Do it yourself

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...

One of my close friends bought a plot of land in the outskirts of the city of Dehradun in Uttarakhand, a decade ago. The reason, he outlined, for this investment was that Dehradun is a good place to retire. It is peaceful & clean and has a much lower cost of living. Considering the rising level of pollution (air, noise and water) in larger cities, people would want to move to such places in future. The property prices would therefore appreciate considerably. After a decade, the price of his plot is up by some 300%. He is happy that he made a very good investment decision. When I pointed out to him that Dehradun is no longer the peaceful, clean and cheap city it used to be ten years ago. Therefore, his investment premise has mostly failed. Besides, the land prices in many areas of the NCR have risen equal to or more than Dehradun in the past one decade. The point to ponder over is if you earn a good return on your investment in spite of your assumptions behind making such inve...

I had an opportunity to meet with a group of investors last week. The discussion revolved around the present market conditions and the likely direction of equity and bond markets over the next few months. The views about the equity markets were divergent. However, the views about the bond markets were surprisingly similar. A substantial number of people believed that the interest rates have peaked and may move lower in the next 6 months. Long bonds thus appeared as a consensus trade. Almost all of them have been advised by their respective advisors (or friends) to increase the “duration” of their debt portfolio to avail maximum benefit of the declining interest rates. A deeper inquisition highlighted several interesting issues related to the “long duration” positioning of the investors. I want to share some of these issues with the readers to seek their views in this regard. ·          Most of the investors were not fully conversant with the...

 The first monetary policy statement of FY22, scheduled to be made on 7 April 2021, is awaited more for the signals and body language, rather than any monetary policy action. It is almost a consensus that RBI, like any other major central banker, may not be in a position to cut rates from the present levels. On the other hand, RBI governor has made it clear that “...there is no way the economy can withstand higher interest rates in its current state. It is recovering but certainly not out of the woods yet”. The governor has gone way out of his way to assure the bond market and committed “orderly evolution of yield curve” in public interest. The bond market has calmed down a bit after aggressive assertions made by RBI governor, but the traders have not retraced their steps. The benchmark 10yr yields are now stable close to 6.2%, much higher than the 5.8% to 5.9% sought by RBI. Next couple of policy statements would therefore be watched to assess (i) how deep is the RBI’s commi...