Do it yourself

After FY09, the current financial year (FY21) has been the most eventful year in most respects – social, economic, financial, ecological, science, and geopolitical. Socio-economic disaster: The spread of SARS-CoV-2 (Covid-19) virus that started sometime in last quarter of 2019 was declared a global pandemic in March 2020. The pandemic engulfed the entire world in no time, causing tremendous loss to human life and global economy. The mobility of people was restricted in most countries substantially. The economic activities were also curtailed only to the “essential” activities. Consequently, the global economy faced a technical global recession as most major economies recorded negative growth during 1HFY21. The pandemic this had disastrous socio-economic consequences. Millions of jobs were lost and workers displaced; smaller businesses which could not bear the cost of lockdown faced closure or were further scaled down; loss of lives traumatized families; and millions of poor children w...

 The recent order of the Supreme Court regarding classification of NPAs and payment of compound interest for the period of moratorium has reignited a debate on the state of Indian financial sector. The order of Supreme Court has been received by markets as a relief, as it removes a regulatory overhang and paves way for the banks to proceed with recovery of NPAs. Nonetheless, the next few quarters need to be watched closely for any precipitous rise in bad loans; especially if the recovery appears faltering. Past few years have been quite challenging for Indian financial services sector. A decade of massive infrastructure building exercise (1998-2008) resulted in significant advancement of demand and therefore unviable projects in key sectors like housing, roads, power, civil aviation, metal & mining, SEZs, Ports etc. resulted in a multitude of stalled and unviable projects. Administrative and regulatory irregularities in allotment of natural resources to private parties led to...

 The first monetary policy statement of FY22, scheduled to be made on 7 April 2021, is awaited more for the signals and body language, rather than any monetary policy action. It is almost a consensus that RBI, like any other major central banker, may not be in a position to cut rates from the present levels. On the other hand, RBI governor has made it clear that “...there is no way the economy can withstand higher interest rates in its current state. It is recovering but certainly not out of the woods yet”. The governor has gone way out of his way to assure the bond market and committed “orderly evolution of yield curve” in public interest. The bond market has calmed down a bit after aggressive assertions made by RBI governor, but the traders have not retraced their steps. The benchmark 10yr yields are now stable close to 6.2%, much higher than the 5.8% to 5.9% sought by RBI. Next couple of policy statements would therefore be watched to assess (i) how deep is the RBI’s commi...

 A visit to local fruit and vegetable market last evening was quite revealing. The summer seasonal fruits like muskmelon (Rs140/kg); safeda mango (Rs180/kg) and watermelon (Rs45/kg), mulberries (Rs350/kg) all appeared becoming unaffordable for common households. Even if we assume that it is still early season and the rates will correct in next few weeks, my experience is that peak season rates are usually not less than 50% of the early season rates. Similarly none of the seasonal vegetables was available less than Rs50/kg. An article in March Bulletin of RBI highlights that the rate of financial savings of household may have contracted to 10.4% of GDP in 2QFY21 from 21% in 1QFY21. It is also suspected that the household savings rate may have further declined in 3QFY21. The article reads that “The Covid-19-induced spike in household financial savings rate in Q1:2020-21 waned substantially in Q2 in a counter-seasonal manner. While households’ deposits and borrowings picked up, the...

As per the latest data available, the capital expenditure (capex) growth the new project announcements were down significantly in 3QFY21, the quality of projects has improved materially. The new public sector projects are mostly in infrastructure sector, with state governments taking the lead over central government. The private sector projects are mostly in manufacturing sector driven primarily by the production linked incentive (PLI) scheme announced by the central government. On the consumption side, the real wages for non-government non-financial sector have continued to decline for fourth successive quarter in 3QFY21. The employee cost for this sector is presently at lowest level in a decade. I note the following trends from some recent brokers’ reports relating to new capex. Phillips Capital analyzed the recent capex data published by CMIE and noted the following: ·           New projects announced in 3QFY21, at Rs 801bn, were lower 22%...

The State Minister for Finance, recently informed Lok Sabha that the government had stopped printing of the currency notes of Rs2000 denomination in 2019 itself. This step has been taken to prevent hoarding of currency and curb the circulation of black money in the economy. It is pertinent to note in this context that Rs2000 denomination notes were introduced in 2016 post cancellation of the then prevalent currency notes of Rs1000 and Rs500 denomination. That step, in the first place, was also apparently taken to curb the circulation of black money in the economy. Besides, the color of money {white, black, pink (Rs2000), green (INRUSD) etc.} which remains an active topic of discussions, the temperature of money is also becoming a topic of interest. Rise in the stock and flow of “hot money” is becoming a worry for authorities. “Hot money” could be loosely defined as the liquid money that flows very fast across asset class and jurisdictions in search of short term trading opportunities...

