Some food for thought
"Governing a great
nation is like cooking a small fish - too much handling will spoil it."
—Lao Tzu (Chinese
Philosopher)
Word for the day
Yahoo (n)
A boorish, crass, or stupid person
First thought this morning
There are many windows in my
abode,
large and small,
facing each direction.
facing each direction.
One window welcomes a
brilliant new Dawn — every morning,
the other bids adieu to the golden chariot – every evening.
the other bids adieu to the golden chariot – every evening.
One brings cool easterly
breeze,
the other ushers nourishing westerly winds.
the other ushers nourishing westerly winds.
Alas! I see nothing.
Sun rises and sets behind
thick curtains,
without anyone noticing it.
without anyone noticing it.
Winds blow away from our
house,
passing without touching anyone.
passing without touching anyone.
We like mechanically
conditioned air,
avoiding any direct touch with Mother Nature.
avoiding any direct touch with Mother Nature.
Sometimes though a tiny
window in bathroom is left open,
and Mother sneak in her blessings!
and Mother sneak in her blessings!
Chart of the day
Perception vs. Reality
Yesterday, I got an opportunity to attend a gathering of some
reputed market experts. The topic of the discussion was emerging political
scenario and its likely impact on financial markets. Since, no one could say
with confidence what is going to be the outcome of elections, the discussion
was mostly hypothetical and deeply influenced by the personal prejudices and
political inclinations of the participants. Nonetheless, the consensus appeared
that political establishments do influence the stock markets.
Being a small insect myself, I usually do not like to engage in
debate with the experts, nonetheless, I find compelled to note the following.
It is pertinent to note I have always insisted that politics in India has
almost nil correlation with the performance of the economy and therefore stock
markets. I am presenting this data just as some food for thoughts without
implying anything. Please trust me.
The results of the general elections for the current Lok Sabha
were declared on 16 May 2014. Since then, Nifty has compounded at an annual
rate (CAGR) of 8.7%.
In this period the nominal GDP of India has grown at ~10.5%
CAGR. The net national disposable income has also grown at almost similar rate.
The nominal gross value addition in agriculture and related sectors in this
period has grown at ~7.7% CAGR, while for industry GVA growth has been ~9.7%
CAGR and Construction GVA has grown at ~10.8% CAGR.
The stock market has obviously underperformed the economic
growth in past four years. This sounds counterintuitive, if I accept the
argument of a strong majority government with dynamic leadership being
inarguably good for stocks markets.
A granular look at the stock market performance since May 2014,
further raises some doubts on unconditional acceptability of this hypothesis.
Going by the public assertions, three core areas of focus of
this government have been self reliance (Make in India), inclusion (JAM), and
aggressive infra development (Roads, Railways, Power, etc.). However, if try to
correlate these focus areas to stocks market response, we get a different
picture. Since 17 May 2014:
(a) Infrastructure
sector has given a negative return of (-)0.2% CAGR. This does not corroborate
the construction sector GVA growth at 10.8% CAGR.
(b) Public Sector
Banks, who with wider reach must have been the largest beneficiaries of the
financial inclusion efforts, have returned (-)4.9% CAGR.
(c) The government
promised full autonomy and professional management of PSUs. Thousands of
investors were lured into buying CPSE ETFs based on this promise. NIFTY CPSE
has returned (-)4.5% CAGR.
(d) MNCs have
returned the best return (16.6% CAGR) despite all talks of swadeshi and self
reliance.
(e) Private sector
banks which are largely foreign owned have returned more than 15% CAGR.
(f) Despite all the
protection measures, metals have returned just 1.1% CAGR.
(g) Consumption
sector has returned 13.4% CAGR. This reflects consistent fall in household
saving rates, despite 10.5% CAGR rise in disposable income. My anecdotal
experience is that aspirational consumption is driving India consumer sector,
and distorting the household balance sheets. Sharp rise in household credit in
past few years supports my observation. The consumption boom may therefore be
unsustainable unless matched with matching investments that will lead to higher
household income in midterm.
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