Clash of conventions

The recurring volatility in the market is but a reflection of opposing viewpoints about the same trigger

By Mohan Sule

Besides the question whether volatility is here to stay, another issue frustrating investors is the ability of an event that triggers a stock to spurt to cause a sell-off on another occasion. In fact, the different interpretations of corporate actions or policy initiatives are partly responsible for the constant state of fluctuation of the market. Liquidity injection by central banks is supposed to be an extreme measure to poke the economy from its slumber. The step, ironically, cheers the market, anticipating the flow of cheap money. The moment Bank of Japan paused in its efforts to pump money into the system to boost inflation, global markets shuddered instead of taking it as an indicator of the country’s improving health. Doubts about the sustainability of the US economy spur a wave of buying of emerging markets assets. A vibrant American economy, in fact, is beneficial to exporters as they can take advantage of the weak home currencies. The continuing release of the euros in the system by the European Central Bank buoy equities fattened on cheap liquid diet, shrugging off the reality of the region’s fragility. The negative interest rates offered by BoJ are seen unavoidable to encourage spending despite the potency of the move to sow doubts about the future. The current spell of turmoil in the market should temper the bullish or bearish streak of investors: cycles are going to be short and snappy as evident from the turnaround in the prices of oil and other commodities.

The ongoing results season has been marked with roller-coaster moments, once against testifying to the risk of the unexpected reaction to an expected development. The outcome of two banks reducing interest rates is contrasting: there is liquidation in the shares of a profit-making new generation private sector bank but buying of a big PSU lender saddled with huge bad assets. The market obviously feared squeezing of the margins of the private bank known for judicious lending. On the contrary, investors probably viewed the rate cut by the PSU as being an opportunity to its borrowers for refinancing. The normal reaction of investors to disappointing numbers should be to head for the exit as prices might have run ahead in anticipation of a good score card. The downward revision in valuations due to an out-of-line blip, however, can make a sound stock with an optimistic outlook seem a value buy. No wonder stocks of two two-wheeler companies exhibited symptoms entirely in tandem with their past performance but shares of a software giant became eligible to enter due to a temporary setback. The contradictory perception of the market to capital-raising by companies, too, is another enigma for investors. The exercise by profitable companies is taken as a sign of confidence of growing the market share. Another set of companies receives thumbs down as the funds are required to retire debt. Some might feel repairing of balance sheet is a positive development that necessitates a re-rating as it displays the resolve to become lean and fit. Higher provisioning by banks is painful in the short term but considered a necessary surgery. Ironically, PSU banks fitting the category were embraced but not a private sector bank.

In the same way, divesting of non-core assets by a company gets a warm reception by the market, without pondering as to why these businesses were acquired in the first place if not for the pressure of big investors to use the cash in a meaningful way to expand presence. Investors who had earlier applauded a company’s move to integrate, foray into new geographies, expand product portfolio or diversify to protect flagship business become impatient for the management to streamline operations and products. Pledging of shares or paring of stake by promoters is considered as a last resort to stay solvent or loss of confidence in their business. That there are buyers for or lenders against the shares, however, can be construed as the paper being investment-grade. Buybacks also generate conflicting emotions. Companies willing to purchase shares from the open market are often cash-rich, implying a solid footing in the industry. As equity investing looks ahead rather than back, there is also disappointment that the management has not found suitable avenues to earn good returns. Some investors might prefer to stay invested, satisfied with the cash-generation capability, while many others might not want to hold an ill-liquid stock of a company with no idea of what to do going ahead. The market needs investors with opposing investment strategies to create liquidity. But do investors need a market that initially welcomed the plunge in crude prices and is now enthusiastically talking about bottoming out and recovery due to rising commodities?

