American Diary: Six days to go; why Bill Clinton Rocks

Bill Clinton says that the election outcome might depend on the vote in Adams County. After his speech in Denver, everyone feels that President Obama has a strong case and will prevail and overcome

The rally is at 4pm at Adams High School at Commerce City in Denver, Colorado. I join the line at 3:30pm to make sure that I get into the gymnasium. The line grows longer, snakes around the block. There is a great assortment of people — young, old, whites, blacks, Hispanics, Indians and so on. There’s even a large man wearing a shirt that says ”White Men for Obama” and it drew loud cheers. The mood is mildly celebratory as no one is absolutely sure that President Obama will win while on the other hand no one is sure that President Obama will lose. 
Everyone feels it is going to be an incredibly close race. 
Pro and anti Obama banners are put up and then the campaign takes a negative turn. There are anti-Romney banners as well and it gets too nasty. Authorities had to be called in and took off all banners at the place. It got too unpleasant which affected the harmony
I get into the line next to a two pretty women who are originally from Ethiopia—Elizabeth and Asni. The mother has diamond crosses dangling from her ears. I enquire them of the prevailing mood and how it was different from four years ago. They said that the mood then was exuberant and now it is tense and poised on a knife’s edge. Elizabeth tells me that she came to the United States in 1990 and works in a medical research facility. Asni, her daughter, who is pretty as a picture, makes the case for President Obama. She says that she is about to start college and the president’s education policies are so much better and bats for the middleclass. 
At last we move into the gymnasium. There’s huge crowd and atmosphere is quite festive with a brass band playing. Soon all the Democratic candidates for the House of Representatives take the stage and make their case. The wait for ex-President Bill Clinton is getting interminable. Then the brass band strikes up once again and ex-president strides in looking dapper in a suit with his leonine silver mane. The crowd goes berserk. He gets to business immediately by stating that President Obama is the best man to create jobs for the middle-class and rattles off facts and figures of the American economy. Then he criticizes the opposition candidate, Mitt Romney’s plan and disparages ”trickle down” economics.  He goes on to talk about deficit, ‘green’ jobs, healthcare, education and so on. During the speech, he’s takes care in contrasting Obama’s policies with Romney’s and builds the most convincing case I have heard for the president. 
Clinton finally says that the election outcome might depend on the vote in Adams County. After Bill Clinton is done everyone feels that President Obama has a strong case to make and will prevail and overcome.
(Harsh Desai has done his BA in Political Science from St Xavier's College & Elphinstone College, Bombay and has done his Master's in Law from Columbia University in the city of New York. He is a practicing advocate at the Bombay High Court.)


HUL downgraded to SELL; target Rs490

Espirito Santo believes that slowing volumes and increased competition coupled with high valuation means it is time to sell HUL

Espirito Santo Securities has echoed Hindustan Unilever’s (HUL) concerns with volume and has downgraded the stock from neutral to SELL. It feels that consumer demand has weakened which led to lower volumes and thereby lower turnover. “Consumers  may  shift  away  from  branded  consumer  goods  in  times  of  high inflation.  Availability of alternatives (local toothpaste, unpackaged foods) motivates consumers to shift, and frequent price increases by companies just act as catalyst for this migration,” Espirito Santo said in its research report on HUL. The report finally says, “Consensus is factoring in ~16.1% EBITDA margins in FY15, which we believe is not achievable in the current macroeconomic environment.” Espirito Santo believes the fair value of Rs490 per share. At time of writing this piece, the share price stood at Rs547.45.

We had written a brief report on HUL results here. However, Espirito Santo has viewed the results from the volume and valuation prism. We feel long term investors would be better off holding the company for as long as they can. However, short-term investors and traders could change their strategy if they are to believe that HUL is overvalued. The brokerage said, “We think the earnings upgrade cycle has moved a little too far and the stock is exposed to downside risks from current levels. We reduce our fair value from Rs 524 to Rs 490 and downgrade HUL to SELL from Neutral.” The stock price of HUL had been on a rise in the last one to two years.

On the volumes side, it seems to have missed estimates by more than one percentage point as volumes grew by 7%. As HUL ramped up volumes and reached a point where one percentage point can mean a difference between good performance and mediocre results, the report said, “Robust  growth  followed  by  premiumization,  has resulted  in  healthy  headline  volume  growth.  However, personal product growth is tapering off while lacklustre growth  continues  in  the  packaged  foods  category; clearly a sign of concern.”


