Vijay Kumar Gaba: January 2016

Friday, January 29, 2016

4QFY16 may not be much different

Thought for the day

"No eulogy is due to him who simply does his duty and nothing more."

—St. Augustine (354-430)

Word for the day

Ludic (adj)

Playful in an aimless way: the ludic behavior of kittens.

(Source: Dictionary.com)

Malice towards none

The courts in India are deciding on matter which in usual course should be decided by RWAs, Municipalities, and legislature.

What does it reflect?

First random thought this morning

Republic of India is mother of 36 children who live under the same roof but each of them cooks in his own kitchen and runs his own shop. All Indians who have lived in joint families and then separately under the same roof, would understand what I am trying to say here.

The point worth pondering is why these 36 children are living under the same roof along with their 69yr old mother. Is it out of love & affection for each other? Is it out of fear of losing independence to some outsider? Is it their weakness? Is it their strength? or is it something else?

4QFY16 may not be much different

In concluding part of my latest assessment of the trends in trade, consumption and real estate, I would like to share the following observations with the readers.

It is pertinent to note that the conditions are no different from August 2015, when I surveyed the markets last time. So some of this might sound repetitive to the regular readers.

(a) Most traders suggested that the sales volume growth is definitely and substantially lower as compared to past three years. Some relatively younger ones suggested that they have never seen such sluggish demand conditions in their career.

(b) Almost everyone complained about extremely tight liquidity conditions. The informal lending market has shrunk substantially. Inventories have corrected in past six months, but high carrying cost may prevent fresh inventory buildup in near term. Bank credit is expensive and difficult to get.

(c) Most traders confessed that the regulatory pressures have risen materially in past six months and consequently the compliance levels are rising. This appears to be a structural change that shall help once the economic cycle gathers pace.

(d) There is no sign of pickup in demand for new houses. The investments made in residential real estate has become totally illiquid. The sales agents for developers in NCR region suggested that there is no perceptible change in inquiries post announcement of pay commission.

(e) The packing material volumes continue to be lower on year on year basis. Traders suggest that this should translate in sluggish consumer demand growth in the current quarter also.

(f) The Republic Day Sale does not appear to be encouraging. Despite larger discounts and longer sales periods, traders are disappointed. Couple of franchisees for large global apparel brands suggested that the sales volumes this quarter could be lower even after accounting for online sales.

(g) The rural demand continues to be poor in all areas. Textile is impacted particularly.

(i) China is not a major cause of worry for traders. The people who import regularly from China are in fact comfortable with CNY depreciation and slower Chinese growth. This in their view will lead to improvement in their margins. A couple of them indicated that Chinese vendors might extend some credit to them, for the first time ever. So far, they have been buying from China against all cash payment.

Small manufacturers are though a much worried lot.

Overall, the demand conditions remain challenging with little of improvement in the near term.

Thursday, January 28, 2016

Tendulkar then Kohli now

Thought for the day

"Give me chastity and continence, but not yet."

—St. Augustine (354-430)

Word for the day

Nimiety (n)

Excess; overabundance. E.g. nimiety of mere niceties in conversation.

(Source: Dictionary.com)

Malice towards none

President rule in Arunachal Pradesh!

Is BJP serious about Budget Session, especially GST?

First random thought this morning

Difficult to fathom a few years back, Persian-American friendship could very well be the highlight of 2016. The kind of welcome and "surrender" President Hassan Rouhani is getting on his current Italy visit tells a lot of things.

One, post Paris attacks, the west might be looking at Shia Iran as the most potent partner in fight against the threat of IS. Two, with Libya, Iraq and Iran threats mostly neutralized and energy independence achieved, US may no longer need Saudi friendship the way it needed a few years back. Three, Iran and Iraq could be much more reliable and progressive allies as compared to Pakistan and Saudi.

It may be good news for India.

Tendulkar then Kohli now

Yesterday, I had suggested (see here) that the core issues which are seriously constricting economic growth and development of India include preference to form over substance, governance deficit, lack of corporate social responsibility, skill deficit, and infirmities in the commitment to public service.

To have a better understanding of what I am trying to suggest, please visit any popular market near you on a security high alert day. There are 75% chance that you would find a pirated CD/DVD vendor selling his stuff openly and fearlessly within 50mtr distance of a police post or PCR van.

