Cope - and - haggle - 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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19 DECEMBER 2009


Heads of state of several countries are gathered in Copenhagen to sign an accord that has not yet been reached. The developed nations, after having emitted the most carbon to maintain a lifestyle, are unwilling to commit to the steeper reduction their high per capita emissions warrant, or even to compensate, through transfer of funds and technology, the steep cuts they demand of developing economies like India and China. The meet at Copenhagen was all about haggling over the price the polluters have to pay for their past sins.

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One of the major polluting industries is the thermal power industry. On a per capita basis India's energy consumption is about half that of China and less than a third of global average. The US figure is 15 times higher than India, on a per cap basis. India and China would not agree to curtail the economic growth that is needed (by not allowing growth of power capacity) even as the US continues its wasteful use of resources.

Fortunately, scientists find solution to clean up messes politicians make. For energy, and the caps that climate change is likely to put on its consumption, the solution is in solar power. Readers would be advised to download and hear this video on youtube.

Germany has been a leader in the use of distributed systems for generating solar power. It has, through policy changes, encouraged the use by households of installing solar power systems on their rooftops. Excess power not consumed by the household, is bought by the utilities, who are mandated by law to pay a feed in tariff double that of conventional power, for 20 years. As more households go in for solar panels, and as technology improves, their cost comes down. There is now a new breed of 'solar roof investors' who look for rooftops to rent, and to invest in solar panel systems that generate a 20 year guaranteed income stream. As a result, the people employed in solar power industry in Germany now exceeds those employed in its automobile industry!

As demand for solar panel increases due to policy changes and entrepreneurship, the cost of solar generation can only go down, with technological changes chipping in. On the other hand, the cost of conventional energy can only go up with rising input costs as well as the cost of climate change. Germany's fossil fuel dependence has decreased.

India, too, can, through policy change, encourage the solar power industry to grow faster than it has. The Power Ministry is taking steps to promote it. It has announced a policy to bundle high cost solar power with low cost conventional power, in the ratio of 1:4, so that the average cost is brought down to an affordable level. It hopes that more investment can take place in solar energy, thereby bringing down generating cost.

There is another technology, solar thermal, in which fields of mirrors are placed in deserts, in a manner that the reflected sunlight is concentrated onto a tower containing water, which generates steam that drives the turbine. In the US, Southern California Edison, the state's largest utility, has agreed to buy solar power generated by a plant set up in the Mojave desert with a capacity of 1300 MW! The Desertec project, sponsored by Munich Re, in the Sahara, will supply power to Europe and the Middle East, and potable water in the latter. As per the video, an area of 300,000 sq. Kms (the size of France) in a desert, is enough to supply the global energy needs! The Thar desert in India can generate, through solar energy, the planned capacity of the next 5 year plan!

NTPC, India's largest power producer, is on a fast track process to offload a 5 % stake held by Government through a follow on offer, hoping to raise Rs 11,000 crores. This would be followed by a follow on offer by Rural Electrification Corporation Ltd. Both these would be interesting for investors to look at. These would be divested before the March year ending, to present a better picture of the Government's fiscal deficit. The deficit would be significantly reduced once the KG basin natural gas starts flowing fully.

Exxon Mobil is betting big on gas, in preparation for when fossil fuels start running out. It is to buy, for an enterprise value of $ 41b., a natural gas producer XTO. India's exploitation of this resource has been held up on a legal issue that has taken inordinately and insanely long to sort out; fortunately the hearing on this between RIL and RNRL, is over and the Supreme Court verdict is awaited.

There are encouraging signs for the Indian economy. Advance tax payments by several companies such as LIC, RIL, L&T, Hindalco, Grasim and others, are significantly higher than last year. The Government has now revised upwards its GDP forecast to 7.75%, which suggests it expects Q3 and Q4 growth to be high. Exports grew in Nov by 18.7%, and Moody's revised upwards its rating outlook on India's local currency.

On the other hand, one of the reasons for bullishness is now postponed. The introduction of GST has been deferred beyond April 2010.

Also postponed is the introduction of MNP (mobile number portability) because MTNL is not ready for it. Why isn't it? MNP has been talked about for years now, and other operators have prepared themselves for it. If it is, indeed, organisational apathy, why then does the Government favour it with allocation of 3G spectrum, something to which Mr Ratan Tata has objected. MNP is about the only thing that can lead to improvement in customer care; hitherto the competition in telecom has been restricted to customer acquisition but not customer retention.

The market slid almost the whole of last week, with the BSE-Sensex ending at 16719, down 399 and the NSE-Nifty ending at 4987, down 139.

Investors globally are apprehensive about interest rate hikes. The US $ index has gone above its 50 day moving average and, if the US raises interest rates, as is quite likely now that the recession there has been officially declared to be over, then the carry trade would start to unwind. So, whilst the Indian economy is steaming ahead, global forces are likely to negate. Caution would be the watchword for now.

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 "Cope - and - haggle"
Vishwas
Dec 20, 2009
Your Articles have always been "engrossing" I have been reading them since your Times of India days.

Can you please let me have list of Companies which would be dealing in (planned) Solar power business. I think the Investment in this sector would be worth its weight. Please reply.
Like 
Ajay
Dec 20, 2009
Dear Mr. J. Mulraj,

Can you give us a list of Listed Companies and Industry Sectors that will be - Major Beneficiaries and Lossers Post-GST - which is likely to be implemented from April,2010?

I will be greatly obliged.

Thanking you,

Ajay

Baroda - Gujarat

Like 
pabitra ku. senapati
Dec 19, 2009
ya its good. Like 
  
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