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Saturday, July 11, 2009

Budget 2009

http://indiabudget.nic.in/ub2009-10/bh/bh1.pdf
"The best plans of men are bound to fail at the last moment"The Indian Budget 2009 was no exception.As Mr Mukherjee read the budget the stock markets fell like a pack of cards.For record the BSE sensex tumbled by 900 points and NIFTY pulled down by 250 points.Meanwhile the analysts and business people tried to reassure the public that the budget was good and had the ingredients to take the economy back on track.However if markets are taken as a leading indicator of future performance of the eco0nomy..clearly Mr Mukherjee has been given a thumbs down ..

So what was all the hysteria about the budget and is it all that bad?Lets analyse point by point.First lets review the prologue i.e the market and business expectations out of the budget.

As i had pointed out in one of my earlier posts the UPA winning an absolute majority was a historic moment for India..for it Indicated that we could put the reforms back on track..with no Marxists or Jaylalitas of the day playing the spoilsport.As a result with Manmohan leading the government ..the business people and markets had started expecting another revolutionary budget like that of 1990's when Indian economy took its first step towards free market capitalism.This time around markets expected a visionary budget which would put India in another orbit all together.SOme key expectatios were:

  • Govt to launch schemes to make India a technological capital of world
  • Govt to dilute its stake in PSU Banks
  • Removing FDI Cap in many sectors
  • Direct Stimulus packages for industry in form of massive tax and excise waivers
  • Refinancing of PSU Banks to improve the liquidity situation in the markets
  • PPP and direct entry of private players in sectors like railways,defence,nuclear power etc
  • Increased focus on education both primary and higher
  • Steps to increase agricultural productivity and boost rural demand
If you red the budget highlights (included in the link at beginning of the post) we would see that the budget failed in most of the above market expectations and hence the thumbs down by the markets.

However we go for outright criticism of the budget let us see whta Mr Mukherjee has tried to do.The world economy clearly is still in turmoir..things have started improving but not improved yet.The business enviornment needs a kind of stimulus top put it back on track.now there are mainly two ways of doing this:
  • Refinance your banks like US to decrease interest rates and flood the markets with money which would increase the incentive for producers and hence lead to job creations and economic reviveal
  • Direct spending by government in key infrastructure and other areas to stimulate direct growth
So from the above two which one is better..The answer is ..both..depending on your econmic strengtha nd fiscal performance a combination of both could do wonders for any country.However bare in mind..you need to have the numbers on your side to win the game.If you read the budget draft ..clearly Mr Mukherjee has gone for the second option.He has tried to kill two birds with one bow..solve the socio economic problems of India by increased expenditure on schemes like gramin sadak yojna and bharat nirman etc and at the same time create enough business fro India Inc.

Therfore on the surface the budget looks to be on track..then why such a thumbs down by india Inc.Well to understand thsi lets take a closer look on the budget highlights:

  • Mr Mukherjee has clearly forgotten the urgent need for increased expenditure that India needs on infra needs.The onloy blue lining is refinancing of current PPP projects to ensure they are not abandoned.There has not been any major infra announcements like the golden quadrilateral by NDA govt etc
  • The budget is focussed more on socio economic upliftment.While this is good but the increased spending on schemes NREGA is not favourable as these schemes are highly inefficient with large leakages.In many cases we have workers not being paid for months together.thus aim of increased spending on socio economic schemes as an aid to economic upliftment stand vanquished
  • There is no provision of govt exiting from PSU banks.As a result the liquiduty situation may to continue to remain tight.However the point is arguable and hence we may not take this as a strong red mark in budget
  • The budget estimates a fiscal deflicit of 6.85 of GDP as estiamted in budget plan 2009 is too high for any standard.This is mainly due to extravagant spending by govt. on socio economic schemes.To finance these schemes Mr Mukherjee is opting for govt borrwing.This may lead to tightening liquiduty situation in the market with banks investing major chunk of the money in Govt bonds rather tahn lending it to publisc.This is clearly a recipie for disaster which would reduce consumer spending and investments in public sector.As Prem shankar Jha points out in ET "this is a clear recipie for stagflation"
The numbers are clearly no9t in Mr Mukherjee's favour .With a fiscal deflicit of 6.8% and a stranded economy.India might not be attraction of FDI's anymorly.No more FII's sold stocks worth more than 1 lac crore on budget day.The only chance where this budgedt might be able to achieve its objectives is when FDI's take a positive look on India and govt resorts to borrowing from international markets reather than borrowing from domestic makets.Leaving enough liquiduty for domestic industry.

However borrowing from foreign lands is a hazard as we would have to pay interests in precious foreign currency..leaving little room for technological,industrial and natural resource aquisition abroad.however if we are able to put industry back on track we may be able to get additional loans to achieve the above stated facts.

