Unless Urgent Steps Are Taken, Make in India Will Remain a Non-Starter

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File picture of National Workshop on Make in India. Credit: Narendra Modi on Flickr

The “Make In India” campaign was launched with the twin objectives of growing the share of manufacturing in India’s GDP and of generating massive employment opportunities for India’s teeming young population. The vision, articulated year in September 2014, was timely, following on the success of the Indian Mars Mission. A total of 25 sectors were identified to target these objectives.

In the last 16 months what has been the success of this initiative? With the Make In India week being launched on Feb 13 by the Prime Minister, it is a good time to take stock of the policy outcomes,
especially the “on the ground” success or failure of this vision.

India’s economic success is critical, in a world marked by increasing economic distress caused by falling commodity prices, deflation, currency wars, increasing protectionism and reducing global trade.
India stands out as a beacon of hope that democratic political systems can also deliver high economic growth. The promise of BRICS has been dampened with the economic problems in Brazil, Russia and South Africa and the slowdown in China to a 25-year low rate of GDP growth.

As oil prices have crashed from USD 115 in June 2014 to USD 30 in January 2016, there is a huge transfer of wealth happening from oil producers to oil consumers. Some economists are questioning why this fall in oil import prices has not lead to a huge upsurge in Indian economic growth. The explanation is in the details. The average pump prices in India have fallen by 11% for Petrol and 21% for Diesel, while crude prices have fallen by 74%. The difference has been largely pocketed by the federal government in the form of enhanced tax levies which have led to a massive year-on-year growth of 34% in indirect tax collections.

This is fiscal prudence and has led to a situation where corporate turnovers are stagnant or reducing, while margins are expanding, leading to better profits for commodity consumer sectors. Our
estimates are that CPI would be lower by 0.3% if the entire fall in global crude prices gets transmitted to the Indian commodity consumer sectors.

Any analysis of the Make In India initiative has to be thus put in a historical context. The election of the new federal government, with the first clear mandate in terms of a single party majority in the parliament in decades, raised hopes and expectations of a strong willed administration, which would introduce structural reforms and lead India onto the path of double digit growth
for multiple decades.

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European Shares Hit 16-month Low On Growth Worries

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European shares extended last week’s losses on Monday as investors fretted over oil price volatility, slowing global growth and uncertainty over the Federal Reserve’s monetary policy.

Stocks were falling across the board after results of a survey by Sentix revealed that Eurozone investor sentiment weakened for the second straight month to the lowest since early 2015.

The investor sentiment index dropped more than expected to 6 in February from 9.6 in January. Economists forecast the index to ease to 8.8.

A sharp fall in U.S. stock futures following steep losses on Friday also dented investor sentiment. The Dow futures were down 206 points, the S&P 500 futures were declining 25 points and the Nasdaq futures were down 68 points on concerns over slowing growth.

Closer home, the pan-European Stoxx 600 was down 2.5 percent, heading for a sixth day of losses. Elsewhere, the German DAX, France’s CAC 40 and the U.K.’s FTSE 100 were declining 2-3 percent.

Commodity-related stocks like BHP Billiton, Royal Dutch Shell, Anglo American and Antofagasta fell 1-2 percent in London.

Insurer Old Mutual lost 1.8 percent after announcing sale of Rogge Global Partners to Allianz Global Investors.

 BT Group dropped 1.7 percent. The communications services provider confirmed that it is searching for a new finance director to replace Tony Chanmugam.

Franco-Dutch airline Air France KLM declined 2 percent in Paris after reporting passenger traffic figures for January.BT Group dropped 1.7 percent. The communications services provider confirmed that it is searching for a new finance director to replace Tony Chanmugam.

Shares of Orange, formerly France Telecom, shed more than 2 percent after Nasdaq-listed Millicom International Cellular has announced an agreement for the sale of its Tigo business in the Democratic Republic of Congo to France’s biggest telecoms firm.

German banks Commerzbank and Deutsche Bank fell about 5 percent each in Frankfurt while automakers BMW, Daimler and Volkswagen dropped 3-4 percent.

