The fight over cash

As capital-guzzlers swallow profitable group companies, due diligence will be required of the consolidated entity

By Mohan Sule

It is testing time for minority shareholders. The Securities and Exchange Board of India wants companies to have at least 25% public holding to be eligible for listing. The aim is to increase the free float for better price discovery. The fallout was expected to be enhanced transparency and better corporate governance. Yet two recent instances show that promoters act in a way that benefits them rather than the ordinary shareholders. The furor over the Vedanta-Cairn India merger and the complex restructuring of the Aditya Birla conglomerate once again demonstrate that India Inc merely complies with the norms as a formality. A share-swap ratio that did not compensate the shareholders of the thriving companies being amalgamated with the capital-guzzling ventures was not the only sore point. The concern is that the valuations of the resultant entities will be lower than those of the standalone cash-rich firms. To provide a voice to the small shareholders, the regulator had earlier amended rules for passage of proposals requiring approval by a majority of the ordinary shareholders. Domestic and foreign institutional investors together by and large form the largest non-promoter bloc. Many of them prefer to exit on spotting corporate governance issues. Of late, some have preferred to stay and put up a fight. The promoters justify such exercises for their cost-efficiency. Were they to go the market to raise equity, they would have to offer shares at low discounting due to the capital-intensive and long gestation period of their projects. Dilution of equity is another worry for investors fretting over the leveraged balance sheet.

The owners do have valid arguments. A rejig is usually undertaken for synergies of operations, scale and products. Why should they not use the cushion of a profitable enterprise in their fold to sustain and consolidate a struggling enterprise? After all, they did have the foresight to foray into lucrative sectors for growth after others in their stable had stabilized or become sluggish. The drawback is that the ordinary shareholders might not have anticipated such an eventuality. A small investor buys into a standalone company’s capability and potential. The valuations imparted by the market to a provider of software services might not be the same as those to a hardware maker in the same group. The promoter might want to merge the two to offer a one-stop shop for computer services. The underlying aim might be to use the reserves of the one that is thriving to offer support to the other that burns cash. The margins of the businesses might be different, depending on their market position. The marginal shareholder of the profitable company has two options in this scenario: sell or swallow. The lesson for investors in a momentum stock is to be prepared to share the reward or burden of other subsidiaries. This will require scrutiny not only of the company to which exposure is sought but of other group enterprises as well. Not surprisingly, companies belonging to conglomerates in diversified fields do not enjoy the same discounting as those that stick to their competency.    

 

 Here lies the paradox. The market wants companies to use their cash hoard for better return ratios. With the era of industries across the board surging during a bull run and stagnating during a downturn fading, taking advantage of businesses that are performing comparatively better during a lull in some others makes sense for promoters. Critics of K M Birla’s move to make Grasim a holding company perhaps have not noticed ITC is getting a high discounting because of strategic forays into different markets to flank the cigarette business. Many times disclosures about expansion and diversification are met with mixed reactions even if these are to be financed by internal accruals and nominal debt. The market is worried about the huge cash drain from RIL’s balance sheet to finance the expensive telecom experiment. The disruptive tariff plan means break-even will not be anytime soon as the emphasis seems to be on market share rather on the margins. Some analysts, on the other hand, sense the foray as a foil to the controversial gas venture and the refining legacy because of the emergence of alternate energy sources such as wind, solar and shale and volatility in prices of crude. There are instances of new undertakings outpacing the parent: Bajaj FinServ is getting a huge premium over legacy two-wheeler maker Bajaj Auto. Even different entities of a group in similar niche segments are not immune to different perceptions of the market. The charitable view of ICICI Bank hinges on the expected trigger of listing the insurance subsidiary. In view of no clear trend to rely on, investors need to give the benefit of doubt to the promoters of the Vedanta and Aditya Birla groups.

The cost of liquidity

Rural distress and slowdown of the global economy have ended the era of evergreen sectors

By Mohan Sule

Those who thought the passing of the goods and services tax constitutional amendment bill in both houses of parliament will unleash a secular bull wave have been proved wrong just as those who predicted Britain’s exit from the EU will trigger a prolonged bear phase. Both events are complex and their effects will be felt in driblets over the coming years as new issues get highlighted and old concerns fade.  The euphoric forecasts about the positive impact of GST were reminiscent of those witnessed on the eve of the increase in foreign direct investment in insurance companies to 49%. Similar to GST, the issue had attracted opposite opinions and had got stuck in parliament for a fairly long time. What do the commonalities between these two developments reveal? No doubt, investors’ confidence gets a boost on any reform undertaken to make the economy efficient. Foreign portfolio investors, the movers and shakers of the market, however, act anticipating the outcome of the initiative rather than waiting for the cold numbers capturing the impact at the ground-level. Traders build positions in the run-up to the climax. Ordinary investors see the impatience of big-ticket funds as an opportunity to make capital gains quickly. If the reward is expected to be huge, so also is the risk. The failure of the market to perform to script after the referendum on Britain’s exit from the euro zone trapped many short sellers. The behaviour seems typical rather than exceptional. Increasingly, it is becoming difficult to predict the market’s course by applying historical context.

