After a hard landing, investors who can take a risk are getting back in the saddle

This year will go down as one of the toughest on record for UK investors. The FTSE 100 index of leading shares has fallen by 33 per cent and the picture is no brighter for those putting their money overseas. American stocks have dropped by 33 per cent, while shares in Europe and Japan have fallen by 44 per cent.

Millions of UK investors hold money-purchase pensions, where the value of their retirement income depends on stock market performance, and the bitter truth is that many will find the size of their pension pots has been cut by a third or more in the space of just 12 months.

Savers in deposit accounts have, at least, not seen their capital eroded in this way, but they, too, have experienced some nasty shocks. Thousands of people with money in UK-based Icelandic bank accounts faced a nail-biting few weeks before the British Government agreed to compensate them after the banks collapsed this autumn. Depositors in some of the banks' offshore accounts are still waiting to find out how much compensation they will receive.

But even those savers who avoided the pitfalls of offshore accounts did not have much to cheer about. At the start of the year, Bank base rate was 5.5 per cent and it was possible to earn 6.5 per cent with no strings with an online instant-access account. The base rate is now at an historically low 2 per cent and the best no-strings online instant-access rate is paying just over 4.5 per cent.


However, if you knew where to look it was possible to make money in 2008 - you just had to be selective. Only a handful of FTSE 100 stocks performed well for investors, but those fortunate enough to hold shares in British Energy or AstraZeneca would have reaped gains of 40 per cent and 20 per cent respectively.

Investors unfortunate enough to own shares in HBOS have seen their value tumble by 90 per cent since the start of the year.

Those with money in unit and investment trusts had to be equally selective in their purchases if they wanted to show a profit this year. In many unit trust sectors, not a single fund notched up a positive return and barely 100 out of nearly 2,400 funds produced a return that would have equalled that obtainable from an ordinary deposit account.

But there were honourable exceptions. Leading the way was Neptune Japan Opportunities fund, which, with a return of 80 per cent this year, was head and shoulders above any other fund of any kind, according to figures from Financial Express, the data company. Almost all the following pack of good performers were bond funds. Ignis Asset Management's US Government Bond fund generated a return of 48 per cent, while M&G's International Sovereign Bond fund returned 47 per cent.

Former high-flying funds investing in emerging markets and special situations were relegated to the bottom of the performance tables in 2008. JPMorgan's New Europe fund lost 61per cent, Rathbone Special Situ- ations gave up 58 per cent of its value, while Invesco Perpetual European Smaller Companies lost 57 per cent. Commodity and natural resources funds, which had performed well in previous years, also came down to earth with a bump. Junior Oils Trust lost 50 per cent, while JPMorgan Natural Resources lost 55 per cent.

A similar pattern emerged with investment trusts. Only a tiny handful of the 300 trusts achieved a positive return, with a special mention for Ruffer Investment Company, whose defensive stance enabled it to produce a return of 13 per cent. At the other end of the scale, two of the biggest losers were SVG Capital, a private equity trust, which lost 76 per cent, and 3i Group, another private equity trust, which lost 75 per cent.

So what is the outlook for 2009? Most commentators expect stock markets to recover, with a general consensus that the FTSE 100 could test the 5,000 mark in the next 12 months.

UBS, the Swiss bank, thinks that the FTSE could reach 5,800 next year. It is looking for good performance from sectors such as food retailers, health equipment and household goods.

Brewin Dolphin, the stockbroker, says that shares are already discounting most of the bad news likely to break in 2009 and are now looking cheap. It favours sectors such as general retailing and media stocks.

Some of the most seasoned investors on both sides of the Atlantic are making optimistic noises about the coming year.

In the UK, Anthony Bolton, who managed the Fidelity Special Situations fund with great success from 1979 to 2007, is expecting a fresh bull market to begin in the new year - and thinks investors could be caught out by the strength of the rally.

He said: “All the pieces are in place for a rally in the first quarter. Valuations look cheap and you often have this kind of volatility at a turning point.”

In the US, Warren Buffett, one of the world's richest men and one of the most respected market commentators, has announced that he is buying US stocks because he thinks they now appear to be good value. Most commentators expect the US, which led the world into recession, to lead it out again, which should provide a much-needed boost for the US stock market.

Elsewhere in the world, emerging markets, which have taken a real pasting in 2008, are tipped to mount a strong recovery. Morgan Stanley, the US investment bank, is forecasting that emerging markets could rise by 60 per cent in the next 12 months, as their economies continue to grow, while those of the developed world battle their way through a recession.