Rollbacks and push-backs

Despite holding firm on many sound issues, the Modi government and the market regulator back down on some others

By Mohan Sule

Investors are advised to cut losses when they make bad bets in the hope of salvaging some of the capital instead of witnessing destruction of their investment. Companies carry out restructuring to pare debt, conserve cash, or raise funds to deploy into more productive assets. Tactical retreat is not a surrender but a survival step to fight for another day. For instance, the Modi government decided to abandon the ordinance route to ease the stringent land acquisition law after universal criticism. Instead, the revision has been referred to a parliamentary committee.  The provisions of the real estate bill were tightened as per an all-party consensus after opposition to easing of regulations to encourage developers to build homes. The trick is in knowing when to back down and when to stand firm. The government has not budged from the goods and service tax provision of a flexible tax rate that would take into account the exigencies of the situation despite non-cooperation by Congress. Anticipating the delaying tactics likely to be marshaled by Congress, the implementation of Aadhar, ensuring subsidies reach the beneficiaries’ bank accounts, was paved by tagging it as a money bill. Only a simple majority in the Lok Sabha, where the ruling alliance controls the numbers, is sufficient for the passage. Unmindful of the intense pressure, FTIL was ordered to merge wholly owned subsidiary NSEL with itself, thereby holding the parent liable to make good the default in payment by the commodity exchange to investors. Similarly, the finance ministry remained firm in the face of a near one-and-a-half month shutdown by jewelers to strike down the 1% excise duty, knowing well that gold ornaments are conduit to funnel black money.   

Yet, there have been notable back-downs that hardly made sense. The only charitable explanation seemed to be to deflect mob frenzy despite merit in the proposals. The government succumbed meekly without much of a fight in the battle for net neutrality. No market allows players unfettered freedom. Mergers and acquisitions need approval of the Competition Commission of India to ensure that a supplier of products and services does not become a monopoly.  Swayed by the ayatullohs of the internet, comprising start-ups fearing being edged out in the digital space by cash-rich brick-and-mortar enterprises if traffic were to be shepherded to sites that tied up with internet services providers, the Telecom Regulatory Authority of India banned such arrangements. Meanwhile, these types of exclusive agreements continue to flourish in the real world: cash-back offer at select retail outlets on use of a particular brand of debit card and reward points on totting up purchases beyond a threshold. Even in the cyber universe, many manufacturers tie up with e-commerce aggregators to offer deep discounts.

The rollback of the budget provision to tax 60% of Employees’ Provident Fund withdrawal at maturity unless invested in an annuity was another instance of buckling under pressure of the Twitter Talibans. The intention was to put EPF on par with the National Pension Scheme. The latter’s objective is to provide private sector workers life-long security by disbursing the corpus accumulated through contribution over the working life as monthly pension. The NPS was constituted to avoid the dangers of lump sum withdrawal of EPF: directing the amount into unproductive or wrong assets, thereby leaving the beneficiary without a security cover for the remainder of his life. Those in favor of status quo noted that annuity short-changed anyone who did not live long enough to fully enjoy the monthly payout that in any case was miserly. This risk is present even for public sector staff.  Also, there are now many options including mutual funds available to employees to build a corpus for big-ticket events after retirement.  The debate over algorithm or high frequency trading is yet another illustration of how a non-event becomes a contentious issue. The regulator and other stakeholders have to decide if the presence of institutional investors is desired in the trading ring. It is not only the advantage of servers at the location of their brokers that give them split-second advantage over ordinary investors. They get access to management that a small investor can never dream of.  They can bargain for finer pricing. Yet, in the absence of major retail presence, largely due to Sebi’s misguided zeal to direct small investors to mutual funds and investor activists’ fear mongering, big-ticket investors are important to create liquidity. If a level playing field has to be created, why not scrap private placement and preferential allotment, instituted for companies to raise capital cost-effectively, and order organised investors to undertake negotiated deals or auctions?

