At this juncture, the markets are poised on a tightrope. Here are three possible future scenarios—and the probable outcomes
We have come to a point where the markets seem to be on a razor's edge. Given the current volatility and the prevailing mood, one can predict three possibilities as far as the possible market's move is concerned. These have been given as Case I, Case II and Case III (See table). Case III, the best case, is an upside of around 22% from here, and my view is that it could take between 18 and 24 months to get there. If we factor in a 15% earnings growth in this year and the next, 6,300 should take around two years. It would then be trading at nearly 17 times earnings. I am assuming inflation to be around 7% to 8% and GDP (gross domestic product) growth to be around 8%.
(The table is a useful reference point. The market tends to correct when it reaches around 20X earnings and becomes investment worthy at levels close to or below 15X earnings)
So, if we get in today, we have a potential upside of around 22% and a downside (I assume that the markets could hit either 4,800 or 4,600) of around 11%. Clearly, the risk reward seems at very textbook odds of 2 to 1.
So, do we invest or not? My call is that we could wait this out. In two years, a bond could give you a return of 11% p.a. This would be taxable and we could avail of indexation benefit. In which case, the return would drop by around two percentage points, or around 9% per annum. The markets could give us 11% p.a, but it would be tax free! So, the market gives us a two percentage point extra, if things pan out as expected. Yes, it is likely that we could hit 6,300 sooner, in which case our returns would be higher (provided we sell out at 6,300). This point is also around the previous high on the Nifty.
One other thought that strikes me is whether the stress of the markets is worth taking on, for a mere two percentage or so extra returns. The world is going from one crisis to another and my positive outcome is dependent on the assumption that India is immune to most of the troubles going on in the world, since our economy is domestic-demand driven, among other factors. Being the worrier that I am, I think that it may so happen that our economic growth could slip. Our exports could slow down. Inflation may still be high. So many worries cannot vanish easily. The corporate earnings growth story is intact, but not a runaway factor.
So, does it not make sense to wait for some time for the markets to come down to 4,600 or 4,800? If I invest there, then I get a better return on the ride to 6,300. What if the markets do not come down to 4,800? Then, there is also a possibility that our markets will remain in limbo or a range from 5,000 to 5,400 for some months to come. I can always keep my money in liquid assets (which gives me a decent 8% plus) or buy some bonds. Assuming that things go well, I can sell the bond later at a good gain (for the markets to resume an upward momentum, I think that interest rates have to come down) and put the money into equities.
I also hear voices on global markets telling us that there is a slowdown. I think if that happens, our growth is certainly impacted. We will fall below 8%. If we fall, then it becomes a vicious cycle. All the freebies that the government doles out today, thanks to buoyant revenues, will take a heavy toll when the buoyancy dips. This will worsen the fiscal position and take us on a downward spin even faster. So, this is one more reason to be cautious about the markets.
If you are into a Systematic Investment Plan (SIP) in equities, do continue. Do not let some disturbances come in the way of your savings. SIPs are good if you have the patience and the persistence. What I discuss is perhaps more relevant if you are not of the SIP type.
What is the other possibility? Well, markets being markets, none of the above may happen in the manner that I foresee. It could simply run away to a new high, if there are sufficient funds from the FIIs (foreign institutional investors) into the markets. India may attract more money on the factor that "India is one of the two or three markets that are growing" theory and becomes a 'must own' market. In such a case, markets would get to an overvalued level quickly and can continue to defeat all my expectations. And I would not have been wrong on the markets for the first time.
(R Balakrishnan is a regular contributor to Moneylife. His email address is [email protected].)
The movement against corruption deserves a lot more support than it is getting so far. Because, the truth is that the target for other countries to "control" India will be the wealth of agricultural production and potential thereof which rests in the hands of the upwardly mobile rural poor. Who seem to be terribly unrepresented in the movement so far
You don't have to go too far from the bright lights and shiny malls of South Delhi to find out what the rural poor and people from the agricultural heartlands are doing or thinking about the Anna Hazare and India Against Corruption movement. But you do have to take time out, let go the bonds of metal and glass, and if you cannot go "upcountry", then at least walk through the lanes of what are called "urban villages" or "lal dora settlements", within Delhi.
