Some food for thought
"Where no gods are, spectres rule."
—Novalis (German Poet, 1772-1801)
Word for the day
Bombinate (v)
To make a humming or buzzing noise.
First thought this morning
PM Modi participated in one hour Chat Show (some may want to call
it interview) with India TV Host Rajat Sharma, after the election campaign for
5th phase of the election had ended on Saturday evening. The show was telecast
live on TV and widely shared on internet. Other political leaders also held
rallies on Sunday which were shown on TV and widely shared on internet and
social media.
The Election Commission has banned some political leader from
campaigning for 24hr to 72hr. During the period of ban, the recordings of old
speeches of these leaders were widely shared on internet and social media and
even shown on TV in some cases.
In his weekly column in Times of India, noted columnist and
writer Akar Patel (see
here) also raised a pertinent point. He highlighted that though the
election commission has banned publication/broadcast of exit poll results till
the polling for all seats is complete, there is no ban on conduct of exit poll.
The agencies conducting exit polls are free to conduct poll and communicate (or
even sell) the outcome privately to the interested parties like political
parties, large investors, etc.
Billions of rupees are spent on the road shows by prominent
leaders just before filing their nomination for election. The amount spent on
these mega events is not counted under the limit of poll expenditure set by the
election commission since technically before filing the nomination these
leaders are not "candidates".
These instances highlight that the election rule book may be
obsolete and needs some urgent and drastic updating.
Chart of the day
Anatomy
of current market cycle
Broader markets underperformed materially
Current bull
market started in 29 Feb 2016 from Nifty 6987 level and is 39 months old. In
the entire rally, the benchmark Sensex has materially outperformed the broader
markets, despite intermittent rallies in mid and small cap stocks.
Most returns front ended
Most of the returns during the current bull market
came in the first 24months. Investments made in past 15 months have hardly
yielded any return. Especially from the Budget day of 1 Feb 2018 when the
taxation of LTCG was proposed, returns have been low to negative. Incidentally,
a significant part of the investments have been made in the later part of the
rally.
Returns highly concentrated in few stocks
Only 70 stocks currently in NSE500 index have been able to beat
the benchmark Nifty returns since February 2016. Whereas more than 80 stocks presently
in NSE500 have yielded absolute negative return ranging from 1% to 96%.
As could be seen from the following tables, most traders and
investors were more likely to own the losers than the top performers.
The stocks’ performance is seriously skewed, if we analyze the
15 month performance since February 2018.
Only 100 stocks presently part of NSE500 index have outperformed
Nifty in this period and only 123 such stocks (about 20%) have give some sort
of positive return. The value destruction in this period however has been
massive with 80% stocks presently in NSE500 giving negative return in 15month
period, with losses ranging from 1 to 93.5%.
Again as could be seen from the following tables, traders were
more likely to have value destroyer than the wealth creators.
In conclusion, it had been really tough making money in the
current bull market. It is true fro professional managers, traders, stock
pickers and SIP investors.
More worrisome part is that a new trend is emerging, i.e., to
invest in Index funds and ETFs. This trend is mostly based on the performance
of past 15 months, and most likely to compound the problems of investors.
In my view, the outperformance of the benchmark is mostly over.
The investment in Nifty ETFs made now might meet the same fate as the
investment in broader markets since February 2018. If not that bad, at least it
will underperform the broader markets as Niftyy goes through some time
correction.
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