What does Indian Economy, Rcom, JSW Steel and our beloved Prime Minister Dr.Manmohan Singh have in common? In the last twenty five days each of them has come under severe criticism. Each criticized for different reasons and by different agencies. However there is something that is common that runs across all these independent events.
In the first instance, it was S&P that threatened India that it would downgrade the investment grade rating it had given us citing policy paralysis and political road blocks to economic policy. Barely days later Veritas cut Rcom's target price to Rs. 15 a share when it was trading at Rs. 63 questioning Rcom's accounting policy and the very high leverage. After a few days hiatus Credit Suisse did not want to feel left behind and came out with a steep target price cut for JSW Steel after accusing the company to have understated debt and also pointing to the firm's unhedged foreign currency exposure. Finally this time it is TIME magazine which has branded the Indian PM an under achiever. As expected all of these have been condemned very strongly by the people concerned.
If viewed independently all of these are isolated incidents and it is a normal day in the life of a brokerage firm or a rating agency to analyse major companies and countries, and so is in the life of a magazine to report on various leaders and their performance. But when viewed in unison what has so drastically changed in the past Twenty five days that all swords are out on the Indian economy and its chief driver and its stocks.
There is no great evidence either to conclude that these incidents have occurred out of some common animosity. One of them is S&P the big daddy of global risk rating and analysis, one a famed research firm from Swiss while the other a canadian brokerage house. Finally TIME a world renowned news weekly. However there is a common thread that runs across all these - The Great Indian Growth Story.
The Reason
The global economy today is shakier than ever. Euro region is slowing down and not throwing any major investment opportunity. US markets as usual do not give superlative returns. China is having its own trouble in terms of equity returns with its markets languishing in a very narrow range for what now seems to be an eternity. Japan is going through its own phase of structural bear market and this has been the case for close to two decades now.
Now we are left with only BRIS (as C in BRICS already discussed). Brazil is reeling under a sever drought, the biggest it has faced in the past five decades. So RIS is the only major opportunity available apart from few sporadic opportunities here and there. So the global analyst and investment community does not want to let go of this opportunity and they want to do it before its too late.
The global central bank community as a whole has been living in a perpetual state of denial. The EURO crisis has shown how a group of eminent economists who are stalwarts at an individual level can be not so eminent when they come together. Any disease should only be cured and not suppressed. On the contrary it is only being suppressed by an enormous amount of notional money and being cured. However this can not go on for ever. When the drug loses its ability to fight, the disease would recur and would recur with much greater force than ever before and which is what is playing out in the EURO zone today. SO when the relapse is going to hit the global economy is anybody's guess.
On the other hand US is an even bigger threat to the global economy. It was US that set the precedence of this entire act of suppression and they have proved to be masters at that. QE*(Sorry lost count of the number) has pushed US's Deficit to GDP ratio to 30% and Debt to GDP ratio to beyond 500%. It is a ticking time bomb and timer is moments away from explosion. With elections slated we can be rest assured that the ticker on the bomb is well timed to explode post the election.
That leaves us with some food for thought. Before any of these catastrophe hits the global financial markets these brokerage houses want to make the most of it. Cheap money will be available over the next few months as all the major central banks across the world throw in few trillion dollars by way of QEs and LTROs and Operation Twists and any other fancy nomenclature they would come up with. I really wish the ideas were a fraction as creative as their names to cheap money. Brokerages do not want to let go of the opportunity to eek out a sizeable returns from the rally fueled by this easy money.
By instigating our Govt and our corporations they are eagerly expecting some positive reaction from our end. I am not getting into the multi billion dollar question - Is governance in India doing the right thing by doing what they are currently doing. But having said which, I am skeptical as to why these world class brokerage and credit rating agencies are so desperate in getting us to act. I am still of the opinion that there is vested interest behind the veiled threats and direct allegations they have been throwing at us. After all the downgrades and allegations of misrepresentation will Veritas not participate in the FLag Telecom IPO (a subsidary of Rcom), or will they not pour money into our markets even after complaining about our under achievement, I am sure they will.
Conclusion
So is Rcom right with its financial accounting or is JSW really understating its debt, well the jury is still out on it. But the way these leading brokerage houses and analysts have criticized our economy, our leaders and our stocks makes me very skeptic about their hidden interests and I would take any of their advisory with truck loads of salt.
Regards
SVJ
Disclaimer: The views expressed were purely my personal understanding and interpretation. These views were not made to demean any particular nation or any specific community or any single entity or any individual. Readers will do best to ignore all this as trash and choose to ignore any viewpoint they wish to disagree.
The Reason
The global economy today is shakier than ever. Euro region is slowing down and not throwing any major investment opportunity. US markets as usual do not give superlative returns. China is having its own trouble in terms of equity returns with its markets languishing in a very narrow range for what now seems to be an eternity. Japan is going through its own phase of structural bear market and this has been the case for close to two decades now.
Now we are left with only BRIS (as C in BRICS already discussed). Brazil is reeling under a sever drought, the biggest it has faced in the past five decades. So RIS is the only major opportunity available apart from few sporadic opportunities here and there. So the global analyst and investment community does not want to let go of this opportunity and they want to do it before its too late.
The global central bank community as a whole has been living in a perpetual state of denial. The EURO crisis has shown how a group of eminent economists who are stalwarts at an individual level can be not so eminent when they come together. Any disease should only be cured and not suppressed. On the contrary it is only being suppressed by an enormous amount of notional money and being cured. However this can not go on for ever. When the drug loses its ability to fight, the disease would recur and would recur with much greater force than ever before and which is what is playing out in the EURO zone today. SO when the relapse is going to hit the global economy is anybody's guess.
On the other hand US is an even bigger threat to the global economy. It was US that set the precedence of this entire act of suppression and they have proved to be masters at that. QE*(Sorry lost count of the number) has pushed US's Deficit to GDP ratio to 30% and Debt to GDP ratio to beyond 500%. It is a ticking time bomb and timer is moments away from explosion. With elections slated we can be rest assured that the ticker on the bomb is well timed to explode post the election.
That leaves us with some food for thought. Before any of these catastrophe hits the global financial markets these brokerage houses want to make the most of it. Cheap money will be available over the next few months as all the major central banks across the world throw in few trillion dollars by way of QEs and LTROs and Operation Twists and any other fancy nomenclature they would come up with. I really wish the ideas were a fraction as creative as their names to cheap money. Brokerages do not want to let go of the opportunity to eek out a sizeable returns from the rally fueled by this easy money.
By instigating our Govt and our corporations they are eagerly expecting some positive reaction from our end. I am not getting into the multi billion dollar question - Is governance in India doing the right thing by doing what they are currently doing. But having said which, I am skeptical as to why these world class brokerage and credit rating agencies are so desperate in getting us to act. I am still of the opinion that there is vested interest behind the veiled threats and direct allegations they have been throwing at us. After all the downgrades and allegations of misrepresentation will Veritas not participate in the FLag Telecom IPO (a subsidary of Rcom), or will they not pour money into our markets even after complaining about our under achievement, I am sure they will.
Conclusion
So is Rcom right with its financial accounting or is JSW really understating its debt, well the jury is still out on it. But the way these leading brokerage houses and analysts have criticized our economy, our leaders and our stocks makes me very skeptic about their hidden interests and I would take any of their advisory with truck loads of salt.
Regards
SVJ
Disclaimer: The views expressed were purely my personal understanding and interpretation. These views were not made to demean any particular nation or any specific community or any single entity or any individual. Readers will do best to ignore all this as trash and choose to ignore any viewpoint they wish to disagree.
