Policy reforms pick up, downside risk to growth reduced: Morgan Stanley

GDP growth will return to a higher slope curve, with policy reforms from the government, says Morgan Stanley

The government has initiated bold measures to reduce the fiscal deficit and revive private investment in a meaningful manner, according to Morgan Stanley Economics Research. The diesel price hike by Rs5 per litre and the decision to allow FDI (foreign direct investment) in multi-brand retail and aviation at a higher level are just two examples. This needs to be pursued further as given below:


First, accelerate the implementation of major public policy reforms. These include:


• Strengthening institutional capacity to allocate critical national resources such as land and minerals to the private corporate sector in a transparent manner for rapid industrialization.

• Enacting the Goods and Services Tax Act (GST)—value-added tax.

• Strengthening institutional capacity to manage the awarding of major infrastructure projects through public-private route, which should increase transparency.

• Building a comprehensive plan for energy security along with a systematic program for energy pricing reform.

• Initiating fiscal consolidation that aims to reduce the national government deficit and improve the mix of its expenditure towards development spending.

• Initiating policy measures to boost the productivity of the rural workforce and manage rural wages growth to a more moderate level matching the trend in productivity.


Second, the government needs to identify and fast-track 25-30 large infrastructure and core industrial projects: Some of the public policy reforms highlighted in the first part above are likely to take time to be reflected in the growth numbers. Hence, Morgan Stanley believes that in the near term there is an urgent need to accelerate investment growth with concerted effort to achieve it. The government could support speedier implementation of projects that are already under way, or else encourage new projects that can be taken up for execution quickly to ensure that investment activity is revived in a more timely fashion. These projects could be those that have a limited call on land and mineral resources.


Morgan Stanley believes that the government should focus in particular on infrastructure investment, which can be taken up in a counter-cyclical manner, because weak global sentiment could weigh on manufacturing investment. For instance, many Indian cities need a jump-start in critical urban infrastructure facilities and the central government could provide a capital grant of about $10 billion to initiate projects worth $40-$50 billion.


Morgan Stanley says that that in many cases the plans for such infrastructure projects are ready but they need a determined push from the central government. With the government providing leadership in policy reforms, the downside risk to growth is reduced and the GDP growth will return to a higher slope curve.


Stock market heads for all-time high in 2013 in India?

Conditions for a new bull market are slowly getting satisfied. The yield curve has stopped flattening, liquidity is improving, valuations appear supportive and profit margin expansion is a growing possibility in the coming months, says Morgan Stanley Research

Morgan Stanley has rolled out its market target to December2013 as 23,069. This implies that the market will be trading at 14.9 tines the FY14 estimated Sensex earnings in December 2013.


Morgan Stanley is expecting the Sensex earnings growth to be 10% and 19% in FY13 and FY14. Significantly, broad market earnings may have troughed or could trough in the current quarter. Revenue growth should slowly accelerate in the coming months. Margins could rise in the coming months with a favourable base effect driven by the relative movement in the current and fiscal deficit. Interest rates are already down YoY (year-on-year), and should stem the steep rise witnessed in interest costs in the previous 12 months. The risk to earnings is that the investment rate collapses, although recent signals suggest that the public sector is starting to spend money.


The \key risks are that commodity prices rise quickly, bringing inflation pressures to the fore, and global risk appetite wanes as global policy makers slip into another cycle of complacency. Mid-term polls are also a possibility, but it is not necessarily seen as a downside risk to stocks.


Morgan Stanley observes that the decisive policy action at home (reduction in subsidies and opening up of FDI) and, more crucially, concerted action by European and US central banks have reduced India’s tail risk linked to poor macro stability (twin deficit).


Accordingly, the research agency has gone underweight on consumer staples and has raised energy and materials stocks to overweight. Also, it has taken industrials to neutral. It has trimmed technology by 100 basis points. Consequently, the average sector position has expanded, and it is seen as an emerging strategy, as the average correlations of stocks to the market appear to be falling and no longer merits extreme focus on stock picking.


