Sunday, May 28, 2017

WHY MERKEL AGAIN????

Angela Merkel have played enough and now it might be time for her to move ahead since she is just getting austerity gifts every year for the troubled Euro-zone countries. The economic situation at the macro level has destroyed whereas the number of growth might be deceptible.  Being an Economist all I can she doesn’t underrated the subject any more. Greece economy is just under the period of World WAR 1 currently. 40% of retail business closed down between 2014 and 2017. The birth rate has dropped to World War I levels because few couples can afford children. Overall, GDP has dropped by 27%. Well Greece is not the only member in this club. Countries like Spain, Portugal and Italy also reporting dangerously low rates. Low birth rates means low consumption ,low economic growth as the economy will lag hugely in getting young generation in work over the next 20 years and hence the economic slow growth will be fearful.What she is doing is just keeping her position alive at the cost of Austerity.Time and Economic Theories have changed and now its time for some revolution to get growth.

Unemployment is the most important reason and the devil behind is Austerity measures imposed, discussed and implemented by heads of the Euro-zone decision makers who themselves have less at stake.   Merkel did a fantastic job by going for austerity measures and saving the Euro-zone from collapse but what she has done and the effect of the same will be dangerous and she will not be at that point of time manage anything. The common people of Greece and other member states are the prime suffers of the dramatic fall of life. Unemployment is Greece is around 23% where as for men it counts to 20% and for women it’s hopping 27%. Youth unemployment which is big damage for the long term growth of the economy is a whopping 48 per cent.

Low birth rates and poor economic conditions provoke people to opt for crime which is another big threat to the society. In French its being found that birth rates have fallen to the lowest level in 40 years. No jobs, no earnings, no future so why to get child land upon such a state of economy. Economist will find its hard to dig into the depth of pain and mentality ruling the people in these states where such dramatic step have been taken forward.

Austerity have never been  solution which many economist cried but all in Vain as Merkel was more focused in playing her flute. I don’t find any reason for re appointing her and getting the whole of Euro zone will be escalated to a further long term slow growth in macro levels which will not get captured in Manipulated economic numbers. Those who are betting on Greece Economic growth numbers well Greece's budget had a primary budget surplus  but that is, excluding debt repayments which is estimated at as much as 4.2 per cent, and that’s too depending upon the depending on accounting procedures. If there is a change in accounting procedures then debt might not reflect whole of it now which pushed the GDP numbers.

More austerity is in the wings to come as Greece's debt burden has actually got worse. It is at 179 per cent of GDP compared with around 109 per cent in 2008.  Another round of debt funding will come and this story of debt will keep revolving followed with Austerity. What Greece needs is write off the entire debt or let Greece be out of Euro zone.It time for Merkel to leave the position and let some new blood come up to look over the same subject from a different perspective. 

Thursday, May 25, 2017

US BUDGET,CRUDE SALES , GEOPOLITICAL RISK AND INDIAN TAXATION REFORM

US BUDGET will be passed and it will back by huge spending on that asset class which were ruled y some other countries historically. This is what Made in America will mean over the next decade under Mr. Trump. He is clear that he will eradicate all those countries that were making a living of billion dollars at the cost of his country. OPEC will have to continue for a lifelong cut down in prices and I find more pressure to build up as cheap crude from US economy will enter the markets.

The federal government has stashed away nearly 700 million barrels of oil out which 50% is being taken by the US President to sell in the near term. This selling will fetch the US $16.6 billion by 2027 for its Ambitious Budget funding. This will freeze the spines of many crude producers and will throw out many competitors out of the market for good. Those who are betting on price hike and price down I leave the battle to them. These sales will happen since funding the ambitious budget expenditures will be a key game   and selling crude will help me make this possible. Now it’s a winning proposition for all those countries who import crude. Congress had already recently approved selling down some reserves to raise money for various domestic programs. The administration now wants to increase those sales. Hence this is easier to do since rising interest rates will put pressure on the Earning and GDP growth and hence Government based inflow of capital is highly required which can only be done through sale of this crude reserves. Congress authorized sales from the stockpile in 1996 to pay for deficit reduction, marking the first time it tapped the reserve for reasons other than its stated purpose.

