Do it yourself

 The struggle between Newton's law of gravity and global markets is perennial. Many times it appears that the markets are defying the laws of gravity and breaking out of their orbit. However, in the end, it is the law of gravity that has always won. Notwithstanding the distance covered away from the “fair value zone”, and the time spent in the away zone, the asset prices invariably tend to return to the fair value zone. In the common market parlance these digressions and eventual return to normalcy is described by the phrases like Overbought, Oversold, Overvaluation, Undervaluation, Mean Reversion, etc. It is important to note that a long time spent away from the fair value zone could be very deceptive for investors. Sometimes it gives an illusion that the fair value zone for the subject asset may have already shifted higher or lower and the current price is actually closer to the fair value zone. The investors lacking in discipline and/or conviction may fall for this deception a...

 Hikes another 75bps The Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed) hiked the federal fund rate by 75bps yesterday to the range of 2.25% - 2.50%. This is the second 75bps hike in two months. In the post meeting press interaction the Fed chairman Jerome Powell outrightly rejected the speculations that the US economy is in recession. The FOMC members are of the opinion that the strong labor market allows the US economy to tolerate rapid monetary tightening. For the first time since February 2020, the FOMC statement did not mention Covid or coronavirus. …leaves the door open for further data dependent hikes Reiterating the commitment to achieve the 2% inflation target, Powell also indicated that while another unusually large increase could be appropriate at our next meeting, the FOMC would set policy on a meeting-by-meeting basis rather than offer explicit guidance on the size of their next rate move, as he has done recently; thus, leaving the future ...

The Nifty Metal Index has gained over 10% in the past one month; outperforming the benchmark Nifty50 (+4.5%) by 2x. Six out of the total fifteen Index components have gained over 10%, with Hindalco (+16%) being the top gainer amongst the metal producers. In this period, the Bloomberg Commodity Index is down by ~2%; LME aluminum futures are down ~2.5%; LME copper futures are down ~9.5%; Brent Crude prices are down ~11%; NYMEX gold futures are down ~5.5% and China Steel Bar prices are down ~10%. Also, in the past one month, the benchmark US 10yr Treasury Bond yields are down 9% from 3.13% to 2.78%; and the US Dollar Index (DXY) is up by 1.9%. I find the divergence between performance of metal stocks and global trends a little intriguing. The global commodity prices, bond yields and US Dollar movement etc. are all pointing to a significant slowdown (if not recession) in demand. The outlook for the domestic demand in India is also not enthusiastic in the near term. The 1QFY23 results...

 In the next couple of days, the market participants world over will be focused on the FOMC statement on Fed rates, inflation & growth outlook and guidance for the monetary policy direction in the near term (next 3-6months). The “active” market participants in India, in particular, would be staying awake till late midnight on Wednesday to hear what Fed Chairman Jerome Powell has to say. The fact that Thursday happens to be the monthly derivative settlement for July contracts, makes the Fed decision, and likely reaction in our markets on Thursday morning, even more pertinent for the derivative traders in India. Besides the derivative traders, the currency traders; bond traders and corporate treasury managers who need to actively manage their Fx exposure, would also staying awake to see how the US Dollar, EUR and US Treasuries behaves post the FOMC statement and try to assess how Indian bonds and INR may react in near term. Our markets may however be relieved to a great dea...

The debate over whether “equity investing” is an art or science is never ending. There are arguments on both sides, but none of these appear strong enough to settle the debate. Almost all episodes of this debate usually end with the compromising statement - “Equity investment is both an art and a science.” The application of quantitative research and financial models does give it a scientific color. But use of quantitative methods and financial models is highly influenced by the personal preferences, experience, estimates and prejudices of the user. Invariably, the forecasts of fundamental analysts vary based on what parameters they have used in forming their respective opinions. For example, a 50bps difference in weighted average cost of capital (WACC) used by two analysts could give dramatically different assessments for the fair value of a stock. As someone pointed out, fundamental analysis of equity stocks is like navigating a car. While all the cars are designed scientifically, th...

Last night I got a call from a friend who had been staying in London for the past 3years. He wanted to know what type of air-conditioner is better – window or split type. He sounded quite hassled as he was figuring out how the air conditioner would be installed in his rented apartment; what kind of permissions would be required; whether he can get a skilled technician to install an air conditioner; and how much would be the operational cost (electricity bill) for using an air-conditioner in London. I am sure he was overreacting to an ordinary situation, because the situation is dramatically asymmetrical to his perception of life in London. This summer seems to be particularly hard for the Britons. The mercury has soared past 40 degree Celsius, apparently for the first time ever in history. The native white population is particularly perturbed as they are finding the heat unbearable. Citizens are commonly reporting problems like skin burns, dehydration, breathlessness, nausea, exhaustio...

 A recent Reuter’s article ( see here ) drew attention towards some ominous signs emanating from the bond pricing of emerging markets that are more vulnerable to default on their sovereign obligations. Noting the signals like weakening currencies, bond spread widening beyond 1000bps, and dwindling Fx reserves, it concludes that a record number of developing economies might be “in trouble” now. More than US$400bn worth of sovereign debt could be facing default. While the countries like Russia, Sri Lanka, Lebanon, Zambia etc. have already defaulted on their obligation, the usual suspects like Argentina and Pakistan etc. appear on the precipice of a default. The serial defaulter Argentina (US$150bn); Ecuador 9US$40bn); and Egypt (US$45bn) may actually default much sooner. If the war drags on for a couple of more months, Ukraine may also default on US$20bn debt payments. Of course, the sovereign defaults are not new and the US$400bn default might not look massive in the context of ...