Puzzles and riddles

Different views on crude prices, buying equities v mutual fund units and changing goal posts for rate cuts

By Mohan Sule

The market is a riddle. The triggers for a rally or a crash should be contradictory. Often, they are the same. Take the price of crude oil. Is the plunge good or bad for global economy? This is a puzzle for investors. A slump indicates faltering demand or excess supply. Ups and downs in consumption and prices are inherent in the economic cycle. Investors rush into a sector with a vibrant outlook. Excess capacities get built, result in a glut and a bust. The purge ensures survival of the fittest. Eventually, activity picks up and new players enter with better technology to carve out niches in the segment. Their bubbling businesses lure more investors, sowing the seeds for the repeat of history. Of late, the rules of the game seem to be changing. There is uncertainty if crude will revisit the US$100 a barrel mark. Boiling prices, hitherto, indicated a humming global economy. First, credible replacements are coming. The huge demand for the latest edition of Telsa’s electric car is a signal. Second, American businesses are investing in an alternative. Any uptick in crude price is bound to revive activity in exploration and production of shale gas. Third, Iran, an important supplier, is in the market after more than a nine-year sanction imposed by the UN for its nuclear program. All these have contributed to feeling good that oil prices are bound to remain low and stable even if consumption spurts going ahead. Yet, this scenario is a cause of pessimism. Oil producers are big consumers of goods and services. The prospects of global revival diminish if these crucial links in the consumption chain come loose.

Actions of regulators, too, fox investors. Does a light touch or cracking the whip mercilessly contribute to a dynamic market? Book building was seen as a solution to issuers’ complaints that fixed-price offerings did not factor volatility and outlook. Rich valuations, determined largely by the appetite of institutional investors, have unleashed grumblings about meager gains or negative returns post listing. Market making and buybacks introduced as safety nets to put a bottom to share meltdown have found only sporadic support. Instead of installing convoluted systems to insulate investors from the vagaries of the market, why not simply go back to the controlled pricing regime? Similarly, the capital market regulator is shepherding investors towards mutual funds as a secure mode over buying equity. Those who have opted for this method point to poor returns and high expenses incorporated by asset management companies. After tinkering with how commission should be paid, investors are now being told to deal directly with fund houses. Agents at least narrowed down funds suited to the investor’s requirement and risk profile. Bypassing distributors will mean examining the composition and track record of the scheme among other things despite warning of past returns no guarantee of future performance. If even investing in mutual fund is fraught with uncertainty and involves research, why not encourage investors to scan companies to take exposure to them? Equity trading necessarily involves signing up with a broker and so should mutual fund investing.

The third enigma is the central bank. The Reserve Bank of India has been credited with keeping Indian banks insulated from the global financial crisis of 2008, when many US and European institutions had to be bailed out and forced to merge with stronger peers. Nonetheless, many domestic entities collected huge bad assets on their balance sheets. How can a monitor be efficient as well as sleeping at the wheel at the same time? Many clients, now declared defaulters, had no problem getting additional loans despite a patchy history of servicing previous credit. Under the present governor, foreign exchange reserves have hit record highs but the local currency touched a record low.The bar for revising interest rates down keep on changing. Initially, it was the fear of food inflation due to the lethal combo of increasing prosperity and two consecutive deficient southwest monsoons. Till recently it was the inability of banks to transmute the rate reductions due to their reluctance to take risk following pressure to make higher provisions for non-performing loans. Now the cost of money will be pegged after assessment of rainfall. In the meantime, fiscal deficit is under control, current account deficit narrowing due to inflows of foreign direct investment and slowing of gold imports as jewelers downed shutters to protest the slapping of 1% excise duty, wholesale price index is in the negative for many months now and the consumer price index has come down to the comfort level of 5% and coupon on small savings schemes cut marginally. To be careful is commendable but to err on the side of caution is a misplaced zeal.

