Air conditioning India is a bigger issue than global warming

Heat stress is 20 times more likely to kill an Indian than a citizen of the US. This is due to the availability of stress-reducing (not to mention comfort-inducing) technologies such as air-conditioning.

In considering potential approaches to (the likelihood of ) global warming, what should someone concerned with the fate of poor Indians be asking? Create conditions where air-conditioning is widely available, or crimp power availability in the belief that you are preventing heat from getting worse than it is.

A look at this draft paper shows that fatal heat stress begins at ambient temperatures as low as 32 degrees C. Most of India experiences these temperatures for at least 6 months a year. From this perspective, one needs to examine two alternative scenarios:

Scenario ONE

We refuse to be party to climate change talks, and purposively make power availability a national agenda. Air-conditioning, vaccine refrigeration and food preservation become ubiquitous, and save millions of lives a year. In the process, the over 100 million children who (don't) study without electricity in their homes also get an opportunity to do so. As a result, we possibly contribute to global warming, which possibly leads to our need to adapt to changes in the temperature of the earth 90 years down the line.

Scenario TWO

We send ministerial parties and scores of tax-paid hangers-on to deliberations in the world's exotic conference locations. We sign documents agreeing to decelerate energy use; then, we all spend more tax-payers' money on policing each others' contribution to this grand altruistic cause of slowing global warming. The globe, meanwhile, cools or heats depending on cosmic radiation, solar activity and perhaps man-made carbon emissions. And, while we are being 'responsible' global citizens, Indians still continue to die of heat stress at a rate that is 20 times as high as Americans, children's vaccinations don't work because the cold chain snapped, and fruit and vegetable rots while (the same unvaccinated) children suffer from malnutrition.

Tough choices!

http://www.isid.ac.in/~pu/conference/dec_10_conf/Papers/RobinBurgess.pdf

The Yin and Yang of interest rates

The Indian government has managed the inflation numbers, if not inflation. This should make it somewhat easier for the RBI to take a pause in interest rate hikes. Markets are keenly watching for signals from our central bank as it goes public with its credit policy today. Out in the daily business of buying and selling bonds, RBI has been busy providing support to bond prices, by buying them up, and keeping bond yields down - the benchmark 10-year yield is being capped at 8.1%. This is the yin, or the soft, approach to banking.


From the point of view of banks, though, there is another dynamic they have to deal with, which is the depositor. Businesses are clealy hugry for cash, and credit is growing at 23% per annum. However, depositors are signalling that bank deposits are not attractive at current rates, and the deposit growth in banks is trending at less than 15%. This is a huge gap, and it cannot be made up by equity capital alone - banks will have to raise deposit rates; and then, to retain their margins, they will have to raise loan rates. This the hard, yang reality of banking in a nation where inflation is running high.

Irrespective of whether, and when, RBI raises rates, India will have to move up the interest rate curve as long as inflation is not contained. A pause in interest rate hikes by the RBi may take some pressure off banking stocks, but this should be seen as an opportunity to exit the sector before a new slide sets in.

Rajeev Chandrashekhar's business ethics

From: Amit Saigal

Date: 10 December 2010 12:51

Subject: Open Letter to Rajeev Chandreshekhar



I sent the following message out to 5000 members of the Rock Street Journal Group on facebook this morning:



Dear Mr. Chandrasekhar,

Opened the papers this morning and read about your "Open Letter to Rattan Tata", and was highly amused. One good "public" turn deserves another, so here is my "open" letter to you, you dishonest fuck.

I hope you remember floating an "internet" company during the dotcom boom of the late nineties. It was called OYEINDIA.com

Even had very nice T-shirts and everything, and lots of nice people working for it, some of whom are still friends. No doubt, you thought you you were going to make a quick few million and cash in on the internet boom. Oyeindia co-sponsored Great Indian Rock Festival in 2001 for 16 lacs. And promptly bounced cheques, and then gave me an awesome runaround for two years.

