Do it yourself

After FY09, the current financial year (FY21) has been the most eventful year in most respects – social, economic, financial, ecological, science, and geopolitical. Socio-economic disaster: The spread of SARS-CoV-2 (Covid-19) virus that started sometime in last quarter of 2019 was declared a global pandemic in March 2020. The pandemic engulfed the entire world in no time, causing tremendous loss to human life and global economy. The mobility of people was restricted in most countries substantially. The economic activities were also curtailed only to the “essential” activities. Consequently, the global economy faced a technical global recession as most major economies recorded negative growth during 1HFY21. The pandemic this had disastrous socio-economic consequences. Millions of jobs were lost and workers displaced; smaller businesses which could not bear the cost of lockdown faced closure or were further scaled down; loss of lives traumatized families; and millions of poor children w...

The GDP data for 3QFY21 and second advance estimates for FY21, released by CSO last Friday has evoked mixed response from economists. While the positive growth number (0.4%) for 3QFY21 has been received with a sigh of relief (as it ends the technical recession), the downgrade of full year FY21 estimates from -7.5% to -8%, implies a negative growth print for 4QFY21. Presently, growth estimates for 4QFY21 range between -0.8% to -1.5%. The slowing momentum in 4QFY21 has also resulted in changes in FY22 growth estimates; which now mostly range between 10-11%. This implies a normalized growth of about 1% CAGR over FY21-FY22. I have highlighted this issue earlier also. For common man nominal GDP is more important because lot of variables like effective taxation, budgetary allocations for development and social welfare, subsidies, salaries of public servants, etc. are calculated as a factor of the nominal GDP. Lower nominal GDP essentially means lower income for people and lower tax revenue f...

  The statistics for economic growth during 2QFY21; consumption, investment, exports and financial indicators etc. for the month of October were announced last week. The data has been received very enthusiastically. The general commentary is that the growth is “surprising”, and the recovery is much quicker and superior that previously estimated. The “buoyant” data and further encouraging news on vaccine development & launch kept the momentum in the stock market busy yesterday. Since, most of the “surprised” reports are basing their arguments on the “Pre-Covid” and “Consensus Estimate” benchmarks; I find it pertinent to note the data with the usual year on year comparison. 1.    The production in eight core industries has contracted for eight consecutive months. In October 2020, the index of core industries fell by 2.5% compared to October 2020. It is important to note that in the base month October 2019, index had also contracted 5.5%. While coal, fertiliser, cem...

The last earnings season for FY20 has started. The three IT majors have announced results which appear good under the given circumstances. HDFC Bank also announced an encouraging set of numbers. The brokerages have drastically cut estimates for FY21 and FY22 earnings apparently to factor in the business disruption caused by the lockdown. Though there is still large variance in the estimates, the consensus appears to be favoring a flat earnings growth in FY21 and single digit growth in FY21. After reviewing earnings estimates of numerous brokerages, I have realized that respective analysts might have just used this opportunity to climb down from their egregious estimates, which have proven consistently wrong for past 5 years at least. Their basic premise still appear erroneous to me, though the data now appears much closer to the reality. I would like to highlight just three points in this context: 1.     The average earnings growth of Indian c...

FY20 is the worst financial year since FY09 in terms of year on year Nifty returns. Nifty lost ~25% of its value during the year. Most of these losses have come in past one quarter (Q4FY20), during which Nifty lost close to 30% of its value. In my view, considering the present circumstances and indications visible presently, the earnings and economic growth outlook remains heavily clouded for next 2-3 quarters. Thus, there are chances that the calendar year 2020 may turn out be a disappointing year in terms of equity returns. Working on various scenarios for the Nifty levels one year from now, I concluded that Nifty may return 5-8% in next 12months considering flat earnings growth in FY21 and 10-15% growth in FY22; and valuations close to long term average of 17%. I appreciate that 10-15% yoy earnings growth in FY22 appears quite challenging in the present conditions. However, considering the lower base (no growth for 3years) and economic recovery due to easy monetary policy ...