iCharts Discussions

[doctorshah]

[vtnarendra]

My take on the subject is as follows:

1. BJP/NDA should have a comfortable majority due to the charisma of Mr Modi.
2. Mr Modi is not a novice. He, like Mr Chouhan of MP and Dr Raman Singh of Chattisgarh, has been in power for 13 years and still counting. He must have learnt a lot in his stint as CM.
3. More importantly he has risen from the ranks and belongs to a party that allows an ordinary worker to rise so high.
4. Mr Modi may be a very good man manager. May be the media has got him wrong and says that he is autocratic. What really matters is the result on the ground. Has he delivered ? People of Gujarat think so.
5. Some of his ideas, whether they are his or his team's, are really path breaking.
6. My faith in Mr Modi is more to do with his party than just himself. If Mr Modi were in Congress, I would definitely say that he would have failed.
7. Just think about the state of the Congress. Today, it is not in power by itself except in three states. BJP is in power all by itself in four large states.
Leaders in BJP have the opportunity to rise. If Mr Modi becomes PM this time, may be Mr Chouhan or Dr Singh or Ms Vasundhara or Mr Parikkar can aspire to be the next PM.
8. I have full faith in the youth of this country. It knows what it wants and will ensure whoever comes to power will deliver.
9. One last point, if Mr Modi does not become PM, then Mr Rajnath Singh would become PM and then whatever Mr Vinay has said will come true.
10. My vote is for stability and Mr Modi will ensure that.

I just watched a feature on Mr Modi on NewsX channel. NewsX is dong a feature series on Mr Modi. Please watch. May be we will begin to think that Mr Modi can deliver and give stability to this great nation of ours.

[sanjayojha]

IMHO we will see bear phase from May 14 to Jun 15, after which bull run will start, which will be fast and furious. Probable reasons could be the ones brought out by Vinay.
Sanjay

[pkholla]

[pkholla]

Sorry to post here but jokes thread is not published for some reason!

IN A LIGHTER VEIN:

It couldnt have happened to a nicer BEVDA!
Moral of the story: chori karo sabse, lekin employees se nahi!

After yesterday's T20 final:

1 Twitter post: MERE 14 CR GAYE PAANI ME!

2 Twitter post #2: Yuvraj to his KFA fan club: Main badla lene aa raha huun!

3 Twitter post #3: VM wants to sell YS before start of IPL on OLX or even QUIKR!

4 Twitter post #4: VM to YS: Main suun raha huun, main ro raha huun!

[vinay28]

Further to my post giving my views on election outcome, here's an old article, which is still valid. I haven't verified it though.

Indian economy comes to a fullstop!

M R Venkatesh
July 22, 2013

A fairly large South-Indian group with varied business interests had invited me to a strategy session to turn it around. It was the first meeting and was to be preceded by breakfast. As we waited to be served, I perused their latest balance sheet.

Noticing that it was a profitable, tax and dividend paying company, where was the question of turnaround I wondered? Nevertheless, I instantly zeroed in on the balance sheet. I observed that the company had invested approximately Rs 700 crore on its subsidiaries and lent another Rs 300 crore — in the aggregate Rs 1,000 crore. Flipping across the accounts, I asked a simple question – what is the return from this investment of Rs 1,000 crore?(Amounts changed for obvious reasons.)

The CFO was silent. The executive director hummed and hawed. The body language of the rest was a dead giveaway of their uneasiness to discuss this matter further.

The junior-most amongst them blurted out, perhaps unwittingly, that it was virtually nil. His answer got a cold stare from his superiors. “Nil!” I exclaimed to the horror of my hosts. “You must be paying approximately Rs 150 crore as interest annually on this sum.” I commented, probably rubbing salt into their wounds. I went on to probe further, “Why, what happened to this money?

This time my question was followed by thundering silence. Even the junior one was quiet this time around. May be he had already got the message. As I helped myself to the breakfast I noticed radio silence at the table. Was I at a funeral?

Between mouthfuls, I attempted to be at my persuasive best. Probably my training as a chartered accountant helped me. Unable to bear my repeated questioning, the CFO finally broke down. “Sir, as you are aware we are in infrastructure. That requires tremendous pay-offs to politicians and bureaucrats. We have used approximately 150 subsidiaries, some of which are foreign ones, to route these payments.”

I was stunned. My jaw dropped. “Sir, we expected you to know all these practicalities of our business. The turnaround strategy needs to factor these ground realities.” Obviously, this time around I was at the receiving end. The breakfast meeting concluded abruptly.

