May the new Samvat be propitious for
everyone - full of peace, prosperity and pleasures."
Thought for the day
"I hope to stay unemployed
as a war photographer till the end of my life."
—Robert Capa (American, 1913-1954)
Word
for the day
Stalwart (Adj)
Firm, steadfast, uncompromising, strong and brave; valiant, e.g., a stalwart knight.
Malice
towards none
सिद्धि बुद्धि प्रदे देवि भुक्ति मुक्ति प्रदायिनि।
मन्त्र मूर्ते सदा देवि महालक्ष्मि नमोस्तुते ॥
मन्त्र मूर्ते सदा देवि महालक्ष्मि नमोस्तुते ॥
First random thought this morning
Diwali without Chinese goods could be an innovative means of
wealth distribution. The rich traders who have made tons of money by importing
Chinese goods and selling these in India over past decade of so will incur some
losses on the inventory of the stuff they have already imported; the middle
class households will spend little more money for Diwali decorations and
firecrackers etc; and the local cottage and MSME industry will make some extra
money through the unexpected demand.
So far so good. Do we have any plan for post Diwali period?
Wish a propitious Samvat 2073 - full of peace, prosperity and pleasures."
Vikram Samvat 2072 began on a
somber note. Corporate performance was below par. Socio-political environment
was worsening. The outlook for any major economic reform appeared bleak due to
the persistent logjam in Parliament.
The conditions have changed
materially since then. Despite adverse conditions globally, the government
showed unprecedented resolve and maintained fiscal discipline. Despite some
electoral reverses, the government has materially rationalized fuel subsidies.
Key economic reforms like Bankruptcy Law, GST, Real Estate regulation etc. have
made significant progress. Inflation is under leash, currency is stable and the
rates have begun to moderate. Other macro parameters like current account, GDP
growth etc. are also encouraging.
Though the investment cycle and
hence credit growth are still lagging and have low visibility of growth, the
rate trajectory suggests that by end of the new Samvat the dark cloud over capacity
addition may also blow over.
The global economic environment
though has worsened in past one year. The relentless printing of new money and
near zero interest rates have miserably failed in stimulating economic growth.
The debt levels have worsened and financial system continues to be stressed.
Under the circumstances, to use
the cliché, I am cautiously positive on Indian equities in the new Samvat. I
expect the market volatility to rise materially as the Fed tries to further
normalize the policy rates amidst sub-par domestic economic growth, slithering
Europe, stagnant Japan, declining China and struggling commodities markets.
I continue to believe that US rate
hike and consequently adjustments in global currency, credit and commodity
markets may eventually benefit Indian businesses in the medium term.
Nonetheless, the near term adjustments could be painful as liquidity may
squeeze a bit and global flows may reverse the direction on winding down of
carry trades.
My strategy under the
circumstances would be as follows:
·
Lower the target return to 10-13% from 12-15%
earlier.
·
Stay OW on domestic luxury consumption.
·
Add high rate sensitive Real Estate and related
stocks in portfolio.
·
Avoid leverage completely.
·
Gradually increase exposure to domestic
Cyclicals, excluding minerals and metals. Prefer solution providers, technology
leaders and innovators rather than pure product or construction companies.
·
Increase allocation to longer duration debt.
·
Plan for lower tax benefits on financial
investments.
·
Avoid precious metals.
·
Assume a stronger USD and weaker EUR in
investment decisions.
The next post of Morning Trekk will be published on 02 November 2016.
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