Stock Markets will rock even if the country goes to dogs!!!

The nifty is set to break the 5650 mark resistance in the coming weeks. Why?


The past couple of weeks have been a turn around time for the Congress. But the bricks were laid months ago. I always felt that Sonia Gandhi is a smart politician and smart does not necessarily mean 'un-corrupt'. Smart politician means who keeps her calm when everyone is shouting, does the requisite work while others are thinking they have got her and snaps back when no one is aware. And Sonia Gandhi fits the bill perfectly. How?


Well, remember the time when we were hearing scams on a daily basis? 2G, Coalgate, CWG, Jija-G etc etc.? Right, that's the present time. And Congress has been the one criticized for each and everything. With Kejriwal and company's constant 'Name and Shame' policy, most of us had believed that this (Congress) party is useless and corrupt and should be kicked out from the center as soon as possible. In a democracy, that 'soon' means the next elections. And only a month back, if anyone would have asked me if congress is going to come back in 2014 elections, I would have said that it's very difficult, close to impossible. The so-called 'Aam Aadmi' is frustrated with Congress and is not going to vote for them this time around. And thus, Congress would see a huge fall in their number of seats in 2014 elections and if Modi's charm works out in the upcoming elections, NDA can be back in power.
The scene has suddenly changed.



2G Auction failed. And failed terribly. As I mentioned in my previous blog that this failure will  give Congress leaders the courage to bark back at CAG and question their relevance. All those 'zero-loss' theories are back in the print and CAG has gone mute. The former Director-General of CAG, Mr. RP Singh, stated that he was given a 'written' order to sign the Rs 1,76,000 L Cr presumptive loss theory on 2G scam, and the actual loss was a meager Rs 2,645 Cr according to his calculations! In comparison to Rs 1.76 L Cr this figure is close to 'zero'. Again, 'Vibhishan' is being used to win this war of presumptions. He also alleged that PAC chairman, Mr. Murli Manohar Joshi, a BJP leader, influenced the reports on the loss figure. It completes the mythology! You have got a 'Raavan' to doubt each and everything which you have been hearing for the past 2 years. It seems a 'big, hairy, audacious' political conspiracy unfolding. After all, how has the CAG been being so defiant of the government so far in questioning them on each and every thing but for a rival politician heading it. Sonia Gandhi breaks her silence right at this moment to utter these simple words, " Yes, I certainly think so," to a question about BJP's indirect contribution to the 2G report. 

I don't remember her commenting anything on the unabated accusations of mammoth scales so far. It always used to be one or the other of Congress' spokespersons like Digvijay Singh or Manish Tewari who would make the statements as they are the designated spokesperson. Doesn't matter even if they speak bullshit; it engages the media to discuss and infer what they said. If someone starts to get too mired in controversial statements, he is replaced by the other. This serves two purpose. First, the first spokesperson gets the time to relax and free his mind. Second, the new spokesperson does not have to bother about what has been said by the previous one and can go on speaking more crap. Media and people forget (or choose to ignore) what the previous one said and the focus is back on the present one. All this while, Congress prepares its ground to get back at the opposition.


Like a game of chess, she engaged the opponents without getting too hurt to finally trap them in their own plot.


The government creates an auction policy which is so designed that it would fail by any probability model. Why it failed? I have discussed some of the issues in the previous blog itself. The high base price for pan-India 5MHz 2G spectrum at Rs 14K Cr was not going to fetch the government anything but peanuts as no one (Telcos) would have been interested in buying the spectrum at such high prices now when the tele-density in India has increased dramatically over the past 5 years or so. With government intervention on the prices that the Telcos can charge their subscribers, the sector is becoming increasingly unattractive for the businesses. Bharti posted its 11th consecutive quarterly decline in Sept'12 to Rs 721 Cr. 
Availing bandwidth at higher prices would have only strained their balance-sheets while the Return on the fresh Investments would have been low. On top of that, the Rs 14K Cr figure valued the Mumbai-Delhi-karnataka  circles at around 48% of the total pricing (approx. Rs 6.72K Cr) , which was too high given the revenue that telcos generate from these circles. There were other circles which have better Cost-Revenue ratio like Bihar, UP, Gujarat and West Bengal and they were the ones which eventually brought whatever collection the government got. The top three circles, which sold like hot cakes during the 3G spectrum sale, failed this time around as the speculation of garnering incremental returns for the 3G services in these areas petered down as the cost ineffectiveness of 3G services has not helped telcos realize their expectations. Hence, it was unlikely that they would have bid anymore on these circles at these high prices. Add to this, the Spectrum Usage Charges (SUC), which was suggested by TRAI to be at 1% on the Adjusted Gross Revenue (AGR) of Telcos, was increased to 3%. The increased SUC would be levied to the previously held spectrum too. The break-up is as follows:



