Political Timing

“Patience is power. Patience is not an absence of action; rather it is "timing" it waits on the right time to act, for the right principles and in the right way.” - Fulton J Sheen

Since the Modi government came in, expectations while remaining high have continued to be belied. But it seems more a case of political campaign during elections seamlessly coalescing post government formation to create these massive expectation (magic in 3 months!!) and the media with lack of sensational news provided by the previous UPA regime (Anna Hazare, CWG, 2G, Coalgate, Pawan Bansal, Ashwini Kumar...the list is endless) helping in the process.

Modi seems keen on laying the ground prior to rolling out the key reforms:

• Getting the right advisory infrastructure and IAS staff in place i.e. replacing the Planning Commission and getting an expert team to recommend course of action;
• India's defence and international relations in place which creates domestic room as well;
• Winning the upcoming assembly elections in Maharashtra, J&K, Haryana and Jharkhand;
• Revamping governance at PSUs to be able to deliver on the change plan when implemented.

When this basic ground work is in place pretty much in time with the 2015 budget, one should expect the real work to begin - the move to a more open economy and realignment of laws and governance to a post-modern economy of the 21st century. The man from Gujarat with its tradition of commerce and globalization from millennia should begin to change India. Gujaratis have used their ports for thousands of years to do commerce with Africa, Middle East and beyond with large numbers settling in these countries. This historical openness of mindset that Modi hopefully brings comes at a time when the interiors of India has been pried open by media and telecom revolution of the last 2 decades.

While this is at play the change in global dynamics need to be navigated. The euro zone is battling the twins of recession and Russian aggression in Ukraine. With no appetite to resist Russia, the Europeans are providing limited resistance to Russian designs. The Middle East continues to convulse with ISIS redrawing borders pressuring the Turks, Iranians and Kurds and leaving the Sunni Arabs unsure to let this go on to what extent before it becomes a real threat to them. Syria and Iraq, which were agglomeration of different religions and cultures (Allawites, Kurds, Shias, Sunnis, Christians) with allegiance to respective tribes kept together by dictators in so called countries formed by the British and the French post WW1, are now re-aligning.

The Americans with their energy security (shale gas) and tired military have developed (and in perfecting phase) the doctrine of talking more and doing less and correctly so. As much as the Chinese and Russians would like to see them involved in the Middle East, the Americans are not likely to oblige unless a 'coalition of the willing' comes in place from the threatened Middle Eastern countries. If the Americans can get the Turks and Iranians to coordinate, it would not only check ISIS but also initiate putting in place a balance of power which devolved when Saddam Husain's regime of crushed. The Arabs will resist but it's an affair that has to be managed and will also force them onto the table for the fear of losing influence.

The Chinese economy continues to suffer the downturn in property prices and construction activity, threatening growth and their banking system. Rebalancing from very high investment to a consumption driven economy will likely result in sub-5% growth. Any attempt to push growth with additional credit will only make future slowdown deeper. With Europe and China below trend, global growth consequently should be below OECD and IMF forecasts with deflationary pressures continuing.

The US economic recovery will create divergent interest rates scenario with ECB likely to embark on further loosening. The Chinese are also likely to push up interest rates as beginning of the end of financial repression. With interest rates differentials widening in favour of US and low cost / safe energy supplies playing their role it should create a strong push towards US investments and a strong dollar.

The strong dollar (already heading to the north end of the 3 year band) and lower aggregate global growth will put massive pressure on emerging market economies through lower capital flows and weak export markets (though the depreciation against Chinese currency of ~15% in the last year helps). India needs to counter this trend through a pre-emptive build-up of foreign reserves and re-start the reform process (education, labour, electronic manufacturing, coastal infrastructure, defence industry and many others) to accelerate growth and attracting capital. One of the major tasks will be correcting the bad asset malaise in the banking system which makes it unable to support credit creation. Reducing government holdings in PSU banks to help raise capital and developing bond market to reduce pressure on banks for long term capital are two critical steps.

Since antiquity political strategy has been a function of military prowess and economic strength and these two variables have in turn been a function of the other. As Modi buys time to build the former, he needs to leverage the latter in a world desperate for demand and growth.