Now war at this point of time will fill up the kitty of the sellers of Crude which will be other side winning proposition for the crude exporters. Its very balanced and wait and watch outlook to figure out how the global crude imbalances will move further and how US will fund its Ambitious Budget.Well the sellof will not be overnight and it will be done judiciously and only thing to keep an eye is on Geopolitical tension which leads to huge use of crude which finally increases the demand.

 As I always dig into some hard core analysis I find that this ambitious crude sales plan have been pushed previously also and now As MR. Donald belongs from the business community he is now being persuaded.  ExxonMobil, which lobbied for congressional bills in both 2012 and 2015 calling for selling this crude in open market was refused hence now it has again started the lobby. Exxon, as well as the American Petroleum Institute (API) and the Independent Petroleum Association of America (IPAA), have long lobbied for this resource to be tapped. This will be big event to watch that how Trump will play his cards.

On the other hand as a member of the International Energy Agency, the United States must store enough petroleum to equal at least 90 days of U.S. crude imports, currently as on last September it  held equivalent of 141 days of imports .

Crude will keep the global economy volatile and much of the long term fiscal prudence In India depends upon its taxation reforms since if crude prices increase tax revenue will help the Indian government to keep floating with a  smile despite of high price of crude paid in dollar terms.

Sunday, May 14, 2017

WHY US WILL REDUCE TAXES and Repatraite Inflows

The latest data of the US consumer reflects that US economy is now convinced and discounted the June Fed Rate hike. This hike will obviously impact the economy in the long term. On the other hand US stock markets will now get the real picture of its valuation gaps since around $ 3trillion have been deployed to create new historic highs for the Dow Jones. Now with interest rates coming down easy money is no longer available and hence deployment has already started plunging.  

This is supposed to plunge further which is very much known to us. What we don’t know is that as buy back comes to a halt slowly we will find skeletons of many companies in the Dow Jones coming up as performance of numbers are pathetic. This will lead to slow down fall of the equity markets. Now the only trigger which was expected and also is being expected is the Tax Relief Proposed by Donald Trump which will give some leeway to the buy back as cash savings will go up for the companies. Don’t forget that Buy Back of Shares have been big game for the US markets post recession. So it’s quite impossible to let Dow Jones plunge. 

Hence it might take some time for Donald to come up with reforms in the Bills of taxation but he has to come up one day very soon. On the other hand repatriate trillions of dollars in overseas cash is another angle which will looked upon and might become reality since the same funds will be used to Buy Back shares which leads more growth for the Dow Jones. This inflow of capital will be sufficient to reward the share holders and make trillion out of the same. 

Currently for US investors its time to exit the Index ETF categories as buy back has less ammunitions hence a sell cant be ruled out. ETF flows, which have been strong all year, continued strong in April. Roughly $42 billion in net new money came in, which is roughly the same inflow we have seen every month this year. The four month total is now $170 billion, the highest level for inflows in the first four months. The inflows are based on the assumption that Dow Jones will scale new heights and hence buy back of shares and income tax cut down and repatriate trillions of dollars will spook the ETF returns. But unfortunately plunge is significant in buy back of shares . The only catching point is that Donald will come up with policies which will support the buyback of shares in replacement of Zero Interest rates. Well when US will cut down tax and why is very clear now.

Thursday, May 11, 2017

TECHNOLOGY AND LACK OF VISION LEADS TO NPA IN BAKING INDUSTRY

Management failures have been always a unique case study for the management itself to identify the loopholes and the mistakes committed through wrong decesions. We are running and raising our voice for Vijaya Mallya and his NPA matter but do you know that corporate management science have failed more bitterly in professional way where business and NPA have been sold at the cost of Tax payer’s money. At the same time  digital disruptions have become a quite well known phenomenon and at the same time the quality of business operation have changed dramatically.  Companies and its management are always on verge of collapse. Technology is replacing many large organizations to lose business. Well Indian IT industry has been one of the biggest examples of having such an affect of disruption where large players lost business to the small ones as they reduced cost and improved margins of their clients which finally lead to lose of business for the big cats of the industry. On the other hand another aspect is getting into short term industry growth projects a company many have any existence buy under the Dream of Diversifications enters into the business and end up with sell off at the cost of Tax payers money.