Mark Dampier, of Hargreaves Lansdown, the independent financial adviser, said that he is still bullish about parts of the world such as Latin America and India: “They have enjoyed a fantastic five-year rise, followed by a dramatic one-year fall. I believe emerging markets are poised for another upward run, and people who didn't get on board first time round now have a second chance to profit from the continuing growth that we expect these regions to deliver. However, this area of investment is for the risk-tolerant only.”

Bond prices have already come down so far that they now look good value in the eyes of experts such as Brian Dennehy, of Dennehy Weller & Co, the independent financial adviser. He said that bond prices - and bond yields - are now at the most attractive levels he has ever seen. With falling interest rates and falling inflation expected to send the price of bonds higher, he expects 2009 to be a very good year for them: “Investors will be receiving the benefit of a high yield while savings rates are falling, and when bond prices start to recover, as we expect them to do, they will enjoy the additional bonus of some capital growth on top.”

Petronet LNG looks good for investment: Sukhani

Technical Analyst, Sudarshan Sukhani is of the view that Petronet LNG is looking good for investment
.

Sukhani told CNBC-TV18, "There is a trading opportunity in Petronet LNG once this correction or downtrend is over. I cannot recommend buying when the market is sliding down. There is no percentage and sense in it. But Petronet LNG is likely to be one of the outperformer. So whenever this correction is over, or this dip is over, there is a trading opportunity. A trader who buys on a dip could actually make 20-25%; that would mean Rs 7-8 on the dip and in a few weeks time. I would say that’s a pretty good return to get. It is likely to be a very good choice for an investment. One has to understand that if markets slide, nothing is going to stay afloat, everything will fall."

TCS has support at Rs 420-440: Gujral

Technical Analyst, Ashwani Gujral is of the view that TCS has support at Rs 420-440.

Gujral told CNBC-TV18, "Although Infosys is holding Rs 1,050 is looking like it will get into triple digits quite soon. On the upside Rs 1,250 seems to be a support. For TCS Rs 420-440 is a support, but oncs that will get broken then it will head down to levels of Rs 300-320."

He further added, "Wipro had a big move on Wednesday, and now it seems to be headed towards Rs 180-185. So, this is a weak group and probably one that needs to be ignored. The large stocks are giving you those dome type of bearish formations. I hope they get cancelled because that will have implications for the market."

Sell Sesa Goa, target of Rs 66: Reliance Money

Reliance Money has recommended a sell rating on Sesa Goa with a target price of Rs 66 in its December 26, 2008 research report. "We expect Sesa Goa to register a top line of Rs 46.6 billion (up 29.4% YoY), an EBIDTA of Rs 22.8 (Up by just 4.8% YoY) and adjusted EPS of Rs. 22.9 for FY09E and Rs 42.5 billion (down by 8.8% YoY), an EBIDTA of Rs 18.4 billion (YoY cut of 19%) and an adjusted of EPS of Rs 19 (17% reduction (YoY). We expect the EBIDTA margins to correct by 1150 bps (YoY) in FY09E to 48.9% and down by 550 bps (YoY) in FY10E to 43.4%."

"The stock is currently trading at a P/E of 4.5x and EV/ EBIDTA of 1.5x for FY10E. Although, the company is quite cash rich, the growth prospects in the near future look capped considering a weaker Chinese market ahead. We, hence, expect the stock to under perform and recommend a SELL with a price target of Rs 66 at which the stock would quote at 0.75x EV/EBIDTA on FY10E. The target price is at 22% below the CMP of Rs 84," says Reliance Money's research report.

Buy Unitech at Rs 22-25: Gujral

Technical Analyst, Ashwani Gujral is of the view that one can buy Unitech at Rs 22-25.

Gujral told CNBC-TV18, "Unitech is sort of doing a range between Rs 22-25 to about Rs 50. So each time it comes back to those Rs 22-25 levels you buy it. And when you get those large rallies, you tend to get out, but there is no redemption in the longer-term. It has to do a basing, which is done by most of the fancied groups of the last bull market. So, that is probably a sector you don’t get into other than for trading rallies from lower levels."

SBI, PNB safe bets in banking space: Baliga

Ambareesh Baliga of Karvy Stock Broking is of the view that in banking
space, , the safe bets are banks like State Bank of India, Punjab National Bank or a Bank of Baroda at least from the next six-nine months point of view.

