Do it yourself

 Once upon a time a sparrow couple made their nest in a wheat farm. In few days, lady sparrow laid four eggs. In two weeks eggs were fully hatched and four chicks were born. In the meantime, the wheat stems had started growing tall. In another two weeks, the chicks started to fledge and the wheat kernels began to turn golden. This was the day when parent sparrows first discussed about leaving their nest and move somewhere else. “The crop will be soon ready for the harvest. Our nest shall be exposed and trampled by the harvesters”, the lady sparrow feared. Her companion however was not worried as yet. “Nothing to worry as yet”, he assured her. In another three weeks, the farm turned completely golden with wheat completely ripe to harvest. The lady sparrow was terribly worried now. “We must fly out now. The chicks have also grown up now and can easily fly to the woods behind the hill”, she argued with her companion. “Nothing to worry as yet. We have plenty of food here. Let chick...

After almost 5300years, the human civilization may again be entering a copper age. In the Copper Age 1.0 (which mostly occurred between 4500BC to 3300BC) the human transited from stone age to metal age. Copper age was just before we learned to mix tin with copper to make bronze, a stronger metal to be used for hunting tools. A variety of research shows that the invention of first proper round wheel may have happened in this period. The wheel was initially used primarily for pottery and children toys, before it was used in vehicles to transport man and material. Copper age therefore is considered to be an important watershed in evolution of human civilization. A strong consensus is evolving amongst global expert that acceleration of climate change efforts mean that human may be entering Copper Age 2.0, as the “Red Metal” shall play a critical role in decarbonisation of global economy. As per a recent research note of Goldman Sachs, “The critical role copper will play in achieving th...

The stock price of few top IT services companies in the country recently corrected sharply after declaration of 4QFY21 results. The explanation commonly offered and widely accepted for the fall in stock prices was that “the results were not as per the street expectations”. I find this little intriguing, especially in the current market environment. It is well acknowledged that in recent times, the non-institutional investors (“retail investors” in common parlance) have been the dominant players in equity markets world over. In my past 30years of interacting frequently with this category of investors in India, I know that a large majority of these non-institutional investors are not well versed with financial analysis, especially related to the forecasting of financial performance and deriving fair price based on such forecasts. Moreover, there is an insignificant minority in this category of investors which actually relies on the target prices forecasted for a security by “fundamen...

India's trade gap widened to $13.93 billion in March of 2021 from $9.98 billion a year earlier. The trade gap was however lower than the preliminary estimates of a higher $14.11bn. The key highlights of trade data were as follows: ·          In March 2021 exports soared 60.3% to a record high of $34.5bn (up from $27.5bn in Feb’21), marginally higher than the preliminary estimate of $34bn. ·          The exports surged ~60% yoy in March, driven mainly by $6bn rise in non-petroleum products’ export. ·          Imports in March 2021 were $48.4bn ($40.5bn in Feb’21), led by non-petroleum imports of $38.5bn ($31.5bn in Feb’21). Imports surged 54% yoy ·          Overall exports contracted by ~7.2% yoy in FY21, a reasonable figure given the difficult period for trade due to global lockdowns. ·      ...

India is presently passing through the worst phase of the pandemic. The scenes at hospitals, crematoriums, pathological labs, and in homes are heart-wrenching. Many young lives are being lost for want of basic facilities like medical oxygen and ventilators. Distressed and anguished citizens are begging for help, but to little avail. It is distressing to find that there is no dearth of people who are trying to take advantage of this calamity by hoarding and black marketing essential drugs and medical equipment. The worst part is to find that many highly educated and influential people, who have developed symptoms of the disease, not getting themselves tested or not disclosing it to their contacts; and thereby accelerating the spread. Many people with symptoms have traveled in public transport risking the lives of co-passengers and adding to the alacrity of spread. Last year we all had seen disturbing visuals of pandemic aftermath from developed countries like US, UK, Spain, Italy, e...