Jam and bread issues

Watching out for monsoon, deficits, consumer spending, share offerings, health of banks and foreign fund inflows in FY 2017

By Mohan Sule

Have cake, Marie Antoinette, the 18th Century Queen of France, dismissively told her famished subjects. In present times, the Narendra Modi government has suggested Jam to India’s impoverished. The three props of the modern economy— banking, tech and telecom — will be used to transmit funds to zero-balance bank accounts, verified through a unique identity system, of the marginalized population through the mobile platform. Besides claiming to be a corruption-free regime, the NDA government has distinguished itself from the previous dispensation in another area, too: coining catchphrases to simplify complex ideas. Uday, or Uday discom assurance yojna, connotes the dawn of a new era for the sick state electricity boards by transferring 25% of their debt to PSU banks. The passage of the goods and service tax or GST, which will convert India into a unified market ,will be a key event to watch out for in the new fiscal. Many expected and unexpected eruptions will keep investors on their toes. Taking a leaf from the prime minister’s packaging team, some of them have been slapped with easy-to-remember labels:

RAINFALL After two consecutive years of deficit, southwest Rains are expected to be normal this year. Increase in rural consumption and Fall in food inflation are necessary to fuel the gross domestic numbers. BOSS The state of the Bullion, Oil, Steel and Sugar industries capture the best and the worst of an integrated global economy. The appetite of Indians for gold and fuels seem insatiable. Due to import-dependency, prices move as per the state of the world economy and strength of the dollar. Of late, local steel and sugar prices, too, are influenced by external factors such as China's health and Brazil's monsoon. METCON Media and Entertainment players have a significant role in attracting surplus cash. Tech solution providers are play on exports and indicate the well being of the developed economies. Consumer durables and non-durables in the market place. TAP Sometimes they are the flavor of the market, and other times discards. Disruptions, innovations and state interventions are just a few of the dangers lurking for Telecom, Automobile and Pharmaceutical players. Crackdown and disciplinary actions by regulators and policy markers are becoming he norm. Despite the dangers of obsolescence, there is an infectious enthusiasm about their prospects.

LOGIN The digital marketplace boom has brought into the spotlight Logistics companies deployed to distribute online orders. Opening e-commerce to 100% FDI is set to see re-rating of Internet companies, knocked down by recent devaluation by big-ticket investors. BAD Higher provisioning by PSU Banks in the last two quarters of the last fiscal was the emergency surgery ordered by the Reserve Bank of India. With interest rates set to soften as the US Federal Reserve dithers over the health of America and the globe, banks are restructuring Assets and companies Deleveraging as those with cleaned up balance sheets will be in a better position to start afresh and take advantage of the India growth story. RED Foreign portfolio investment was negative for more months than positive in the last fiscal. However, foreign direct investment surged, partly blunting the adverse impact on the Rupee. Exchange reserves were at a record high as the import bill fell in tandem with plunging crude prices. Yet, the Indian currency will dance to the tune of the Dollar, which remains strong irrespective of the intermittent hiccups caused by Fed’s mixed signals on interest rate hikes. IPO The trickle of Initial public offerings last fiscal is expected to turn into a torrent as SMEs from spaces old and new issue shares. PSU stake-selloff will accelerate if the market holds up. There will be Open offers as non-core assets are sold and alliances firmed up, either to take on competition or a backseat. FIT The promise to stick to the Fiscal deficit target of 3.5% of GDP probably assumes a bubbling economy leading to better tax mop-up, disinvestment and auction proceeds and foreign fund flows. All this will ease pressure on Interest rates but might enlarge the consumption of crude. Exports will have to bounce back to keep the Trade deficit manageable.

Post-2008, acronyms did give rise to a bitter taste. Who would want to remember how the crisis in Piigs threatened to upend the globe? And that all but one brick in the Brics edifice has crumbled? However, Modi in his inimitable style has proved that policy pursuits need not to be as dry as bread but can be sweetened to tingle the taste buds.