Baliga told CNBC-TV18, "Banking is good space to be in as far as the PSU banks are concerned. We are still cautious as far as the private sector banks are concerned; even HDFC Bank, which we were recommending earlier even there we are slightly cautious. We are saying if we need to be there in this space, the safe bets are banks like State Bank of India, Punjab National Bank or a Bank of Baroda at least from the next six-nine months point of view."

Reduce Wipro: IIFL

IIFL has recommended a reduce rating on Wipro in its December 24, 2008 research report. "Wipro has announced acquisition of Citigroup’s captive technology infrastructure

and application services arm, Citi Technology Services (Citos), for a consideration of USD 127 million. As a part of the deal, it has also entered into a Master Services Agreement (MSA) with Citi for a TCV of at least USD 500 million over a period of 6 years."

"Based on CY2008 metrics, Wipro has acquired Citos for a very low 3.3x EV/EBITDA or 3.8x PER. However, given the scant information provided by management regarding Citos, any impact of one-off items during CY08 could not be ascertained. Reduce," says IIFL's research report.

Bajaj Hindusthan can test Rs 85-90: Gujral

Technical Analyst, Ashwani Gujral is of the view that Bajaj Hindusthan can test Rs 85-90.

Gujral told CNBC-TV18, "Sugar seems to be in some sort of an uptrend. Also, from a longer-term point of view, it is making some sort of bottom at those Rs 35-40 kind of levels. Bajaj Hindusthan has consolidated around Rs 60. Once it can move past Rs 70, I think you could see levels of Rs 85-90 back on that stock. Balrampur Chini can get back up to Rs 65. We are expecting Rs 88-92 to come back on Renuka."

He further added, "Fertiliser is still not so clear. These stocks are also trying to make a bottom. Nagarjuna Fertiliser needs to move back above Rs 18.50-19. It has got support around Rs 14-15 kind of level. A lot of midcaps have reached levels where the downside is quite minimal. You just have to buy them and hold them. Whenever the market does improve, you will find that these stocks can easily double from current levels."

"Chambal has support around Rs 33. It has got a resistance around Rs 43, again, flat formation, no more fresh lows. So, there is a lot of basing that is happening in these erstwhile favorites."

Google gives away phones instead of cash

search engine Google is giving its employees Android phones this year instead of the traditional Christmas cash bonus.

The company told employees that the Android-phone gift is a way to save cash and "celebrate" the Android technology.  Staff will also be reminded that times are tight and they were lucky to have jobs.

More than 85% of employees will get a phone instead of cash a person described as "familiar with the matter" told Bloomberg.

Valleywag.com got its hands on an internal memo which said that that the current economic crisis requires us to be more conservative about how it spends its money.

"Some of you will of course be wondering why we decided to change from a cash bonus to the Dream phone… First, we've never developed anything like the Android software before and this represented a unique opportunity to celebrate that achievement, " the memo said.

Apparently staff globally have been asking for the Dream phone. "This is a chance for us to once again dogfood a product and make it even better! We felt that giving the Dream phone would be a great holiday present -- something we could all celebrate."

Google employees who work in Turkey, Kenya, Brazil, Russia and India, where the phone does not work will get $400 cash instead.

Keep a watch on GMR Infrastructure: Mohoni

Technical Analyst, Deepak Mohoni is of the view that one can keep a watch on GMR Infrastructure.

Mohoni told CNBC-TV18, "After the market finishes correcting GMR Infrastructure is not a good idea to buy immediately but it is a good stock to keep a watch. After a huge correction it has made a higher bottom in November and now it will bottom out somewhere or the other with the market, at that point of time it is worth taking up because it has possibly started to make higher bottom. There is no price target because now it is all ifs and buts going on as to how this decline will last in the market, is it going to be a severe decline, if the answer is reasonably positive that it is just a mild decline and lot of stock hold out, then one would get into GMR sooner rather than later."

Hold Tata Motors, says Mohindar

Rahul Mohindar of Viratechindia is of the view that one can hold Tata Motors.

