When it comes to faith in Modinomics are we becoming victims of the Karan-Arjun syndrome?

karan arjun Vivek Kaul  
Rakesh Roshan made a fairly trashy but super successful movie called Karan Arjun, which was released in 1995. It was a rare occasion when the Khan superstars, Salman and Shah Rukh, shared screen space (They were also seen together in Karan Johar’s Kuch Kuch Hota Hai and K C Bokadia’s Hum Tumhare Hain Sanam).
Karan Arjun was a story of reincarnation, where the two heroes(played by Shah Rukh and Salman) are killed by the villain. They are reborn and come back to their original village and take revenge. But before they are reborn, their mother(played by Raakhee) keeps telling everyone, “Mere bete aayenge, mere Karan Arjun aayenge … zameen ki chaati phad ke aayenge, aasman ka seena cheer ke aayenge.”
Despite the ridiculousness of the idea, the sons are reborn and they come back and take revenge. Such confidence in something happening is rarely seen in reel or real life for that matter. A similar confidence seems to have taken over stock market investors in India right now. They firmly believe that Narendra Modi will become the next Prime Minister of the country and clear up all the economic ills that have held back economic growth for a while.
Stuck projects will be cleared. Investment will pick up. Consumption will be back. And happy days will be here again. Or so the logic goes.
The BSE Sensex has been rallying on this possibility and between September 2013 and March 20, 2014, it has rallied by 14.4%. The foreign investors seem to be more taken in by the possibility of Narendra Modi coming in as the knight in the shining armour and rescuing the Indian economy.
Goldman Sachs said in a recent report that “the upcoming parliamentary elections could have an important bearing on policy choices and the progress of structural reforms. Adoption of more decisive and/or pro-growth policies could help boost investment activity and provide impetus to the overall growth cycle, in our view.”
The bank had been a little more direct in a November 2013 report where it had said that “Domestic equity investors tend to view the BJP as business-friendly, and the party’s prime ministerial candidate Narendra Modi (the current chief minister of Gujarat) as an agent of change. BJP and Mr. Modi, in particular, have been focussed on infrastructure and capital spending in the past and a BJP-led government may be beneficial for the investment demand pick up, in our view.”
The foreign institutional investors have bet big time on this possibility. Between September 2013 and March 20, 2014, they have invested Rs 62,271.54 crore into the stock market. During the same period the domestic institutional investors have sold out stocks worth Rs 45,034 crore.
And this investment by the foreign investors is clearly because of the Modi factor. As 
Geoff Lewis, Global Markets Strategist, JPMorgan AMC told The Economic Times recently “Well, Modi is obviously a very big influence on the stock markets.”
But even Narendra Modi, despite his best intentions, may not be able to do much, if and when he does take over as the Prime Minister of India. And there are several reasons for the same. Let us look at them one by one.
A big hope from a Modi led government is that he will restart the investment cycle. As Neelkanth Mishra and Ravi Shankar of Credit Suisse write in a report titled 
Elections: Much Ado about Nothing dated March 19, 2014 “Hopes are high among investors that elections can re-start the investment cycle. Even if the electoral verdict is favourable, such misplaced optimism ignores the realities of the business cycle, and overestimates the powers of the central government. Only a fourth of investment projects under implementation are stuck with the central government; the rest are constrained by overcapacity, balance sheets, or state governments.”
They further point out that “two-thirds of the projects awaiting central approval are in Power and Steel sectors, both wracked with massive overcapacity, obviating new investments. True utilisation in thermal power generation is below 60%, near 20-year lows (reported plant load factor is 65%). Of the litany of problems in the sector, two are crucial: SEB[state electricity boards] reforms, and coal availability.”
The reforms for state electricity boards need to happen at the state level. As far as solving the problem of coal availability is concerned that is something that cannot be solved overnight. As 
Swaminathan S Anklesaria Aiyar pointed out in a recent column in The Economic Times “our systems are now clogged with so many laws and regulations at the central and state level that Cabinet clearance is just the first step in a long obstacle race. It takes 10-12 years and over 100 permits to open a coal mine. India, with the world’s third-largest coal reserves, has become a coal importer.”
