Commentary by Eoin Treacy

Indian Railways – Thanks to a subscriber for this report from Deutsche Bank highlighting the potential for infrastructure to become a positive catalyst for growth in India. The full report is posted in the Subscriber's Area but here is a section:

As per Economic Survey, 7768 hectares (73%) of the 10,703 hectares of total landrequired for the corridors has been acquired, and the entire land acquisition process is expected to be completed by the end of 2013. Recent press statements have suggested 86% of the total land has been acquired, and for contracts that will be awarded this year, 98% of the land has been acquired A brief snapshot of the same till March 2012 is given in Figure 19

The DFC project (eastern and western) is expected to involve a project cost of over INR950bn and to be funded by a combination of: (a) debt from bilateral/multilateral agencies, (b) equity from Ministry of Railways, and (c) public-private partnership.

The funding for the DFC is structured so that the entire equity will be funded by Indian Railways from the budgetary support of the government to Indian Railways. The debt funds, to the tune of 73%, will be financed by JICA (Japanese International Corporation Agency) for the western corridor and World Bank for a large portion of the eastern corridor.

In addition, the government from time to time has ensured that adequate equity funding is made available for the corridor project. As late as in the budget speech of 2013-14, the Finance Minister indicated, “the Delhi Mumbai Industrial Corridor (DMIC) project has made rapid progress….In order to dispel any doubt about funding, I wish to make it clear that we shall provide, if required, additional funds during 2013-14 within the share of the Government of India in the overall outlay for the project”. To ensure that the committed liabilities for debt servicing of JICA and World Bank loans are taken for the DFC projects, the government has also decided to create a corpus by setting up a debt service fund. In FY14, the government announced an allocation of INR41.63bn to the fund for repaying the loan taken from these agencies.

My view – India's greatest strengths lie in the ingenuity of its entrepreneurs and size of its domestic consumer base relative to GDP. Some of its greatest challenges have been in eliminating bottlenecks in bureaucracy, infrastructure, logistics, agriculture and retailing. It is therefore heartening that movement has been seen in all these areas over the last year despite ambivalence towards the market on behalf of some international investors.

Infrastructure is where India's greatest potential for positive news lies, not least because it is coming from such a low base. At a talk I gave for the CFA Institute in San Francisco last year I spoke about patterns of development and sought to contrast the grid system evident in so many US cities with the more ad hoc, privately- led growth that characterised London's evolution during the Industrial revolution. The PowerPoint for this talk can be found in the Presentations section.

This section continues in the Subscriber's Area.


Economic Prospects for the Long Run – Thanks to a subscriber for this speech delivered by Ben Bernanke at a graduation ceremony at Bard College on the 18 th . Here is a section:

Moreover, even as the basic technologies improve, the commercial applications of these technologies have arguably thus far only scratched the surface. Consider, for example, the potential for IT and biotechnology to improve health care, one of the largest and most important sectors of our economy. A strong case can be made that the modernization of health-care IT systems would lead to better-coordinated, more effective, and less costly patient care than we have today, including greater responsiveness of medical practice to the latest research findings.Robots, lasers, and other advanced technologies are improving surgical outcomes, and artificial intelligence systems are being used to improve diagnoses and chart courses of

treatment. Perhaps even more revolutionary is the trend toward so-called personalized medicine, which would tailor medical treatments for each patient based on information drawn from that individual's genetic code. Taken together, such advances could lead to another jump in life expectancy and improved health at older ages.

Other promising areas for the application of new technologies include the development of cleaner energy--for example, the harnessing of wind, wave, and solar power and the development of electric and hybrid vehicles--as well as potential further advances in communications and robotics. I'm sure that I can't imagine all of the possibilities, but historians of science have commented on our collective tendency to overestimate the short-term effects of new technologies while underestimating their longer-term potential.

My view – We might expect a speech delivered to graduating students to be enthusiastic about the future. However, I share Mr. Bernanke's optimism about the potential productivity gains that are likely from the golden age of technological development we are living through.

As he mentions, financial markets, in their efforts to discount future cash flows, tend to exaggerate how quickly products can be brought to market. This often causes new companies to become overvalued before the market's correcting function kicks in. From a behavioural perspective, we can also conclude that when the majority are most pessimistic about the future, it is generally a good time to be contrarian.

This section continues in the Subscriber's Area.

Today's interesting charts – We live in particularly interesting times with a great deal of discussion on the medium-term outlook. Price action represents reality.

Israel – has been ranging with a mild upward bias, mostly below 1100, since October and pushed above that level again yesterday. A break in the progression of higher reaction lows, which coincides with the 200-day MA near 1000, would be required to question potential for additional upside.

This section continues in the Subscriber's Area.


Email of the day (1) – on using Fullermoney's charts in reports and blogs:

“As a paid subscriber, am I allowed to copy images of different charts that I follow in the chart section of your website and paste them into documents that I write for colleagues and clients?

“Also, am I allowed to copy chart images and post them on a website, as long as the fullermoney.com logo is still clearly displayed on each chart? Thanks”

My comment – Thank you for this request. We are happy for subscribers to use our charts in their own publications or blogs provided the appropriate attribution is also included.


Email of the day (2 – on additions to the Chart Library:

"Please could you add the following securities to the chart library:
*Forbo (Swiss share)
*Global X Top Guru Holdings Index ETF (GURU)

"Many thanks and best regards,"

My comment – Thank you for these suggestions which have been added to the Chart Library.

Please note - David is on holiday and will return to the office on June 4th.

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