There are a few such habitats, their main streets have become commercial hotspots where everything can be purchased at prices way below what is charged in the main markets nearby, and where the bylanes provide dormitory shanty town accommodation for the people who keep South and New Delhi alive and ticking.
Delhi does not have the benefit of a Dharavi-type urban "slum" of massive size in the middle of the city, so the toiling masses, mostly recently removed from their rural settings, largely live in these invisible enclaves, scattered within the "posh" areas nearby.
For example, Kotla Mubarakpur village, located between Defence Colony and South Ex-I (NDSE Part I); Sadiq Nagar village, located between Ansal Plaza, South Ex-2, Andrews Ganj and Lajpat Nagar-4; ZamrudPur village, located between Greater Kailash, Kailash and Lady Sri Ram College.
Each one of these "rural urban villages" is less than 500-1,000 metres away from the "happening" markets of South Ex, Defence Colony, GK, Ansal Plaza and Lajpat Nagar, and lie within a square of about 3 km by 3 km within some of the costliest real estate in India. There are a few more around, like Shahpur Jat, Hauz Khas Village and Bhogal/Nizamuddin, which have similar attributes, but they've also become important for other reasons. Almost all of them appear to go back in history a few centuries, if not more, with ample archeological evidence.
It is important to provide these geographical and other details, because there is a generation of young people growing up in South Delhi who have never been there, inside their bylanes. Likewise, there is a generation of people living in those villages who do not come to the "posh" areas unless it is for reasons of working there. And not unsurprisingly, there is a generation of media people who are from the first group-that reflects in their reportage too.
So, when I went on a cycle tour of these three urban villages earlier today, what did I see?
Sure, it was raining, so there was the usual overflowing gutters, mud, slush and more on the roads, and chaos. But, I also saw what nobody else seems to have picked up so far: crowds of people standing outside television shops, watching the Anna Hazare movement unfold in front of their eyes, just like they would if there was a cricket match on. Only difference being, the cricket running commentary as well as scores in the case of cricket would also be carried on radio, while in this case, radio simply pretended that the whole movement did not exist.
It was even more interesting in the case of Doordarshan (DD). Barring a very short mention about Anna Hazare's release, nothing else, back to the usual. Same on All India Radio (AIR), almost violently different from the cable and satellite channels.
Now, for a moment, imagine that you and I are in the real poor rural areas of India, where disposable incomes are still very low, and satellite and cable TV have minimal penetration, if at all. The only option, then, are the LPT (low power transmitters) for Doordarshan in the tea shop nearby, and All India Radio. Why is this so important?
Look closely at the crowds thronging the Ramlila Maidan venue (which I have visited a few times already) and the other venues all over the country. As pointed out previously, the composition is largely middle class and urban or semi-urban-the rural poor who make up the numbers are simply not present. At the same time, despite the best efforts of DD and AIR, it is not as though they are not aware of what's going on. So where are they, our rural poor?
To get an answer I spoke with some of the people watching television on the streets of Sadiq Nagar and then subsequently at Kotla Mubarakpur. Anecdotal, sure, but valid all the same, and then re-confirmed this with a friend who is an authority on rural banking realities. Here is what emerged.
# In rural Bihar, especially North Bihar, for example, the success stories on growing maize as well as fish are much more than what the out-of-date numbers would reveal. But just a few parameters, like seed replacement, as well as repayment of loans taken, for example, tells you what is going on. Add NREGA to this, where is the time for Anna, and how is he relevant in a state where corruption has come rocketing down and which has not seen a single farmer suicide for debt reasons over the last few years? This is in a scenario where land reforms have led to fragmented small land holdings.
# In rural Kerala, which is mainly the mountain parts, the ground reality is the opposite-huge estates and plantations escaped the land reforms that swept other parts of India for particular crops like rubber, cashew and some others. Now, rural labour that has picked up best practices from other parts of the country, and has some money as well as staying power, is making moves towards these huge tracts, taking smaller parcels on sub-lease or profit-share, and going through some amazing agriculture models for high-value crops being grown quietly within the plantations.
# I was supposed to head into the mountains of Kumaon over the weekend, but had to cancel the trip due to heavy floods that caused massive dislocation of road and rail routes, as well as damage to life, limb and property. Elsewhere in the country, too, floods seem to be doing more this year than they normally do. This is being reported on DD and AIR, along with relief measures, but seems to be largely absent from the private "news" channels.
