"Selfishness must always be
forgiven you know, because there is no hope of a cure."
—Jane Austen
(British, 1775-1817)
(British, 1775-1817)
Word for the day
Divulgate (v)
To make publicly known;
publish.
(Source: Dictionary.com)
Malice towards
none
No one has any doubts that the Congress Party is playing as 12th man in
the Bihar Polls.
No one dare ask the leadership — "what's the plan?"
Strategy update
Continuing from last week (see here) I
present my thoughts on the appropriate investment strategy in accordance with
the emerging economic trends.
Trend 1: Economic growth will remain slow to
moderate for FY17 too, as the global economy struggles with Chinese slow down,
EU and Japan stagnation, and US policy adjustment.
The capacity utilization in India which is presently at much below
optimum level, may not improve so as to motivate capex even in FY17; regardless
of lower rates. The growth will therefore mostly come from consumption and
productivity improvements.
Technology, innovation and services will therefore remain top
investment themes. Replacement cycle, especially in utilities and public
services, appears an interesting theme to me; in particular power T&D,
public transport, financial service look most promising.
Trend 2: The process of elimination to begin
forthwith. The global capacities rendered redundant by Chinese slow down and
down commodity cycle will get to play a major role in Indian growth. Global
E&C services companies will get to play a larger role in Indian growth
economics.
The inefficient domestic players, not only less productive small
and medium enterprises (SME), but also large PSU and private enterprises, will
face serious existential threat from global competition. The government
protections like defense set off clause and tariff barriers and FDI limit etc.
may be eased materially to maintain growth rate and overcome shortages of
capital. To me therefore the Indian businesses of global corporations are
preferred over pure domestic E&C services and capital goods companies.
Trend 3: Despite lower inflation and positive real
rates the growth in private consumption will remain skewed in favor of upper
middle class and rich. Middle class discretionary spend will be constrained by
lower employment and wage growth, higher education, health and skilling
expenses.
The consumption stock, all richly valued, may not see any major
sell-off due to lower growth, but a time correction looks more likely. I would
therefore mostly prefer luxury and a little necessity in
consumption. For example, I would prefer BMW/Merc over Alto, Fan and Led over
AC, Premium liquor over cigarette, dental hygiene over biscuits etc.
Trend 4: Cost of doing business is likely to
increase due to higher taxes, stricter compliance norms, enhanced social
responsibility standards, transparent and accountable administration, etc.
I would therefore prefer, companies paying full taxes, are already
fully compliant and socially responsible as opposed to those known for
efficient tax management and political connections.
Trend 5: Inclusive and sustainable growth would
indubitable mean faster and deeper growth of financial sector.
I have been underweight on financials (zero weight for PSU banks
for last three years). I guess this would need a change now. Will let you know
when I figure out how to do this.
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