"Everything that exists is in
a manner the seed of that which will be."
—Marcus Aurelius (Roman, 121-180)
Word for the day
Frabjous (adj)
Wonderful, elegant, superb.
(Source: Dictionary.com)
Malice towards
none
Why market is not bothered about Syria?
It could potentially inflict much more damage to global markets than
Greece default could have!
Re-set is on
As mentioned in past two few days (see here) the economic conditions
continue to remain challenging, both in local and global spheres. My investment
strategy recognizes this and is placed accordingly.
Speaking specifically for the local economy, the following trends
envisioned in making strategy a few years ago have taken roots and are likely
to strengthen in next couple of years, viz.,
(a) The potential growth
rate for Indian economy has been realistically accepted and adjusted to 7-8%
(new series) level.
Having adjusted to the lower potential growth, the focus is
shifting to make structural changes in the growth paradigm to make it more
inclusive and sustainable.
The rebalancing includes subsidy rationalization (targeted and
efficient), democratization of investment (vs. feudal character earlier),
improving terms of trade through localization of imports (make in India), and
federalization of state finances, etc.
(b) The global commodity
super cycle has peaked and shall remain soft in foreseeable future. The
disinflation may benefit the aggregate Indian economy, but corporate
profitability will be adversely impacted.
Benign inflation, positive real rates, higher taxes and stricter
compliance standards shall accelerate the wealth re-distribution process.
So far the process of wealth re-distribution in India was mostly
political and characterized by material leakages. Corruption in public offices
has been a typical method of wealth redistribution. The process is now becoming
economic, transparent and efficient.
(c) The growth is now
planned mostly through productivity enhancement against additional investment
earlier. Financial inclusion, Skill India, Digital India, Smart cities, GST
etc. are political reflections of this trend.
This trend is critical as it would not only allow growth to be
inclusive but also help in managing the scarcity of capital. Remember, the
swathe of liquidity sloshing around are not "capital". These may
chase a few basis point arbitrage opportunities in global financial markets.
But only a tiny fraction of this is available to be deployed as risk capital in
a chaotic democracy like India.
(d) The cost of doing
business would increase in direct proportion to the ease of doing business.
Global competition, higher cost of capital, better & stricter
compliance standards, and enhanced social responsibility standards, transparent
and accountable administration may force a whole lot of small and medium (and
some large also) business out of business. The elimination process will be painful
for financial investors.
Net week I will present my views on what these trends mean for
investment strategy and what are the changes that may be required as these
trends gather more strength.
No comments:
Post a Comment