Do it yourself

Continuing from yesterday… ( see here ) Investors world over are currently faced by a common challenge, viz., divergence of asset prices from the underlying fundamentals. This is particularly true for the investors in equities, precious metals, and treasuries. Nonetheless, they are staying invested, or even increasing their exposure and/or leverage driven by greed or lack of alternatives. If you take a note of the macroeconomic fundamentals of the top 10 global economies, you would notice that the growth trajectory of most economies is still lower than 2019 (pre-Covid) levels. Though, the growth rate of some emerging markets, like India and Brazil has recovered to the pre-Covid level, on several other parameters like unemployment, fiscal balance etc. these economies are also still struggling to regain even the pre-Covid momentum. GDP Growth:  Most of the top 10 global economies have recovered from the 2020 contraction, but rates remain below 2019 levels in advanced economies due to...

The US administration has announced imposition of 50% additional tariffs (25% reciprocal and 25% penal), over and above the regular/MFN tariffs that were already in place, on merchandise imports from India. Certain items, like pharmaceuticals, that are part of separate trade negotiations, and services are presently not part of the new tariff rates and continue to be charged at the extant rates. This level of tariff is indubitably concerning, as it makes numerous Indian MSME businesses, especially those exporting textile, leather goods, small components, jewelry, carpets etc., incompetitive; and in many cases poses an existential threat to the exporting entities. For several MSME the US market contributes a substantial part of their revenue; and these entities were enjoying some advantage over competitors due to lower MFN tariffs. They not only lose this advantage, but become materially incompetitive due to these tariffs. These reciprocal and penal tariffs, in my view, tantamount to...

  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 Middle East is once again a tinderbox, with the escalating Israel-Iran conflict threatening to spiral into a broader global crisis. Unlike the recent Indo-Pak hostilities, which remained contained, this clash carries the potential to draw in multiple nations, disrupting global trade and energy markets. For India, which is heavily reliant on energy imports, the stakes are high. While India has reiterated its neutral stance, the ripple effects of a prolonged conflict could significantly impact its energy security, inflation, current account balance, INR exchange rate, fiscal stability, and overall economic growth prospects. This global flashpoint could have local consequences The Israel-Iran conflict differs starkly from localized India and Pakistan military engagements. With China and Pakistan openly backing Iran, and Russia potentially supplying critical defense equipment should the U.S. directly support Israel, the geopolitical fault lines are deepening. For India, this pres...

President elect of the US, Donald Trump has already designated key members of his team. Based on his election agenda, speeches and rhetoric and personal views of his designated team members, market participants are speculating about the likely policy framework of Trump 2.0 administration, and its implications for the global trade and markets. My personal view is that the actual agenda of governance might have some shades of the election rhetoric but its actual path may not materially deviate from the trend seen in the post GFC (2009) period. At this point in time, I do not expect to sight any black swan in global economics and/or markets. With this caveat, let me summarize the current market speculations and its likely impact on India. Trade tariffs Trump has been speaking about imposing high tariffs on the US merchandise imports to promote local manufacturing, cut US trade deficit and strengthen USD. He has been suggesting 20% universal tariff on all imports, 60% tariff on impor...

Urbanization is intrinsic to development and often serves as a major driver of economic growth. As India reaches tipping point of transitioning from a mostly rural to an urban society, the focus must be on ensuring the best opportunities for economic growth for all sections of the society. — Dr. Rajiv Kumar, Former Vice Chairman, NITI Aayog In October 2020, the NITI Aayog formed an Advisory Committee on  ‘Reforms in Urban Planning Capacity in India’ , to find ways to face the multiple challenges being faced in the cities and India’s commitments towards global agendas. After extensive deliberation with domain experts and think tanks, the Committee presented its report in September 2021. The highlights of the report are summarized below. ·           India is the second largest urban system  in the world with almost 11% of the total global urban population living in Indian cities. In absolute numbers, the urban population in India is m...

A new central government will assume office in India, in a few days. This is a great opportunity to look at the current state of affairs with a new perspective and reorient the policy framework. The present state of the Indian economy is characterized by the rising incidence of unemployment, disguised unemployment, and underemployment; higher than acceptable socio-economic inequality; strong and rising intellectual and skill inequality; gradually bridging but still high regional imbalances; low productivity especially in the agriculture sector; oversized government with abysmal level of decentralization; incapacitating supply constraints, especially in social and physical infrastructure terms; and trust deficit at all levels. A younger demography provides high potential in terms of growing workforce and consumption demand. However, the potential remains under-exploited due to low skill levels, lack of adequate employment opportunities, financial and social exclusion, and disillusionm...

Verdict 2024: Market Implications An analysis of the past 30 years of market trends provides no evidence to suggest that elections, the form of government, or the strength of a particular party in the parliament impacts the market performance significantly. However, it is common to see higher volatility during or around elections. Insofar as the fear of a multi-party coalition or a fractured mandate is concerned, I believe, the investors should be relieved by the prospects of a true coalition coming to power. Because, in the post-independence era, the best periods for the Indian economy have been those when a “coalition” government was in power. It is however important to note that by “coalition” I do not mean just a multi-party government. In my view, coalition government means where people with diverging socio-economic policies jointly participate in a government. Empirical evidence suggests that such coalition governments in India have agreed on a common minimum agenda and foc...

  Why to emulate Chinese investors? Gold prices hit an all-time level in April and have corrected marginally since then. Again, this is the time when self-proclaimed investment gurus commemorate Indian households, especially the women, who have traditionally parked their savings in gold ornaments. They highlight how the uneducated and unaware “mothers” have managed to earn more return than savvy investors who invested in index funds etc. In my view, this narrative is completely flawed and does not merit any comment. The all-time high gold prices in international markets have also triggered a deluge of reports forecasting a strong performance of gold in the coming years. The key arguments in favor of a strong rally in gold prices are (i) technical breakout; (ii) central banks amassing gold reserves in anticipation of the diminishing role of USD in the global economy; and (iii) the Dilemma of the Bank of Japan whether to protect bond yields or Yen. The traders have however pointe...