Do it yourself

  The recent household finance data published by the Reserve Bank of India has made it to media headlines. Reportedly, the net financial savings of Indian households have crashed to a nearly five-decade low of 5.1% of GDP; while the financial liabilities of households shot up by 5.8% of GDP in 2022-23. Obviously, it is a worrisome trend from many aspects. Traditionally, household savings have been a stable and cost-effective source of funding for both - the government and corporate. High domestic savings provided a critical cushion to the Indian fiscal position from external shocks during the Asian currency crisis, the dotcom bubble, and the subprime crisis. Of course, the weakening of this cushion should be a cause of worry. However, there is nothing surprising in this data. Household savings have been consistently declining for the past many years. I have highlighted this trend on several occasions. For example, check Household savings – 1 , Household savings - 2 , Household sa...

 The recent order of the Supreme Court regarding classification of NPAs and payment of compound interest for the period of moratorium has reignited a debate on the state of Indian financial sector. The order of Supreme Court has been received by markets as a relief, as it removes a regulatory overhang and paves way for the banks to proceed with recovery of NPAs. Nonetheless, the next few quarters need to be watched closely for any precipitous rise in bad loans; especially if the recovery appears faltering. Past few years have been quite challenging for Indian financial services sector. A decade of massive infrastructure building exercise (1998-2008) resulted in significant advancement of demand and therefore unviable projects in key sectors like housing, roads, power, civil aviation, metal & mining, SEZs, Ports etc. resulted in a multitude of stalled and unviable projects. Administrative and regulatory irregularities in allotment of natural resources to private parties led to...

The financial sector has massively underperformed the broader markets in past three months. A number of experts have called for increasing exposure to this sector in view of this underperformance. They have argued that valuations are now discounting the worst in terms of COVID-19 related delinquencies and the economic activity shall normalize in next 2-3 quarters. The consensus amongst experts is veering towards outperformance of the sector in next 12-15 months. It appears that many non institutional investors are in agreement with the experts' opinion and have increased their exposure to the banks and NBFCs, especially the low priced ones. I would like these investors take note of the following data points while increasing their exposure to the financial sector in India. (a)    The capacity utilization of Indian enterprises peaked at 83% in 2011 and has ranged between 70-75% since then. It declined to below 70% in 2QFY20, much before the COVID-19 induced lock...