Importantly, I understood that India’s outbound investment policy was not a liberalisation process, but a facilitation one – one that ensured smooth pay-offs! Importantly in this mess, businessmen, politicians, professionals, bureaucracy, judiciary and even the media are involved. No one can blame the other.

The economics of kickbacks and payoffs

Instantly my thoughts raced to the Nira Radia tapes. Fifteen per cent was the kickbacks payable to the Minister concerned for approving every road contract. Add another fifteen to the bureaucracy and local politicians. Add another five to seven to bankers, lawyers, consultants and agents to procure funds.

What we have is a staggering 35-40 per cent additional cost to every infrastructure project.

That implies a road project costing Rs 100 crore would in effect be a Rs 140-150 crores project. Naturally, the toll for the stretch would not be Rs 100 but Rs 150. This has profound implications for the Indian economy. This extra Rs 50 in toll levy for every 100 km has a cumulative effect on the manufacturing cost.

The net result – imports from most of our neighbors of several items [despite cost of transportation and customs duty] are competitive than manufacturing the same in India. Forget competing abroad, Indian manufacturing has become uncompetitive in India!

There is another dimension to this issue. Somewhere down the line these “costs” were funded, mostly by our banks. Corporates altered their top-line as well as bottom-line to keep their banks in good humor. The Banks in turn suspended their sense of disbelief. As chartered accountants we too played ball in creating a mini-Satyam in most of India’s corporates.

The impact of gold plating

But this gold plating of balance sheets cannot be done beyond a point. Everything has a breaking point isn’t it, especially as the economy tanked?

These developments were brilliantly captured by a Report by the Centre for Monitoring Indian Economy (CMIE)

“As the topline growth continued to slow down, the manufacturing sector as well as the non-financial services sector saw profits fall in the March 2013 quarter compared to the year-ago levels. Operating profits of the manufacturing sector excluding the petroleum sector fell by close to four per cent while the net profit fell by a sharp 23.2 per cent.”

The report goes on add
“The non-financial services sector managed to improve its sales growth from 3.2 per cent in the March 2012 quarter to 6.5 per cent in the March 2013 quarter on account of sectors like transport services and software. However, at the net level the sector saw a sharp 28.3 per cent decline in profits.”

Well, both the manufacturing and services sector are going bust.

Simultaneously the CMIE points out that the

“Commissioning of projects dropped sharply to Rs 337 billion during the quarter ended June 2013 from Rs 827 billion in the June 2012 quarter. This was lowest since quarter ended December 2006.”

Macro-economic data too corroborate these numbers. From a growth rate of 7.5 per cent in the first quarter of 2011-12 growth rate has witnessed a steady fall in the next seven quarters to less than 4.8 per cent in the fourth quarter of 2012-13.

If data released by the Finance Ministry for the first two months of this fiscal is any indication, manufacturing has recorded a negative – yes negative growth of two percent, mining a negative of 5.7 per cent, capital goods a negative of 2.7 per cent, consumer goods a negative of 4 per cent and consumer durables a negative of 10 per cent.

In short, when it comes to manufacturing, forget growth, we are in negative zone.

The net result – twenty per cent of lending by Indian Banks is stressed. Obviously, when banks end up funding pay-offs and kickbacks, this is the end result. And that is a whopping Rs 11 lakh crores – approximately $200 billion – a sum that even the banks in USA cannot afford.

Added to this is the stress on account of our external accounts.The foreign debt has risen to $390 billion. This was a mere $225 billion in 2008. What is galling is that the foreign exchange reserve has remained at a constant $300 billion during this period. Needless to emphasise, the ratio of foreign exchange reserves to foreign debt has deteriorated from 138 per cent then to less than 75 per cent now.

What is adding to the consternation is that in the short term – by March 2014 – we need to pay approximately $172bn of our foreign debts. This works out to approximately 44 per cent of the external debtand a staggering 60 per cent of the total foreign exchange reserves of the country.

The short-term external borrowings are surely the villain of the piece. Remember in 1991 the short-term external debt was a mere 10 percent of the total external debt. Now it is one-fourth.

Another important parameter – India’s net international investment position [the net claims of non-residents against external claims of residents] stood at a negative $225 billion as at 30th June 2012. This deteriorated to a negative of $307 billion by March 31, 2013. That implies an addition of $82 billion in a matter of mere nine months.