The dollar strengthened in holiday-thinned trade as investors looked toward Federal Reserve Chair Janet Yellen’s testimony to Congress this week for further clues on rate hike prospects.

GST Will Become a Reality Soon, Says Jaitley

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Finance Minister Arun Jaitley today hoped that the opposition parties will “see reason” and the Goods and Services Tax (GST), which is held up in Rajya Sabha, will become a reality soon.

“It (GST) has been supported by most political parties and I am sure others will also see reason and this law will become a reality very soon,” the minister said while inaugurating the two-day India Investment Summit here. He said the government is also working on streamlining the direct taxation system.

“We want to rationalise our direct tax system in order to make it one of the most competitive regimes in the world comparable with what competitive economies elsewhere have,” Jaitley added.

He further said reform is a continuous process and “there is no finishing line” for that as “it has to go on and on because challenges keep coming up”.

GST, which will subsume all indirect taxes such as excise duty, service tax and sales tax into one uniform rate, is stalled in the Rajya Sabha as the Congress is pressing for three changes.

The Congress has stalled the passage of the constitutional amendment Bill, derailing the government’s plan to roll out GST from April 1, 2016.

The three demands are a cap on the GST rate in the Constitution itself, removal of the proposed 1 per cent additional tax on inter-state movement of goods and setting up a judicial panel to adjudicate disputes among states.

Budget Session of Parliament commences on February 23. While the first part of the session will end on March 16, the second part will be take place from April 25 to May 13.

Oil lows ‘still likely to be set’ – Goldman Sachs

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Goldman Sachs says that oil prices are likely to chop in the $40 to $20 range in the first half of the year.

“This phase will be characterized by a highly volatile and trend-less market with the price lows likely still to be set,” they write in a note.

Even an OPEC cut would come too late to spark a rebound in prices but they argue that OPEC won’t move for several reasons.

“Given the likely time necessary to enact such cuts, the continued large builds in U.S. and global inventories and the fast pace at which U.S. Gulf Coast spare storage capacity is filling, it may already be too late for OPEC producers to be able to prevent another large decline in prices,” they said in the report.

One reason OPEC won’t cut is that their strategy has worked. They wanted to push out higher-cost producers like shale and maintain market share.

“And after a 14-month wait, the strategy is finally bearing fruit, with non-OPEC producer guidance pointing to production declines since oil prices fell below $40 a barrel a few weeks ago,” Goldman Sachs said.

Another big reason is Iran, which intends to raise exports by 1.5 million barrels per day.

Realty sector demand not expected to improve in FY17: India Ratings

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India Ratings and Research (Ind-Ra) has revised its outlook on the real estate sector to negative for 2016-17 from negative to stable, based on the expectation that property demand will not revive during the year. 

This will result in a continued fall in unit sales and revenue, and thus lower cash flows and worse credit metrics in 2016-17. Hence, India Ratings has also revised the rating outlook on sector companies to negative from stable. 

However, the rating agency also added  .. that a rise in demand, leading to strong free cash flow, and a reduction in debt levels could change the sector outlook to stable. Sale of land and commercial property assets, leading to a substantial reduction in debt levels, could also be a driver for issuer ratings.

A revival of property demand would depend on a meaningful reduction in prices or a significant improvement in economic growth, resulting in positive customer sentiments. The revival is unlikely until 2016-17, as property prices will remain high and on the India Ratings’ estimates of GDP growth improving to 7.9% in 2016-17 as against 7.4% for 2015-16.

Companies have resorted to refinancing of debt through higher-cost funding from non-banking finance companies /private investors. This extends maturity and reduces the pressure on them to reduce prices to liquidate inventory and repay debt. However, this also increases the likelihood of stress when such instruments fall due.

Investor interest in the sector remains high and has received support from the relaxation of entry and exit conditions for foreign investors into the sector. While these measures will result in higher investment flows, it will be negative for the sector as most of the investments are in debt-like instruments and increases the likelihood of stress. 