Mohindar told CNBC-TV18, "In Tata Motors I think a trading bottom has been found, Rs 120 to Rs 130 that is an area that is the bottom, which should probably stay for a couple of months. I think it is an interesting spot because we have got very good support when we go back into decades of history. My sense is from here this is not a level where you want to definitely short such a stock, which is already been beaten down 80-90%. So I think definitely it is a hold, its probably a buy on declines, from a short to medium-term if I am above Rs 150, which I am for the last couple of days, Rs 150 would work as a trend decider. So since we are above that one is fairly comfortable, one could head into Rs 220-230 as a target from a 3 to 6 months type of perspective. So I would probably hold a buy on declines with a stoploss much below Rs 150."

Buy Bajaj Hindusthan, target of Rs 85: Karvy

Karvy Stock Broking has maintained its buy rating on Bajaj Hindusthan with a target price of Rs 85 in its December 24, 2008 research report. "For Q4FY08 (standalone), Bajaj Hindustan Ltd (BHL) reported marginal revenue increase of 7.1% YoY (QoQ increase of 1%) to Rs 4.63 billion, 9.9% lower than our estimates of Rs 5.1 billion. We have revised our cane cost from Rs 132 to Rs 140 per quintal for FY09 and assumed cane cost Rs 145 per quintal in FY10."

"We have revised our sugar realization estimates from Rs 16.9 per kg to Rs 19.5 per kg in FY09 and assumed Rs 20.5 per kg in FY10. We have changed FCCB (Rs 5.3 billion) accounting from equity to debt considering significant deference between CMP and conversion price of Rs 465 per share. We have changed our valuation from EV/ Ton of Rs 0.31 to 0.8xBV (book value) due to high leverage (2.8X) and low earnings over next two years makes. We maintain BUY with target price of Rs 85 (previous Rs 140)," says Karvy's research report.

Buy IDFC, says N Pillai

Neppolian Pillai of Modern Shares & Stock Brokers is of the view that one can buy IDFC between Rs 56-46.

Pillai told CNBC-TV18, "IDFC within the non-banking financial company (NBFC) sector is a one stock we would try to back up with a buy. It has fallen from Rs 72. That is a one of the few stock, which has gone into a weekly buy. So these kinds of collapses like 13% yesterday at about Rs 58 are going to be buy opportunities. The range to buy will be anywhere between Rs 56-46. Though the range is broader, Rs 45 has been the all time low for this stock. So you take this Rs 10 band to buy into. I think eventually this stock is going to go towards Rs 72-77 again. So that should give an Rs 20 upside from here. So the next Rs 10 band on the downside will be a very clear buy on it."

He further added, "Unitech had a resistance between Rs 49-59, this time the top has been Rs 49 and it’s falling off from there. I think Rs 38-32 will be a trading band where one can probably again build a buy position there."

Disclosure: It is safe to assume that analyst and his clients may have an investment
interest in the above stock/sector.

Infosys BPO inaugurates second center in China

BANGALORE, INDIA: Infosys BPO Ltd, the business process outsourcing subsidiary of Infosys Technologies, today inaugurated its second delivery center in Hangzhou, China.

Amitabh Chaudhry, CEO and MD, Infosys BPO and Allen Lam, VP and Centre Head, Bangkok, China and Philippines inaugurated the new center.

"China is the center of choice for our customers in the APAC region as well as Infosys BPO's second global delivery hub," Amitabh Chaudhry said.

He added that it has seen rapid growth in the last two years and would continue to sustain its high growth over the next three years to become one of the most profitable international centres for Infosys BPO.

Infosys BPO's expansion plan in China is a step-up investment to leverage two years of success in transforming the China center into an alternative global hub for its customers.

"The second centre will extend our global brand into China with focused marketing and branding strategies and continue our vision to contribute significantly to Infosys BPO's revenue and profit," said Allen.

The new centre would seat up to 1,000 people, the release added.

And finally India goes 3G

NEW DELHI, INDIA: The Prime Minister of India, Dr Manmohan Singh, today launched the country's first third generation (3G) mobile services in New Delhi that will provide high speed transfer of voice, data and video.

He also inaugurated India Telecom 2008, India's leading international conference and exhibition for the entire telecom system.

The two-day event is jointly organized by Department of Telecommunications and FICCI. The Prime Minister released a report prepared by Capgemini, the knowledge partner for this year's Telecom summit on the Indian telecom market.

The Minister for Communications and IT, A. Raja made a video call to Dr. Singh using a 3G enabled handset signaling the debut of the high quality service in India.

The video streaming applications like 'live TV' was also demonstrated at the inauguration. The public sector MTNL is rolling out the 3G service in the capital making use of the necessary Spectrum allocated to it by DOT. The services will be available early next year in Mumbai and Chennai.

