Do it yourself

Continuing from my previous post ( Bull fatigue or bear charge ), I would like to share some of the important things I am presently watching closely to assess whether we are passing through a bull market correction or a proper bear market cycle is underway. Rural income:   The recent corporate commentary has highlighted green shoots seen in the rural demand recovery; while the urban demand continues to remain under pressure. For meeting the latest earnings estimates, continued recovery in the rural demand is, therefore, important. Earnings growth of some sectors like consumers, automobile, textile agri inputs & equipment, etc. materially depend on the continued rural demand recovery. I note that there are some worrisome signs for the rural economy. First, the 2024-25 winter has been unusually warm and dry. Several states have witnessed drought-like situations and warm weather. Reportedly, Wheat farmers in the northern regions could be staring at a sharp decline in rabi producti...

The 2025 th   year of the Christ is beginning on a very tentative note, particularly for investors in financial markets. The past four years have been relatively smooth for investors. With the benefit of hindsight, we can confidently claim that the markets were mostly driven by macro factors. Unprecedented liquidity infusion by the central banks and fiscal support to consumers across the world helped most asset classes to perform well. Despite massive global disruptions due to the pandemic and geopolitical, the volatility in markets was largely contained. Since most asset classes yielded decent returns for investors, they were not really pushed hard to make choices. However, the trend seen in the past few months is indicating that the conditions might change materially in the next 12-24 months. The macro trends may become ambivalent and unpredictable. Investors may need to make choices; and the return they would earn on their investment portfolios would largely depend on the choice...

In the past few months, the RBI governor has repeatedly spoken about “diversion” of household money from the bank deposits to stock markets. He has in particular mentioned rising household (retail) participation in the derivative trading, as a cause of concern for the financial stability. The securities market regulator (SEBI) has also cited high retail participation in the derivative segment as a systemic risk to the financial markets. For a common man like me, it is difficult to understand how option buying by retail investors possess any challenge or risk to the financial system and markets. My understanding of the securities markets is very elementary. Whatever little I understand, it works like this. Registered and/or authorized market intermediaries are not allowed to receive from or give cash to their respective clients. This implies that all legal transactions in the stock markets are settled through the banking system. When someone buys a security, there is necessarily a count...

Banking system liquidity deficit worsens (Miscellaneous) As per the latest RBI data, liquidity deficit as measured by fund injections by the Reserve Bank of India (RBI) into the banking system was INR1.47trn as of September 18, the highest since April 2019. The Reserve Bank of India (RBI) injected Rs 1.47 trillion on Monday and Rs 1.46 trillion on Tuesday. Market participants believed that the disbursement of Rs 25,000 crore as the second tranche of incremental cash reserve ratio (I-CRR) will not be enough, and the liquidity might tighten further to Rs 2 trillion in short term due to tax outflows and arrival of the festival season. “For now it looks like going into the festival season there would be more outflow and cash leakage from the system. It will lead to higher deficit for the banking system,” said Naveen Singh, head of trading and EVP at ICICI Securities Primary Dealership. “There are other factors at play. We are not seeing much dollar flows coming into the system and th...