Oil Matrix – Adopt open policies to help the poor

By krsna Khandelwal – A veteran market analyst

Friends,

Oil is keeping at high level but is no more unnerving. At least the Indian markets and the US markets have stood firm in a range while Hang Seng and Shanghai indices which have to seek comparatively lower level over time for the matters discussed since about the last few months, have shed weight.

The open economy in US is responding by curtailed traveling and higher use of smaller cars. The US economy is worth USD 14 trillion (GDP) almost three – four times of India’s and China’s combined. If there is initiative there, the result will be no less comforting. USA is also cooperating with Japan to ensure conditions to bring oil price down.

Indian govt. at long last has seen the need to have all-out counter measures. It did raise retail prices and has now raised excise duty on bigger cars/SUVs with engine capacity of over 1500 CC by Rs 15K to Rs 20K. This will garner about Rs 400 Crs. This is a small step in right direction.Over time the oil related under-recoveries should be done away with. Mr Subir Raha in an article went to the extent saying the high subsidy level is generating Rs 900 Crs of black market gains for some who may be the power brokers. I think the proportions are much more otherwise why an unreasonable practice would be continued under the economist PM. He will find it hard to answer for what his govt is doing later when no more heading the govt. As an ordinary citizen who can not calculate that the oil subsidy of Rs 2 lac crs is enough to see the whole population of India coming under BPL (Below Poverty Line) category have a direct help of approx Rs 40000/- per family. Would it not mean an end to an era of compulsive sub-human living for the poorest members of our society. Is not this the plank that the parties use for getting votes. Does this not mean that their heart not lie where their mouth is. Does even a drop of subsidised oil goes to help these poor people in any way. If any effort of the govt is to be targeted for helping the poor, it should have these BPL families, first and foremost, in mind. The rest may take their own care. It will save a lot of misdirected effort of the govt and the citizens. India has been poor because it has been subjected to meaningless less effort at imposing wrong and high taxed and trying to collect the same on govt’s part and equally, by the public in saving and evading such taxes. Further, the litigation on account of these very taxes takes the time of most intelligent of the people, from both sides. Who gains this way; some individuals and who suffers this way; the whole society and the Nation.

I am only trying to build an opinion in favour of open policies and of direct help to poor rather than a round about mannerism fraught with many slippages.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – The easy method of Petrol Price Hike

By krsna Khandelwal – A veteran market analyst

Friends,

The govt. is readying for the petrol price hike . It seems the guardians have decided to kiss the K.I.S.S principle at the end of the day.

It is however a pity that the no firm pricing policy is being contemplated and the concerned people remain guessing as to what would be done , when and if . The oil prices will keep moving down and up and to keep the businesses and the public on the tenterhooks is a bad idea. I have some advice to offer regarding this with utmost simplicity and convenience. The retail prices may be increased by 1% per month so long as there is under-recovery and may be reduced when there is excess recovery at the same rate i.e. 1% per month on so long as there is no excess recovery. This will make the impact of oil prices moderated .The users, refiners and marketers may in light of this policy take the necessary steps at their end to remain comfortable. Would the spoilt geniuses in power would this , is the real question.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Oil never was an essential element for man kind in distant past, it may not be all that important in distant future

By krsna Khandelwal – A veteran market analyst

Friends,

The oil barrel traded for the high f $135/bbl and has given up some gains today settling at $130/bbl. The world stock markets became unnerved for the rise in oil. There is however an other side to it. The oil got to become a prized commodity on back of the mass car production made possible by the assembly lines. The future developments made the engines efficient and more number of cars could be run for the same quantity oil and it was a relief. Then came time when the car became a commoners means of commuting in countries like China and India too and oil started boiling. Not to be left behind the Aeroplane manufacturing was made much more cost efficient with the computer aided design and manufacture , also through increase in the numbers produced (economies of scale of production). The air travel became affordable to all and sundry. The oil had further push in terms of relative pricing and importance. The plastics became popular and required oil for its production and the need to grow more food by use of fertilisers made demand for oil jump up. On top of it the oil producing countries organised themselves and the supply of oil became controlled. The oil is selling at such high prices is no wonder.

