A stretched market: On Indian stock indices hitting a new peak. . .

e major Indian stock indices have rallied strongly despite lingering concerns over their historically rich valuations. Both the BSE Sensex and NSE Nifty reached all-time highs on Wednesday, up about 13% and 14%, respectively, since the beginning of 2017 and well above the performance of developed markets. The Sensex surpassed its previous high to end the day at 30,133 while the Nifty settled on a record closing high of 9,351. Investors have attributed the rally to the better-than-expected earnings results of blue-chip companies (like Reliance Industries Limited that posted record earnings this week), strong fund inflows from foreign institutional investors (FIIs) and the strengthening of the rupee. Waning concerns over the election results in France, U.S. President Donald Trump’s anticipated tax reforms, and the allaying of concerns about the long-term impact of demonetisation may have also helped fuel the rally. FIIs have been at the centre of action over the past few months, turning into bullish buyers after the temporary slump in their investments after the demonetisation exercise. In the first three months of 2017, FIIs have poured $6.75 billion into equities, up from inflows of just $3.19 billion and $3.18 billion in 2015 and 2016, respectively. Adding strength to the rally, domestic investors have been net buyers of equities, investing almost ₹16,000 crore since the beginning of 2017.

Going forward, despite the willingness of foreign buyers to pay higher multiples, there remains the substantial risk of a downside attached to this rally. The market capitalisation of Indian stocks, according to a report by Motilal Oswal Securities published in March before the rally, rose 40% over the last year compared to a 21% increase in the overall world market cap. This increased India’s share of world market cap to 2.5%, marginally above the historical average of 2.4%. Yet corporate earnings, which determine equity returns in the long run, have been lacklustre despite showing early signs of recovery from the demonetisation shock. While the current earnings season has been modestly positive, overall, reasons to justify the high multiples remain elusive. The implementation of the Goods and Services Tax is expected to dampen earnings in the near term, and the absence of recovery in capital expenditure by India Inc. offers little hope to expect an earnings boost. The impact of the strengthening rupee on corporate earnings is another concern. Investors, especially foreigners who benefit from an appreciating rupee, have taken the strong rupee as a vote of confidence in the economy. But its likely impact on the earnings remains ignored. According to UBS, a 1% appreciation in the rupee could reduce the Nifty’s earnings by some 0.6%. All that said, the bears in the Indian markets have been proven wrong for long. It would not be surprising if investors stretch themselves further to support the rally.Going forward, despite the willingness of foreign buyers to pay higher multiples, there remains the substantial risk of a downside attached to this rally. The market capitalisation of Indian stocks, according to a report by Motilal Oswal Securities published in March before the rally, rose 40% over the last year compared to a 21% increase in the overall world market cap. This increased India’s share of world market cap to 2.5%, marginally above the historical average of 2.4%. Yet corporate earnings, which determine equity returns in the long run, have been lacklustre despite showing early signs of recovery from the demonetisation shock. While the current earnings season has been modestly positive, overall, reasons to justify the high multiples remain elusive. The implementation of the Goods and Services Tax is expected to dampen earnings in the near term, and the absence of recovery in capital expenditure by India Inc. offers little hope to expect an earnings boost. The impact of the strengthening rupee on corporate earnings is another concern. Investors, especially foreigners who benefit from an appreciating rupee, have taken the strong rupee as a vote of confidence in the economy. But its likely impact on the earnings remains ignored. According to UBS, a 1% appreciation in the rupee could reduce the Nifty’s earnings by some 0.6%. All that said, the bears in the Indian markets have been proven wrong for long. It would not be surprising if investors stretch themselves further to support the rally.

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Politics and the police: On reinstating Kerala DGP Senkumar. .. . .

