Thursday, June 25, 2015

Why to blame RBI if they are cautious?

Where we are heading and what we are trying to do is a question of big thought. The latest report of the RBI raises many silent time bombs of financial explosion in India and across the globe. Stock brokers, Analyst and Fund managers are busy is critising  the reports of the RBI as RBI gave a very clear practical picture of the economy. Unpractical, illogical rate cuts expectation will only cheer the Forward PE but not the macros.

My readers are welcome to ignore the same or they might shut their eyes from reading the article. But I am compelled being an economist to depict the true picture of the global as well as where India is standing. Forward looking PE is the key concern and we are all busy in improving the projections story to be a love story rather a Hollywood movie. I am not going to give any statistical numbers neither I am trying to prove any theory. I am depicting what we all see and what our internal minds speak when we start the day each morning.As an economist my duty is to depict the truth and not a Forward PE based game.

The weak condition of the economy is very clearly shown through the eyes of the Finance minister who went to convince the US business society to do investments. This proves that fundamentals are not in position to bring investments and moreover today’s investors across all segments are well informed. India thinks that they will export and the global markets would be consumer markets. Well that’s a wrong philosophy. All employment and capital investments would come here and we will be the manufacturing hub and export can’t be in real terms. Every economy knows that drawing capital investments is the path to recovery. So we need to focus on internal demand creation and consumption of goods and services rather than going for begging to the foreign countries.

Lest get into glimpses of few facts:

Service tax hiked to 14%. Trillion logics to backup the same one logic say that inflation and consumption both takes hit. In a country like India having population of 130 billion, where more than 60% struggles to make a living don’t you think that taxation policies should be focused towards those 60% of the population. Inflation in coming months would shoot up since crop season timing was delayed and secondly service tax would spook the burden further. So better monsoon will not be suffice for the long term justification of the Forward PE.

We are expecting and also the fund managers, stock brokers are expecting that RBI will go for another rate cut so as to boost the sentiments of the stock markets. What is the use of such rates cuts if they are not passed to end users and secondly due to thing companies are in position for taking loans as their books are total under huge leverage positions.

Global markets are under pressure and will screaming under pressure. Reasons are simple they have also learnt how to fool people and hide and manipulate data at the optimum level.  Greece is not alone its all brothers are almost bankrupt and awaiting for their own turns.US dreams for rate hike but how many days they will keep the rate hike is a big question to  me. Growth etc all stories are okay as long as Jeb Bush and Hilary Clinton fights. Sustainable economic growth is the biggest question but understood less by the people across the globe.

 Current Export market of India is weak as demand is lackluster hence we need to focus on domestic consumption Now if service tax is high then obviously the manufacturing would not grow as consumers will consume less.

Further rate cuts would leads to restructuring of existing loans and private as well as PSU banks would get more hit. The stock market community is busy in just sketching stories of increasing the earning expectations.  Forward looking PE is the key factor.

We are aware that in a country like India where bank penetration is limited and access is limited we are not developing any robust and aggressive policies to bridge the gap. We are not focusing on developing products from the house of Mutual Fund and Insurance industry to cover the untapped segment. Well when a bull market begins we forget principles and we focus on repeating quarterly numbers and our salary numbers. We don’t focus on income inequality in India.  We are looking forward for Alternative assets for investments which will disappear once the equity and macro economic factors goes for a wild swing.

We don’t focus that Indian banks are skeptical in proving loans to entrepreneurs where the entire ministry of India across all segment are giving political lectures to develop and promote entrepreneurship. Chamber of commerce across all segments conducts seminars to promote entrepreneurship and innovation but how much support they get in terms of access to capital.

Well forget about capital. How many are educated enough to understand the innovation and entrepreneurs minds and their projects in India. Forget about the central government politicians since major of the research and innovation is dependent on the state government levels. How many ministers are there in various states to understand the innovation projects?

We are talking about India is going to be Defense export hub over the next decade. Well how much capability Indians have to understand the subject which is developed by an Indian. We doubt our own abilities. We want capitalism and also growth path designed for 5 years terms after that scam begins.
We are begging in other countries where as we are not exploring our won consumption demand which will create manufacturing demand. If India is low cost of producing country then imagine how economies of scale of business would help to reduce the income inequality in India  and help to grow the economy. If Investors are focusing to get positive clues my only advise look before you leap.
Why to blame RBI if they are cautious?

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