MTNL has used Motorola's next-generation 3G network infrastructure to implement the service. Speaking on the occasion, A Raja announced that within one year, all mobile phone subscribers in the country can switch from one operator to another operator providing better services while retaining their numbers.

He informed that the DOT has accepted the Mobile Number Portability recommendations, which were pending since 2006.

MNP is likely to be implemented in the Metros and category "A" circles by middle of 2009 and in the entire country by the end of 2009. Raja said that after migrating to revenue sharing regime, the telecom sector has contributed about Rs 50,000 crore through license fee, entry fee and spectrum charges till the end of last financial year.

During this financial year alone, it is expected that about Rs 16,000 crore will be collected from the license fee and spectrum charges, he added.

On the issue of new licenses, the Minister explained that the policy of "NO Cap" on number of service providers in a service area has been adopted as per the recommendations of TRAI.

On further reduction of tariff, he said, TRAI has been requested to re-look into the existing Mobile Termination Charges, as the cost per line has substantially reduced due to technological advancement and increase in traffic.

Minister of State for Communications and IT, Jyotiraditya M. Scindia and FICCI president Rajeev Chandrasekhar also attended the function.

Is Nortel on the verge of bankruptcy?

SAN FRANCISCO, USA: Networking equipment giant Nortel Networks Corp, which faced heavy loss in the third quarter, is seeking legal advice to explore the possibility of filing for bankruptcy protection should its planned restructuring fail, The Wall Street Journal reported on Wednesday.

Nortel, which was Canada's largest company till recently, has hired a legal counsel to explore bankruptcy protection, it said.

Nortel, however, still hopes that its restructuring plan will suffice to keep the company out of court, the newspaper said.

The company had reported a huge loss of $3.41 billion in the third quarter and its revenue fell to $2.32 billion.

However, a spokesman for Nortel said there was no imminent bankruptcy filing, WSJ said.

Meanwhile, National Bank Financial analyst Kris Thompson said Companies' Creditor Arrangement Act (CCAA) protection is premature at this point.

"With no short-term debt obligations and the possibility that Nortel can successfully restructure, we would not expect CCAA as a near-term consideration by the company," he said in a research note.

Nortel needs to take more time to sell one or more of its division before considering CCAA protection, he opined.

Financial crisis not to melt down offshoring

MUMBAI, INDIA: In the time of global economic meltdown, American companies feel it is better to continue their current strategies of outsourcing some functions, says a recent study.

According to a research by the Center for International Business Education and Research's Offshoring Research Network (ORN) at The Fuqua School of Business, Duke University and PricewaterhouseCoopers. The ongoing study mainly focuses on the effects of offshoring trends on American competitiveness.

It says that the financial downturn may even accelerate outsourcing plans. The survey, designed to capture business managers' sentiments in the midst of the economic crisis and the presidential election, was conducted during the first two weeks of November and queried nearly 100 firms from the US and Europe about their plans to source some job functions and business processes offshore, said a press release.

The survey on offshoring trends suggests that while cutting labour costs is the most significant factor driving offshoring decisions since the worldwide financial crisis gained momentum this quarter, many survey participants noted an increased urgency to improve efficiencies.

"Our research shows as companies grow the scale and scope of sourcing programs, average efficiency decreases," said Arie Lewin, professor of strategy and international business and executive director of CIBER. "Enhancing efficiencies has become more urgent in recent months as pressure on margins forces companies to increase productivity while spending less."

To cope with the slumping economy, companies plan to enhance efficiencies through business process redesign and by improving coordination and integration of offshoring processes, the study said.

"Redesigning business processes is not equivalent to end-to-end process re-engineering, which requires a significant commitment of resources and time," added Hari Rajagopalachari, executive director, PricewaterhouseCoopers.

"Our findings indicate companies can't wait that long and can't spare those resources; they want to improve their existing organizational capabilities for managing their offshoring strategies."

Forty-one percent of respondents report increasing speed to market is becoming a more important driver of offshoring. Meanwhile, access to qualified personnel has not increased in importance, partly because rising unemployment is widening domestic employment pools.

As a result of the global economic crisis, renegotiating current contracts with service providers is emerging as a growing concern among companies.

Forty percent of companies said they have pressured or plan to pressure providers to offer more favorable contract terms in order to trim costs, the release said.

