Do it yourself

It was the spring of the year 2006. Prime Minister Manmohan Singh and President of the United States George W. Bush (Jr.) signed a historic civil nuclear cooperation deal on 06 March 2006 at New Delhi. The markets were obviously very excited about this new chapter in the strategic relationship between the two largest democracies in the world. The benchmark Nifty would rise ~17% (3185-3750) within 10 weeks of signing the deal. However, Nifty fell 30% (3750-2647) in the following five weeks as the deal faced strong opposition from the left parties that were part of the ruling UPA-1 alliance, as well as the opposition parties like right-wing BJP, etc. Eventually, the deal was signed in August 2007, after the prime minister won a no-confidence motion in the parliament on this issue. After the deal was signed, the government fixed a target to install 20GW of nuclear power generation capacity in India by the year 2018. Presently, there are 22 nuclear reactors operating in India with a tota...

Recently released minutes of the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) highlighted that the latest policy stance is primarily ‘Wait and Watch”. This stance is driven by the hopes of: (a)    Mother Nature helping a bountiful crop (especially vegetables); (b)    Current rise in inflation being transitory in nature; but MPC is ready to preempt the second-round impact; (c)    Capex (both public and private) sustaining despite positive real rates and diminishing liquidity and continuing to remain broad-based; (d)    Growth in the Indian economy staying resilient enough to withstand the external challenges; and (e)    Government taking adequate steps to mitigate supply-side shocks, while maintaining fiscal discipline, trade balance, and growth stimulus. Evidently, RBI has no solid basis for making these assumptions. The monsoon is not only deficient, it is poor both temporally and spati...

  I have often seen that when we fail to find solutions to our problems with the help of science and economics, we tend to look towards the heavens and seek to find answers in philosophy. It is not uncommon for businesses, administrators, and policymakers to seek divine intervention when science and economics are not helping to resolve a problem. The global policymakers and administrators seem to have reached such a crossroads one more time, where the conventional practices, accumulated knowledge, and past experiences do not appear to be of much help. Their actions appear driven more by hope than conviction. The war in Ukraine; the economic slowdown in China; and the monetary policy dilemma in the US and India are some examples of problems where the administrators and policymakers seem to be hoping for divine intervention. I see the recent speech of the US Federal Reserve Chairman Jerome Powell at the Jackson Hole symposium and the minutes of the last meeting of the monetary poli...

Soft underbelly of India’s robust economic outlook (AXIS Capital) Is private consumption growth weak due to job distress or weak real income growth? Official labor surveys show that jobs are not a problem in urban India. Participation rates are stronger and unemployment rates are lower than 2019 levels. Both jobs and real incomes were improving over the past few quarters. But the latest bout of high food inflation is a setback for real income and hence broad-basing in consumption. India’s macro position is being hailed due to its relatively robust GDP growth and well-contained risk parameters like core inflation (within the headline target band) and current account deficit (<2.5% of GDP). However, the soft underbelly of India’s otherwise robust economic outlook is weak private consumption, with growth in real terms near 3% YoY as of the Mar’23 quarter. There is reason to be hopeful of stronger private consumption over the medium term, since the current growth is primarily led ...

  Recently, the Reserve Bank of India published the results of the 83 rd   round of the Survey of Professional Forecasters. In the latest Survey, professional forecasters have mostly reiterated their previous estimates. The forecasters have assigned the highest probability of the real GDP growth remaining between 6.0% and 6.4% during FY24 and FY25. No significant acceleration is expected in the growth in FY25. The FY24 growth is seen to be mostly front-ended, with the real GDP expected to grow (y-o-y) by 7.5% in Q1FY24 and thereafter moderate to 6.2% in Q2, 5.9% Q3, and further to 5.5% in Q4. The participants were quite sanguine about the price condition remaining under control with CPI inflation averaging 4.7% in FY25. The trade situation is expected to deteriorate further in FY24, before recovering in FY25. The trade deficit is likely to be close to 1.5% in FY24 as well as FY25. No significant improvement is expected in investment and savings rates. The key highlights of the...

High vegetable, grocery, and energy prices have disrupted the budget of most Indian households. Besides, unaffordable housing costs (rentals & EMI) and education & healthcare costs have impacted many middle-class households. An analysis of 1QFY24 results of the consumer companies indicates that there was nothing particularly noteworthy in the overall performance of the consumer companies. Demand environment for both staples and durable consumer goods remained subdued; though some companies reported decent growth in margins primarily due to lower costs. The current quarter (2QFY24) has witnessed disruptions due to challenging weather conditions. The southwest monsoon has been erratic both temporally and spatially. To date only about 43% of districts have received normal rainfall; whereas 40% of districts are deficient and 17% have received excess or large excess rainfall. Northern states have witnessed significant disruptions due to excess rains; impacting the logistics and cr...

Last week media headlines prominently mentioned that Michael Burry, the famous fund manager who earned his clients billions by positioning short on the US securities during the subprime crisis of 2007-08, has recently bought put options on S&P500 and Nasdaq100 worth totaling US$1.6bn in nominal value. Obviously, the headlines left many traders worried about the markets, particularly, their long positions. The S&P500 index corrected over 2% last week and has now lost over 3.60% in the past month. Besides, the US, markets like Hong Kong (-6%), South Korea (-4.5%), the UK (-5.2%), and Japan (-2.6%) have also corrected in the past month. Indian markets have done relatively better, losing about 2.2% in the past month. In my view, it’s not Michael Burry’s positioning that is the reason for the market fall; it is the concerns over the stability of the financial system and markets that may have prompted Burry to take a short position. Pertinent to revisit 2007 Before we take no...

July CPI Inflation Jumps to 7.4% on Food Prices (CARE Ratings) Retail inflation has sustained its upward trajectory for the second consecutive month, surging to 7.4% in July from 4.9% in the previous month. Consequently, the Consumer Price Index (CPI) inflation has breached the Reserve Bank of India's (RBI) target range for the first time since February 2023. This marks the highest reading observed since the peak in April 2022 at 7.8%. The notable surge in vegetable prices and elevated inflation in other food categories such as cereals, pulses, spices, and milk have driven this increase. Notably, the contribution of food and beverages to the overall inflation has risen significantly to 65%, surpassing their weight in the CPI basket. Specifically, vegetables alone have contributed nearly 30% to the headline inflation figure, despite having only a 6% weight in the CPI basket. Encouragingly, the core inflation has moderated to 5.1% in July, down from 5.3% in June, thereby falling ...