What about accelerating private coal production in the country? That also is not likely to happen any time soon. As Mishra and Shankar of Credit Suisse point out “Given the controversy around coal block allocations, auctions are the only way forward. These are unlikely till the data on reserves in these mines are updated. The government has been planning to conduct coal block auctions for close to three years now (see link), but despite repeated pronouncements of it being a few weeks/months away, there has been little progress. In our view, the challenge is inadequate prospecting—the ministry may be apprehensive of the winning private bidder in an auction managing to increase reserves estimates within a short time frame. Such a development would create negative press and possibly trigger anti-corruption investigations.”
Hence, coal blocks most likely won’t be auctioned till the reserves have been updated. “Blocks are unlikely to be auctioned till reserves have been updated. This is a time-consuming process, and in our view is unlikely to be completed in less than 1-2 years. From the time the blocks are auctioned to the time coal can start to get mined could be another 3-5 years at least,” write Mishra and Shankar.
What about other infrastructure projects? There are many challenges on this front as well. “Challenges abound elsewhere too: legal challenges are likely to stall the National Highways projects, and matter less for India’s road network; Railways lacks financial muscle, and Private Partnership schemes are yet to take off,” write the Credit Suisse analysts.
What does not help is the fact that the banking sector seems to be headed towards difficult times in the days to come. The stressed asset ratio of the Indian banking sector currently stands at 10.2%. This means that for every Rs 100 of loans given by Indian banks Rs 10.2 worth of loans have either not been repaid or been restructured in some way, where the borrower has been allowed easier terms to repay the loan (which also entails some loss for the bank) by increasing the tenure of the loan or lowering the interest rate on it. Also, nearly 85% of the restructured loans have been restructured over the last two years.
What makes the situation even more dangerous is the fact that the non performing assets are likely to increase in the years to come. The Credit Suisse analysts point out that their banking team has been highlighting that “that there is Rs 8.6 trillion of loans with the top 200 companies with interest cover less than one. Only about 23% or Rs2 trillion has become NPA yet.”
Interest cover is earnings before interest and taxes divided by the total interest expenses of s company. If the interest cover of a company is less than one what it means is that the interest expenses of the company are more than its earnings before interest and taxes. Hence, the company is not in a position to fully repay the interest on the loans that it has taken on. In this situation it has no other option but to default or get the loan restructured. Either ways it means problems for the banking system. Or as John Maynard Keynes once famously said “If you owe your 
bank a hundred pounds, you have a problem. But if you owe a million, it has.”
If the problems in the banking system erupt that would mean that there would be lesser money to lend. Also, the government will have to come to the rescue of the public sector banks, and that would mean greater expenditure for the government, something it can ill-afford to do at this point of time.
And if all this wasn’t enough, the ability of the next government (irrespective of who leads it) to spend its way through trouble is fairly limited. As I had estimated in this piece, nearly Rs 2,00,000 crore of the government expenditure hasn’t been accounted for in the next financial year’s budget.
As Mishra and Shankar point out “The apparent reduction seen in the last three years has been achieved mostly by pushing expenditure into subsequent years: while earlier the month of March used to see 16% of the full-year expenditure, in the last three years, it has come down to 11-12%.”
Obviously, this trick of pushing expenditure into the next year cannot continue forever and needs to stop at some point of time.
To conclude, Modi will have to work in a coalition, which will severely limit his ability to make decisions as quickly as he is used to. Given these reasons, the foreign investors and everyone else who feels that Narendra Modi will turnaround the Indian economy in a jiffy, need to understand that they might be becoming victims of what I would like to call the Karan-Arjun syndrome. Reel life and real life do not always go together.