The government has also permitted the classification of non-repatriable investments made by NRIs and companies, trusts or partnership firms   incorporated outside India and owned and controlled by NRIs as domestic investments. This may result in higher property purchases by NRIs, but may be negative for the sector if it helps companies maintain prices at a higher level.

Ind-Ra expects demand for office space to be stable during 2016-17 driven by demand from IT/ITes and e-commerce segments. Demand for retail space has been hit by the expansion of e-tailers. However, it has been supported by the entry of foreign single brand retailers.



Double-digit growth possible in 2-3 years if reforms go on: Arvind Panagariya

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India is expected to get on to a double-digit growth in the next 2-3 years if reform process continues, NITI Aayog Vice-Chairman Arvind Panagariya said on Saturday. Besides, he expressed hope that GST will be implemented as both parties concerned broadly agree on the comprehensive indirect tax reforms.

“The scope of India to expand is quite considerable as long as our reform process moves in right direction. We have reason to expect that we will, as I have been arguing, in next 2-3 years begin to touch a double-digit growth. So, I see a very optimistic future,” he said at the ET Global Business Summit.

Even today, he said, when the world market is not growing or growing slowly, India is a very large market with merchandise exports alone at about $18 trillion and services exports at $5 trillion. “So, if we stay on the reform path and do the right thing, I think the pie that exists is very large. Our current share is 1.75% of $18 trillion… and about 3% of $5 trillion in services exports,” he said.

On reforms, Panagariya is confident that GST will go through. “This is something which has had support from both sides. This reform first originated in the previous NDA government… The Congress party had been behind the reforms. Now, there has been some disagreement,” he said.

He spoke about labour reforms being carried out by some states, with Rajasthan taking the lead. Land reform is also being undertaken by Tamil Nadu.

RBI may slash policy rate by 25 bps on Feb 2: BofA-ML

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The Reserve Bank of India is approaching the end of its rate-cutting cycle and is expected to go for a final 25-bps repo rate cut at its policy review meet on February 2. According to the global financial services major, a rate reduction is likely as inflation may be in line with RBI’s January 2016 under-6 per cent target. “We continue to expect a final 25 bps RBI repo rate cut on February 2. That said, RBI is approaching the end of its rate-cutting cycle,” Bank of America Merrill Lynch said in a research note. BofA-ML sees “compelling reasons” for a rate cut on Tuesday. First, inflation print could be in the comfort zone of RBI in the near term. Second, growth remains weak and a rate cut would provide an additional impetus to the fledgling recovery. BofA-ML’s assessment is policy easing should back up the rupee as well by attracting inflows. The other supporting factor, it argued, is fiscal deficit, which is “well under control”. On inflation outlook, BofA-ML said CPI is likely to bounce back to around 5-6 per cent in 2016-17. The global brokerage firm noted that RBI achieving 5 per cent 2016-17 target will depend on how weather phenomenon El Nino plays out, the 7th Pay Commission impact and oil price movements. BofA-ML’s lead indicators are projecting 5 percent GDP for the December quarter as per the old series. In the new GDP series, “we are tracking 7-7.5 percent, without any improvement over September’s 7.4 percent”, the report added. “Even if Arun Jaitley retains the 2016-17 fiscal deficit at 3.9 percent of GDP, like FY16, instead of cutting it to the pre-committed 3.5 percent, it will be well below the 4.8 percent average since 2000,” the report added.

30 Stock Market Quotes and Saying

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stock market quotes of famous traders and investors

The words of successful traders and investors not only give us inspiration but also guide us on how to be on the right path and avoid mistakes.  Quotes of Warren Buffett have always been golden words for investors. Apart from Warren Buffet there are many veteran investors and traders whose words are equally inspiring. Check out the stock market quotes and saying  of successful traders and investors. 

Warren Buffett Quotes for Investors

1. “Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

2. “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” –

3. Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”

4. “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

5. “Derivatives are financial weapons of mass destruction.”

6. “ Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.”

7. “ You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right-and that’s the only thing that makes you right.”