The issues like inflation, fiscal deficit and foreign portfolio investments etc are at best tertiary issues that impact economic growth on the fringes, in my view.

Another factor that is seriously impeding the socio-economic development of the country is lack of inspiring leadership in public and corporate life. (In fact this problem has been a serious global problem in past two decades.)

Especially after unfortunate demise of JP movement in late 1970s, our search for a truly national leader has remained unsuccessful. Leaders like NTR, Rajiv Gandhi, LK Advani, AB Vajpayee etc. briefly appeared to take the mantle; but none lasted more than a few years.

In between, Indian populace has also experimented by idolizing sundry sportspersons, movie stars, and corporate leaders only to be disappointed in no time.

Recently, the prime minister Narendra Modi did evoke more support than even JP. An overwhelming number of youth truly believed him to be the Redeemer, who will redeem India from the ills of poverty and underdevelopment. However, the current approval ratings and electoral setbacks suggest that his Charisma may already have begun to fade.

The consequence of the lack of inspiring leadership is - (a) rising incidence of non-compliance amongst citizens; (b) difficulty in evolving consensus on various issues of national importance (including foreign policy and defense); (c) poor federal cooperation; and above all absence of a national approach to any issue or policy, etc.

On a mundane note, the equity markets are also showing absence of any credible leadership - a pre-requisite for any sustained bull market.

The private consumption, exports and financials that have led the bull market since the lows of 2009 appear tired. Financials had quit the race long back. Consumers are languishing since past two quarter, especially on the back of poor rural demand post a poor monsoon season. Amongst exporters - pharma has suffered due to regulatory and over-valuation issues; IT is holding so far but there are signs of fatigue and CNY devaluation and poor European demand has put question mark on sustainability of textile bulls. Aviation and Sugar are some foot soldiers marching ahead - but may lack adequate ammunition to sustain on their own for long.

Wednesday, January 27, 2016

Cognitive Dissonance

Thought for the day

"The world is a book, and those who do not travel read only one page."

—St. Augustine (354-430)

Word for the day

Vociferous (adj)

Crying out noisily; clamorous.

(Source: Dictionary.com)

First random thought this morning

After an unusually warm Christmas, US is facing some seriously inclement winter. Since Washington DC is directly impacted, I hope the climate control discussions will progress at much faster pace and with deeper commitment.

Back home, Arvind Kejriwal's cough may not be sufficient to create the kind of awareness about environmental hazards that is urgently needed, amongst politicians, administrators and general public.

Cognitive Dissonance

I had said it two years back. Despite deep invasion of technology in my normal life, I have still kept the monkey in me alive. I like to do many things in the traditional way. Reading morning newspaper is one of these things. I like to break my fast every morning reading the latest news from around the country and familiarizing myself with divergent views of various experts. Not to say, I like the aroma of newsprint as much as I like my Darjeeling tea.

A little has changed in past two years. it continues to be irksome to find that the front page of the newspaper is now placed at 3rd or 5th. First few pages are cramped with ugly but alluring promotion campaigns of retailers and real estate developers.

Last weekend I revisited some malls, popular retail markets and wholesale markets of Delhi. As usual while I thoroughly enjoyed my stroll in the narrow lanes of Sadar Bazar, Chandni Chowk, and adjoining wholesale markets, visiting swanky malls was a poor experience.

The malls were crowded and mismanaged. The additional security in view of enhanced security threat and consequent traffic jams were exasperating.

I find it pertinent to share the following observations with my readers:

(a) The cognitive dissonance of the government about substance over form was conspicuous from the security arrangement. The traditional markets, where many more people visit and much more business is done as compared to swanky malls in the southern parts of city, had scanty security apparatus. Whereas the mall areas had overwhelming presence of security personnel. It is difficult to gauge what is primary concern of the government.

This dissonance is also clearly reflected in the policy making where the height of Sensex graph and exchange value of INR appears to be taking precedence over core issues of hunger and poverty.

