Thought for the day
”For if you love those who love you, what reward have you? Do not
even the tax collectors do the same?"
-
Jesus Christ
Word for the day
Bletting
(n)
The ripening of fruit, especially of fruit stored until the
desired degree of softness is attained.
(Source:
Dictionary.com)
Teaser for the day
Pakistan gets its own AAP moment.
There are lesson for all - Anna, Quadri, Kejriwal, Imran,
Manmohan, Sharif and Modi!
Solve the puzzle
In past couple days some market commentators and analysts have
made seriously buoyant forecasts about Indian equity markets, almost
disregarding the global unease about the bond and equity rallies in developed
markets. It certainly feels good to hear calls for 10000 Nifty level in next
6-7months translating into 25% return from the current levels.
The latest trigger for the bulls is the GDP data for 1QFY15,
which came at 5.7%, though not unexpectedly. As I suggested yesterday, the
stream of latest data, including GDP data for 1QFY15 and PMI numbers for past
6months, support optimism about "worst is over". There is however little
to suggest that the virtuous cycle of higher savings, investments, credit and
consumption is likely to get kick started tomorrow morning.
I feel the latest GDP data needs to be seen in this context.
Even a prima facie look at the CSO press release
of 1QFY15 GDP data raises some questions. For example, consider the following:
(a) Good rabi crop is
reflected in strong Agriculture growth. But this number is corroborated by
private consumption which fell, continuing the trend of past many quarters.
(b) Strong growth in
construction sector growth did not reflect in banking and real estate sector
growth. From other data we know that infrastructure construction, especially roads,
has not done well in that period.
(c) Government
consumption expenditure rose, perhaps due to election related spending.
However, considering that over 60% government spending is done on social
sector, the decline in social sector growth is difficult to explain.
(d) Rise in
investment also is not corroborated by decline in financing, banking and
insurance sectors. The credit growth number for the corresponding period also
do not confirm this.
(e) Gold might have
contributed much to lower imports number. Oil import is also lower. Both these
are not sustainable.
(f) Mining growth is
purely due to lower base, as the coal and iron ore production data does not
confirm this sharp rise.
(g) The shortages in
power supply belie the spectacular rise in electricity and gas production.
(h) Rise in
manufacturing and exports could be due to other economies doing well rather
than Indian economy doing well. Lower consumption number confirms this.
I would like this puzzle to get resolved before changing my
investment strategy from overweight consumption and exports to overweight
investment and credit. For now I am sitting tight. I shall though look at
rebalancing my portfolio this month to take care material outperformance in
certain stocks.
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