One of the biggest edge that bigger players, like HUL, has is its sheer scale, economies and size. Because of its supply-chain expertise, it is able to keep the cost of goods sold down, though this gap seems to be reducing. This squeezes out the smaller players out of business as its bargaining power tends to be restricted as is its ad-spend. Another factor that led to a good quarter (in value terms, not volume terms) is lower input costs and stable crude. This kept costs down significantly to a great extent to make up for the loss incurred due to lower volumes.

The report says that slowing volumes is the result that ad-spend have increased, in order to increase their brand visibility. While this is true, the same would be applied for smaller players as well, who are desperately seeking attention. If the smaller players indeed crave for visibility, their ad-spend would increase their cost of goods sold and that would hurt profitability.


Not much help from RBI even in 2013?

“Policy easing to be limited to about 50-75 bps in 2013,” says Morgan Stanley Research  

Given the central bank’s guidance for monetary policy stance, Morgan Stanley in its research report said “We believe that policy rates would be on hold until the end of 2012 with easing to begin from 1Q2013.” It believes that even as inflation starts to ease from Q12013, it may remain above the RBI’s (Reserve Bank of India) comfort zone for longer. Hence, it expects policy easing to be limited to about 50-75 (basis points) bps in 2013.
RBI held a quarterly review of its monetary policy yesterday. The RBI’s decisions were in line with consensus (Bloomberg survey) and Morgan Stanley’s expectations: The apex bank kept the repo rate and reverse repo rate unchanged at 8% and 7%, respectively. The marginal standing facility (MSF) rate stands at 9%. It reduced the cash reserve ratio (CRR) by 25bps to 4.25% (effective 3 November 2012).
The monetary policy statement from RBI highlights the inflation problem as follows: “The persistence of inflationary pressures even as growth has moderated, remains a key challenge. In this respect, India is an exception to the global trend, which underscores the role of domestic structural factors. Of particular concern are the stickiness of core inflation, mainly on account of supply constraints and the cost-push of rupee depreciation. Consequently, managing inflation and inflation expectations must remain the primary focus of the monetary policy. A central premise of the monetary policy is that low and stable inflation and well-anchored inflation expectations contribute to a conducive investment climate and consumer confidence, which is key to sustained growth on a higher trajectory in the medium-term.”
The RBI recognizes that growth conditions have deteriorated. The policy statement highlights it as follows: “The loss of growth momentum that started in 2011-12 has extended into 2012-13 though the pace of deceleration moderated in the first quarter. Nevertheless, growth remains below trend and persisting weakness in investment activity has clouded the outlook.” 
The worsening of global macro conditions and further accentuation of domestic risks owing to stalled investment spending, weak consumption and declining exports have led the RBI to reduce its growth projection for F2013 to 5.8% from 6.5% earlier, says Morgan Stanley in its research report.
In the monetary policy statement, the RBI highlights that the persistent and large current account and fiscal deficits pose significant risks to the growth outlook and macro stability. A large current account deficit exposes India to global funding risks, putting pressure on the currency. A large fiscal deficit curtails private investment spending.
The policy statement mentions the possibility for monetary policy easing in Q4 F2013. Morgan Stanley highlights from the policy statement, “The reduction in the CRR is intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth. It anticipates the projected inflation trajectory which indicates a rise in inflation before easing in the last quarter. While risks to this trajectory remain, the baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13. The above policy guidance will, however, be conditioned by the evolving growth-inflation dynamic.” 
The global investment bank believes that policy reforms that help to correct the bad growth mix issue will be key to reviving growth. In that context, it is tracking policy reforms including the government’s effort (a) to revive investment, (c) to cut fiscal deficit via control of expenditure, and (c) to manage rural wage growth down to reasonable levels. 




4 years ago

Such quick predictions about future confirms the extent of external pressure on India to conform to certain prescriptions and the manner in which pressures build up. GOI’s helplessness in such situations found expression in transfer of stress to RBI. This time RBI managed to withstand the pressure and go by its perceptions. This was possible because Governor Dr Subbarao and Deputy Governor Subir Gokarn were in a position to defend their considered views. The way in which FM responded to the RBI’s stance sends out disturbing signals.



In Reply to M G WARRIER 4 years ago

It would be better if the FM were to do something about the foll:

1) What is being done to stop corruption?

2) What efforts are being made to recover the loot from those proved guilty of corruption?

3) Why not enough is being done to bring back black money stashed abroad?

4) Why are we unable to bring down the high level of inflation? – Are there some who are benefitting ( at the cost of others) from these prevailing high prices?

5) India’s sovereign ratings is on the verge of being downgraded to junk grade

The real fiscal consolidation can happen by addressing the above mentioned issues. And we can return to higher growth rate, credit ratings upgrade. Lower inflation and lower interest rates.

Let us not get the RBI to wash the sins of the corrupt?

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