A Lame Tortoise Government - 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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10 DECEMBER 2011

Terming this inept Government as a lame duck one would be doing an injustice to the duck. For even a duck that is incapacitated by a foot injury would be able to move at a faster speed! The tortoise, being more patient, would, hopefully, not object to the comparision.

The Government announced, barely two weeks ago, that foreign direct investment (FDI) in multibrand retail would be permitted upto 51% and in single brand retail upto 100%. The first has now been (pardon the expression) shelved! The introduction was after some 12 years of debate. The shelf life of new ideas amongst our leaders with fossilised mindsets is far longer than shelf life of any product in either single brand or multibrand retail outlets.

This was not the only bit of depressing news of the week. A Parliamentary panel has shot down the proposal to increase the FDI limit in insurance to 49% as it 'sees no merit' (sic) in the proposal.

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This would be done only after a financial crisis hits insurance companies, as it has airline companies. The losses of the airline companies have been largely funded by public and private sector banks, with public money and it is primarily out of concern for depositors' money that the Government cleared FDI in airlines upto 26%.

The panel also didn't clear the bill that would give legal recognition to National Identity Authority of India, which is executing the unique identity project. This project, by giving each citizen a verifiable unique identity, will help target subsidies properly, thereby reducing the overbloated subsidy burden. It will also prevent leakages (read'theft') of subsidy money by intermediaries. Delays in its implementation help only the corrupt.

The subsidy bill is expected to exceed estimates by a whopping Rs 1 lac crore! This includes subsidies on fertilises, on food and on petro products. This only means that the fiscal deficit will far exceed the target. The Rs 40,000 crore target from disinvestment in public sector companies is also not likely to be achieved, although the Government is thinking of dipping into cash reserves of a few PSUs asking them to use it to buy back their own shares or shares of other .

The third 'nyet' from the panel was placing a cap of 26% on voting rights of private investors in banks; the proposal was to make voting rights proportional to holding, like in any other company.

With such bad 'nyets' it's not surprising that the India story has lost its appeal to foreign, and domestic, investors, and that GDP growth will be significantly lower than the 9% talked about at the start of the year; the estimates are now 7.25 -7.75%. The rupee has fallen some 18% versus the $ and, given the widening current account deficit, likely to fall more. The Commerce Ministry has just admitted to an error of data entry which wrongly overstated exports by $ 9b; the correct figure for the past 7 months is $170b. One wonders whether the Finance Ministry would be equally accepting of similar errors in the filing of income tax returns by its citizens.

Domestically both the economy as well as the polity are in a mess.

Unsurprisingly investors are moving out. Last week the BSE-Sensex fell 633 points to close at 16213, and the NSE-Nifty lost 183 to end at 4866.

The fall was aided by the permission granted to Subramanian Swamy to direct evidence against P Chidambaram, current Home Minister and former Finance Minister, to prove his allegations of the latter's involvement in the 2G scam. The political one upmanship is now a no-holds-barred battle and, in this, the economic agenda is a victim.

No meaningful, and long pending, economic reforms would be undertaken.

The Government is a lame tortoise one.

It will remain so at least till the state elections for UP, India's largest state (at least until it is cut into four parts, as proposed by Mayawati). If Congress fares badly, it would then come under further pressure and there could be calls for early elections. So, at least till the UP elections, mid 2012, are over, there would not be a case for a strong rally in Indian markets.

Added to this is the uncertainty over Europe. Last week the European Union, barring Britain, agreed to a tighter union based on stronger control over their budgets. In other words, Angela Merkel would not henceforth foot the bill for five course lunches in Greece or Italy.

It has also promised to provide further funds for EFSF (European Financial Stability Fund) to be used to stave off financial crisis in other countries such as Italy or Spain, a collapse of either of which would be disastrous. Standard & Poor has putting several European countries on ratings watch. Time is running out.

In corporate news, Reliance has sought an increase in prices of natural gas, from the Government decided $ 4.2/mmbtu, which is effective till 2014, to $ 6/mmbtu. It claims that this would encourage it, and other operators, to make the capex required to boost gas output. The Government would probably compare the demanded price of $6 with the equivalent price of other imported energy inputs and, if the latter is higher, may consider it worthwhile to allow it, judging by the growing current account deficit and the falling rupee.