The article originally appeared on www.FirstBiz.com on March 21, 2014 with a different headline

 (Vivek Kaul is a writer. He tweets @kaul_vivek) 

What Aam Aadmi Party can learn from BJP

Arvind-Kejriwal3 Vivek Kaul
Noted lawyer and senior Aam Aadmi Party leader Prashant Bhushan has come in for severe criticism for his recent remarks on Kashmir. Bhushan had told Aaj Tak and Headlines Today that “People should be asked whether they want the Army to handle the internal security of Kashmir… If people… say they don’t want the Army to be deployed for their security then the Army should be withdrawn from the hinterland.”
The statement basically brought back the age old issue of having a plebiscite to decide what the people of Kashmir really want. Plebiscite is essentially a direct vote in which people are asked to either accept or reject a proposal.
It needs to be pointed out that this is not the first time that Bhushan has talked about having a plebiscite in Kashmir. On September 26, 2011, 
while addressing a press conference in Varanasi, Bhushan had said “It is my personal opinion that no country or part of its territory can be governed without the wishes of the people with the help of army. This is not in the interest of the country and the people…I want that the situation be normalized, Army be withdrawn, the Armed Forces Special Powers Act be also withdrawn and then try to persuade the people of Kashmir to stay with India. And yet, if the people want, then there could be a plebiscite, and if the people of the Valley want separation, they be allowed to separate.” On October 12, 2011, Bhushan was attacked and beaten up because of this statement, by youth claiming to be from the Bhagat Singh Kranti Sena.
The situation has changed a lot since then. In 2011, Bhushan was a lawyer who had a remarkable role to play in exposing various scams, but now he is a senior leader of the Aam Aadmi Party. The party after having made a stupendous debut in the Delhi state assembly elections now has national aspirations. And a senior leader of a political party seeking national presence cannot be seen to have such a view on Kashmir—a view which questions the idea of a united India.
As Pratap Bhanu Mehta writes in 
The Burden of Democracy “Groups may have deep seated grievances and suppressed complexes but the mere freedom to articulate them gives them a stake in the system like nothing else. And the imperatives of seeking sustainable majorities, most observers argue, moderates even the most radical movements, giving them a largely centrist cast.”
Bhushan and the Aam Aadmi Party need to keep this in mind if they want to move from being a local political party in Delhi to being a national level political party. Bhushan’s view on Kashmir might at best appeal to a section of the population in Kashmir and a few people among the intellectual class. Radicalism of the sort he espouses on Kashmir won’t help the Aam Aadmi Party. This is not to say that Bhushan should not have the views on Kashmir that he has. Its just that politically neither he nor the Aam Aadmi Party can afford to have these views.
In fact, Bhushan and the Aam Aadmi Party can learn a thing or two from the Bhartiya Janata Party (BJP) here. In 1996, the BJP formed a government which lasted for a mere 13 days. It then realized that if it had to ever come around to governing the country, it would have to keep its certain ‘core’ issues on the back burner. A centrist position would be more beneficial politically was the realization that the party had. As Ashutosh Varshney writes in 
Battles Half Won—India’s Improbable Democracy “In 1998, the BJP managed to assemble a broad alliance of parties and come to power, but only after dropping key Hindu nationalist demands, such as the construction of a new temple on the site of the razed Ayodhya mosque; the adoption of a common civil code to supersede all the ‘personal laws’ of the religious minorities; the termination of the special status of Jammu and Kashmir (India’s only Muslim-majority state). India’s pluralism has induced the BJP to scale back its anti Muslim rhetoric; to build coalitions across caste, tribal, linguistic, and religious lines; and to seek alliances with regional parties in states where Hindu nationalist ideology makes no sense.” In fact, the party has gone ‘soft’ on these issues since then and is seen talking more about economic and social progress.
Other than Bhushan, Kumar Vishwas, another senior leader of the Aam Aadmi Party, has also come in for a lot of criticism, for his politically incorrect views on issues as wide ranging as women to Muharram.
Vishwas is a Hindi poet who primarily writes poems about love and romance(his most famous poem is 
koi deewana kehta hai). Given this, he has a huge popularity among students and over the last decade has been seen regularly at college festivals around the country. The colleges tend to have more males students than female students, and in this environment, it is not surprising that Kumar has made some quips about women which are now being seen as politically incorrect, though at the point he said them, students had laughed at it.