 2006, the Supreme Court ruled in the Prakash Singh case that the chief of a State police force should have a fixed tenure of at least two years. Despite this, State governments have failed to protect Directors General of Police from arbitrary transfers. In the event of a regime change following an election, new political dispensations assume they have an unfettered right to reshuffle officers in the civil and police services. Rarely has this assumption been challenged. The Supreme Court’s ruling reinstating T.P. Senkumar, who was replaced as head of the Kerala police soon after the Left Democratic Front assumed office last year, reinforces its 2006 judgment. It limits significantly the discretion enjoyed by the political executive in effecting transfers at whim. Expanding on the import of thePrakash Singh verdict, in which the court had given directions to insulate the police from external pressure and political influence, a two-judge Bench has delineated the limits of the State government’s subjective satisfaction in removing the DGP. No longer is it valid for the government to justify a DGP’s removal on the vague ground that it has reached a prima facie conclusion that the public is unhappy with the efficiency of the force. The government’s ‘subjective satisfaction’ about the state of affairs must be based on “cogent and rational material”, the court has ruled. On going through the record, the Bench found there was no material adverse to Mr. Senkumar, except some opinions and views. 2006, the Supreme Court ruled in the Prakash Singh case that the chief of a State police force should have a fixed tenure of at least two years. Despite this, State governments have failed to protect Directors General of Police from arbitrary transfers. In the event of a regime change following an election, new political dispensations assume they have an unfettered right to reshuffle officers in the civil and police services. Rarely has this assumption been challenged. The Supreme Court’s ruling reinstating T.P. Senkumar, who was replaced as head of the Kerala police soon after the Left Democratic Front assumed office last year, reinforces its 2006 judgment. It limits significantly the discretion enjoyed by the political executive in effecting transfers at whim. Expanding on the import of thePrakash Singh verdict, in which the court had given directions to insulate the police from external pressure and political influence, a two-judge Bench has delineated the limits of the State government’s subjective satisfaction in removing the DGP. No longer is it valid for the government to justify a DGP’s removal on the vague ground that it has reached a prima facie conclusion that the public is unhappy with the efficiency of the force. The government’s ‘subjective satisfaction’ about the state of affairs must be based on “cogent and rational material”, the court has ruled. On going through the record, the Bench found there was no material adverse to Mr. Senkumar, except some opinions and views.
The verdict is undoubtedly a political setback to Kerala’s LDF government, which is already battling controversies caused by the words and deeds of a few ministers. The Pinarayi Vijayan government had defended its transfer of Mr. Senkumar by citing dissatisfaction among the public about the efficiency of the police following the Puttingal fireworks tragedy in Kollam and the murder of a Dalit woman named Jisha in April 2016. However, the court noted that these issues had “suddenly resurfaced” more than a month after the incidents — that is, after the present regime assumed office. In a telling indictment, the court has observed: “This might perhaps be a coincidence, but it might also be politically motivated…” The LDF government must immediately abide by the order to reinstate Mr. Senkumar, whose original two-year tenure was to have ended on May 21, 2017, and who is due to retire in June. However, the legal import of the verdict is not confined to Kerala. State governments would do well to implement the measures outlined in Prakash Singh, the message of which was that the police must be answerable to the rule of law and not to political masters. In particular, every State should set up a State Security Commission — Kerala has one — to both guide the police and decide on top police appointments and transfers.

To become a pan-India party, BJP must respect India’s diversity: Rajdeep Sardesai | Opinion. . .

There are many joys of living in Goa, but its gastronomic pluralism is easily one of the tiny state’s biggest attractions. On the day that RSS chief Mohan Bhagwat was calling for a national law against cow slaughter, I was having dinner with a Goa BJP minister: On the menu was fish curry, pork sorpotel and beef chilly fry. When I asked the minister how he interpreted Bhagwat’s remarks, he smiled indulgently: “Bhagwatji lives in Nagpur, we live in Goa. One India, many diets, now enjoy the food!” This was, to borrow Hyderabad MP Asaduddin Owaisi’s remark that went viral, truly an example of “yummy-mummy” beef politics.

The truth is, the BJP in Goa is a very different party to its national avatar: A Manohar Parrikar has less in common with his Haryana counterpart, Manohar Lal Khattar or with Uttar Pradesh’s Yogi Adityanath, than he does with his political rivals in Goa. Of the 13 BJP MLAs in Goa, seven are Catholics: The BJP would have been reduced to a rump if its local unit had not reached out to the minority Catholic community. In fact, it was a conscious attempt to bridge the divide with the Catholics that enabled Parrikar to lead the BJP’s first majority government in 2012. Much water has flown under the Mandovi river since then, but the fact is, Goa is the only state where the BJP has at least partly succeeded in breaking its Hindu majoritarian image.

This is at one level a reflection of demographic compulsions: At around 22% of the state’s population, Goa’s Catholics are simply too large and influential to be neglected. The BJP can get away by not giving a single Muslim a seat in the country’s most populous state, they cannot risk that prospect in Goa. In a UP, the BJP can seek to marginalise the state’s 18% Muslim population by consolidating its Hindutva constituency, but in Goa the nature of Hindu-Catholic inter-dependence is too deep-rooted for it to be swept away by any single religious ideology. In a Haryana, the BJP can come up with stringent anti-cow slaughter legislation, but they cannot do so in Goa because vote-bank politics works against such an imposition.

Indeed, as the BJP attempts to geographically expand and become a true pan-Indian party, it will be confronted with the limitations of its Hindutva belief system in a multi-cultural society. The party’s outreach in the North-east, especially in states with large tribal populations, cannot be built around its ideological core issues like Ram mandir or cow slaughter: Here, the party has attempted to create a loose federal power-sharing arrangement where Centre and State share resources in a coalitional system of mutual benefit. There is no ideological glue that binds the BJP governments in Manipur and Arunachal Pradesh with the Modi regime in Delhi apart from a desire to capture power at all costs.

A similar dissonance can be witnessed as the BJP tries to expand its footprint south of the Vindhyas into states like Kerala and Tamil Nadu. In Kerala, there have been a chorus of local BJP voices who have distanced themselves from the traditional party narrative on beef. Already, the party has been embarrassed by its former MP and RSS ideologue, Tarun Vijay’s comments on dark skin, a classic example of how a north Indian ‘Hindu-Hindi-Hindustani’ mindset is unable to embrace the Dravidian identity easily.

