Do it yourself

  Last week I  had written ( see here ) about how the fourth letter of the English Alphabet “D” has gained prominence in the financial market jargon. In particular, I find three “Ds”, viz., Digitalization, Deflation and Demographics most relevant for the economy and therefore markets. A recent speech of Dr. Michael Patra, Deputy Governor of RBI, as published in the latest monthly bulletin of RBI ( May 2023 ), highlighted some more ‘D” factors that are ushering India into a new age. Besides demographics & Digitalization, Mr. Patra emphasized on Diaspora, Diversification, Diplomacy, Dynamic Federalism, and Decarbonization as key factors in transformation of the Indian economy. The following are some excerpts from his speech: Diaspora:  An outward reflection of India’s demographic bonus is the vibrant expansion of Indian communities across the world. Over the years, our perceptions about the diaspora have also transformed from ‘brain drain’ to ‘brain gain’, spurred by th...

  The US administration has reportedly reached a deal with the Congress majority leader to enhance the debt ceiling on the treasury and mitigate yet another default threat. This, like all previous episodes of default threats and debt ceiling hikes, would inevitably result in more debt, insolent fiscal profligacy and further distortions in capital allocation and unsustainable asset price inflation. At the other end of the spectrum, it could shift a couple of ounces from the weight of global confidence in USD (and hence UST) towards the still nascent movement to de-dollarize global trade. In this context, the following trends may be pertinent to note, especially for the equity investors. Negative divergence in OECD debt and yield The elementary principle of economics is that the price of anything is a function of demand and supply equilibrium. Higher demand pushes the equilibrium to a higher price point and vice versa. However, the bond markets in developed economies have been ...

Credit-Deposit ratio to moderate after withdrawal of large currency (CARE Ratngs) RBI announced to withdraw Rs. 2,000 denomination banknotes on May 19, 2023. The total value of these banknotes in circulation constitutes Rs. 3.62 lakh crore as on March 31, 2023. The addition to the banking deposits due to withdrawal of Rs 2,000 banknotes is not anticipated to be material even under various scenarios which assume that 25%-50% of the currency remains as deposits with the banks. In percentage terms, the additions are expected to be 0.5%-1% of overall deposits in the banking sector. The banking system liquidity was already in surplus at the end of April 2023. The addition of Rs 1.0 lakh crore to 1.8 lakh crore over a period of four months (June 2023 to September 2023) will inject significant short-term liquidity into the banking sector over the next 2 quarters and is likely to reduce the banking sector’s dependence on short term CDs in the near term to some extent and the short-term dep...

  Three-month future price of copper at COMEX has corrected almost 27% ~US$3.61/lbs from US$4.95/lbs at the end of February 2022. Moreover, the discount between spot prices three months future at LME widened to the largest since 2006, indicating poor outlook for copper demand in the near term. Copper prices have fallen over 10% in the past one month alone on disappointing growth data from China. The hopes of a sharp recovery in Chinese growth in near term are fading as more downgrades are indicating. Goldman Sachs reportedly revised its average copper price forecast for 2023 by over 11% to US$8698/t from US$9750/t earlier. Though the optimism over Chinese growth and consequent firmness in copper prices is not lost completely. For example, Bank of America is still maintaining its US$10,000/t copper price forecast for 2023 end in the hope of large demand ramp up as China accelerates spending on its power grid. Nonetheless, the general mood is drifting towards accelerated slowdown i...

India with one of the largest and youngest populations in the world is an attractive market for most countries and businesses. India is not only the largest importer of edible oil and third largest importer of crude oil; we are a significant importer of goods from small US$0.1toy to a US$200million supersonic jet. India thus offers an attractive market for most producers in the world. As per Fortune Business Insight The global big data analytics market size was valued at $271.83 billion in 2022 & it is projected to grow @13.5% CAGR to become $745.15 billion by 2030. Compared to this, as per Stockholm International Peace Research Institute (SIPRI) report , in 2020 the global arms trade is estimated to be US$112bn (actual figures may be little higher). Clearly, data and data analytical services are emerging as one of the most product categories globally. Obviously, most businesses and states who want to do business would be interested in data pertaining to Indian population and ...