More than traditional parameters such as economic growth, inflation, debt-to-GDP ratio and current account and fiscal deficits, liquidity is determining the trajectory of the market. As long investors are able to borrow cheaply, arbitrage opportunities will overwhelm decisions taken after painstaking scrutiny. As a result, equities in the US and India are discounting forthcoming events much ahead rather than react at the conclusion. The situation might have been different if the central banks in the developed countries were not making available money aplenty. The negative interest rates by the European Central Bank and the Bank of Japan are emboldening investors to take risks in emerging markets rather than at home and, in the process, skewering the global economy. Global liquidity is posing the biggest challenge to economic stability. Investors in developing economies are increasingly becoming reckless, buoyed by the irrational exuberance of their portfolios. Any stock showing some momentum attracts speculators. The run-up is speedier than the company’s capacity to jumpstart growth. The virtuous cycle attracts more inflow. The rich valuations of equities encourage pricey IPOs that might not be able to sustain going forward. Listing gains fuel a primary market boom. Weeding out companies whose capital expenditure plans are based on genuine demand rather than some fancy projections about the underlying strength of the sector will be the second obstacle that investors have to overcome.

The third puzzle is the concentration of investment ideas instead of even distribution of funds across the spectrum. This is surprising as a growing economy should have the power to lift all the sectors. Fall in unemployment should bolster consumption across the board and not only of cement, coal and two-wheelers. If this is not happening, it is not surprising. Not all industries are catering to the domestic market. Many are pure export plays, depending on the well being of their importing customers. Some others have been deliberately shifting their focus overseas to take advantage of the weak rupee or get around stifling domestic regulations and are unable to fully capture the buoyancy in the local market. Moreover, if the fall in raw materials prices is a boon for intermediates producers and end product manufacturers, it is a blow to producers of these commodities. Airlines and automobiles are predicted to soar on cheap crude. Ironically, the fall in oil prices signify tapering economic activity, indicating a slump in demand for the very services that are supposed to benefit from cheaper fuel.  A cheap currency does not necessarily translate into robust earnings for exporters if their destination markets are not healthy. Even usage of consumer disposables, another set of beneficiaries of dip in input costs, is hit by sluggish off-take. The experience of rural distress of the last two years and global slowdown have demonstrated that, unlike in the past, there is not going to be an evergreen sector that will offer an umbrella  during stormy weather. As a result, the investment horizon is becoming shorter and the basket of investible stocks shrinking. The mid- and small-cap space, in particular, is turning into a Ponzi scheme run by speculators.

Churn at the top

The travails of HUL, Infosys and Dr Reddy’s capture why large caps are getting poor discounting compared with their smaller peers

By Mohan Sule

The results season never stops to surprise and amuse. Titans numb investors with poor numbers even as dark horses stun with awe-inspiring performance. The period also marks a turning point for the equity market. Companies dissect past performance and lay the roadmap for the remaining year. Inevitably there is a feeling of change in the air as no two quarters are alike. It will be tempting to write off the June 2016 quarter as yet another showcase of the competently reliable and the notoriously unpredictable. This would be a mistake. For one, the period was the last phase of the impact of the rural distress. Second, Corporate India was operating near mid-point of a new government’s tenure, with enough time to absorb its past policies and assess future direction. Third, the global economy continued to be in a flux as never before: China’s slowdown looked inevitable, US recovery fragile and the financial markets uncertain about the fallout of the two-year of UK’s disengagement with the euro zone. Amid the turmoil stood India, displaying vulnerability about its export earnings and at the same time exhibiting confidence about its domestic economy. If the enabling environment was so full of concerns as well as excitement, could companies remain immune? The tough period of the last few years exposed fault lines. First, the era of crony capitalism is slowly but surely grinding to a halt. Auctions of natural resources, cleaning up of bank balance sheets and the commodity meltdown have knocked off the market cap of quite a few magnates.

