Modinomics: Low Hanging Fruits

Yes, dear friends, Modinomics is all about low hanging fruit and an arbitrage on the sick and ineffective congress regime during last decade. Make no mistake, Modinomics is not serious about the elimination of corruption which has reached to the core of the society. Look they have established a committee to bring back the black money from abroad and see what happened. They seems to be helpless citing international law that is preventing them to bring funds back to India. However, the moot point is what stops them to not to purse black money in the country to  unearth it. Well the answer is not far to see. Political parties, industrialist, bureaucracy all have vested interest not to follow it.

Action speaks louder than intention. The current regime want economic growth to come back  in short term without any doubt. Thus, they are doing all what it takes to energies India. They are not worried about the sustainability of the growth right now. Thus, they are eyeing various ways to capture low hanging fruits :

• Cleanliness Drive:  No doubt benefits are enormous, yet countrywide passion yet to be seen among citizens. The idea is to make sure we as a citizen should be penalized heavily for littering. This along with municipalities should be given strict tasks and deadlines to ensure cleanliness. The progress should be monitored at regular interval.

• Make in India: This is easier said then done.With the softer global economy, it would be difficult to promote Make in India right now. However, the emphasis should be to improve the business environment to produce goods for the domestic consumption, which will also help support lower inflation as well. Time to ensure that it should not left as a slogan only.

• Modernization of Railways: It is also expected to improve the speed and safety of the railways. Due to very high operating cost over the years, there was hardly any modernization of the railways and safety standards were also compromised. They should find ways to increase productivity & improve safety standards. Railways is rich in land bank. At a given time a large number of people are waiting for trains at major stations. Why not start a shopping mall with cinemas and food court to entertain them. These people at that time would like to be entertained and certainly willing to spend money. Similarly, railways can start hotels having basic necessities to provide accommodation as well. Though they have this facility at a meager scale which should be increased immediately. These facilities will help improve the revenue within no time.
• Legislative Resolve: The recent promulgation of the several bills in the shape of ordinance point towards the government resolve to pass them through the joint session of Parliament otherwise they are risk loosing the credibility and reputation.

Consumer beware : Protect your wallet

Let me share an interesting observation.. Last week we were shopping for household items. One floor cleaner was priced at much higher for smaller quantity (650 ml) than the larger quantity (1,000 ml) in terms of unit price. This  was absolutely shocking. Normally this practice is observed in the food items which looks like is now getting extended  to other non food household items as well, though it is wrong in any way.

The idea is that consumer should be aware of such malpractices and as far as possible to raise their voice either through :

• Vote with your purchase: Purchasing only large packet of the same items  so that a message should go the manufacturers that profiteering at the expense of the customer is not possible.  

• Wake up Consumer: It is imperative that consumer should disseminate this knowledge about companies malpractices to fellow consumer through social media and discussion.

Imagine you are buying this through online website, where it would be difficult to compare prices of each and every items available in pack of different weights. It is much easier to compare them side by side in a physical store. Imagine what a pricing power we are offering in an on line environment to the merchant.  

Today environment is such that corporate world is out there to enrich themselves at any cost. This is one such illustration where they are out there to fleece consumers. Please understand that this is also adding to already high retail inflation to the society. It is high time that consumers should realize and act judiciously to show companies that they will not allow such malpractices to persist. 

Conundrum : Diversity and 20 years plus professional experience

These are two diverse topic. Not only corporate India, but also globally corporate are grappling with the thought of how to manage "Diversity" and senior people having experience of more than 20 years.

Diversity: 

Corporates are eager to find ways to increase diversity in workforce and board. Even professional colleges are lamenting the low level of diversity. All of them searching for answers to increase participation of the women in the workforce. Some professional colleges in india are giving additional marks in entrance examination to increase women participation. On the other hand, a trend is seen in the corporate world to reserve certain position for the women. Recently, it has made mandatory to have certain number of independent directors in the board to be women. Alas, promoters are now appointing their women relatives as independent directors flouting the spirit behind it. 

Guess, in order to promote diversity, society should be empowered enough so that women can be given enough educational and professional opportunities to excel in their chosen field. Diversity should not be promoted at the cost of gender issue. It should be level playing field where men has to change its outlook towards women as they are still in driving position. The credo should be let the best talent win the game and slowly and steadily women should be treated at par with men.

