Do it yourself

 With each report announcing further success in the endeavors of developing an effective vaccine for SRAS-CoV-2 (previously termed Covid-19) infection, the level of anxiety amongst the stock market traders and investors is rising disproportionately. Most of them appear anxious to find the best trade for the “normalization”. The fact that in past two years, the returns on investment for most of the investors and traders have been sub optimal, is further fuelling the anxiety. Most of them appear to believe that first mover will make extra ordinary gains, while the slow movers will miss this once in a decade opportunity. Recent discussion with market participants in India, US and Singapore, indicates that they are exploring a variety of ideas that could give extra ordinary return in next one year. Some of the common ideas include technology, healthcare and reflation. Logistics also appears to be fast emerging as one of the favored ideas. The following are the arguments I have hear...

 The latest quarterly bulletin on employment and unemployment indicators released by the Ministry of Statistics and Programme Implementation, Government of India makes interesting reading. The latest data presented in the bulletin in based on the Periodic Labour Force Survey (PLFS) carried out between July-September 2019, i.e., well before the lockdown forced by the outbreak of SARS-CoV-2 pandemic. The key highlights of the survey are as follows: ·          For the purposes of the Survey, the “Labour Force Participation Rate” (LFPR) is defined as the ratio of population which offers itself for employment, whether currently employed or unemployed. The “Worker Population Ratio” (WPR) is the ratio of employed workers in the total population of the country. ·          As per the latest data, in urban areas, LFPR was ~37%. For the young people (15-29yrs) the rate was at ~39%, while all people above 15...

 Many readers have found my thoughts on “hyperinflation” yesterday little abstract (see Hyperinflation - Highly improbable ). They want me to elaborate further on why I think that “hyperinflation” is highly improbable in foreseeable future. I do not mind sharing the bases of my views on this topic. However, before elaborating my views of “hyperinflation”, I would like to clarify that when I say “hyperinflation”, I do not mean the term in its literal sense, because in that sense it makes no sense in the present day conditions. In the current context, by hyperinflation, we should understand episodes of sustained high inflation over a period of many months. To put this in further context, please note that “hyperinflation” is generally used to describe situations where the monthly inflation rate is greater than 50%. At this rate, an item that cost Rs1 on January 1 would cost Rs130 on January 1 of the following year. At least, in past few centuries, there is no instance of a global ...

 It was particularly gloomy winter evening of 2008 in South Mumbai. The global financial markets had their knees frozen. One of the top global financial institutions, Lehman Brothers had collapsed a couple of months back. Another global financial giant Merrill Lynch lost its identity to Bank of America. Some peripheral European countries were on the brink of defaulting on their sovereign obligations. The bankers in the financial hub of India (South Mumbai) were staring at massive job losses. Numerous businesses were on the brink. Many large investors had also suffered huge losses in their portfolios. For younger investors and bankers in their 20s and 30s, the conditions were totally unprecedented. The fear, uncertainty, scale of value destruction was overwhelming as they had not experienced anything like that before. Most of the then had seen 5yrs of strong bull market in credit and capacity building in infrastructure, energy and housing. Suddenly, all the credit started to look ba...

 A few month ago, the banking and monetary regulator in India, the reserve Bank of India (RBI), assumed the responsibility of stimulating the economic growth, in addition to its primary responsibility of regulating & supervising the banking & money market institutions, formulating & implementing monetary policy to achieve the objectives of financial stability and price stability. Given the state of economy, no one could find any fault with the RBI assuming this additional responsibility. In fact the RBI was commended for taking this extra load. It is very well accepted that a well-functioning, deep and robust financial market is a must for economic development. On Wednesday, the financial market regulator, the Securities and Exchange Board of India (SEBI) assumed the additional responsibility for reviving the sagging Indian economy. SEBI’s chairman reportedly said “SEBI is considering multiple steps to reboot the economy through financial market reforms”. He said, “It...

 In past one month I have read a lot of commentary about the smart investing, sectoral shifts, trade rotation, reflation trade, emergence of old economy etc. in the India equity markets. I find it pertinent to note the sectoral performances over three time periods – One year; Since Lock Down (25 March 2020); and Past three months when the unlock exercise meaningfully started. Some of the key features of sectoral performances over these time frames could be listed as follows: ·          Nifty has given positive return over all three time frames, but one year return in miniscule 2.6%, much lower than the bank fixed deposit or liquid fund return. ·          Only two sectors IT and Pharma have consistently outperformed the benchmark Nifty over all timeframes. PSUs as a sector have been consistently the worst performer on all time frames. ·          Energy, Inf...

 In the aftermath of devastation that took place due to the second world war (WWII), some key global institutions were created and multilateral agreements signed to (i) avert chances of another major war; (ii) enhance global cooperation for accelerated reconstruction work; and (iii) promotion of globalization of trade and commerce to ensure equitable growth and development. Bretton Wood agreement signed in 1944 was one of such efforts. The Bretton Woods agreement established the U.S. dollar as the reserve currency for world. The idea was to prevent competitive devaluations of currencies, avert trade wars and promote international economic cooperation for growth & development. The Bretton Wood signatories agreed to maintain fixed exchange rates between their respective currencies and the US Dollar. The US dollar in turn was pegged to the price of the gold. Until WWI, most countries followed the gold standard for their respective currencies; which essentially meant that they ...

 Last weekend I did my annual festival market check. This year, besides the main markets of Delhi, I visited some local markets in predominately lower middle class areas; and some markets in rural areas of North Delhi. I managed to speak with some very large importer and traders of consumer goods; auto dealers, farmers, real estate developers and owners of leased properties. Based on my observations, interactions and information, I would like to share the following feedback with readers: ·          The overall demand situation this festival season is materially worse than the last year. It is pertinent to note that the last year was also not good per se. ·          A large importer and trader dry fruits, mainly almonds and walnuts, indicated that global dry fruit prices are down over 25-30% as compared to last year. In India despite supply disruptions due to broken logistic chain, the prices are low...