 One good thing about the Monsoon season in North India is that this is the season for new crops of fruits from hill states. We get fresh and juicy pears, plums, apples, cherries, peaches etc.; besides, juicier varieties of mangoes like Chausa and Langda. A visit to the fruit market in Gurgaon yesterday however left a little sour taste in my mouth. None of the seasonal fruit was selling at less than Rs100kg. Apples are more than Rs200/kg. Even mangoes are selling at a rate of Rs120-250/kg. The vendors selling from carts and smaller shops are unhappy as sales are down notably due to higher prices; and a larger than usual quantity of their merchandise is going to waste due to rotting. The consumer is obviously unhappy as even the seasonal fruits are becoming unaffordable for many of them. The importers of fruits from South East Asia and Americas are also not particularly happy as the demand for expensive and exotic fruits is diminishing consistently due to higher prices. I shall ma...

In yesterday’s post I mentioned that in my view the likely demographic change over the next couple of decades is a more interesting investment theme than the more popular climate change or ESG. ( see here ) Some readers have sent their comments and views on the topic. A few have expressed disagreement with my hypothesis; but a large majority seems to be in agreement. A couple of readers have pointed out that demographic change and climate change are intricately intertwined and share a circular causal relationship. I fully agree with this viewpoint. The investment themes that support both climate change and demographic change could actually be the best investment theme. Metaverse is one such theme, in my view. The Federation of Indian Chambers of Commerce & Industry (FICCI) in a recently released knowledge paper – “Metaverse and Emerging Opportunities” – highlighted some interesting aspects of this massive opportunity that has the potential to transform, inter alia , the way we wo...

 The summer has been truly scorching in many parts of the country this year. Reportedly, land surface temperatures neared 55 degrees Celsius over many parts of northwest India; even crossing 60 degrees Celsius over several pockets ( see here ). The visuals of floods and inundated streets & homes from many states are also disturbing. Obviously, the weather patterns are changing rather quickly and our infrastructure is not designed to handle these changes. Power shortages, urban flooding, uncontrolled wildfires, frequent landslides, roads caving in, flight delays, traffic jams, etc. have become rather common issues. The rating agency CRISIL highlighted in one of its latest reports (Sustainability Yearbook 2022) highlighted that over 52% of India’s GDP could be exposed to physical risks like wildfire, flood, sea-level rise, or storms by 2050. This cannot be a good augury for a large proportion of our population which is poor and largely dependent on agriculture for its sustenanc...

 I find nothing more disturbing than demolition of a long preserved and much cherished image or belief. Occurrence of this often gives rise to cynicism, shaking the core of the belief system. The recent act of violence in Japan is one such event. People of my generation have known Japanese people for their politeness and commitment to non-violence. The pictures of Japanese crowds showing remarkable patience and calmness during adversities have been much cherished by post WWII generations. The assassination of the former Japanese Prime Minister Shinzo Abe, last week, while he was addressing a public meeting has shattered many images I was carrying in my mind. This is perhaps first of its kind of act of violence since assassination of Inejirō Asanuma, the then Chairman of the Japan Socialist Party. However, in the pre-war era, political assassinations were rather commonplace in Japan. Japanese people took pride in their martial and imperialistic traditions. Many believe the 1945 nu...

 Being the finance minister of India is arguably one of the most challenging jobs in the world. The incumbent has to deal with 28 Federal States and 8 Union territories, each having a distinct socio-economic and fiscal profile. Unlike some developed countries like the USA, the Federal States in India are not autonomous and/or self-reliant in fiscal matters. These states rely on the Union Government for financial resources. Besides, the finance minister of India is limited by the constitutional mandate of being “socialist”. To make things more complicated, implementation of GST; acceptance of the recommendations of 15 th  Finance Commission; and abolition of the planning commission have materially curtailed the powers of the union finance minister. Technically speaking, all the policies formulated and proposed to be implemented by the union finance ministry must pass the test of “socialism”, since the Constitution of India overrides all the legal provisions and policy directi...

 A recent visit to Jehangirpuri in North Delhi was enlightening in more than one way. It is a colony inhabited mostly by poor workers, consisting of unskilled and semi-skilled factory workers, security guards, auto/taxi drivers, daily wage earners, small vendors selling fruit, vegetable, meat, snacks etc. The elite population of the area includes class IV employees of Municipal Corporation of Delhi and Delhi government. There is a sizable population of motorbike riding youth, working mostly as delivery boys for ecommerce and food delivery platforms. There are numerous unregistered workshops and cottage industries running from houses built illegally. A large majority of the 1,00,000 population of this colony are immigrants from various parts of the states of UP, Bihar and West Bengal.  Before 1975, Jehangirpuri was a small semi-rural habitation on the outskirts of Delhi. During the Emergency, a resettlement colony comprising a few thousand studio apartments was built here to ...

 Yesterday I had a long discussion with a renowned social media influencer. The core topic of the discussion was what could be a good method to test the character and strength of a phenomenon, e.g., popular leader, progressive society, ideology, innovation, system, organization, etc. The point of debate was whether the evaluation should be based on how the underlying has performed under the normal stable circumstances or should include the handling of exceptions as well. The conventional wisdom says that the true test of character and strength of a phenomenon is tested during a crisis. When the sailing is smooth, even an ordinary captain will command the ship safely to the destination. My view is very clear in this context. I believe a phenomenon could be termed so only when it has helped in normalizing an exception(s). For example, to me a captain would be phenomenal if he designs or helps in designing a guidance system that enables all sailors to navigate through turbulent wa...