# FM radio channels, of course, do not reach the rural poor at all in most cases. But even where they do, it appears as though the prohibition on them talking about news now extends even to providing updates on traffic jams due to the processions being taken out in support of Anna Hazare. It is often forgotten how the urban poor, who may have a mobile phone, but not much access to cable and satellite television, invariably have a small radio built into the said mobile phone.
To sum up, the update from an ear on the ground here is that the Anna Hazare/India Against Corruption movement, if it at all claims to owe any allegiance to Gandhiji, needs to take some rapid steps to go to the rural poor. And very soon. Which, in the excitement of being blinded by the bright arc and halogen lights of television, does not seem to be happening.
What is happening, however, is that a certain element of squabbling between some other organisations that are trying to get involved, seems to be creating not just static and churn, but also reducing the effectiveness. This, along with the visible presence of some people who can best be called "opportunistic carpet-baggers", is not going un-noticed.
This movement deserves a lot more support, from across all segments, than it is getting so far. Blindly. Because, otherwise, the country continues to get sold down the river.
And that is the real threat, the huge uncontrollable monster which emerges from not being able to control corruption, when those who do not have the interests of the nation, realise that they can continue to buy their way through. Matters are way beyond street level corruption now and the emerging rural agricultural strength of the country must be brought into the equation. Food prices globally are rising faster than energy prices, and while it is easy to talk about "development" of India being put to risk because of this movement, the truth is that the target for other countries to "control" India will be the wealth of agricultural production and potential thereof which rests in the hands of the upwardly mobile rural poor.
Who, as was said before, seem to be terribly unrepresented in Anna Hazare's movement.
RTI activist Subhas Agrawal is surprised that details of his query about Anna’s service with the army was sought to be misused by a ruling party spokesperson
The latest attempt by an embarrassed UPA government, to contain the protests that continue to build up in the movement for a strong anti-corruption law, has backfired. A Congress party spokesperson had challenged Anna Hazare's right to lead the fight against graft, citing alleged corruption charges against him, and claimed that Anna had refused to come clean on his army record, as was asked for in a query under the Right to Information (RTI) Act.
However, the reply that the RTI applicant received shows that Anna's army record is honourable and there is nothing more than what the 74-year-old Gandhian has claimed publicly.
Subhas Agrawal, the RTI activist who filed the query, is surprised over the episode. First, he is unable to understand how his correspondence with the Central Principal Information Officer (CPIO) was leaked out to Congress spokesperson Manish Tiwari. Second, the RTI application for which he received the reply was not filed by him.
"I have not received a reply to a query I filed on 13th April, in which I had asked six questions about Anna Hazare's army record and the qualifications required for recruitment of army drivers and cooks," said Mr Agrawal. "Instead, I received a reply to a 20th June query, which was not filed by me.
However, that application had eleven questions, on the same topics, and the reply to some of those questions shows that Anna Hazare had an unblemished career at the army and had won some medals before he was honourably discharged."
Kisan Baburao Hazare (who is today popularly addressed as Anna Hazare), as the Deputy Commandant & Appellate Authority ASC Centre (South), said in his reply to the 20th June query, that he joined the army as a sepoy in 1963, and was honourably discharged in 1983 on completion of his service. He received five medals, and did not suffer any punishment during his service period.
"I don't know who filed this query, but the reply was directed to me. May be it was a mistake on the department's part," said Mr Agrawal. To his original query, the CPIO had replied on 27th May that since the information sought pertains to a third party (Hazare), the CPIO had written to Mr Hazare to seek his permission for revealing his service details.
"But what surprised me more was that the CPIO's letter, that Mr Tiwari referred to in the 14th August press conference, was addressed to me in response to a petition, and I have no idea how he got hold of it." Since he hasn't received a reply for his 13th April query, Mr Agrawal has gone for an appeal.
In his appeal, Mr Agrawal has said, "I was shocked and surprised that the CPIO's said letter dated 21 May 2011 was referred to by a spokesperson of the ruling party in the Union Government in a press conference telecast by news channels, in a bid to defame Shri Kisan Baburao Hazare. I appeal that an enquiry may kindly be made as to how the said correspondence was leaked to a third party (ruling party spokesperson) without inviting objections from me, as is usually done by many public authorities including even the Central Information Commission."