While Kumar cannot erase things he has already said, but as a leader who hopes to take on Rahul Gandhi in the next Lok Sabha elections, things that he says in the public domain in the days to come need to be politically correct and hold a centrist view on most issues. And the same holds true for the other leaders of the Aam Aadmi Party as well.
As it expands rapidly in the days to come, the Aam Aadmi Party will make its set of mistakes. Other political parties are all waiting to latch on these mistakes and turn them into “issues” they can cash in on. Given this, it is important that the leaders of the Aam Aadmi Party do not score any more self-goals.

 The article originally appeared on www.firstpost.com on January 9, 2014
(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Story of a home-grown David: How AAP trumped the mighty

Vivek Kaul  
One of the fundamental rules of forecasting is to make as many forecasts as possible and then publicise the ones you get right. On August 4, 2012, I wrote a piece on Firstpost, in which I compared what would become Aam Aadmi Party(AAP) to a disruptive innovation.
The term disruptive innovation was coined by Clayton Christensen, who happens to be a professor of strategy at Harvard Business School. He defines it as “innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
A great example of a disruptive innovation is Micromax. Micromax and a host of other Indian phone makers built up significance presence in the smartphone market, while the biggest player Nokia was busy elsewhere.
Bharti Beetel, which produced India’s first landline phones which had buttons on them, did not wake to the opportunity of the mobile phone market. This despite the fact that its sister company Airtel was India’s biggest mobile phone service provider.
RCA, America’s leading radio company, did not see the rise of battery powered pocket transistors which were first made by Sony in 1955. Sony changed the way the world heard music by launching the Walkman and the CDman. But it handed over the digital music player market on a platter to Apple and other companies. Sony did not capture the mp3 player market because it feared that it would play havoc with all the music rights that it owned.
When it comes to low cost airlines Southwest Airlines first woke up to the opportunity. None of the bigger players in the market like Pan American, British Airways, Lufthansa, Delta etc, saw the opportunity at that point of time. Even in an Indian case, a rank outsider Indigo has captured the low cost market, instead of incumbents like Air India and Jet Airways, which continue to make huge losses.
There are scores of such examples in business, where the biggest player(or players) in the market has been rattled by a new player. AAP is a similar disruptive innovator. In the August 2012 piece, I had said that what “works to the advantage of disruptive innovators is the fact that the major players in the market ignore them initially and do not take them as a big enough force that deserves attention.”
And this works to the advantage of the disruptive innovator, which can quietly keep doing its thing. The bigger player is not interested because the market that the disruptive innovator is catering to is too small for them to take seriously. Take the case of smartphones. Smartphones have been around since the late 1990s, but they only took off in the last few years. Hence, Nokia never got around to take them very seriously.
When Sony first launched pocket transistors they catered primarily to teenagers. This led to RCA ignoring the market, because the bigger market was elsewhere. Apple’s first personal computers were targeted towards the youth, leading to the existing players who manufactured minicomputers ignoring the market completely.
Along similar lines, the Bhartiya Janata Party and the Congress, looked at AAP as a party which catered to the frustrations of the middle class. And given that the middle class in this country does not care to vote, the existing political parties felt that there was no point in paying attention to what the AAP was upto.
In fact, Sheila Dikshit, the chief minister of Delhi for the last fifteen years said so in several interviews. In an 
interview to the Open magazine published in early November, Dikshit said that “he(i.e. Arvind Kejriwal, the National Convener of the AAP) is not even on our radar.” In a rally without referring to Kejriwal, she even called him ‘barsaat ka keeda’.In another interview to Tehelka, Dikshit said “My reaction to the Aam Aadmi Party is nothing..absolutely nothing.” By the time Congress woke up to the threat from the AAP, it reacted the only way it could, by ordering a probe into the foreign funding sources of the party.
The Bhartiya Janata Party also woke up around mid October, six weeks before the election, and decided to project Dr Harshvardhan as its chief ministerial candidate. 