Simply put, Indian manufacturing by and large is uncompetitive at current exchange rates. And if Rupee is devalued, prices of imports, especially crude oil, would increase leading to an inflationary spiral. Either way, that means increased unemployment. The services sector too as pointed out above is spluttering. And remember agriculture has been historically recording sub-three percent growth in the best of times.

As we witness large-scale unemployment, purchasing power in the hands of the people is rapidly decreasing. That implies demand compression which in turns puts the economy once again on the downward spiral.

Add to this the absolute lack of governance, indecision and Governmental apathy – you would know what it means to do business in India. Whatever be the reason – political or otherwise — bureaucracy in Delhi has simply refused to function. Likewise every assessment with our revenue departments ends up as extortion.

Unfortunately the Government’s response has been pathetic. Surely, increasing FDI limits is not reforms. On this the UPA Government is completely off-target. What makes the set of reforms scandalous is that the Government is indirectly bribing foreigners to invest in India. The Jet-Etihad deal is a case in point.

Put pithily, we are witnessing a repeat of the 1991 crisis.

This time around, it is threatening to make the previous one look like a walk in the park. Well what makes the crisis different this time around?

Contrary to the popular belief this is not an economic crisis, this is a crisis of national character.

Forget fiscal, revenue and current account deficits – let us first talk about morality deficits.

(MR Venkatesh is a Chennai based chartered accountant.)

[PYRAMID]

During World War II, the British Royal Air Force (RAF) undertook a plan of misdirection to allow a squadron of bombers to approach an exceptionally valuable target in Europe undetected. The target was so heavily guarded that destroying it would require more than the usual degree of surprise.

Although the RAF was equipped to jam the electronic detection of aircraft along the route to the target (a primitive forebear of radar was then in use), they feared that the jamming itself would alert the defending forces. Their solution was to “train” the defending German personnel to believe something that wasn't true. The RAF had a great advantage in undertaking the training: The intended trainees were operating equipment that was novel and far from reliable; and those operators were trying to interpret signals without the help of direct observation, such as actually seeing what they were charged with detecting.

At sunrise on the first day, the RAF broadcast a jamming signal for just a fraction of minute. On the second day, it broadcast a jamming signal for a bit longer than a minute, also around sunrise. On each successive day, it sent the signal for a somewhat longer and longer time, but always starting just before sunrise.

The training continued for nearly three months, and the German radar personnel interpreted the signals their equipment gave them in just the way the British intended. They concluded that their equipment operates poorly in the atmospheric conditions present at sunrise and that the problem grows as the season progresses. That mistaken inference allowed an RAF squadron to fly unnoticed far enough into Europe to destroy the target.

People will get used to almost anything if it goes on for long enough. And the getting-used-to-it process doesn't take long at all if it's something that people don't understand well and that they can't experience directly. They hear about Quantitative Easing and money printing and government deficits, but they never see those things happening in plain view, unlike a car wreck or burnt toast, and they never feel it happening to themselves.

QE has become just a story, and it's been going on for so long that it has no scare value left. That's why so few investors notice that the present situation of the US economy and world investment markets is beyond unusual. The situation is weird, and dangerously so. But we've all gotten used to it.

Here are the four main points of weirdness:

The Federal Reserve is still fleeing the ghost of the dot-com bubble. It was so worried that the collapse of the dot-com bubble (beginning in March 2000) would damage the economy that it stepped hard on the monetary accelerator. The growth rate of the M1 money supply jumped from near 0% to near 10%. This had the hoped-for result of making the recession that began the following year brief and mild.
A nice result, if that had been all. But there was more. Injecting a big dose of money to inoculate the economy against recession set off a bubble in the housing market. Starting in 2003, the Fed began gradually lowering the growth rate of the money supply to cool the rise in housing prices. That, too, produced the intended result; in 2006, housing prices began drifting lower.
But again, there was a further consequence—the financial collapse that began in 2008. This time, the Federal Reserve stomped on the monetary accelerator with both feet, and the growth of the money supply hit a year-over-year rate of 21%. It's still growing rapidly, at an annual rate of 9%.



The nonstop expansion of the money supply since 2008 has kept money market interest close to zero. Rates on longer-term debt aren't zero but are extraordinarily low. The ten-year Treasury bond currently yields just 2.7%; that's up from a low of 1.7%.
The flow of new money has been irrigating all financial markets. In the US, stocks and bonds tremble at each hint the Fed is going to turn the faucet down just a little. And it's not just US markets that are affected. When credit in the US is ultra-cheap, billions are borrowed here and invested elsewhere, all around the world, which pushes up investment prices almost everywhere.

