Thought for the day
"I am always at a loss at how much to believe of my own
stories."
-
Washington Irving (American, 1783-1859)
Word for the day
Eyesome (adj)
Oleasant to look at.
(Source: Dictionary.com)
Teaser for the day
Mukesh Singh! What about politicians, academicians, Khap
leaders, religious leaders and all those men who commit marital rape and
doemstic violence everyday
Head, tail or the edge - II
As discussed yesterday, there are headwinds present in the system
that may slow down the up move of Indian equities in the months to come.
Arguably, the headwinds are mostly macro in the nature and not insurmountable.
Tailwinds
Fortunately for Indian equities, the tailwinds present in the system
are strong, visible, and operating on both macro as well as micro levels. These
may potentially catapult the equity prices in short to midterm (6-36months).
The improvement in macro indicators like core inflation, current
account deficit, fiscal deficit is generating strong tailwind.
Someone may argue that this improvement in macro indicators may
not be sustainable. I would argue "yes" and "no". For example:
(a) The current
account improvement is largely attributable to global deflation in commodity
prices, especially energy prices, and lower project related engineering imports
due to lower investment demand in past five years. Improvement in domestic and
global economy may reverse these gains rather fast.
In my view, it
is true that at present the gains on current account are temporary in nature.
However, given the strong emphasis on renewal energy, implementation of gold
monetization scheme, and a stronger money laundering law, these gains may
likely sustain over a longer period.
(b) The present fiscal
correction is also attributable to lower fuel subsidy bill, higher
non-recurring receipts from sale of natural resources, mainly coal &
telecom spectrum, disinvestment in PSU and SUUTI and lower social sector
spending etc. There is little sign of tax buoyancy to suggest sustainability of
better fiscal conditions over mid to long term.
In my view, it
is true that currently fiscal correction is mostly an outcome of expenditure
rationalization. A change in political conditions or a global economic shock
may lead to a fast reversal.
Nevertheless,
the measures like GST (to increase tax compliance), direct cash transfer (to
plug leakages), decentralization of social schemes (for targeted
implementation), fuel price de-regulation, and active engagement corporate
sector in building social sector infrastructure (via mandatory CSR and tax
incentives) would certainly yield positive results over mid to long term.
(c) At micro level,
the strongest tailwind is coming from the improvement in execution. The
framework for faster execution of infrastructure projects involving railways,
energy, roads and defense is almost in place. The results could be visible in
next 9-18 months, depending upon how fast the government could get the issues
relating to acquisition of land sorted out. Improvement in financial sector
(growth, inclusion, and social security) shall also yield positive
results....to continue
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