{"id":1098,"date":"2018-06-05T10:47:00","date_gmt":"2018-06-05T10:47:00","guid":{"rendered":"http:\/\/oscillationss.blogspot.com\/?p=1098"},"modified":"2018-06-05T10:47:00","modified_gmt":"2018-06-05T10:47:00","slug":"indian-economy-and-stock-market-update-just-bear-the-labor-pain","status":"publish","type":"post","link":"https:\/\/oscillations.in\/?p=1098","title":{"rendered":"Indian Economy and Stock Market Update: Just Bear the Labor Pain"},"content":{"rendered":"
\n<\/p>\n
\nThese are the troubled days for Stock market
\nespecially for small and midcaps but these types of corrections are normal and
\nserious investors do not lose their sleep over it. Indian economy is not doing
\nthat bad and there is still room for much higher growth if and only if Govt has
\nthe will power to move from projects to policy reforms; from slogans (Make in
\nIndia, digital India) to the real ground work because I think Make in India is
\nfailing big time. Make in India was launched to make India a manufacturing
\npower house and to provide jobs to millions of unemployed people. Indian Growth
\nstory so far was not inclusive at all and poverty is everywhere.<\/span><\/div>\n
\n<\/div>\n
\n Growth of Industries and manufacturing
\nis required to provide employment to these bottom of the pyramid low skilled
\npeople. Make in India aimed at providing 10 cr more jobs by 2020 but reality at
\nthe ground is not that bright and one of the main reason for low investments in
\nIndustrial manufacturing is the British era un-supportive labor and land laws.
\nLong awaited Labor and Land law reforms are still pending and these are vital
\nfor the success of Make in India as in the absence of these, Labor hiring and
\nland acquisition is a messy task. 85% of Indian manufacturing firms employ less
\nthan 50 workers. Apart from Labor and Land law
\nreforms, Agriculture supply chain reforms are the biggest policy push which can
\ngive the massive dose of muscles to the economic growth.<\/span><\/span><\/div>\n
\n<\/div>\n
\nDraconian Labor Laws: Biggest
\nhurdle in the industrial growth <\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nLarge number of labor laws in India (45
\ncentral Govt and more than 100 most of the times contradictory state laws) make
\nit very difficult for businesses to retrench in case of slowdown and adoption
\nof new technology like Industrial Disputes Act of 1947 states that a firm with
\n100 employees or more cannot close down without government permission. It was
\nthe industry friendly labor laws which prompted the gigantic scale of
\ninvestments in manufacturing in China. FDI investments in large scale
\nmanufacturing in India is way below China (in initial years of China). In spite
\nof large number of unnecessary and unfit labor laws India, just 10% of the
\nworkforce is in formal sector while the other 90% works in conditions devoid of
\nbasic employment benefits. In spite of low wages, India still is not a global
\nmanufacturing powerhouse. India’s share in global manufacturing is just 2%
\ncompared to 22% of China. This just shows that something is horrible with our
\nIndustrial and labor laws. so it is quite an irony that in spite of so much Hulla-Gulla<\/i>
\nonly 10% of the workforce is covered by these large numbers of Labor laws.<\/span><\/div>\n
\n<\/div>\n
\nCurrent status of Labor laws motivates firms
\nto remain small or to focus on capital intensive industries. That is one of the
\nreasons that our Industrial sector is very small compared to other developing
\neconomies. Share of Industry sector in GDP is around 17% (still at these levels
\nfor last 25 years) while it is in high 30’s in economies like China, Thailand,
\nIndonesia. India’s manufacturing prowess is limited to auto and engineering
\nsector but we are lagging big time in others like India is a big importer of
\nElectronics goods (Including components) like Laptops, Mobiles, TV\u2019s etc. The value
\nis big and it is expected to cross even our oil imports in next few years. The
\nNet import of Electronics goods is massive around 3 lac Cr which is closing in
\nwith oil import (Net of exports) fig of around 4 lac cr. <\/span><\/div>\n
\n<\/div>\n
\nOur
\nIT sector has grown big because most of the labor laws are not applicable on
\nthem (but on Industries) as they enjoyed exemption from them by the Govt but
\nnow labor department has decided to not to renew the exemption. <\/span><\/div>\n
