date May 3, 2007 3:34 AM
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Root Cause - Who is Bothered?
Last three years have seen an unprecedented volatility in all commodities and stocks world over with new highs and most of it turning out to be of speculative nature. Growth in Structured Products and unlocking of money from the regular banking and conservative safe investment options are more and more used for leveraging thereby increasing the volumes and volatility. People from all strata’s of life irrespective of cast, creed and sex raise questions and often discussions lead to the perfect successful solutions, which are working successfully elsewhere. Questions on issues like growth numbers, direction, social aspects, infrastructure, responsibility, accountability and many more are commonly talked about. Old saying – ‘where there is a will there is way’ has been proved right in cases of Airport privatization, Foreign investment in real estate and retail sectors. What works here is external pressure and not the self imposed ideas. Earlier we modernized our exchanges and settlements as a matter of want list of FII’s(which has certainly benefitted). Thereafter, we accepted ways and means of getting the money into India without any KYC and Ownership norms – through Participatory Notes. Likewise, we shall be able to attribute most of the changes emanating either from the visits of chiefs of multinationals or corporate bigwig party supporters visiting the royal corridors of power. Though everyone knows the fact that Politics drives economics, failure of monetary economics in tackling of the short term issues on price front is classic example of the importance of the structured supply side economics; given that the commodity exchanges have been allowed to come up without much of the inventories, rules, logistics and absence of the knowledge base. Rigging is what general people at large are left to fight with. In this era of knowledge and information blast stress testing/sensitivity and scenario analysis is the least that the regulators and the government should resort to rather than a national debate/committee on the subject. Government’s responsibility in regulating the prices and supporting the social aspects can not be overlooked as developed economies are still fighting for the subsidies and pressurizing developing countries on reducing of trade barriers. In the name of inflation a mirage has been created in the country by attributing the reason to increase in the inflow of the dollars.
Selling India in bits and pieces have been going around for a long time now in the name of privatization. First India started selling cheap labor, then cheap skills, then cheap capital and now cheap land. To salute the intellect of the country, one will find stray cases of Indian corporate ready to give up to 50 dollars an hour to the other Indian company for outsourcing of analytics on structured products. Structured growth and creation of long term policies for demand pull impact across the length and breadth of the country for long is what is required at this stage. Equities market has taken ten years to grow and even during the growth phase it has encountered many scams of all natures and magnitude. All this happening in spite of the availability of the necessary collateral’s exposes the absence of basic home work and that couple of people and institution are able to get the new stories implemented without bothering of the social and economic implications. Debt and commodities markets have still not experienced to even walk. There is no doubt that the nation has benefited from the overall growth of infrastructure, depth and breadth in equities markets but rest of the areas on debt, money markets, commodities and structured products, credit derivatives have not been worked upon and that there is no road map in this direction. The government and RBI in India must see all of these areas and come up the self generated pressure as all these markets and latest instruments of these markets shall be required to support the growth numbers and create a perfect strong form of efficiency between the markets.
Japanese economic, south Asian currency crisis are not mere the reflection on the short term borrowing component and flight of capital but reveals the fact that the much required debt market padding to the equities and currency markets were non existent. All this essentially restricted cross asset hedging This is precisely the situation being faced in the overall perspective in India!
Latest incidents of American President taking the call on stock piling of crude to leading to inflate the crude prices(based on the higher costing of production of crude in America and Latin American countries), statements of Indian finance minister on every fall of market on India story and growth numbers , statements by fund managers and formation of cartel amongst foreign players re affirms the fact the Politics drives economics and that we have actually not grown in last hundred years. As these are the biggest examples of insider trading against all rules and laws of economics and governance.
Almost 100 bUSD are invested by major foreign financial institutions in the last ten years and rest is contributed by the Indian counterparts. This estimate is cost based and the nature has been portfolio investments, though ministry would like to change the definition to foreign direct investments. Our Governments ability to convert the portfolio investments into FDI is a failure on account of not being able to invest reserves into infrastructure by giving the initial seed capital through Indian entrepreneurs and banks. Faster approvals could have allowed the projects to raise long term debt for the balance amount so that the coffers would have been replenished fast and in excess. The key here would be either to depend on others to take the initiate or we take initiative for our good. As the existing economic potential which is clean, strong and locked capital has been sold, the money actually has not directly gone into capacity build up. This would mean the daily growth is discounted by the stock prices and that every day the India story is getting sold on papers as we have started encountering slowdown in many sectors.