(b) I enquired from many private security guards posted at the entrances of malls, mechanically scrutinizing vehicles and people entering these mall. When asked what they are looking for under the bonnets, at the bottom and in the trunks of the cars. "Explosive materials", pat came the reply. However, to my astonishment, none of them was aware as to how explosive material they are searching for, may look like. None of them was ever trained to identify and remove explosive material. None of them even possessed a customary wooden stick. In case of a Mumbai like attack - the disaster is ensured.

Administrative callousness to human life, serious skill deficit, and form over substance are real issues constricting our economic growth.

(c) Private security industry is indubitably growing fast and it is reflecting poorly on the "government" who is primarily responsible for ensuring safety of private life & assets, and "mindset" of business owners who take the life of their customers so lightly just to save a few bucks.

Public service, governance and CSR may still be just concepts.

...to continue

Monday, January 25, 2016

Nifty: Road to 7950 is full of hurdles

Thought for the day

"The words printed here are concepts. You must go through the experiences."

—St. Augustine (354-430)

Word for the day

Presenteeism (n)

The practice of coming to work despite illness, injury, anxiety, etc., often resulting in reduced productivity.

(Source: Dictionary.com)

Malice towards none

Neta Ji files are open to public scrutiny.

Will it bring closure to a long pending issue or open a can of worms?

First random thought this morning

Everyone knows that trillions of dollars in stimulus in past one decade have not helped any economic growth. The world economy and markets remains as vulnerable and tentative as these were in 2008. Many punters and ingenious bankers have though become unduly rich.

I wonder why then markets are still excited about some more stimulus by ECB and/or BoJ?

Nifty: Road to 7950 is full of hurdles

Last week Nifty successfully negotiated its short term support level of 7200 and closed above 7400. There were three remarkable highlights of the trading during last week - (a) No spike in implied volatility despite poor global sentiments; (b) no panic amongst domestic fund managers who continued to absorb more than what FPIs sold; and (c) little panic in retail segment as suggested by almost even market breadth on weekly basis.

On monthly charts Nifty has tested its immediate bottom and looks good for a technical bounce back. A close above 7560 this week will confirm Monthly bottom at 7200.

On monthly basis Nifty faces a strong resistance in 7950-8040 range and is not likely to surpass it easily. On the way to 8000 there is stiff resistance present first at 7560 level and then in 7650-7730 range.

Still, the trade for February would be on the long side if we get a monthly close above 7560 this week.

This week just take care of your short positions.

Friday, January 22, 2016

Time to be greedy coming soon!

Thought for the day

"I have now disposed of all my property to my family. There is one thing more I wish I could give them, and that is the Christian religion."

— Patrick Henry (American, 1736-1799)

Word for the day

Prepossessing (adj)

That impresses favorably; engaging or attractive, E.g., a confident and prepossessing young man.

(Source: Dictionary.com)

Malice towards none

How many politician in the country feel that they would be better off doing something else to serve the large cause of public service, rather than playing a mudslinging match every day?

First random thought this morning

Every market cycle breaks a few myths. For example, the last market cycle broke the myth that emergence of Emerging Market threatens the supremacy of USA; BRICs are a formidable force; India could decouple from global economy and keep growing sustainably at 8% plus rate; printing excess money leads to hyper inflation etc.

The current market cycle is breaking the myth that cheap oil could only be good for the global economy, especially importing economies like India and Japan, large reserve accumulation is a guarantee to economic and financial stability, peripheral Europe matters in the global economy (remember Grexit and PIGS).

But one myth that you can multiply your money in no time by investing in equities is however never broken! Bull Markets are dead. Long Live Bull Markets!

Time to be greedy coming soon!

The global markets have once again proved the Newton's law of gravity. All asset prices that were trying to defy gravity, without having necessary escape velocity, are crashing back to the their respective ground positions.

Now since the asset prices are rushing south at a reckless pace, trampling the traders and investors coming in their way, the questions to ponder are:

(a) When would the asset prices hit the rock;

(b) Whether the rock will be soft or a hard one; meaning whether the prices will jump higher immediately after hitting the rock or they will get stuck there at the bottom, till the next high tide comes to their rescue;

History could be a good guide in analyzing these points and finding appropriate answers. However, 2008-2009 may not be a good reference point in this context, in my view. Because I believe that the current market cycle is nothing but a continuation of 2008-09 crisis.