Indian Punch

Investment firms have used different philosophies developed from Benjamin Graham and before and to the hedge fund greats of today. But India demonstrates its own unique features which are tweaks to these approaches. This article is to outline those unique aspects.

a) Very unlike western economies (not completely though) government direction can create significant change in fortunes of a firm. Inability to understand government direction and political pressures render large swathes of market capitalization less understood:

• public sector banks – clarity of government stake and recapitalization, approach to bad debt;
• power generators – no tariff adjustment due to elections (i.e. Torrent Power);
• real estate companies – approval delays (i.e. Mumbai builders);
• infrastructure builders – stalling of payments by authorities like NHAI, delays in environmental clearances.

b) Large promoter holdings – Indian corporates mostly are held significantly by promoters groups which makes renders them to a very large extent immune to pressures from minority shareholders resulting in them not being ‘public’ in the true sense of the word. Reliance Industries for the longest time was one monolith having pretty much all businesses under them until the brothers had a fight. This unlocked massive shareholder value which no minority pressure would have brought about. Tata group companies have significant cross-holdings which get valued at discount but are believed to necessary to ensure group control. Consequently, knowing or judging the mind of the promoter becomes important. This also creates a large network of brokers who peddle stocks based on ‘inside track’ rather than better understanding. Multi-national corporations with their arms in India which had been forced to list in the 1970s have also tried to dodge corporate governance standards i.e. Maruti Suzuki parent setting up an auto plant in Gujarat not under its listed subsidiary, large royalty payments by the likes of ABB, Siemens etc, P&G has a unlisted subsidiary doing significant business in India (despite having a listed entity).

c) Subterranean KYC and dodgy accounting – Given the large swathe of underground economy and political influence knowing ‘real’ reputation of the promoters is super important. There are well-known examples of Satyam Computers, Financial Technologies etc. Even lenders try and protect the mistakes they have made (and regulations help) like Deccan Herald or Bhushan Steel keeping issues away from public view longer. While mainstream companies (including MNCs) are relatively easy to check on but it is the smaller companies and the potential 10-baggers which are more difficult to glean.

d) Regulatory overdose – Interesting and large segments like telecom (remember 2G license), media (FDI restrictions in print, radio shareholding), pharma (price controls, clinical trial related norms) are hobbled by regulatory maze which restricts ease of operations and changes in regulatory environment create significant valuation changes. The strong arm of government trying to force-fit the economy into the regulations is evident creating friction costs.

e) Unbalanced market – In effect the two key drivers of market valuations are FII interest or promoter’s direct to indirect interest. The domestic players are not and are not seen to be valuation drivers. Consequently, market participants in essence look for clues at these two ends.

f) Some more examples of atypical characteristics:

• Benjamin Graham ‘cigarette butt’ has a smaller sliver of followers given the low level of non-promoter holdings which make hostile M&A, restructuring regulations etc all the more difficult. Significant numbers of Promoters have no incentive to get the firm to fair value unless they have some benefit (i.e. raising incremental cash). CEO compensations have no correlation to stock or company performance.
• Generally, declines below book value for real estate & infrastructure builder lead to attractive opportunities – Here one needs to be more than careful given most have political patronage and, therefore, where is the wind blowing.
• Lenders want to keep working with the promoter despite significant breaches in leverage arrangements. As regulatory lax in NPA recognition and limited history of taking strict action against defaulters result in creating illusory sense regarding firms cash flow stability until it reaches the cliff. Kingfisher Airlines is an example where the general public was for a long-time unaware.
• Doubling up on leverage – NBFCs and special situation desks lend to promoters on their shares in structures which do not require disclosure.

Having said this, the core judgment parameters of good companies remain universal:

• Whether product has repeat usability?
• How well is the product plugged to the customer value chain?
• Is there high switching cost?
• Are the revenues annual or lumpy?
• Can the firm pass on cost inflation?
• Does it provide critical infrastructure?

..Consequently, results in good return on capital supported by valuation and macro. This typically in the Indian context have been B2C players like Nestle, Marico, Godrej Consumer, Dabur, Astral Poly, V-Guard, Page Industries, Eicher Motors and few exporters like Balkrishna Industries, Motherson Sumi with good management and low leverage.

“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” ― Mark Twain

Kryptonite

Superman came to earth from planet Krypton when he was just born. He grew up realizing his extraordinary powers. Only when he interacted with a holographic image of his father he realized that there was one thing which was lethal to him – Kryptonite, remnants of his long dead home.

