Sunday, November 8, 2009

Trumpeting Elephant vs Hissing Dragon

Myanmar/Burma was once a part of British India. Does that make it ours again? Tibet once extended dominion over parts of China. Does that make China a part of Tibet today? Tibet once controlled parts of Arunachal Pradesh, albeit tenaciously and China today rules Tibet by force. Does that make parts of Arunachal Pradesh a part of China? Well, China indeed does think so. Logical? Yes and No.

No for the simple reason that such extrapolations and corollaries would confuse an already confused world. Logical, yes, because China is pricking India. Not just in Arunachal Pradesh , but elsewhere too. It is known to be stoking Maoist uprisings in Nepal--our neighbor. It is known to have supplied nuclear technology to Pakistan--our neighbor. It is supportive of the military Junta in Myanmar - our neighbor. It has close defence ties with Bangladesh, our neighbor. It is encircling India with a new sphere of influence. Why? Simple, the world is like its people. Countries are like people--groups of people, masses of people. Alone, a person would rule the world. Bring in two, and egos would begin to clash. Have three and politics will begin with one allying with the other of the remaining two. This is how humans behave and countries do. No one knows the future, yet everyone tries to control it. China is trying to control a future it knows will be an intensely competitive one. It will be competing against India for almost everything that matters. And it is trying to find friends and allies. And it is also trying to find issues and foes.

I don't want to sound nightmarish, but this is a blog and so I can say it. I believe that within our lifetimes we will see immense disturbance in the world we live in. Immense turmoil and upheaval, and all of it human engineered.

India is a rising power, but so is China. India is a democracy, China is a communist command economy with broad sweeps of capitalism washing over it creating a measure of discord amongst its people. China is progressing fast, India is progressing just a wee bit slower. But India is a free nation for its citizens. It is a democracy. China apparently is, but really is not. It is not a democracy. China has its problems of disparate growth with wealth concentrated in its eastern sea board. India has 1.2 billion people. China has 1.4 billion. Both nations are consuming ever increasing food, meat, energy and information. Already, everywhere in the world, there is competition between India and China for resources as both find themselves bidding for the same items on the world's markets. As both become prosperous, the pressures and demands will only increase. Today the one that has more money calls the shots. Tomorrow when both have loads of it and when mere money will not seem to matter, the games will begin. What we are seeing today is a mere prelude to it all. The same oil fields, the same mines, the same corporates, the same banks and both India and China out with their wallets.

And I shudder to think, that we think we have evolved and become more civilized. It was but 65 years back when the Second World War was raging and millions were dying brutal deaths in war and concentration camps. 65 years is not too long back and too little a time span to have changed fundamental human nature. We want things. We are materialistic. When we don't get things we tend to fight and when stakes are high we tend to kill. We are like that. Dangerous animals. Don't misunderstand forks and knives on well laid out tables with black liveried waiters for civilization. Perhaps we also like to masquerade.

So what am I trying to say here? Just that behind a complex interplay of politics lie simple fights for resources. Power is tempting because it provides access to resources, whatever they may be.

When China fumes over Dalai Lama's visit to Arunachal Pradesh, it is simply flexing muscles and asserting claims over resources if not indicating that it is capable of being a nuisance. But perhaps this time China has overplayed its cards. Tired of being quiet and hoping China will glower, hiss and then go away, India has realized that China will never let up. How can it? It needs to gobble up more and more of the worlds resources to keep itself going and growing. And so does India. For the first time the Tibet card is turning out to be hugely important. There are 1.2 lakh Tibetans in India, and the younger generation wants freedom. It wants China out of Tibet. Totally and completely. Tibet is the biggest buffer India could hope for between China and itself. Today China stands on India's borders using the Tibetan plateau. But Tibet even today is restive. It is not China. And as Tenzin Tsundue, the Tibetan writer and activist in Dharamshala who climbs hotel walls and displays Tibetan flags to ruffle Chinese visitors says, India has nurtured many Tibetans like him who have not seen Tibet ever, yet are aggressive supporters of complete freedom and willing to fight and die for their homeland. The Dalai Lamas presence at Tawang in Arunachal will be the best symbolism for India's territorial integrity. China will look on impotently as the Dalai Lama prays at the monastery that had welcomed him when he trekked into India in 1959.

President Obama has designated a special envoy to interface with the Dalai Lama. Why? Because he is important. Why? Because he exerts influence over Tibetans. So? He can swing the direction in which the Tibetan protest winds blow for China. So? He can be an important influence in keeping China in check. So? China can be prevented from focusing on destabilizing other countries, because it will need to fear its own destabilization. So? Americans will find a balance of powers developing and keeping each other busy, in this case India and China. So? America continues to exert influence over both as they balance each other. And influence gets you money. And resources. See, we come back to the same thing...resources?

