Thought for the day
“Men in general are quick to believe that which they wish
to be true.”
-
Julius Caesar (Roman,100-44BC)
Word for the day
Farceur (n)
A joker; Wag
(Source: Dictionary.com)
Teaser for the day
We all know that it’s anarchy when AK does it.
Will Kapil Sibal tell us what it is when KKR does it?
What to do? - II
The bad things are easier to believe. Haven’t you noticed
that?
-
Vivian to Edward in movie Pretty Woman
Continuing
from yesterday, I would like to admit that
answering the real question honestly is extremely difficult, especially knowing
that I will be judged every day for my answer.
It
is much easier and convenient to use the jargon like “long term”, “bottom up”,
“stock-picking”, “value investing”, etc. and have a rather simplistic large cap
defensive portfolio. However, given that ‑
(a)
we
are at junction where 5yr normalized CAGR of Sensex is close to peak of 16% and
appears as a warning if you juxtapose it to declining real growth and elevated
inflation and hence interest rate levels;
(b)
we
had one of the best year in 2013, in terms of foreign flows (both FII and FDI),
a scenario that may likely not repeat itself considering the US tightening its
monetary policy and conditions in Europe again taking a turn for the worst;
(c)
the
“high quality” and “global stability” (read exporters) trade is so crowded and
exploited that the risk-reward in this sphere might have turned negative;
(d)
the
optical “deep value” in “financial” and “domestic investment pick-up” may not
be deep enough to warrant a jump as of now;
applying most of these
principles may not actually be gratifying for most investors.
The positives at this stage
are all derivatives of hope, compulsion and continuity. Rationally, it is
difficult to find some positives which are self sustained, definitive and
confirmatory. For example, consider the following rays of hope.
·
The
domestic inflation and therefore rates have peaked as the vegetable prices have
fallen. Core inflation rise despite lower capacity utilization is seasonal.
·
CAD is now under control (<2.5% of GDP), as
gold demand has been successfully curbed; exports to developed countries have
picked up; NRI flows are strong; Fx reserves have been augmented to US$295bn
from a low of US$274bn; imports have fallen; fuel demand has slowed due to
higher prices.
·
Fiscal deficit is under control (<5% of GDP)
as government expenditure is cut; subsidy payments have been successfully
rolled over; disinvestment targets have been accomplished through cross sale;
service tax amnesty.
·
China is just soft landing. The concerns over
the stress in financial system are overblown to mythical proportions.
·
ECB’s “whatever it takes” commitment will
continue to be an effective back stop for all concerns, including France
falling into recession.
·
Fed’s QE tapering underscores the strength of US
economy. EM collapse will not impact US and Japan. Tighter liquidity will not
strengthen the deflationary trend rather lower commodity prices will aid the
growth.
…to continue on
Monday
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