Other Stock Market Quotes by Famous Investors

8. “The four most dangerous words in investing are: ‘this time it’s different.’” – Sir John Templeton “

9. “The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham

10. “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers

11. “Invest in yourself. Your career is the engine of your wealth.” – Paul Clitheroe

12. “An investment in knowledge pays the best interest.” – Benjamin Franklin “

13. “Every once in a while, the market does something so stupid it takes your breath away.” – Jim Cramer

14. “The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Phillip Fisher “

15. “Know what you own, and know why you own it.” – Peter Lynch

16. ”I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.” – George Soros

17. “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson “

18. “I made a killing in the stock market. My broker lost all my money, so I killed him.” – Jim Loy.

19. “Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don’t make.” – Donald Trump.

20. “The United States have developed a new weapon that destroys people but it leaves buildings standing. It’s called the stock market.” – Jay Leno. “

22. Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” – Peter Lynch.

23. “There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor -the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.” – Bernstein, William.

25. “ A stock broker is one who invests other people’s money until its all gone.” -Woody Allen, American Film Maker “ Average investors who try to do a lot of trading will only make theirbrokers rich.” -Michael Jenson, Finance Professor -Harvard.

26. “The only way to “beat an index” is to invest in something other than the index. Why would you, when the only source of long-term risk and return data is the index ?” -Hebner, Mark.

27. “ There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor –the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.” -Bernstein, William.

28. “ Investors must keep in mind that there’s a difference between a good company and a good stock. After all, you can buy a good car but pay too much for it .” -Richard Thaler. “ Emotions are your worst enemy in the stock market.” -Don Hays.

29. “ 90 % of the people in the stock market, professionals and amateurs alike, simply haven’t done enough homework,” -William J.O’Neil.

30 “ I have probably purchased fifty ‘hot tips’ in my career, maybe even more. When I put them all together, I know I am a net loser.” -Charles Schwab. Stock market corrections, although painful at the time, are actually a very healthy part of the whole mechanism, because there are always speculative excesses that develop, particularly during the long bull market. Ron Chernow

31. Be quick in cutting your loses but not profits

Raghuram Rajan Questions New GDP Formula

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There are problems with the way we count GDP, says Dr Rajan

Reserve Bank Governor Raghuram Rajan on Thursday said the country needs a better methodology to capture growth measured in terms of gross domestic product (GDP). There is a need for better computation of numbers to avoid overlaps and capture the net gains to the economy, he said.

“There are problems with the way we count GDP which is why we need to be careful sometimes just talking about growth,” Dr Rajan said.

The new formula to calculate growth, based on market prices, shows India is the fastest-growing major economy in the world. Critics say the headline growth rates appear strong because of change in statistical methods that seek to capture more evidence of economic activity.

Other barometers such as bank credit growth, jobs and consumer demand paint a less healthy picture, analysts say.

Speaking to students at the Indira Gandhi Institute of Development Research, Dr Rajan said, “We have to be a little careful about how we count GDP because sometimes we get growth because of people moving into different areas. It is important that when they move into newer areas, they are doing something which is adding value.

We do lose some, we gain some and what is the net, let us be careful about how we count that.”

There are many suggestions from various quarters on the ways to calculate GDP in a better way and we should take those seriously, Dr Rajan noted.

According to the new GDP methodology, the economy is growing at slower pace in nominal terms than in real terms for the first time. In the September quarter, the real GDP clipped at 7.4 per cent, while the nominal GDP grew much lower at 6 per cent.

Dr Rajan also spoke about the need to focus on employment creation and took a middle line to say that policies need to be geared up to face the onslaught of technological innovations.

“We have to make sure that our policies are geared up such that we will create the appropriate playing field to find new jobs. We should not create a distorted playing field where at the end of the day the wrong kinds of jobs emerge,” he said.

15 things that went wrong in ’15

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Indian investors have experienced a washout during the last nine months.

Market indices have fallen about 15 per cent from the all-time highs hit after the Budget. Corporate revenue and earnings growth have been negligible.

Exports have fallen even though the rupee has lost ground.

Sentiment has been hit as the impasse on the legislative front has continued, with session after parliamentary session ending without movement on the goods and services tax bill, among other things.