The Tibetan movement is focused and clear. The Muslim-dominated Uighur movement is still nebulous and disparate. China also wants to use the present situation to create an Indian bogey. When internal unrest threatens to loom, create the bogey of an external threat to unite its own people. Taiwan is too small a threat, Japan is farther away, with Russia there are no serious issues, India is the best bet to project as a threat. So claims over Arunachal, India's protests, China's counter protests, the Dalai Lama somewhere in between - part of the great game. After all we are humans. Lets not forget that.

So what will happen? Obviously, I don't know! But what I do know is--the games have begun. The world will compete and then fight. Again. I don't think we can wish it away. What do you think?

Friday, September 4, 2009

Inflation in negative- Really ?

If you’ve been wondering why prices burn a bigger hole in your pocket each time you go grocery shopping even as the inflation rate stays firmly negative, here’s part of the reason: The official wholesale price index (WPI) tracks stuff you don’t buy, not unless you are caught in a time warp.

Time was when middleclass families across India cooked with Dalda or Rath brands of vanaspati oil. When toasts were raised with Double Horse whisky or Old Port Dix Rum. When scooters outsold motorcycles and teenaged girls ritualistically used Keo Karpin hair oil before stepping out. Consumer preferences have changed but the WPI remains stuck in the early 1990s. The base year for the current WPI series is 1993-94. It has 435 commodities in its basket, which includes 98 primary articles, 318 manufactured products and 19 fuel and energy sources as well as lubricants.

But the basket is completely out of sync with current consumption trends. For instance, the list of Indian Made Foreign Liquor has just five archaic brands. The same holds true for many other commodities, including manufactured goods and food items.

The WPI is illogical and outdated on other counts too, listing no other detergents but Sansar powder, manufactured in Bangalore and Surf made in Mumbai. This, even though HLL, which manufactures Surf, has factories in many parts of the country and does not base its price on products manufactured in Mumbai.
Similarly, the confectionery market has expanded but the WPI lists just 10 varieties of toffees manufactured by two brands - Parrys and Nutrine. Saridon is still the WPI’s brand of choice, as is Kolkata-based Deys Medical for personal grooming products such as hair oil.

The WPI basket no longer reflects market categories either. In 1993-94, pagers sold more than mobile phones as did scooters compared to motorcycles and cars. That’s not true in 2009.

The government says it’s hard to draw up a more representative list of products because of problems sourcing data from as many as 5,000 units. Therefore, it’s contemplating making it binding for companies to report monthly data. Once the new system kicks in, inflation data will be released on a monthly basis rather than weekly, as happens now.

Monday, August 31, 2009

NHPC IPO- another RPOWER in making

Within one day, the NHPC IPO has been oversubscribed 3 times ... when you look at the individual categories (Qualified-Institutional, Non-Institutional and Retail), you can see that entire volume is coming from the Qualified Institutional category. While the other 2 categories are only 15% and 50% subscribed, the qualified institutional category is oversubscribed by 6 times.


1) The Book Value myth:

Almost everyone I spoke to is talking about how low the Price-to-Book value of NHPC is. The book value of this company is roughly INR 18,000cr as of Mar 2009. This gives a P/B range of 2x to 2.4x for the price band. And everyone...fund managers, analysts, television talkers alike...is concentrating on this P/B and comparing it to peers - JP Hydro,NTPC, Tata Power etc. And therein lies the catch - NHPC's existing 3650MW (excluding subsidiary NHDC) yields the company an average power tariff of Rs. 1.62 per unit. The unconsolidated company's net worth as of Mar 2009 is INR 18,000cr. The PAT of the unconsolidated company is Rs.1,130 cr. This gives a Return on Net Worth of 6.7%....pathetic.

Let me give an analogy - your friend owns a house, which he got by inheritance. Today, the house is worth Rs. 4cr on the market (thats what everyone is telling you). But your friend's late great-grandfather had signed a rent agreement at Rs. 1lac per month till year 2030. So, would you pay your friend 4cr to buy this house today??

The catch is in the low price NHPC has been forced to sell power at by the power regulator for the last two decades. And this is why the Price-to-Book argument falls flat.

2) Leverage and the grey market:

Almost every institution gets a leverage of 20x...to subscribe for 50cr worth of shares, you need to put in 2.5cr. At an interest rate of 12% for 15 days, the break-even (inclusing interest cost) works out to Rs. 39.30. And the stock is already trading in the grey market at Rs.46. So everyone is playing the game...get allotment and look to sell immediately.

And herein lies the second catch - the grey market is a very thin market and is only an indicator of price, not volume. If the stock tanks after listing, the ones who were not able to get rid of the shares in the "grey-market" will get burnt....which is what happened in the Reliance Power IPO in Jan 2008.

Funny how we can forget so quickly...playing fastest-finger-first with our bruised fingers from a year ago!