SEBI is investigating the sharp drop in stock prices of several of the smaller IPOs. Recently made stock prices of these have fallen between 78-92%, which is shocking!

This columnist has long been suggesting inclusion of an additional piece of information in the prospectus - the track record of the lead manager for the past 3 years, including the changes in stock prices of IPOs led by him, as compared to changes in the index over the same period. Investors would get an additional piece of information to base their judgement on.

What next? If the ECB manages to shore up funds in EFSF, it may provide investors with a short term injection of confidence and lead to a short term rally. But Indian markets are unlikely to see any sustained rally. It would continue sliding, with the next sensex support level coming in at 15,000. That, however, may not hold, a scary prospect.

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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11 Responses to "A Lame Tortoise Government"
karan
Dec 31, 2011
You have been doing a good honest job on current political issues,start writting something to encourage lazy educated to spare time and some energy to vote with conscince and poor uneducated should not sell their votes,so our children may see something good in their life time Like 
vijay bhatia
Dec 12, 2011
dear mulraj ji
this was a good article. pl continue this good work for the entire community at large as the saying goes: well informed readers are better citizens and we desperately need better informed decision making amongst our polity.
cheers
vijay bhatia
Like 
Rajan Nireshwalia
Dec 12, 2011
Excellent and realistic view!!!!!!!!!!!! Like 
Tikam Patni
Dec 11, 2011
who says it is a lame tortoise government. It is faster than the fastest hare in siphoning off money. Like 
avshameed
Dec 10, 2011
UPA partners and Congress has no proper agenda, they are only interested in clinging to power, Manmohan Singh lost all the credibility to be a pm, HE does not have guts todo anything. Mullaperiyar in Kerala is an issue he should have sorted out immediately. The MPS are not interested in looking at peoples issues, they are crooks interested in their own benefits

Like 
Om Prakash Sharma
Dec 10, 2011
This Lame tortoize Govt is due to corruption in the rand files of Congress Like 
Sundar
Dec 10, 2011
What is FDI going to have an impact on a industry is which is not profitable for a decade (Insurance and aviations). As a risk diversification, some overseas airlines may invest in Indian airlines companies. What is the valuations of these companies can get compared to the debt they have on their books. In what way additional equity infusion going to have effect on the balance sheet of these airline companies which are sitting on mountaneous debts. Like 
SUDHEER MEHTA
Dec 10, 2011
It is our misfortune that we have an untruthful, uncouth, spineless, shameless Prime Minister who is doing only one family's bidding like a loyal slave, a prime minister who presides over a corrupt Govt. and who does everything in his power to shield corrupt & corruption - as this is the time when with proper Govt., India had the opportunity to surge past all the world, consider shear internal free-market, internal market, new generation. But this Govt. has done - 2 square meals made more difficult, no trace of money stashed abroad, total paralysis. Really pathetic! Like 
pcchacko
Dec 10, 2011
The LPG(liberalisation, privatisation and Globalisation) process in this country was first initiated by Late PM Rajiv Gandhi and subsequently by Narsimharao Government and after that by Manmohan Singh government. Bringing Sam Pitroda to India was the begining of telecom sector revolution Before 15 years one had to wait 5 to 10 years to get a BSNL land line connection or to buy in black by paying 10000 as premium that too not transferred in your name.

Narsimha rao and Manmohansingh both had to run a minority government where they ahve to depend on allies and opposition MPs to get bill passed. So Manmohansingh has to walk on one leg other leg is (allies and oppn ) not dependabale always. therefore he has his limitations.Some Political parties who have tasted power in the past now sitting in opposition is getting alergy in their hands and leg to get into power and for that they are playing mischief through their agencies and emjoying the visious situation.

Let us hope next government will get a clear majority so that they can run the government smoothly. further todays Politician, bureaucrats and Businessmen are interested to get rich fast for that they are preopared to go cheap and dirty to any extent that is the curse of the country. People having truck loads of money want further more by bad means and by bribing .The business community isencouraging corruption to get their evil designs

Like 
LOVEPAREEK
Dec 10, 2011
GREAT...AS USUAL...I REALLY LAUGHED AT THE WIT IN
----"The first has now been (pardon the ex-pression) shelved!"---
THANKS
LOVEPAREEK
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