Wednesday, March 1, 2017

This time it's different

"He said it was artificial respiration, but now I find I am to have his child.'
‑ Anthony Burgess (English, 1917-1993)
Word for the day
Scapegrace (n)
A complete rogue or rascal; a habitually unscrupulous person; scamp.
Malice towards none
Next time the Supreme Court hears the BCCI case, it must keep in mind the case of CBCF (popularly known as the censor board).
The people from the trade are not always the best regulators.
First random thought this morning
At the end of the battle of Kurukshetra, the victorious Pandava brothers argued amongst themselves as to who should get the credit for their victory.
Krishna suggested that Barbarika's (Bhima grandson also worshiped as Khatu Shaym ji) head, which had watched the whole battle from a hilltop should be allowed to judge.
Barbarika's head suggested that it was Krishna alone who was responsible for the victory. Barbarika replies, “All I could see were two things. One, a divine chakra spinning all around the battle field, killing all those soldiers. The other was Goddess Mahakali, who spread out her tongue on the battle field and consumed all the sinners as her sacrifice".
And some, who claim to be saviors of Hindu Dharma, and great devotees of Krishna and Kali, still insist Pakistan killed Gurmehar's father.

This time it's different

My recent interactions with investors and businesspersons have convinced me that the current market up move is distinct in some sense.
Historically, most bull markets have been driven by high hopes and fueled by greed of investors. Asset prices correct sharply as hopes are belied and fear overtakes the greed.
But in the current instance, I do not see much hope in the air. The usual euphoria that is usually seen with broader market indices at all time high, is conspicuous by its absence.
Greed and fear more or less are in balance.
But still prices are moving higher!!!
The move to replace 86% of country's currency in a single swap; a strong drive by taxation authorities to enforce compliance has confounded the small and medium sized businesses. Their entire business model that was based on poor tax compliance, lack of transparency, and informal financing stands challenged. Imminent implementation of GST also adds to the uncertainty for them. Outlook for both private consumption and investment therefore remains clouded.
Severe correction and illiquidity in real estate market has eroded the wealth effect by a good measure.
Despite bumper crops across North Indian planes, the farmers do not appear enthusiastic, as crop prices have plummeted. The specter of El Nino, that impacted monsoon for two consecutive years, reappearing in late summer this year is also looming large on their psyche.
Financial sector is still struggling with humongous burden of non-performing assets. Though, the rate of accretion has slowed down notably in past couple of quarters, the recoveries of NPLs has not been encouraging by any measure.
To the contrary, new pockets of potential stress are emerging especially in power and telecom. The capacity utilizations remain low, and managements are not guiding any material pickup in next few quarters.
Bankers are also not sure about the repercussions of the shakeout in 'start-up" and "E-commerce" space. Lenders' direct exposure to these sectors may not be large, but personal credit to the employees who would lose their jobs could potentially bring some pain.
RBI has already indicated that the monetary easing cycle may be over for the time being. In fact, there are some voices already making a case for tightening of monetary policy, as higher global commodity prices, a stronger USD (as Fed hikes), and likely rebound in agri inflation, could raise inflationary expectations.
The macro advantage in terms of control over twin deficits and inflation could therefore also wane to some degree later this year.
The rally in stocks prices needs to be analyzed in light of these constraints.
....to continue

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