As the India Today reported on the issue “Highly-placed sources in the BJP have told indiatoday.in that the party wanted to go into the elections with a leader who had a clean image and that made it go with the doctor.”
The only possible explanation for this change is the fact that the BJP came to realise slightly late in the day, that the AAP was no pushover. Hence, it had to project a chief ministerial candidate with a clean image. And this got Dr Harshvardhan into the picture.
The fact that it wasn’t taken seriously by its opponents allowed the AAP to go about building itself right from scratch in Delhi. The results suggest that what the AAP has managed to do in a small span of a little over a year is unprecedented. No other political party established right from scratch has ever won the number of seats that it has, since independence, in its very first election.
On various discussions that happened across television channels yesterday political analysts brought up the example of NT Rama Rao. NT Rama Rao stormed to power by winning the January 1983 assembly elections in Andhra Pradesh. His Telgu Desam Party won 199 out of the 294 assembly seats. In comparison, AAP’s performance looks pale.
But its worth remembering here that NT Rama Rao was the biggest Telgu film-star at that point of time. He may have been contesting elections for the first time, but everyone in Andhra Pradesh knew who he was. And given how crazy Andhra Pradesh was and continues to be about cinema, NTR did not have to start right from scratch like AAP did in Delhi.
Some others also compared AAP’s success to the defeat that Mamata Banerjee handed out to the Left Front in West Bengal in 2011. While what Mamata did was huge, it is worth remembering that it took her almost three decades to do that. And when she moved out of the Congress Party to form the Trinamool Congress, a large section of the Congress Party moved with her. This meant that there was some sort of organisation that was present at the ground level when Mamata seriously thought of taking on the Left parties on her own.
When the success of AAP is looked at with these factors in mind, it really is unprecedented.
Another point that comes out here is what marketing gurus Al and Laura Ries make in their book 
The Fall of Advertising and the Rise of PR. In the last few decades the biggest brands have been made through public relations and not through advertising. As Al Ries told me in a October 2008 interview that I did for the Daily News and Analysis (DNA) “Almost all of the recent brand successes have been public relations (PR) successes, not advertising successes…In its first 10 years, Starbucks spent less than $10 million (total) on advertising which is a small amount in a country of 300 million people. The Body Shop has never advertised. Yet recently, L’Oreal paid $1.1 billion to buy the company…Red Bull today is a worldwide brand with $3.3 billion in annual sales, yet the company does little advertising. Same is true about Google, Facebook, Twitter, which are now some of the biggest brands in the world.”
In fact, the success of AAP is a very good example of the same. The party did not have enough money to go through the conventional advertising route of advertising on television and in newspapers. They came up with innovative ways of advertising which did not need a lot of money, like getting their volunteers to stand with banners of the party at strategic traffic points. They also advertised on autorickshaws, which was a cheap and effective way of reaching a large number of people.
In fact, they got spectacular coverage in the media by exposing corruption in business and crony capitalism. Arvind Kejriwal and the AAP were on the front pages of newspapers all over the country, for fairly long periods of time, over the last one year due to this. In the end, this strategy was overused, businessmen cracked the whip and finally a large section of the media stopped covering there exposures. The door to door campaign in Delhi that it carried out was also a spectacular public relations exercise.
As I said earlier, the big boys never really took the AAP seriously. They asked all the practical questions. Where would the AAP raise all the money to fight an election? How would they be able to put an effective organisation in place, in such a short period of time? How would they manage to achieve all that we have achieved in the last sixty to hundred years, in a period of one year?
The party did this and a lot more.
It raised money directly from people, something that has been unheard of in Indian politics. The party also innovated when it came to reaching out to people, something expected from a disruptive innovator. It organised small 
mohalla sabhas attended by a few hundred people at a time, all across Delhi. Of course, existing political parties used to large rallies, did not see much worth in organising events where at best a few hundred people turned up.
The AAP also used social media very effectively when it came to drumming up support, something no one other than Narendra Modi, has tried to do.
