Do it yourself

In his Independence Day speech, the prime minister announced that his government has proposed comprehensive reforms to the extant Goods and Services Tax (GST) structure. The proposals have been reportedly sent to the Group of Ministers (GoM). Two Groups of Ministers (comprising representatives of the State governments) — one on rate rationalization and another on compensation cess — will have to approve the proposals before they go to the GST Council for approval. The central government is quite confident that the GST Council members shall approve the proposals promptly, and it could be implemented before the forthcoming festival season. The stated objectives of the proposed GST reforms, focus on simplifying the tax system, reducing the tax burden, and promoting economic growth. Based on the publicly available information, the key highlights of the proposed GST reforms are as follows: Structural Reforms Correct inverted duty structures  to align input and output tax rates, reduce i...

Continuing from yesterday…(see   In search of Leadership ) As I see it, the current settings of the Indian economy and market are as follows: Macroeconomic conditions are stable  – inflation is under control, fiscal balance is improving, primary deficit is improving faster leaving room for further fiscal stimulus (may be GST rationalization on the top of income tax concessions already announced); terms of trade may improve as more bilateral trade agreements and free trade agreements begin to yield results; monetary policy is growth supportive – liquidity conditions are comfortable, rates cuts have been frontloaded, and current account position is stable. Financial stability  – The health of the financial system is very good. Bank’s balance sheets are stronger than ever with adequate capital and excellent asset quality. Corporates balance sheets are also stronger with accelerated deleveraging in the past 3 years. The government balance sheet is also improving, against the ...

The benchmark indices in India have been directionless for almost two months now. In fact, Nifty50 has yielded a return of less than 2% in the past one year. Broader market indices have also not done any better. However, there has been a significant divergence in the sectoral performances. Some sectors like financials (+13%) and pharma (+8%) have outperformed the benchmark indices in the past one year, sectors like Media (-17%), Energy (-16%), Realty (-13%), FMCG (-7.5%), and Auto (-7.5%) have materially underperformed. In my view, this market performance implies— ·          Fatigue has set in the leaders of the bull market since 2021, especially PSEs, Infrastructure, commodities, and auto. These sectors look tired and unable to lead the market any further. ·          In the past one year, the market has digested (consolidated) the gains of the post Covid-19 rally in the past one year very well. It has...

After several years of corporate & bank balance sheet repair and fiscal correction, the contours of India's next economic growth cycle are beginning to emerge. With the Reserve Bank of India (RBI) maintaining a growth-supportive stance; union government showing strong commitment to fiscal consolidation, easing financing pressures for the private sector; and global markets showing signs of stabilization as geopolitical confrontations ease and trade disputes settled; the stage is set for a potential economic upswing. The spotlight is now on three competing themes — corporate consolidation, private capex, and household consumption — each pulling investor attention in different directions. Corporate begin to re-leverage After many years of deleveraging, corporate debt in India appears to have bottomed out and is now beginning to rise. This shift in trajectory marks a significant departure from the post-2016 era, where Indian companies focused on strengthening balance sheets followi...

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...

A veteran investor recently recommended investors to buy “bruised blue chips”. He was purportedly referring to the consumer goods manufacturers that have underperformed in the year 2024. For reference, Nifty FMCG index is down 0.3% YTD2024 against ~14% rise in Nifty50. Historically in India, the FMCG sector had mostly outperformed the benchmark indices. Intermittent short periods of underperformance were traditionally seen by the long-term investors as an opportunity to buy/add FMCG stocks to their portfolio. However, the trend seen in the past one decade (reasonably long period in my view) seems to be defying this conventional wisdom. Since 2014, Nifty FMCG has yielded a return of ~236% against a rise of 305% in Nifty 50. Thus, the conventional wisdom of preferring consumer goods manufacturers may not have been a great investment strategy, even accounting for the higher dividend yield in consumer stocks. In my view, the underperformance of traditional FMCG blue chips is structural and...

 In past one month I have read a lot of commentary about the smart investing, sectoral shifts, trade rotation, reflation trade, emergence of old economy etc. in the India equity markets. I find it pertinent to note the sectoral performances over three time periods – One year; Since Lock Down (25 March 2020); and Past three months when the unlock exercise meaningfully started. Some of the key features of sectoral performances over these time frames could be listed as follows: ·          Nifty has given positive return over all three time frames, but one year return in miniscule 2.6%, much lower than the bank fixed deposit or liquid fund return. ·          Only two sectors IT and Pharma have consistently outperformed the benchmark Nifty over all timeframes. PSUs as a sector have been consistently the worst performer on all time frames. ·          Energy, Inf...