Do it yourself

Last week I shared my observations about the challenges currently being faced by investors ( see Anxious, stressed and desperate ). Many readers have expressed their agreement with my thoughts. However, they found it inadequate and inconsequential. They have written to me, asking for a prescription for remedy rather than mere diagnosis of the problem. My discussions with them indicate that many of these investors are not convinced about the sustainability of current stock prices and continue to expect a sharp correction. Regardless, they find the daily rise in stock prices alluring and difficult to resist. In this intense struggle between their convictions, expectations, beliefs, fear of missing out (FOMO) on a sharp rally (if their conviction is misplaced), and greed to make some quick money, some of them appear to have already surrendered to their fears (FOMO) and greed and invested in stocks which normally they would have avoided due to inferior quality of management, earnings and/o...

The Reserve Bank of India (RBI) has issued its latest assessment of the state of the economy . The paper notes the marked slowdown in the global economy; it exudes confidence in the sustainability of 6.7%-7% GDP growth in India. In particular, the assessment sounds buoyant on manufacturing, and household consumption, while taking cognizance of resilience in the services sector. The inflation is forecasted to stay close to the lower bound of the RBI tolerance limit (4-6%). Global economy slowing The RBI paper highlights some areas of concern for the global economy. In RBI’s assessment global growth has lost some speed in the first half of 2024 relative to the preceding semester, and momentum has slackened further in the third quarter. The paper notes, “All around, indicators point increasingly to slowing global economic activity, more so on the eastern shores of the Atlantic, which vindicated the ECB’s September rate cut to secure a soft landing. In the US, the now famous remark –...

The Fed, BoE, and BoJ rate decisions are out of the way now. The S&P500, bond yields, USD, JPY, Gold, and Bitcoin, etc. have already made their initial move. The market participants may now begin to focus on elections – state assembly elections in India and the US Presidential elections. Regardless of overwhelming evidence to suggest that these elections may not impact the markets beyond a few days, the narrative might keep the market participants busy and distracted in the next few weeks. I find many events, besides rate cuts and elections, that are occurring on the sidelines that need to be noted by the investors. Considered individually, these events may not look like triggering a meaningful move in global markets. However, if we take a collective cognizance of these events, the probability of global market shock would certainly rise by a few points. The following events, for example, have drawn my attention in the recent months. Central banks loading on gold Post the gl...

Ending the weeks of intense speculation, anticipation and debate last night, the Federal Open Market Committee (FOMC) of the US Federal Reserve started the latest monetary easing cycle with a 50bps fund rate cut. The Fed fund rate range now stands at 4.75-5.00% This is the first Fed rate cut since March 2020 and has come after a fourteen months policy pause. No panic in the boardroom Unlike the previous two rate cycles that started with a rather aggressive 50bps rate cut – first October 2008 post the Lehman collapse and second March 2020 post Covid-19 break out – this cut is apparently not a panic cut. The Fed chairman sounded confident about growth and employment level. He emphasized that the central bank is not in a hurry to ease policy, as he sees no likelihood of an elevated downturn in the economy. He mentioned, “There’s nothing in the SEP (Summary of Economic Projections) that suggests the committee is in a rush to get this done.” The Chairman categorically advised the ma...

The life of equity investors appears to be becoming more tense with each passing day, regardless of the indices scaling new highs. This applies more to the professional investors (fund managers etc.) as compared to the individual investors. I gather from my conversations with the professional investors that they are finding it increasingly difficult to sustain their performance of the past three years. The assets under their management (AUM) have increased multifold in these three years, but the stock of quality investable equity shares has not grown at a matching pace. Some of them have been reluctantly deploying the incremental flows in the limited number of available stocks, resulting in unsustainable rise in prices; whereas the others have chosen to go down the quality ladder and invested in the poor quality or apparently absurdly valued stocks. Obviously, they lack conviction in their portfolios, but continue to hold it and even grow it due to professional compulsions. Arguably, t...

Like most other Indian urban households, we receive multiple ‘deliveries’ every day. These deliveries are mostly made by ecommerce platforms (Ecom) like Amazon and Myntra; quick commerce platforms (Qcom) like Blinkit and Zepto; food delivery platforms like Zomato and Swiggy; pharmaceutical deliveries like 1mg and Medplus, courier companies like Blue Dart and DTDC, and local delivery services like Borzo (WeFast) and Porter. Besides, our regular grocery, vegetable, and milk vendors also make regular deliveries. I have been observing men making these deliveries closely for the past five years. I have noticed a gradual but definite shift taking place in the profile of the deliveryman visiting my house. In the earlier days, these were usually young semi-skilled boys, who were doing this part-time job while acquiring some skill that would get them a regular job. For most of them this was their first or second job. None of them would like it to be their regular job in the next 2-3 years. ...