Central banking is relatively a young profession. As they have grown up they have realized their extraordinary power. The first taste of the fatal flaw was inability to work magic on the Japanese economy post the massive collapse in the 1990s. Now they have again brought their fatal flaw upon themselves in US, Europe and Japan – zero to very low interest rates and expanded central bank balance sheets to unprecedented levels.

“The tenth amendment said the federal government is supposed to only have powers that were explicitly given in the Constitution. I think the federal government's gone way beyond that. The Constitution never said that you could have a Federal Reserve that would have $2.8 trillion in assets. We've gotten out of control.”

As they reduced interest rates they reflated bond portfolios from junk to g-secs, housing prices and equity markets globally as risk free rates collapsed. The Japanese stimulus which they expected will grow their exports will take a long period of time as local corporates have over the period spread their manufacturing globally (i.e. Honda in US). So question is will corporates restructure in response to the stimulus or global economy booms to rapidly expand export demand or the time runs out when Japanese pension funds with the adverse demographics are unable to keep up with the expanding budgetary requirements forcing up interest rates. Unfortunately, they do not have much of a choice.

The US Federal Reserve is reversing the stimulus as jobless claims decline. But the risk of miscalculation with the market expectations is high. At the same time the European Central Bank is turning on the stimulus tap worried about potential tightness the US Federal Reserve may cause in the markets and the strong Euro which is resulting marked declines in manufacturing surveys since January this year (France below 50 and Germany at 52, print below 50 represents a contraction).

Massive amounts of capital have been invested by pension funds and life insurance companies into government securities. This capital has no choice but to suffer the increase in interest rates. So let’s assume a bond maturing in 2020 trading at 19% premium to Face Value giving currently 2.5% yield. If interest rates were to become 5% for the residual duration the bonds would suffer a 7% decline. Bonds which trade on basis points, 7% change are a massacre. In response, I understand, the German life insurance industry has reduced bond duration to 6 years to protect against interest rate increase creating an asset-liability mismatch (“ALM”). How do central banks expect to plug this hole?

In India external borrowing to GDP has expanded from 4% to 18% taking advantage of low rates in the international markets and easy availability. This and potential risk on portfolio flows which finance the CAD has got Raghuram Rajan to call for coordinate action to limit liquidity issues. As interest rates rise, it will increase the risk-free impacting equity valuation and hurt property valuation including those of dollarized markets like Dubai, Singapore and Hong Kong.

Only alternative central bankers have to manage the scale of the adjustment is to keep running behind market expectations - too much perfection to achieve. But if this is the likely goal they will be incrementally cautious and run much more behind expectations. Consequently, precious metals and agri commodities (and healthcare driven by aging) will gain with oil becoming more dependent on geopolitical events as global economy is tempered by increasing rates.

Postscript:

Corn  trades at 3.7 (CBT $/bu), Soybeans at 10.8 (CBT $/bu), Wheat at 5.4 (CBT $/bu) and Sugar at 0.17 (NYF $/lbs). These are running at multi-year lows or 40-100% off last 5 year peaks. Implication: invest in a global agri commodity fund, processed food companies which have benefited from the decline will face cost pressures as the cycle turns and global inflation numbers have been benefiting from this decline.

US earnings will see a 2HCY14 rebound driven by low inventory levels which is running at 4 year lows and new order are showing a significant rebound in the last quarter.

Cracking Eurasia while India re-builds

I have been off the air for a while and enjoying our holiday. However, there have been significant linked movements in the mid-section of Eurasia and evolution of events in India.

Mathematically, discrete items maintain their character when separated - i.e. quarter of a tree or an atom is no longer a tree or an atom - but in political events they have a life in both forms discrete and linked.

Iron Dome

And again hostilities have broken out between Israel and Hamas and again each side is looking for ways to break the stalemate. While Hamas has managed to smuggle despite oversight significant rocket stock into their territory which are hidden in the deep underground tunnels, Israel has been relying on its Iron Dome system to negate the rockets launched thus far. The stalemate stemmed from the fact that Israel will need to launch a significant ground offensive (means more casualties) to eliminate this threat for a time period as Hamas can always smuggle in more (beat the Israeli and Egyptian intelligence again). However, Israel has now taken the call to launch the ground offensive. If the current situation endures Hamas may be tempted or forced to launch enough rockets which may overwhelm the Iron Dome system. The Iron Dome system gives Israel a sense of security and which is more near-term until new attack mode emerges and anyways the tunnels which hide these rockets get re-built faster than Israel hopes.