The golden age

With export prospects dim, time for the RBI to step in to strengthen the rupee to cap the rising imports of the yellow metal

By Mohan Sule

The heat and dust raised by Union Budget 2016-17 is settling down, with the market giving its approval after some hesitation. There is a consensus that the allocation for rural and infrastructure segments will act as a trigger for growth. The focus on the farmer, however, was not at the expense of the investor. The favorable capital gains taxation structure remains intact. A cause of cheer is the resolve to stick to the income-expenditure deficit target for the next fiscal. The implication is that the government will not crowd out private players from the debt market, thereby easing pressure on interest rates. The combo of low cost of money and increase in consumption is surely appetizing. The feeling of relief does not take into account that, besides fiscal deficit, a big difference between the value of imports and exports can influence the availability of money. The current account deficit (Cad) increased to 1.6% of GDP from 0.2% in the six months to September 2015. The euphoria over the expected rate cut, howsoever small, clouds the potency of currency volatility in torpedoing the feel-good factor. Exports in dollars slumped 24% late last calendar year. A crisis was averted as the value of imports, too, was down a third. The oil import bill fell by over half in the year to February 2016, with crude prices down nearly one-third in the period. Though the share of oil in the dollar import bill nearly halved in the nine months to January 2016, that of gold rose, peaking at 15% in August 2015. The price in rupees per 10 gm has risen 13% in the year to March 2016.

The liquidity injection by the European Central Bank and Bank of Japan and loosening of statutory liquidity ratio by the People’s Bank of China are devaluing currencies, prompting investors to seek refuge in gold. The nearly 10% depreciation of the Indian rupee over two years has also resulted in higher domestic gold prices. A weak currency has the might to ignite inflation and prod the central bank to increase interest rates. Economists might be delighted at the narrowing of the Cad, which declined 8.3% in the December 2015 quarter. Yet, just like fiscal deficit, a widening gap suggests a humming economy. An emerging market imports more than it exports to meet growing domestic demand. Also, the age-old concept of self-reliance has been junked, with the world integrating and capital moving to areas offering higher yields. Besides, the global slowdown led by the US initially and by the euro zone and China and Japan of late has brought into focus the dangers of relying on exports for growth. The excess capacities set up to cater to the overseas markets are turning idle and leading to layoffs in China. Wages and recruitment stagnated in the tech sector in India following the 2008 liquidity crunch. What is worrying is exports are not spurting despite the depreciation of the rupee. Apart from the sluggishness in the euro region, China and Japan, the US market’s fragile recovery is complicating the problem.

The unpopular step of hiking excise duty on fuel even as international crude was falling has discouraged copious consumption and added revenues to the treasury. Once the economy gathers speed and oil prices begin to heat up, these duties can gradually be reduced as the void can be filled by buoyant corporate taxes. The market, in fact, should hope for a rate hike by the US Federal Reserve. The fear of the flight of foreign portfolio investors from India accelerating should not cloud the reality that their investment is temporary. From a high soon after Narendra Modi’s victory in May 2014, the inflows fell 70% beginning of 2016 but turned net positive before and after the budget. What is important is foreign direct investment, which touched the highest-ever level since 2000-01 of over US$ 4 billion in the 10 months of 2015-16, probably due to the Make-in-India initiative.The slowdown in the global economy, thus, is proving to be a window of opportunity for India. At the same time, gold has to be made unattractive.Gold sovereign bonds address the urban buyers. Rural consumers view gold as a hedge against bad times. With the budget focused on the agriculture sector, usage of gold is bound to go up. Prices, too, will spurt if the rupee goes down further. The Fed has indicated it might ramp up interest rates twice in the current calendar year. An uptick in economic activity might lead to diversion of some gains into gold. The rupee has to strengthen for gold prices to cool to discourage hoarding. Export prospects, however, are dim. The acquisition of teflon-like characteristics ensures the US dollar remains strong. As such, there might not be much downside of losing the competitive edge even if the Reserve Bank of India steps in to shore up the Indian currency by using some of its record reserves to nip gold imports.