  The fourth letter of the English Alphabet “D” has held a prominent position in financial market jargon, at least since the Great Depression in the late 1920s. In the past two decades the terms like Dematerialization, Demographics, Depression, Decoupling, Demonetization, De-Dollarization, Digitalization, Deflation etc., have attracted immense interest from the market participants. Some of these “Ds” have had significant impact on the global economy; while the others have been mostly limited to being topics of interesting discussions and statistical analysis. In the current Indian context specifically, I find three “Ds”, viz., Digitalization, Deflation and Demographics most relevant for the economy and therefore markets. The current global situation – investment mix, geopolitics, global trade and gradual shift in strategic power – implies that supply shocks could be more frequent and much more intense in the next decade or so at least. ·        ...

  The investors and other market participants in their 50s and 60s would recall that there have been at least three occasions in the past three decades when India was considered the next best thing after sliced bread. Starting with the opening up of the economy in early 1990s, the narrative acquired a much louder echo after Roopa Purushothaman, a non-descript research analyst coined the term BRICS for a report to be published in the name of legendary Jim O’Neill (Chairman Goldman Sachs AMC) in 2001. During the global financial crisis (2008-2010) that weakened many developed economies, India and China emerged as two strongest pillars of support for the global economy, growing in high single digits despite the global crisis. Post Covid, since India has again emerged as one of the fastest growing economies, leaving even China behind, the narrative is again in vogue. There is absolutely no doubt that the Indian economy has never been intrinsically so strong in the past four decades. Th...

  “The boy who cried Wolf” is one of the most popular Aesop’s Fables. The Fable is about a young shepherd boy who enjoyed fooling the innocent villagers by lying about a wolves’ attack on his herd. Every other day he would raise a false alarm about wolves’ attack on his herd and seek farmers’ help. Trusting him, farmers would leave their fields unattended and rush to protect his herd; only to find that the boy was lying. Over a period of time, he gradually lost farmers’ trust. One day wolves actually attacked his herd. He went to farmers to seek help; but no one trusted him; and he lost most of his sheep. The moral of the story — “when habitual liars are not believed even when they chose to tell a truth”. The latest episode of political squabble over raising the limits within which the US government could borrow to meet its fiscal deficit, reminded of this inspiring fable. In the past two decades we have seen multiple “debt ceiling crisis” in the US. In the 15 years period from 2...

  A stroll through the social media timelines of several self-claimed extremely successful investors and traders (popularly known as finfluencers) would indicate that there are thousands of people who have made extraordinary returns from stock markets in India. Everyone seems to have identified several successful businesses at a very early stage and earned exponential returns by holding it for decades. Everyone seems to have unlimited money to buy more stocks at every market correction, while they would hold on along with their existing positions till eternity. The narrative presented by these so-called finfluencers is clearly oblivious of the fact that there are not more than a hundred companies in India that have operationally performed consistently for more than a decade. Number of companies that become redundant in each business and market cycle is very high. There are numerous research reports and messages which rely on “low per capita consumption in India” and “moat” in I...

Indian IT: Precariously Placed (Jefferies Research) An unexpected decline in revenues: During 4QFY23, aggregate revenues for Top-5 IT firms declined by 0.8% QoQcc - first QoQ decline in 11 quarters - the key disappointment. While revenues in 4Q were especially impacted by sequential decline in Communication and Tech verticals, growth across verticals moderated sequentially. In local currency terms, Americas and Europe both witnessed de-growth, indicating weakness in both regions. Aggregate growth for mid-sized firms was a bit better than large IT firms though they all disappointed in 4Q. TCS and Coforge disappointed the least while Infosys' reported the weakest results. ... derails margin recovery: Aggregate margins for our coverage universe contracted by 20bps QoQ and were 40bps below our expectation, mainly due to revenue miss. Employee cost (-120bps) weighed on margins due to muted growth, while Subcontracting costs (+50bps) and others overheads (+40bps) supported margins....