Few Stock Picks

Before i share few stock ideas i would like to draw the blog readers attention to the fact that all the stocks mentioned as part of my last post "Nuclear Deal ---Decoding the Mystery" have done exceptionally well . LnT , Bhel , Walchandnagar Industries(locked in 5% upper freeze since past few days !), etc rose 10-35% in the immediate aftermath of UPA winning the trust vote . I must hasten to add that with decks getting cleared for deal investors must not only hold but add at declines all the stocks i have mentioned in my last post . All of them would give a good upward surprise in medium to long term . Nuclear Deal will open new vistas for manufacturing industry and it will have the effect of transforming the balancesheets of major indian companies . I'll update more about it some other day.

Meanwhile i'll share some other gems

Divis Laboratories(CMP: Rs 1,393): An established player in the generic active pharma ingredient (API) space and leader among Indian contract research and manufacturing services (CRAMS) players, the company has attained market leadership in several key products. It has 20 of the top 25 innovator companies as its client in CRAMS segment. It recently commissioned a nutraceutical facility for the $1 billion global market, which has high entry barrier in the form of complex chemistry skills.

Sun Pharma(CMP: Rs 1,414): With strong earnings visibility and industry-leading earnings before interest, taxation, depreciation and amortisation (EBITDA) margins, Sun Pharmaceuticals has one of the best business models among the peers. The company's business in the US is also maturing, with windfall gains expected from 180 days exclusivities apart from a healthy product pipeline.

Aban Offshore(CMP: Rs 2,695): The largest offshore rig operator in India, the company is ideally placed to capitalise on exploration and production (E&P ) boom. It renewed contracts with ONGC at a sizeable premium, boosting its top-line visibility. It will deliver four jack-up drilling rigs in FY09 and is set to expand its fleet to 21 vessels . The addition of drill ships will reduce dependence on jack-up rig operations and attract premium rates due to low availability.


Tata Steel(CMP: Rs 618): It is the world's sixth largest steel company. In India, it has just raised its crude-steel capacity from 5 million tonnes per annum (tpa) to 6.8 million tpa, of which 60% is rolled into flat products and the rest sold as long products. It also sells ferro alloys, tubes, bearings and some mineral products. TSL India's raw material security and operating efficiencies put it among the lowest-cost producers globally. Its focus on high-value products and branding helps it earn high EBITDA margins of 40%. It should benefit from the likely rise in domestic prices in August this year.


Reliance Industries(CMP: Rs 2,147): The company has interests in E&P , refining, petrochemicals, textiles, telecom, electricity, financial services and infrastructure. Its petrochemicals business is vertically integrated with an output of around 11 million tons. It also operates India's largest and most complex refinery with a capacity of 33 million tons. It is expected to start RPL and KG Basin production from Q3 FY09, which is expected to drive growth for the company. Also, it plans to invest $7.5 billion on semiconductor and polysilicon facilities at Jamnagar. Looking at higher crude prices and strong gross refining margin (GRM), this company has strong future prospects.


GSK Pharma (CMP: Rs 620): The company has a leadership position in the malted beverages space, strong set of core brands (Horlicks & Boost) and rich parentage (new launches from global portfolio). These are expected to help GSK sustain robust growth. Moreover, surplus cash and investments of Rs 400 crore coupled with attractive valuations make it one of the best value plays in the consumer domain.


PVR (CMP: Rs 174): The company's superior management bandwidth , integrated business model and strong set of properties (in terms of location) make it the most preferred play in the movie exhibition space. Moreover, its entry into new allied businesses such as food courts and bowling alleys coupled with recent dilution in its movie production business is likely to lead to re-rating of the stock.


Bartronics (CMP: Rs 179): The company operates in the automatic identification and data capture (AIDC) solutions segment and is set to leverage the strong growth expected in the retail sector. It is the only smart cards manufacturer in India and this segment is expected to surge on strong demand from the telecom, banking and government sectors. In the wake of strong growth prospects of the company, the stock offers great value.