Second, certain boom industries seem to have had their run or losing steam. Teflon-like sectors are increasingly being linked to global and local factors just like many other Old Economy cyclical industries, while some are facing the winner’s curse. As long as the US was undergoing a bull phase, the major worry of IT companies was the dent in income in the third quarter due to the longish Christmas break. The focus of the consumer disposable segment was coaxing buyers to upgrade to achieve better margins. If the 2008 mortgage meltdown burst the tech bubble, the two consecutive deficit monsoons of 2014 and 2015 pulled down the lifestyle sellers.  If a repressive regulatory regime was suffocating their well being in the licence raj era, intensifying competition is pinching formulations and intermediate producers. Capturing the essence of the headwinds are three Nifty constituents: HUL, Infosys and Dr Reddy’s Laboratories. They are still the flag bearers of their sectors, steadfastly sticking to their knitting and not foraying into unrelated businesses. Minority shareholders have been amply rewarded through capital appreciation and regular payouts. Yet their numbers for the June 2016 quarter have confirmed a trend noticeable since the last couple of years. They are ageing, are increasingly becoming indistinguishable from their peers and even ceding ground to new entrants.

Once a leader, HUL has become a follower, trying to ape entrepreneurs riding on the desire of Indians to go back to their roots in contrast to the yearning for Indian-made foreign goods during the pre-reforms era. Infosys is encountering growth fatigue. There is limit to geographical expansion if the world looks like a fiery red globe, mid-tier companies snap with low-pricing deals and the forex market turns into a foe. Dr Reddy’s formed one of the two pillars of the pharmaceutical industry with Ranbaxy Laboratories late last century. Ranbaxy promoters, perhaps sensing the shaping of the industry into a first-past-the-goal post during a limited window, sold out and a relatively newcomer, Sun Pharmaceuticals Industries, has assumed the pole position, with the pure domestic play turning attention to exports to stay in the race. Investors would have got better post-tax yield from one-year fixed deposits of public sector banks than from the troika. Facing pricing pressure, they are dispersing their band-with by chasing every growth avenue. The tech sector controls 20% of Nifty’s balance, with financial services and energy being the two other segments enjoying near parity. HUL has twice the weight of Asian Paints, the only other consumer disposable player. If ITC, slotted in an independent category, is included, the FMCG sector has the highest share in the benchmark. Financial services have turned volatile with even private banks bogged down with NPAs, ferrous and non-ferrous metals facing a slump in demand, telecom weighed down by capital expenditure, automobiles waiting for demand pick-up and power and capital goods limping, the large-cap index is being driven by cement, two-wheelers and refineries. No surprise, therefore, for the poor discounting compared with the mid- and small-cap compatriots having domain focus.

Conventional wisdom

Time to shed the historic view that low P/E, soft inflation and weak rupee create investment opportunities

By Mohan Sule

The financial markets are divided into two camps: optimists and pessimists. Those with confidence in the economy note a silver lining to every dark cloud. On the other side are those who forecast bubbles ready to burst. The markets need both types of participants to discover value in neglected assets and effect correction when prices run ahead of the underlying strength of the asset. Yet the increasing volatility in global markets reflects the confusion of investors on what constitutes the threshold of opportunity and pain. The decision of the British that the UK will be better off without carrying on the burden of weak EU members despite many heavyweights weighing in favour of continuance as the path to prosperity is another illustration of the increasing doubts about traditional wisdom. The historic view that the boom in IPO issuance co-exists with resurgent equities is also being challenged: bubbly stock prices are contagious and the virus can lead to the collapse of both markets, leaving investors with pricey duds and putting them off investing. Retail investors seeking quick and massive returns through new offerings contributed to the near 20% plunge of China’s secondary market a year ago, requiring the authorities to suspend IPOs to control the fall. Conventionally, a low P/E indicates value buy. On the other side, the miserable valuations might be due to the scepticism about the stock’s revenue visibility or corporate governance. Conversely, a high P/E suggests earnings not keeping pace with the price. A contrarian might see the figure as the market’s validation of a stock’s growth potential. The smart investor gets out of the stock when earnings hit or miss estimates, resulting in a correction. If investors were to latch on to these stocks on moderation of P/E, they might have to be satisfied with a slow trot.

