Retail FDI drama continues..

Political logjam continues over retail FDI issue in Parliament. Indian government had finally woken up from its slumber and cabinet passed one of the   boldest reforms in the history of modern India. Although, its timing may be questionable (just before UP assembly elections). I think, government might have been forced to act on reforms front on account of sharply depreciating rupee, ballooning fiscal deficit and policy paralysis criticism from every corner.  For once, I won’t criticize the Congress government. Opposition led by BJP have been protesting against this move. Left which is fighting survival battle has joined hands with untouchables (BJP), as they fondly call them, in stalling parliament proceedings during the winter session. It’s a shame that the world’s largest democracy parliament has not been allowed to function on account of this reform. Instead of discussing the pros and cons of the issue, opposition just wants voting. They are well aware that with allies (TMC, DMK) deserting them on the issue, the government is on a sticky wicket. If voting is done in parliament, government might not have majority on its side.

Retail stocks led by Pantaloon retail rallied hard on account of this FDI reform. Pantaloon was hammered out of shape after its Q2 FY12 results. Short covering and new longs helped India’s largest retailer to rally hard. If news reports are to be believed Pantaloon is in talks with French retailer giant, Carrefour for JV. In long-term this JV will surely help Pantaloon and improve its valuations. But if you read about country politics, then you might have been skeptical about the sharp rise in retailer share price. These kind of reforms are not difficult to pass and especially just before important UP elections. Lot of chief ministers have also raised their voice against allowing foreign retailers setting shops in their respective states. Traders are powerful lobby in this country and they will also protest. I have sold December series OTM calls and puts of Pantaloon retail (I have covered some calls after share price decline). Eventually this bill will pass and Pantaloon share price will rise, but not very sharply (http://www.business-standard.com/india/news/too-early-to-celebrate-for-pantaloon-retail/456608/). Neither its share price will fall very sharply now, as I don’t think this FDI will be rolled back. It might take some time but eventually this reform will be passed. In fact, on very sharp declines, I am looking to buy Pantaloon retail shares.

Why Congress government rocks..

Yesterday, I read an article on Kirtan’s blog (http://www.insearchofnirvana.in/) on politicians. Sometime back, I used to share same level of frustration about politicians but not anymore. As an option writer Indian government is my best friend because they allow me to play on time decay. They will never be able to take any decisions and even if they will, it would be too late in the day. As per congress government, it is extremely difficult to decide on what is of  national interest in Cairn-Vedanta deal. After several months of delay, they are yet to decide on the deal with ball moving from GOM to CCEA and back. I could easily sell Cairn India 320 Put in April with confidence that government won’t take any decision soon.

The Government is too busy with Baba Ramdev and they don’t have time to decide on diesel price hike. One can easily create short strangle in Oil marketing companies. I haven’t done that, since my plate is currently full with Sun TV, R Comm, Tata Motors. After destroying investors wealth in Oil marketing companies, government is all set to do the same with ONGC by increasing its subsidy share just before Follow-on Public Offer (FPO).

They still cannot decide on the best way to dilute stake in Public Sector Units (PSU’s). FPO has become a dreadful word which, if associated with any PSU, becomes target of bears and option writers like me. I don’t think FPO is the best way to dilute stake in PSU’s with government not getting best possible value. I made money by selling SAIL 180 Call in May, 160 Calls in June. I missed the chance in Power Finance Corporation (PFC).

When UPA got clear mandate in 2009, market gave it a big thumbs up by rallying 10% plus. Market thought, with comfortable mandate, government would be able move faster on reforms. After 2 years, we are still waiting for any kind of reforms with many important bills pending. With BJP ruled states opposing, one important tax reform Goods and Services Tax (GST) can’t find its way. GST has the potential to add several bps to India‘s GDP growth. Next 1-1.5 years is the best possible window for government since as they go into the election mode.

Our Finance Minister(FM) still says investors should not be negative on India. I agree, but that would be because of private companies and not the government. I wish the government was a listed entity then one could have entered into Pair Trade (Short government, Long private corporations). Congress government rocks!!!…please keep adding some more scams to your already long list!!!!