Jain Irrigation (CMP: Rs 464): The company is a proxy play on the increasing government focus on agriculture and micro irrigation and the booming infrastructure in the country. It would also benefit from the acquisitions it made over the last couple of years, which will be in addition to the company's organic growth initiatives. Thus, the long-term prospects of the company are robust.


Piramal Healthcare(CMP: Rs 310): The company is an early entrant into the CRAMS space. Over the last couple of years, it has consolidated its presence in the segment, which now contributes 50% of its overall revenues. Considering its robust pipeline, the company is expected to post robust growth in the years to come.

IPCA Laboratoriesboratories (CMP: Rs 540): The company's focus on branded formulations business and emerging economies is expected to be its key growth driver. New products launches in domestic and UK markets coupled with supplies to new emerging economies and US markets should lead to a compounded annual growth rate (CAGR) of 17% in revenues and 22% in profits over next two years. It is expected to clock an earning per share (EPS) of Rs 69.7 and Rs 82.6 for FY09 and FY10, respectively. Currently, the stock is trading at 7.5x FY09 and 6.2x FY10 earning estimates.

Numeric Power Systems (CMP: Rs 601): The company, a leading manufacturer of uninterrupted power supply (UPS) systems and power conditioners in India, commands 60% share in IT and 82% share of the ATMs. The strong demand for company's products (India has peak power deficit of 16.6%), increased focus on high margin equipment servicing and significant international presence make NPSL a fast-growing multinational in the power management solutions. The stock is attractively valued at 6.5x FY09 EPS of Rs 94.2.

Indian Overseas Bank (CMP: Rs 91): The company is a leading South Indiabased bank with a strong balance sheet. IOB has a healthy current and savings account (CASA) ratio of 33.5% and strong return ratios, with a return on assets (RoA) and return on earnings (RoE) of 1.3% and 28%, respectively. The net profit for FY09E and FY10E is expected to be Rs 12.42 billion and Rs 13.91 billion, respectively , resulting in an EPS of Rs 22.8 and Rs 25.5 for FY09E and FY10E, respectively.


LIC Housing Finance (CMP: Rs 306): The company is expected to continue to benefit from the growing demand for housing. A lower mortgage/GDP ratio of 6% offers huge potential. The company expects 22% year-on-year (yoy) business growth to Rs 268 billion and 20% yoy growth in net profit to Rs 4.61 billion for FY09. Improving asset quality and strong return ratios augur well for LICHF.


Bharat Electronics (Rs 1,154): The company is the premier defence contractor for the government. Over the years, the company has developed several competencies in the area of defence electronics. It is expected to benefit from the defence offset clause that the government mandates for import of defence equipment above Rs 3 billion. The order backlog is comfortable at Rs 94.5 billion and equivalent to over two years of FY08 revenues. The modernisation of the Indian defence sector is expected to throw significant opportunities for BEL.

Nuclear Deal --- Decoding the Mystery

Today India tryst with destiny would begin at the sanctum sanctorum of Parliament when members from wide political spectrum cast their vote either as pro deal or anti deal . It would be worthwhile to see how things have spanned out on this issue and most importantly what are the possible gains / losses with an eye on economics and markets



Power play :

July 2005 - Prime Minister Singh and US President George W Bush agree to a civilian nuclear co-operation deal

March 2006 - Two countries agree on India’s plan to separate its civilian and military nuclear reactors

Dec 2006 - US Congress approves the deal. Approvals from Nuclear Suppliers Group, International Atomic Energy Agency and a second time by the Congress are still needed

Dec 2006 - Bush signs the law approved by Congress, which makes changes to the US Atomic Energy Act

July 2007 - The two countries announce finalisation of the deal

Aug 2007 - Text of the bilateral pact, called the 123 agreement, is unveiled

Aug 2007 - Left parties slam the pact and ask the government to suspend it saying it compromises India’s sovereignty and imposes US influence

July 4, 2008- Samajwadi Party with 39 MPs agree to support the UPA on the deal

July 8, 2008 - Left withdraws support to the UPA; Govt approaches IAEA

July 22,2008 - Trust Vote on Nuclear Deal in Parliament

GAINS---> 1.It will help India meet its rising energy demands by reversing US sanctions, imposed after nuclear tests were carried out by India in 1974 and 1998.

