stocks: What I read this week: Why the ongoing M&As do not give us must-have stocks


Should you buy the SBI stock post mergers or rush for the telecom stocks after the latest round of M&As? Think again. These M&As are happening out of compulsion and not really choice. Makes sense? Read on and there is a solid logic to look at these stocks more closely.

Rising debt or slowing growth are not the biggest reasons behind slowing global trade, the main culprit is policy uncertainty. And that assessment comes from the World Bank. It has also sized up each nation’s share to global GDP; India’s is 2.8 per cent.

Mergers more value-destructive?
The pace of mergers is accelerating at a fast pace. But the current wave of M&As in corporate India seems to be more out of necessity and distress, rather than by opportunity; whether it is in public sector with SBI and its subsidiaries merging or in the private sector where telecom mergers are happening to survive the debt trap and take on the big daddy with deep pockets. Elsewhere, the consumer durables sector – reeling under weak consumption growth made worse by demonetisation – has just seen Havell’s, market leader in consumer electricals, cables and wires, buy Lloyds’ consumer durables business for Rs 1,600 crore. In aviation and infrastructure, debt is killing the companies, and they have no option but to seek exits and fire-sales. GVK sold a large chunk of its Bangalore airport holdings to cut debt, but the debt problem is nowhere near ending. The GMR group, which runs Delhi airport, saw rating agencies downgrade some of its companies to default status in 2015. Worldwide, two out of three mergers have only destroyed wealth. It remains to be seen whether it is different with our own mergers. Read More

World Trade Weakest Since 2009
The World Bank, in its report titled Trade Developments in 2016, barely blames the usual suspects for lacklustre global demand, but identifies a new and dominant one: “policy uncertainty.” It points out that 2016 was the fifth year in a row of “sluggish trade growth.” Calendar 2015 had already been the weakest year since 2009, when global trade collapsed as a result of the global financial crisis. But 2016 was worse than 2015. Based on these sources –IMF, CPB and the World Bank – the report estimated trade growth in 2016 at 1.9 per cent. And 2016 was different from “other post-crisis years.” This time, “trade sluggishness” was spread across advanced and emerging economies.

So why is this happening? There are the usual suspects, or as the report calls them, the “enduring structural determinants”: Maturing of global value chains (GVCs), rising protectionism, and notably slow global growth.

And then there’s the new, now dominant factor: the surge in global “policy uncertainty,” as quantified by the Economic Policy Uncertainty Index. How will that work out in 2017? It already started on the wrong foot: In January, the economic uncertainty index surged to a new record high in the data series going back to 1998! More dark clouds over global trade! Read More

$74 trillion global economy in one chart
The latest GDP numbers from the World Bank were released earlier this month, and the accompanying chart visualisation breaks them down to show the relative share of the global economy for each country. The full circle, known as a Voronoi Diagram, represents the entirety of the $74 trillion global economy in nominal terms. Meanwhile, each country’s segment is sized accordingly to their percentage of global GDP output. Continents are also grouped together and sorted by colour. Top 20 economies have more than 85 per cent of world GDP. India is at number 7 with a GDP of $2.1 trillion and 2.8 per cent share in the global GDP. Read More

Why too much of good in policy is bad
“Hormegeddon”( a book review) is the term coined by entrepreneur and New York Times bestselling author Bill Bonner to describe what happens when you get too much of a good thing in the sphere of public policy, economics and business. Simply put, it ends in disaster. A phenomenon that occurs when a small dose of something produces a favourable result, but if you increase the dosage, it results in disaster. The same applies when the world gets too much of a good thing in public policy. Drawing on examples throughout modern political history, Bonner brings context and understanding to this largely ignored and anonymous phenomenon.

He writes, “Public policy disasters are what you get when well-meaning people with this Titanic degree of certitude apply rational, small-scale problem-solving logic to inappropriately large scale planning. First, you get a declining rate of return on your investment (of time or resources) until you hit zero. Then, if you keep going through the zero floor –and you always keep going – you get a disaster. The problem is, these disasters cannot be stopped by well-informed smart people with good intentions, because they are the people who cause them in the first place. Read More