We observed with a sense of happiness, satisfaction and relief that domestic institutional investors (DIIs) were steady net buyers in the post-Budget market mayhem.
Trust us folks, it pays off to understand a few points of harsh, ground reality in India, before we agonise and commiserate over what the Big B did!
The DIIs probably understood those fast and real well — it is a pity they constitute less than 15% of the daily market turnover.
Coming to the Budget, it is by, for and of the people — and not by, for and of the capital markets.
Some caustic observations off the block:
a) People sitting in public judgment of the Budget, indulging in commentary, analysis, discussion and rating (the gall!) form less than 1% of the population. At household incomes ofover Rs 10 lakh a year (per month might be more like it, going by the honchos you saw on media) they very well are. It is a rudimentary moot point whether their views are representative of what the Aam Aadmi thinks and votes for!
b) For all the breathless debates about the rural “doles” — we are referring to a country with less than Rs 40,000 of annual per capita income. Yes, yes … per capita referrals can be a rude joke — think of 3 year sales budgets being drawn out based on per capita consumption of cornflakes in Tamil Nadu, or even better, per capita consumption of idli-dosas in Japan.
But look at the income distribution curve, 40% population below poverty line, high Gini co-efficient (at ~ 0.55) and bottom deciles performance on human development index, the government has a grimmer situation to handle than just disgruntled market types, folks!
c) The Budget has brought social inclusion into prime focus and seemingly veered away from pandering to demands, justified and unjustified, made by we, the focused market types. Let’s face it, the government has its compulsions. We cannot kid ourselves into believing that the French and Russian revolutions were events in the Neanderthal Age; that the cause to both was not a groundswell of social inequity.
d) Now let us not spin our wheels on how rural demand will now soar unfettered. Examine the dole for what it means on the broader canvas — folks, these monies being handed out (Rs 100 per day through NREGA, for instance) is ‘survival monies’ to that section of the populace, not ‘entertainment allowance’. The debt incentives (through the banking systems) are ‘lifelines’, not unlike the investments in QIPs of overleveraged, under-achieving, capital-stuck, real estate firms — let us not confuse that debt waiver and grant for readily available growth and consumption capital
Repeated negative allusions, particularly to the D-square effect: Disappointing Disinvestment announcements — had us writhing at the inexplicable paradox that “investor expectations of the Budget” have come to be!
Here is our take on the only two “investor expectations” reasons for the D-square effect and our own, four sarcastic conjectures on hypothetical, but quasi-realistic government responses:
a) D-square — possible reason 1: There is not enough government paper around to invest in. So Pranabda, announce divestments and let us participate.
i) We thought there were reservations about how PSUs are run. Why the sudden surge in affection for the operationally inefficient?
ii) There is free float of ~ Rs 3,00,000 crore worth in PSU equity. Pick your choice and invest. Why clamour for more?
iii) Private enterprises are lauded for rational dilution of their investments and the government should not be, eh? Talk of double standards.
iv) Potential bankers’ fees cannot be the driver to investor expectations. Heard of conflicts over the Chinese wall?
b) D-square — possible reason 2: How will the government plug the deficit if not through disinvestment proceeds? We are worried. We have other means to plug the hole:
i) First, debt drawals from the banking system that otherwise is struggling to lend
ii) Second, the mint / RBI. Why worry about inflation and expansion with WPI being what it is
iii) Third, FDI — look at how interested everybody is in India. What if they back it with sizeable monetary infusion.
iv) And fourth, we have the foreign exchange reserves we could run down.
Disinvestment — only if it is warranted, has to be at the right price. Why should we announce all that in the Budget anyway? These are only contingent financing options and best-decided at relevant points.
i) Like well-governed issuers should, we are bothered about meeting investor expectation (on PSU equity) with sustained performance. As also about the value we get and dilute our stakes at. Cannot be bracketed alongside the desperate QIP issuers, right?
ii) How come the government balance sheet is not valued using sum-of-the-parts methods? Look at our holdings and how positive it will be if we stay relatively undiluted.
It’s high time we market-types stop expecting the FM to act like the chief strategist in a sell-side brokerage house. When it is fashionable to talk of the demand that can be generated by the masses — the telecom bulls can vouch for that — it behoves us to gracefully acknowledge what the masses deserve, too.
So what if the Budget focused more on them?
The stable government will present at least four more Budgets anyway.
This is a post-Budget note by Spark Capital, Chennai.
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