Wednesday, October 7, 2015

Midyear Strategy review - Searching for reasons to be bullish

"To refrain from imitation is the best revenge."
—Marcus Aurelius (Roman, 121-180)
Word for the day
Amphigory (n)
A meaningless or nonsensical piece of writing, especially one intended as a parody.
(Source: Dictionary.com)
Malice towards none
Nawaz Sharif says UN must intervene to protect Kashmiri people from atrocities of Indian government.
Azam Khan says UN must intervene to protect the Indian Muslims from the atrocities of Indian government.
What do you say?
 

An Investor's Diary

With each passing day, the expectations of the market participants from legislative reforms are diminishing. The acrimonious Bihar election is obliterating any chance of any political rapprochement in near term. It is well recognized that even if NDA wins Bihar elections, the Rajya Sabha arithmetic will not be in favor of the government for another one year at the least. The GST law and other legislative reforms are therefore much less talked about in the market place.
Realizing its political limitations, the government is now focusing on administrative reforms, and rightly so. This change in focus is generating material investment opportunities, and therefore invoking keen interest from market participants.
The proposed restructuring of state power utilities is one such measure that was long pending. From whatever details are publically available, it appears that this measure could result material improvement in both energy and power sector. Proposed revival of jinxed Dabhol power plant and LNG terminal should also be looked as extension of this exercise.
Increased emphasis on renewable sources of energy and commitment to cut emission norms could truly prove to be game changer.
Material changes in road sector, including creating environment for exit of inefficient, inadequately capitalized and/or highly indebted developers, have accelerated the revival of stalled projects and paved the way for commencement of new projects.
Reviving the proposals to privatize loss making PSUs and Sagarmala projects is another indication of changed focus of the government.
The government has shown unflinching commitment to fiscal discipline. It has shown remarkable restraint in deciding not to pass the entire crude price benefit to the consumer and augment resources needed for roadways and railways through higher duties. This has perhaps encouraged, an otherwise cautious, Governor Rajan to frontload rate cut.
It is well understood that these measures will neither help private consumption nor encourage private sector investment in the near term.
Nonetheless, these measures will create a strong foundation for cyclical revival of the economy. Revival of stalled projects, restructuring of state power utilities and empowerment of banks to takeover managements of defaulting corporates will provide much needed respite to public sector lenders and help them raise capital and improve their capital adequacy. Newly created payment and small banks will become efficient channels for bringing the micro savings to the mainstream as compared to the post office and Small Savings Organization (SSO).
In the meanwhile, spate of poor data from US and Europe has queered the pitch for the US Federal Reserve. The growth is becoming scarce and demand is falling. We are definitely in a low inflation (or no inflation) low return environment. India may not be an exception in the mid term.
In next few days, I shall review the likely changes in investment landscape and the evaluate whether any changes are required changes in the strategy.

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