Words of Wisdom and Structural Bull Run

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Dear Friends,

                   On 6th Mar 2015, I got the opportunity to attend an event on “Budgets and Markets 2015” organized by the United Way of Chennai (Non-Profit Organization) at ITC Grand Chola, Chennai. The event had some of the most erudite speakers including Dr. C. Rangarajan, EX RBI Governor and Chairman of Prime Ministers Economic Advisory Council, Mr. Ramesh Damani, one of India’s renowned and respected value investor with a great track record on investments, Mr. Milind Barve, CEO and MD of HDFC Asset Management (Largest MF in India) and Mr. Nilesh Shah, MD of Kotak Mahindra Asset Management (served in various leadership roles at Axis Bank and ICICI prior to joining Kotak). The event MC (Master of Ceremonies) was none other than TCS Mahalingam, EX CFO of TCS and a well-recognized figure in the Industry.

For a change, instead of attending the event as a Finance professional through one of the Mutual Funds that I work with, I got the invite through my erstwhile corporate connection (Lakshmi Narayanan, Cognizant Vice Chairman and founder member of United Way of Chennai). I was pleased to meet him after quite some time since I left Cognizant and also got the opportunity to meet with some of my old colleagues who had attended the event.

Dr. Rangarajan reviewed the Budget on 3 Dimensions – Growth, Equity and Macroeconomic Stability. Obviously there was a reference to the New GDP numbers that has been published and have puzzled economists around the globe. Though, as per the new GDP calculation the old GDP numbers were recalculated, the numbers are available only since 2012. Dr. Rangarajan commented that “India achieved a GDP growth as high as 9.3% in 2007-08 as per the old calculation which means that we have achieved double digit GDP growth as per the new calculation, last decade itself”.

Dr. Rangarajan mentioned that the GAAR (General Anti Avoidance Rule) was conceptualized to clear confusion but has been perceived wrongly and the industry is happy that it has been deferred further in the budget. He was critical of the fact that the Fiscal Deficit target of 3.6% has been pushed to 3.9% for the coming year by the government, sending wrong signals to the global investors (This is a point which has been criticized by experts across the Industry and a sore point in this budget).

Indian Government spends 45% of its revenues to service its interest payments which is an alarming number and this leaves very little amount for investments and growth. Apparently, the proposal of 10% additional Surcharge for people with income above 1 crore that was implemented couple of years back was Dr. Rangajaran’s idea. He is of the opinion that the Personal Income Tax deductions should be linked to Indexation.

There was a question on whether India should tax Inheritance (which is a practice in countries like US and you can’t just pass on all your property to the next generation for free) for which Dr.Rangarajan’s answer was a clear “yes” but beyond a certain level of wealth. I was wondering that the audience, which had some of the wealthiest people including several businessmen, would have fumed hearing this with butterflies in their stomach!!!

The next event turned out to be another interesting one which was a panel discussion with Nilesh and Milind, moderated by Ramesh Damani. The panel was extremely positive on the budget delivered by the FM with Nilesh calling it the “Budget of the decade” where revenues were understated and expenditure is realistic (took a jibe at the budget of Chidambaram, a few years back which was considered very manipulative) and Milind also shared the view saying its probably only next to the Super Budget of Chidaram in 1996/97.

Interestingly, when Ramesh took a vote on the popularity of the budget and the expectations of the market, it was a 50-50 on the budget but almost the entire audience of around 500+ people were very positive that the markets are going to soar from where we are today. Nilesh went on to say that we are in midst of a structural bull run which is expected to last atleast the next 10 years. The clear message from some of the Equity Market specialists is that we are in for a tremendous run and the onus is on the investors to participate by investing in the equity markets and benefit.

Milind brought about this interesting fact which was acknowledged and supported by both Ramesh and Nilesh that Foreign Investors have understood the potential of Indian Economic growth story and they are investing huge sums of money and getting benefitted while the Indian investors still have very limited awareness and inclination to invest in equities. It’s unfortunate that only 2% of the Retail Investors in India invest in Equities while the percentage is above 40% in US and developed economies. While retirement funds are invested in Equities (certain percentages as decided by the mangers) across the globe, Employee Provident Fund (EPF) in India does not invest even a rupee in Equities though there has been several representations made by the government to the EPF trust.

I always had this question as why the Indian Government does not promote agriculture (not just waiving off loans) which is still the livelihood of the majority of the Indians. Why not nudge the business houses like the Reliance, Tatas, Bharti, Sun and Birlas to invest in agriculture and adopt latest technologies to produce more? Even now a lot of farmers seem to be dependent on seasonal rains and either the crops gets damaged due to excessive rains or no rains at all. When our PM can push for make in India why not “Cultivate in India”. The government can bring in a proposal where the business houses provide equity stake to the farmers who can work in partnership with business houses and do agriculture using modern techniques. I wanted to ask this question to an economist like Dr. Ranagarajan but due to limitation of time could not. The question was instead put forth to the panel but I guess their area of expertise is different and could not provide a satisfactory response.

Please write to me on what you feel about the above point on Government promoting agriculture.

<Blog # PenguWIN 1027 – Words of Wisdom and Structural Bull Run> 

Category: General

3 comments on “Words of Wisdom and Structural Bull Run

  1. Sendhil,
    I absolutely like your idea of “Cultivate in India” and Government should push for this to all business houses. I have seen few mid tire Agriculture/ Fertilizer companies leasing the agriculture land from farmers for cultivation, but this has to be expanded. Instead of leasing the land, farmers need to work as a partner and have profit share.

  2. Dear Mr.Sendhil,

    Very interesting and important subject you have touched -cultivate in India.All the developed countries had given Agriculture as an Industrial or Corporate status,but we lack very much.Promoting agriculture creates many more new entrepruneres,susequentily they can create many job oppurtunities.I took one example-Banana. In Banana production,India tops the largest producer globally,but ranks 20th in export.Reason is agriculture has not been given enough importance like other sectors and it is unorganised and technically under developed.If the government promote suitably , it can awaken the big giant which is sleeping.

  3. Great idea about getting the Government and Big Corporations invest into Agriculture. With all the Farmer suicides and Land grabbing in AP and elsewhere, they are always short changed.

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