State of the Onion address

27 DECEMBER 2010

High onion prices have been known to bring down Governments, since the humble onion is very much an affordable staple diet for many workers in India. The Government is right in worrying about high onion prices; perhaps, like the US President gives an annual 'state of the union address', Congress President, Sonia Gandhi, should deliver a 'state of the onion address'.

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Creating a bigger stink than onions, however, is that of corruption in high places. And the reluctance to seriously pursue it. That is because politicians of all parties are involved and thus those in power now don't wish to act against those not in power now, for fear of a future reversal of roles.

Which is why one treats the raids at the homes/workplaces of former Telecom Minister, A. Raja, and at the Chairman of the Organising Committee for the Commonwealth Games, Suresh Kalmadi, with a couple of barrels of salt. Had the Government really wanted to seriously attack corruption, it would have taken action earlier, if, indeed, the Niira Radia tapes showed evidence of it. If the tapes didn't, one wonders why the investigations continued and what would now be achieved in the investigation of these two persons.

Seriously tackling corruption would involve not only the fast-track investigation and sentencing of those involved in corrupt practices, but also a forfeit of their ill gotten wealth, and its use for alleviation of suffering. The Times of India carries, on Dec 25, two news items, of seizure of assets of former Jharkand Chief Minister Madhu Koda, of Rs 300 crores, and to a grant to beleaguered Maharashtra farmers, of Rs 400 crores. Imagine the assistance Government could provide if corrupt politicians didn't loot the country! Let's see if the assets of those currently being investigated, are similarly seized or if the investigation is, as hithertofore, a mere eyewash.

Foreign investors, for one, would reduce their investments into India if corruption is not seen to be seriously addressed. With one week to go in calendar 2010, FIIs have invested $ 28.4 b. into India, the highest annual inflow ever, into India. In order to sustain the rally, their continued inflow is required. The India story remains good (barring the cancer of corruption) and FIIs would otherwise want to invest more. Provided the action taken isn't a mere eyewash.

The Economic Intelligence unit of the Economist expects the global economy to grow 4% in 2011 which is better than expected. There are some risks, which are outlined in the article, alongwith their impact. Risks include that of sovereign defaults (Spain would be the most worrying, were it to happen, and the increase in bond yields for sovereign bonds indicates that private investors are concerned); an increase in protection as US and China fight over currencies; a bursting of asset bubbles in emerging markets (China's housing bubble is forecast to burst, by James Chanos, the founder and Chairman of hedge fund Kynikos. Chanos correctly predicted the fall of Enron); the threat of a double dip recession; the break up of the Euro and other things.

Add to this risks such as a conflagration between North and South Korea; the latter flexed its military muscle in an impressive show last week and the North made its usual threat of wiping it out, and the picture becomes gloomy.

A counterbalance to a reduction of FII inflows from the $ 28.4 b. in 2010 would be a fresh inflow from the EPFO (Employee Provident Fund Organisation) which has assets of Rs 500,000 crores. The Finance Ministry is, again, exhorting it to invest 15% in equity, if only to meet its own obligations and not continually depend on the Finance Ministry to meet the shortfall. These funds need to generate a certain return, in order for EPFO to be able to meet its obligations to retirees; it is not generating this return in fixed income investment. Were the EPFO to accept, as looks likely, this factor would be a big boost to the ongoing rally.

In corporate news of interest, ONGC and Russian firm Sistema, are to form a JV to merge their Russian energy assets. ONGC had acquired Imperial Oil, which will go to the JV, in which it will get a 25% stake. It seems like a good deal for ONGC, as the JV will have oil producing assets of 25 m. tpa, an oil refinery plus new fields in Trebs and Titov.

Energy assets are being also acquired by Coal India, which is close to buying a 10-15% stake in an Australian mining company. Coal production for 2010-11 is, however, expected to decline by 16m tonnes, or 6%, because of a delay, by 6 months, in a study, called CEPI (Comprehensive Environmental Pollution Index, conducted by the Ministry of Environment! This is strange! How can the delay in conducting of an index result in a fall in production? Surely the Ministry of Environment cannot and should not, allow its study to result in a shortfall in production! That, if nothing else, curtails the ability of Coal India to acquire energy assets abroad.

The Sensex gained 208 points to end the week at 20,073 and the Nifty added 62 to close at 6011. The sensex looks like it is unable to significantly crack the 20,000 resistance level and, with FIIs away on Christmas break, looks unlikely to be able to do so in the last week of 2010. A movement in the range of 19000-20000 seems the most likely scenario.

So will the Government seriously tackle corruption? Santa, if asked, would probably say Ho Ho Ho. If he were speaking Marathi, and meaning yes yes yes, it would be encouraging. Alas, he would be laughing at the naivety of the suggestion. Yet hope, as the saying goes, lies eternal in the human breast!

A Merry Christmas to all my readers!

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 "State of the Onion address"


Dec 29, 2010

It seems, from the steps taken by the GOI to eradicate corruption, that there is no seriousness and sincerity in their action. Had there been so, they would have taken immediate steps in freezing the property and bank deposits, both domestic and foreign, of the tainted persons. They were given sufficient tine to manipulate and destroy evidence. The goi should not have wasted time in unearthing the past wrong doing of the opposition and parrottig the same thing over again Corruption has taken deep roots in the fabrics of the nation since Gandhian era in the seventies.Only formation of commission with out action does not solve problems. It gives employment to retired persons loyal to the ruling party, only to extend the job indefinitely and wasting tax payers money. Money breeds money to enhance corruption by hook or by crook.Politicians, bureaucrats, enforcement personals engineers, doctors,media lawers and industrialists are the most corrupt in decending order. Corruption is an heinous crime and dealt seriously without beating about the bush. Empty vessel sounds much. Blessed be the nation that encourages corruption.



Dec 28, 2010

I agree with your views about corruption. It is high time that the illgotten properties amassed by the corrupt should be attached to the Government within the minimum time. I am sure that it is not so difficult if the rulers have the will !!!But the paradox is 'the fence itself is eating the crop'!!!



Dec 27, 2010

Corruption has become an inevitable and integral part of India's domestic growth story !!!!!


Kayen Shrivastava

Dec 27, 2010

The question is that Resp. Bajpai Govt collapsed on the Onion Hike in past what happened to Public, who will hang the bell.


R K Karnani

Dec 27, 2010

Biggest question now is :
Who will monitor the monitors!!!!?????


kranthi Mark

Dec 26, 2010

Corruption have became inevitable & integral part of India's domestic growth story !

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