2.India will get access to US civilian nuclear technology.

3.The deal guarantees Indian fuel supplies for its civilian programme, and allows it to re-process spent fuel.

4.It could spur India’s economic growth as India’s objective is to increase the production of nuclear power generation from its present capacity of 4,000 MW to 20,000 MW in the next decade.

5.It could usher in a new era of nuclear power in India, freeing the country from heavy dependence on fossil fuels.

LOSSES --->The deal ties India’s future foreign and energy policy closely to the US. India will now classify 14 of its 22 nuclear facilities as being for civilian use, and thus open to inspection.Further the fuel supply is limited till India doesnt conduct another test .

Decoding the nuke jargon ---

Nuclear Deal : A nuclear deal, announced in July, 2005 and finalised in March, 2006, would allow the United States to sell nuclear material to India and, in may end India’s nuclear isolation. India is self-sufficient in thorium but possesses a meagre 1% of the global uranium reserves. The deal will help India obtaining a steady supply of uranium required for running the present nuclear programme

123 agreement : Section 123 of the United States Atomic Energy Act of 1954, titled “Cooperation With Other Nations”, establishes an agreement for cooperation as a prerequisite for nuclear deals between the US and any other nation. Such an agreement is called a 123 Agreement

Hyde Act : Henry J Hyde United States-India Peaceful Atomic Energy Cooperation Act of 2006 is the legal framework for a bilateral pact between the United States and India under which the US will provide access to civil nuclear technology and access to nuclear fuel in exchange for International Atomic Energy Agency-safeguards on civilian Indian reactors

NPT : Signatories to the Nuclear Non-Proliferation Treaty (NPT) are granted access to civilian nuclear technology from each other as well as nuclear fuel via the Nuclear Suppliers Groups in exchange for International Atomic Energy Agency-verified compliance of the NPT tenets. India, Israel, and Pakistan, however, have not signed the NPT.

Political Play on Nuclear Deal :

One of the great things about Indian democracy is its combination of predictability and surprise. In its working, it is a bit like its wiser cousin the Bollywood of the last three decades. In an ordinary sense, it operates on stereotypes of corruption, banality and cynicism. The ordinary citizen almost despairs whether this system will ever change. He also realises that it is both open and venal, which in democratic terms may be more creative than a world that is aristocratic and closed. Such a politics begins with the simple assumption that there are no permanent enemies, just permanent interests. However, it goes beyond this Machiavellian premise to realise the difference between an adversary and an enemy. In politics, as political scientist Chantal Mouffe said, the man you battle with is not an enemy, someone you have to defeat, eliminate or exterminate. He is an adversary. Adversorial politics is more playful, more unpredictable. It is competitive but allows for negotiation, but it has the negotiability of the bazaar and not the market. It is not impersonal, it is based on old memories, it prefers the logic of coalitions, a win-win situation rather than a zero-sum game. It seeks system stability rather than regime crisis. Politics is based on continuous re-readings of the situation where text, pretext and context are convertible. For instance, you cannot quite figure out whether the nuclear deal will go through to solve a political issue in UP or vice versa.

Values, exaggerated to the extreme as ideology, may destabilise politics. In fact, the politics of non-negotiability is seen as anti-political. It is not that values are not important. It is just that they have to be articulated in the right way, at the right moment. They must not sound intractable or fundamentalist. It is not that people do not know the difference between good and bad, only they feel the necessity for their coexistence. It is a covert plea for the existence of multiple frames and viewpoints. One can personally grade or prioritise them but one has to allow for some notion of plurality. The politics of untouchability of groups or functions cannot threaten system stability. Electoral politics, in that sense, operates between the homeliness of the bazaar and the nation as home. One immediately asks two questions. What does this mean for the liberal market imagination? Secondly, what does it hold for the future of values? It is not an open domain where everything is for sale. It is a grid, a gradient where negotiation is possible, where the same good is valued differently, where personal benefits derive from public goods, but no one denies the necessity of the public good. It is here that values come in because even interests and deals need a framework of value, a sense of the bigger community. A nuclear deal is not passed as a nuclear deal. That would be too profane. A nuclear deal is an affirmation of national interests, of science, of our dignity as a nation