The crisis began to hurt global asset prices from early 2008 as the economic growth, fueled by a decade of exceptionally loose credit, started to fizzle out and financial leverage became unsustainable.

However, the process of adjustment and correction was interrupted by innovative and audacious monetary policies of large central bankers. Surprised and enthused by the "whatever it takes" approach of central bankers, traders and investors made large bets on a faster economic revival. Consequently, many asset prices in fact scaled higher peaks than seen during the bull market of 2005-2007.

However, as it turned out that the comfort was false. The central bankers did manage to restore stability in the financial system; but the economic recovery remained feeble and unbalanced. The side effects of super-easy money are reflected in strengthening of deflationary forces, deterioration in sovereign fiscal conditions, and rise in corporate debt to beyond pre-crisis level.

Consequently, the asset prices are now rationalizing to factor in the prospects of even slower economic recovery and rise in global imbalances.

The process is expected to be protracted and painful. Nothing will be achieved in a year or two.

The good news, in my view, is that India may decouple once again. As one of the worst sufferers of unfavorable terms of trade, India could be a major gainer as the global imbalances get adjusted to more fair terms of trade.

The corporate results so far are encouraging. The companies have in particular worked well in the areas of cost efficiencies. Raw material advantage has also started to reflect in P&L. The ongoing correction will also bring valuations closer to the "line of reasonability".

Therefore, I am not inclined to believe that Sensex might correct to the extent it did in 2008-09. I feel 5% here or there, we are mostly done; though a larger but unsustainable slide in sympathy with global sell off is not entirely ruled out.

I am also not expecting a sharp bounce back like 2009-10, because we are nowhere close to the line of distressed valuations as we were in March 2009.

Thursday, January 21, 2016

Gandhi is not just a photo

Thought for the day

"For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst and provide for it."

— Patrick Henry (American, 1736-1799)

Word for the day

Salubrious (adj)

Favorable to or promoting health; healthful. E.g., salubrious air.

(Source: Dictionary.com)

Malice towards none

Raising of 15k strong Dharma Sena in UP reflects what?

(a) Growing intolerance

(b) Total lack of faith in law & order machinery

(c) Shape of coming state assembly elections.

(d) All of the above

(e) Others (pl specify)

First random thought this morning

If social media is any indicator of popular mood, Ranjit Katyal has emerged as the latest super hero in the country.

While there is no authentic record of this person and this could very well be a fictional character, his story is certainly inspiring lot of social media users to watch the movie Airlift.

I wonder whether the emergence of this new hero has anything to do with falling popularity of most politicians and male sportspersons.

Gandhi is not just a photo

To conclude the my point on the desirable socio-economic development model for India, I would like to reiterate what I have said earlier also.

In my view, the sustainable solution for India’s economic problems could be found only by looking within. Borrowing from the thoughts of Mahatma Gandhi, economics needs to follow ethics and not the vice versa. The primary consideration needs to be “man” and not “money”.

To achieve this means Gandhi advocated trusteeship, decentralization of economic activities, labor intensive technology and priority to weaker sections. Many criticize Gandhian economic ideas based on altruism, self reliance, and non-violence, as an impractical alternative to free market economics. I believe this criticism is unfair and suffers from parochialism.

I believe borrowing blindly from the western economic models would not work in Indian context. The Indian model will have to be quintessentially Indian. It has to effectively tackle the problems of class conflict, unemployment and poverty while attempting to preserve the lifestyle and values of rural Indians, which are eroding fast with unmindful urbanization, industrialisation and modernisation.

A self-reliant, free, just and progressive society is integral to the traditional idea of India. Self-reliance in no way violates the need for technological advancement in the areas like healthcare, communication, etc. It just wants the scale to tilt in favor of ethics and ecology conservation if a conflict arises. Self-reliance also does not infringe upon the idea of free market. It just promotes non-violent and non-exploitive trade and commerce.

For those who find Gandhi completely irrelevant in the current context, it is pertinent to note that “the literature survey of Gandhian economic ideas gives similar conclusions. 258 thinkers, who have reviewed his economic ideas, have been taken into consideration. Among them, London group of Professionals and The Club of Rome are considered as individual thinkers. Even the opinion of 53 noble prize winners is also considered in this literature survey. 96% of these thinkers admire his economic thoughts. They consider his ideas practical, useful and relevant in the present world.