The mother earth had the environmental discomfort on account of excessive use of petroleum products. No body paid heed for growth of economies could not be curbed. The extremes are corrected through the extreme on the other side. This is what is happening. But is there a cause of worry? I think not.

Back in India our govt. is contemplating imposing a cess on income tax to cover part of losses in oil under-recoveries. I think the K.I.S.S. principle is not applicable to them, they could have straight away made oil pricing free, ensuring more restrained use of oil in more rational ways. There should be higher tax on big cars and SUVs. there should be stress on harnessing solar and other alternative energy means. There should be a greater effort in the area of mass transportation and rationalised city planning. The solar power should be harnessed as an alternative to oil. There are many ways and means to curb the petroleum use.

The USA has set an example. The Road Miles travelled in USA were down by 4.3% in the month of March 08. The sales of oil guzzling SUVs is down. The used SUV prices are down 17.5% there. Fuel expenditure as a portion of household budgets is as much high as in late seventies. The oil price rise in pinching as there no commensurate increase in incomes. But the free pricing mechanism back in USA will take care of the high oil price.

We in India are in fact subsidising the cost of oil and allowing its unrestrained use. Strange are ways here. We are inviting problem rather putting it off. Have not the economies of the world advanced along with the rise in oil prices so far. Traveling at the drop of a hat is bad and should be curbed. Oil never was an essential element for man kind in distant past , it may not be all that important in distant future. The only thing is that alternative sources of energy have to be developed, the research in this direction should be intensive. How far the world’s future may be clubbed with some thing which has only a limited supply and that too in the hands of few countries.

So, lets forget oil and concentrate on the task at hand. Distortions in the economy should be avoided but our leaders have a different agenda.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Sub prime crisis and India

By krsna Khandelwal – A veteran market analyst

Friends,

If you recall I raised eyebrows at the matter of all asset classes moving up together since about a year and half ago. This seemed unusual for in normal times this does not happen. The real estate and gold etc have inverse correlation with equity stocks . There are many other such combinations. I also thought aloud that the world was heading towards a crisis of grave kind. What will be character of crisis or its magnitude , was unknown to me at those times when I wondered at what was happening. The crisis turned out in the form of ’sub-prime lending’. The magnitude of this crisis was so huge that no body could fathom its size in the beginning. It was only later that the estimates were made but none could capture the real size of it. This crisis knocked at the doors of many an economies.

It was even earlier that I was wondering at the speed and volumes of capital flows towards India and which fueled the economy and pushed up stock prices. The economy benefited greatly but it was the stocks that crossed rational levels of prices. The stocks have since then corrected a great deal but the economy still kept pace till up to Feb 08 but gave in Mar 08 when the growth figures turned out to be lowest since last six years. The saving grace is that the growth is still there. The growth in India has come about not because of any thing else but the infusion of capital. The reforms have made environment conducive to inflows but reforms have not been responsible for growth to that extent as the capital infusion. The reforms have been half heartedly pushed here. Now while the reforms have not taken a backward direction but the atmosphere is stressful and is interfering with the inflows. The March 08 growth figure is just 8% against far better rate of growth over last five-six years.

I also had given another angle about the US Sub Prime crisis earlier. It was that the surplus of oil money and the savings under pension schemes in USA, Europe and Japan became such large pool that they needed parking place where ever possible. For this reason the China was wooed and every nation with political stability was eyed. The ideological differences were put behind, not to say that these differences will not resurface. They are not creating any trouble for no nation is seeing any great disadvantage presently. When investment in developing large economies started pushing up stock prices as well as land prices beyond comfort level, the need arose to invest capital back in USA. The large investment banks saw it fit to lend monies for purchase of housing stock which had had a good run up already. The sub-prime borrowers became darling but with some discomfort at gross basis. Some aggressive bankers devised the means of bundling the loans to sub-prime borrowers, get the rating done and hand these down to gullible investors i.e. hedge funds and the like. The gullible investors in fact were hard to find as the big money was involved. The banks found means to finance the willing takers. When the real estate prices tumbled as the loose money was already tied up and when the sub-prime borrower found it hard to service the loans taken , the lid on crisis can was blown off. The rest of the story is known to every body.

