Some food for thought
"How well he's read, to reason against reading!"
—William Shakespeare (English writer 1564-1616)
Word for the day
Barmecidal (adj)
Giving only the illusion of plenty; illusory, e.g., a
Barmecidal banquet.
First thought this morning
A large part of the population in Eastern and North Eastern
parts of India suffers from floods almost every year. Millions of people suffer
tremendous hardship every year due to inundation of their houses and fields.
For many of these people life begins afresh every year, as they
lose their shelters, belongings, old parents, infants, and jobs to floods or to
the disease and starvation that invariably follows the flood.
This cycle has been going on since past many decades. States
like Assam and Bihar have a regular flood control department. Every year they
go through the same routine. The most unfortunate part is that this misery of
people has been accepted by the administration and the politicians as fait
accompli. So much so that political parties even do not consider it
important to promise effective measures for flood control in their manifestos.
This year is no different. The politicians find NRC a more
relevant issue to discuss and debate rather than the misery of millions of
family. A customary tweet, few tonnes of relief material and couple of aerial
surveys are usually considered adequate relief work!
Chart of the day
Trends in credit growth
The latest RBI data release on sector wise credit shows some
interesting trends. These trends may be a helpful guide in assessing the stock
portfolios and reviewing the strategy for future.
The key highlights of sector wise credit trends are as follows:
(a) Non food credit
growth slowed to 8month low of 11.4% in May'19 (13.8% in Nov'18 and 11.1% in
May'18).
(i) The slowdown was
most manifested in services sector, where credit growth slowed down to 14.8%
(21.9% in May'18 and 28.1% in Nov'18).
(ii) Trade (whole sale
and retail) witnessed worst slowdown in credit, while NBFCs, Commercial Real
Estate and Transport operators did well.
(iii) Personal loans
growth (16.9% picked up from April (15.7%), but was down on year on year basis
(May'18 18.6%).
Housing loan, and credit card outstanding stood well, while
consumer durable, advance against shares/FDs, vehicle loans suffered the most.
(b) Priority sector
lending (9.9% May'19 vs 6.2% May'18) continued to record faster growth. MSME
(11.8% vs 8.9%) Affordable Housing (16.9% vs 4.9%) Micro credit (40.2% vs
38.7%) were notable growth areas. Education loans and Export credit recorded
most disappointing growth.
(c) Share of
personal loans (26.5%) in overall bank credit is comparable to Services
(27.1%). Industry's share (33.3%) has declined, while agriculture and priority
sectors are stable around 13% and 32% respectively.
(d) Amongst industry
segments-
(i) Textile,
Petroleum, Metals, Gems & Jewellery, Chemical witnessed marked slowdown in
credit demand.
(ii) Infrastructure segment
(37% May'19 vs 33.4% May'18) witnessed the best yoy growth though sequentially
some slowdown was visible.
(iii) Credit to sugar
sector grew 10.4% vs. negative growth for most of past year. Same was true in
case of petro chemicals. Power, roads and telecom were other notable gainers.
From this data, I would like to draw the following conclusions
for my investment portfolio:
1. NBFC crisis may
be subsiding and opportunities may be emerging in credit funds and unreasonably
beaten down NBFCs.
2. Prefer to invest
in larger diversified real estate players, who have a balanced portfolio of
commercial and residential real estate. For affordable housing better would be
to focus on construction material producers rather than the financiers. Given
the sharp growth in credit to this sector along with material rise in other
personal loans, exclusive affordable housing financiers might face severe
stress should the conditions worsen from here.
3. Growth in
infrastructure segment may be regaining momentum. I have been preferring EPC
contractors so far to capture this momentum. May be it is time to look at some
utilities also.
4. Household stress
is not showing any sign of abatement. Consumption stocks, especially
non-staple, continue to remain in avoidable or underweight category for now.
5. Corporate banks
may do better than retail banks over a period of 3yrs, as growth begins to
plateau in this fastest growing category.
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