The question is will the AAP be able to replicate its success in Delhi through other parts of the country? The answer is not simple. The incumbent politicians would like to believe that it will be very difficult for the AAP to play the game of caste so important in large parts of the country.
But what should give them hope is the fact that the larger political parties are still not taking them seriously. A senior BJP leader said on NDTV India yesterda that comparing BJP with AAP was like comparing “
Raja Bhoj with Gangu Teli”. Another BJP leader challenged them to win even a single seat out of the 48 Lok Sabha seats in Maharasthra.
This tells us that the incumbent politicians are still not taking AAP seriously and feel that they will find it difficult to replicate their success outside Delhi. How successful AAP is outside Delhi, only time will tell us.
To conclude, AAP’s spectacular debt in Indian democracy was best summarised by anchor Punya Prasun Bapai on Aaj Tak yesterday, when he said “
Jhadu, Tiranga Ke Saath Lehra Raha Hai”.
The article originally appeared on www.firstpost.com on December 9, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Why the Modi bull market is likely to continue

narendra_modiVivek Kaul  
If foreign investors into the Indian stock market are to be believed, India is currently in the midst of a Modi rally. Goldman Sachs had explained this phenomenon best in a note titled Modi-fying our view, published on November 5, 2013. “The BJP led National Democratic Alliance (NDA) could prevail in the next parliamentary elections that are due by May 2014. Equity investors tend to view the BJP as business-friendly, and the BJP’s prime ministerial candidate Narendra Modi (the current chief minister of Gujarat) as an agent of change. Current polls show Mr.Modi and the BJP as faring well in the five upcoming state elections, which are considered lead indicators for the general election next year. Even though the actual general election outcome is uncertain, the market could trade this favorably over the next 2 quarters, which argues for modifying our stance,” the Goldman Sachs note pointed out.
Every bull market has a theory behind it. But ultimately any market goes up when the amount of money being brought in by the buyers is more than the amount of money being taken out by the sellers. For the Indian stock market to continue going up, and for the so called “Modi” rally to continue, the foreign investors need to continue bringing in money into the country.
The foreign institutional investors have made a net investment of Rs 72,791 crore since the beginning of the year. During the same period the domestic institutional investors have net sold Rs 65,694 crore.
In fact, numbers for the month of November make for a very interesting read. The foreign institutional investors during the month have made a net investment of Rs 6108 crore. During the same period the domestic institutional investors have net sold stocks worth Rs 9376 crore.
Through this data we can conclude that foreign investors have been more bullish on Indian stocks than Indian investors. Why has that been the case?
A possible interpretation of this is that the domestic institutional investors are worried about the overall state of the Indian economy. The Goldman Sachs summarises these challenges well as “the macro challenges that India faces in terms of external and fiscal imbalances, high inflation and tight monetary policy.” And given this, they have been net sellers during the course of this year.
The foreign investors are not bothered about the state of the Indian economy and that is why they have been buying Indian stocks. Why is that? A possible explanation is the fact that they have access to all the “easy money” in the world at very low interest rates.
They have been borrowing and investing this money in the Indian as well as other stock markets all over the world. This has been possible because of all the money being printed by the Western central banks. This has led to a situation where there is enough money floating around in the financial system and hence, kept interest rates low.
So for the foreign investors to continue investing money in India, it is important that interest rates in the Western world continue to remain low. For that to happen the Western central banks need to continue printing money. And that is the most important condition for the so called “Modi” rally to continue.
In case of the United States, which has been printing $85 billion every month, the decision to continue the easy money policy rests primarily in the hands of Janet Yellen, who is currently the Vice Chair of the Federal Reserve of United States, the American central bank, and will take over as its next chairperson early next year.
So will she continue printing money? Jeremy Grantham, the chief investment strategist of GMO, and one of the most acclaimed hedge fund managers in the world, believes that Yellen will continue to print money, and follow her predecessors Ben Bernane and Alan Greenspan, and ensure that the Federal Reserve continues to run an easy money policy in the process.
