Thought for the day
“Caesar's wife must be above suspicion.”
-
Julius Caesar
(Roman, 100-44BC)
Word for the day
Braggart (n)
A person who does a lot of bragging.
(Source: Dictionary.com)
Teaser for the day
What should be the role of Modi government – (a) Driver or
(b) Engine or (c) Wheels?
Or do we need a robotic engine that can fly Indian economy
without a driver?
Return of good times!
Latest round of economic data from major global economies
indicates towards three notable trends – (a) Large commodity producers like
Canada, Brazil, Australia and Russia are materially lagging behind the
commodity consumers indicating persistent deflationary pressures on commodity
prices; (b) Yields have fallen sharply both in safe haven like US and German
treasuries as well as weaker economies like in peripheral Europe; and (c)
despite moderation in US Fed bond buying program and reluctance of ECB, BoE,
BoJ and PoBC in adding fresh monetary stimulus liquidity conditions remain easy
fueling risk appetite of global investors.
India appears to be benefiting from all three cited trends.
Subdued commodity prices, coupled with subdued demand and import
restrictions on gold import, have completely alleviated the payment default
risk, which were weighing heavy as foremost concern on the investors’ mind till
at least September 2013.
Lower yields on safe haven assets have once again triggered
carry trade that helped bubble building in EM assets in late 1990s and during
2004-2008. Massive inflows YTD have not only eased pressure on INR, but also
made Indian debt look relatively attractive.
As the fears of liquidity squeeze have not come true despite
“taper” and global financial markets are back to their euphoric best, appetite
for Indian equities are at a high, despite not so encouraging growth and
inflation numbers.
Incidentally, these trends are occurring when a new government
is taking shape in New Delhi. Given the staggering hopes raised by Mr. Narendra
Modi during his campaign, the business confidence appears at a new high. Consumers
also look positive in their expectations. It is therefore natural to see the
stock market rally in association with the new administration.
Though we are yet to see any concrete evidence of increased
consumer spending, new investment proposals, or any indication of higher
government spending, there are strong expectations that 3QFY15 data will likely
show a definite uptick in consumption as well as investment demand.
Remember 1QFY15 is virtually over without any positive data
improvement. The government is in the process of formulating the reviewing
extant policy framework and will likely announce corrective steps only by the
middle of July as part of routine budget exercise. Actual implementation may
begin only by the end of 2QFY15 which may also suffer due to inadequate monsoon
as predicted.
The 4QFY14 results for larger companies have been encouraging,
showing a sign of demand and margins bottoming out. Most of the improvement
however might be coming from massive cost rationalization programs undertaken
by various companies and not necessarily due to return of pricing power.
Inventories appear to have been run down materially. SME segment though has not
shown any sign of improvement. Finance cost and revenue pressure are
conspicuous in this arena.
I am looking at cement sector for some aggressive bets as an
early cycle investment.
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