There is a bit of hypocrisy here but it is a hypocrisy which appeals to stability, which claims a loyalty if not an adherence to values. Of course, there is no debate about the essential qualities of nuclear energy. Sixty years of debates on history of the peace movements, the memoirs of the Pugwash moment, the Bulletin of the Atomic Scientists could be non-existent. Our politics is not contending that what it is good for GM, is good for the country, only that if the nuclear deal is good for the country, it may be good for the party. It is a lowest common denominator politics but within the democratic framework .

Nuclear Deal could benefit over 400 companies !

While the nuclear deal runs the risk of getting nuked, there exists a host of homegrown companies, which have a lot to gain from the controversial 123 Agreement. The pro-deal government has recommended a roadmap for meeting the country's energy requirement for the next 25 years and has set an ambitious target of 20,000 MWe (unit of nuclear power) by 2020 from the current 3,900 MWe. If all goes well, it will open up a sea of opportunities for various sectors involved in making equipment for nuclear power plants. India has plans to set up 15 plants over the next 20 years and so the pursuance with US to import more advanced nuclear power technology may better the standards of manufacturing for smaller players in future. India has a total installed power generation capacity of 1,44,564.97 MW. Out of this, 64.6% capacity is achieved through thermal fuel, and hydroelectric power contributes 10.5% while nuclear energy makes up for a mere 2.9%. Nuclear power is considered to be economically competitive at competitive tariffs. It is estimated that over 400 companies could get a chance to participate in building power plants directly or indirectly.

Among them is Bangalore-based Avasarla Technologies Ltd that's gearing up to increase its production capacity multi-fold, and also readying for a possible JV with a US-based technology group. Half of their product portfolio caters to nuclear power plants requirements. If this deal happens, they are expecting significant business orders once the government decides upon the agreement . The Rs 160-crore company has supplied coolant channel assembly, fuel transfer equipment, reactivity mechanisms and calandria—a vessel that holds the uranium in the reactor core—to some of the nuclear power plants in the past. Further, the company is also adding few more products like fuel missions, radiation shielding windows, plugs to meet future requirements.

Walchandnagar Industries-- The engineering major has supplied critical components like the calandria to most of the nuclear power plants in India. The company has been waiting for the government to decide upon the classification of the orders for supplying the parts.

Rajkot-based Kiwi Pumps is in full swing to talk with Walchandnagar Industries, L&T and BHEL for making spares and small components. The company has been exporting some casting parts to power equipment majors for the last few years

Hyderabad-based SEC Industries expects to scale it up to the volume and sophistication levels required by the plans that are going to come into operation post-deal. The company makes equipment for some of the most sophisticated weapons, including the Prithvi missile

Power plants also need construction companies, and players in this sector are expecting an array of big orders to erect nuclear power plants. HCC, which has executed four nuclear power plants in India and is working on another two, is hopeful of adding few more to its portfolio. Soon after the news of Left parties withdrawing their support, some top officials of the company had met government representatives. The company claims to have executed 60% of construction related work for in nuclear plants in India. Nuclear Power Corporation of India Ltd (NCPIL), too, supports the growth of small manufacturing players in this area. It's waiting for a working model between the US and India. US companies helping to set up the plants will be looking to work with Indian companies as the labour cost will be a third.

Shree Venkateshwara Engineering Industries, felt only too happy when the government decided to move ahead with the nuclear deal. This firm mostly manufactures various products for satellite launch vehicles and is now focusing on nuclear power plant equipment. Most power plants will supplement adequate power supply in the power-prone areas like AP and generate employment in smaller regions wherever it will be set up . The Rs 22 crore company is expecting to double its business in the next two years by bagging some orders from NCPIL. It has supplied coolant systems and main critical sub-assemblies to NCPIL.