The govt. in US got alerted and US Fed saw the financial structure cracking , the resultant action was to lower the interest rates , create market for the housing stock on offer and provide succour to sub-prime borrowers. It made sense politically and economically but only as remedy and not as decent policy.

Now, when the banks have written off the losses to a good extent, there is some sense of relief. In the new light , however, it is economies like India’s have to grow , grow as the more of the oil surplus and pension funds will be invested here perforce. Down the line those who wished to have decent life post retirement on the strength of savings , will have to fore go some of the comforts for the funds will be absorbed only at the lower interest rates. There is poetic justice in the end .

In view of above I don’t see markets in India suffering further losses. Albeit, commodities and raw materials will be costlier only. Oil price surge is digestible for India for it will make the manual effort of Indians some what better rewarded. In India the farms are still tilled by hand or bullocks. In India the cycles and rickshaws are still in use. In Indian homes the domestic chores are still finished manually. It will not be big change for most Indians if the petroleum is priced higher or the energy is costlier. Haven’t we seen a stronger India after every oil shock over the past decades.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Rupee,dollar,oil and inflation

By krsna Khandelwal – A veteran market analyst

Friends,

The Rupee has plunged to a low of 41.80 to a Dollar yesterday. It is due to reduced fund flow from overseas . The governments over reaction in regard to the high inflation number and the resultant enthusiasm shown by the key ministers in govt. in the form of pressure on cement and steel producers to reduce prices has given a signal to outside investors that the govt. of the day will go to any extent for the political compulsions . The reforms are no longer seem to be agenda to them . Naturally than why any body would take the risk of parking capital in this country.

It would have been alright for the govt, to correct the situation if the inflation was high due its own policy initiatives earlier. This is not the case and the inflation is due to the economic readjustment in light of the factors not under its control. The inflation apart, there is a relative price adjustment going on for various items of large consumption and the sources of raw material required for energy generation. The govt’s desire to tax petroleum to the hilt on one hand and to to keep prices from moving up in spite of oil touching $125/bbl in international market is the real problem. Yesterday Mr Raha expressed opinion the oil pricing mechanism in India has no rational basis. Mr Raha has been the Chairman of ONGC and should be supposed to know the whole oil pricing affair. When he says that it is an exercise without base , it should have substance. The ultimate synchronisation of local retail oil prices will upset many an apple carts. The wrong investment made in different sectors till then will be real economic loss for the country.

Now understand this by an example. If the petrol sells at higher price there would be no capacity expansion in the auto industry. Since oil marketers suffer the car demand goes up for the public has cheaper fuel to burn. If and when the oil pricing is freed the high fuel cost will diminish demand for cars. Investment made in auto sector will then become unproductive and it will be an economic loss for no plausible reason. The only option is to go open in all ways and rely on market mechanism. The poor should be taken care of by directly helping them by raising funds by taxing richer people.

In light of this would it not have been proper to ask the steel companies to provide steel for construction of dwelling units of 75 sq mtr plinth area to the families without any member having taxable income, at cheaper prices. If the steel is given by producers at lower prices which finds way in to the construction of luxury houses with swimming pools, how is society is helped. So, who these ‘netas’ are crying for.

The market took beating today, not so much for local reason as for the reasons out side. The rumour is that Citi Group will sell assets worth $10 bn. I don’t see the connection here. The markets have come down due to irresponsible attitude of govt. and the fear it imparts.

However, after the advice earlier in the week to sell half your equity stock I advise you to get back in to it gradually but please get armed with ‘panch-tattva’ advice for specific stocks. The high inflation and still no relative change in the interest rates makes me speak this. After all this makes the real rates lower for the entrepreneurs. It requires a lot of steel and cement to construct a cement or steel plant and the share prices of cement and steel companies should go down is difficult to digest. I hope you have taken the cue.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix of Oil and Gas Sector as on 28 Feb 2008

Friends,

Oil and Gas sector has the PE at 9.5 as of now against 5.5 in 2000. This higher discounting has seen its share in the total market capitalisation rise up to 3.8% now as against 2.2% in 2000, roughly in the same proportion as PE changed. This thing makes it clear that the this sector is without any manipulation and is fairly priced in line with the expectations at the moment and with market in general. You may remain invested in this sector and expect to be rewarded.

