Kejri Wave – Did India just get better or
worse?
“The (Indian) problems
……. are all homegrown,” said Juergen Maier, a fund manager in Vienna at
Raiffeisen Capital Management, which oversees about $1.1 billion in
emerging-market assets. “The best hope for India lies in the end of the current
government, which has brought everything to a standstill.”
“The decision by India’s top investigating
agency to probe a third billionaire-led mining deal in six months puts at risk
government efforts to revive $160 billion of stalled projects.”
Kejriwal has a hectic first day gets busy with poll promises –
transfers 9 top-officials, including Delhi Jal Board (DJB) CEO.
Education minister Manish Sisodia has
said the government crack down on private schools that are charging exorbitant
fees and taking donations. “My top priority is schools. They cannot be
profit-making businesses as they are foundations of nation building.”
CNG price up by Rs 4.50
in Delhi, Arvind Kejriwal smells a rat. CM-designate
Arvind Kejriwal was quick to question the timing of the hike. In a tweet,
Kejriwal stated, "CNG rates hiked in Delhi. Isn't the time suspect?"
Kejriwal, the
latest poster boy of the Indian politics has formed a Government in Delhi with
the (at best nebulous) support of the Congress.
His Cabinet consists of former journalists, a lawyer/ activist, an architect
and a leather goods manufacturer.
Kejriwal himself a bright IITian, is a former Income Tax official.
Obviously
experience of public administration is not in abundance in the new
Cabinet. But since when has that come in
question when matters like the larger public good are in question? Didn’t one see the kind of public support for
all words spoken by him during his swearing-in ceremony? The common man loved the fact that there are
promises of no corruption, free water of 700 litres per day
to each household of Delhi and a cut of 50% in the power tariff.
And woe betide all of those who question the
economics of some of these items. Ask
the CEO of the DJB who reportedly dared to point out that there would be a
deficit of 120 cr. in the DJB finances.
That can be taken care of by a subsidy of 30 cr. a quarter by the
Government, came the reported reply from Kejriwal. And then later fired her for sticking to her
line.
Like all things socialistic, there is high
appeal in these promises, which may end up saving a few hundreds/ thousands
from the pockets of the citizenry. So
what if these amounts are spent in eating out or buying clothes? In the process though, does anyone care about
the wastages of natural resources? It is
but common knowledge that subsidies, if directed at the right segment of
society can be beneficial but if done arbitrarily can lead to tremendous
wastages in the system (all things being equal, a priced item will be used more
sparingly than a free/ less expensive item).
Can India afford it? I have my sincere doubts. Notwithstanding all that will be doubtlessly
said about the efficiencies that will be brought about by lesser corruption and
better management. Read the history of socialistic
governments which all started with the best of intentions.
Anyhow, my intention is not to make this into
a discourse on politico/ economic theory.
I am more concerned about the return on my investments. One of which is IGL, a company which hitherto
has not had any major political interference.
However, now with Kejriwal, a person who wants to be seen as a champion
of the common man, questioning the increase in the CNG price (which
incidentally was done due to the Gujarat high court order that led to a cut in
its entitlement of cheaper APM gas), there will exist, in my view, a large
hangover on the future profitability of the company. Again!
And then there is the larger question.
On one of my flights back from Mumbai to
Delhi, I met with an old Citibanker friend, who used to run the Citibank Delhi
Treasury and now runs a USD 1.2 bn fund.
I asked him that if he has to encapsulate his learnings of the last
15-20 years of running a fund, what would it be in a single line. His words of wisdom: “Stay away from all
companies that can be affected by the Government”.
That brought me back memories of what Mr
Rahul Bajaj had said in one of his interviews (read my article dated March 2013
“Talking to the Hand”).
But even if one was to avoid companies with
direct potential impact of the Government, what about the economy at
large? Even if a Colgate or an Asian
Paints is not directly interfered to by the Government, wouldn’t, say, a
general lack of foreign investment in India (thereby causing lesser job
creation) affect their products’ demand?
They might be affected less by a slowdown than say a cyclical industry
like cement, but they will surely be affected nevertheless?
In all this then, if everyone like Juergen Maier of
Raiffeisen Capital Management, were hoping for an end to the current Government
(and by extension hoping for someone like Narendra Modi to be PM, given his impressive
track record of attracting large investments in Gujarat over the past decade),
then there could be another twist to the tale due to the rise of the activist/
socialist Kejriwal.
With
only 4-5 months left for the general elections, it is entirely possible that
Kejriwal’s rhetoric (backed by some sensible and some economy debilitating actions)
will put a serious derailing on Modi’s campaign. And with Kejriwal’s “My party best, all
others untouchables” kind of posturing, there is a likelihood of another
fractured mandate. This time at the
national level. And that will do India
no good.
Hope
I am wrong. But I am watching the
developments and plan on staying away from fresh investments at this stage.