20 years plus professional experience: 

There is a intense debate going on the corporate world whether the resources who have more than 20 year of rich professional experience are good enough to go on in the light of fast changing business environment. 

Financial Services and Information Technology  are the two industries which are evolving fast and furious and today's skill set may not be relevant tomorrow. The question is whether junior and middle levels are equip more with the latest knowhow and senior leaders are unable to cope with the changes & this becoming burden on the corporate. Yes, there is no right or wrong straightforward answers.

The idea is to have right mix of the young and senior professionals. The ideas can be germinated  by young generation while shepherded by the seniors who have seen several business cycles. 

Now a days companies, just to lessen the cost burden, trying to shed the senior professionals by making them redundant on the pretext of change in business environment. However, one can not doubt the experience they bring on the table. The key idea should be  let the person should be judged on the basis of his / her competitiveness and deliverable rather than just on the basis of seniority. If seniority and out of skill is the criterion in the new emerging environment, than those who are proposing ( must be senior professional) should go first, which, we have rarely seen.

Modi Wave : Risk and Reward

Well, equity markets are now approaching the frothy valuations. Scrupulous companies are raising funds through whatever means to take advantage of the high risk appetite of the investors. There is a distinct wedge between the fundamental valuations and current market pricing in certain sectors of the economy. This could converge with the growth in the economy and thus justify the valuations.

Modi Government is taking methodical step by step approach rather than big taking bang approach to bring much needed change in the Indian economy. Several such initiatives are already taken..

• Labor law reform in the some states like Rajasthan & MP; Maharashtra to follow suit
• Resolve to clear mess in the energy sector; One major step is to auction coal mines to private parties
• FDI is Railways and Defense
• Decontrol of Diesel which was unthinkable in recent past
• Expenditure committee to review and make recommendation for rationalizing the ever increasing subsidies
• Transforming the Image of India globally through recent development in USA, Australia,Japan and  G 20 summit 
• Resolve to bring Goods and Services Tax (GST)
• Clean India Campaign : Cleanliness and Hygiene go together which we have been as  a country lacking for so long.. Though look like it is a very clever campaign so that BJP can reach across the country without any opposition. 
• Several on-line initiatives to be taken to cut down on bureaucracy which can bring down corruption at the margin.

Well, above list is just illustrative, however,all such steps are in the right direction to take the country forward.

What about corruption.. Surprisingly government is silent on Lok Pal Bill ( Ombudsman). It is understandable that there entire focus is on the "Growth" while capturing low hanging fruit. Citizen usually fell happy if there is a growth all around them despite with similar level of corruption as if they are getting wealthy. 

It is a long haul journey we are undertaking with new government. Take a dispassionate view on politics. They have the ability, and now what it takes, intention to deliver. It is imperative to stay invested to test the resolve.

SEBI & AMFI Turning A Nelson Eye...

 

 

Code of conduct looks like are resigned to lockers, if one goes by the latest trend in Mutual Fund advertising in India. There are  two glaring  examples where misleading advertisements are regularly placed in national and international publications to entice gullible investors.

 

A leading mutual funds is advertising that 100% of its Equity Mutual Fund has outperformed the benchmark for last 5 and 10 years. Once you read on, it mentions that AUM of Equity funds has beaten the benchmark. This is painting a misleading pictures. It is very simple. Suppose, there are five schemes, however AUM is not evenly distributed. For the simplicity sake, assume only one scheme has 99% of the equity AUM while rest four has 1%. As per the advertisement logic, there is an outperformance of 99% of the equity AUM, however, rest 4 funds have underperformed.  Investors have given funds to have outperformance in all funds. The correct score will be that only 1 out of 5 fund has outperformance.

 

Another leading mutual fund is much more blatantly furnishing older information to paint much better performance consistently in a leading international magazine as a pull out where as market value has gone down substantially in the period under question.  The Net Asset Value (NAV) is available on daily basis for the fund under consideration, then why fund house is misleading gullible investors.

 

Now a days, SEBI and AMFI is promoting investor education in a big way while the above mentioned examples clearly suggest what need to be  looked  to put a plug on sharp advertising practices.

