Do it yourself

The benchmark indices in India have been directionless for almost two months now. In fact, Nifty50 has yielded a return of less than 2% in the past one year. Broader market indices have also not done any better. However, there has been a significant divergence in the sectoral performances. Some sectors like financials (+13%) and pharma (+8%) have outperformed the benchmark indices in the past one year, sectors like Media (-17%), Energy (-16%), Realty (-13%), FMCG (-7.5%), and Auto (-7.5%) have materially underperformed. In my view, this market performance implies— ·          Fatigue has set in the leaders of the bull market since 2021, especially PSEs, Infrastructure, commodities, and auto. These sectors look tired and unable to lead the market any further. ·          In the past one year, the market has digested (consolidated) the gains of the post Covid-19 rally in the past one year very well. It has...

  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...

Last weekend I visited some villages in the Bareilly, Shahjehanpur and Hathras districts of Uttar Pradesh. I had an opportunity to speak with several medium, small and marginal farmers. Most medium sized farmers had a good standing crop of paddy and sugarcane. Most of them were, however, circumspect about the final yield, in view of the IMD’s forecast of excess rains in September. Many small and marginal farmers had lost their pulses and vegetable crops due to heavy rains accompanied by strong winds. They were dismayed and worried about their ability to manage the resources to plant Rabi crops, mostly potato and wheat. Some of them, who had taken advance from the traders, were also worried about the repayment. None of the small and marginal farmers mentioned the terms like crop insurance, bank loan, Kisan credit card, etc. Thankfully, there is an abundance of fodder for their cattle this time. After a discussion of 10-12hrs with these farmers, NGO workers helping them with farm...

  In the past two weeks, Indian markets have witnessed heightened intraday volatility. Out of the last nine trading sessions, on six occasions markets witnessed a sharp sell-off from the day’s high levels. Even though, on a weekly basis, Nifty managed to close with marginal gains, the jitteriness amongst traders is conspicuous. The case of Last Friday is particularly noteworthy. The benchmark Nifty corrected almost 2% from the day’s high within a few minutes, ostensibly due to a media report suggesting implementation of the Direct Tax Code in the July 2024 final budget for FY25. The volatility index (India VIX) spiked over 33% to a multi-month high. The finance minister outrightly denied the report calling it “Pure speculation”.   In my view, three clear inferences could be drawn from this instance. First, the market is bravely holding up, in line with the global trend. However, the risk appetite of investors and traders may be diminishing. The margin for error, should so...

Recently released minutes of the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) highlighted that the latest policy stance is primarily ‘Wait and Watch”. This stance is driven by the hopes of: (a)    Mother Nature helping a bountiful crop (especially vegetables); (b)    Current rise in inflation being transitory in nature; but MPC is ready to preempt the second-round impact; (c)    Capex (both public and private) sustaining despite positive real rates and diminishing liquidity and continuing to remain broad-based; (d)    Growth in the Indian economy staying resilient enough to withstand the external challenges; and (e)    Government taking adequate steps to mitigate supply-side shocks, while maintaining fiscal discipline, trade balance, and growth stimulus. Evidently, RBI has no solid basis for making these assumptions. The monsoon is not only deficient, it is poor both temporally and spati...

One of the several global trends that have been developing in the past decade, in particular, is the dissipation of the US dominance in the game of Lawn Tennis. The game that was dominated by US players for several decades does not have any commonly recognizable US players. The list of top 10 rank players in the ATP Men ranking has only two US names – Taylor Fritz (9) and Frances Tiafoe (10); while the rest eight are all European players. In women ranking also only two US names – Jessica Pegula (4) and Coco Gauff (7) – appear in the top 10 lists. Within Europe also, players from Eastern Europe are dominating the court, versus Germany, the UK, and France which had a significant presence in the game for decades. It would be interesting to study if there is a correlation between losing dominance on the Tennis court and losing dominance on the mint streets (economic muscle) and battlefields (strategic power). In the past decade, the US has ceded significant economic power to China. For...

Monsoon, agriculture, prices (Yes Bank) The focus for economic agents over the last few weeks was the onset of the SW monsoon, especially as the El Nino risks have been now moved to an “Alert” from “Neutral”. This year, the monsoon had a delayed start as was predicted, and its progress was also initially stalled by the cyclonic conditions that developed over the Arabian Sea. However, monsoons have now covered the whole country. From, a deficit of around 55%-60% in the initial part of June, cumulative rainfall till 3rd July shows a deficit of only 8%. This is good news, but the worry comes from an uneven spread of the monsoon. Southern Peninsula is currently seeing a large deficit of around 43% while the North-West region has a large surplus of 40%. East and North-East India sees a deficit of 16% while the deficit for Central India is 4%. Even as the IMD has predicted a normal monsoon for July, tracking the temporal and spatial progress of the SW monsoon in July and August remains imp...

Key economic trends (Elara Capital) ·          Deflationary impulses seem entrenched in the global economy. We believe global inflation may surprise on the downside through rest of CY23E. ·          We see the Fed pausing even in July 2023 meet – Expect the first rate cut by the Fed in Dec-23. ·          Historically, equities perform better in a hike cycle than a cut cycle. Bonds are a better bet in run up to rate cut cycle. Gold is the preferred commodity asset through both hike and cut cycles. The USD-INR usually fails to capitalize on the overall EM FX risk on sentiment in the run-up to a rate cut by the Fed. ·          Deflationary producer prices in China suggest weakening growth in G4 – the US, the EU, the UK and Japan. We do not rule out a sub 5% GDP growth in China in 2023E. (base case 5.2%) ·   ...