Do it yourself

Following the Custom: Balancing Faith and Fundamentals Each Diwali, as lamps light up homes, optimism lights up Dalal Street too. It’s that time of the year again. Business channels are abuzz with market commentators dressed in their festive best, sharing their annual outlooks on the economy and equities. Almost by ritual, hope dominates the narrative — and that’s not necessarily a bad thing. This year, with investor sentiment subdued and global uncertainties still clouding the horizon, a measured dose of optimism may be just what the market needs. Continuing the custom, here’s a closer look at what could turn favorable for Indian markets over the next one year — and what investors should keep an eye on. Domestic Drivers: The Spark Within Consumption revival on the horizon After three years of subdued consumption, several catalysts are now aligning. Rationalization of income tax and GST rates, material lending reforms by the RBI, a supportive rate environment, and a good monsoon could ...

  Where did we lose our way? My engagement with Indian financial markets began in the late 1980s, at a time when the winds of reform had just started sweeping through the economy. What followed in the 1990s was a structural reset — the kind that lays the foundation for decades of growth, even if its full implications aren’t immediately visible. The decade of 1990s witnessed – (i)     An overhaul of the financial sector with abolition of capital controls, opening of doors for the foreign portfolio investors, entry of private banks in the markets, material liberalization of the rules for non-bank lenders (NBFCs); laying foundation for pension and insurance sector reforms; (ii)    Significant liberalization of the industrial licensing system; material dilution of the Monopolies and Restrictive Trade Practices Act and Foreign Exchange Regulation Act, de-reservation of several articles from Small Scale Industries, introduction of Liberalized Exchange Rat...

The global markets behaviour in the year 2022 would remain subject matter of analysis for many decades. Almost all markets – equity, bonds, commodities, crypto, housing, arts etc. - have shown a classical pattern in the current year, despite several unconventional factors impacting the global economy. If we observe from the averages the behaviour of commodity markets in particular has been very archetypal in a market still enduring a war, inclement weather and supply chain dislocations. S&P Goldman Sachs Commodities Index, has gained ~17% YTD 2022. Evidently, the first half of 2022 saw a sharp surge in commodity prices led by energy and food prices, ostensibly due to the Russia-Ukraine conflict and severe drought in many parts of the world. However, easing of post Covid logistic constraints and monetary tightening by most central bankers led to an improvement in supplies; demand destruction and unwinding of speculative positions; resulting in lower commodity prices.   However...

I had a chance to meet a small group of seasoned market participants yesterday. The group included a couple of brokers, some investors, a banker and a few analysts and advisors. After exchanging pleasantries and going through the mundanity of “ kya lagta hai ?” (what’s happening in the market?), the discussion veered around “what could go wrong to make Nifty fall 20% from the present level”. Not surprisingly, only one broker participant outrightly rejected the idea of a potential 20% correction in Nifty. He felt that the worst is over and it is going to be a blue sky scenario in 2023, with India continuing to lead the charge. None of the other participants was so sanguine, though. The surprising part however was to note the participants’ arguments to support their “expectation” of a major correction in Nifty, sometime in the next 6 months. The usual suspects like global slowdown, inflation, geopolitics, valuation and technically overbought were cited by everyone. In fact I have als...

The RBI governor reportedly assured the country that “ there was no prospect of the economy falling into a stagflation vortex and retail inflation was expected to moderate going forward, notwithstanding fears of imported inflation given the massive spike in commodity prices, especially crude oil, after Russia invaded Ukraine last month.” Speaking to the elite group of industrialists and bankers, Governor Das emphasized that “ We are comfortably placed to deal with any challenges with regard to financing the current account deficit, and the RBI stands committed to deal with any challenges on this front.” In this context, I consider it pertinent to note what the industry and markets are saying about the current state of affairs of the Indian economy, particularly the inflation and demand outlook. The rating agency CRISIL notes that “Inflation based on the Consumer Price Index (CPI), or retail inflation, rose to 6.1% on-year in February compared with 6.0% in January and 5.0% a year ag...

The elementary principle of economics is that the price of a thing that has any economic value is determined by the forces of demand and supply. Often in the short term a state of inequilibrium may exist leading to higher volatility in prices. However, the equilibrium is usually restored by operation of a variety of factors. There is no denial that economics is youngest amongst the scientific discipline and pure scientists hesitate in admitting it as a discipline of science. Nonetheless it is evolving fast and becoming popular. Not getting into this academic debate, what I have understood is that in popular economics theory is that: (a)    Price of currency is usually a function of demand and supply of that currency at any given point in time. Higher supply should normally lead to lower exchange value and vice versa . The demand of the currency is determined by the relative real rate of return (interest) and structure of economic activity (e.g., current acco...

In past few days many market experts have highlighted that the recent fall in crude prices is a major positive for Indian economy. Through my interactions with some investors I learned that many investors do take the publically expressed random opinions of these experts quite seriously and actually base their decisions on these. Besides, small investors are also usually seen following the actions large celebrity investors. Even in recent past, there have been many instances where small investors have emulated the actions of large investor buying a meaningful stake in a stressed asset. From the regulatory standpoint there is no violation in both these cases. The market experts are free to publically express their opinions and views about the market trends and events. The companies, stock exchanges and investors are in fact obligated to make public disclosure of large secondary market deals. But there could be an ethical lacuna in these practices. For example, on...