A growth model for economic development is shown on the basis of Gandhi economic thoughts. This model is applicable to developing economies and India. His ideas are helpful for backward and developing economies in the world. His ideas are also useful for solving problems in capitalist economies. This proves Gandhi as a unique and practical economist of the world”. (see here for more details)

In short, the economic model of India, in my opinion, should be based on the following three principles:

(a) Develop an environment of equality and mutual trust through decentralization.

(b) Focus on the intrinsic strengths of Indian economy rather than overemphasizing the weaknesses.

Wednesday, January 20, 2016

Do what you are good at

Thought for the day

"The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them."

— Patrick Henry (American, 1736-1799)

Word for the day

Sybaritic (adj)

Characterized by or loving luxury or sensuous pleasure. E.g., to wallow in sybaritic splendor.

(Source: Dictionary.com)

Malice towards none

All Bull Markets were born from the womb of Bear Markets.

First random thought this morning

The act of the Partition in 1947 was aimed at reservation of geographical areas and resources contained therein, for religious majorities on both sides of the border.

Post independence, creation of states on linguistic basis was an act of further sub-reservation for majority on the grounds of regional identity.

Then came further sub-reservations for the majority on ground of socio-economic status (poor and suppressed are still in majority).

Where is reservation and protection for minorities.

Do what you are good at.

I have been hearing the phrase "21st century belongs to India" for past two decades. Many politicians and analysts have used this cliché to emphasize the tremendous economic opportunities that India could offer in next few decades, given its young demography. The list of investors and global States seeking strategic partnerships who have been excited by the potential is long and impressive. The list of investors and Statesmen who have been disappointed in past two decades is also not small.

The point to evaluate critically is whether India sans its core ethos is viable as an economic and strategic power house!

In my view, it is definitely not.

Religion has been a major force in core Indian ethos. Traditionally it has been the influence of religion that has brought the concepts of scientific inquisition, righteousness, moral rectitude, social responsibility, environmental sustainability, debt management, HR management, and just & fair taxation, etc. in the trade and commerce.

Post Independence the State has been over focusing on micromanaging businesses and ignoring key social issues. This has weakened the core fabric of Indian society, inasmuch as that taking pride in our rich heritage has become synonym with bigotry for all - the so called "nationalist" who takes pride, the so called "secularist" who is too scared to take pride, and the so called "rationalist" who find nothing to take pride in Indian heritage.

Consequently, temples have degenerated from being center of learning & spiritual evolution to shelters for hatemongers, fearmongers, power seekers, and wealth hoarders. Many of these promote superstitions and block scientific inquiry to the detriment of society at large.

In my view, if we want to make this century belong to India, then Indian State—

(a) should leave business completely to private enterprise;

(b) play a much larger role in social awakening and create an enabling environment of mutual trust, self motivation, and compassion;

(c) make the Temple (of course including Mosques, Monasteries, Gurudwaras, Agiyaris and Derasars and others) play a larger evolutionary role in progress of the society, rather than continuing to de-generate further and stay a stumbling block in the path to socio-economic progress; (Taking their gold for managing current account deficit is not sufficient!)

Given this, I am sure, Indians could do the wonders, everyone expect them to do now.

The State must realize and accept that politicians and bureaucrats are naturally and seriously handicapped insofar as their understanding of business is concerned. They should just secure borders, maintain law & order and promote social harmony. So far they have focused on the former at the expense of the latter for the disastrous consequences.

Tuesday, January 19, 2016

Do you believe in what you know?

Thought for the day

"I know of no way of judging the future but by the past."

— Patrick Henry (American, 1736-1799)

Word for the day

Hebetude (n)

The state of being dull; lethargy.

(Source: Dictionary.com)

Malice towards none

Guess the market reaction if the Finance Bill 2016 provides for a 10% long term capital gain for equity shares sold after 3yrs!

(Note: Equity shares include shares of both listed and unlisted companies. 30% LTCG payable for sale before 3yrs of holding.)