\n<\/div>\n
\nLand Acquisition and Agriculture
\nsupply chain reforms<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nLand acquisition has been marred by the
\nmisconception that this will hit our agricultural production and food security
\nand will exploit poor farmers when the reality is that India is never short of
\nfarm land in fact we are 2nd<\/sup> largest farm land country; second only
\nto USA. 60% of India’s land is agricultural land. Our farm land is 35% more
\nthan China but China\u2019s productivity is way higher than India\u2026in some crops it
\nis 4 times\u20262 times in rice!! And this is one of the issues plaguing Indian
\nagriculture apart from Supply chain due to which farmers do not get adequately
\npaid. Most of the farmers have land holding around 1 acre only which leaves no
\nscope for mechanization and economy of scale. It is better if the lands like
\nthese are consolidated under contract farming by corporate houses or sold for
\nindustries (wherever possible) providing jobs to farmers. Our farmers with such
\na small holdings can only go for subsistence farming and they’ll remain poor
\ntill their death. <\/span><\/div>\n
\n<\/div>\n
\nOn the other hand, Israel, whose 60% land is
\ndesert and rest is arid, has transformed its agriculture from deficiency to
\nbiggest exporter of high value agri crops. They recycle some 80-90% of
\nmunicipal waste water for agriculture, 90% of land is under Drip irrigation,
\nDesalination, use of most modern techniques and R&D\u2026Israel is a power in
\nagriculture now and is studied globally for their success. India now has no
\nchoice left but to follow Israel. Our water levels are dwindling fast (Part
\ncourtesy free power), chemicals fertilizers have turned land toxic, Intensive
\ncropping has made land devoid of any nutrients and organic material like humus.
\nIndia uses drip irrigation just for 5% land whereas Russia has 80% and Brazil
\nhas 50% coverage. No doubt our Governments have failed miserably in true
\nAgricultural reform for past 30 years. The growth that we have seen has just
\ndragged the future production into past\/present (Through excessive use of water
\nand chemicals) and our water levels and Lands have lost productivity fast.<\/span><\/div>\n
\n<\/div>\n
\nAgricultural reforms are the biggest route to
\nIndia getting 10% growth rate. And it does not mean free power, subsidies, high
\nMSP, Loan waiver as these are the reasons for the sorry state of the
\nagriculture. More than half of our labor is in farms but share of agriculture
\nin GDP is 14%…down from 19% a decade ago due to higher growth in other
\nsectors but this also means unequal distribution of growth\/income as most of
\nthe poor are still poor. As around 60% of our population depends upon
\nAgriculture so you divide the low agricultural production by 60% population and
\nyou’ll get that most of the India is poor and income inequality is high;
\nfurther in terms of workforce involvement we are still a Primary sector
\neconomy. Our low industrial production levels of 17% of GDP also explains the reason for our rural population to remain indulged in subsistence farming as there are no jobs for them in manufacturing sector. We need to move this large labor from farms to industries which is not
\nhappening in India.<\/span><\/div>\n
\nGovt has put too much effort in controlling
\nbut lesser efforts have been put in the creation. Job creation is low and
\nsuccess of Make in India is vital for job creation. Agriculture productivity
\nand pricing will grow the rural economy fast and balance out the unnecessary
\ncereal production substituting the import of Pulses\/edible oil. MSP has
\n\u201ccerealized\u201d the agriculture of India and we need to break that now at any
\ncost. <\/span><\/div>\n
\n<\/div>\n
\nAs shared in earlier posts also, i see Agro
\nsupply chain as the next big revolution happening in the Indian Agriculture.
\nCrop wastage is huge and farmers do not get the full price for their crop. So
\ncold chain and warehousing infrastructure (Snowman Logistics), better price
\ndiscovery mechanism like Commodity trading exchanges (MCX), short term loans
\nagainst warehouse receipt (Kiran Vyaapar), reforms in the state AMPC Acts are
\nsome of the steps to ensure the low wastage and better pricing for farmers.<\/span><\/div>\n
\n
\nGovernment is already on the Job<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nFiscal discipline has been good so far but now
