Do it yourself

Continuing from my previous post ( Bull fatigue or bear charge ), I would like to share some of the important things I am presently watching closely to assess whether we are passing through a bull market correction or a proper bear market cycle is underway. Rural income:   The recent corporate commentary has highlighted green shoots seen in the rural demand recovery; while the urban demand continues to remain under pressure. For meeting the latest earnings estimates, continued recovery in the rural demand is, therefore, important. Earnings growth of some sectors like consumers, automobile, textile agri inputs & equipment, etc. materially depend on the continued rural demand recovery. I note that there are some worrisome signs for the rural economy. First, the 2024-25 winter has been unusually warm and dry. Several states have witnessed drought-like situations and warm weather. Reportedly, Wheat farmers in the northern regions could be staring at a sharp decline in rabi producti...

Indian equities have witnessed a decent correction in the past five months. The correction has been regular, deep and broad. As per the historical trends, in a regular market correction, the broader markets usually correct 1.5x to 2.5x relative to the benchmark indices. This trend seems to be sustaining in the ongoing correction also. It is debatable how long and deep this correction would eventually be, there should be no doubt that the markets will find a floor and commence a fresh up move. To estimate a bottom, we need to first assume whether the current correction is a usual bull cycle pull back or a bear market cycle. ·           In case of bull market corrections, Nifty50 usually corrects between 8%-15%, and fully retraces the lost ground in a maximum of 26 weeks from logging the bottom. In a complete bull market, the bottoms made during the intermittent corrections could be tested several times. ·       ...

If social media posts are any guide to the popular sentiments, then definitely the Indian equity markets have frustrated even most seasoned investors. In particular, the young investors and traders who had their first tryst with the equity investing/trading are sounding completely disillusioned. The seasoned investors who have experience of negotiating bear markets multiple times, are mostly frustrated due to the lack of adequate policy support and regulatory overbearance. In my view, insofar as the policy support (or lack of it) is concerned, it is mostly due to misplaced expectations and persistence denial of actual execution. The issue of regulatory overbearance is however a matter of debate. However, the new class of investors is disillusioned for multiple reasons. First, many of them had committed to investing/trading as their preferred full-time occupation. After this severe market correction, their capital has materially depleted and their confidence is badly shaken. The worst p...

In the past couple of days, some readers have uncharitably criticized me for being excessively paranoid; and some others have even accused me of fear mongering. It has been pointed out that I was writing the same stuff in the spring of 2022, while markets did much better in the subsequent two and a half years. Though I need not respond to every criticism, I would take this opportunity to reiterate my view that the economic conditions in India started to worsen from FY23. Now it is reflecting conspicuously in data. The cyclical improvement in corporate earnings post Covid stimulus and unexpected onslaught of ‘revenge consumption’, was erroneously assumed to be a structural and durable earnings cycle. These erroneous assumptions have actually resulted in a valuation bubble; bursting of which shall cause more pain than timely realization of error and course correction would have. Remember, over a longer period, stock prices do always converge with the economic realities. However, in the i...

Little did Edward A. Murphy, Jr., an American aerospace engineer, realize that one of his design advice would become one of most popular epigrams and be termed Murphy’s Law. In the late 1940s, Murphys told his team that “If there are two or more ways to do something and one of those results in a catastrophe, then someone will do it that way.” This advice was later restated by Arthur Bloch in his book  Murphy's Law, and Other Reasons Why Things Go WRONG  as “Anything that can go wrong, will go wrong.” In 1997 Sebastian Junger wrote a creative account of the 1991 ill-fated fishing expedition of the boat Andrea Gail from Massachusetts. The boat was caught in a severe sea storm and all the six crew members were reported dead. The book, titled “The Perfect Storm”, was later adapted into a movie with the same title. ‘The Perfect Storm’ is one of the perfect examples of Murphy's law applying in real life situations. As of this morning, the Indian equity markets appear heading into a ...

In the past two weeks, three key economic events took place in India. These events aim to provide material fiscal and monetary stimulus to the economy. ·          First, on top of the 50bps cash reserve ratio (CRR) cut in December 2024, the Reserve Bank of India (RBI) announced further infusion of ~Rs1.5 trillion of sustainable liquidity in the banking system. ·          Second, the finance minister Rs one trillion personal income tax concessions, benefitting over 20 million taxpayers. ·          Third, RBI embarked on a rate cut cycle after a long 24 month pause, with a 25bps cut in the policy repo rate. Besides, the RBI also decided to defer the implementation of stringent Liquidity Coverage Ratio (LCR) and project financing norms, which would materially constrict the lending ability of the banks, to at least the end of FY26. In normal circumstances, this com...

In the sixteen century the Catholic Church in Rome established an office of the advocatus diaboli (Devil's advocate). The job of the Davil’s advocate was to argue against the canonization of a candidate proposed by the Church. The officer would use all his might to find faults in the canonization process and evidence of miracles attributed to the candidate. It was not necessary that the officer did actually believe in his arguments against the proposed canonization. The idea, apparently, was to avoid inadvertent mistakes and make sure that no underserving candidate gets canonized. Unfortunately, in the late 20 th century, the office of advocatus diaboli has been diluted materially. I like to often play Devil’s advocate to the popular investment narratives and consensus assumptions. The idea usually is to get more clarity and minimize mistakes in the investment decision making. Continuing with the practice, I would like to question the popular market assumptions about the (a) im...

“There are events in the womb of time, which shall be delivered in time”.   (Othello, William Shakespeare) Beginning of the current year, I commented that “the trend seen in the past few months is indicating that the conditions might change materially in the next 12-24 months. The macro trends may become ambivalent and unpredictable. Investors may need to make choices; and the return they would earn on their investment portfolios would largely depend on the choices they would make. Making right choices, in my view, would be the central investment challenge for the year 2025.” Barely one month into the year and it appears that earth already witnessed many seasons. The conditions are becoming more uncertain with each passing day. The 47 th  President of the United States (P47), appears in a tremendous hurry to deliver on his promise to Make America Great Again (MAGA). He is using all his negotiating skills to secure good deals for his country. How much success will he achieve wi...

The general reaction to the Union Budget for fiscal year 2025-26 is mostly positive. Most people have appreciated the commitment to fiscal discipline. Substantial increase in the allocation for rural and urban development programs has apparently come at the expense of lower or no growth in the allocation for food, fuel & fertilizer subsidies, defense and transportation (road and railways). The most celebrated aspect of the budget is the enhancement of tax rebate under section 87A from Rs25,000 to Rs60,000; and restructuring of tax slabs from the earlier three to six in the new scheme of personal income tax. These changes would result in a potential net tax saving of 2-6% of the post-tax income. The most debated aspect of the budget is the allocation to the capital expenditure. Analysts are calculating the total allocation for capex using different matrices and thus debating in favor or against the budget. The budget numbers assume a nominal GDP growth of 10.1% for FY26, which will ...