Currency crosswinds due to liquidity injection and withdrawal and differing interest rate policies are complicating stock selection
By Mohan Sule
Those who were disappointed that the Union Budget 2015-16 did not produce a Big Bang will find plenty of fodder in the new fiscal to stock up the cannon. The moot question is whether the explosions will light up the landscape or trigger a bush fire. The era of a market throwing up only gainers, with all the stocks across the spectrum turning gold, during a bull phase is perhaps past us. This is because of crosscurrents of monetary policies as each region struggles to tailor the environment to suit local requirement. Even as the US Federal Reserve phased out its bond-buying and is poised to increase interest rates on signs of a recovering economy, the European Central Bank has embarked on a euro1-trillion liquidity infusion to revive confidence in the euro region. China, too, is expected to follow Japan’s example of loose money policy to stem the slowing of its GDP growth. India is on the path of low interest rates and massive infrastructure spending. Unfortunately, the fallout is not confined to the borders. The ripples are felt across the globe in differing magnitude. A prominent casualty of the declining consumption of energy by the euro zone and China is crude oil, which slide below US$50 a barrel at one point. Instead of cheering, most developed countries are worried how to stop the spiral of disinflation. The fallout is a slippery gold, a comfort investment to fend off inflation.
Withdrawal of foreign funds from the emerging markets when yields on US bonds become more attractive than dollar returns from equities could be a blessing as stocks cool down and the rupee weakens. For the Reserve Bank of India, however, this is a recipe for disaster: how to shore up the currency and at the same time keep interest rates low to keep the liquidity tap open. A strong dollar is a prominent manifestation of the complex global scenario. Nothing seems to soften the Teflon currency, even fears of recession in its home market. On the contrary, signs of uncertainty boost the greenback for its safe haven status. The mighty dollar is neutralizing the slide in oil prices for emerging markets. The net result is that neither fuel prices have fallen to the level they should have nor are the wobbly export markets bringing relief. Not surprisingly, the RBI is under increasing pressure to reduce interest rates and thereby let the rupee depreciate further to provide the winning edge to Indian exporters. The prevailing uncertainty has not dampened global markets, which are hitting highs in the belief that the problems in different corners of the world are not insurmountable. After the success of the US Fed, pump-priming is viewed as a solution to all economic ills. This is in contrast to the view last century, when distressed borrowers were bluntly told by multilateral institutions to tighten their belts. The rebellion by Greece and the cold caught by markets around the world subsequently has reconfirmed the premise that the penalty for splurging is injecting more money rather than imposition of fiscal discipline though it was living beyond means that was responsible for the mess in the euro zone.
If the inflows from the US slow down, the floodgates of the euro zone have been thrown open. If China is no longer attractive, there is India, despite no noticeable ground level change in the ease of doing business. The drumbeats heralding the country as the next financial hotspot has already begun, with the ADB and the IMF joining the chorus of various foreign brokers and rating agencies in revising up the growth forecast. Yet no one has been able to assert with any degree of finality that not only foreign money will stay but the inflows will continue in spite of the ramping up of interest rates by the US. As a result, tech stocks roar every time a Fed official reiterates sticking to its roadmap of hiking interest rates from June and falter on weak US job data. In the same way, banks and auto shares’ fortunes fluctuate with the unpredictable consumer price index as the RBI takes one slow step at a time to slash domestic rates. Evergreen FMCG scrips are no longer oases, wilting and blooming with the monsoon’s mood. Pharmaceutical stocks’ health depends on US regulatory approvals and crackdowns. Power and capital goods counters with plenty of potential are yet to share the enthusiasm for Make-in-India due to the overbearing public sector’s influence on their orders and bottom lines but cement companies, projected to be the beneficiaries of government-sponsored low-cost housing and infrastructure projects, race ahead of earnings. No wonder the market is looking like a game of Russian roulette more and more.