Cloud seeding

The benefit of the thrust on the agri and infrastructure sectors will be apparent in the run-up to the 2019 general election

Rather than spend on installing new fittings, freeing a choked pipeline sometimes can produce better results at a far lower price. When Finance Minister Manmohan Singh introduced sweeping reforms in 1991, the structure had become rusty and was on the verge of collapse. The current situation is grave but not critical.The channels of delivery are up but not running satisfactorily. The need was for a plumber to spot the problem and carry out the repairs rather than an engineer to undertake extensive restructuring. The Union Budget for 2016-17, in a sense, is an effort to make the existing system work rather than undertake a renovation. There were four reasons to exercise caution. First, the turmoil in the global economy, with a wide swathe of markets facing slowdown or recession. So pump-priming of the economy might have produced results in the short term but turned out to be counterproductive in the long run. Second, India had faced two consecutive deficit monsoons, affecting consumption and triggering food inflation. Third, banks, the primary conduit to infuse liquidity to oil the wheels of the economy, are far from healthy, creating a credit crunch. Fourth, lack of investment from the private sector, saddled with excess capacity and slump in demand. Against this backdrop, Finance Minister Arun Jaitley had three challenges: control inflation, kick-start investment and address the rural distress. A mediocre book-keeper might have tried to tackle each problem separately. The solution was as much political as it was interlinked. Reviving the rural economy without straining the balance sheet was the prescription to restart the stalled growth.

Never has a budget focused so relentlessly on the agri,social and infrastructure sectors. Hopefully, the highest-ever outlay for the national rural employment guarantee scheme is correctly targeted to create tangible assets. Agriculture and rural allocation has been doubled. Ports and roads are the thrust areas. A regulator will scrutinize disputes in public-private projects. The target to electrify the entire country has been brought forward by a year to May 2018. Providers and users of affordable housing have been showered with duty concessions and deductions. Start-ups, small enterprises and self-employed, too, have been given tax breaks.Taken together, these provisions will boost consumption and generate employment. The amnesty scheme will avoid prolonged litigation and bring black money into the mainstream. 100% FDI in distribution of India-made food will avoid wastage and inefficiencies and keep prices down. The infrastructure and clean climate cess on passenger cars is a better option than dotting the highways with toll nakas. The insufficient recapitalization earmarked for public sector banks is the clearest indicator of the the government’s intention to dilute its stake when the market begins to give a second look at these institutions after a clean-up of their books. Gas pricing will be based on import parity with other fuels, encouraging exploration and production. An insolvency and bankruptcy board will decide the fate of sick companies within 180 days. Deepening of the bond market by allowing private placement, introducing an electronic trading platform and permitting foreign funds into unlisted debt securities and those issued by special purpose vehicles will diminish the need for capital-intensive projects to dilute equity.

The low price of oil has helped the government to stick to the fiscal deficit target this year. Spectrum and coal auctions and PSU divestment proceeds, too, have contributed. On the other side, increase in indirect tax collection due to enhanced service tax of 14% also has played a major role. Service tax is slated to go up another 0.5% due to the imposition of Krishi Kalyan Cess from 1 June 2016. Rationalization of fertilizer subsidy and reduction in fuel subsidy are expected to curtail expenditure next fiscal. The 10% tax on individual dividend income in excess of Rs 10 lakh a year will create a level playing field for the minority and majority shareholders. Promoters benefited hugely from the tax-free dividends. Imposition of need-based cess is a better idea than diverting tax revenues to populist schemes, widening the fiscal deficit , borrowing from the market and, thereby. putting pressure on interest rates. The controversy over taxing 60% of the EPF corpus that is not invested in annuity products henceforth is as bogus as the net-neutrality wailing. EPF is essentially a post retirement safety net offered to private sector employees deprived of life-long pension. It is not an SIP of a mutual fund that accrues capital gains. In short, the increase in rural, social and infra outlay along with fiscal discipline are basically ingredients for cloud seeding to build up a perfect storm in the stock market and sow the seeds for the NDA government’s comeback in 2019.

