Author: shyam

The Right to Spy

The Indian government started pushing for a dedicated cyber surveillance body after the northeast India riots in 2012 that were abetted by false information published on the internet. The increasing use of internet services by terrorist groups is another factor that added impetus to this goal. The Central Monitoring system (CMS) launched in April 2013 is a consequence of these efforts.

If CMS will help secure our nation, why is there a furor against it? It’s because contrary to assurances of government participants, the agency has gone live before the establishment of citizens’ privacy rights and content monitoring guidelines for the agency itself. CMS has become immediately functional without any apparent regulatory control.

The whole “push it out quickly” project stinks of tyranny.

Background

Surveillance systems are not new to India or the world at large. USA and UK have strong cyber surveillance systems. India’s own Information Technology Amendment Act 2008 enables e-surveillance. In fact, after the 26/11 Mumbai attack in 2009, the government set up a CMS to monitor communications on internet, mobiles, and landline phones to enable instant interception of suspicious conversations.

The new CMS though is more totalitarian, covering surveillance of all internet communications in the public domain including SMS, email, voice calls, MMS, fax communications to landlines, CDMA, video calls, GSM and 3G networks without the intervention of telecom providers. The estimated cost of CMS to the exchequer is approximately ₹4 billion.

Other agencies that will have access to the CMS include the Research and Analysis Wing (RAW), Central Bureau of Investigation (CBI), National Investigation Agency (NIA), Central Board of Direct Taxes (CBDT), Narcotics Control Bureau, and Enforcement Directorate (ED).

Though there is talk of surveillance in the public domain, it’s obvious that real troublemakers will not announce their plans to the public at large via any communication channel. If the ultimate goal of CMS is to tackle crime and terrorism and prevent public disorder, Indian law enforcement agencies will need to delve into private communications. And they certainly have the technological means to do it. This means all of us are exposed.

Now, surveillance of private online communications is not a threat in itself. Sure, it’s an uncomfortable thought, even a little scary but not really a peril. What makes is dangerous though is the lack of clearly outlined privacy rights for Indian citizens. That’s seriously worrying.

Privacy & Abuse

privacyNovember 2012 was when two girls were arrested in Mumbai for expressing their personal opinion on the bandh following Bal Thackeray’s death on their personal Facebook wall. One of them had merely liked the other’s post. That’s the kind of abuse and coercive control every free Indian citizen is anxious about.

The government has done little to allay these fears as there is very little information available on:

  • which agencies will have access to the CMS
  • what data will be shared with third parties and under what conditions
  • who will authorize surveillance
  • what kind of content is liable to be regulated and for how long
  • the structure and process for such regulation
  • whether users have the right to be informed about the surveillance
  • policies ensuring the protection of stored private data
  • the legal rights of citizens in case of privacy abuse
  • laws protecting citizen’s freedom of expression
  • data protection and privacy laws
  • Constitutional Lawful Interception Law

“The Indian government’s centralized monitoring is chilling, given its reckless and irresponsible use of the sedition and internet laws,” said Cynthia Wong, senior internet researcher at Human Rights Watch in a press note published by Times of India. She points out that new surveillance systems have been used around the world to target critics, journalists, and human rights activists.

Is it worth it?

In the interest of safeguarding the country’s security, cyber surveillance is not an unwarranted measure. But without strong laws in place that protect the constitutional rights of citizens, it could easily become a stranglehold on our freedom of speech. Without regulatory policies, CMS could turn into a violator of human rights.

Despite shocking incidents of high-handedness by authorities and misuse of their power, the government has pushed out CMS without adequate groundwork. While the half baked approach is nothing new, it is a poor reflection of the government’s sensitivity towards people’s basic rights and a big blotch on India’s democracy.

HFT vs. Punters

High Frequency Trading (HFT) is the natural evolution of screen based trading which was the natural evolution of open outcry. After completely decimating market makers on the floors of the exchanges, they turned their sights onto price disparities between exchanges. They have been so successful, that the arb no longer exists. Besides, you can only make so much more money once you have to use balloons to create a transatlantic wireless trading line using microwave signals.

