Having predicted the 2008 financial crash and been involved with the financial sector closely since then the RBI governor surely knows that the West has made consumer financial protection a centrepiece of financial sector regulation. How about setting the ball rolling in that direction in India too?
Raghuram Rajan has been garnering a lot of plaudits and praises for his first speech as governor of the Reserve Bank of India (RBI). However, he failed to mention one of the most important aspects of the banking system, or the entire financial system for that matter: consumer protection.
As a brilliant person who is well versed with the intricacies of finance and banking, he shot to fame when he predicted the financial crisis of 2008, when he knew that US consumers were hard sold cheap mortgages they couldn’t afford. Having realised this, the US government set up Consumer Finance Protection Bureau and the UK government had set up Financial Conduct Authority which will have the power to regulate all providers of financial across different sectors. Even in India Financial Sector Legislative Reforms Committee has suggested exactly the same approach of a special consumer protection agency.
However, it is surprising that he has not mentioned anything about consumer protection or mis-selling which mentioning that banks should expand freely. Mis-selling is far more rampant here than in the US because Indian regulators are often lax and ignorant about many issues plaguing consumers, from hard-selling third-party products to non-transparent banking charges and so on.
Moneylife Foundation has been batting for consumers over the years and has raised several issues on banking, consumer protection and safety of products. With over 23,000 members, it has stumbled upon a wide variety of cases of mis-selling, cheating, some of which are horrifying because they are targeted at senior citizens and women. Unfortunately, the spate of mis-selling over the years has caused Indian investors and savers to lose money and lose trust in the financial system.
If Raghuram Rajan is interested in batting for the Indian investor and saver, if he is interested in restoring the faith of the Indian banking system and get people to trust bankers and financial intermediaries again, then here are the list of issues he can look at, all of which Moneylife has written about over the years:
Mr Rajan may like to know that Banking Code and Standards Board of India was created to enforce ethical and consumer-friendly practices but the code is voluntary. Brilliant, innovative and energetic that he is, we believe that Mr Rajan will have some new thoughts on effective consumer protection in the banking sector too. We wonder when he will start articulating his thoughts in this direction.
There is a continued sense of concern over the near-term outlook on powergen and exports segments for Cummins India, according to Nomura Financial Advisory and
Securities in its research note on the company based on its meeting with Rajiv Batra, CFO, Cummins India. However, export realisations could lead to gains in margins on account of the depreciating rupee.
Nomura recommends investors to remain focused on the fundamentally superior business model and franchise that Cummins India offers with a solid long-term opportunity in a power-short India. Nomura had been waiting for a better entry point given its expensive valuations so far. The Cummins India has a ‘Neutral’ recommendation with a target price of Rs382.
In the long term, Nomura believes that India’s industrial sector offers the unfolding of a substantial opportunity in coming years. In particular, it sees potential opportunities in niche segments. Powergen is one of the best hi-tech niche segments.
The business forecast for Cummins India, according to Nomura analysts, is given below:
According to the CFO of the company, the overall economic slowdown is a big worry and that has led to the postponement of capex decisions, thus, hurting back-up power demand. A continued slowdown in capex decisions for industrial/ commercial projects could continue to hamper powergen growth beyond what is already visible, Nomura adds in its research note.
On the industrial segment, the Nomura research note mentions that the company had been doing well until now led by water well rigs (40% of the segment now) on the back of water scarcity last year. However, good monsoons this year could be a concern for the demand from this segment, in our view. Other bit of demand support for the segment continues from construction equipment original equipment manufacturers (OEMs) which are seeing increased offtake due to better export pricing.
On the exports side, according to Nomura, only 15% of the company’s exports in the high HP segment (2/3rd of all exports) are into the US, while Middle East, Europe/Russia and Africa contribute about 40% where demand is still declining. As such, hopes of a US recovery benefitting exports are misled, in Nomura’s view.
The CFO also expects that the replacement cycle of DG sets will elongate from the current 8-10 years to 10-15 years as the usage of gensets is decreasing following better power availability, concludes the Nomura research note.
It expects earnings growth to be 12.7% in 2014-15
Morgan Stanley Research, in its note on the stock market, is trimming its broad market earnings growth forecast for F2014 to -6% from 12% and is introducing an estimate of 5% for F2015. It has cut its Sensex earnings growth estimates from 10.5% to 4.1% for FY2014 and from 19.0% to 12.7% for F2015. Morgan Stanley has issued a new 12-month forward Sensex target of 18,200.
There is however, a 35% probability of a bear market scenario and hence, a 14% fall in the Sensex. These forecasts are shown in the chart below:
The research note suggests that RBI will reaffirm that high rates will linger (via a repo rate hike, for example) and the government needs to endorse fiscal consolidation (which could be at risk – a steep diesel price hike could be a good change). Both agencies are impeded; the former by the state of growth and the latter by the political cycle. Sans policy measures, the market will be punitive with prices (especially the Indian rupee) forcing macro rebalancing. In time, higher public savings and real rates will bring down the current deficit, forecasts Morgan Stanley.
Morgan Stanley’s (MS) research note also evaluates as what the stock market is pricing in. Its valuation template is the equity yield minus short-term yield as in 1998. A negative gap implies the market is not cheap. The market is pricing in 6M (six months) forward 9% nominal IIP growth (MS estimate 4%) and -5% one-year forward earnings growth (versus MS -6% F14 estimate) and it offers a 5.8% risk premium (below MS 6% fair level estimate). The problem is duration and not just the depth of price correction, concludes the research note. This means that it will take a long time for market cycle to turn up.