New Delhi: Prime minister Manmohan Singh today wrote to Public Accounts Committee (PAC) expressing his willingness to appear before the panel which is going into the second generation (2G) spectrum allocation scam, reports PTI.
Following up on his announcement at the Congress plenary session, Mr Singh made the offer in his letter to PAC chairman Murli Manohar Joshi, sources said without elaborating.
Addressing the concluding day of the Congress plenary, Mr Singh had said he would be "happy to appear" before the PAC though there was no precedent and he intended to write to Mr Joshi in this regard.
"I wish to state categorically that I have nothing to hide from the public at large and as a proof of my bonafides I intend to write to the chairman of the PAC that I shall be happy to appear before the PAC, if it chooses to ask me to do so," Mr Singh had said.
Contending that the opposition was "falsely propagating" that government was shying away from joint parliamentary commission (JPC) to prevent the prime minister from appearing before it, Mr Singh said he has "nothing to hide from the public".
Mr Singh's letter to the PAC comes on a day when the Comptroller and Auditor General (CAG), whose report on a presumed loss of Rs1.76 lakh crore to the exchequer in 2G spectrum allocation created a storm in Parliament, will appear before the PAC.
The PAC will continue with its examination of the controversial allocation of 2G radio waves and Comptroller and Auditor General Vinod Rai is expected to put forth his point-of-view before the panel.
The CAG report has proved to be quite an ammunition for the opposition, including the BJP and Left parties, to target the government and it is insisting that only a JPC can bring out the truth in what they allege is the "biggest scam in independent India".
The entire opposition stalled proceedings in the month-long Winter Session of Parliament on the demand for JPC into the 2G spectrum scam that resulted in a washout of the session.
The decision to ask Mr Rai to appear before the powerful parliamentary committee was taken during its last meeting earlier this month. The committee has already invited views and suggestions on the 2G spectrum allocation.
A Raja, who has been questioned by the Central Bureau of Investigation (CBI) in connection with alleged irregularities in the spectrum allocation, was forced to resign on 14th November as telecom minister.
When the BSE introduced the IPO index, it hoped to capture “the current primary market conditions and measure the growth in investor’s wealth”. Strangely, we find there has been a decrease in wealth in the post-listing period. Why?
Initial Public Offerings (IPOs)are a great opportunity for promoters to sell shares at a very high price and for the investing public to make some listing gains if possible. Buying a stock that has just got listed after an IPO is a foolish idea. While a Moneylife study has proven this (Read 'How to play the IPO game'), here is one more evidence. The BSE IPO index has performed badly since its launch on 24 August 2009. The index closed at 1947.54 on the day of its launch. On Friday, exactly 16 months since its launch, the BSE IPO index was at 1,908.90, down almost 40 points. In the same period, the Sensex is up by 28%.
The Bombay Stock Exchange (BSE) launched the BSE IPO index to track the value of the companies listing subsequent to a successful completion of an IPO. The index currently has 72 companies. But this figure is continually changing, depending on how many companies are listed, as an IPO company is kept on the index only for two years.
What does the poor performance of the IPO index indicate? Simply that one should avoid buying a stock after listing, especially when the IPO pipeline is robust. When the BSE introduced the BSE IPO index, it hoped to capture "the current primary market conditions in the Indian capital market and measure the growth in investor's wealth within a period of two years after listing of a company, subsequent to successful completion of an initial public offering (IPO)." As the index shows, there has been no "growth in investor's wealth" post-listing. The BSE, like everybody else blindly assumed that investor's wealth usually grows post-listing. This happens only in exceptional circumstances-when IPOs are made in a depressed market.
The BSE went on to argue, "robust growth of the Indian economy, 6.7% in 2008-09, and the expectation of higher growth in the future are expected to boost the primary market. For this and other reasons, it was an appropriate time to introduce to the market an indicator that will track primary market conditions in the Indian capital market." The "boost" in the primary market that the BSE is talking of is only the exorbitant high prices at which promoters are able to sell their IPOs, making sure that the index does not perform, contrary to the BSE's hopes!
Moneylife spoke to a few experts, all of whom said that high valuation of the IPOs is the main reason for the poor performance of the index. "Most of the IPOs come with high valuation. So there is a possibility that a majority of them will not give much returns," said the vice-president of the research unit of a leading brokerage firm who requested anonymity. This view was echoed by Rajesh Jain, executive vice-president (retail research), Religare Securities Limited: "High valuations are one of the main reasons for the index to fall." He argued that the movement of the secondary market was another reason for the downtrend in the IPO index. "Since its launch, the BSE IPO suffered a small dip then remained steady. From March 2010, it went up and did well till mid-September, reaching almost 2,340 levels. In November, there was a sense that the market would correct. This took a toll on the IPO index and it's been down since," Mr Jain explained.
According to Vivek Mahajan, head of research with Aditya Birla Money Ltd, over the past couple of months, most of the IPOs which have hit the market have performed miserably, including government sponsored ones. Aggressively high valuations of IPOs is leaving nothing on the table for investors. This is the reason for the poor performance of the index.
