Monday, January 16, 2012

India Story : In the hands of Mamata, not Manmohan

We have a government that seems dazed and in disarray, bumbling and stumbling along the way, with an ally like Mamata being the icing on that cake !

It goes on to say a lot about resiliency of India growth story, that India’s fundamentals overall have done pretty well during the past two years, inspite of Mamata and Manmohan.

For the record, I still have great regard for Manmohan (and PV Narsimharao combination) for changing the course of the economy with the reforms two decades back.

But things seem to have come to a state of utter disarray and India growth story seems to be rapidly losing momentum. If Mamata doesn’t like FDI, it will not happen. If Mamata opposes Diesel price hike, oil companies will roll it back. If Mamata doesn’t like the Teesta water agreement, it won’t happen. And the list goes on. Mamata has become the proverbial tail that wags the dog.

Combine that with a government, that seems to be bumbling and stumbling all along the way, and we probably have a recipe for disaster.

I am simply not able to fathom, why the current government is acting he way it is acting. Whether it is FDI policy management, the sham of diesel price decontrol or the way it is trying to fix corruption fighters like Anna Hazare & Gen VK Singh, or the most recent sanction for prosecution of Google/ Facebook, it seems that the Government is in a state of total disarray. Or maybe, I just don’t understand Manmohan – Mamata politics so well.

There is now a renewed hope taking shape, that government will be launching reform initiatives post state elections. If the current government has not been able to get its politics right in nearly three years of being in power, I have my doubts it will get its politics right in the next few months. But again, it could be that I don’t understand politics so well.

My fundamental analysis show that we are in beginning of a recovery cycle, driven by a falling inflation, fairly good Services and Manufacturing PMI’s and likelihood of better corporate results during Dec’11 quarter compared to Sep’11 quarter. However, I doubt that we would be able to come to a 9% plus growth rate, if Mamata continues to create roadblocks and the government doesn’t get its act in order.

Technicals in daily and weekly charts point to an impending breakout in stock indices and its likely that we’ll have a decisive breakout in the next few months, but I doubt that we would be able to take out highs of Nov’10, if government continues to bumble and stumble. Globally, there is already a stronger preference for emerging markets like Indonesia and South Korea, which have been amongst the outperformers in Emerging market space, with their stock indices not too far away from their respective all time highs.

With the most recent sanction to prosecute Google and Facebook for “allegedly causing harm to national integration”, we are now at a real risk of becoming a laughing stock in world media.

Will our government be able to come out of this rut, will reform process come back on track, and will we be able to come back to 9% plus kind of growth rates ? As things stand now, it seems as if it’s in hands of Mamata, not Manmohan.