In past couple of years the securities’ market regulator the Securities and Exchange Board of India (SEBI) has amended many rules and implemented some new ones to bring the functioning of Indian securities markets further closer to the international standards. Being a signatory of the International Organization of Securities Commissions (IOSCO), a global body of securities market regulators, SEBI is mandated to implement global standards of market regulations in India, especially in the area of investor protection, systemic safety, and prohibition of unethical and fraudulent market practices. Some of the more discussed and criticized latest standards introduced by SEBI are – (a)    Segregation of financial intermediation and advisory functions. In line with the best global practices, to avoid potential conflict of interest and bring objectivity in advice, Investment Advisors have been prohibited from offering financial intermediation (MF distribution, brokerage etc.) (b)...

After some exciting action post presentation of Union Budget for FY22, the benchmark indices have moved sideways with heightened intraday volatility. The broader markets have definitely outperformed suggesting some superlative returns for the investors. However, when assessed from the rout of small and midcaps in 2018 and 2019, it is clear that broader markets may not have actually yielded much return, even to the investors who have stayed put for 3year. For example, Nifty Smallcap100 index has not yielded any return for past 3years; and Nifty Midcap100 return is only slightly better than the bank deposit return since March 2018. Notwithstanding the massive visual gains recorded by equity prices in past 12 months, the portfolio returns for most investors may have been below par. The returns on debt part of the portfolio have been poor, with real returns being negative in many cases. For a large proportion of investors, debt part is usually equal to or more than the equity part. S...

The history appears to be repeating itself for the n th time in the stock market. The small time enthusiasts, who normally join the band wagon right at the top of the market cycle, have once again jumped into the market arena. Completely overwhelmed by the left-out syndrome, they are queuing in hordes in front of the counters where they had lost their fortunes, not long ago. Many of these scrips are trading at a fraction of the price they were trading 3years ago. Some notorious stocks that have inflicted huge losses to the investors and traders in past decade are also topping the volumes charts again. A strong urge to prove a point, rather than greed, appears to be the dominating factor here. Everyone wants to prove that it was their bad luck rather than lack of financial acumen, which caused them loss last time. I wish luck favors these traders this time. But in my heart I know for sure, this is not going to be the case. They will again lose! No regulator, no matter how strong and vi...

 Notwithstanding the buoyancy in stock market, the economy has shown some clear signs of fatigues in February. The post lock down recovery from September onwards appears to be pausing, as pent up consumer demand has subsided and rise in raw material prices has dampened the sentiments. Some signs of economy pausing could be read from the following: (a)    GST payments in February (for collections in January) have declined after rising for three consecutive months. (b)    E-Way collection in February were also much below the December levels. (c)     Exports have been mostly flat for the month of January and February; while imports have declined from the December levels. (d)    Non food credit growth slowed down further in January. ·          The Industrial credit contracted -1.3% in January. The contraction was led by large industrial credit, which constitutes ~82% of industrial credit and ...

A visit to here tier two cities of Uttar Pradesh over last weekend was quite educating. I came back with few new learnings and stronger conviction in couple of themes that I have been following for past couple of years. We visited the temple of our family deity in Agra. The temple is being renovated completely from the inside. The donations for the renovation are being accepted in digital mode. The devotees, many of them from lower middle and poor families were pleased to pay Rs10-50 through UPI etc. It was very clear that people across the socio-economic strata have internalized the digital mode of payment. Another evidence of this trend was available at Fatehpur Sikri monument. The CNG bus that takes the tourists from parking upto the monument charges Rs10 as fare. The bus operator was accepting payment of Rs10 through digital mode. All tourists, villagers and urbanites alike, were happy to scan the QR codes. The monument entrance fees Rs45 per person, is payable only in digital ...

 There are lots of events happening in global markets which cannot be full explained through conventional wisdom or empirical evidence. In my view, lot of these events are unintended consequences of policy actions, geopolitics and trade conflicts. For example, there is a massive rally in the global commodity prices, despite poor demand and growth outlook for next few years at least. The recovery to pre Covid level may not entirely explain the rise in commodity prices much beyond the 2019 levels. Popularization of electric mobility etc. can explain gains in some commodities, but not in steel, coal, crude etc. The forecasts of a commodity super cycle sound mostly unconvincing, given (i) worsening demographics of the world; (b) restricted mobility; (c) seriously impeded purchasing power of people; (d) already stretched limits and diminishing marginal utility of fiscal and monetary stimulus; (e) technology evolution focusing on reversal of trends in labor migration; and (f) diminis...