US federal debt management is living on borrowed time. The deficit for 2013 was only $600 billion, down from trillion-dollar-plus levels of recent years. But this less-terrible-than-before figure was achieved only by the grace of extraordinarily low interest rates, which limit the cost of servicing existing government debt. Should interest rates rise, less-than-terrible will seem like happy times.
Almost no one imagines that the current situation can continue indefinitely. But is there a way for it to end nicely? For most investors, the expectation (or perhaps just the hope) that things can gracefully return to normal rests on confidence that the people in charge, especially the Federal Reserve governors, are really, really smart and know what they're doing. The best minds are on the job.

If the best minds were in charge of designing a bridge, I would expect the bridge to hold up well even in a storm. If the best minds were in charge of designing an airplane, I would expect it to fly reliably. But if the best minds were in charge of something no one really knows how to do, I would be ready for a failure, albeit a failure with superb academic credentials.

Despite all the mathematics that has been spray-painted on it, economics isn't a modern science. It's a primitive science still weighted with cherished beliefs and unproven dogma. It's in about the same stage of development today that medicine was in the 17th century, when the best minds of science were arguing whether the blood circulates through the body or just sits in the veins. Today economists argue whether newly created cash will circulate through the economy or just sit in the hands of the recipients.

Let's look at the puzzle the best minds now face.

If the Federal Reserve were simply to continue on with the money printing that began in 2008, the economy would continue its slow recovery, with unemployment drifting lower and lower. Then the accumulated increase in the money supply would start pushing up the rate of price inflation, and it would push hard. Only a sharp and prolonged slowdown in monetary growth would rein in price inflation. But that would be reflected in much higher interest rates, which would push the federal deficit back above the trillion-dollar mark and also push the economy back into recession.

So the Fed is trying something else. They’ve begun the so-called taper, which is a slowing of the growth of the money supply. Their hope is that if they go about it with sufficient precision and delicacy, they can head off catastrophic price inflation without undoing the recovery. What is their chance of success?

My unhappy answer is "very low." The reason is that they aren't dealing with a linear system. It's not like trying to squeeze just the right amount of lemon juice into your iced tea. With that task, even if you don't get a perfect result, being a drop or two off the ideal won't produce a bad result. Tinkering with the money supply, on the other hand, is more like disarming a bomb—and going about it according to the current theory as to whether it's the blue wire or the red wire that needs to be cut means a small failure isn’t possible.

Adjusting the growth of the money supply sets off multiple reactions, some of which can come back to bite. Suppose, for example, that the taper proceeds with such a light touch that the US economy doesn't tank. But that won't be the end of the story. Stock and bond markets in most countries have been living on the Fed's money printing. The touch that's light enough for the US markets might pull the props out from under foreign markets—which would have consequences for foreign economies that would feed back into the US through investment losses by US investors, loan defaults against US lenders, and damage to US export markets. With that feedback, even the light touch could turn out not to have been light enough.

We're the middle children of history. No purpose or place. We have no Great War. No Great Depression. Our great war is a spiritual war. Our great depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars, but we won't. And we're slowly learning that fact. And we're very, very pissed off.

On a long enough timeline the survival rate for everybody drops to zero.

[rk_a2003]

Vinay and Pyramid, Thanks for the brilliant stuff!

[pkholla]

After the brilliant meal provided by Vinay and Pyramid, here's a bit of saunf!

An IC member had posted a chart showing the EEEEERIE similarity of present DJIA index with the DJIA index just before the CRASH of 1929. This is already circulating among US brokerage houses. Will the crash part follow and drag all other exchanges with it?

Is Venkatesh's Rs 1000 cr invested in politicians down the drain? After all, money given to Pseculiars will not pay any dividend when NDA comes to power shortly! Is it reflected in balance sheets of ALL OTHER INFRA COMPANIES and hence these stocks are at rock bottom?

States around the country are NOT paying dues to NTPC et al because of election compulsions = free power= rokda illay!

Look at Coimbatore: Amma and Thatha both are competing to give free power= 24 hr cut for factories= BEGGARING the once proud Coimbatore industrial belt. They are even contemplating moving to Peenya, B'lore which is not much better!

>>> Will Nifty follow the DJIA in aping 1929 chart?

[PYRAMID]

We make our world significant by the courage of our questions and by the depth of our answers.

[murcha]

[vinay28]

[PYRAMID]

[PYRAMID]

[murcha]