 With each passing day, the realization is growing that it will “years” not months or quarters before the normalcy returns to the global economy. Regardless of the statistics on global trade, national income and corporate earnings, the impact of pandemic on humanity, especially poverty, inequality, and suppression is overwhelmingly devastating. The pandemic has indubitably undone the decades of efforts in poverty alleviation and public health in numerous developing and underdeveloped countries. As per a recent Bloomberg report based on a study conducted by the World Bank and Philippine’s local agencies, “almost half of shuttered businesses were unsure when they could reopen”. As per the report, “in emerging parts of Southeast Asia, where a wave of job losses and weak social safety nets mean millions are at risk of losing their rung on the social mobility ladder. The region is likely to come in second behind the Indian subcontinent in charting the number of new poor in Asia this y...

National Sample Survey Organization (NSSO) recently published a very interesting report. The report highlights how an average Indian uses his time. Based on a survey conducted between January and December 2019, the report describes how Indian household uses their time especially on unpaid caregiving activities, volunteer work, unpaid domestic service producing activities of the household members, learning, socializing, leisure activities, self-care activities, etc. The key finding of the survey (conducted for persons aged 6yrs and above) could be listed as follows: Engagement of people in various activities ·          The percentage of women engaged in employment and related activities is very low (18.4%) as compared to male (57.3%). The percentage of rural women in employment is higher (19.2%) than the urban women (16.7%). ·          More rural women (25%) produce goods for own use than the urban wo...

  As per the latest survey conducted by RBI, the Consumer Confidence in India remained at an all-time low level in September with the general economic situation worsening during the month. This data read with the dismal IIP growth (-8%) and elevated consumer inflation (7.34% highest since January 2020) indicates that (i) the recovery from lockdown is slower and belies the enthusiasm shown by some of the analysts and economists; and (ii) we shall struggle to reach the pre lockdown level of economic activity for at least 2 more quarters and any improvement in the growth trajectory normalized for lockdown impact may still be far away. Remember, the economic growth in India was declining much before the pandemic forced a complete lockdown in March 2020. The key highlights of the Consumer Confidence Survey (September 2020) are as follows: ·          As per the survey, the consumer confidence (current situation) continued to slip for third succ...

  A web series on the infamous Harshad Mehta scam of early 1990s seems to have triggered a debate on the present state of the financial regulation and risk management practices in India. The key point of interest is whether a scam similar to Harshad Mehta scam could recur! During late 1989-1992, a Mumbai (then Bombay) based stock broker Harshad Mehta used the inefficiency and lacunae in the banking and stock market systems to create massive pseudo credit. The credit so created was used to manipulate stocks prices, causing the first major bubble in Indian stock markets. This was the time when Indian economy was struggling with unprecedented balance of payment crisis, political uncertainty and higher energy prices due to war between Iraq and US (an ally of Kuwait) in the Persian gulf. Given the despondent economic situation huge short positions were built by traders in Indian equities. In the summer of 1991 the Congress government led by P. V. Narsimha Rao assumed office and unleas...

  After showing some reluctance in the month of September, Nifty has resumed its uptrend and is sprinting rather quickly to regain the Mount 12K. Many global markets are also within reach of their highest levels in the year 2020. There have been numerous factors that have supported the benchmark indices to reclaim most of the ground lost in February –March earlier this year, but in my view, the following five events are particularly noteworthy in Indian context: 1.     The relentless fund raising by the Oil to Consumer behemoth Reliance Industries. 2.     Dramatic changes in the fortunes of healthcare businesses in the wake of the outbreak of COVID-19 pandemic. 3.     Revival in demand for IT services, especially due to dramatic changes in the work and travel practices, M&A deals and global realignment of businesses, markets and states. 4.     Strong liquidity in equity market, as many businessmen and professio...

  The recent data on sectoral credit distribution and growth released by RBI discloses some noteworthy trends. These trends are interesting and worrisome at the same time. In particular, the investors may take cognizance of the following trends. 1.     Overall bank credit growth for the month of August 2020 was 6% (yoy). This is the slowest growth in bank credit recorded since October 2017. It is pertinent to note because this slowest rate of growth has happened despite a slew of special credit schemes, lending concessions, and rate cuts announced by the government and RBI since May 2020. 2.     In past 10 years, the services sector has been the top performer for the Indian economy. The share of service sector in GDP is over 55%. Unfortunately, this sector has been hit the hardest by the COVID-19 induced lockdown. The credit growth to this sector has seen the sharpest drop in August. The credit growth to the sector slowed to 8.6% (yoy). NBFCs and c...

  Some of the readers have found my yesterday’s post ( The best place to watch this Opera ), unnecessarily alarming and extremely hypothetical. I respect their opinion, though I may not necessarily agree with their comments. I had faced similar kind of criticism, when I found that a symmetrical fall in the market due to outbreak of pandemic may be unwarranted. I expected that the impact of COVID-19 lockdown over various sectors and businesses may be asymmetric and therefore the precipitous fall in the entire market is a big opportunity to buy the businesses that are likely to be less affected or positively impacted. ( Time to Take Big Call ) My decision to go tactically overweight on equity did not go well with many readers at that time; though I have no regrets. Moreover, I corrected my tactical equity overweight stance in late August ( Preparing for chaos – 4 ). Presently, I am maintaining my standard asset allocation of 60% Equity; 30% Debt and 10% Cash; and as stated in yeste...