Wednesday, March 27, 2019

Strategy update



Some food for thought
"Give me good digestion, Lord, And also something to digest; but where and how that something comes I leave to Thee, who knoweth best."
—Mary Webb (English Novelist, 1881-1927)
Word for the day
Optics (n)
The way a situation, action, event, etc., is perceived by the public or by a particular group of people.
First thought this morning
Taking the Rythu Bandhu Scheme of Telangana government and PM-Kisan scheme of central government forward, the Congress Party has issued a sketch of the all encompassing minimum income guarantee (MIG) or universal basic income (UBI) scheme for the country.
Like MNREGA that was started on a pilot basis in few district and extended to cover the entire country in few years, this MIG is also proposed to be implemented in a phased manner over several years. Apparently, when fully implemented, the scheme proposes to guarantee minimum Rs6000/month income to the bottom 20% (appx 50mn) households, regardless of their region, religion, caste or occupation.
The Congress party may have proposed the scheme with a motive to take advantage in the forthcoming elections. But that does not take away the importance and necessity of MIG in Indian context, where number of workers are likely to far exceed the number of jobs available in foreseeable future and socio-economic income inequality have already reached alarming proportion.
Unfortunately, the government, ruling party, many economists & analysts sympathizing with them, have decided to out rightly dismiss the idea and even ridiculed the proposal. Many have chosen to criticize the proposal on the basis of fiscal implausibility. The others have dismissed it doubting the intentions of the proposer.
It may be pertinent to note that the proposer has only provided the headline for media. There are virtually no details available to make any comment on the proposal, leave alone an intelligent comment.
But the political bickering apart, I guess it is time that we debate pertinent issues, e.g., the following:
(a)   Whether the time is ripe for India to introduce a MIG scheme that is all encompassing and not just limited to the land owing farmers?
(b)   Since We the People of India are committed to building a "Socialist, Secular, Democratic Republic" through our Constitution, should we resist any transparent wealth redistribution plan that reduces the unjust socio-economic inequalities and ensures a dignified life for the underprivileged?
(c)    If someone has made a proposal that in principle is found to be in wider public interest, would it not be proper for the government to invite the proposer for a presentation and explore the possibilities of implementing with whatever changes/improvements rather than ridiculing it or dismissing it with sheer contempt? After all in spite all its inefficiencies, MNREGA has worked for a decade and changed many lives!
 
Strategy update
Continuing from yesterday (see here)
I had reviewed my investment strategy last month (see here), and ascertained no need for any change. It is not usual to review the investment strategy at short interval of one month. However, the change in the global growth outlook and monetary policy stance of central bankers, I found it pertinent to review the strategy. Especially, in light of the likely monetary easing and fading of risk from a full-fledged Sino-US trade war. There are indications of change in direction of global flows towards emerging markets.
In domestic context, there is virtually no improvement in the earnings visibility and fiscal conditions. The consensus on election outcome appears to be favoring a NDA government with BJP likely falling well short of 272 mark.
I had expected most of these conditions in my December strategy note (see here). However, lower yields happening much earlier than expected, higher visibility of monetary easing and change in direction of FPI flows towards high yielding emerging markets are changes that warrant some changes in strategy.
Upon reviewing my strategy in this light, I have made few changes, which are highlighted below.
(a)   Continue to maintain 15% allocation to gold.
(b)   Cut debt allocation to 10% from 15% earlier and reduce the threshold for investing in duration products to 7.7% from 8% earlier.
(c)    Increase equity allocation to 75% from 70% earlier. Out of this 75%, keep 60% invested in mix of quality large and midcap. Keep the balance 15% for active trading rather than invest in strategic portfolio as planned earlier.
(d)   Continue to prefer PSU banks, pharma companies with domestic focus, construction companies with stretched balance sheets, which are most likely to survive, and real estate and ancillaries like cement, tiles, sanitary, plywood, electric fittings etc.
(e)    I am mindful of the possibility of a significant global market correction and consequent major correction in Indian equities. I would like to hedge against this possibility through quality of stocks in portfolio rather than buying a put. In view of the higher risk, I am hiking my expected return from equities to 22-25% against 18-22% earlier.
(f)    I shall be trading actively in at least 50% of my portfolio, against 25% planned earlier, to take advantage of higher volatility.
I would like to reiterate that I am not at all worried about the post election political situation in May 2019. Any major correction in market due the election outcome would be a great trading opportunity in my view. I would not be averse to using leverage to take advantage of this trading opportunity, if it does present itself.
 

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