Also, there is no consensus on what should be the P/E to consider a stock a value ‘buy’. Many monopolies and MNCs are quoting at many times the ideal range of 15-20 and still sought after by investors for their business model, steady pace of growth, payout policies and corporate governance. Ultimately, the choice boils down between stocks with a consistent track record of corporate actions and those that compensate for the absence of dividends with rapid capital appreciation. The investment strategy cannot be uniform across the listed universe. Investors have to pick stocks as per their ability to absorb risk or objective: seasonal or all-weather, large caps versus mid and small caps, mid caps with and without transparent operations. There cannot be one-size-fits-all sort of an approach. Another contentious issue is inflation. It has been embedded in the collective conscious of investors that prices should remain static to attract low interest rates and encourage companies and consumers to borrow money to climb up. Capping inflation, however, comes at the cost of growth. Even mature economies are finding virtues in triggering inflation: the European Central Bank and Bank of Japan are following the US Federal Reserve in making available plenty of cheap credit in the hope of spurring consumption. A country is said to be emerging when its population with purchasing power expands. This sort of an economy does not have a ready-made infrastructure on standby, poised to meet the galloping demand. In the interim, the spurt in usage can strain existing supplies, causing prices to jump.

The third issue for tempers to flare up is the foreign exchange rate. Weakness benefits exporters but hurts importers. The currency of open countries moves as per demand and supply stemming from the cost of money and policies on deficit. In India, the rupee is convertible only on capital account. As a result, the finance ministry and the commerce ministry are constantly at odds on the currency’s value. India imports more, particularly crude oil, than it exports due to its inward-looking economy. To finance imports, the country needs foreign fund inflows. If the emergence of the IT and pharmaceuticals sectors as major exporters offered solace to policy makers, it also put them in a fix. Though the dollar remains strong due to its safe-haven status as well as the recovery of the US economy, the Indian currency has appreciated in relation to its competitors in overseas markets, largely because of the gush of foreign direct investment on the back of the Make-in-India initiative. Foreign investors prefer countries with weak currency but want better returns from their investment when it is time for repatriation. Recognizing the limits of depreciation as a tool to boost growth, the market seems to be marking down valuations of export-oriented stocks.

Fall from grace

Companies should provide for buyback to compensate the wealth erosion due to fraud 

or negligence

By Mohan Sule

The fall from grace of Volkswagen should be a wake-up call for companies, regulators and investors. The German auto maker is paying nearly US$15 billion to settle claims in the US that it cheated on emission norms of some diesel vehicles. The figure represents about 25% of its current market value that plummeted more than 40% to a four-year low in the three days since the US environmental protection agency slapped a notice in September 2015.It will be spending nearly US$18 billion to rectify the fault.  World’s largest furniture maker Ikea is recalling 35 million chest of drawers and dressers found to trip and crush toddlers. Besides covert or overt negligence, accidents also result in huge outgo. When oil gushed for 87 days in the Gulf of Mexico following an explosion and sinking of the Deepwater Horizon rig in April 2010, the civil and criminal settlements cost BP US$42 billion in the next three years besides the US$18- billion fine two years later in the largest corporate settlement in the US till then. The other source of trouble is outsourcing.  Apple had to intervene when a large number of suicides of workers were reported at its supplier’s facility in China due to rigorous working conditions. In the meantime, there were calls from consumer activists to boycott its products. The crux is if companies test the boundaries of ethical behavior knowingly to cut costs by deploying substandard technology and materials. The second issue is the response. The quick action of recalling Tylenol , contributing nearly 30% to its profit in 1982, by US healthcare player  Johnson and Johnson after a renegade’s tampering spree has now become a case study of how a company should act in times of panic.

Contrast this with what has happened in India. When worms were found in its chocolates on the eve of Diwali 2003, Cadbury blamed the dealer in Pune for not storing the products in the requisite environment. Later, it roped in Amitabh Bachchan, no doubt at a fat endorsement fee, to assure buyers but did not recall the chocolates. The good thing that came out was that the MNC had to spend Rs 15 crore on machinery to make products foolproof, insulating shareholders from such nasty shocks going ahead. The recall of Maggi noodles on finding high quantity of MSG after a lab in Uttar Pradesh and in Kolkata found lead in June 2015 appeared a forced decision after the Food Safety and Standards Authority of India banned the product. Indian consumers are yet to read about any brand of bread being withdrawn from the shelf after discovery of cancer-causing chemicals in some batches. Indian pharmaceutical makers are frequently in the news for some sort of strictures or alerts issued by the US FDA on their processes and facilities. The stock dips on such incidents but bounces back subsequently on the strength of penetration of the market and other items in the bouquet. Nestle, too, lost value as Maggi contributed nearly 30% to the bottom line but recovered partially on the back of sustainable demand for other legacy products. 