The fact is that, usually, IPOs are bad bets if you buy them after listing. The Moneylife study 'How to play the IPO game' (a research and analysis of 107 companies that have listed in the past three years), concluded that investors should avoid IPOs after listing. In the report we provided three scenarios for an investor to invest in IPOs, out of which only one is a winning strategy and the other two are not.
The first option, 'Buy and hold for the long term', leads to losses. According to our research, 60 out of the 107 companies that have listed in the past three years are now trading below their issue price. A 44% chance of making money on one's investment is hardly encouraging.
The second option, 'Buy at listing and hold on to the investment' again doesn't help. Our research suggested that of the 107 public issues over the past three years, as many as 65 are now trading below their listed price, giving investors only a 39% chance of getting something back on their investment in this scenario. This explains why the BSE IPO index is down.
The third option, which is a wining strategy, is 'Playing the flipping game', that means subscribing and then flipping it on the first day. Our research showed that an astounding 95 stocks that hit the market in the past three years got listed above their issue price. This gives the investor has an 89% chance of adding value to his investment on the listing day itself.
Little inconsistencies do not seem to bother forecasters. They are never wrong, they just change their mind
It is often traditional for commentators at the end of the year to make predictions about the coming year. Since I was not born with the gift of prophecy and cannot see the future, I have decided to do the next best thing. Rather than make predictions myself, I'm going to examine other predictions.
No analysis would be complete without a review of predictions from the most influential analysts and economists at international banks. These banks, including Goldman Sachs, Credit Suisse, UBS and Morgan Stanley, Bank of America, JPMorgan Chase, Citigroup and Deutsche Bank among others, employ vast armies of experts trained to read the entrails of the global economy and predict the future.
It is not surprising that many other predictions are heavily influenced by the present. For example, 2010 has been an excellent year for commodities and emerging markets. Goldman Sachs feels that these trends will no doubt continue. Last year a weak US economy moderated global demand. "This is likely to change in 2011 with a stronger US that is likely to bump up against a China that is consuming dramatically more commodities than pre-crisis." Logically they predict that "the raw materials most affected will be those with the tightest supply, including crude oil, copper, cotton, soybeans and platinum." Of course, gold is included in this prediction. It is supposed to rise to a new high of $1,690.
One major element of this prediction is that China will continue to grow and its demand for commodities will continue. In the past, this has been a relatively safe prediction, but it may not be true this time. For example, Morgan Stanley predicted that Chinese inflation would be moderate in 2010. Instead it has grown rapidly. From 3% it is now above 5%. The voracious demand for commodities from China in 2010 has increased their price which has increased Chinese inflation.
To deal with that inflation will require substantial tightening and slowing of the Chinese economy. The Shanghai Composite Index has been expecting this Sword of Damocles to fall for most of the second half of 2010. As a result, despite the predictions, it has performed poorly. It is down over 10% in 2010 in contrast to US markets, which are up about 10%. This is a dramatic contrast to an 80% spike for the Chinese market in 2009.
The expectations of the Chinese markets were satisfied by the Christmas Day hike in interest rates. While the interest rates themselves may not yet have the effect on the Chinese economy that one would expect in a Western market, it does send a powerful signal.
Getting China wrong is not that uncommon. Goldman Sachs predicted that the Chinese economy would grow by only 6% in 2009. In fact it grew over 9.3%. One of the reasons for inaccurate predictions has to do with the expert's cognitive bias of anchoring. They have a stake in seeing their past predictions come true. As a result they may not want to consider information that contradicts their forecast.
The changes are evident to Yu Yongding, former head of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences and Chinese central bank's monetary policy committee, who wrote that "[China's] growth pattern has now almost exhausted its potential. So China has reached a crucial juncture: without painful structural adjustments the momentum of its economic growth could suddenly be lost."
For the US market, forecasters are predicting "a low US real interest-rate environment will continue in 2011, particularly given the resumption of quantitative easing measures in the US." The problem with this forecast is that quantitative easing has not resulted in low real interest rates in the US. When first announced, interest rates for 10-year US treasury bills were below 2.5%. Now they are above 3.5%.
Little inconsistencies do not seem to bother forecasters. They are never wrong, they just change their mind. In October 2010, Goldman Sachs predicted that the US economy would slow to 1.8% from 2.6%. By December, they had a change of heart. The forecast has increased almost 40% and they now predict that the US will grow at 2.5% through early 2011 and then almost double to a 4% annual growth rate.
The reality is that the predictions by these experts are basically worthless. Professor Philip Tetlock from the University of California did a study of 82,361 forecasts by 284 people who made their living making forecasts. What he found was that "Human beings who spend their lives studying the state of the world, in other words, are poorer forecasters than dart-throwing monkeys."
So why bother with predictions at all? Investors do not need to know whether the prediction is right or wrong. To profit, it is important to understand the extent a prediction influences the market, so they can profit when the truth finally becomes known.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])