Saturday, December 31, 2011


TO MAKE 2012

2011 has come to a very painful end for the stock Market Investors – for almost flimsy reasons of omissions and commissions by Government and RBI – and of course, partially due to Global factors.

Investors can see the P&L Accounts Balance Sheets of most of the Companies at the end of the quarter ending September,2011. Most of them are as PINK and healthy as they can possibly be.

Some have suffered global factors – like TATA Steel and TATA Motors. Demand downslide in Europe could hit TATA Motors especially – unless the company captures new Markets in 2012. 

Some Companies have suffered local factors - like Maruti Suzuki. The strike at Maruti was a huge drag on the company. Its subsidiaries too will bear the brunt automatically. But, this is considered temporary.

Some sectors like Infrastructure have suffered sheerly due to Government apathy, policy gaps, and implementation vacuum. 

The non enabling of companies to acquire Land needed for Power, steel and mining purposes till today – is a huge Policy Gap from Government side. The country will suffer the Power generation Gap, mining and steel generation gap in the years to come – unless, government, at least now, passes the needed laws – without any further delay.

The Airlines Industry is suffering mainly due to heavy doses of taxation by the central and state Governments. These taxes need to come down by at least 50%. If it does, both central and state Governments will actually stand to benefit by the surge in Seat occupancy rates in all Airlines and consequent Higher revenues. The whole Airlines Industry is turning sick gradually – starting with the No.1 the Government owned Airlines itself.

Government infusing money into Air India, is at best, a temporary postponement of its Death – as long as these funds last. The real medicine for the Airlines is – to persuade the centre and state Governments to cut their taxes by 50% at least. Governments are not understanding or not responding to the fact that they are only killing the goose which lays the golden eggs in their blind avarice for immediate tax funds through High Rates of Taxation of the Industry. If the tax rates are halved, the Fares will come down drastically, and many middle class people also will travel much more frequently by Air than at present.

This more frequent travel of more people by Air is like an oxygen supply – not only to Airlines Industry, but also to the whole Indian economy. Unlike the present scenario where all Airlines are getting into RED, many more Airlines companies will surely come up in India.

The Telecom sector is another sector – where Government Policies and Regulatory commissions and omissions have led to many companies like Bharti choosing to go out of India to Invest their funds. Government and Regulators have the bounden duty to ensure that Industries remain PROFITABLE in India, and that there are sufficient Incentive to Invest in such Industries. In India, telecom tariffs touched WORLD LOWS and were still going down further – clearly indicating an already existing  TOUGH & SUFFICIENT COMPETITION in the Industry. 

On the one side the Regulator, TRAI was merely watching the going down of TARIFFS, even below the WORLD LOWS, on the  argument that it benefits consumers. The Lower Band for such tariffs should have been fixed by TRAI – at least to ensure that the central Government owned BSNL and MTNL remain at survival and profitable levels. This regulatory action never came.

On the other hand, the Ministry went about issuing Licenses in hundreds more, as if India is bigger than the whole world market. These and many other omissions and commissions ensure that fresh Investments in Telecom are now not easily forthcoming. The profitability levels are so low. This needs to change. BSNL and MTNL together have about Rs.1 lakh crores of Government’s own Investment in them. This also needs to be saved. Several lakhs of Jobs also can be / must be saved. 

Therefore – (i) cancellation of most of the unused / underused Licences by Government and (ii) Fixing lower band for tariffs – to incentivize fresh investments in Telecom and ensure survival of the 2 PSUs - by TRAI are essential needs for Telecom Industry today.

FDI is essential for any country. More so, for India. But FDI in Retail puts in Peril crores of employment. It is a spacious argument to say – that farmers will benefit and consumers will benefit. May be they will or may be they will not. But, this argument is illogical and unethical. 

If the mid-brother is killed, the elder brother and younger brother will no doubt benefit much more from the common property. Shall we kill all mid-brothers in India on this argument? FDI in Retail is no different. Killing Retailers for benefitting farmers and consumers is just like that.

No doubt, there are inefficiencies in Retail sector. There is adulteration, there are unhygienic practices and so on. But, these must be tackled headlong by Government. Not by replacing the whole lot of them – but by appropriate, tough Policy measures.