As Grantham puts it in 
Ignoble Prizes and Appointmentshis most recent quarterly newsletter “My personal view is that the Greenspan-Bernanke regime of excessive stimulus, now administered by Yellen, will proceed as usual, and that the path of least resistance, for the market will be up.”
And this will mean stock market rallies not only in the United States but all over the world, including in emerging markets like India. “My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up,” writes Grantham.
What is interesting is that another veteran of the US markets and one of its foremost investment newsletter writers Richard Russel has had something similar to say in the recent past. Russel in a recent note titled 
Get Ready for the Mania Phase explained that there are three phases to any bull market. In the first phase the wise and seasoned investors enter the market and pick up stocks which are going dirt cheap, because of the previous bear market.
In the second phase, which happens to be the longest and the most deceptive phase, retail investors flirt with stocks and buy them very carefully and not on a regular basis. In the third and final phase of the bull market investors really take to stocks. As Russel writes “The third or speculative phase of a bull market is characterized by a wild and wooly and ever-increasing entrance by the retail public. This phase is characterized by hot tips, hype and pure greed.”
This third and final phase of the bull market has started in the United States, feels Russel. “This is where I think we are now in this bull market. I believe that during the next 12 months we will experience a surprising and ever-expanding rush by the “mom and pop” public to enter the market. At the same time, veteran investors and institutions will seize the opportunity to distribute stock that they may have held for years,” he writes.
And this phenomenon along with the easy money policy of the Federal Reserve will lead to a global rally in stocks. As Russel puts it “All primary movements are international in scope, and this bull market will be no exception.”
The trouble of course is that this rally will not be based on any fundamentals, but just a lot of easy money chasing stocks. And that is something that cannot last beyond a while. The bubble will burst and there will be a lot of pain. As Grantham puts it “And then we will have the third in the series of serious market busts since 1999 and presumably Greenspan, Bernanke, Yellen, et al. will rest happy, for surely they must expect something like this outcome given their experience. And we the people, of course, will get what we deserve.”
The article originally appeared on www.firstpost.com on November 30, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)

What Micromax is to Nokia, Kejriwal’s AAP is to Dikshit

Arvind-Kejriwal3Vivek Kaul 

It is never really a great idea to compare a political party to a management concept, given that politics is more messier than business ever can be. But that is what I had done, over a year back, when a section of what had come to be known as Team Anna, decided to form a political party.
I had compared the Aam Aadmi Party (as it subsequently came to be known) to a disruptive innovation (
You can read the article here).
Disruptive innovation is a term coined by Harvard Business School professor Clayton Christensen. “These are innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents,” is how Christensen defines disruptive innovations as.
The business landscape is littered with examples of hundreds of disruptive innovations. It typically involves a small entrepreneur coming up with a product which big business of the day is not interested in. A good recent example is that of Indian mobile phone brands like Micromax and Karbonn, which took on Nokia, which was the biggest mobile phone brand in India until a few years.
The Indian brands concentrated on selling low priced smart phones, mostly sourced from China, something that Nokia was not interested in. This allowed the Indian brands to gradually capture a major section of the market. By the time, Nokia woke up, these small Indian businesses had already become big boys. Micromax recently signed Hollywood star Hugh Jackman as its brand ambassador. (To its credit Samsung did not fall into the Nokia trap and is now the leading mobile phone brand in India)
Another great example of a disruptive innovation, which I have often used and which fits the situation beautifully in this case, is that of home grown detergent Nirma. 
Karsanbhai Patel introduced Nirma detergent in 1969 and priced it at Rs 3.50 per kg. Those were the days when soaps were more popular than detergents when it came to washing clothes. A major reason for this was the fact that detergents were expensive. Hindustan Lever’s Surf (now Hindustan Unilever) sold at Rs 15 per kg. And the lowest price detergent was sold at Rs 13.50 per kg. 
Given this huge disparity in price, Nirma sold well and continued to grow. Hindustan Lever kept looking the other way for a very long time simply because it was not interested in servicing the end of the market where the margins were low. By the time Hindustan Lever reacted, Nirma had established itself as a pan India brand. 