So the budget may have disappointed many of us but you never know..markets always play the dice..if Mr Mukherjee is able to pull this out by foreign borrowing and efficient implementation of socio economic and infra schemse..this might be the revolutionary budget we were looking for

Happy Blogging :)



Wednesday, July 8, 2009

Awsome July

Over the past few months writing on this blog has been an excellent experience..it has given me a chance to route out my thoughts and processes...I have shared on this blog what I may not have in person with many people...and above all I have enjoyed each moment that I spent writing and reading this blog..(ofcourse I dont think those who read it have the same opinion).Anyways to make the blog more regular I am committing myself to write on the following topics during this month:

1)Indian Budget :A complete ANalysis

2)Cat Season 2009

3)The Clash of the titans

You would notice that there are no more articles related to trading...well I have thought about it for some time and finally decided to amntain two blogs..YES :) I am creating a new blog exclusively related to my tradings..i would be writing on it daily ...to share with you my trades,experience and mistakes..will update u on the same

Happy Blogging :)

Tuesday, July 7, 2009

Online CAT..another farce by IIMs

Hello everyone..its July and for many budding managers the CAT season has just begun.With more than 2 lakh candidates writing the CAT last year ,it is by far the most difficult,thou8gh not exactly the toughest MBA exam in the world.So with IIMs deciding to take their pet CAT online this year..wat does it mean for an average MBA aspirant and does online cat do what any entrance exam is supposed to do...pick up the good apples from the rotten ones?Lets analyse it all belkow :)

As per the latest notification avaliable on IIM websites..all we know is CAT wont be an adaptive test,neither would the dates be flexible and above all..u wont be able to take the test more than once...so for all of you who were hoping that maybe this year the sentence "it was not my day" would be heard less were just guessing wrong

So IIM's as per their elitist and chauvnist attitude clearly dont want to recognise the fallacies that exist in their entrance structure.With a skewed demand supply ration and a probabilty factor of 0.995 working against any candidate taking the exam ..i would bet there is more luck involved in belling the CAT than trading derivatives or winning a raffel ticket.

Let us first analyse the reasons which put online tests in front seat when compared to written tests:
Easy regulation:Yes boy when the paper says 2 hours thats all you would get nothing more nothing less

Adaptive Test:So maybe you would runh out of luck ..maybe

Secrecy:Yeah no more press leakages and no more need of 5 different set of question papers

multiple Papers: question paper generating programs can generate any no. of papers of same difficulty level from a fixed question paper

And now lets see the disadvantages:
Infrastructure: Oops how will you arrange for 2.3 lac computers

Cost:Yeah those bastards increased the CAF fees to rs 1400 :(..and promise that more is in store

Computer Literacy:Now did Dhirubhai AMbani knew computers when he established reliance..why do iims think all prospective maagers must be computer geeks when they enter IIMs

Inequality:Yeah what if your computer hangs between the test...with kind of infrastructure we have in India..anything is possible :(

So looking at above reasons the only advantage i see of IIMs moving on to the online version of CAT is that they would be able to control leakages more efficiently..which mean incident like repeating CAT in 2003 would be history..Besides that IIMs have failed to move on with aspirations of most candidates..many of whom are frustated because they cant get into IIms because luck has started playing too big a role in CAT ....with RC's DI questions and quant questions of varying difficulties distributed throughout the paper..choosing questions has become more of a play of dice than talent..Seriously its high time that we move on to an adaptive test format in which the computer adjust the difficulty level of paper according to candidates performance to keep the "luck" factor at minimum.

Besides this CAT needs to ove beyond an IQ based paper.Research has shown that a high IQ does not really guarantee a good manager..what is mopre important is a healthy mix of EQ and IQ to become a good manager..CAT has been sticking to the IQ base for a long time now..and "change" is way of life..so before the demand supply ration moves against the IIM's ..its high time they show some leadership and bring innovation in CAT.

Lastly IIms have been established with public money and therfore they need to ensure equal oppurtunity to all sections of society.With rising need of rural infrastructure and rural based industries ..IIMs need to ensure that candiadates from rural sector are bred into modern managers so they cna bring development to the parts of country that need it the most.Online cat just puts all such candidates ..a distant second...and strengthens the preception that corporate carrers and enterprenuersip is only for city boys and girls...cmon nothing could be farther from truth..infact by making CAT an online exam..IIMs are just denying some ppl their fundamental right to equality

Lastly I would just like to say leadership is all about vision ..and ability to see beyond the horizon..by copying others or refusing to keep your whiums and fancies silent..you are not the leader but the "doomed " one