 There are many companies in India where one will find that key management took the decision of focusing on non core business just to get short term revenue jumps and at the same time reflected down turn in the core business. Managements rather focusing on reviving the core business went for non core business and after taking huge leverage position ended up with huge loses and high  NPA levels.  In order to get relief from the piled up debt levels they sold their stake and again focused on the core business. 

Biggest ever Sale of Indian Corporate Assets in Indian History
Jindal Steels is selling 49% of its Rail business, 5% of its Energy exchange and its 3,500 MW Power plant
Essar is selling a huge stake in its Steel business and 49% of its Oil to a Russian Oil business
GVK sold 33% of its Bangalore Airport stake as well as its controlling stake in Bombay Airport and its complete Road assets
DLF is selling its Saket Mall and 40% of all its Rental Assets and Land Assets
GMR Highway Projects, South African Coal Mine, Istanbul Airport, 70% in a Singapore Power Project, 2 Coal Mines in Indonesia
JP Group sold all its Cement Assets to Ultra Tech Cements
Yamuna Expressway stake, Power to JSW Energy
Tata is selling its Corus Steel in UK.. Dhamra Port, Communications Arm Neotel in South Africa
Land in Bombay Lanco Assets in Power Generation on sale in Andhra and Udupi
Videocon selling Telcom Spectrum in 6 circles. Oil assets in Mozambique
Renuka Sugars is selling its Brazil Power, Sugar and Bio-fuel business
Sahara groups 86 Real Estate Assets are on sale.. 42% stake in Formula 1, Mumbai's Sahara Hotel, Grosvernor House Hotel London, New York Plaza Hotel, The Dream New York Hotel and 4 Airplanes
Reliance Infrastructure is selling 49% in Electricity Generation, Transmission in Mumbai
Cement business to Birla Corp.. Also it's entire Portfolio of Road Projects, 100% of it have been disposed off
The above transactions reveal that how management of these organizations went toward the non core business and how they ended up. Rather focusing on core business, experimental business lead to growth of NPA and poor management image reflecting poor share prices and weak support from investors and markets. They have wasted the wealth tax payers and no one will blame them for their wrong decision. This is the one of the live example of how corporate have exploited the resources  and what price they paid for shifting their focus to non core business models rather strengthening the core business. 
 This is a well known fact as on today that technology is changing the business model and monopoly. The most important part is that due to technological shifts and late arrivals of companies to catch up with them leads to over leveraged positions which lead to an immense pressure on the cash flows. Organizations fails to catch up with technology and takes all other traditional sources to leverage the business and market holding which leads to excessive borrowings.

 These borrowings are disguised under the name of business growth and expansion but they hardly generate ROI/ROA and they end up with a mess on negative net worth. This is the very place where NPA seeds gets planted and grows over the years. The point is NPA growth will happen if one is lending to an organization which under the drowning industry. Bankers needs to be educated enough to understand which industry they are lending and macro factors behind the growth of the industry and how the company is well aligned with the same. 

Technological shifts are changing the landscape of the companies hence their cash flows too. This disruption in cash flow is an indication for that industry or the company which a banker needs to know. This is the key area where NPA will come up and hence the whole economy goes for a toss.  Today’s managers are focused towards short term goals and profit targets and no one knows about the ROI the company has achieved. When the managers of an organization becomes aware of the underline numbers business takes a new shape and growth path. Mere only creating targets and business objectives will not be suffice as business models are getting changed and technological acquisition of business is changing the revenue models. Flush of capital into traditional practices like hiring more high paid executives will not drive business growth.  NPA is not always due to deliberate political driven segment but often happens due to late shifting of business models from traditional profitability to new future profitable avenues.

