the policy paralysis and the caution in both consumer and investment spend.

Is there a thaw in the policy paralysis, or at least in investor perception of it?

The UPA moved resolutely in ushering, through administrative action, a higher FDI in multi brand retail, a move that the opposition parties, wanting 'here and now' embarrassment for the Government, were quick to oppose. They demanded not just debate, but also a vote, in Parliament. Last week the UPA struck a deal with Mulayam Singh Yadav (the terms of the deal are unknown and likely to remain so) who sweetly offered support for higher FDI in multi brand retail. So the UPA agreed to a vote in Parliament. Hopefully, after it, Parliamentarians can start to earn their daily bread which they have not been doing so far.

What next?

In the coming week, we expect to see the report of the Rangarajan (PM's Economic Advisor) committee which will decide on, among other things, the pricing of gas. Operators like RIL have been arguing that the price of $ 4.2 currently fixed, is disincentivising further capex in exploration. Perhaps if the price is raised, they may be able to pursue further exploration with greater enthusiasm, and to restore the fall in gas production that has taken place. Which would mean a reduction in the current account deficit, a strengthening of the rupee and a rally in the market.

The BSE-Sensex gained a whopping 833 points last week, to end at 19,339, and the NSE-Nifty added 263, to close at 5,879.

The sensex could go up to 20,500-21,000 levels, on foreign institutional investors (FIIs) buying (FIIs have bought $ 20b. so far in calendar 2012, more than in any other emerging market) if some more economic reform measures are undertaken. But at these levels of 20,500-21,000, caution may be exercised.

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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3 Responses to "I want it here, and now!"
7ntxx
Dec 3, 2012
As Kabir said:
"Kaal Kare So Aaj Kar, Aaj Kare So Ub"

Is this generation in India following Kabir?
Like (1)
AD
Dec 1, 2012
While much is being praised about "economic liberalization" & the Nehruvian era demonized, do people realize that that in this transformation we have lost the centuries old Indian ethos of simplicity, charity, care for the society, etc.

Mr Gangaram who built hospitals in Lahore & Delhi will still be remembered long after Ambanis are history
Like (1)
Amir
Dec 1, 2012
Excellent piece, Mr. Mulraj.

However, I am baffled. While there is a lot of hue & cry about "electric cars" being a solution for usage of hydro carbons, it is IMHO a fallacy. While electric cars may be cleaner on the road (i.e. no/less road pollution), it may be noted that a significant portion of world electricity is derived from burning hydrocarbons.
Global warming may not get a break.
If the problem has to be cured, it must be public transport. Instead of encouraging "individually owned" cars, these should be discouraged. Singapore & London have made it very expensive to drive individual cars into town during weekdays. Most people use public transport.
In our "wannabe" countries, we seem to encourage individually owned cars, not only for the transport, but (to quote my friend, Mr. Mulraj), "for our inflated ego".
Bombay is toxic with environmental & noise pollution, but the cars keep increasing. Now most cars have air-conditioning (thereby increasing fuel consumption / pollution), which is relative new for India. Do we really need AC?

Let me share something of the 1950s, which was witnessed by my father. Everyday, on his way to office, JRD Tata (perhaps the richest Indian of that time) used to give a "free lift" to first 3 people from the bus stop queue, going in his direction.

Can you imagine today's rich giving anybody a free ride?
Can you imagine today's not rich forming a queue?
Can you imagine anyone in our "wannabe" countries caring for anybody but self?
Like (1)
  
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