Do it yourself

Over the weekend, I met a cross-section of market participants at a social gathering—veteran investors, traders, money managers, and brokers. If I had to summarise the overall mood in one word, it would be “befuddled.” There was a clear sense of cognitive dissonance in the room. People were wrestling with conflicting signals and contradictory beliefs. The discussions felt like watching multiple emotional currents collide beneath a calm surface. On one hand, there was frustration about personal portfolios lagging. On the other, there was comfort in seeing the benchmarks hold up well. Add to this the fear triggered by headlines predicting an imminent burst in the AI bubble; anxiety over rising Japanese bond yields and a weakening INR; excitement around a potential Indo-US trade deal; and hope that Indian equities may outperform if global markets slip into turmoil. Amid this emotional tug-of-war, a few broad positioning trends stood out: Active participants remain overweight in narrative-...

The behavior of Global markets has always been perplexing for the participants. The past 8-9 months have been no different in that sense. Stock prices, commodities, cryptos, bonds, and precious metals have all moved higher; in many cases without a fundamental case for such an upmove. Investors who typically manage their risk through diversification, hedging and alignment of their portfolios with economic fundamentals and corporate earnings, usually underperform in this kind of market and have reasons to be disappointed. Some of them, who usually invest on borrowed conviction, surrender to the fear of missing out (FOMO) and indulge in unnecessary churning of their portfolios resulting in violation of their standard asset allocation, and accumulation of momentum assets at high prices, only to regret later. Traders, on the other hand, ought to love this kind of markets, when most asset classes are moving in one direction, with low implied volatility. Theoretically, in the current stat...

Equity markets are making new highs every day. Other assets like gold, bitcoin, bonds, cash, real estate, etc., are also performing decently. Logically, investors should be happy and looking forward to a great holiday season. However, multiple interactions with investors and other market participants, over the past couple of weeks, indicate to the contrary. Investors appear stressed for a variety of reasons. Those who are underinvested are suffering from fear of missing out (FOMO). Those fully invested are worrying about protecting their gains, should there be a sharp correction. Those invested largely in defensive large caps (likes of Infosys, TCS, HUL, RIL, Nestle, HDFC Bank, and SBI, etc.) are disappointed to see their portfolios underperforming the friends and relatives who were more adventurous and invested largely in the broader markets. Those who are leveraged are constantly worried about a sharp correction, margin calls, and rising cost of borrowing but are too greedy to cut ...

  “No one was ever lost on a straight road.” Last time I wrote this was about 13 months ago when the Nifty was around 16000. The benchmark has gained over 17% since then. PSU Banks, FMCG, and Automobile sectors, which were not exactly favorites of market participants at that point in time, have been the top performers since then. The favorites of that time, e.g., Metals, Infrastructure, manufacturing, and digital have mostly performed in line with the benchmark or underperformed. I find it appropriate to reiterate and reemphasize it, to motivate me to stay true to my investment strategy and not get distracted by the market noise, buoyant arguments and gravity defying moves in a number of stocks. The conventional wisdom guides that roads are meant for moving forward and trampolines are meant to get momentary high without going anywhere. Usually, the chances of reaching the planned destination are highest if the traveler takes a straight road. The chances are the least if they ri...

All three major global credit rating agencies have assigned the lowest possible investment grade rating to India’s sovereign credit, placing India just one notch above the junk grade. For example, Moody’s Investors Services has assigned Baa3 (stable) rating to India’s sovereign credit, just one notch above the junk rating - C. The Government of India is making a strong pitch to the rating agencies for upgrade of sovereign credit, arguing that India’s economy is the fastest growing major economy in the world, with strong macroeconomic fundamentals. Many government officials, politicians and market participants have challenged the assessment of these ratings agencies often terming it as unfair. On the other hand, Moody’s Investors Services has recently flagged high public debt and risks of fiscal slippages ahead of general elections in 2024 to support their rating stance. Moody’s reportedly said, “As the government balances the commitment to longer-term fiscal sustainability against its ...

It has been over five year since I visited a local garbage dump in West Delhi. The visit was a revelation in many respects. A casual discussion with the rag pickers exploring the heaps of stinking garbage to collect pieces of paper, plastic and metal, was quite enlightening. Out of seven people diligently scanning the dump, three were children under the age of 14, including one girl, and three were youth in the age bracket of 19-27. On being asked why they chose to do this menial, risky (health wise) and stinking job, when they have relatively decent options like pulling a cycle rickshaw or even driving an e-rickshaw, working at a nearby auto garage, cleaning cars in nearby housing societies etc., the youth politely answered, "We are doing this job for past 12-15yrs. How could we change it now." On prodding further, one of them admitted that many of their peers live on hope that "Someday they will find treasure in the garbage. More years you have put into the job, the gr...

The National Statistical Office (NSO) released the estimates of National Income for the first quarter (April-June) of the current fiscal year (2022-2023) on Wednesday evening. A lot has already been written, said and debated about the reported GDP/GVA numbers. Apparently, the reported yoy GDP growth of 13.5% for 1QFY23 is slightly short of what the market consensus was expecting. In my view, the economic growth of India has been grossly inadequate and unbalanced, especially in the past 5yrs. The worst part is that the manufacturing and construction sectors that are traditionally considered having material employment generation potential are growing the least. It is primarily the exports that have helped the Indian economy to grow at the rate of 1.4% CAGR in the past 3years. Given that the global economy has perhaps entered a phase of protracted slowdown or sub-optimal growth, the exports may not sustain the Indian economy for too long. The markets must take cognizance of this. Especial...

 Presently, a large part of the market analysis and commentary is focused on the stock rally from the low prices recorded in March 2020. The popular narrative is that investors have made extraordinary return on their equity portfolios, in what was a once in a decade opportunity. In my view, this narrative suffers from a serious lacuna. This narrative assumes that— (a)    Investment is a discreet process and not a continuous one. Investors make investments only on occurrence of some event and exit as soon as the impact of that event dissipates. (b)    The economic behavior of a majority of investors is rational. They are able to control the emotions of greed and fear very well. (c)     Most of the investors have infinite pool of investible surplus, and they are able to invest material amount of money at their will. Unfortunately, none of these is even half true. Investment is a continuous process. Most of the investors stay fully invest...