India's airports to be privatised

Economist had a huge ad for HK airport: It showcases their country; ours is all about paan streaks, says Dr Bhaskar Dasgupta.

The India Babble
A lightly rising trend showed itself with the Sensex closing at 3815, a rise of about 88 points over the week. Once one brings in the 3 month horizon, it is interesting to note that the Sensex has risen by more than 800 points.

Besides a bit of a slump three weeks back, it has been a steady upside trend which is promising. Corporate results were good with firms like MTNL, Grasim, Gujarat Ambuja, Hindustan Lever and Reliance reporting good results. The IT sector perked up at the end of the week with Infosys, Satyam and HCL gaining a fair bit on the market. The flood of foreign institutional support shows no sign of ending and the foreign exchange reserve figures for the week ending July 25 show that the reserves are now at an all time high of $84.904 billion. The low dollar denominated interest rates are making sure that the Indian corporates are making a beeline to the US and Euro markets and deserting the local debt markets. So much so that GoI is now recommending that for financing more than $100 mm, the Indian companies should raise the funds from the domestic market. This may hit ICICI Bank's plans to raise funds.

Some other interesting news this week, the Rajya Sabha cleared the Airports Authority Bill which paves the way to privatise the nation's airports. As I had mentioned before, these prime places of real estate, infrastructure and potential retail units have been totally underutilised. I don't know what's about Indian airlines and airports which make our politicians and babu's that make them go all sweaty and miserly. Still, given a rather large captive market, its almost criminal that these airports have not been fully utilised. Given that the legal situation has been cleared up, funding should be cheaper and one can see better infrastructure in the coming decades.

In this week's Economist, there was a full page advertisement for the Hong Kong Airport and that's showcasing their country, our airports barely manage to showcase bidi sticks and paan streaks not to mention rampant corruption. Oh! well.

Another rant, the gruesome state of the state electricity boards (SEB's) got another lifeline when the central power sector utilities waived the Rs 10,000 crore delayed payment surcharge component payable by defaulting SEB's under the one-time dues settlement exercise advocated by the government. I do hope Indra comes down to earth and takes a look at the poxy state of the
SEB's because only divine intervention can save these SEB's, humans in the form of babu's and politicians have long given up on them and the ordinary citizens are suffering for far too long. On the other hand, the golden quadrilateral project is on track to be completed by end of 2004, a good thing that, kudo's to the ministry of road transport. That does go to show that hope is not totally lost and we can do big infrastructure projects when driven to it. Now for someone to drain the poisoned chalice of the SEB's, perhaps Nil-Kantha Shiva may help.

The Babble in the Ivory Towers
A fascinating paper by Roberto A. De Santis of the European Central Bank on the relationship between the crude oil prices and the behaviour of Saudi Arabia. The author models the quota regime within OPEC and the behaviour of Saudi Arabia. As the Saudi supply is inelastic in the short term, a demand shock is accompanied by an immediate price change. In the long term, a production output change is accompanied by a smaller price change. The author also indicates that Saudi Arabia does not have any incentive for altering the crude oil market equilibrium with either positive or negative supply shocks, as its welfare declines; and that it has an incentive (disincentive) for intervening if a negative (positive) demand shock hits the crude oil market. The author analyses what policy measures may the OECD take to bring down the prices and finds that cutting taxes tends to increase prices while policies that can increase the price elasticity of demand seem to be very effective in reducing the oil prices.

In UK as well as in India, the incidence of taxes on oil and oil products is way higher as compared to countries such as the USA and it shows. Remember the fuel tax protests in the UK couple of years back? Well, besides the fact that the government hit the natural resistance point and the automatic fuel escalator was stopped, taxes seem to be a good way to regulate prices, but to bring them down and to reduce the oil price as well as development of alternative energy resources will make the oil price elastic.

Details of this paper and past columns are available on http://beady.blogspot.com

The World Babble
Despite some good economic news like the US GDP growing at 2.4 per cent dwarfing forecasts, the US markets ended down 1.4 per cent at 9153, the NASDAQ ended down 0.9 per cent at 1715 and the S&P at 1.8 per cent at 980. 3/5th's of all reported quarterly earnings are higher than analyst expectations, while second quarter profits are approximately 10 per cent up for the corresponding quarter last year. So the companies are definitely getting better, lean and mean.

While the economy is clearly showing that its getting better, some holes, especially in the labour market side, is still weak. On Friday, it was reported that the companies shed more jobs, but then manufacturing activity has expanded for the first time in months. On the mortgage side, the US national average 30 year mortgage rate went above 6% for the first time since December 2002 and this will definitely lead to a slowing down of refinancing over the 2nd half of this year.

Government bonds this week were hit by a wave of selling and the yields have been rising steadily because of the good news coming out of the USA. Next week should create a frisson of interest on the bond side with the US treasury issuing more than $60 billion in new issues. The worry is, the rising yield which is at a one year high, the steadily rising rates may squelch the green shoots of recovery. The worry is that the current holders of treasury debt may decide, enough is enough, and start to hit the exits.

Some evidence is already coming from the Japanese and Asian markets but still, the death of the US deficit has been greatly exaggerated. I hope!

The Nikkei 225 Average ended down at 9611, almost 200 points down over the week. Japan was suffering from bad corporate numbers almost throughout the week from Toshiba and Fujitsu, but NEC's quarterly profits helped to flatten out the market to some extent. The holiday season is going to make trading thin and volatile. The London market showed pretty good numbers coming from the various FTSE 100 companies but as London follows NY slavishly, the mood was decidedly downbeat and London closed down at 4098. Europe pottered around as well and the FTSE Eurotop 300 ended up at 872, a tad over its opening. The German Ifo business climate indeed did rise last month but nobody should make the mistake in assuming that it means that the European economies are on the mend, far from it, I am afraid.

There is significant talk around the Chinese Yuan and how it is hurting the world economy. In particular, its hitting the Asian economies as well as Japan and the US, with freely floating rates, the Euro is taking the brunt of the dollar revaluation in the forex markets. Given the US deficit position as well as the trade gap, a cacophony of voices is urging the Chinese authorities to loosen the trading band of the Chinese Yuan. China has a $103 billion trade surplus with the USA although Chinese statistics have to be treated with a grain of salt and it has been making noises that China would like to purchase more US goods to reduce the surplus.

So can the Chinese afford to widen the trading band? Doubtful, very doubtful, given the hammering SARS has given to China and the rather high (comparative) unemployment rate makes it very doubtful that China will be willing to take any domestic pain to help out its foreign trading partners. USA will not push China to that extent either, as North Korea is still hanging fire. The dollar did enjoy a range of good gains against a swathe of currencies this week based on the back of increased expectations of a US recovery.

(Dr Bhaskar Dasgupta writes a weekly Monday round-up on markets and indicators. He holds a Doctorate in Finance and Artificial Intelligence from Manchester Business School and works in London in diverse capacities in the banking sector.)