We do need FDI in many, many areas. For instance, in Defence Equipment Manufacture. In Advanced Education. In applied / pure science and Technology research. In space programs. In atomic research. In health research. In faster road building. In building more Dams, reservoirs, electricity generation, Hotels, entertainment Industry and so on. In all these, there will be more, fresh employment generation, more productivity, more GDP growth and more per capita incomes. In these areas, Government action and enabling legislation (like Land acquisition Bill)are not forthcoming at required pace.

But, FDI in retail will not prove to be a reform but a DEFORM.

One immediate concern of Indian stock Investors is – the Huge wealth that has been wiped in the current downturn, from almost every single medium / long term Investor’s Portfolios.

For many of the Investors, the horrifying fact is – the COMPANIES (in their Portfolio of stocks) have performed well – but yet, instead of the stock prices moving up, they have gone down to levels which existed 2 years before. Many are  below their 52 week LOWs at present !

The European downturn etc do not explain this at all – except for an odd company like TATA STEEL and TATA Motors.

The real factors that are pushing the stock prices lower and lower every day are as below :-

(i)                  the absence of any encouraging Government / regulatory Action for any Industry. If TRAI fixes slightly Higher Minimum Tariff levels, the telecom Industry will be saved and benefitted.
(ii)                 If Centre and state Govts reduce taxes on Airlines Industry, this Industry will need no major cash infusion – but will become healthy within a short time on its own – and Govt revenues will also improve vastly & quickly – though for a few months, there will be small reduction which is worthwhile.
(iii)                A new scam every month indicating the horrifying levels of corruption, red-tapism and subverting of ethics in governance is a real dampener for international and national sentiment. Govt should act faster on the Corruption front – on Lok Pal front specially – satisfying the Opposition at least – and bringing in a Lok Pal Bill acceptable to majority - so that, the ugly sentiment, that Government somehow wants corruption – ends once for all.
(iv)               Huge delays in settling the disputes with cairn /vedanta and other external Investors is a great dampener for future investments through FDI route. Will Walmart be happy with  the type of treatment that Vedanta or Arcelor got in India? There should be FAST TRACK DISPOSAL of such problems for External Investors.
(v)                Continuous  raising of Interest rates by RBI, which have had no effect whatsoever on Inflation – in the absence of matching Governmental control measures to curb Inflation -  has also been a great dampener. In reality, when Inflation went up, it had nothing to do with RBI Interest rates. When it went down also, no thanks to RBI. It was due to other supply driven factors. RBI acts only on demand side. Now, RBI actions have stifled and constricted Demand side in several manufacturing and service sectors – more noticeably in auto finance and home loan finance and so on – and therefore, Growth in all these sectors is coming down due to the High Interest Regime. Possibly, the higher interest rates, applicable (also) to loans to fertilizer manufacture sector etc are contributing to the raising of the food inflation to some extent. Therefore, one Policy action that need not be delayed any further – is the rolling back of Interest rates  by RBI - to what they were at the beginning of 2011 at least. This means – rolling back by about 2 to 2.5% immediately. This will reduce Interest costs of many Industries and many buyers – and will spur demand and production both quickly. India needs this badly and urgently. RBI must leave Inflation to Government. Govt must act on supply side. And it is not acting – but leaving it to natural factors!

I do have great faith in Dr.Manmohan Singh. His stewardship of UPA I was really heart-warming. That makes UPA II totally inexplicable. Many steps, taken and Not taken, seem to be in wrong direction. Almost.

 There are great Ministers in his Cabinet. Like Pranab Mukherjee. Like Jairam Ramesh – to mention a few. They must all act – to salvage the economy quickly. 

2 or 3 quick measures – from Govt and RBI  will put the stock market in fine shape very easily again. They will also boost production and demand – and Government will again see the Growth rates touching double digits – despite all turmoil in Europe. 

In that fond hope, I wish the Government, the Parliament, the Industry captains and the Investor fraternity – a very, very happy, Prosperous, Growth oriented NEW YEAR,2012.



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