MH17

Ukraine continues to fester as the Russians are and will not be willing to let Ukraine at any cost slip into the western orbit. It is too strategic politically, geographically and from a food security perspective. The Malaysian crash piles significant pressure on the Russians but will it change the way the view the situation – unlikely. Can anyone make them change the way the deal with the situation – again unlikely at least in the next 2-3 years. Russia has and will be a difficult country to deal with.

Mesopotamia

The lands of Mesopotamia which the British divided arbitrarily are coming apart with the Syrian and Iraqi crisis. With the unsettling of the status quo when Saddam Hussein was dislodged, it has come to today’s situation as the Americans were unable to re-build state capacity while Iran manoeuvred to get the upper hand in the situation

It is an extremely difficult situation given that it comes in the aftermath of the Arab spring and American withdrawal in Iraq and now in Afghanistan. It is important that a new status quo is built in the middle-east and that is where the two regional powers Turks and Iranians and the global superpower America will need to carefully play their hands. The Iranian-American rapprochement will play an extremely important role and carving out regional influence will be on the table. Saudis will be in for an extremely difficult time as American no longer need to rely on their oil but the Saudi’s have no other benefactor to turn towards.

With regard to Ukraine the world has no alternative good choices as European energy requirement from Russia makes any significant action extremely difficult. It will be important to restrict Russian ‘illusion for retrospective determinism’ as they will try to bring ex-Soviet countries into the customs union or modify political landscape. Poland with its significant but under-developed shale reserves (as an alternate to Russian energy supplies partly) and location will be a critical country for the Americans and the Europeans. It has been the land route for all significant military interaction that has taken place with the Russians.

While all this and more (China in South China Sea) happens it is critical that India remains neutral or does not get involved while it puts its economy and military back on the rails. It may, anyway, have its share of issues as American withdrawal is completed by December 2014 from Afghanistan

Meanwhile, economic sentiment in India continues to improve as does the stock market. The budget unfortunately was a whimper possibly because of upcoming assembly elections and likely need to understand the full depth of the issues. Besides that there has been no significant bummer from the new government. Stock market continues to expect significant action from the government to drive economic growth and corporate earnings. It is likely in the near term as the Fed stops asset purchases we continue to see strength in the dollar helping exporters (IT, Pharma). It is clear that optimistic budget assumptions will not work out restraining government push on infrastructure. The government needs to figure out a mechanism to attract capital to fund core infrastructure. With banks being undercapitalized and low domestic savings, channelling international savings (if possible on a rupee basis given where global interest rates are likely to head) is the only option. Companies supplying into infrastructure asset creators (like equipment lessors) or as factories ramp up capacity their consumable suppliers (like refractories or gas suppliers) will be initial beneficiaries.

The events in the Middle-east and Ukraine connect to India in 2 important ways – Middle-east is the largest supplier of energy and Russia is the largest supplier of weapons – and India needs both in an uninterrupted manner.

Politics….Linked….Discrete….Linked….Mathematics

Framework of thought for the new government

The advent of Narendra Modi as Prime Minister marks a significant change in 3 aspects:

• It signifies a break (if not a complete turn) from the fragmentation we have witnessed over the last 25 years with the rise of regional parties. This five year gap from power may impact the survival of few of them like the NCP or RJD;
• Congress Party adopted the politics of the British with regard to managing different religions and caste sub-groups to occupy the centre of Indian politics and allowing it to combine with the left and marginal right as long as it never threatened its existence significantly to govern. This will change as first time we have nationalist party at helm and depending on the change one may the Congress being forced to re-invent or destruct. Vajpayee government was in many ways a continuation of the Congress paradigm;
• The third will be the likely manner of governance where accountability of ministries, technical support teams being attached to key ministries and once again the Prime Minister’s Office becoming supreme.

The rise of Narendra Modi is also identified by young aspirational India which does not have the patience or desire of understanding the subtleties of religion or caste, independence movement or remorse of partition, they seek out an India which provides them opportunities, choices and one that can surpass the benchmarks formed via their open access to information and shared beliefs created on social platforms.

In August last year I had written about the 3 conditions that will bring him front and centre - current social contract frays (high inflation, corruption, lack of employment etc), building aspiration, developing a local franchise in the states of UP & Bihar where people can associate with his world view. I will let the reader judge what transpired in these elections.