Wednesday, April 22, 2015
Wednesday, April 8, 2015
Breaking away
Lessons from the ex-PM's summons, the land bill, the Sebi-Sat spat on DLF and the resistance to the FTIL-NSEL merger
By Mohan Sule
Out-of-season rains is one of the banes a farmer faces in his long journey from tilling his field to reaping the crops and selling them to the government or private distributors. Yet the disruption in pattern underscores the importance of rules, be they made by nature or man. The heat generated over the summons to Manmohan Singh by a Central Bureau of Investigation court in the coal allotment scam demonstrates India's reluctance to break from the past of differential treatment to the rulers and the ruled. Congress president Sonia Gandhi marched to his residence to announce that the entire world knows of the former prime minister's honesty and integrity. The argument offered in his support is that he did not make any money from the process. In the earlier age of innocence, railway ministers were known to resign, owning up moral responsibility for any major train accidents on their watch. Home ministers have been shunted out for terrorist attacks or due to law-and-order situation spinning out of control during their tenure. If bureaucrats can be questioned and a minister and a beneficiary who happened to be a member of parliament could be sent to jail for their roles in the second-generation spectrum allotment case, then surely a former head of the government can appear before a judge. The opportunity should be used by Singh to clear the air if he assigned coal blocks because of his belief in the end use or he was helpless because someone even more powerful than him had a say in the arbitrary allotment.
The outrage instead should be reserved for the action of those who have tried to influence the due course of law by applying covert populist pressure. Thankfully, our judiciary is made of sterner stuff as seen from the woes of Subrata Roy, who was in the habit of issuing full-page ads in the newspapers in response to the Supreme Court's summons in the case filed by the Securities and Exchange Board of India for misappropriating more than Rs 30000 crore of investors' funds. His attempts to try his case in the court of public opinion flopped. The Sahara kingdom provides employment to thousands of people and sponsors sporting events. That, as the firmness of the SC has shown, should not be the criteria for leniently dealing with a law-breaker. Even after a year in jail and employing the best legal eagles, the boss has not been able to raise Rs 10000 crore for bail. The rallying of opposition to the land acquisition bill is similarly an attempt to mislead: it is not so much to ensure fair compensation to farmers as to try to protect Rahul Gandhi's ownership of the Act. As per the consensus of chief ministers, including those ruled by Congress, the law in its present form is not practical. The prime minister noted the fact during the bill's introduction in the budget session of the parliament. Instead of modifying a harebrained legislation, propaganda that the bill is anti-farmer has been whipped out despite spelling out the kind of projects including defense and infrastructure projects in the public sector and education institutions and hospitals in the private sector for which the consent of the land owner will not be acquired, while maintaining the level of compensation.
Along with a country’s development, the level of urbanization increases. Those in agricultural jobs shift to manufacturing because the number of hands required to farm fall due to genetic modification, mechanization and improvement in yield on deployment of pesticides. Many farmers are keen to switch to another profession as their land's productivity decreases over the years. Breakup of families means fragmentation of the land parcel. Not all members might want to continue with farming. The most convincing argument against allowing status quo is that no investment has come in due to this shabby legislation. In the same wayy, there is an urgent need to change the mechanics to resolve regulatory tussles in the capital markets. Sebi banned DLF from issuance of capital for three years for inadequate disclosures in the IPO document seven years ago. The Securities Appellate Tribunal found the punishment harsh. This is not the first time that Sat has overturned the market regulator. This back and forth should be increasingly replaced by consent decrees. The promoters save face but pay monetary fines. Banning fund raising can scotch genuine attempts to turn around the company just as delisting blocks investors' exit route. The disclosure of payment of penalty in the offer document should alert investors as should the fact that a major portion of the revenue of the flagship is derived from a subsidiary with opaque business practices. If the shareholders of the parent can partake in the good times, surely they should be willing to make good the Rs 5600-crore hole in the balance sheet of a wholly-owned subsidiary. The division over the FTIL-NSEL merger should prompt investors to pay attention to consolidated accounts, which provide a window to corporate governance and how revenues are earned or siphoned off.