The real change in fortunes for the companies in this sector would come with the bold step of govt. in doing away with subsidies and control over prices. In fact the govt. is doing no good to anybody by keeping its hand planted in the oil pie , this has only resulted in mixing of kerosene with petrol/diesel and it has seen a thriving black market in domestic cooking gas. As always, why the govt. would want to loose control unless some foreign power group puts pressure before coming here with grand designs. After all did we not see the excise duty on cars slashed to a point where it is hurting the environment, congesting road and all and lacked making effort at developing mass transportation. The foreign car makers prevailed for this to be able to make profits out of Indian markets, while the erstwhile Indian car manufacturers were never allowed to grow, develop products and sell at reasonable prices. Any way, we have to prosper and keep a govt. whatever the level of efficiency.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 15 Feb 2008

By krsna Khandelwal – A veteran market analyst

Friends,

US Treasury Secretary Henry Paulson unveiled ‘Project Lifeline’ which offers an additional 90 days to people who have been behind 90 days already before the foreclosure is resorted to by the banks in respect of the home loan mortgages.

Prices have been hiked by Rs 2/litre for petrol and Rs1/litre for diesel. I think this will have no impact in the market place and on the fortunes of oil companies as this has already been factored in. This hike has come after 22 months during which time the international crude prices have soared from $67/bbl to $92/bbl. LPG and kerosene prices are static since 2004 and 2002 respectively under a govt. which cries for reforms and does every thing to let some people do the black marketing. It should have only a minimal impact on inflation.

Steel makers have slashed prices between Rs. 500 to Rs. 1000 per ton to please the minister apparently but some how the market also refused to be happy with the raised prices hence the decision in not entirely due to govt pressure. In fact to means nothing this way or that for the industry in near term.

VSNL renamed as ‘Tata Communications’ will be spending Rs 8000 crs for global network cable laying.

Eicher Motors Jan 08 sales are down 17% to 2252 nos.

IT now contributes 5.2% to GDP against 1.2% in 1997-98. Direct employment is now close to 2 million and is growing at 26% per year. I think IT contribution has to grow for many years to come, it will be more based on local demand in future.

I think shares and bonds and other listed instruments should have a simple system for taxing gains . Those who value stocks at the closing price (quoted rates) at the end of the accounting period should be taxed for gains as if it is business income and losses should be allowed to carried forward. Those who reflect the stocks at purchase price at the end of the period should pay a simple 10% capital gain when stock are sold irrespective of short or long term nature of the gain after offsetting losses if any during the period under assessment. The STT should be reduced to nominal .001% in all pockets including the F&O section and should not have any bearing other than as that of cost of acquisition or sale. This will make the matters simpler for the assessing authority and make life easy for the trader or investor. By keeping the question whether some body indulging in shares and stocks is a doing it as investment or trading based on some complex set of rules is a wrong thing to do in present day circumstances. This will have no revenue loss or unreasonable punishment to any body. Even the foreign parties should have to pay taxes like this where there is applicability of tax on them in India. The legal minded FM will have to earn an ire of the legal community and the CAs for making things simpler and may be this lobby does not allow the laws to be made simple.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Current Economic News Analysis

By krsna Khandelwal – A veteran market analyst

Friends,

Information Technology Department has drawn mega-city plans which are identified as investment regions for hardware an software companies.Land acquisition and development of the region will be done by the states. The IT sector is preferred child of govt , no doubt.

Govt suggested to oil PSUs to issue bonus shares who have in turn declined to do so on the pretext of under-recoveries which will make it difficult to maintain yield post bonus issue. Both parties are have reasons but I have many a times brought before you the requirement of a firm predetermined policy regarding oil pricing rather than whimsically acting in that direction. This is one area that should be immediately paid attention to.

IOC want govt to raise petrol prices by Rs 8-9 per litre to meet Rs 120 cr deficit per day, a tall order either way. In West Bengal , petrol at refinery gate is Rs 20.39 per litre while motorists have to pay Rs 46.86 per litre at pumps.

Singur is abuzz with activity and the Tata Motors would change the face of region without doubt and would establish West Bengal back as an important automobile manufacturing state.

