Do it yourself

It was summer of 2013. The mood on the street was gloomy. The stock markets had not given any return for almost three years. USDINR had crashed 28% (from 53 to 68) in a matter of four months. GDP was on course to drop to 5.5% after growing at a rate of over 8% CAGR for almost a decade. Current account deficit had worsened to more than 6% of nominal GDP (the worst in decades). The Fx reserves of the country were down to US$277bn, sufficient to meet just 5 months of net imports. The confidence in the incumbent government had completely depleted. The people were on the street protesting against ‘corruption’ and ‘policy paralysis’. The global economy had still not recovered from the shock of the global financial crisis (GFC). The thought of unwinding of monetary and fiscal stimulus provided in the wake of being unwound was unnerving most emerging markets ((Taper Tantrums), including India. India, which was touted as TINA (There is no alternative) by the global investors just five years bac...

Equity markets are making new highs every day. Other assets like gold, bitcoin, bonds, cash, real estate, etc., are also performing decently. Logically, investors should be happy and looking forward to a great holiday season. However, multiple interactions with investors and other market participants, over the past couple of weeks, indicate to the contrary. Investors appear stressed for a variety of reasons. Those who are underinvested are suffering from fear of missing out (FOMO). Those fully invested are worrying about protecting their gains, should there be a sharp correction. Those invested largely in defensive large caps (likes of Infosys, TCS, HUL, RIL, Nestle, HDFC Bank, and SBI, etc.) are disappointed to see their portfolios underperforming the friends and relatives who were more adventurous and invested largely in the broader markets. Those who are leveraged are constantly worried about a sharp correction, margin calls, and rising cost of borrowing but are too greedy to cut ...

 In the past one week, I discussed the current situation in the Indian financial markets with some seasoned investors and experienced market participants. It was after almost three months that I got an opportunity to discuss the markets with such an enlightened group of people. Mood of markets definitely appears to have changed remarkably since June 2022. After my interaction with some senior market participants (bankers and investors) I had noted that the mood was rather despondent. The consensus in June appeared strongly in favor of a slow grind over the next 6-9months. The reference point of discussion was mostly the 2008 market crash. The market participants sounded cautious about rising cost of funds and drying liquidity; and feared major defaults that could trigger a global contagion. ( see here ). Reactions of the market participants this time were diametrically opposite. Most of them were in fact trying more to convince themselves about “all is well” rather than discuss...

The September 2020 Global Fund Managers' survey conducted by the Bank of America research team found that 58% of the global fund managers believe that global equities are now in a bull market. This percentage is materially higher than the 46% in August 2020. The proportion of fund manager who believe it to be a bear market rally has reduced in September 2020 to 29% from 35% in August 2020. An overwhelming proportion of fund managers believe that "Long US Tech Stocks" is the most crowded trade. Though, the fund managers believing gold to be a crowded trade has reduced materially in September, as compared to August. "Short USD" trade is also seen gaining some popularity . Continuing with the theme, JP Morgan Research (as quoted by Niels Jensen of Absolute Partners), finds that S&P500 is now pricing in almost 0% probability of a recession in US; while 5yr US Treasuries are pricing in almost 100% probability of a recession. In his latest communicat...