Hence, there are two ends to a disruptive innovation really. One is the new business which launches something which caters to a specific section of the market. The other is the established big business which is not really interested in that section of the market. This allows the new business to grow itself. By the time big business starts to see the smaller business as a threat, it has already grown big enough. The disruptive innovation thus challenges the status quo product. 
Along similar lines, Arvind Kejriwal and the Aam Aadmi Party are the disruptive innovation, and the existing political parties the status quo product. To their credit Arvind Kejriwal and his supporters understood that urban voters wanted a change and tailored their campaign in line with that. They understood that there was an opportunity for a political party which fields honest candidates and does not work along narrow caste or regional lines.
This basic idea seems to have worked. A pre-poll survey carried out by CNN-IBN, The Week and CSDS Pre-Poll has projected that the Aam Aadmi Party will get anywhere between 19-25 seats in the upcoming Delhi assembly elections. It gives the Bhartiya Janata Party anywhere between 22 to 28 seats and the Congress party 19 to 25 seats in a 70 member Delhi assembly. 
If AAP were to get even one third or half of the projected seats, it would be unprecedented. No political party established from scratch has ever done so well. 
So what has worked for the Aam Aadmi Party? There promise of providing a clean corruption free administration has gone down well with the Delhi voters. Cynics might turn around and tell you, what is the big deal about that? Every political party worth its salt promises a corruption free administration. 
While that is true, a promise of a corruption free administration coming from politicians who are already corrupt, does not mean anything for the voter. When the same promise comes from someone like Arvind Kejriwal, an IITian who worked for the Indian Revenue Service, and then quit to run an NGO, it holds some value. It tells the voter that there is still some hope left in the world. Hence, more than the message, who is saying it, turns out to be more important.
The other factor that worked well for Aam Aadmi Party is the fact that the big boys Congress and Bhartiya Janata Party were looking the other way, like often happens in the case of a disruptive innovation. 
The big boys never really took the Aam Aadmi Party seriously. The feeling was that where would this new kid on the block raise the money required to fight an election? How would the new party put the organisation required to fight an election in place? 
The Aam Aadmi Party turned the conventional wisdom right on its head when it came to raising money. It has been raising money directly from the people. As far as setting up the party organisation is concerned it has done a remarkably good job in a very short period of time. 
The party has also innovated when it comes to reaching out to people. It has been organising small 
mohalla sabhas attended by a few hundred people at a time, all across Delhi. The existing political parties, used to big rallies, have not seen this as a threat. This has helped the party consolidate its position all across Delhi. 
The Aam Aadmi Party has also been innovative when it comes to advertising, using auto-rickshaws as well as humans standing with banners at key junctions in Delhi.
Also, the existing political parties were confident that it would be next to impossible to reach the voter in such a short period of time. In this case the Aam Aadmi Party has been helped by the media, for which Kejriwal and his party have been a new and an exciting story, full of hope. And hope always sells well among readers. What has also worked is the fact that Kejriwal has been extremely media savvy, always willing to give an interview.
All this has clearly rattled the Bhartiya Janata Party and the Congress. In a recent interview to the Tehelka magazine,
 chief minister Sheila Dikshit
of the Congress Party said 
“My reaction to the Aam Aadmi Party (AAP) is nothing..absolutely nothing.” Only a person who is rattled could have said that. The Bhartiya Janata Party has been forced to project Dr Harshvardhan, as its chief ministerial candidate, instead of going in with its Delhi unit chief Vijay Goel . It’s obvious that the party wanted to project someone with a clean image to take on Kejriwal. But it left that decision to very late in the day.
What has worked well for the Aam Aadmi Party is the fact that Delhi votes majorly along class lines and not caste lines. Its real test will come when it starts contesting elections in other states, where caste and other political factors will have a major role to play.

The article originally appeared on www.firstpost.com on October 31, 2013

(Vivek Kaul is a writer. He tweets @kaul_vivek)