New governor presents his first policy on 20th
September 2013. Good luck to him.
Once a farmer asked an economist way to the place he wanted to
go. The economist answered “to go there I would not start from here!”
This is perhaps what the new RBI governor suggested in his first
speech. We believe he would find his starting point at the earliest.
The macroeconomic headwinds to growth, sticky inflation, global
uncertainties, low business confidence, falling investments, worrisome fiscal
and current account situation all is well documented, debated and largely
assimilated by the investors and analysts - notwithstanding the denial and
dithering by the government, RBI and the planning commission.
The industry captains have very well demonstrated their low
confidence by openly criticizing the government and RBI for inaction. It is not
even uncommon to find the common man discussing the problems of current
account, subsidies, mis-governance
inflation, etc. in the trains and streets.
From the utterances of all authorities in past couple of weeks
it is very clear that like every market participant, they are also waiting to
see what Ben Bernanke will say on 18th September.
In our view, it is not important what Bernanke says or does.
Because, if Fed believes that US economy is steady and does not need the bond
buying at the current pace, that should be good news for the global economy.
The more critical would be how the global investors who invested
over 1trn USD in emerging markets over past 4years of QE react to the Fed
stance. If they conclude, and not unreasonably, that US 10yr may rise to 3.5-4%
in short term, USD may strengthen further, and EM currencies may depreciate
further and therefore decide that it’s time for cows to return home – mayhem
would be an understatement to describe the market scenario post that. However,
if they decide to stay put and an orderly withdrawal ensues over next few
years, we may get some reprieve and time to build our defence.
Nevertheless, we expect the economy and market to bottom out in
next 12 months. We shall be watching closely for the following signals to mark
the bottoming and turn “bullish” on Indian markets:
·
Acceleration in asset sale even at distress
prices by the infra and real estate companies.
·
Capital restructuring by distressed companies,
primarily by writing off equity capital.
·
“Project credit” growth falling to mid single
digits.
·
All metal companies and banks trading
substantially below book value.
·
Expensive consumer stocks giving negative return
for a quarter.
·
AUM of domestic equity funds falling by over 5%
in a month due to redemptions and not price erosion.
·
Rise in India VIX over 40 with market falling
7-10% in a week.
Thought for
the day
“Success consists of
going from failure to failure without loss of enthusiasm.”
- Winston Churchill (1874-1965)
- Winston Churchill (1874-1965)
Word of the
day
Skedaddle (v)
To run away
hurriedly; flee.
(Source: Dictionary.com)
Shri Nārada Uvāca
Another midcourse correction in RBI policy stance “from
price stability to inclusive growth.”
Better late than never.
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