Do it yourself

 Thankfully, the impromptu protests against the scheme for recruitment of short term soldiers in the Indian armed forces have subsided in a few days and the armed forces are reporting enthusiastic response from the youth. I see this scheme as an extension of the fast growing gig economy in the country. Most industries in the country are increasingly relying on gig workers to perform their business to maintain a lean and flexible cost structure for their enterprises. Recognizing the trend, the government has accorded legal recognition to the gig workers. The Code on Social Security, 2020, (CSS2020) that shall, in due course, replace nine extant labor laws and establish a single comprehensive legislation to extend social security benefits to all employees and workers irrespective of belonging to the organised or unorganised sector. The Code on Social Security, 2020 brings, within itself the self-employed workers, home workers, wage workers, migrant workers, the workers in the uno...

  In the past couple of months there has been a visible rise in the reports expressing fears of an implosion in Japanese, Chinese and Russian economies. The reasons behind these fears are quite diverse. Of course there is nothing new in these reports. Experts have been predicting an implosion in the Japanese economy since the early 1990s’ in the Chinese economy since 2008 and the Russian economy since 1917. Personally, I do not subscribe to any of the theories that forecast implosion in the Japanese, Chinese and Russian economies in the near future. Nonetheless, I believe that the study of the growth, fiscal and indebtedness profile of Japan is important from two viewpoints, i.e., (i) impact on the global economy, should the BoJ losses control over the situation; and more importantly (ii) impact on the global economy if the US economy (consumption, growth, fiscal profile, etc.) follows the Japanese economy and gets trapped in this vicious cycle of high debt and low growth; and the ...

 In March 2009, Tata Motors, the largest automobile manufacturing company in India, rolled out an inexpensive small car from its plant in Sanand town of Ahmedabad district of Gujarat. The car was metaphorically named Nano, which means dwarf in Greek and Little in Gujarati. The ambitious project of the Tata Group chairman Ratan Tata, is remembered for multiple reasons. First, the plant to manufacture Nano was planned to be set up in Singur town of Hooghly district of West Bengal. The then Left Front government acquired the farm land for the project and handed it over to Tata Motors. The then leader of opposition in West Bengal, Mamta Banerjee organized a massive protest that turned violent against the project, alleging that the land of farmers had been acquired inappropriately. Many activists and celebrities supported Ms. Banerjee’s protests and Tata Motors was finally forced to withdraw the project from the state of West Bengal. The then Chief Minister of Gujarat, availed the opp...

 The latest issue of Sarvekshna (March 2022 ), the periodic journal of National Statistical Office (NSO), presents some important insights into assets and indebtedness of the Indian households. Some of the data is actually contrary to the popular perception. I find this data important since it defines the limits of potential domestic inflows into the financial markets; and the challenges the household face in a persisting negative interest rate environment. The key highlights of the NSO presentation are as follows: Asset ownership pattern ·          96.6% of Rural households own some financial asset . This percentage is lower (94.7%) in case of urban households. ·          Average value of financial assets held by a rural household in India is around INR73,000. For an urban household, this value is much higher at INR2,52,000. ·          About 91% of rur...

The Federal Open Market Committee (FOMC) of the US Federal Reserve decided to hike the benchmark bank rate by 75bps to 1.5% - 1.75% on Wednesday. The Committee also reiterated that the Fed will continue to shrink its balance sheet by US$47.5bn till August 2022 and from September the unwinding will be stepped up by US$95bn/month. The FOMC noted that there is no sign of broader slowdown in the economy, while lowering its GDP growth forecast for 2022 to 1.7% from 2.8% earlier. The FOMC statement reiterated the strong commitment to achieve the 2% inflation target. The Fed Officials projected raising it to 3.4% by year-end, implying another 175 basis points of tightening this year. The projection shows a rate cut in 2024. In the post meeting press meet, Chairman Powell commented that “Either a 50 basis point or a 75 basis-point increase seems most likely at our next meeting. We will, however, make our decisions meeting by meeting.” The Chairman added that ““It does appear that the US econom...

As I suggested yesterday ( see A perfect storm ), “the best strategy under the present circumstances would be to (a) hold nerves and not panic; (b) review the portfolio for any corrective action that may be needed once the storm passes and the sea becomes calmer.” To add further to that, I may suggest that the following points may be pertinent to note while reviewing the portfolios: 1.    The higher cost of capital (interest rates) would result in lower fair valuation for equities in general. The growth companies that have debt on balance sheet or need to borrow for capex; and/or where the free cash flows are mostly back ended may see much sharper cut in their target multiples. In fact we have already seen 20% derating in Nifty PE Ratio over the past eight months. 2.    The market consensus was working around 18% CAGR for Nifty earnings over FY23-FY24. The realized earnings growth may be much lower than this. My personal assessment is that we may end ...