In 2009 the entire HFT industry made around $5 billion trading stocks. Last year it made closer to $1 billion. The “profits have collapsed,” says Mark Gorton, the founder of Tower Research Capital, one of the largest and fastest high-frequency trading firms. “The easy money’s gone. We’re doing more things better than ever before and making less money doing it.”

So what’s next for the bots?

Due to a crowding effect in HFT domain and a continuous decrease in profitability a lot of those firms are now moving to momentum, swing and trend-following domains in an effort to recoup their initial investment. Thus, retail traders and fund managers should expect more competition from highly competent and well-capitalized firms with excellent infrastructure and talent. Competition is about to rise significantly.

And this is not a “macro” thing that is not going to affect Indian markets. Algo trading makes up roughly 30% of all trades through NSE. Getco, one of the world’s largest automated traders, received regulatory approval to start operations in India back in March this year.

Expect more competition in traditional timeframes soon but from high-tech participants. The days of the chart trader and the golden cross fund manager are over.

Sources:
Expect More High-Tech Competition
How the Robots Lost: High-Frequency Trading’s Rise and Fall

Hat in hand we wait…

Inflation has been tamed…

inflation trend india
 
… and global commodity prices are flat.
global commodities
 
 
And yet, they (FIIs) fret…
fdi profit repatriation
 
… pulling more and more money out of the economy.
income outflows
 
 
We blamed gold for our Current Account Deficit woes…
india gold savings
 
… while completely messing up our coal, iron ore and fertilizer industries.
cad offset
 
 
And here we are again, hat in hand, hoping that the RBI will cut rates and bail us out… again.

Weekly Recap

NIFTY 50 Heat map

The Nifty ended -1.75% for the week. Financials were the worst hit while IT eked out some gains.

Index Performance

index performance

Top Winners and Losers (CNX 100)

JSWSTEEL +5.53%
GLAXO +5.59%
RCOM +9.49%
MPHASIS -8.89%
UBL -7.26%
TITAN -7.17%
Surprisingly, JSW Steel was one of the best performers – in spite of the macro being unkind to the metals sector in general. And all the talk about HP selling off its stake in MphasiS wasn’t enough for the stock to hold on to its all time highs.

 

ETFs

NIFTYBEES -1.72%
BANKBEES -0.78%
INFRABEES -0.64%
JUNIORBEES -0.15%
PSUBNKBEES +0.19%
GOLDBEES +1.95%
Gold was one of the few bright spots for ETF investors. However, given the recent drop in gold prices given Friday’s NFP numbers, the future for gold does not look all that bright. The slide in USD-INR seem to eclipse other factors for the time being.

 

Advancers-Decliners (CNX 100)

advancers decliners

Bulls beware: the AD line seems to be indicating that the recent rally was probably more smoke than fire.

Yield Curve

I find it hard to believe that short-term rates actually rose. Don’t we have a rate-cut in store this week? Interesting…
yield curve movement

Sector Performance

Here’s a more nuanced break out of what happened over the week across different sectors.
sector performance

Good luck!

Rotation into debt continues

Indian institutional flows into debt has been relentless this year. DIIs have pulled ₹ 12,511 crore from equities and pumped ₹ 2,31,965 crores into debt during Jan-May 2013. It appears that as though the entire market has made a one-way bet that rates are going to fall this year… or have they gone so risk-averse that they have decided to ditch equities completely?

DII fund flows Jan-May 2013

 

FIIs however continued to hoover up equities. Pumping in ₹ 83,206 crores during the same period. Their interest in Indian debt was only a fraction of the domestic appetite.

 

FII flows Jan-May 2013

 

This is interesting because of the questions it raises. Do FIIs think Indian debt is too expensive compared to equities? Are they taking a contrarian stance to domestic institutionals? Is there something wrong with the way our policies are setup that incentivizes foreign investment in equities over debt?

Whatever it maybe, equity investors better pray that FII tide doesn’t turn too quickly.

Previously: The Great Rotation into Debt