I have found and I have worked with those people who focused only on short term and thought that if my branch target is achieved I have made a significant contribution. This is where the management falters to indentify that where the next level of growth of Industry will be coming up. They fail to miss the technological growth drivers and go a long way on the traditional path and loose the competitive advantage to some peers group and in order to revive the fallen business share invest huge capital which also goes for a tailspin.

Its being proved that expanding into another venture needs realistic approach and not based on short term triggers. All the above business failures point that either technological disruption or non focus on core business lead to the collapse of the best organization in India. 

Monday, May 8, 2017

NEW OPPORTUNITIES FOR PRIVATE EQUITY AND STOCKS UNDER GST


Well which stocks to focus once GST comes over in the next couple of years is going to be a big event and identification of stocks is going to be another broader gamble. What is being depicted here is the areas where Private Equity Investments, entrepreneurship and key industries transformation will happen in the next couple of years from where one will make money from stock investments.  At the same time Cost Accountants and other professionals should also come to know the places from where the next level of high paying jobs will come up and which areas of practicing will grow in the coming days. From Investments, to employment  to stocks everything gets premium value in the next Among all these many IPO will come to provide mouth watering returns.  Many stocks might have never performed will get into limelight going forward. The traditional days of the warehousing industry will change going forward and more down slide will come for the industry. I am quite in fear that many warehouses will run vacant and future investments in warehouse will come to a significant slowdown once GST kicks in. Currently the growth of the industry has been riding on the wheels of the taxation benefit. Let me elaborate this segment so that you get the clarity about the downfall of the industry. All manufacturers have to pay central Sales tax (CST), when moving a good to another state and selling it in the other state.  Now currently if the good is moved for stocking and not for sale, then CST need not be paid. So, in order to avoid CST, players in the value chain have created a complex network of storage points across the country. This is a substantial cost on the companies and also at the end user as the rent for storage is apart of sales and marketing expenses.  Multiple warehouse points will narrow down to few numbers converting into Mother Warehouse Concept.

 But, with GST, which facilitates one tax payment, the curtailment in the layers of stages in the shipment of goods is a guaranteed factor paving the way for the transfer of consignments directly from plant to the wholesaler/ retailer or even end user in the B2B cases thus eliminating the inventory cost in many supply chain operations. This is the place where warehouses decade old double profit story comes to an end. This is the same place where Investment Bankers will come up to create their wealth.

The next level of growth in stocks and companies will come from Logistic supply companies which is a well known fact but another level of growth will come from new entrepreneurs entering into the industry which will facilitate transportation and save the fixed cost burden of the Small and Medium Enterprise. Since SME will need growth and they will get growth from GST but buying a own fleet of transportation might be cumbersome right at the moment hence service providers in this segment will grow in the long term.Cost Accountants will find huge growth as multiple industries  will open. FDI infllows will also grow making the career prospect for this industry to jump many folds.

Commercial automobile company’s stocks prices will grow in the long term as the demand for this segment will grow. Most of industries will now use hub and spoke model in the Indian transportation sector which will reduce the storage cost next to negligible.  Small IT companies will get huge growth opportunity who will enter into the space of providing Infrastructure support to these SME and transportation companies smooth multiple operation.  Many PE and investment bankers will come up to create opportunities for these low hanging fruits which will improvise the business revenues and industry growth too. New industries will come up where automation and Artificial Intelligence will play a pivotal role. Further Big data analytics will resolve the down time and smooth efficient operating profit growth for the various industries on logistic segment.

NBFC’s will also plays stupendous role as  rural India will grow their business hence Companies in NBFC will get huge growth in the next 2 years from now. New Hubs will come up and new advanced technology driven warehouses will be in demand. Hence the game of ordinary warehouse exploitation comes to an end. The investment in automation would start growing now. Automated, high-speed, cross-belt sorting technology will grow, hence PE and investment bankers should focus on these areas. Companies will require ERPs, advanced planning and warehousing systems in their large warehouses. Hence advanced level of warehouses is the key investment destination. That's why traditional warehouses will come to an end.Technology in logistics, such as the use of advanced telematics, real-time vehicle tracking and route planning, are likely to help manage and execute operations in an efficient and seamless manner. New college pass outs should focus on joining these industries as flush of capital will come up and qualified talents will be required to capture the whole of India in terms of distribution of goods and creating business opportunities. FDI infllows will also grow making the career prospect for this industry to jump many folds. The key thing will be to watch how fast the Corridor projects gets completed. Further as ideal time come down more fleets will be purchased to expedite the supply hence buy these stocks of the various industries discussed above.Cost Accountants will find huge growth as multiple industries  will open. FDI infllows will also grow making the career prospect for this industry to jump many folds.