My relationship manager at a private bank recently offered me a “metal card”; claiming it to be the most premium credit card available in India. I learnt that though globally the metal cards have been in vogue for two decades, these have become popular in India only in the past couple of years. Of course, I did not meet the eligibility criteria for the card, and also, I found it to be too ‘elite’ for my spending profile. But this is not the point here. For the past many decades, I have been used to referring to the modern consumer credit ecosystem as ‘plastic money’. My wallet and table drawer are full with a variety of plastic cards- credit, loyalty, identity, membership, insurance, travel, etc. I considered myself privileged with so much “plastic” in my possession. Suddenly, one phone call from a 28-year-old bank executive shattered my ‘illusion’, and apprised me how underprivileged I am for being part of ‘plastic’ economy, when the elites have already moved to the stronger ‘metal’...

In recent weeks, a lot of market participants and commentators have expressed concern about the rising household (retail) investors’ interest in the SME segment of the Indian stock market. It has been highlighted that most of the businesses being listed on this platform may not be genuine and/or sustainable. The regulators have also expressed apprehensions about the widespread manipulation in the prices of several SME stocks. A 400x oversubscription to the recent Rs120mn IPO of a motorcycle dealership in Delhi has provided further impetus to the discussions on this topic. There are demands that the criteria for listing on SME segments must be tightened and there should be deeper scrutiny of the companies proposing to list on this segment. The regulator, SEBI, is considering these demands and intends to prescribe stricter rules for the SME listings. In this context it is pertinent to note the following points. 1.      As part of the broader capital market reforms, whi...

Last weekend I received an innocuous looking post facto graph from a friend. The chart depicted how the Chinese companies have gained prominence during the first two decades of the twenty-first century. Evidently, these developments have already occurred and are there for everyone to see and feel. There is nothing about this that can be changed. The graph depicts that the number of Chinese companies in the Fortune Global 500 list have grown from 10 in 2000 to 121 in 2020, a 12.1x rise in two decades. Three Chinese companies now figure in the list of top 10 global companies. The new 111 Chinese entrants in the coveted list mostly replaced the companies from the US (55) and Japan (54). Besides the US and Japan, companies from the major European economies (Britain, Germany and France) have also fallen in their global rankings. The top 10 ranked global companies are an interesting mix. The list is topped by two retailers ( Walmart , 1, USA; Amazon , 2, USA). Besides, it comprises – one...

The latest report of the United Nation Conference on Trade and Development (UNCTAD) highlights that the funding deficit for the developing economies to meet Sustainable Development Goals (SDGs) is rising. As per the report, the gap is now about US$4trn, up from US$2.5trn in 2015 when the SDGs were adopted. The amount of global foreign direct investment (FDI) has been on decline since peaking at US$2.05trn in 2015. In fact, a percentage of world GDP, FDI peaked at 4% of global GDP in the year 2000 and has been on decline since then. In the year 2023, global FDI fell to US$1.3trn or 1.27% of global GDP.   As per a recent Moody’s report, “Global foreign direct investment flows have shrunk in recent years. The COVID-19 pandemic, supply-chain chaos, surging inflation, and tighter funding conditions have taken a toll on global FDI. Investment flows are also being reshaped by economic fragmentation, trade and geopolitical tensions, industrial policies, and supply-chain diversification...

One small cap solar PV module manufacturer stock has yielded a return of 100x in less than two years, since its IPO listing in October 2022. There are many other “clean energy” stocks which have witnessed 5x to 20x rise in their stock prices. In most of these cases, the improvement in business and financial fundamentals of the concerned company is not commensurate with the rise in the stock price. Sustainability has emerged as one of the major investment themes in the post Covid-19 period. Businesses engaged in the activities related to renewable energy and electric mobility have received substantial massive investments and have seen massive rise in capacity building. Nonetheless, the astronomical rise in the stock prices of companies engaged in basic manufacturing like solar PV cells, EV battery modules, electric scooters, etc., may not be sustainable. This reminds me of my favorite instance from the Hindu mythology. I have narrated this instance many times before. Let me do it ag...

Last weekend I visited some villages in the Bareilly, Shahjehanpur and Hathras districts of Uttar Pradesh. I had an opportunity to speak with several medium, small and marginal farmers. Most medium sized farmers had a good standing crop of paddy and sugarcane. Most of them were, however, circumspect about the final yield, in view of the IMD’s forecast of excess rains in September. Many small and marginal farmers had lost their pulses and vegetable crops due to heavy rains accompanied by strong winds. They were dismayed and worried about their ability to manage the resources to plant Rabi crops, mostly potato and wheat. Some of them, who had taken advance from the traders, were also worried about the repayment. None of the small and marginal farmers mentioned the terms like crop insurance, bank loan, Kisan credit card, etc. Thankfully, there is an abundance of fodder for their cattle this time. After a discussion of 10-12hrs with these farmers, NGO workers helping them with farm...