Nomura expects BJP-led coalition to form next government

Nomura’s political analyst, Alastair Newton, expects a BJP-led coalition to form a government at the centre. In addition Nomura sees India to begin economic recovery only from the second half of 2014, subject to a ‘stable government’

India’s economic recovery will happen only in second half of 2014 subject to a stable government says Nomura even as it sees the Bharatiya Janata Party (BJP)-led coalition forming government at the centre.

In a research note titled ‘Global Outlook 2014’, Nomura said one of the key reasons why it is cautious about Indian economy is politics in the country. “Political stability and policy credibility are paramount to corporates making long-term investment decisions. Politics is the key downside risk domestically. A third front government (a coalition consisting of neither BJP nor the Congress) or a fractured mandate in the upcoming elections would further slow the reform momentum and lower India’s potential growth,” the note said.

However, Nomura’s political analyst, Alastair Newton, expects a BJP-led coalition to form a government at the centre.

Talking about economic recovery and inflation worries, Nomura said, “With growth bottoming out and (Indian) inflation likely to remain stubbornly high, we expect another 50bp in cumulative repo rate hikes in 2014”.

Nomura said it expects the Indian economy to grow at 4.8% in 2014 and 5.7% in 2015, faster than global growth. Nomura expect global economy to expand 3.4% and 3.7% for 2014 and 2015 respectively, while the growth in Asian region would be 5.2% and 5.3% during the same period.

Nomura also forecast the Indian rupee touching 65.5 against the US dollar by 2015. However, it expects recovery to be a slow and gradual process. The note said, “Our forecast growth recovery is more gradual than India’s past cycles due to the leveraged balance sheets of corporates, higher non-performing assets on bank balance sheets and higher interest rates.”

“We expect inflation to remain stubbornly high due to elevated inflation expectations, food-related supply shocks and the recent upswing in rural wage growth,” stated the note.

Nomura has forecasted consumer price index (CPI), or inflation, hitting 9.3% (year-on-year) and 8.7% y-o-y for 2014 and 2015 respectively. Nomura also expects policy rates to be 8.25% by 2014 and 2015 as well. This is likely to slow down the Indian economy.

They feel that there is a likelihood of a bond index being introduced in India because the Indian economy cannot rely on external conditions for long, especially with risk of deficits widening and rupee depreciating. “Although external sector risks have fallen considerably, they could re-emerge early next year. India has managed to significantly lower its current account deficit due to external factors (better exports) and one-off policy restrictions (on gold imports). However, with the economy still running a deficit, capital outflows stoked by Fed tapering could put pressure the balance of payments once again. During this time, policymakers could announce India’s inclusion in global government bond indices,” it added.

The global report has opined other countries as well. They expect the US as well as Japan economies to sustain and grow, thanks to the monetary stimulus of the respective countries. The Euro area will be at a risk of “secular stagnation”, according to the Nomura note. Nomura isn’t bullish on China either, stating that tightening will happen which will slow down the economy. “We expect China's economic growth to slow amid policy tightening, while structural reform will gradually kick in, causing short-term pain,” the Nomura report said.


NSDL’s IPO scam case won’t go away

NSDL’s IPO case is a reminder that former SEBI chairman appointment was made under the most bizarre circumstances

The Securities and Exchange Board of India (SEBI) has challenged an order of the Securities Appellate Tribunal (SAT) letting off the National Securities Depository Limited (NSDL) for its role in the multiple-application scam of 2003-05 and more serious lapses in DSQ Software’s dubious increase in capital just after the dotcom bubble. This has happened soon after the third public interest litigation (PIL) questioning chairman UK Sinha’s appointment was thrown out by the Supreme Court (SC). On 19th November, India’s apex court has asked NSDL to file a response to SEBI’s challenge, giving a fresh life to the most bizarre, but hardly-reported, case in the 25-year life of India’s market watchdog.

CB Bhave shepherded the depository statute through Parliament as executive director at SEBI and went on to found NSDL and head it for the largest number of years in its existence. The depository grew rapidly and extended its operations into tax information and other areas, far beyond SEBI’s ambit.

NSDL’s aura of high efficiency was shattered after an income-tax investigation stumbled on a massive multiple-application scam which had gone unnoticed by the depository, even though the applicants brazenly consolidated thousands of allotments into a few depository accounts before the shares of a manipulated initial public offering (IPO) were listed.