Most investors are also coming to terms with the fact that the government is apparently not serious about meeting stated aims like disinvestment targets (which will be missed by miles), or ensuring a pullback on harassment caused by retrospective taxation (the Cairns case, for example).

There are also signs of internal dissent with accusations levelled at the finance minister by suspended Bharatiya Janata Party MP Kirti Azad.

Of course, it’s not all doom and gloom.

Indian Railways is being turned around (even if the proposed Mumbai-Ahmedabad bullet train doesn’t make much sense).

Coal supplies from Coal India Limited have improved perceptibly, which has helped in power generation (though state discoms are in such a mess that they can’t buy power).

The ‘ease of doing business’ indices also suggest some red-tape reduction.

So it is business as usual, with the government muddling along as Indian governments tend to muddle along.

The problem with an unimaginative incremental governance strategy (if muddling along may be called “strategy”) is that this government must deal with at least one unprecedented problem that requires original thought.

India is now facing deflationary conditions and that changes the paradigm for lenders and borrowers.

Deflation implies low or negative nominal growth.

This makes it hard for debtors to generate the income required to service loans.

If the nominal growth rate drops below the rate at which interest on outstanding loans is payable, defaults start to rise, and rising default can cause a vicious cycle.

This is an old problem in textbook terms.

But India has not had to deal with this, within living memory.

Neither the corporate establishment nor the government has much idea of how to “muddle along” in this situation.  

The state, meaning central and state governments taken together, is the biggest borrower.

As of now, the interest rate on sovereign debt is quite a bit higher than nominal gross domestic product growth rate.

This means tax collections are unlikely to grow fast enough to service debt comfortably. Raising tax rates, as this government has already done, runs into other problems.

Collection buoyancy can be affected as the fabled Laffer Curve turns inimical.  

The approved method of dealing with this is to generate primary Budget surpluses. Given relatively low growth in tax collections, this means cutting expenditure for the Centre. 

Again, no Indian government has ever managed to do this.

The Pay Commission handout is also due and that makes expenditure cuts look unlikely.

This situation also implies by the way that the GST (which will probably not happen anyway) could trigger chaos if it leads to an initial drop in government revenues.

This situation hurts corporate borrowers too. Nominal revenues for India Inc have stagnated in the past 18 months. Operating profits have not grown quickly enough to allow easy debt service.

The situation has deteriorated enough for the Reserve Bank of India to repeatedly express concern.

The latest Financial Stability Report flags problems in terms of deteriorating debt-service ratios.

If debtors are hurting, creditors start to have problems and the Indian banking sector may now be looking into a deep, dark abyss.

The net worth of many of India’s banks could be wiped out if stressed assets go sour at the rates the FSR considered in its latest stress tests.

Since the central government owns the majority of India’s banks, it is in the odd (but common) position of owing money to itself in many instances.

Various state governments and their institutions also owe money to banks. So the government must figure out ways of servicing the loans it can, and recapitalising banks that it controls, in the cases where bad debts must be written off.  

The corporate sector has to cross its collective fingers and hope demand picks up.

  There’s plenty of slack with 30 per cent of manufacturing capacity is lying idle.

Investments won’t pick up until a large part of that slack is absorbed by growing demand.

Perhaps the Pay Commission hikes will spark some revival in consumption?

Overseas demand is not likely to be very high — exports show declining trends and global GDP projections for 2016 are muted.

Higher H-1 visas will hurt the information technology industry’s margins.

Foreign direct investment commitments will translate into actual movement at a stately pace.

Foreign institutional investors have been net sellers of Indian equity through this fiscal and they have been sellers of rupee debt in the past two months.

Technically, the Nifty has held at support at 7,550.

It may range-trade for a while between 7,700-8,100.

Investors will probably wait for the Budget before they take their calls on 2016-17.

Given the circumstances, 2016 is more likely to be a highly interesting year, rather than a deliriously happy one.

Still, hope springs eternal and I sincerely hope I’m wrong. Acche din and good governance to all!