Which is also why it is not a morally and intellectually bankrupt Opposition but the sheer diversity of India that offers the biggest challenge to any attempt to impose a religio-cultural homogeneity across India. The RSS may visualise a Hindu rashtra but the BJP cannot afford to be similarly cavalier with the country’s republican constitution. Nor can a Narendra Modi, with his neatly cultivated ‘inclusive’ image, be seen to publicly align with divisive and violent gau-rakshak groups.

The Ambedkarite constitutional vision revolves around the notion of individual rights and freedoms that recognised India as a land of multiple identities. It is this vision that saw cow protection being placed in the directive principles and not in the fundamental rights guaranteed by the Constitution: The decision was a compromise arrived at after a vigorous debate that eventually accepted that while the cow is a sacred animal for millions of Hindus, India cannot be seen as a ‘Hindus-only’ nation.

In a discourse in June 1947, Mahatma Gandhi reflected this sentiment when he said: “How can I force anyone not to slaughter cows unless he is himself so disposed? It is not as if there are only Hindus in the Indian Union, there are Muslims, Parsis, Christians and other religious groups too.” Seventy years on, India is being asked to choose again: Between the Mahatma and the RSS sarsanghchalak’s vision of a ‘new’ India.

Post-script: A day after consuming delicious beef chilli fry in Goa, I drove into neighbouring Maharashtra, also ruled by a BJP government. Here, I could now be fined Rs 10,000 and spend five years in jail for possession or sale of beef unless I can prove the meat was imported from outside Maharashtra. Can anything be more absurd and patently hypocritical?

Why PM Narendra Modi would love to see a united Opposition in 2019. . .

The Bharatiya Janata Party’s national executive meeting this weekend in Bhubaneswar underscores its intent, and optimism, to conquer the east and the south, where regional parties dominate the political landscape. The two-day mega show in the capital of Odisha, a state that Prime Minister Narendra Modi is trying to project as a “laboratory” for his “development agenda”, will likely push regional parties to close ranks. It comes weeks after the Hindu nationalist party, with a landslide victory in Uttar Pradesh, demonstrated it can take on regional parties in their bastions.

At this point, the BJP is on a roll; and its leader, PM Modi, appears unstoppable from returning to a second term in 2019. But two years is a long time in politics. A lot can happen between now and the next Lok Sabha elections, just as it did in the first three years of Modi’s tenure. Shortly after the BJP swept to power in May 2014, it suffered a humiliating defeat in the Delhi state polls. Months later, Nitish Kumar and Lalu Prasad succeeded in forging a winning front in Bihar. Also around this time, Rahul Gandhi’s narrative of Modi’s being a “suit-boot ki sarkar” was beginning to find takers. In no more than two years of winning a historic mandate, Modi had begun to lose grip, until Assam happened. The BJP was quick to learn the mistakes it had made in figuring out the arithmetic of caste and religion in Bihar. It was quick to cash in on the Assam victory and turn the tide with spectacular wins in elections that followed – from local body elections in Mumbai and Odisha to the big-ticket fight in Uttar Pradesh.

Along with its political goals, BJP must also have a plan to stimulate job creation. . .

It is to serve these goals that Mr Modi gave a new gloss to the BJP’s OBC outreach. The political resolution adopted at the weekend conclave in Bhubaneswar, therefore, highlighted the government’s recent move to accord the National Commission for Backward Classes a constitutional status.

The OBCs account for nearly 52% of India’s population whose support can make or break a party. These social groups gradually aligned themselves with regional players as the Congress grew weaker. The rout of Mayawati and Mulayam Singh Yadav in Uttar Pradesh gives the BJP a hope that the OBCs were mobilising behind the party. Mr Modi’s plan also includes reaching out to backward Muslims. He reiterated the BJP’s stand on banning triple talaq, a move largely aimed at winning over women from the minority community. The OBC and Muslims outreach is also aimed at weakening the regional players, particularly in northern and eastern India, who thrive on these vote-banks

Prime Minister Narendra Modi, however, sought to raise the bar, urging party leaders to aim big and expand — ideologically, geographically and socially. He set new targets: Winning in states that go to polls between now and the next Lok Sabha elections in 2019; winning in those 120 Lok Sabha seats that the BJP has never won; and winning the support of those communities that have shunned the party in the past.

Along with its political goals, BJP must also have a plan to stimulate job creation. .. . .

The two-day meeting of the BJP’s national executive ended on Sunday on a high note. A new level of confidence among the party’s rank and file marked the conclave that came close on the heels of the its emphatic victory in Uttar Pradesh and Uttarakhand, and its success in retaining Goa and wresting Manipur from rival Congress.

Prime Minister Narendra Modi, however, sought to raise the bar, urging party leaders to aim big and expand — ideologically, geographically and socially. He set new targets: Winning in states that go to polls between now and the next Lok Sabha elections in 2019; winning in those 120 Lok Sabha seats that the BJP has never won; and winning the support of those communities that have shunned the party in the past.

A progressive framework for macro-economic policy. . . . .

The idea of a fiscal council has been proposed at a time when the country has created a monetary policy council to decide the policy rate and a GST council to administer the new unified Goods and Services tax regime that will come into effect later this year. India is clearly moving to a new and progressive framework for macroeconomic policy.