It seemed astonishing that NSDL’s systems were unable to detect multiple applications. But what was scandalous is the saga after that. Under chairman M Damodaran, SEBI ordered an inquiry that indicted NSDL. The depository managed to raise a storm of outrage.

Soon after, Mr Bhave was appointed SEBI chairman, despite pending investigation and regulatory action. An artificial ring-fence was created around Mr Bhave to allow a fair investigation of the IPO scam to continue, but the signal from the finance ministry was clearly that NSDL was wrongly indicted.

In a strange twist, a two-member committee of the SEBI board again indicted NSDL and also discovered the DSQ episode. The report of 2008 lay buried for a year and was made public only when Dr Mohan Gopal, a member of the committee, went public after a PIL was filed in an Andhra Pradesh court.

Did this lead to action against NSDL? No. In fact, the SEBI board, in a bizarre decision, declared the orders of its own committee as void in February 2010! In the process, the board also ignored a legal opinion from none other than the late Justice JS Varma, an extremely respected former chief justice of the Supreme Court.

Finally, SEBI was asked to reconsider its order by the Supreme Court in July 2011. NSDL was then ordered to conduct an inquiry and fix responsibility for the lapses and it challenged the SEBI order before the SAT.

Meanwhile, the case dragged on; Mr Bhave’s term was not extended; this led to several PILs being filed against UK Sinha’s appointment which the apex court has recently called ‘motivated’. NSDL was also bifurcated, to set right issues with its regulation and supervision that Moneylife had pointed out.

Interestingly, in August 2013, SAT decided to quash SEBI’s order of 2008 (implemented only in 2011) saying that fixing individual responsibility at this belated stage was ‘unjustified and unreasonable’. SEBI has challenged the SAT dismissal, ensuring that the highest court in the country hears this sordid saga involving repeated perversion of power, motivated appointments to the SEBI chairman’s post and evasion of responsibility for the IPO scam.



Parimal Shah

4 years ago

It happens only in India.

mm sundram

4 years ago

NSDL, the first and largest depository in India, established in August 1996 and promoted by institutions of national stature that handles most of the securities held and settled in dematerialised form in the Indian capital market.NSDL is promoted by Industrial Development Bank of India (IDBI) - the largest development bank of India, Unit Trust of India (UTI) - the largest mutual fund in India and National Stock Exchange (NSE) - the largest stock exchange in India. Some of the prominent banks in the country have also taken a stake in NSDL. the current value of securities held in the depository is worth about US$1,334 billion. But this depository have accepted a fraudulently opened account without valid AGREEMENT Which is against the Depository Act and SEBI's guidelines. i can prove that this, largest depository having trillion worth of Rupees securities held in demat form, allowed the illegal operations along with delhi based brokerages and i have already got the Madras high Court's directions and filed FIR. but the SEBI, could not make any kind of action over this depository eventhough lot of NSDL's wrong doings brought black and white before the sebi officials. Tax payer's monies completely wasted and still i could not get back my assets of securities.


4 years ago

operational head india
singapore media and channel group

with regard to duty of NSDL neither the officials of NSDL nor the stock exchanges knew there is separate racket going and this is looting the indian investors trust and confidence when any investors raise or lodges any complaint that they are controllor for all DP in India they sherk the responisbility and they say that it had to be asked with concerned stock exchanges and when they control over all broking houses and all the exchanges as an journalist when we question to Shri prashant Prachada he would sherk the saying to it doesnot comes under the control as such the VP of NSDL itself is not sure of his duties and responsibility that is the state of affairs of NSDL india and they are paid heavily and this institution is wasteful expnediture without accoutnability it could be wounded up and concerned stock exchanges can have the control instead of separate institution is my opioion if need we would prove with valid proof which was issued by NSDL when questioned

Vaibhav Dhoka

4 years ago

Let us hope ills of Mr Bhave open before nation.The hope for common man in India is extremely bleak.In present scenario of Loot Lo,one cannot desist oneself if he gets power,KURSI is one every one wants to grab.

PFRDA needs more than a new chairman

Will the next PFRDA chairman be another bureaucrat on a sinecure after exodus of PFRDA chairman Yogesh Agarwal?

The process of appointing and supervising the many independent regulators in the financial sector is clearly breaking down. Over the past few years, Moneylife has repeatedly pointed out how independent regulators are not exactly pro-consumers even as they have been armed with extraordinary powers, due to the disinterest of the finance ministry and the parliamentarians on the standing committee of finance. Our attention was mainly focused on the capital market regulator, insurance regulator and the banking regulator.

