Thursday, June 5, 2014

Optimistic – absolutely, unconditionally

Thought for the day
“The weak can never forgive. Forgiveness is the attribute of the strong.”
-          Mahatma Gandhi (Indian, 1869-1948)
Word for the day
Embroil (v)
To bring into discord or conflict; involve in contention or strife.
(Source: Dictionary.com)
Teaser for the day
Will Arun Jaitley present “dream Budget” in July?
After all he has much stronger support than what MMS and PC had in 1990’s.
Even more important – will Congress openly support the reforms which UPA failed to implement supposedly due to inadequate numbers?

Optimistic – absolutely, unconditionally

In early 2011, while serving as a strategist with a large wealth management firm in Mumbai, I accompanied a senior relationship manager to his client. The client had just sold off his business and was flush with liquidity. The relationship manager wanted to capture a pie of the booty.
This was the time when markets had just completed their massive up move from March 2009 lows, and were struggling with European crisis. Macro indicators were deteriorating. Government appeared clueless and FIIs were saying good night and logging out of the “India Story”.
We were hugely underweight on equity and advising only high quality short term debt to our clients. I had no fascinating “buy” ideas as my model portfolio was full of boring consumers and IT names.
On our way to client’s office in suburban Mumbai, the Relationship Manager suggested – please do not give him any bearish views. We will get money only if we present an optimistic outlook and convince him to take market and credit risk. He gave me precisely 40minutes to redefine my strategy in which I had strong conviction. Subsequent events are not relevant here.
I remembered the cited instance as I read the latest RBI policy statement for the third time late evening yesterday. I could see him obliging a request from the finance minister – “I understand there is little economic rationale for cutting rates at this point in time, but at least sound bullish”.
The discomfort of the governor in sounding conspicuously dovish could be gauged from the following two paragraphs in the statement.
“Lead indicators point to continuing sluggishness in domestic economic activity in the first quarter of 2014-15. The outlook for agriculture is clouded by the meteorological department’s forecasts of a delay in the onset of the south-west monsoon with a 60 per cent chance of the occurrence of El Nino. The ongoing contraction in the production of consumer durables and capital goods, coupled with moderation in corporate sales and non-oil non-gold imports, is indicative of continuing weakness in both consumption and investment demand. The decisive election result, together with improved sentiment should, however, create a conducive environment for comprehensive policy actions and a revival in aggregate demand as well as a gradual recovery of growth during the course of the year.”
“The risks to the central forecast of 8 per cent CPI inflation by January 2015 remain broadly balanced. Upside risks in the form of a sub-normal/delayed monsoon on account of possible El Nino effects, geo-political tensions and their impact on fuel prices, and uncertainties surrounding the setting of administered prices appear at this stage to be balanced by the possibility of stronger Government action on food supply and better fiscal consolidation as well as the pass through of recent exchange rate appreciation. Accordingly, at this juncture, it is appropriate to leave the policy rate unchanged, and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy.”
It is however pertinent to note that on my part I am genuinely optimistic about FY16-FY18 macro outlook; though not euphoric as yet.

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