 A Newsweek story couple of weeks ago ( see here ) highlighted that Americans may not be splurging the $1400 stimulus checks given by the Biden administration. As per the story, a survey has found that “Americans are generally saving about 42.6% of the third federal stimulus payments, up from 37.2% and 36.4% of the second and first stimulus checks respectively”. It is pertinent to note that the latest stimulus payment of $1400 is larger than the first two, which were $1,200 and $600 respectively. The Survey also finds out that little over one third of the latest payment has been used to repay debt, as compared to 37.4% and 34.5% respectively for the previous two stimulus checks. This data could be interpreted in different ways. The most common interpretation is that the recipients may be saving the money to get some more clarity on the Covid-19 conditions and come out in hoards to spend in next couple of years (2022-2023). Few are interpreting it as harbinger of a structural chan...

 Over past couple of weeks, I had exciting interactions with some professionals from the IT capital (Bengaluru), Pharma Capital (Hyderabad), Engineering capital (Chennai), Financial Capital (Mumbai) and political capital (Delhi) of India. From these interactions I learned that a definite new paradigm is emerging in Indian commercial space. The following are some key take away from my interactions: 1.     Traditionally, a majority of Indian entrepreneurs have not aimed for global scale in their businesses. Despite a rich history in the areas like culinary and textile, few businesses of global recognitions and scale could be created in these areas. However, now the first generation entrepreneurs have materially widened their vision. Many of them are now working on business ideas with global markets and scale in sight. No eye now widens on the mention billion dollar figures. 2.     The skills in Artificial Intelligence are becoming common place. In la...

 Prices of industrial metals and base metals have risen rather sharply in past few months. Most prices are now ruling at multiyear high levels. Though it is not clear whether this trend continues to be driven by the “supply shock” or a “demand shock” is driving the prices of higher. Actually, it could be a mix of both the factors. For example, growth of electric mobility and accelerated adoption of reviewable (solar & wind) energy could be driving the demand of copper faster than the supply; where China’s curbs on steel production to control emission levels may have extended a supply shock to global trade. Similarly, the massive Covid stimulus by developed countries (e.g., US announcing massive stimulus for infra building) may have added to demand acceleration for steel and aluminum etc. while renewed mobility restrictions in many jurisdictions, Suez logjam, container shortages etc. may have added to supply restrictions. There are some conspiracy theories also in the works....

In the context of India stock markets, I found the following two things worth noting on Tuesday: (i)     A number of brokerages wrote strategy notes urging the clients to use the recent “lockdown fear” led correction in stock prices as a good opportunity to buy stocks. Apparently, the strategy appeared to be driven by (a) deep fall followed by a sharp recovery in 2020; and (b) belief that the abundant global and local liquidity and low interest artes will continue to support equity markets for couple of more years at least. (ii)    The IT sector stocks corrected rather sharply after the bellwether TCS announced a decent set of number for 4QFY21 and encouraging commentary for FY22. This highlights, in my view, that markets expectations may be running rather high in terms of corporate performance and payouts. There is virtually no margin for any disappointment on earnings or payout front. Some research reports have taken note of the intensifying second wave ...

Just when everything appeared to be settling nicely, the volatility in Indian equity markets has increased materially. The sharp corrections at any hint of adverse event highlights the jitteriness (and to some extent lack of conviction) of market participants. Considering that household investors (and traders) have increased their participation in the market significantly in past 6-8 weeks, the pain quotient of any sharp correction from here could be significantly higher. Evidently, while the benchmark indices are now mostly flat for past 8-9 weeks, the sectoral shifts have been meaningful. Investors have adopted inflation (commodities) and cyclical recovery (mid and small cap) as a primary investment theme. Financials, discretionary consumption and realty sectors have witnessed a major “move out”. The investors positioning seems to be, inter alia, based upon the following premise: (a)        The earnings recovery witnessed in 4QFY21 shall contin...

I shared my investment strategy with readers in December 2020. I expected 2021 to be one of the most difficult years for investors in terms of high volatility, poor expected returns from diversified portfolios and continued low return expectations from cash and debt. After 3months into the year, I am even more confident about my view. I continue to believe that to generate normal return on the financial asset portfolio one would need to maintain a certain degree of flexibility in portfolio. A part of the portfolio may be dedicated to active trading, at least in 1HFY22. I am therefore not changing my investment strategy for next 6months at least. I may share my current investment strategy as follows: Asset allocation I shall continue to maintain high flexibility in my portfolio, by keeping 30% of my portfolio as floating, while maintaining an UW stance of equity and debt. Large floating allocation implies that I shall be trading actively in equity. (a)   The fixed e...