India Political Blog

For some time now, the airline ticket booking business in India has going through turmoil. As airlines are facing a tough time financially, they have told agents that tickets booked by agents will no longer get commission to the agents. The way that the business used to go was, when a ticket was booked by an agent for an airline, the agent used to get a commission for the booking, approx Rs. 350 to Rs. 500. But with the decision to do away with the commissions, airlines faced a revolt from these agents who threatened to boycott them. Having said that, consumers should have benefited from this decision, since the fee should now be deducted from the airline tickets. However, in an unprecedented action, airlines are still charging consumers the same amount, apparently under pressure from agents who don’t want airlines to start selling at a reduced rate, even if the tickets are being sold directly:

Aviation fuel may have got cheaper on Saturday, but flying has become much more expensive. India’s three full service airlines — AI, Jet and Kingfisher — started levying a transaction surcharge on tickets sold by them. This surcharge is exactly similar to the fee that agents now charge — Rs 350 and Rs 500 for economy and business-class domestic flights and between Rs 1,200 to Rs 10,000 for international ones.
This means that there’s no escaping this additional charge whether people buy tickets from agents who moved over to the new system after airlines stopped paying them any commission from Saturday, or directly from the carriers. A senior airline official claimed that this was done under pressure from travel agents. “Agents told us that if we sell tickets cheaper than them, agencies would find it hard to get business. So we had no option as 85% of all tickets are sold by agents and they have threatened to boycott the three biggest Indian airlines,” the official said, clearly happy that airlines will pocket this entire amount.

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India: Rally helping funds, Redemptions coming

To Mr. Barack Hussein Obama: C O N G R A T U L A T I O N S

This has been a breath-taking stock market rally…the first mouse has been busy. But we know the story; the first mouse always gets caught in the trap. We are seeing the trap in action. Remember Lawrence Olivier’s question in the ‘Marathon Man’. Is it Safe?
The answer is NO, it isn’t safe.

Hedge funds have lost money and credibility during the meltdown of 2008 and India specific funds have ravaged their investors through negative returns and hosed them with annual incentives payments. In this environment, India funds are an endangered species.

The redemption pressure is building and this market rally is providing an exit…we will test the recent lows before this bear market ends.

Nifty is trading at 14x earnings again…why? Has anything changed? Yes, the government is acting in the face of overwhelming evidence of a liquidity crunch and economic slowdown. They are trying to stop a downward spiral from gaining momentum…

I continue to target 11x earnings as a reasonable multiple and Rs 225 EPS for Nifty: this gives a consolidation level of 2475.

When it trades there for some time without knee-jerk reactions we will begin to seem some clarity in the economic situation and perhaps a decent investment horizon. Until then…

I prefer to be the second mouse….after the first mouse has, sadly, identified the trap.

India: Investors looking for bailout

I have reproduced a Credit Suisse advisory to the Goverment of India below. Instead of a safe harbor statement, Credit Suisse should have added:

We are long Indian stocks…our investors are long stock….we want a bail-out now that we are losing money because of stupid leverage and buying huge amounts of illiquid stocks.

And NO, we would not have shared the profits with the Indian government if the stock had gone up or we had been smart enough to get out when the going was good.

Expect a lot more self-serving advise to our regulators and finance officials by the ‘financial intelleigentsia’ of the Developing world.

Credit Suisse

India Strategy-Intervention Required

GOI needs to intervene in the FX markets by defending the Rupee, create a Sovereign Fund To Buy distressed stocks, Increase Spending irrespective of missing short term targets on Fiscal Deficit, Aim for a higher growth than the average of the past 4 years.

Part 1: What authorities should consider on forex and stock market fronts

1. · Market-economy circularities have begun to engulf India. We believe that strong government-led efforts are needed to break the most vicious of circularities even as they go against the grain of many long-standing or much-desired rules of the system.
2. · In this first part, we discuss the first two of the four circularities that need attention. We have long believed that the more the exchange rate is allowed to weaken, the more loss of confidence and outflow it could give rise to. As a result of many recent local and global currency market events, we hope that the authorities consider an overt and aggressive defense of the rupee now.
3. · Equity market related losses have turned self-perpetuating to a degree because of the leverage with some of its largest investors. Attendant wealth destruction threatens to severely hurt India’s investment driven growth; high and rising wealth of entrepreneurs was the driving force behind the undertaking of critically-needed large investment projects. We think that the government should consider starting a large enough fund that directly purchases equities in the equity market.

Part 2: What authorities should consider on monetary and fiscal fronts

1. · In this second part, we discuss the last two of the four circularities that need government attention. Last year, nearly 50% of incremental financing of the fast-growing economy was provided by non-credit related sources. With most of these sources drying up, the authorities need to consider encouraging credit growth to climb to a rate higher than the last few years’ average to ensure that credit quality and economic growth remain relatively stable.
2. · Government deficits are high and they should be brought down medium-term. However, to ensure that future revenues remain reasonably strong, the economy perhaps needs a fiscal support in the form of far higher government-led investment activities. A fiscal deficit expansion through increase in public sector investments could lead to many more improvements later.
3. · All the issues involve policy steps that could cause problems long term if abused. They run near-term risks too – if they fail in generating stability, the confidence loss could lead to more severe economic contraction. Yet, we believe that these steps or things similar need at least a consideration given where we have come.