Thought for the day
“Whoever battles with monsters had better see that it does not turn him into a monster. And if you gaze long into an abyss, the abyss will gaze back into you.”
- Friedrich Nietzsche (German, 1844-1900)
- Friedrich Nietzsche (German, 1844-1900)
Word for the day
Punnet (n)
A small container or basket for strawberries or other fruit.
(Source: Dictionary.com)
Teaser for the day
Who started the 1962 war?
How that is relevant today?
Except perhaps making Gandhi family more defensive in their electoral pursuit.
Banarsi Ladoo – eat it or keep it
My seemingly uber bullish view
on Indian equities and simultaneous words extreme
caution have evoked strong reaction from many readers.
The best reaction reads: “This morning you presented me the most
delicious Banarsi Ladoo wrapped in my medical test report showing a blood
glucose reading of over 400mg/dl. I do not know should I thank you for the Ladoo
or letting me know that I cannot eat it. Thank you anyways.”
I admit that my views have been somewhat ambivalent in recent
past.
Wandering through the streets and dusty roads of hinterland I
find that the virtuous cycle of trade, finance and industrial activities has
come to a virtual halt. The general environment is filled with dismay, distress
and frustration. Financial stress is too conspicuous to ignore. In past such
conditions have not improved in a jiffy, especially when the reasons for
malaise are mostly structural. This makes me fearful.
However, at the same time, the global settings are clearly
indicating that a massive “risk on” trade is building ahead of US rate hike
event that may likely take place in 2015. A near recession in many emerging markets,
including the large ones like Russia and Brazil, marked slowdown of economic
activities in larger economies like China, France, Germany etc. shall fuel this
“risk on” as more monetary stimuli is added. This likelihood is firing up my
greed.
The challenge is to balance the emotions of greed and fear. That
has been exactly my endeavor in past many days. I want to religiously stick to
my core investment strategy that is aimed at generating sustainable returns
(marginally above the nominal GDP growth). At the same time I want to allocate
a small percentage of my risk money to a tactical trading
strategy to generate higher return over next 12-15months.
For those who find my trading strategy little greedy and more
fearful, I would like to quote from a two month old Fitch report on Indian
financials. Some may accuse me of lacing the greed with excessive fear, but
those who have lost 50-60% of their wealth in 1992, 2000 & 2008 would
certainly appreciate it.
“Of the total exposure of
Indian banks to the industrial sector, an estimated 46% is attributed to the
debt of top 100 corporates (non-financial and non-public sector). An estimated
INR1.9trn-INR2.1trn of these loans is due for refinancing in the next 12-15
months. This amount is around 27%-29% of the aggregate net worth of the banking
system as at end-FY13.
The refinancing
requirement may present significant challenges to lenders. Around 24% of the
refinancing requirement (about 4%-5% of the banking system net worth) is
attributed to the companies already in distress.”
“20 corporates accounting
for 26% of the refinancing amount have weaker credit metrics than that of the
previous two categories. Generally, as a group, their asset coverage ratios are
low and financial flexibility of the promoter is also limited. Under normal
market conditions, they should be able to refinance at a high cost or with
stringent covenants. However, this group may face significant challenges in
refinancing during stressed market conditions.”
Trust me nothing has changed in past three months.
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