By Mohan Sule
Out-of-season rains is one of the banes a farmer faces in his long journey from tilling his field to reaping the crops and selling them to the government or private distributors. Yet the disruption in pattern underscores the importance of rules, be they made by nature or man. The heat generated over the summons to Manmohan Singh by a Central Bureau of Investigation court in the coal allotment scam demonstrates India's reluctance to break from the past of differential treatment to the rulers and the ruled. Congress president Sonia Gandhi marched to his residence to announce that the entire world knows of the former prime minister's honesty and integrity. The argument offered in his support is that he did not make any money from the process. In the earlier age of innocence, railway ministers were known to resign, owning up moral responsibility for any major train accidents on their watch. Home ministers have been shunted out for terrorist attacks or due to law-and-order situation spinning out of control during their tenure. If bureaucrats can be questioned and a minister and a beneficiary who happened to be a member of parliament could be sent to jail for their roles in the second-generation spectrum allotment case, then surely a former head of the government can appear before a judge. The opportunity should be used by Singh to clear the air if he assigned coal blocks because of his belief in the end use or he was helpless because someone even more powerful than him had a say in the arbitrary allotment.
The outrage instead should be reserved for the action of those who have tried to influence the due course of law by applying covert populist pressure. Thankfully, our judiciary is made of sterner stuff as seen from the woes of Subrata Roy, who was in the habit of issuing full-page ads in the newspapers in response to the Supreme Court's summons in the case filed by the Securities and Exchange Board of India for misappropriating more than Rs 30000 crore of investors' funds. His attempts to try his case in the court of public opinion flopped. The Sahara kingdom provides employment to thousands of people and sponsors sporting events. That, as the firmness of the SC has shown, should not be the criteria for leniently dealing with a law-breaker. Even after a year in jail and employing the best legal eagles, the boss has not been able to raise Rs 10000 crore for bail. The rallying of opposition to the land acquisition bill is similarly an attempt to mislead: it is not so much to ensure fair compensation to farmers as to try to protect Rahul Gandhi's ownership of the Act. As per the consensus of chief ministers, including those ruled by Congress, the law in its present form is not practical. The prime minister noted the fact during the bill's introduction in the budget session of the parliament. Instead of modifying a harebrained legislation, propaganda that the bill is anti-farmer has been whipped out despite spelling out the kind of projects including defense and infrastructure projects in the public sector and education institutions and hospitals in the private sector for which the consent of the land owner will not be acquired, while maintaining the level of compensation.
Along with a country’s development, the level of urbanization increases. Those in agricultural jobs shift to manufacturing because the number of hands required to farm fall due to genetic modification, mechanization and improvement in yield on deployment of pesticides. Many farmers are keen to switch to another profession as their land's productivity decreases over the years. Breakup of families means fragmentation of the land parcel. Not all members might want to continue with farming. The most convincing argument against allowing status quo is that no investment has come in due to this shabby legislation. In the same wayy, there is an urgent need to change the mechanics to resolve regulatory tussles in the capital markets. Sebi banned DLF from issuance of capital for three years for inadequate disclosures in the IPO document seven years ago. The Securities Appellate Tribunal found the punishment harsh. This is not the first time that Sat has overturned the market regulator. This back and forth should be increasingly replaced by consent decrees. The promoters save face but pay monetary fines. Banning fund raising can scotch genuine attempts to turn around the company just as delisting blocks investors' exit route. The disclosure of payment of penalty in the offer document should alert investors as should the fact that a major portion of the revenue of the flagship is derived from a subsidiary with opaque business practices. If the shareholders of the parent can partake in the good times, surely they should be willing to make good the Rs 5600-crore hole in the balance sheet of a wholly-owned subsidiary. The division over the FTIL-NSEL merger should prompt investors to pay attention to consolidated accounts, which provide a window to corporate governance and how revenues are earned or siphoned off.
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