\nthere are real dangers as Oil prices are rising, RBI may raise the Int rates to
\ncounter the Inflation which will further hit the already ailing banks. Private
\nsector investments are low due to credit limitations of the NPA hit banks and
\nthis is one of the reasons for low job creation. But Govt is now focusing on
\nequity investments in the banks and this may ease some pressure; also private
\nsector banks are in much better shape.<\/span><\/div>\n
\n<\/div>\n
\nThere is no doubt that Demoney and GST has hit
\nthe economy hard, even the present high GDP numbers are not showing something
\nvery important- the de-growth in INFORMAL economy which is the biggest victim
\nof Demoney and GST recently so I would take the growth in GDP with pinch of
\nsalt. There is another case that some of informal economy (due to demoney\/GST)
\nis getting reflected in the mainstream figure but at the micro level nothing
\nmuch has changed.<\/span><\/div>\n
\n<\/div>\n
\nAs is the experience in the past, growth rate
\nof 7-8% raises the Inflation in India because we lack the supply systems to
\nsupport this type of growth. Another reason for our better growth, better CAD,
\nbetter fiscal discipline was the low commodity prices globally especially Oil,
\ncoal etc. and the recent spike in Oil prices is the real test of our economy.
\nAlso, 8% growth rate of India and 2% of USA are not comparable at all and not a
\nmoment of relaxation for India because the likes of US are matured economies
\nwith very low poverty and unemployment but India needs 8% just to take lakhs of
\npeople out of poverty. I have no doubt that this growth rate is not revealing
\nthe terrible income inequality in India because Indian businessmen still
\nprefers (due to draconian labor laws) highly mechanized factories than labor
\nintensive factories like apparels (90% textile firms are small scale with less
\nthan 8 employees). They prefer casual workers to whom they can hire and fire as
\nper their need.<\/span><\/div>\n
\n<\/div>\n
\nSo still, much work is pending on the policy
\nfront. But on the other hand, we have encountered tough droughts in last 2
\nyears and still been able to keep inflation under control. This year, rains are
\nexpected to be good. Govt is working on ease of doing business especially on
\nLabor and Land laws. Modi Govt has abandoned the most disputed Labor law
\nclauses like Govt approval for sacking a labor etc. Modi Govt is working on
\nmuch improved business friendly industrial relations bill. <\/span><\/div>\n
\n<\/div>\n
\nFurther, these policy reforms with GST and
\nInsolvency code will spur the FDI investments in India. Global giants are
\nlooking to build manufacturing units in India. Govt is also working on much
\nawaited FDI policy 2018 which will set the tone for much needed investments in
\nIndia.<\/span><\/div>\n
\n<\/div>\n
\nAs we can see, India is marred by policy and
\nnot by other constraints and this for me is the biggest hope for India. BJP
\nGovt is getting hit recently due to issues like Oil prices and other issues but
\nI still feel that they are the best for this policy reform job and have the
\naggression and daring for the same. I have no doubt that in spite of current
\nnoises BJP will win in 2019 elections. And this is the minimum stock markets
\nrequire: a stable and Strong government.<\/span><\/div>\n
\n
\nStock Updates:<\/span><\/b><\/u><\/p>\n<\/div>\n
\nSo I am still buying in small amid the current
\nturmoil in the market. Today picked Narayana
\nHealthcare at 223 <\/span>(best pick for Healthcare), Laurus
\nlabs at 455 <\/span>which is poised for strong growth in the future as it has
\nmade big investments in the recent past which are yet to contribute to the
\ntopline although their operational costs like salaries, Depreciation and
\ninterest costs are hitting bottom lines. Picked VA
\nTech wabag at 428 <\/span>which is a stunning water tech company with around 100
\npatents, current working capital and order issues are temporary and we need to
\nsee the gravity of water problems in India to realize the full potential of
\nthis company. <\/span><\/span><\/div>\n
\n<\/div>\n
\nAlso picked Zee learn at 34<\/span> who
\nhave fallen in spite of the great results due to market apprehensions about its
\nacquisition of MT educare but its management has come out in the open to
