There was a time when the media was the primary disseminator of information. On paper this may still be valid, but like most other intermediaries, the media’s job too is at risk. Ever since P Chidambaram, an old darling of the stock market, has taken over as the finance minister, market participants and analysts seem to have an inside track on what is happening within the government and the kind of reforms that are likely to be rolled out. No wonder, it’s been a hectic September for analysts and strategists as they have been camping in New Delhi to get a direct briefing from shenanigans in North Block. A government that is desperate for foreign inflows to fund its yawning deficit has been obliging market participants with all the relevant information rather willingly.
So what's the market buzzing about right now? The latest buzz in the market is that capital gains tax is likely to be scrapped and securities transaction tax (STT) will be increased, a long-standing demand of FIIs. If this happens, it will give a massive boost to foreign investors and make the Mauritius route unattractive, believe experts. However, this is likely to happen only in the Budget session of 2013. The other big measure that is likely to blast the markets is a regulation that would allow unlisted entities to raise capital overseas. The government, which believes that the policy paralysis allegation against it is a figment of the media’s imagination, is no longer taking chances. Instead it has decided to convey rather directly to all relevant stakeholders (read foreign investors) that it means business.
Right from the start of the calendar year, even before the equity markets saw the rush FII inflows, one domestic brokerage house suddenly changed its “overtly bearish” stance on India because its sources in the government told them that a barrage of reforms were going to be unleashed from the second quarter of FY13 (July-September). The reason behind the change in their house view was clearly the credibility of its source within the government. Such touching faith in the government was also exhibited by one CEO of a retail company, who confidently said that foreign direct investments in retail would be opened up after July. Interestingly, this was after the government backed off after announcing opening up of the retail sector for multi-brand players.
The confidence exhibited by the broking house and the CEO isn’t based on a mere “hunch” or “gut feel.” Both corporate honchos and market participants have adequate information from the corridors of power so that a “buy” call can be put on India Inc again, despite the country's humongous deficits and slowing economic growth. In order to get the foreign institutional investors to commit their dollars back to this flagging BRIC economy, the government is regularly meeting equity strategists, heads of research, sector analysts and economists. A few road shows have already happened and more are likely.
On September 3, a good two weeks before the government unleashed its reforms package with the liberalisation of retail and broadcasting services on September 13, a rather detailed note was put up by one market participant on the government’s reforms package. The market participant said that he had met policy makers in Delhi along with some key investors. The market participant noted that “Chidambaram as the new FM seems to have re-energised the team in Delhi and a lot of focus on implementing the suggestions of the two key committees (Shome Committee on tax related issues and Kelkar Committee on measures for fiscal consolidation). The first draft of the Shome Committee suggestions were out on Saturday (see below for detailed comments on that) and there is expectation that the Kelkar Committee report will be out by Sep 7.”
The note speaks extensively about various reforms measures that were announced much later in the month. The note also said: “There is focus on unblocking infra projects through attention from Cabinet Committee on top 1,000 projects. A detailed report on that can come soon. Also state electricity board loss restructuring process could pick up once the new power minister settles down.” The restructuring of SEB debt has already been announced. The note goes on to give a detailed account of the possible reforms that are likely to be announced through the month of September. Clearly, the meeting had happened well before the FM and his team announced these to the country at large, giving brokers to put out “buy” reports ahead of the actual announcements.
On October 3, Ambit Capital has come out with a report on “Investing in India ahead of the Policy Festival”. The report highlights major policy event and their expectation from it. Other than finalising the Shome Committee report on GAAR, the brokerage also expects the Rao Committee on gold NBFCs to comment on the lending practices of the gold loan companies. A cabinet reshuffle is likely after the by-polls in Tehri Garhwal and Jangipur scheduled for October 10, which will give the government a sense of which way the public opinion is flowing. By mid-October, the Securities and Exchange Board of India is expected to announce a raft of capital market reforms, which will coincide with the finance minister’s visit to Mumbai. And finally, the Reserve Bank of India is expected to announce a rate cut of 25 basis points in the mid-December policy meet. So if you want an inside track of what's happening, your friendly relationship manager and stock broker is a good bet.