In this backdrop, getting the economy back on the rails becomes the key focal part of the incoming government. A lot has written about resolving environmental clearance, reworking power PPA’s, dismantling APMCs, rationalizing subsidies etc so I will not delve into them. This is what the public voted for, while delivering this it is the statesman’s responsibility to think long-term. I had written last year in October – “In effect the 4 key tenets of the state – security, governance, economics and unity - have been undermined, corrupting the functioning of the state.”

As Narendra Modi pursues the public agenda he will needs to start creating a long-range plan to address the 3 other tenets. The package will in essence define whether he leaves an indelible mark in Indian history. As a broad framework I would suggest the following in order:

• Buy or suffer peace as long as it does not threaten core Indian interests in the short-term with the neighbours;
• Accelerate the delayed defence plans and enhance intelligence capability in key states like Afghanistan / Pakistan;
• Get the economy back on its rails in the next 12-18 months with the functioning of key ministries and expert groups in place to guide growth;
• Bring economic interest and with it political capital of key players US, EU and Japan in play;
• Invest massively in building (not over-building) infrastructure especially rail and sea based links while generating resources in parallel through divestment;
• Address in earnest the naxalite / internal security problem;
• Make long range changes in governance – changes in incentives to the states based on achievements from central contributions, move to a system of regulators than ministries, judicial and police reforms (difficult one I guess);
• Finally, remove various quotas with a parallel push towards enhancing government contribution to health and education.

While this is a very ambitious agenda but I would address as more of a framework to work on to create a new India. I am sure the man at the center of this all has many pulls and pressures but withstanding that is what greatness is all about. He has to also overcome what Tocqueville wrote in 1945,”But a democracy can only with great difficulty regulate the details of important undertaking, persevere in a fixed design, and work out its execution in spite serious obstacles. It cannot combine its measure with secrecy or await their consequence with patience.”

Force = Mass * Acceleration

Aristotle described force as anything that causes an object to undergo unnatural motion. Then, came Newton after many centuries and postulated the above formulae but he also missed a few aspects which were then improved upon by Einstein when he developed his theory of relativity and therefore added aspects like gravity to the equation. One additional aspect that matters importantly for our discussion in the above formulae is the direction of the acceleration. This concept works in the physical world but there is a parallel in the political world.

‘Mass’ of a nation is a composition of the factors that a nation is endowed:

• Geography – A relatively static factor defining a country. Like the Himalayan ranges provide protection towards the north and east, the Rhine provides excellent navigation capability to the German industrial heartland reducing transport costs, US Mid-west provides vast agricultural lands and, therefore, sufficiency in food;
• Population – The fact that the French could wield 1/3^rd the army of Germany in the Second World War was a critical factor as the declining population of Japan, Russia and Western Europe will have on their ability to ensure adequate manpower for industry and for their armies;
• Resources’ including energy – Japan is a major importer of all mineral resources and oil. This leaves Japan at the mercy of suppliers (e.g. rare earth from China) and security provided by maritime power for its shipping lines (e.g. US). Germans are dependent on the Russians for c40% of their energy supplies. But having the resources itself is not a sufficient enough i.e. inability to use the same like India’s coal reserves or Chinese shale reserves or Congo’s uranium reserves

The acceleration of this mass is in essence provided by national character and leadership. While this may tend to be a bit vague it has an undeniable presence in determining the force of a nation. For example, one may have the resources but industrialization or creating requisite infrastructure is part of national will and leadership. Similarly, the Russians are known for their ‘rugged persistence’, Americans for their general reluctance for war and inventiveness, British for their common sense and Germans for their thoroughness and efficiency. While I will come to India in a bit, the reason that these views are there is because this displayed as a regular feature of their lives and in the most difficult moments. British foreign policy since the Second World War has been conducted with a complete understanding that they are no longer the pre-eminent power. Germans in the thoroughness forget restraint and want complete victory; had they understood their limitation in their conquest of Russia the outcome may have been different.

Leadership of a nation has three important aspects: understanding of power, statesmanship and diplomacy. While understanding of power needs no further elaboration, statesmanship is about looking and achieving long-term interest of the nation which may be at divergence with current popular mood and the ability to mould the popular mood. Diplomacy is the element which multiplies raw power of country e.g. how Jaswant Singh worked with the US administration post the nuclear test to lift sanctions or how Chamberlain prior to the Second World War blew it.