Sunday, May 7, 2017

NPA Rises Due to GOVT Influence of Job Promotion

Well I have been criticized many times for being upfront but truth is just like sunshine which will rise without any ones control. The Indian banking industry has been crying for the rising NPA levels. Currently the banks have a total stressed asset and NPA of Rs 14 lac cr of Loan.  Yes the RBI site will reflect the NPA amount but when one takes into account the total stressed assets its just doubles from Rs.7.5 Lac cr to Rs 14 lac cr. The gross NPAs have jumped from a low of 2.5% in 2011/12 to a high of 10%  in 2016/17. Stressed loans, which include gross NPAs plus the restructured loans under various resolution schemes, is estimated to be anywhere between 18-20 percent.

The gross NPAs have jumped from a low of 2.5% in 2011/12 to a high of 10 per cent in 2016/17. Stressed loans, which include gross NPAs plus the restructured loans under various resolution schemes, is estimated to be anywhere between 18-20%.We are not here for the number crunching but to figure out the foul play behind the numbers of rising NPA (including stressed assets).  

The whole of the credit blame is not of the slowdown of the Indian economy during that phase. If one gets into the data will find that extravagant lending was influenced by the government itself who ruled during that time. UPAII played a pivotal role for this pile of loans. The govt funded them through banks and at the cost of tax payer’s money. Among all these reforms measures Govt needs to free up the process of promotion since promotion carrot leads the banks to go against the norms and this has now become a practice. The promotion carrot played within the 5 years terms of the Government cost billions of money to the tax payers. These NPA’s are nothing but  duping the tax payers and getting funds into the political ambit.Loans are given when the govt informs the banks to lend even they books are in trouble.

Excessive and extravagant lending between 2009 and 2013, particularly to sectors such as infrastructure, power, textiles, metals, etc. Now majority of this phase belonged to UPAII where the loans piled up. The growth of the loan is linked with the government and bankers. In PSU banks we all are aware that there is lobby for getting promotions. This lobby is linked with the government and hence there is interlinked strong influence of providing loans to the defaulted corporate. Now UPAII new that there were bottle necks and there were scams which hindered the growth of the Indian industries and hence despite of knowing the same, both the govt and Bankers under their influence gave loans.

The poof of the above theory is from the quality of loans being given by them to these companies where the banker knew that their credit quality and balance sheets are over leveraged and future cash flows are under question mark. Prevention of Corruption Act (PCA) was never in place and hence now getting the modification of the same is highly required. There is a fear of future investigation by agencies under the Act for any professional decision gone wrong. Accountability and government influence for promotion needs to be abolished then only PSU banks will operate freely just like Private Banks.

It has been found that a change in governance, management, and operational and compensation flexibility are almost surely needed in India to improve the functioning of most PSBs. Now if one looks at the companies where the huge NPA is piled ups one will find that most of the companies will be having direct contact with the UPAII and very much under the influence of them.

If Supreme Court banned coal mines and other mines then the responsibility or removing the bottle neck was on the shoulder of the government. Further  the ban did not came in one day hence if one checks at the frequency and timings of the loans disbursement then one will get more clarity on the depth of the influence.  Government intervention and control have been one of the key factors behind the pile of the NPA. The day Indian government will free up the operational responsibilities and promotion process influence that day the NPA problem will be resolved.

Many professional bodies’ holds immense strong bonding and relationship with the senior management of the PSU banks which also raises the eyebrow regarding the fiduciary relationship among them. They also play a pivotal role is attesting the books of accounts and other documents required for such extravagant lending.  Playing with NPA numbers are of no use since history will repeat again after a decade. 

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