India’s Strange Store-Bought Appeal
Indian equities maintained their Asia-beating pace despite the central bank’s decision not to lower the benchmark rate along with the cash reserve ratio on 7 percent-range inflation, and a widening investigation into alleged Wal-Mart violations braking momentum from recent multi-brand retail opening. The commerce ministry charged it with “illegal and clandestine investment” in local chains, adding to prosecutions in other big emerging markets. The Singh government had tried to reassert reform initiative and stave off credit rating downgrade to junk status with majority ownership scope provided supplies were 30 percent domestically sourced, although the states will have final approval. Separate proposals to expand private pension and insurance company stakes were sent to parliament with uncertain prospects with 2014 elections in sight and the Congress-party led coalition scrambling to inject new blood and stay cohesive. In a series of cabinet reshuffles, Finance Minister Chidambaram returned to the post while Gandhi children representing the next generation were untapped. The aviation sector, in turn, was liberalized without much opposition after Kingfisher’s bankruptcy suspended the main private network and banks pressed for relief as corporate weakness could double non-performing loans to 10 percent next year. Consumer portfolios had previously come under scrutiny with tighter prudential standards in the 2009 crisis aftermath. On the fiscal side a medium-term plan was presented to halve the deficit as subsidized diesel prices were hiked 10 percent. Electricity board debt will be restructured and withholding tax on overseas commercial borrowing was slashed from 20 percent to 5 percent. Industrial output has reversed negative readings, but the trade gap at $18 billion in September remains stubborn on energy imports and service export stagnation. With P/E ratios more in line with the 10-12 core universe average and the rupee off record bottoms against the dollar, equity inflows have resumed tentatively despite an October “flash crash” that wiped $70 billion from the market on an electronic glitch. Stricter trading procedures were imposed by regulators after a brokerage mistakenly placed dozens of sell orders.
High-frequency activity will now be introduced over time as Asian exchanges generally have second thoughts after blowups in the US and elsewhere. The technology focus supplemented recent corporate governance issues following scandals at closely-held family-run listings. That notoriety was keen in the other aspiring BRIC, Indonesia, as the Bakries and London backers fell out over management of their natural resources conglomerate. World coal prices are down and net debt may have reached $5 billion as the founders offered to retake the company private in a lowball offer rejected by international shareholders and spurring board resignations. The senior Bakrie may also be preparing his presidential candidacy as chair of the prominent Golkar party. Early opinion polls put him behind, as the Jakarta exchange registers minor gains on a big box of domestic demand and balance of payments concerns.