Market intervention

The campaign for the state to step in to erase inequality can end up disturbing the demand-supply equilibrium

By Mohan Sule

Three recent controversies capture the essence of the tussle between state intervention and market forces. They raise important issues about the extent of freedom various stakeholders should enjoy. Take the 10th anniversary of the launch of the rural employment guarantee scheme. It provided an opportunity to revisit the need for the flagship project of the UPA government Soon after propelling to power, Prime Minister Narendra Modi credited the existence of the scheme to the failure of the socialistic policies of the Congress government. The NDA government pared allocation in the first year but increased it subsequently. Two years of successive deficient southwest monsoon perhaps contributed to the reckoning of its importance. Congress saw in the step-back a vindication of its pro-rural policies.The real reason perhaps is slightly different. The wages boosted the purchasing power of the agri-related population, leading to increased consumption of consumer durables and non-durables. In turn, the shareholders of these companies got enriched, bolstering economic growth.With the spigot turned off, this important constituency has shown withdrawal symptoms, affecting the top line and bottom line of a host of industries. The inescapable conclusion is that the money doled out was in effect a fiscal stimulus as no productive assets were being created. The Modi government is trying to correct the anomaly. What remains unsaid is that the GDP growth since the implementation of the scheme is a suspect. The cash infusion under the guise of the social welfare scheme might have contributed in a major fashion to the resultant food inflation that has left the central bank frustrated.

Even as introspection of the so-called success of the rural social program was under way, the cyber space was exploding with another battle. At stake was the ability to roam the Internet without barriers. Leading the attack were welloff net users, deploring attempts by services providers to offer free access to selective data. The tie-ups were viewed as a win-win deal by the ISPs and the content providers. Due to the policy shift against the backdrop of giveaways to cronies by the previous regime, all spectrum is now auctioned. The run-up in cost to bag circles was sought to be blunted by attracting more subscribers from the hinterland with the offer of free visits to certain sites. The developers, in turn, were aggressively promoting the scheme to get more eyeballs and, thereby, revenues. E-commerce sites are able to offer deep discounts due to supply agreements with manufacturers. What is perfectly okay for one set of players was criticized as an attack on restriction-free surfing of the net. At the forefront of the campaign were promoters of startups who had benefited from network connectivity to showcase their talent. They now feared established players’ edge in seeking collaboration with ISPs. The Telecom Regulatory Authority of India was swayed. What was the byproduct of market forces was nipped in the bud.The losers: the financially weak telecom users who would have graduated to using smartphones and been the potential customers of innovative ventures.

How good intentions get circumvented was amplified by the recent ruckus over mounting bad debts of PSU banks. Pre-1969, there were no government-owned banks. Banking functions were dictated by market forces. To bring into the mainstream the marginalized section, most of the private banks were nationalized. Norms of priority sector lending were introduced despite non-existent returns. Loan melas and loan waivers became the pre-election flavor. Licensing raj ensured that favored capitalists got access to cheap funds. Top appointments were made not based on capability but willingness to bend. The Reserve Bank of India recently directed banks to undertake controlled fusion of the rotten assets. The explosion brought down equities. If liquidity infusion is considered essential to create demand for goods and services and regulatory oversight necessary to create a level-playing field for net users, there should not be any scope to question the government’s use of the public sector to channelize funds to starved sections and create life-long employment. Regulators all over the world step in to prevent deals that would create monopolies or pricing inequality.Losers are the shareholders of enterprises that would have thrived only if they were left alone. Investors’ naively believe listing improves efficiency and prompts profit maximization policies. They have to keep in mind that the risk of distortion of the market might be outside the control of companies.