MOVING TOWARD THE PROMISE

The 68th Independence Day that the country just celebrated was surely different for many reasons. Different, from what it used to be at least over the past 10 years, especially as far as the Prime Minister’s address to the nation is concerned. Speaking extempore from the ramparts of the Red Fort, Narendra Modi is probably the only Prime Minister to have not read out a written speech addressing the nation on its independence day. Well, that should explain a lot about the confidence that this leadership exudes.

 As days begin to advance into months, the NDA government seems to be gradually heading towards their stated moto of ensuring Achey Din for the nation. That part is becoming clear as far as the economy is concerned. Look at the trade data for the month of July 2014 which was released just one day prior to Independence Day. The trade deficit for April-July, 2014-15 was estimated at `271209 crore which was lower than the deficit of `338289 crore during April-July, 2013-14.

Apart from this there are several other factors that have led to the mercurial growth of the Indian stock markets which remains our primary focus. Economic concerns like a higher trade deficit and hence a depreciating rupee is now looking to be a thing of the past. In fact, it also means a better than expected economic recovery going forward. Riding on these factors and of course more, the FIIs have been on a buying spree in the Indian equity markets. Apart from FIIs, the domestic institutional investors (DIIs) have also turned positive now. In a deviation of sorts from the general trend where the FIIs have been driving the Indian markets up, the Domestic Institutional Investors (DIIs) (read Mutual Funds) have been reportedly seen to become active now. Well, that really means business. The next round of big buying coming from this vital segment of the markets means, retail money is now getting active.

All the while that this market has been hitting newer highs, a lot of debate had been raging on when would retail investors advantage from this Bull Run? According to latest statistics, Mutual Funds have pumped in more than twice as much as the money that FIIs have put into the market over the recent past. This suggests, the trend is finally changing with retail money now finding its way to the stock market.

According to reports, SEBI data shows, Mutual Funds having invested more than `5400 crore in Indian equities against nearly `2700 crore put in by the FIIs since July 24 (when the benchmarks had hit their previous high levels). That settles one important question of whether liquidity should be of any concern to the markets going forward. With retail money now entering the markets via the Mutual Fund route, liquidity would be the last of the concerns for the markets. The momentum that that this retail liquidity can provide to a market which is already in a strongly positive frame of mind is immense. The next round of the Bull Run is quite clearly going to be funded by this retail surge of interest in the markets.

What has also got factored in, is the June quarter report card for the India Inc which has been better than street expectations. On an aggregate basis the topline and the bottomline have grown by 9.50 per cent and 34.03 per cent respectively on a YoY basis. All this has played a significant role in the markets rising to newer highs.

 While a lot is being deciphered from the words of the Prime Minister on August 15th, there is one particular announcement that takes the cake. A significant headline post the Independence Day speech has been that of the dismantling of the Planning Commission. Prime Minister Narendra Modi’s decision to scrap the Planning Commission has raised administrative and Constitutional questions that the Centre will have to address in the coming days. The question needs attention here is, what will happen to the ongoing 12th Five Year Plan? Will this Plan, which was adopted by the National Development Council (NDC) that comprises not only the Centre but also States, including Gujarat, be junked or be allowed to run its course till 2017? Second, since indications are that the role of making plan allocations to States for development spending will be transferred to the Finance Ministry, there are likely to be implications of this for India’s federal system.

The Planning Commission will soon be replaced by a new institution that will have “a new body, soul, thinking, direction and faith” said Modi in his speech. This new institution would be powered by creative thinking, public-private partnership, optimum utilisation of resources, and the utilisation of youth power. It will empower the federal structure of India. There may be tons and tons of ridiculing of this decision by its opponents. But the fact of the matter is that, institutions without accountability have for long resulted in wasteful allocations and expenditures. For once, this will now be cured. For those who would have read the economic history of the Planning Commission, unfounded doubts on the success of such a move will seem completely baseless.

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Our cover story this issue brings you the road map of governance and growth as has been chalked out by the government on the eve of independence this year. The Prime Ministers vision along with his council of Ministers is surely moving towards its stated goal. It is just a matter of time before one realises the real import of the measures initiated so far and those that are to be taken as we move forward.

Apart from this our issue contains a special report on the recent governance issue in the PSU banks that have cropped up after the arrest of SK Jain, CMD, Syndicate Bank has again exposed the rampant corruption present at higher level in public sector banks. And this is not the first time the ugly head of corruption has reared itself in the public sector space. Last year too we saw a similar case where a deputy MD of SBI was asked go on leave and an internal enquiry was initiated into the bribery charges levelled against him. Such cases definitely go against India’s image as investment destination. There are empirical studies that suggest high levels of corruption are oft en associated with lower levels of investment. Corruption invariably increases transaction costs and uncertainty which distorts the optimal asset allocation and hence overall development of any economy. Read on to know more.

We round up with our regular featured recommendations which include, HDIL as the Low Priced Scrip, which is expanding its capacity and has already introduced new products which are well accepted in the retail markets. The Choice Scrip this fortnight is Castrol India. The company is focusing on personal mobility automobile segment and brand strength to drive product mix improvement which in turn will be value accretive as far as margins are concerned.