Upto 4.4 MHz	3%
At 6.2MHz	4%
At 8.2MHz	5%
At 10.2MHz	6%
At 12.2MHz	7%
At 15.2MHz	8%

Courtesy: Firstpost.com


This is what made the major difference and de-motivated the incumbents to bid for the fresh spectrum as the additional spectrum could, if they move from one bracket to another by adding the new spectrum, charge them for the presently held spectrum too. Thus making the whole deal unviable. Government got its way when the spectrum sale failed.
This brought back the CAG in focus for their exaggerated loss theory which no one wants to be a part of after the spectrum auction results. With MM Joshi's name popping up as the real hand behind the show, Congress is taking a vindicating stand. It, now, hardly matters that Mr RP Singh has modestly reverted his allegations on MM Joshi yesterday. Congress would use this to shame BJP. Internal rivalry in BJP against Gadkari has also taken a toll on the opposition party while strengthened the Congress.
Now, with 2G scam going other way round and Congress managing to push BJP in a corner even for the Coalgate scam, the party looks all charged up for the next elections. Mamta Banerjee's failed attempt at bringing the 'No-Confidence' motion in the parliament has done only good for the strength of the party. Throwing a slew of reformist measures (or the so-called reformist measures) in the past couple of weeks, the government is also acting hard to shed off the 'policy-paralyzed' image of itself, to a good extent. And what could be a better way to go into the next elections with a dole out of generous money for the poor and needy. The government has approved the cash-transfer scheme based on the UID registrations to the poor families in lieu of various subsidies.  I believe, if implemented in a proper way, this could be one of the biggest reforms in the history of the country. It will substantially cut down the subsidies on imported items and check the unabated black-marketing and hoarding. This would also increase efficiency in the system and affect the poorest of the poor in the country in a positive way. But it is critically hinged to the success of UID/Aadhaar projects and the progress on these front have been below expectations. It is expected that these projects would be covering about 50% of the population by 2014 elections. Now, a lot has to be done to make the 'Cash transfer' scheme successful in real terms. And there my doubts lie.
What if in one of the months, the cash is not transferred to your (eligible) account for the subsidies? Who would you go to? How long the grievance re-dressal take place? Given the pace at which pension grievances are addressed, this could be a big pain point where the market prices of the essential commodities would be high and the poor would not have the government subsidy to shield him/herself.
Also, with only half the population covered under this scheme, there would be price disparity from one state to another. Thus, encouraging inter-state black marketing and hoarding. The people living in those states which have not been brought under the UID scheme would be worse off as the subsidized items from their states would be siphoned off to the fair-price states covered under the UID.
All these price adjustments would keep the inflation at higher levels in the coming days and thus a hawkish stance by the central bank is guaranteed although they would also understand that these are only adjustments and no real inflation has seeped into the system (assuming everything else to be unchanged). Thus, the recovery to the economy can be a prolonged story.
However, this can be the single most reason for bringing back Congress to power in the next elections. Awful probably, but true. It's not awful because a new government other than Congress would have done wonders or anything, its just that the UPA-III will be a bigger pain than UPA-II. How?
Well, I have a theory which I am trying to develop. It states that 'Human beings and Stocks have uncanny similarity and both can be played around with, only if you know the rules of the game'. Very scathing yet true. Stocks are played around with based on their supports and resistances. Human beings also have their support and resistance. With every success in your life, your resistance i.e. your ability/potential/zeal goes higher while with every failure your confidence goes down. But it goes down only to an extent where you factor in all the negative effects of the event and survive. That’s where your support is. If another bad news come along and happen to make you further disappointed, this support can break and one can go further down. Suicides are the extreme example where the person concerned feels as if he/she has lost all supports of life. Those who understand technical indicators can see the resemblance. Well, I want to prove it by giving some examples, but this post is not for that. I would certainly explain this in some other post.
So, bottom-line is the resistance to corruption that this country has been posing in expectation of a change of guards at Delhi will break and the corrupts would get to a new high. May be DLF would sell the next lucrative plot to Vadra for free instead of charging even the token amount. Once the government vindicates itself at the helm, it would try to weed out the pain points, the activists who have been fighting against the corruption and thus the war against corruption will see a southwards direction, possibly towards its support levels. The caretakers of the crony capitalism would be back to the top and the corrupt industrialists would start reporting increasing margins.
Well, the last few lines are excessively negative and should be taken with a pinch of salt by the reader. But what I mean to say is that the big businessmen would feel safe under a stable congress government and our stock markets will flourish. As and when markets realize this, and given that the markets realize these things pretty quickly, our stock exchanges are going to climb from one resistance to another.