Budget FY12 – the numbers that don’t go down. And those that don’t make sense

Key Numbers for India Govt Budget

Making numbers tally for a country as poor on data as India must be a tough task for the government, particularly when you one of the oldest guys in the cabinet as the FM, and a airy fairy guy  like Montek on the planning commission. Perhaps the others before them have been not much better, but look at the numbers this year, and you get a sense that this was a huge opportunity missed.

The FM and this govt screwed up big time. I am talking of FY11 numbers (not the projected FY12 ones). Lets see what happened in FY11 –

• Revenue was much better than what the government projected in Feb 2010. Compare column 7 to column 6. Revenue receipts were greated by about Rs 100,000 crore over budgeted. This was a lot due to the 3G income
• Now this is a large number. To make sense of this, you need to compare it to the figure in Row 7, Col6. This is the figure for projected borrowings for fiscal 11, which was Rs 381, 408 crore. This is a good 26% of the projected borrowing for the year gone by. This is also about 1.3% of FY11 nominal GDP.
• But what does the FM do? He ups spending even more. The result is, actual borrowing by the government is just over Rs 400,000 crore, despite a massive boost in the form of unexpected revenue.
• What could the government have done? What if the spending had not gone up? Borrowings would have been less by Rs 100,000 crore, and so would the fiscal deficit. As a % of GDP, fiscal deficit would have been 3.8%, instead of 5.1%. This would have been the lowest in a long time.
• How would a low fiscal deficit have helped India in fiscal’11? Interest rates would be lower, both of retail borrowers and corporates. FIIs would have loved the low fiscal deficit number, and would still be investing, instead of selling.
• We would have had a GDP growth of 7%, inflation perhaps 2-3% lower than what it is, interest rates lower by atleast 100 bps, if not more, and Sensex at 25K.

And some funny numbers..

There is no dearth of funny numbers when it comes to govt data. Check the last 4 rows, where I have back-calculated nominal GDP and its growth, subtracted real GDP growth from it. I have done a simplistic thing of subtracting the two to get the deflator, but the actual value cant be too different. So look at the GDP deflator number for FY11 – 12%! It has been high in the last 2-3 years as well, whatever the govt may claim on inflation otherwise.

The projected  figure for FY12 is much more sensible though

Real Estate Stocks: Recap of Oct’08 Post

In the post How Low Can Real Estate Stocks Go, written in Oct’08, this is what was written:

• DLF at Rs 350, is still quoting at 5x. Its book value is Rs 70. I suspect DLF can come down to Rs 200 if bearishness continues.
• Unitech, at Rs 108, is quoting at 7x book. So Unitech could come down to Rs 50 or less.
• Akruti, at Rs 732, is quoting at 5x book. It can come down to Rs 350 easily.

Note all the other RE stocks are quoting at around 2.5x book or less. They will come down to close to 1x book. For example, Omaxe is 1.3x book at the moment. At these levels you could calls some of these stocks cheap, but from what I hear about the likes of Omaxe and Puravankara, these stocks could fall further – to below book. They seem to have eroded net worth.

This is where these stocks are quoting now

• DLF is quoting at Rs 246. Not quite Rs 200, but getting there.
• Unitech is quoting at Rs 34
• Ackriti is down to Rs 206

Now, no one talks of NAVs of real estate stocks. Now, it is back to price to book

Talking up the Markets: Recap of FM’s statement

On 10 September 2010, the FM Pranab Mukherjee made this statement (see the earlier post):

Average Industrial growth this fiscal will be be between 12 and 13 percent, given the good showing of the labour-intensive manufacturing sector

Now it is clear that IIP will end up at around 8%. Advance estimates of the GDP peg it at 8.1%. I think that is a reasonable number. My range is 7.6% to 8.3%.

How shamelessly our politicians play the market. Now they are doing the reserve. I strongly feel this IIP data is rigged to further pull down the markets

JP Morgan’s report on DB Realty

This report is as recent as 14 October 2010

We have a Neutral rating on DB Realty with Mar-11 PT of Rs 480 (12x Mar-11 normalized FCF).

The price at the time of writing the report was Rs 435. The price now is about Rs 130. Since then DB Realty has been involved in the LIC bribery scam, and now the 2G scam.

The JP Morgan report also say this —

Organizational build out is happening… with the company hiring a number of expats to build out project management /execution capacity. We believe that many of these professionals have had good experience in high rise construction in middle-east. The company has also engaged Deloitte /SAP for project implementation and monitoring purposes.