Kejriwal's party would be different path for same goal: Hazare

Anna Hazare said even if he did not enter in to electoral politics, there is a need to determine the direction of his movement and send good people to Parliament

Pune: Affirming his views on not forming a political party, social activist Anna Hazare on Tuesday said floating a political outfit by his associate Arvind Kejriwal would mean "taking a different path" to reach the same goal of corruption free India, reports PTI.
"I have decided for myself not to form a political party or fight elections. But if Arvind floats one, it would mean taking a different path with the same goal of corruption free India," Hazare told reporters when asked if creation of a political party by Kejriwal would mean a split between him and his mentor.
Hazare, who was in Pune to meet some activists to discuss the course of his movement, said if Kejriwal's party fielded candidates of "clean character", he would support them in elections.
"If Arvind's party fields a proper candidate, we will support that particular person and not all of them," he added.
The anti-graft crusader said he was going to hold a series of meetings with like-minded people as even if he did not enter electoral politics, there was a need to determine the direction of his movement and send good people to Parliament.
Hazare said he would undertake a nation-wide tour to seek direction to his movement by interacting with experienced social activists.
"The exercise has started with the Pune meeting and it will continue in Delhi where I am expecting 100-125 activists for discussion," he added.
Those who met Hazare in the city included Right to Information (RTI) activist Vishwambhar Choudhary and social worker and former bureaucrat Avinash Dharmadhikar.



Black Mamba

5 years ago

Now the Arvind Kejriwal has formed a political party. I put forward my demand of the following reforms as an Aam Aadmi:

1. Banking & financial sector reforms - more transparency in banking system, not hiding large corporate & political defaulters & NPAs in the name of fiduciary relationship, efficiency and profitability. All banking sector frauds to be dealt with severe punishment. It is public money, It is our money, we can not allow Corrupt Public Sector Bank Officials to plunder it on Selfish Politicians and Greedy Industrialists

2. Reversing of pressure on Urban India by rural development - development of rural cottage handicraft industry, re-fueling and kick start of co-operative sector like AMUL. Rural self employment, farming productivity and efficiency, rural infrastructure and transportation development, more Govt investment in rural economy, industrial investment in deeper rural and Adivasi areas.

3. Adivasi rehabilitation and development Bill- To end the maoist and naxalite problem.

4. Imm. Stop plundering of natural resources by mafia - Jungle wood smuggling, illegal ore mining, illegal sand mafia, illegal stone crushing - all owned by politicians and their relatives.

5. Social reforms - Reservation in promotion, reservation in basic and higher education 'only for economically weaker' SC ST BC OBS and Minorities. No reservation for creamy layer in SC ST BC OBS and Minorities. Dissolve caste ism by social reforms involving all castes and religions.

6. Petroleum reforms - Policy on cost cutting of on domestic oil exploration. Consumer fuel retail pricing policy, fuel adulteration, deregulation of fuel prices, low fiscal burden, promote alternate fuel generation of Bio-diesel & ethanol. Disinvestment in domestic oil exploration. Fix the profit margin % for oil companies, reduce dependence on kerosene as cooking fuel.

7. Agriculture & Farming - Productivity, prices, land acquisition laws, stoppage of Change of Land Use for commercial gains, safe storage of food grains, stoppage of alcohol production from food grains.

8. Judicial reforms - safeguard the right to life and liberty, independent and impartial judiciary, more fast track courts for long pending civil cases, more judges in High Courts for fast clearance, rural courts (gram nyayalaya), judicial procedure, crime investigation, self governance, decentralization of higher courts to reduce pressure on them.

9. Constitutional reforms - end of archaic colonial era laws & acts.

10. Policing reforms - end of police bad behavior, third degree, fake encounters, police brutality, inhuman behavior, refusal to register a case, atrocities, corruption, political interference, minimum educational qualification for even a constable, increase in salaries of lower police staff, working conditions, end of rigorous duty hours of policemen.

11. Electoral reforms - End of dynastic system, minimum educational qualifications for a person to contest the assembly and parliamentary elections, right to reject, right to recall.

12. Power sector - Generation, theft, losses and tariffs.

13. Educational reforms - Basic & high end education both.

14. Vigilance reforms - Vigilance bodies in all departments to be quasi judicial, autonomous and with statutory powers.

15. Health & medical reforms - Immediate national ban on all tobacco products - cigarette, bidi, khaini, zarda, gutkha etc.
Slap very high excise duty and taxes on both country liquor and English liquor to compensate for loss of exchequer from stoppage of tobacco products. State sponsored medical insurance for BPL.

16. PDS System reforms - Cancel all fake ration cards, stop black marketing in PDS,

17. Investigating & intelligence agencies reforms - CBI, IB, NIA, ED etc to be transparent, autonomous, statutory powers in them, zero political interference.

18. Environmental quality - Stricter norms for vehicular and industrial pollution. Immediate ban on plastic packaging in the retail and industry sectors. Plastic bags, plastic pouches to be immediately banned. Strict criminal action for non compliance – cancellation of industrial licenses, harsh fiscal punishments. Stop polluting rivers and ground water of India.

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