As per industry sources, L&T is likely to get mainstream nuclear projects. However, BHEL is looking for a tie-up to manufacture equipment of up to 700 MW and 1,500 MW. NTPC is looking at setting up 2,000 MW nuclear plants and is in talks with GE Energy for technology and fuel. When all these major giants will celebrate on getting big orders, small players have enough reasons to rejoice too. There is an urgent need in India for capital to build its infrastructure and manufacturing base.

Steel players who have been witnessing a tough time on price-rise and exports ban for sometimes may expect a larger chunk of supply-orders from a nuclear power surge. Ahmedabad-based Suraj Stainless Steel supplies LP/HP heater tubes to major fabricators that are used in nuclear power plants, is all set for expansion. Suraj Stainless did Rs 191 crore in turnover last year

Rolta India has a substantial market share in engineering, safety design and project management services for nuclear power plants. The company expects to add few more projects after this deal. The government plans to spend $50-60 billion on upcoming power projects by 2020. The company expects to enhance their designing capacity in the years to come to meet the growing prospects in such projects.

The market capitalisation for smaller companies may go up at any point of time. As they are showing interest in working on bigger projects, chances are that they may see an upswing in their individual stock prices

At the end I would like to state it clearly that I'm a staunch supporter of this deal as this is the best that any goverment could get from USA . Never before has any american goverment bend so much to accomodate our interests . The oppponents to deal are doing a great disservice to nation by going hammer-and-tongs against it . The NDA gov which all along flaunted its proximity to the then USA regime at its time is now opposing the deal just for mere political gains , when the fact is that its very own security advisor Brijesh Mishra has come out in support of deal ! As for Left , they still live in Karl Marx-Lenin-Stalin era . Its an open secret that comrades are more loyal to China-Russia than they are to their own country . Its high time our political class does things that benefits India , things that ensure our energy security in times of impending global mayhem with regard to clean energy resources .

Nifty Strategies

The Nifty is swinging 5 per cent daily. But net changes in price close-to-close are not so large due to sharp intra-day trend reversals.

The high volatility is reflected in the VIX which hit record levels and is running at above the danger mark of 30. There are interesting patterns visible in derivatives data.

In the past two sessions, open interest in Nifty futures has reduced by over 17 lakhs. This suggests under-margined day-traders are finding the trends too volatile to cope.

While overall trading volumes are on the low side, they haven't diminished alarmingly. So we have a situation where players with adequate margins are still interested in the game. The FII perspective hasn't changed, since they continue to sell equity and to hold around 40 per cent of all derivatives OI.

Long-term options seem to have well and truly taken off as a product because 23 per cent of all Nifty option OI is parked in December 2008 and beyond. Much of that OI is in three specific contracts. One is the December 2008 3800p, and the other two are the Dec08 5000c and Dec08 5000p. The December 2008 option-chain gives us a perspective on 6-month expectations, since the liquidity ranges between the 3600p and the 5000c.


In the index futures market, the Nifty, the BankNifty and the CNXIT futures are all trading at significant discount to respective underlyings. This is also normally an indicator of bearishness. The Junior and Midcap 50 are trading at premiums to underlyings but these two futures are both illiquid. The BankNifty went through a bounce that seemed to terminate on Friday. The CNXIT has gone exceedingly bearish.

The overall Nifty option PCR in terms of OI is in neutral territory at about 1.2. But the July PCR is at 1.1 which is heading into bearish terrain. About 6 lakh July puts were cashed on Friday. The low PCR to my mind, suggests early week bearishness - that is, a continuation of the bearishness of Friday afternoon may be expected on Monday and maybe Tuesday.


The July put option chain has a lot of OI at 3800p and above but it dries up completely below 3700p. If the 3900 support does break and the Nifty swings below 3700, there could be panic because this is outside expectations. One possible trigger could be if the UPA loses the confidence vote, which would lead to political instability.