The pension regulator, Yogesh Agarwal, flew below the radar because he operated without an empowering statute and also because the National Pension System (NPS) had failed to attract investors. Then, on 12th November, just two months after Pension Fund Regulatory and Development Authority (PFRDA) got its statutory teeth, came the startling news that Mr Agarwal has been asked to resign.

The exit came a year and half before his term was to expire and without any explanation beyond unattributed comments that he wasn’t getting along with finance ministry bureaucrats. My sources say that the PFRDA did not hold board meetings and there was some rumbling about frequent foreign trips and some questionable appointments at PFRDA during his tenure. He was even kept out of the selection committee to appoint whole-time members. Mr Agarwal has apparently chosen to remain silent about the reasons for his exit.

PFRDA oversees the defined contribution NPS which has over 5.3 million subscribers and a Rs35,000 crore corpus of mainly government employees on whom this scheme was thrust in 2004. When NPS was first launched, Moneylife was extremely bullish about the product as a safe, long-term investment.

However, in the absence of distribution commissions, neither banks nor independent advisors had any interest in pushing the scheme. Our view turned negative soon after Mr Agarwal took over and began to tinker with the scheme. Our view remained negative, even though the government tried to push the product by contributing Rs1,000 per year to each subscriber for four years.

In January 2013, Moneylife wrote, “A retirement product should be less volatile, small on charges, big on tax benefits and flexible after retirement.” We had pointed out that, over 2009-11, returns of the scheme for the unorganised sector had varied from 23.51% to -3.15%, although NPS investments are supposed to be strait-jacketed.

This is bound to scare away savers who simply cannot afford volatility on a pension plan. Also, if this was the volatility in just three years, what would be the fate of the pensions over 30 years? The product was further marred by high fixed transaction charges, which would deplete the savings of small investors, rendering the product unattractive for them. PFRDA also increased the investment management fee and allowed fund managers to revise it every year. For long-term investors, who are expected to lock their funds for several decades, this uncertainty and tinkering killed the product and Moneylife refuses to endorse it anymore.

Typical of India’s financial regulators and the ministry, these concerns were never even acknowledged, let alone addressed. Will things change now that the PFRDA chairman has been asked to go? Or will he merely be replaced by a retired bureaucrat after going through the motions of an elaborate selection process? The SEBI saga outlined in the next report only shows the urgent need for greater transparency and accountability in selecting independent regulators in India.



MG Warrier

4 years ago

The PFRDA came into being with a mandate to implement a scheme which was then called New Pension SchemeNPS) which had none of the features of pension schemes then existing in India. NPS has not so far stabilised as an investment option in the Indian Financial Market. Ther can be no two views on NPS as a concept which can, in ideal conditions graduate into an investment instrument for securing the objectives set forth in the recently passed PFRDA Bill. But the background in which the original NPS came into being in 2004 and the scheme’s progress so far do not generate hope. When conceived, its immediate ‘mandate’ was to eliminate the then existing defined benefit based pension scheme in government and public sector. Centre was in a hurry to give some alibi for not creating a pension fund. The Central government employees who were in service as on December 31, 2003 have a Defined Benefit Pension Scheme. The pension liabilities of central government which were being met on a Pay As You Go basis were becoming unmanagable. According to a 2008 estimate, the net present value of Centre’s pension liabilities was Rs 3,35,628 crore(6th Pay Commission Report,2008). Considering this staggering liability which grows proportionately with rise in inflation rate and periodical revision in pay structure, Central Budget, 2003-04 contained a proposal to introduce the new restructured defined contribution pension system for new entrants to central government service. The New Pension Scheme (NPS) for new entrants to central government service from January 1, 2004, except to Armed Forces, in the first stage, replacing the existing system of defined benefit pension system was thus introduced through a notification dated December 22, 2003. In the NPS corpus of about Rs35,000 crore, less than ten percent is accounted for by members outside the government and public sector employees for whom NPS has been made compulsory. Considering this background and now that the PFRDA Chairman has resigned in not so enviable circumstances, and already there are different views on overlapping jurisdictions of IRDA and PFRDA, really, NPS will have to take a rebirth to serve the purpose for which it has been introduced. A more detailed analysis can be found in my article on the subject published in The Global ANALYST, October 2013. TGA can be accessed at

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