When we try to pick out
anything by itself, we find it hitched to everything else in the universe.
—John Muir (American,
1838-1914)
Word for the day
Eudemonic (Adj)
Pertaining or conducive to
happiness.
Malice towards none
Did you know that foreign
citizens can become members of Indian Parliament?
First random thought this morning
Wonder why should CPM support Congress? Do they believe that
Congress will further the cause of Marx? What difference they find in Congress
and TMC?
It's certainly not about any ideology. BJP and AAP leadership have
also demonstrated in past 3years that ideology can take a back seat, while
political parties are in the pursuit of power.
Now if I do not have to look for ideology when casting my vote,
what should I look for? Obviously - I will vote a person who is most likely to
help me in achieving something that I cannot do in normal course of my
business.
Was in rome, didn't see the pope
The Indian equity market has witnessed a strong
"Monsoon" trade in past few weeks. The trade is apparently predicated
on the hope of a "Normal" monsoon and consequent surge in rural:
(a) Investment - farm
equipments, tractors, SUVs, two wheelers, housing, white goods, etc.;
(b) Consumption - agri
inputs, biscuit, hair oil, cosmetics, textile, etc.; and
(c) Credit demand.
Some brokerages have extended the trade to beginning of a virtuous
macro cycle taking "Lower food inflation - lower rates - higher capacity
utilization - higher earnings - better asset quality - higher investment demand
- higher GDP - higher public revenue - higher public investment - everyone happy"
line of argument.
I do not completely disagree with the premise that a good monsoon
shall help the economy tremendously insofar as the macro fundamentals are
concerned.
I am however not convinced about the immediate impact on corporate
earnings. Based on assessment of my colleagues who recently travelled to many
drought hit areas, and my travels in past one year, I believe that:
(1) The cost of planting
this Kharif crop will be higher than usual, as preparing parched ground, with
almost no moisture in it for, sowing will be a time consuming and expensive
affair. Expecting any significant rise in rural household consumption under
these circumstances might be a bit optimistic.
(2) The present water
availability even in fully irrigated areas is low. Even a 2-3weeks delay in
monsoon rains will therefore hurt more than usual.
(3) Most medium, small and
marginal farmers are fully stretched financially. Sowing this time therefore
will need much higher state help. The pressure on fiscal and financial system
will intensify first and perhaps ease only after the harvest around Diwali.
(4) The investment demand
could revive only during Rabi season. 1HFY17 results may not reflect any of it.
(5) The current marriage
season in states like UP, Bihar, MP etc. is witnessing one of the lowest
spending in the past decade. People do not expect the trend to reverse in the
post monsoon marriage season too.
(6) Some forecasters are
predicting a La Nina event in August-September period. If this does happen, we
might see serious floods in many areas. This will further delay any likely
recovery in rural demand.
I find that many stocks conforming to the "Monsoon"
trades have crossed the line of fairness. I see them retreating in next 6months.
Though I will not short these stocks as yet, I am not contemplating any buying
here for sure.
...to continue tomorrow
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