Now that the price discovery has been achieved in most of the industries in terms of appreciation of almost two to three times and that the Indian corporate can benefit from the valuations, it is high time that Indian corporate consider increasing capacity expansion by increasing the equity component exposure in the domestic and international markets. This shall eventually help by way of less cost of equity versus debt in the long run, less of dependency over banking funds, return on capital will be more, ability to generate more of finances will be better as net worth would improve.
In fact the idea should be now to sell the future growth stories as only few of our major groups have started doing so. PE ratios, index, price discovery etc have all discounted the present strength and that Indians now should benefit by selling the additional capital without diluting their stakes. The Government under no circumstances should create hurdles at this stage for the Indian corporate by changing rules on raising fx resources as couple of billions shall not have any impact on the market dynamics but certainly can reduce valuations and many of the plans and implementations may get delayed.
Our central bank has been doing great job in fighting to be free from the clutches of politics and not recognizing portfolio money as foreign direct investment and keeping our financial system healthy. The next best two things that the central bank could gift are on creating cross asset hedging environment, market for credit derivatives, merging and increasing the capital of the banks rather than finding the way out to reduce the SLR to attend to the immediate requirement of couple of billions which suddenly gets changed overnight. Excess liquidity with overnight rates cross 50% is something that our best of the bankers and economists would still be wondering and may attribute the reason to panic and FY end fever coupled with threat of strike. The question is when there is so much of liquidity and inflation is up on account of higher money supply & increased inflows, RBI /Government certainly could have intervened and opened its windows to fight this aberration of couple of days. The discounted price tag of the premium growth story is what every Indian corporate house and business should benefit and the politicians should unite to support this as most of them have corporate linkages. Simple and oldest management concepts on root cause and cause & benefit analysis are missing in almost all major decisions leading the country eligible in asking for a hundred percent Other Backward Country Quota!
Dinesh Views expressed are purely personal with no prejudice and general clause of disclaimer
mailed-by gmail.com
Root Cause - Who is Bothered?
Last three years have seen an unprecedented volatility in all commodities and stocks world over with new highs and most of it turning out to be of speculative nature. Growth in Structured Products and unlocking of money from the regular banking and conservative safe investment options are more and more used for leveraging thereby increasing the volumes and volatility. People from all strata’s of life irrespective of cast, creed and sex raise questions and often discussions lead to the perfect successful solutions, which are working successfully elsewhere. Questions on issues like growth numbers, direction, social aspects, infrastructure, responsibility, accountability and many more are commonly talked about. Old saying – ‘where there is a will there is way’ has been proved right in cases of Airport privatization, Foreign investment in real estate and retail sectors. What works here is external pressure and not the self imposed ideas. Earlier we modernized our exchanges and settlements as a matter of want list of FII’s(which has certainly benefitted). Thereafter, we accepted ways and means of getting the money into India without any KYC and Ownership norms – through Participatory Notes. Likewise, we shall be able to attribute most of the changes emanating either from the visits of chiefs of multinationals or corporate bigwig party supporters visiting the royal corridors of power. Though everyone knows the fact that Politics drives economics, failure of monetary economics in tackling of the short term issues on price front is classic example of the importance of the structured supply side economics; given that the commodity exchanges have been allowed to come up without much of the inventories, rules, logistics and absence of the knowledge base. Rigging is what general people at large are left to fight with. In this era of knowledge and information blast stress testing/sensitivity and scenario analysis is the least that the regulators and the government should resort to rather than a national debate/committee on the subject. Government’s responsibility in regulating the prices and supporting the social aspects can not be overlooked as developed economies are still fighting for the subsidies and pressurizing developing countries on reducing of trade barriers. In the name of inflation a mirage has been created in the country by attributing the reason to increase in the inflow of the dollars.