India’s stimulus package

Finally it’s here
After the RBI’s stimulus package announced on Saturday, it was the turn of the government. The central government introduced a 10-point Rs 320 bn package on Sunday to stimulate the Indian economy. Of this, infrastructure spending to the tune of Rs 200 bn over the next four months is on the cards. Central valued added tax has been cut by 4% across the board, other than valued added tax. Labour intensive exports such as textiles will receive sops. Small scale industries will be eligible for funding without collateral to the tune of Rs 10 m per entity.

The reaction to the package, has however, been lukewarm from the industry, which was expecting an even larger package. Although the government has not ruled further steps, it operates under severe fiscal constraints. It may be noted that the Rs 320 bn push will nearly double India’s fiscal deficit from an earlier projected 2.5% to 5% by the end of FY09. When viewed in combination with the RBI’s actions, we believe the effort definitely points towards the right direction. In fact, public sector banks are likely to announce measures to support home loans up to of Rs 2 m.

Obama will spend too...
It is not just China and India which plan to spend their way out of a slowing economy. The US, where the situation is much graver, has plans of its own. As per a leading business daily, President elect Barack Obama has said he will make the single largest new investment in roads, bridges and public buildings since the Eisenhower administration’s interstate highway program. While doing so, he intends to keep a close eye on results rather than just throwing money at the problem. Those states which do not use the money quickly stand to lose their share.

The thrust of his program will be towards aiding 2.5 m jobs. This is not surprising given that November 2008 witnessed the biggest decline in US jobs in 34 years. While a healthy US economy benefits global commerce including India, the focus on job losses is likely to darken the clouds building up on the poster child of India’s growth story - IT. 

RBI’s stimulus package is here

RBI’s stimulus package is here

While the recent inflation numbers have not particularly been a cause of worry for the RBI, a moderation in the real GDP growth, slowdown in industrial and infrastructural activity, muted prospects of growth in service sectors (hospitality, tourism, IT services, financial services) and absolute decline in exports for the first time in seven years seem to have necessitated a stimulus.

The RBI’s recently released data indicate that the demand for bank credit has slackened in November 2008 (from 25% YoY growth during the period April to September) despite comfortable liquidity. Higher input costs and dampened demand have also dented corporate profitability while the uncertainty surrounding the crisis has affected business confidence.

The following are some of the key highlights of the package

• The central bank has once again tweaked its oft-used tools of monetary policy to offer additional liquidity to the banking system. It has reduced the repo rate (rate at which it lends to banks) by 1% from 7.5% to 6.5% and the reverse repo rate (rate at which banks lend to RBI) by 1% from 6.0% to 5.0%, effective December 8, 2008.
  
  

• To enhance credit delivery to the labour- intensive micro and small enterprises (MSE) sector, the RBI will provide refinance facility to the tune of Rs 70 bn to the Small Industries Development Bank of India (SIDBI) that is the prime financer to such enterprises.
  
  

• To bring some relief to the real estate and housing finance sector, the RBI has allowed loans granted by banks to housing finance companies (HFCs) for lending towards houses costing less than Rs 2 m to be classified under priority sector lending. However, the eligibility under this measure will be restricted to 5% of the individual bank’s total advances. This dispensation will apply to loans granted by banks to HFCs up to March 2010. A refinance facility of Rs 40 bn is also being worked upon for the National Housing Bank (NHB) to lend directly to HFCs. Further to prevent banks from accumulating large real estate - linked NPAs, the RBI has extended an ‘exceptional/ concessional treatment’ to loans disbursed to the sector that are currently delinquent but can be restructured by June 2009.
  
  

• Proposals have also been put forward for easing credit to exporters and allowing repayment of foreign debt by Indian corporates.

While the package essentially caters to the sectors that are currently under stress, the central bank is hopeful that it will extend some respite to the others that have the potential to shoulder the revival of the economy during the slowdown.

Mere desh ki galti

"Mere desh ki dharti", proclaimed Manoj Kumar in the classic Upkar "will sprout gold, diamonds, and pearls."

But that was the patriotic Mr. Bharat.
The market cap focused Mr. India had other plans.
Large chunks of land were cornered by a few - with much help from friendly sources with political connections.
Land banks were built.

The sona, heeray, aur moti from the glorious land of India that was supposed to benefit all was hastily converted into Special Economic Zones.
The only thing "special" about these zones was that it was an area of land where the economic interest was to be shared by a few "special" people.