On the upside, the call option chain has massive OI locked in from 4200c upwards. That will be a resistance. If there is positive sentiment and a breakout past 4200, the market is likely to move till 4400. The bulk of call OI is between 4200 and 4600 and one would say that 4600 is the outside limit of expectations in this settlement


A conventional bullspread of say long 4200c (65.8) and short 4300c (38.4) offers a handsome risk:return ratio of a maximum possible profit of 72 versus a cost of 28. A beaspread of long 4000p (138.75) and short 3900p (101.6) costs 37 and pays a maximum of 63. Given relative distance from money, the risk:reward ratios balance off. If the market does yo-yo both spreads could be profitable, perhaps even in successive sessions.

Apart from conventional bullspreads and bearspreads, we can try wide strangles that hope to exploit a breakout. For example, a long 4300c (38.4) and a long 3800p (73.2) costs a combined 112. Unfortunately there is no liquidity below 3700. If we lay off with a short 4500c (12.6) and a short 3700p (52.2) the net cost drops to around 47. That would offer breakeven at 4347 and 3753. The maximum return is asymmetric - its 53 on the downside and 153 on the upside.

Market Summary

A small recovery was followed by another downturn in a very volatile market. The Nifty ended up 0.82 per cent at 4049 points after hitting highs of 4215. The Sensex was up an even more nominal 0.1 per cent at 13,469. The Defty gained 1.5 per cent as the rupee recovered from $43.40 to $42.70.
The FIIs continue to be net sellers while domestic funds are still buying, albeit in small quantities. Volumes remain low and declines slightly outnumbered advances.
Relatively smaller stocks did better than pivotals with the Junior jumping 3.6 per cent and the Midcaps up 1.6 per cent while the BSE 500 gained 1.26 per cent. However, really small stocks suffered from lack of liquidity

Outlook : The market is likely to range-trade between 3900-4200 with fairly high daily volatility. A breakout in either direction would lead to a 100 point move. So a breakout could lead to a swing till either 3800 or 4300. Expect weakness early in the week.

Rationale : The intermediate trend, which turned bearish in early May could now be petering out. The long-term trend is clearly negative.
Daily high-low ranges of 200-plus points are likely. Support at 3850-3900 is strong while there is powerful resistance at 4200-plus. There could be a boost to sentiment if the UPA wins the confidence vote.

Counter-view: The test of support at 3900, which is likely to occur early this week, is crucial. If 3900 holds, the intermediate trend will reverse.
This is a long F&O settlement and technical factors like short-covering will not come into play immediately. For the market to hold at 3900 and then break 4200 on the next bounce will require some genuine value-buying.

Bulls & bears: Q1 results have just started floating in and obviously that has a major impact. IT scrips lost ground this week after Infosys' results and guidance was released. There was massive volatility across the sector and end-Friday, majors such as HCL Tech, Wipro, I-Flex, Polaris, Satyam and TCS all looked bearish.
Much of the recovery came from banks and real estate stocks which had been beaten down severely and saw reversal this week.
The BankNifty gained over 5 per cent with most banks spiking up. In real estate, DLF, Omaxe and Sobha looked most interesting in terms of potential bullishness.
However, Friday saw momentum being lost in both these sectors. Select cement stocks and capital goods and engineering construction outfits also made comebacks.
Non-ferrous metal producers like Nalco, Hindalco and Sterlite saw lots of bull interest. If the SP shores up the UPA successfully, there may also be a bounce for ADAG scrips such as RCom, Reliance Infra, and RNRL. There was scattered interest in scrips such as Cairn, Dabur, Tata Chemicals and Voltas.