Sir, not having shagged a family member of the BPL group to inherit any business, and having worked very very hard to create Rock Street Journal, Great Indian Rock etc. This was a huge sum of money for me. Can you possibly have the decency to pay up? with interest please?

I had totally forgotten about your insignificant life, till I saw in the papers today that you are now some BJP bigwig (obviously all your business ventures have gone down the tube (BPL? anyone?), and you have found a political party to suit your personality it seems).

So please look into your murky past, before you level innuendo against someone like Rattan Tata. You dont even aspire to be in the same league as the digested meal that comes out of Rattan Tatas bottom every morning.

cheers!

amit Saigal

The Luddites will starve you

This morning, the Financial Express ran a multi-page special on "The Agri Quagmire", examining the decline of agriculture.

MS Swaminathan wrote " About the controversy concerning moratorium on the release of Bt brinjal, the present system of Genetic Engineering Approval Committee (GEAC) headed by an additional secretary, would not work. In future, we have to have recourse of biotechnology for increasing yield."

Parsing what he said, decisions on technology should not be presided over by a bureaucrat. Let alone a pseudo-politician, like Jairam Ramesh, whose 'decision' to suspend approval for Bt brinjal was a wet thumb held up to see which way the political wind was blowing.

In the same feature, YK Alagh, also an agricultural expert, wrote, "The growth rate of grains is around 2%, but non-grain crops are definitely growing faster, led by a very rapid recovery in cotton, which has been the great success story of the recent period."

The success story of cotton is, of course, the success story of Bt cotton, despite the strenuous (not to mention shrill and strident) protestations of the Luddite Lady Vandana Shiva that Bt cotton would ruin farmers. My friend Barun Mitra did us all proud by awarding her the Bullshit Award. The liberal chatterati who feel good reading about evil corporations were taken in by her. Luckily, the impecunious farmer wasn't, and today 80% of Indian cotton is grown from Bt seed.

The 'Lower Freeze'

The Nifty and Sensex have been flirting - with the 6,000 and 20,000 levels respectively.

Over the last 3 sessions, they have gradually melted away from these benchmark numbers; at these levels, Indian stocks are close to their all-time levels, so reluctance to scale new heights is understandable. The more note-worthy dynamic is the schism between leading stocks which make up the Index, and the broader universe: on the Bombay Stock Exchange yesterday, declines beat advances 2037 to 881, a factor of more than 2 is to 1. And, if my early-morning count is right, the number of stocks hitting the lower circuit-breaker was 256. This is an extremely large number.

When a stock hits a lower circuit, it makes for an interesting statistic; more importantly, it signals a certain desperation for the seller, one which gets frustrated by the unwillingness of any buyer to pick up the stock at that price. When the stock goes into lower freeze for several days, investors are unable to find an exit for several days at an end.

A recent exhibit in this category is Money Matters, the 'consultancy' firm, for want of a better word, which was at the heart of the bribes-for-loans scam. Since the scam burst on Nov 22nd, the share has hit lower freeze every single trading day, taking the price from Rs. 694 to Rs. 241 yesterday. The number of shares being traded has been negligible: yesterday, for example, only 227 shares were transacted. Compare this to the 242 thousand shares transacted when interest in the share had peaked.

A share which joined the 'lower freeze' club yesterday was U-Flex, the packaging giant promoted by Ashok Chaturvedi, who has often been in the news, not always for the most edifying reasons. From July through November, shares of U-flex and other manufacturers of polyester (PET) packaging film had surged impressively as international shortages of PET had allowed prices to rise in a fashion that was punishing to end-users. This was clearly a phenomenon that had to end, and share prices peaked on October 25. Yesterday's 20% drop for U-Flex, however, came on the news that Ashok Chaturvedi has been sentenced to 4 years in jail, along with the IAS officer Neera Yadav, who had headed NOIDA at a time when initial land allotments were being made there; allegedly, Ashok Chaturvedi had a good side business going, helping Ms. Yadav fiddle these allotments for some pocket money. Allegations had been wide-spread at the time, yet they didn't prevent Ms. Yadav becoming Chief Secretary of U.P. Now she seems headed for the lock-up, too.