Selling India in bits and pieces have been going around for a long time now in the name of privatization. First India started selling cheap labor, then cheap skills, then cheap capital and now cheap land. To salute the intellect of the country, one will find stray cases of Indian corporate ready to give up to 50 dollars an hour to the other Indian company for outsourcing of analytics on structured products. Structured growth and creation of long term policies for demand pull impact across the length and breadth of the country for long is what is required at this stage. Equities market has taken ten years to grow and even during the growth phase it has encountered many scams of all natures and magnitude. All this happening in spite of the availability of the necessary collateral’s exposes the absence of basic home work and that couple of people and institution are able to get the new stories implemented without bothering of the social and economic implications. Debt and commodities markets have still not experienced to even walk. There is no doubt that the nation has benefited from the overall growth of infrastructure, depth and breadth in equities markets but rest of the areas on debt, money markets, commodities and structured products, credit derivatives have not been worked upon and that there is no road map in this direction. The government and RBI in India must see all of these areas and come up the self generated pressure as all these markets and latest instruments of these markets shall be required to support the growth numbers and create a perfect strong form of efficiency between the markets.
Japanese economic, south Asian currency crisis are not mere the reflection on the short term borrowing component and flight of capital but reveals the fact that the much required debt market padding to the equities and currency markets were non existent. All this essentially restricted cross asset hedging This is precisely the situation being faced in the overall perspective in India!
Latest incidents of American President taking the call on stock piling of crude to leading to inflate the crude prices(based on the higher costing of production of crude in America and Latin American countries), statements of Indian finance minister on every fall of market on India story and growth numbers , statements by fund managers and formation of cartel amongst foreign players re affirms the fact the Politics drives economics and that we have actually not grown in last hundred years. As these are the biggest examples of insider trading against all rules and laws of economics and governance.
Almost 100 bUSD are invested by major foreign financial institutions in the last ten years and rest is contributed by the Indian counterparts. This estimate is cost based and the nature has been portfolio investments, though ministry would like to change the definition to foreign direct investments. Our Governments ability to convert the portfolio investments into FDI is a failure on account of not being able to invest reserves into infrastructure by giving the initial seed capital through Indian entrepreneurs and banks. Faster approvals could have allowed the projects to raise long term debt for the balance amount so that the coffers would have been replenished fast and in excess. The key here would be either to depend on others to take the initiate or we take initiative for our good. As the existing economic potential which is clean, strong and locked capital has been sold, the money actually has not directly gone into capacity build up. This would mean the daily growth is discounted by the stock prices and that every day the India story is getting sold on papers as we have started encountering slowdown in many sectors.
Now that the price discovery has been achieved in most of the industries in terms of appreciation of almost two to three times and that the Indian corporate can benefit from the valuations, it is high time that Indian corporate consider increasing capacity expansion by increasing the equity component exposure in the domestic and international markets. This shall eventually help by way of less cost of equity versus debt in the long run, less of dependency over banking funds, return on capital will be more, ability to generate more of finances will be better as net worth would improve.
In fact the idea should be now to sell the future growth stories as only few of our major groups have started doing so. PE ratios, index, price discovery etc have all discounted the present strength and that Indians now should benefit by selling the additional capital without diluting their stakes. The Government under no circumstances should create hurdles at this stage for the Indian corporate by changing rules on raising fx resources as couple of billions shall not have any impact on the market dynamics but certainly can reduce valuations and many of the plans and implementations may get delayed.
Our central bank has been doing great job in fighting to be free from the clutches of politics and not recognizing portfolio money as foreign direct investment and keeping our financial system healthy. The next best two things that the central bank could gift are on creating cross asset hedging environment, market for credit derivatives, merging and increasing the capital of the banks rather than finding the way out to reduce the SLR to attend to the immediate requirement of couple of billions which suddenly gets changed overnight. Excess liquidity with overnight rates cross 50% is something that our best of the bankers and economists would still be wondering and may attribute the reason to panic and FY end fever coupled with threat of strike. The question is when there is so much of liquidity and inflation is up on account of higher money supply & increased inflows, RBI /Government certainly could have intervened and opened its windows to fight this aberration of couple of days. The discounted price tag of the premium growth story is what every Indian corporate house and business should benefit and the politicians should unite to support this as most of them have corporate linkages. Simple and oldest management concepts on root cause and cause & benefit analysis are missing in almost all major decisions leading the country eligible in asking for a hundred percent Other Backward Country Quota!
Dinesh Views expressed are purely personal with no prejudice and general clause of disclaimer
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