"Men are strong so long
as they represent a strong idea they become powerless when they oppose
it."
— Sigmund Freud (Austrian,
1956-1939)
Word for the day
Turpitude (n)
Vile, shameful, or base
character; depravity.
Malice towards none
How valid is the argument of
"potential job losses" against banning socially harmful and
economically unproductive industries like fire crackers, tobacco products, etc?
First random thought this morning
Investors in ecommerce ventures like Flipkart, Jabong, Zomato,
Housing.com, etc. have noted serious erosion in their valuations.
Should RBI be worried about bank's exposure to these companies'
working capital funding? Also do the loans to fund fancy houses and cars of the
executives of these startups need any red flag?
Does government need to review their "Startup India"
model?
Or let it be! We'll cross the bridge when we reach there.
I see it half full!
Last week I mentioned about three key risks to Indian equities in
the near to short term (see
here).
The risk of water shortage hampering growth has resonated with the
readers most, for obvious reasons. Many of them are facing it in their routine
daily life.
However, the other two have evoked a rather ambivalent response.
Some traders have exposure to commodity reflation trade (mostly
through steel, cement and sugar) whereas many others are regretting the
"miss" and looking to buy on dips. The overwhelming feeling is that
state protection is inevitably permanent and will likely increase from the
current levels.
E-commerce has little direct exposure of domestic investors. Only
a handful of ultra high networth individuals and some corporates have invested
through various AIFs. The exposure of course is not meaningful, relative to
their networth, and therefore not concerting as yet. On the contrary, private
equity funds (mostly funded by foreign capital) are a seriously worried lot.
The value of their funds has seen massive erosion. They have been forced to cut
on costs. The commitment to future projects is filled with skepticism.
My views on this are as follows:
I believe in the forecast of an overall normal monsoon. I feel
last week's reversal in Southern
Oscillation Index (SOI) should further ease concerns about a serious delays
in arrival of rains. Having said this, I believe that—
(a) This normal monsoon
will mostly bring macro corrections in FY17 - normalization of food inflation
expectations, relatively higher farm sector growth, lower financial stress in
rural sector and hope of investment revival. 9MFY17 may not see much growth in
rural consumption or farm sector investment. The conditions may improve only
after a normal Rabi harvest in spring of 2017.
Nonetheless, if 1QFY17
and 2QFY17 results lead to unwinding of the "hope" trade, it will be
a good opportunity for investors to aggressively bet on consumption theme -
white goods, two wheelers, and construction material included.
A serious correction
in banks and NBFCs will be an opportunity to build a financial overweight
portfolio.
(b) I am too naive to
intelligently analyze near term commodity trade. Nonetheless, I don't see
global growth picking up momentum anytime soon.
I am confident that
Chinese economy will witness a protracted correction period and may not rebound
hurriedly. It's not only excess capacities, unsustainable debt or
non-democratic corrupt administration. I am more worried about demography,
global positioning and rise of nationalism in the west.
I therefore see a much
deeper and longer bear market in global commodities, gold included.........to
continue tomorrow
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