 

 

South West Gujrat Travelogue : Inflation is all around

 

Last week, I was extensively travelling through South West Gujrat and the common thread running across the horizon was worries about ever increasing vicious circle of inflation. There were instances which shows clearly how much well entrenched this inflationary phenomenon is across the strata:

 

• As highlighted in earlier blogs that New Normal for pricing for India is multiple of INR 10.00 for whatever service/ goods used. Government has already pricing railway tickets in multiple of INR 5.00, which lends credence to this phenomenon and thereby on the hindsight proclaiming that we do not have coins/ currency notes below INR 5.00. This is playing havoc in the society. This New Normal practice is now well established and one can shudder to think its impact in the coming years.
• Vegetable prices which have reached all time high and firm and now rivaling with the fruit prices, looks like also standardized irrespective of the place of origin and sale. We have witnessed a weekly Sunday Farmer's market close to Reliance Oil Refinery (the world's largest) in Jamnagar. The prices were as good as any other metropolitan city of India barring few items which were cheaper. The buyers looks like working executive's of Reliance Oil Refinery as city is distant away. The puzzling question was how come fresh farm produces are selling at such a high price, which is produce locally?? I guess as farmer also consume other goods and services where they would be subjected to ever increasing spiral of prices for last so many years and thus it has made it clear to them how to price there produce in line with similar produce selling across the country.  One can check prices of Onion, Tomato and  Potato to find stark similarity in prices across the country. 
• A village having a cluster of no more than 100 homes near Sasan Gir, where a sweet shop was selling Indian sweet made of Milk. The price was INR 240.00/ kg. It was delicious yet intrigued to see such a high price. The vendor was aware of the price of same sweet in metropolitan city, where it would be selling at least double of what they are selling here. Top it all he knew logic of higher prices in metropolitan cities, Viz. high cost of rental, labor and raw material prices etc.

The point here is Rural / Semi Urban India is now catching up with Urban India in terms of prices and try to price goods and services at par with any other place. This is another source of Inflation. It is high time that our policymakers and economist should take note of the drivers of the persistent inflation to deliver sustainable growth at reasonable stable inflation.

 

 

India : A Nonfunctional Anarchy...

 

The only best thing in Indian economic and political environment is very low tolerance to deteriorating macro indicators like Inflation, external imbalances, fiscal deficit and so on for last two decades. However, off late these resolves are getting diluted to band -aid approach. Earlier government used to loose elections on the basis of high and volatile onion prices. Now, consumers are taking things in stride and unwilling to come out on street.

 

Gone are the days when spiraling food prices would attract government to act decisively against speculators and hoarders or to resort to import or open market sales. None of the such events are  visible now a days to control prices of the ever increasing food prices for last 5 years. Top it all, Government has even failed to acknowledge the severity of this issue and yet to launch any decisive program to improve sustainable increase in the productivity and supply chain.

 

The best thing happened in terms of to control inflation & inflationary expectations is that RBI has included CPI as an anchor point along with WPI to decide interest rates. This is a welcome sign so that savers will be getting, let us hope, real positive return going forward. So far we have been ignoring persistent high consumer inflation under the guise of lack of proper consumer price time series. Kudos to RBI, that they have recognized that it is high time to recognize general spiraling of prices and consequently raised policy rates twice.

 

India is also facing music on account of all time high Current Account Deficit (CAD). High CAD was persisting for very long period of time, however, we chose to ignore it. Come May 2013 and when US - Federal Reserve ( FED)  has made its intention to reduce quantitative easing, all hell broke loose in the Fragile Five countries, which were running high CAD, Viz.. India, Turkey, Indonesia, South Africa & Brazil. These countries experiences high interest rates, multi / all time low local currencies against USD and flight of foreign capital during last five months.  Again India could not envisage to reduce the high CAD to manageable levels within time. Ultimately we have to resort to old practice of reaching to our Non Resident Indians (NRI) to bail us out. The key point here is that are we ready to face reduction in quantitative easing as and when it starts? The answer is very difficult.  We have just bought breathing time to put in place to improve our exports, control unwanted imports and to make India as a preferred destination for foreign capital. Alas, there are hardly any attempts to act on any of them. Thus, there is a possibility that India would be facing music again in short to medium term. 

 

 The key point is that quality of decision making as well as response time has deteriorated in our society at all levels in last so many years. Thus we would be living hand to mouth, in case, we choose to tread the current path.