Inflation---the long and short of it

The following article from TOI makes for interesting reading

Inflation is raging; stock prices are plunging; everyone is worried. What has caused the inflation? And can it be tamed? First, of course, the phenomenal rise of worldwide oil prices. Not because oil consumption has jumped all of a sudden but because speculators have become active in the 'oil futures' market. We cannot ban speculation or 'future trading'. But we can insulate ourselves from the oil shock. To achieve this, we should immediately allow the rupee to become stronger. We should revalue the rupee. That will lower the price of oil to the Indian consumer, making a big dent in inflation. Any side effects? Obviously, exports will get affected. But government can help exporters in various ways. China has been doing it for years. For example, the Chinese government allots a piece of land to a loss-making exporter who makes money by developing the land commercially. We should also curtail our energy consumption. We consume three times more energy, as percentage of GDP, than the world average. There are ways to cut down on energy consumption. Gujarat has shown that raising the groundwater table drastically reduces the energy required for agricultural pumping. Next is the transport sector. The railways consume only one-third the energy needed to move one ton of material over a kilometre by road. Waterways consume even less. We should use these alternative means of transport more intensively. It is time we develop energy from non-oil sources. The private sector should be encouraged to generate energy from renewable sources like solar, wind, waves, tides, geothermal, hydro, biomass and feed it into the grid. For this they should be offered an attractive price per unit. Second, while we should welcome foreign investment in manufacturing, we must discourage it in sectors like real estate. And why do we need dollars to keep flowing into India? We have already built a foreign exchange reserve of $300 billion which is enough to meet our import needs for the next two years. China has an import cover of 11 months and Germany and the US for fewer months. India's reserves have swollen due to capital inflows rather than exports exceeding imports or profit earned in exports. These inflows are not 'wealth'. They are liabi-lities. For developing our foreign exchange reserve we have exported our wealth and got dollars which, in turn, we invested in US treasury bonds thereby financing their infrastructure and economy, not ours. On these treasury bonds we earn a meagre 3 per cent return whereas the government borrows money from market at 8 per cent, losing $15 billion every year which is equal to half the fiscal deficit of the Centre.
Third, the food situation. This should not be a long-term problem. Higher food prices can act as an incentive to farmers leading to increased production. Food prices then automatically come down. The catch is that higher food prices do not always reach the farmers; the middlemen pocket it. The government must create conditions where farmers are able to sell their produce directly to consumers so that both can benefit. In every city or town, some land should be earmarked for direct sales. In the meantime, food stamps should be issued to the poor to cushion the impact of high food prices. High Food prices should not be viewed as a calamity. Since India is endowed with fertile land and plenty of rain, we can become a large producer and even exporter of foodgrain and processed food. Thus we can convert the threat of worldwide increase in food prices into an opportunity. Fourth, steel prices have risen leading to speculation in commodities. Steel makers have formed a cartel and have started overcharging. The government-owned SAIL need not become a part of the cartel. It should rather supply steel at reasonable prices and garner a bigger market share. It is surprising that the government is not asking SAIL to stabilise prices while making reasonable profit. Finally, poor infrastructure. If infrastructure improves, the cost of goods and services comes down. We need to quickly build highways, power plants and ports. For this purpose, the government should allow infrastructure companies to float tax-free infrastructure bonds. No question should be asked about the source of money being invested in these bonds. All those with black money would then be tempted to invest in these bonds. At the same time government should do away with Rs 100, Rs 500 and Rs 1,000 currency notes giving the holders of these notes an option to either deposit them in their bank account - and pay income tax - or invest it in tax-free infrastructure bonds. The rich would be forced to transact all business through banking channels or credit cards. The poor would use coins or notes up to Rs 50. Black money would instantly vanish, immediately reducing inflation. The current inflation is imported and fuelled by speculation. Rich countries are exporting inflation to us. They no longer wish to invest their money in manufacturing assets. That work has been outsourced to China, India and other countries. Their idle funds are being used for speculation and for investing in commodities. We cannot fight such imported inflation by increasing domestic interest rates or reducing domestic money supply while giving a free run to foreign money supply. That would result in stagnation of the economy. The government's economic team brought about a miracle 15 years ago by fresh thinking. The time has come to make yet another departure from conventional thinking.