First random thought this morning

The markets are witnessing a healthy correction. The excess flab that had collected in the middle and lower end of the market is melting fast; in a fashion very similar to seen in the past instances of market correction. As usual, with the flab some gold and silver is also melting.

The market commentators have suddenly developed strong love for large caps. I feel, it is time to break silos of size, sector and categories and look for bargains wherever these are available.

Do you believe in what you know?

Many years ago someone told me "believe in your strengths and weakness". I said, "I do!" He paused for a while and said calmly, "knowing is different from believing. For example, you know that you will die someday. But do you really believe it?"

Mingling with the crowd at the Haridwar Kumbh last weekend, I understood the meaning of what that person was trying to tell me many years ago.

We all, especially our politicians and social media activists, know the strengths and glorious past of our country. But do we really believe in that? In my firm opinion, no, we do not!

We all know, Religion is at the core of the Indian society. The Indian political and economic paradigms therefore must be constructed around religion.

Even a cursory study of Indian history, whether critically proven or mythological, would suggest that the best economic and political periods in the history of the sub-continent were when a righteous king was at the helm and he protected and promoted the religion. Conversely, the worst periods, economic and political, were those when some tyrant attempted to destroy the religious beliefs and knowledge.

Traditionally in India, education, research, arts, architecture, science, and the State itself, have all developed and prospered around religion. Religion was woven intricately with agriculture, which was the primary profession.

By adopting secularism as a major social construct, especially since 1970s, the Indian State has unfortunately equated religion with bigotry. This has not only made religion a divisive (instead of bonding) force, but has also led to the degeneration of strong traditions of pursuing spiritual, scientific and material knowledge for the larger welfare of human kind.

In past four decades we have reached a stage where religion is used to evoke fear & violent passion in people's mind and manipulate them. Money & power, and not the knowledge & evolution, seem to have become the primary aim of religion. Ignorance and superstitions are destroying people's life. It is commonly seen that the gullible people borrow money to feed illiterate and dirty persons, whose only quality is their surname.

Intelligentsia and academics are scared to explore and propagate the tremendous wealth of knowledge stored in traditional scriptures for the fear of being labeled "communal and bigot". Politicians are scared to promote the traditions of knowledge seeking and spiritual evolution.

The consequences are that the entire nation bothers about winning one medal in any global supporting event but does never bother about winning a Nobel in mathematics, physics or medicine.

Start ups are good. But PM Modi must believe that Apple, Facebook, Twitter and Amzon et. al. are outcome of a Society that promotes and cherishes knowledge seeking and freedom of thought. It is not the other way round.

In a country where most Magistrates seriously believe that God can be disparaged and insulted, something urgently needs to be done......to continue tomorrow

Monday, January 18, 2016

Nifty: Expect a stopover on the way to 7K

Thought for the day

"Fear is the passion of slaves."

— Patrick Henry (American, 1736-1799)

Word for the day

Reify (v)

To convert into or regard as a concrete thing. E.g., to reify a concept.

(Source: Dictionary.com)

Malice towards none

Youth in Congress Party must take one week break to study the history of the Party and contemplate if they need to change the path they have been trading since past one decade!

First random thought this morning

Unicorns and Black Swans have joined Bulls and Bears to make life of the market participants more interesting.

We are lucky to witness the figments of imagination acquiring some tangible contours at a time when inclination to deny the realty as unwarranted paranoia is very high.

Nifty: Expect a stopover on the way to 7K

As I have been expecting since August 2015, when Nifty completed bearish H&S pattern on monthly charts, Nifty is progressing well to test its long term rising channel support around 7000 levels.

In my view, this channel support may hold good, and Nifty should form a strong bottom in 6850-7350 range in next three months and begin the next leg of the up move that should see Nifty rising to the next peak of 10900-11300 in next 28-36months.

The premise should hold good even if Nifty falls to 6430-6750 range for 2-3weeks and bounces back to 6850-7130 range in next 10weeks. However, in the least likely situation of Nifty closing below 6850 by March 2016, the scaling of mount 10k could be delayed by another 8months, i.e., 36-44 months.

Besides, Nifty is deeply oversold on short term momentum indicators. So a brief relief rally could be expected this week.