However, the most critical aspect is the direction of acceleration. Hitler won phenomenal victories both diplomatic and military but the continued attack to achieve complete control over Russia resulted in suicide, the American’s post the collapse of the Berlin wall became the sole super power which since then has squandered significant gains by their acts in Middle East and Afghanistan – it allowed a period for Russian’s to resurge and free hand to the Chinese, India has in the last 5 years has lost complete control of foreign policy in its near-abroad – inability to look at long-term interest versus alliance politics in Sri Lanka and Bangladesh, inability to counter Chinese influence in Maldives  and Nepal.

India’s over-population tends to be a significant challenge as the resources of the nation are not sufficient and what is there of the leadership is focussed inwardly on dealing with the diverse challenges like naxalism, water and regionalism. Like Germans are known for their thoroughness and efficiency, is there a common Indian character? I have not come across any literature that ascribes a unique character to India as a whole, it is always known for its diversity. The Indian nation as today existed was resembled closely only during the Mauryan dynasty, then during Shah Jahan / Aurangzeb and then the British controlled it through alliances with local kings / zamindars. As nations go we have a very short and dispersed period of shared experiences to form a unique national character!

“Also unlike a planet, an electron—if excited by heat or light—can leap from its low-energy shell to an empty, high-energy shell. The electron cannot stay in the high-energy state for long, so it soon crashes back down. But this isn’t a simple back-and-forth motion, because as it crashes, the electron jettisons energy by emitting light.” – Sam Kean, The Disappearing Spoon: And Other True Tales of Madness, Love, and the History of the World from the Periodic Table of the Elements.

It is important that we morph from being an electron constantly needing external stimuli. We have the mass (good geography, resource base of agriculture and minerals but albeit a large population and surely no nation has the perfect mix) but the pace and direction of acceleration can come only through transformational leadership which shapes national character, a shared perception and aspiration.

Demographics and Capital

India is among the youngest population in the world with a median age below 30. While the net addition to the working population is the highest in the last decade (2000-2010) but the overall working age population will continue to rise until the early 2030s. Simultaneously, it is also adding significantly to its old (60+) population which will be more than its addition to the working age population.

The cycle of capital creation / consumption is the simply the following:

•  0- 20/25 years: Parents spend the child’s food, clothing, education, travel etc. This category is a net consumer of capital;
• 25-35/40 years: This is a category which has begun to work and is borrowing for its first car loan, to purchase a house and is a net consumer of capital again from the system. In India till the early 1990s this cycle never played out as young adults were less mobile living in joint family systems plus retails loan availability was extremely restricted. This is also the segment which is the primary consumption driver;
• 35/40 to 60 years: This is the saving class which is in essence providing capital to all other demographic categories;
• 60+ years: This category is essentially in retirement and drawing upon its savings over the last 20-30 years.

Simply put Indian economy will continue to import savings, despite its high savings rate, for a very long time as both the youth and the old continue to expand relative to its mature working population. Most of the German population is currently in their 40s and one can witness the savings bulge. Urbanization, infrastructure and consumption imports will all need foreign capital.

The Indian currency was Rs.8.4 in 1975, Rs. 17.5 in 1990, Rs.44.9 in 2000, Rs. 45.73 in 2010 and Rs.60 now per USD. Given this continues propensity to import savings and relative high inflation to the developed world, rupee will be in secular decline, except for unusual duration experienced in 2000-2010 when the external environment was extremely benign followed by easy money by the Fed.

As we look into the next 2 decades the Europeans, Russians, Japanese and Canadians will be experiencing a massive surge in the number of retirees. The Americans will continue to have reasonably good demographics as the baby boomers are replaced by the next generation in 8-10 years and by 2020 even the Chinese median age will cross the American median age. In this environment the global availability of capital will decline over the next few decades. This is the period when the need in India for global capital will continue to rise. Having said this, given the pension imbalance in the developed world the last 5 years of low interest policies have created, the need for higher currency adjusted return on capital will continue but this will be counter balanced to an extent by increasing Fed rates. The basic reason for economic slowdown in India over the last 3 years is its inability to keep the investment cycle going which is in turn dependent to a large extent on availability of foreign capital.

In this backdrop, political stability and policies that create a conducive investment environment is critical if we seek to achieve our national aspirations and benefiting from positive demographics. We are probably the country receiving the highest remittances (again savings) globally which means we export a lot of talent. Do we always want to keep exporting talent or use our people to enhance India’s productive capacities?