\nexplain their business and reason for buying MT so in my view it is still one
\nof the best education company in India and deserves investment. Picked Praj Industries at 84 <\/span>which is going to see
\nbig activity due to coming Ethanol policy and Praj may secure big orders for 2G
\nethanol. High Oil prices makes it logical for our government to promote ethanol
\nwhich will help in realizing the twin objectives of curbing oil imports and
\nraising farmer incomes.<\/span><\/div>\n
\n<\/div>\n
\nSnowman Logistics:<\/span><\/u> Picked more at 45. <\/span>Agri supply chain is the next big
\nthing in Indian Agriculture. India wastes massive quantum of Agri produce due
\nto non-availability of cold chains and warehousing. And whenever i try to find
\nsomething related to it i always find snowman as the best candidate (Not to
\nforget Kiran Vyapar). I also try to find value in Future Supply chain (I am
\nholding its parent Future ent) but Snowman is available very cheap compared to
\nits asset base (which is the real earning potential). NP profile of Snowman
\ngives a very misleading picture…loss of 3 cr on 200 cr turnover but Its EBITDA
\nis strong 50 cr (25% margin). Its Depreciation is massive at 40 cr; higher than
\nemployee cost of 20 cr!! It is the result of its recent expansion plans.<\/span><\/div>\n
\n<\/div>\n
\nFSCL has EBITDA of 120 cr on turnover 800 cr
\n(15%) but cold chains require more investments in Plant and machinery so assets
\nbase of snowman is higher than FSCL even at much lower turnover. I am also
\nplanning to invest in FSCL because I like the management skills of Biyani. FSCL
\nis getting secured business from the very strong group retail business although
\nthis has resulted in comparatively higher working capital days. But at PE of 40
\nFSCL is a good one. But Snowman is available just around its replacement cost
\nplus most of its capacity is yet to be fully utilized especially warehousing.<\/span><\/div>\n
\n<\/div>\n
\nIt has recently tied up with IKEA for managing
\nsupply chain of IKEA\u2019s in-store giant sized restaurants in India. IKEA derives
\naround 5% from restaurants business globally but they are targeting 10% in
\nindia and building one of the biggest restaurant in the world comprising 1000
\nseats in Hyderabad. Snowman will manage the Pan India supply chain.<\/span><\/div>\n
\n<\/div>\n
\nIndia is doing great in sea food exports for
\npast some time and the stocks like Avanti has given great returns. AP does the
\nsea food exports from Krishnapatnam port and Snowman has just completed recent
\ncold chain facility there (Operational Since Feb-18). So this is a big
\nopportunity along with agriculture and Biopharma for Snowman. I have
\ninvested in Linde India (Global giant in freezing gases i.e. Cryogenic freezing
\ntechnology apart from Gases for Steel industry) also due to their plan to
\ninvest 500cr for cryogenic freezing plant in AP. These are indirect plays on
\nthe growth of seafood industry in India.<\/span><\/div>\n

<\/p>\n

\n<\/div>\n


\n<\/span><\/p>\n

<\/p>\n

\n
<\/span><\/div>\n

(Views
\n are personal and should not be taken as a recommendation for buying or
\nselling a stock. Stock markets are inherently risky so kindly do your
\nDue Diligence before investing. I am not a certified Sebi Analyst and
\nholding the shares discussed in this Post)<\/span><\/span><\/span><\/div>\n","protected":false},"excerpt":{"rendered":"

These are the troubled days for Stock market especially for small and midcaps but these types of corrections are normal and serious investors do not lose their sleep over it. Indian economy is not doing that bad and there is still room for much higher growth if and only if Govt has the will power to move from projects to policy reforms; from slogans (Make in India, digital India) to the real ground work because I think Make in India is failing big time. Make in India was launched to make India a manufacturing power house and to provide jobs…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1098","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1098","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1098"}],"version-history":[{"count":0,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1098\/revisions"}],"wp:attachment":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1098"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1098"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}