In fact, the trajectory sums up the dilemma of Indian investors when faced with situations of stocks in their portfolios facing unexpected crises. The immediate reaction is to head for the exit. Some vulture investors see the beaten-down counter as an opportunity in the belief that not all parts are rotten or the distressed asset might be a takeover target. Sometimes they are proved right as in the case of Nestle and Satyam Computer Services. The recurring qualifications of auditors of several companies refer to inadequate or nil provisions for contingent liabilities. These encompass payments choked due to the sickness of clients, projects stuck in distant lands due to war or civil unrest, litigation with land owners and income tax disputes. Many do undertake write-offs but an existential crisis can have the might to erode the net worth. Surprisingly, companies spend huge amounts on fire-fighting but do not offer a buyback to shield the minority shareholders from the repercussions. Therefore, why not mandate those with Rs 1000-crore sales to keep aside 2-3% of their profit just as they have to use 2% to fulfill their corporate social responsibility obligation? Investors feel helpless if companies to which they had taken exposure in good faith tumble due to fraud. At such time, the protection fund should be used to mop up non-promoter shareholding at a pre-determined price to compensate the wealth erosion due to any promoter-driven scandal. In the event of accumulation, the cash should be handed back to the ordinary shareholders every moving fifth year as special dividend. Besides providing a safety net to the small shareholders from acts of omission and commission of companies, the move will enhance the credibility of promoters.  

The limits of groups

Looking at the meltdown of the USSR and the chaotic federal structure of India, a common European market was impractical

By Mohan Sule

Now that the referendum to decide Britain’s exit from the European Union is done with, it is time to focus on the core issue. Do groupings serve any purpose? Have they outlived their objective? Should such forums be disbanded? The euro region is not the first of such associations. Earlier, countries with similar ideologies came together for defence and offence. This was the post World War II period, when there were two camps defined by their economic models. It was capitalism versus communism. Yet, the North Atlantic Treaty Organization did not have free trade among its members. Though the aim of the Warsaw Pact was to counter the US-led line-up of allies, it also worked as an informal common platform comprising satellites of the Soviet Union. So here was a paradoxical situation of a socialist bloc having a unified market but a bunch of free-market economies imposing tariff barriers for intra-trade. Eventually, nations began signing bi-lateral pacts for favorable export-import terms. Two-nation agreements subsequently expanded to include nations in the same region. The US signed the North America Free Trade Agreement with Canada and Mexico. African, Caribbean and Pacific group states formed ACP. Further up the value chain was the bunching of countries with shared characteristics and goals, leading to configurations such as G-5, G-8 and G-20 comprising rich countries and those with huge markets. In fact, a clever market analyst devised the acronym Brics to club emerging economies on the threshold of rapid growth.

The disintegration of the USSR should have alarmed those who propounded and backed the idea of euro. Unlike G members, cooperation based on geography rarely succeeds. First, being neighbors does not necessarily mean that countries share common goals and values. The South Asian Association for Regional Cooperation remained a non-starter for many years due to Pakistan’s reluctance to grant transit rights and concessional tariffs to India. Second, the strong members, invariably, have to bear the burden of carrying with them weaker countries. European communist countries were provided cheap oil by Big Brother. Germany was the biggest contributor to the bail-out of Greece and absorbing refugees from Syria. Third, a common currency compounds rather than eases the problem. Struggling nations need a weak currency to boost exports. Its value, however, can be influenced by members who are doing well. Fourth, despite proximity, cultures of nations might differ. Germany and France were on the opposite side during the war. Absence of a common language to bind the members as in the case of the euro region, where English, German, French and Spanish are spoken, often results in the eruption of parochialism. Fifth, a central bank sets interest rates and controls the availability of money, but risk-taking among countries differs as is evident from the bankruptcy of many smaller countries. The problems faced by federal entities such as India due to lopsided development of different states with governments not necessarily of the political party ruling at the Centre should have served as a cautionary tale. Till recently, inter-state passage of goods was ruled by different entry tax rates. Some states’ focus is on prohibition, others on giveaways.