These are only 2 case studies, out of 250 + stocks, but I wonder whether there is a broader pattern here and investors are sniffing out companies where things are not quite above-board. If markets can punish fraudulent promoters, justice (though partial) will be a lot more rapid than through our creaking legal system.

FX swings

As a result of my interest in bullion prices, I have carefully tracked movements in the Euro/USD rate for the last 3 years, as it is widely held to bear a correlation to gold prices. The weaker the dollar, it is generally believed, the stronger is gold.

While this has often been the case, such easy correlations are far from water-tight:
1. In November and December of 2009, the Euro strengthened marginally, but gold shot up by almost 15%.

2. From April to July of this year, 2010, gold and dollar behaved as though the textbooks had to be re-written, and gold moved in opposition to the Euro -
2.1 as the Euro weakened sharply, from 1.35 to 1.20, gold went up, from 1150 to 1250.
2.2 as the Euro reversed, back up to 1.32, gold dropped  by almost 100 dollars an ounce.

Aside from the gold-dollar link, the other major development of this year has been the increase in FX volatility. From November 2009 to June of 2010, the dollar had a clear downward trend, from 1.50 to 1.20. And though the line was not smooth, corrections in the curve never exceeded 4%.  Since then, though, the Euro-USD graph has not been able to make up its mind - Greek  debt crisis, and the dollar zooms; QE 2, and the dollar swoons. Irish bailout, and the Euro slumps again.

Between June 2010 and early December, there have been four shifts in the Euro-dollar trend line:
June to August   1.20 to 1.325
August to Sep   1.325 to 1.26
Sep to Nov        1.26 to 1.42
Nov                   1.42 to 1.30
And the latest move, in the first few days of December - 1.30 to 1.36

This volatility is pretty wild - it seems as if the markets cannot make up their mind which loser to bet against.

There seems to be only one clear winner: gold, which takes me back to where I began. Since August 2010, gold has risen 250 dollas an ounce. Gains in silver have been even more impressive.

Beware wild mood swings

The sentiment in financial markets is becoming quite bi-polar: last week we were all despairing because of the bribes-for-loans scam and the likelihood of penalties for telecom companies; this week, the bounceback has been sharp - especially yesterday - as investors celebrate good numbers for India's GDP and the HSBC manufacturing survey.




While savvy traders can make money from these swings, long-term investors need to be somewhat more detached, at best taking some profits during sharp profits, and adding well-understood scrips during falls.



From this longer-term view, it is probably relevant to note that the Nifty is up about 14% this fiscal, and sharp moves have been fairly short-lived. Economic growth has been strong, certainly much stronger than I would have predicted, but we are faced with huge constraints in physical infrastructure, as well as in the government's deficit, and the export deficit. Inflation continues to worry the RBI, and Deputy Governor Subir Gokarn was quoted this morning as saying that it is becoming structural. His institution is thus having to find a balance between providing liquidity and anchoring inflation expectations. The bias is clearly towards harder interest rates, and yesterday the 10-year bond yield closed at 8.11%, near its highest since September 2008. This is having its impact on loans for housing; with low, 'teaser' rates disappearing from the scenario, and a hardening of the Prime Lending rate by HDFC, the interest rate spectrum for housing is edging up.



On a purely technical basis, with the recovery in the indian economy well into its second 12-month period, standard comparisons that we equity analysts perform are going to be dealing with the 'base effect': coming off a low, Year-on-Year (YoY) comparisons make sales and profits look very good, but once growth has stabilised, these figures are less dramatic. The car sales for November are a case in point: after stagnating between 2008 and 2009, the growth in car sales in 2010 has been stellar thus so far; in November, though, some of the drama seems to be fading.



The Indian economy is doing well, but this is not the time for wild exuberance.