Sometimes these tracts of land were to be developed into massive townships that would give abnormal profits to the few. India has a housing shortage and the real estate developers were doing us all a favour by going through the painful process of jumping through the hoops of 62 approvals to give us our homes.
Of course, each of those 62 approvals was an opportunity to share the spoils and act as a barrier to competition. The end product - priced on the basis of "super built-up area" graciously asked us to pay for the price of air on which our dreams float.

For those with connections in the seedy corridors of power, the slum rehabilitation projects in crowded cities like Bombay were tweaked to create fictitious tenants.
These re-allotments would help enhance profits of the developers.

Brand name, reputation, and religion have little meaning when it comes to the world of money - the profit motive is the ultimate objective.

The slogan shouting of roti, kapda, aur makaan and the love for the "aam aadmi" are, eventually, slogans. Governments - across the political spectrum and across various time periods - have made a mockery of India’s need for housing with the land melas that have favoured the few at the cost of many.

Government steps in
But not every plan ends up the way it was supposed to.
Not every racketeering scheme generates the profits that were envisaged.
And so it is true with the real estate "business".
The mighty, with all their connections and all their exchanges of bagfuls of money, built these land banks - but don’t have the buyers.
The "discounted cash flow" model that was used by them to generate bubble-level share prices of their unreal estate companies has, well, been discounted to a fraction of what they were trading at.
The balloon has deflated.
A land bank is now a sinking hole.
Debts have to be repaid and interest needs to be paid.
Every month.

And no sane bank is willing to lend to the real estate developers.

So, what is the solution? That’s an easy one: use the political system to be bailed out.

Over the past few years, the Reserve Bank of India was trying to control the amount of money made available to real estate. And the cost of that money.
Now they are making a u-turn.
Statements from the usual, suspect politicians - possibly with connections to the real estate industry - are nudging the RBI to open the tap and ensure that loans are given to real estate companies.

These companies, after all, have the "sona, heeray, and moti" to be harvested.

Redefine the product
We are on a strange road in real estate. India has a shortage of tens of millions of homes. And, yet, the real estate companies are sitting on dud projects. They cannot sell anything. They are in deep trouble. They needed the help of the political friends to get the land banks and now they need the help of their political friends to ensure that the banks don’t end up seizing their land!
But, sadly, the shortage of homes still exists.

Mr. Chidambaram, when he was the Finance Minister, had a solution: "if they (the car manufacturers and home developers) cut prices I am sure that the demand will increase sharply. The ball is in their court."

This seemed like a reasonable solution. If you cannot sell something at a higher price, reduce the price and a buyer will emerge at some price.
But there is a problem with that solution: the profits that every real estate developer and investor thought they had would be wiped out. And the banks that lent all that money to real estate companies? Ouch! They would be hurt even more.

The developers went on the offensive. Their alternate solution was to have the RBI give them more money at lower cost - and also extend this courtesy to the potential buyers. Rather than accept that they had built over-priced product that could not be sold, they said "lack of availability of credit is the reason why demand is down. There is room for interest rate reductions on home loans to the 7% and 8% levels that existed 2 years ago."

So the rape of the desh ki dharti goes on. The politicians have stepped in to rescue the real estate developers and revive their disappearing profits. This means that you, dear customer, are the one paying the higher price for sub-standard housing sold on a super-built-up basis. But don’t worry - the banks will be more than willing to lend you money at these artificially high prices.

The new age banks will like that increase in activity. They are not used to sitting quiet. They miss the days when they lent money to those who cannot afford to repay the loans. Their "let’s go and get market share" model is at risk.
Promotions and bonuses are due. Something needs to be done to show how brilliant they are.

I don’t know, dear reader, I don’t know.

We seem to be willing to reward people and companies who nearly blew up the economy; who followed a growth for growth’s sake business model; who had this urge for market share.

The dangers of that business model are all around us. And before we have recovered from the first mistake, we are about to make another big banking bet by turning on the tap of cheap home loans for overpriced real estate. Just to save the profit margins of the real estate developers and their partners in the political establishment.

Don’t get me wrong. Giving loans at lower interest rates for buying homes is a great idea. But first the developers need to reduce the prices of their properties by 40% to 50%. The "political connection" premium linked to real estate projects needs to be eradicated.

Maybe the Finance Minister became the Home Minister to save us from the terrorism of artificially high real estate prices and to ensure that we get our homes a lot cheaper. Maybe.