Yet, weaknesses can also be strengths. Poorly governed states such as Bihar, Uttar Pradesh and West Bengal are pulling down the overall GDP growth of India. They also symbolize the enormous potential of the Indian market were they to undertake reforms. Due to their low base, the country’s economic growth has the capacity to remain in double digits for the next decade. The problem with the euro region was that due to the protection of a common currency, there was no initiative for weaker nations to boost growth. What are the lessons for investors? Mutual funds are supposed to be the best demonstration of collective power. Private placement and a say in book building enable them to demand finer prices. But expenses such as churning costs, asset management fees and distribution commission eat into profit. Returns of most are barely above secure and staid fixed-income instruments. Most big-ticket investors are interested in capital appreciation rather than bothering about corporate governance practices. Their exits and entries are touted by internet investment gurus without explaining the rationale for the action. With the experience of the difficulties facing the euro region and of regional power satraps carving out their fiefdoms, the wisdom of divided we thrive seems to be a better analogy for the present times.

To let go or not

The only silver lining in the global economy needs an RBI boss capable of innovative solutions to support growth

By Mohan Sule

The battle lines are drawn. On one side are market participants and companies. They feel the Reserve Bank of India has been too miserly in reducing interest rates. The asset quality review ordered by the central bank has compounded the problem. Over the last two quarters, public sector banks have been aggressively making provisions for hopeless loans. The exercise is likely to continue till the end of this fiscal. On the other side are economists and foreign fund managers who feel cleaning up of banks’ balance sheets is a precursor to reducing government’s stake to make the behemoths nimble. Critics want the RBI governor to be more aggressive in cutting the cost of money, while supporters view the cautious approach as enhancing India’s credibility in the financial markets. Unwittingly, both schools seem to converge on the issue of the importance of the monetary authority in steering the economy of the country. Implicit in their disagreement is the consensus that the growth trajectory hinges on the action or inaction of the central bank. The outcome should not surprise those who have witnessed the boom and bust of the global financial markets in the last decade. Pumping of liquidity and wielding of the scissors by the US Federal Reserve, European Central Bank, Bank of Japan and, of late, the People’s Bank of China are keenly watched by global markets to decide their bets on currencies, interest rate and commodity futures. The central banks are no longer mere regulators of the financial markets. They are monitors, correcting the missteps of governments.

No wonder, the market has come to vest in central bank bosses mythical powers. Opinion is consolidating that governors can do no wrong. They are the gatekeepers of the economy, the steady hands on the wheels of ships sailing in turbulent waters. Would the world have slipped into a second global depression if the Fed’s Ben Bernanke had not kept interest rates near bottom and embarked on bond-buying program for more than half-dozen years to boost the US economy? What if Mario Draghi of the ECB had paused injecting liquidity to pull out the euro region from recession? Should the BoJ be credited with saving the economy by keeping interest rates negative to encourage spending? These measures are discussed and debated because they go against the conventional wisdom. Till the 1980s, the International Monetary Fund’s remedy for countries with reckless consumption was to tighten belts by slashing subsidies, devaluing currency and opening up the economy. The austerity measures resulted in social unrest in many countries, undermining the textbook prescription. The 180-degree turnaround in the approach to debt is spurred perhaps by the decade-long depression that cuts in spending resulted in the 1930s. The pump-priming of the economy as a solution to avoid slowdown also shifted the primacy of shaping the economy to the central banks from the government. More than reforms, liquidity is becoming crucial to keep the markets ticking. As such, central banks that prefer to stick to theoretical solutions tend to stand out. To some they are models of rectitude in a feckless market, while to others they are anachronistic dinosaurs that should have extinct during the evolution that followed September 2008.

It does not require great intellect to decipher the position Raghuram Rajan will embrace to tackle economic crises. Initially, the obsession was with inflation due to deficient southwest monsoon. The benchmark was changed from wholesale price index that had dipped into negative due to decline in usage of industrial goods to consumer price index to factor in prices of agricultural output. Corporate India would have faced far more difficult times if global commodity prices too had not declined in tandem due to slowdown in China, allowing pass-through of lower prices. After a gradual and steady reduction in rates, any further cuts were linked to government discipline in spending and borrowing. The budget for the current fiscal demonstrated the government’s resolve to stick to fiscal deficit target by slashing subsidies and preventing leakages. The outflow of foreign portfolio investment has been blunted by the gush of foreign direct investment due to the Make-in-India initiative, thereby avoiding major damage to the currency. Though the rupee is off from the bottom, the weakness has neutralized the benefit of soft crude prices. In the meantime, inflation has started to look up, the fallout of two successive years of scanty rainfall. The answer to the question if a country that is the only beacon of hope in the gloomy global environment should practice traditional economics or break away to chart a unique path to complement growth should determine if R3 should get a second term.