How the 2014 is going to be?
Mostly when we ask the question
how the 2014 is going to look like, everyone is taking it only politically. BJP
supporters say its going to be MODI and rest say it’s going to be hung
parliament and credit will go to AAP. Financial markets as well are weighing
too much on the elections, they say if we have stable government then markets are
going to be good else we have bad days nearing us. Is it really the thing? Can election
be so much of deciding factor for India in current economic scenario?
I feel otherwise, I feel anyways
we are in challenging times & will face lot of trouble come what may!
Current vote on account in fact reinforced what I think and united bank of India
tragedy is giving lot of signals.
Mr Chidambaram has left the time
bomb ticking in this vote on account I feel. His triumphant claim that he met the fiscal deficit target at 4.6% which
almost every analyst, news channel and anybody who understands Indian accounts has
called a blatant lie. Rollover of subsidies from current fiscal to next fiscal
this year has on record been only Rs 35,000 crore and total fuel subsidy
including this amount has been planned at Rs 65,000 crore. So if one removes
the rolled over amount the fuel subsidy is going to be around Rs 30,000 crore against
current year booked expenditure of Rs 85,000 crore. This alone means Rs 55,000
crore gap in fiscal (staggering USD 8.8 bn) if one was to think the spending
will be at the same level.
Ashok Gulati of the Commission for Agriculture Costs
and Prices (CACP) has said that the budget has not admitted to Rs 80,000 crore
of food and fertilizer subsidies. Food corporation of india in case
these subsidies are left unaccounted will be left with option to issue bonds
which will create an additional burden or the next FM will account it to clean
his slate which has always been the case.
The planned expenditure if has not been spent this
year, its purely gimmickry by Mr Chidambaram as the India cannot contract in
any ways and expenditure will just grow next year.
Its very strange that neither our revenues grew more
than the target nor exports ballooned. We did not see extraordinary FDI in India
despite that Mr Chidambaram has shown us 4.6% fiscal deficit and neither of us
has objected the accounting. This is pure fraud if it was in any other company
and auditors would have qualified it.
So the bottom-line is we are in risk to see increased
deficit number next year unless we see another magic. The Nymex crude at this
point is at USD 102. Crude always has at least one good rally in a year if it
has to happen again this year India will not take it positively.
Indian bank’s NPAs are showing up slowly. United bank
of India is live example. Government may get away by saying its one of its kind
case but almost every financial expert is aware of Indian PSU banking system
which has had a history of manipulating NPAs and no wonder they traded always at
such a low valuations for so long. It seems now it is becoming impossible to
adjust them with numbers. This thing may have cascading effect and may spread
as wildfire.
There are two risks, one being banks fraudulently lent
without collateral and second the collateral itself is insufficient. IN United Bank’s
case it was evident that many small accounts have also turned to be bad. It cant
happen only with this bank only. The collateral the banks take mostly is real
estate with many accounts turning bad the biggest pressure may come is on real
estate. I am very sure the real estate may give up in some days the breath it
has been holding for so long.
India on the other hand faces the risk of prolonged period
of high interest rate. Most of the financial experts have been citing the 6
month as maximum tenure for this kind of interest rate scenario, whereas I feel
we may see it for quiet longer. The credit to deposit ratio in no way going to
come down. Reasons being the economy is
very much not going to expand next year at least very much certain for next six
months and savings rate will not grow
for the same reason. Credits are not going to come down in any case as NPAs are
mounting day by day and forget about
repayment. We are trapped badly in high
interest high credit to deposit ratio kind of scenario.
The increase in fiscal deficit, expected increase in
crude, low expanding economy all are going to pose great challenges for rupee
and interest rate scenario. These things may bring back the fear of ratings
downgrade back to the markets.
Moreover this year again the El- nino is expected. If the
monsoon is to face any kind of trouble we are very much in for a very big
trouble. In all 2014 to me doesn’t sound
good at all. I see lot of risks to all asset classes. Gold and silver are the
best bet. Liquid funds, FMPs and accrual funds may outperform the markets
again. Equities may go up to some extent or consolidate mainly because of the
valuation. But I am very sure there are lot more better countries are available.
I am really not certain on foreign inflows in that case.
I am sorry if I sound too depressed but let me tell Mr
Raghuram Rajan is already watching it too keenly and he has a tremendous power
to depress us all. He must be thinking 50 bps more, lets see!!