The benchmark Nifty is down about 15% from its October 2021 closing high of 18477. A broader gauge of the market performance Nifty500 is also down by a similar proportion. However, anecdotally I find that damage to the investors’ sentiments is much worse than what this extent of correction in these indices might be suggesting. There could be multiple reasons for the investors’ despondency. For example— ·           Most of the popular trades of 2020-21 that have attracted a whole lot of new investors/traders to the equity markets have lost materially. The Covid trade (Pharma, healthcare); New listed IT enabled businesses like ecommerce platforms and Fintech; popular disinvestment candidates; PLI beneficiaries; self-reliance and import substitution (Specialty chemicals, electronics) have sharply underperformed the markets. A large number of these stocks have corrected 25-75%. The non-institutional investors have a tendency to chase popular trad...

What would be the first thought that crosses your mind, when you hear a veteran fund manager betting his shirt on Nifty falling 30-40% in the next 6months! Yes, you heard it right. Last week, a former CEO/CIO of a large AMC, confidently told an audience composed of top bankers and HNIs that Nifty is bound to come to sub 10000 levels in next 6months and gold is the only safe haven under the present circumstances. I am not sure about how many amongst the audience actually concurred with his view, but the first thought that came to my mind was “how would this old man look without a shirt!” In a recent visit to the financial capital Mumbai, I also had the opportunity to meet some senior market participants (bankers and investors). None of them sounded enthusiastic about the markets. The consensus appears to be strongly favoring a slow grind over the next 6-9months. Incidentally, the reference point for most of the senior participants is 2008 market crash, in the wake of the global fi...

In its latest meeting (6-8 June’22) the Monetary Policy Committee (MPC) of RBI unanimously decided to hike the policy rates by another 50bps. Last month, the MPC had announced an unscheduled 40bps hike in rates. With this hike, the policy Repo Rate (rate at which RBI lends short term money to banks) is 4.90%; Standing Deposit Rate (rate at which banks can park their surplus funds with RBI) is 4.65%. It is relevant to note that in the last rate cycle RBI had cut repo rates from 8% (January 2014) to 6% (February 2018) and then increased it to 6.5% (August 2018). In the current rate cycle, RBI cut the repo rate from 6.5% (August 2018) to 4% (May 2020) and has now started to hike it from May 2022. The consensus market view is that RBI will make another 3 hikes of total 85-110bps till December 2022 to take the rates closer to 6%. The latest statements of the MPC and RBI governor are significant in more than one way. These statements mark a clear shift in the RBI’s monetary policy stance...

A recent media report highlighted remarkable reduction in the infant mortality rate (IMR) of India. India’s IMR improved from 47 in2010 to just 28 in 2022, bringing it closer to the global average of 27. ( see here ) Much contrary to the popular perception, India achieved one of the best Covid vaccination rates in the world. As per the latest available data close to two billion doses of Covid vaccines have been administered, defying all the logistic challenges. These are just two success stories from India’s public health sector. Recognizing these remarkable achievements, t he World Health Organization (WHO) recently honored more than a million Asha Workers of India for their commendable public service, especially during the pandemic. It is rather unfortunate that not much of the urban population is even aware of the existence of Asha (the frontline health workers). Many mistake Asha workers for Aanganwadi workers. Even though millions have “liked” the pictures of Asha workers ad...

A lot of the recent macro research effort of stock market participants has been devoted to the state of rural demand in the country. In their latest commentary, most consumer goods companies have reported continued pressure on rural demand. Even though many market economists and analysts have forecasted imminent recovery in rural demand, the corporate commentary did not sound that much sanguine. Nonetheless, higher food prices and expected good monsoon are expected to help the rural economy to some extent. A good performance of the rural sector is important for investors. Almost two third of the Indian consumers derive their livelihood directly from the rural economy, including farming, horticulture, animal husbandry, cottage industry, forestry, etc. The rural economy directly supports a large number of industrial enterprises, like crop protection, farm equipment, transportation, food processing, etc.; besides providing material indirect support to industries like textile, consumer s...

The prices of publicly traded financial assets like equity shares and bonds etc., is materially influenced by the sentiments of fear and greed amongst the market participants, at least in the near term. The sentiment of greed drives the participants to bid higher prices for a security, even though the economic fundamentals underlying that security may not fully justify such price. Similarly, the sentiment of fear prompts the market participants to offer the securities held by them at relatively cheaper rates. The equilibrium of sentiments of greed and fear keeps the markets stable & healthy; whereas dominance of either sentiment induces excessive volatility and irrational pricing in the markets. Extreme dominance of either sentiment usually marks the peak or bottom (as the case may be) of a market cycle. If we examine the current equity market behaviour, it appears that the sentiment of fear is gradually becoming dominant amongst the market participants. The following five signs,...