Four Indian banks , namely, SBI,ICICI,BOB and BOI have to book mark to market losses for exposure in US Sub-Prime securities. BOB has however clarified that it may not have to do it.

Licensing for banks may be done away with in India . RBI says there is now no need for it as the banks are opening branches in rural and semi-urban area on their own initiative. The license free regime for the banks will be hotting up competition in profitable centres and thereby will affect profitability of banks.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Current Economic News Analysis

By krsna Khandelwal – A veteran market analyst

Friends,

Govt. seems ready to raise petrol prices by Rs2/- per liter but only half of it for diesel. I am only surprised at the absence of the pre-laid formula for the petroleum pricing particularly when there is private sector presence in a big way. Is it not a recipe for the grand scam that may be committed by the people in govt.. After all the pricing is the very thing that puts operations to gain or loss. Should it be in the hands of govt. in this manner that a few in govt. decide to affect profitability at the stroke of pen without any control or accountability and make empty or fill the coffers of the stake holders. Surprisingly the private sector mostly dominated by the Ambanis does not make a hue and cry for it. God only may know this strange arrangement or the parties to it. The opposition is no less to blame. While the govt after govt shout from the roof top that the reforms are apace and would be further undertaken , there is hardly any attempt really in the vast fields of oil and monetary policy and foreign exchange arena where there is scope of doing whatever with whatever motive. I may tell you here that all these areas are possible to be covered with laid down policies .

JSW Steel group is to bring IPO worth Rs 4000 crs for the power foray. This is on toes of Reliance Power’s mega issue of Rs. 11000 crs or so which is about to hit market. Such issues will lay claim on the liquidity and more of such issues should come from big house with credibility. Such issues are the real requirement of economy in its march towards fast industrialization without looking towards the foreigners for lead.

SEBI ultimately sees light of the day and simplifies procedures for the issue of debt by the listed companies who may now approach market with only the further disclosures needed and not go through the whole exercise as is the case with raising the risk capital. Listing of such debt issue where the participants are more than fifty in number will make the debt market also buzzing with activity. Another fall out of the measure will be the curtailment of banks’ role as intermediaries.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Manmohanomics

By krsna Khandelwal – A veteran market analyst

Friends,

Talking to economists recently Mr Man Mohan Singh , our PM, expressed his dismay and displeasure about funding of the subsidies which neither ensure equity nor the efficiency to meet the objective for which they are meant. He wishes to see continuously renewed commitment to economic reforms. He wants regional imbalance corrected and advocates wide spread growth. He thinks that rural-urban and the inter-regional divide should be addressed. Very noble ideas these but under his leadership India has seen concentration of wealth in fewer hands.

Practically his words and the actions seem divorced. The subsidies are really not serving the purpose but why not scrap them. Why not target investment simply towards less developed regions but would the economic reforms will let him do it. Crying for the rural-urban divide and inter-regional divide and also of the economic reforms in the same breath seems childish. If economic reforms are complete than how the govt. may direct investment. It would be only the economic wisdom that would be guiding investment.

There is however some thing that can still be done and the twin objective as he spelled out may be achieved. The economic reforms do not take away govt.’s taxing authority. The economic reform also call for the free pricing . We all know that the keeping the petrol and diesel prices constant inspite of higher crude prices may not be the agenda of economic reforms, also, cheaper fuel will be helping the rich and not the poor. Why then simply not free the energy pricing and tax it more heavily for govt. spending and lower the taxes on goods and services used by poor and rich alike. If the petroleum related prices would go up the manual labour would be at a premium and wages down the line would improve. Here is really empowering the poor for he also has two hands and two legs and is willing to use them unlike the rich who have them but won’t use. The cyclist would then not go over to buy m/cycle but would buy a house nearer to job site. The rich would not go for vacation to long distances at drop of hat. The energy would be more rationally spent. Pollution will be taken care of. Of course the stock markets and the company profits will see some down ward turn. Rich-poor and rural-urban and regional divide would be less prominent. The coveted goals of PM would be achieved. The question is whether he will stand up to it or harp only on Sonia tune of no raising the diesel and petrol prices.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market