Do it yourself

  State of the economy The National Statistical Office (NSO) recently issued the first advance estimates (FAE) of GDP for FY22. This event is considered important, because these estimates are essentially used as input for preparing budget estimates for the next year (in this case FY23). The estimates are derived by extrapolating the previous year (in this case FY21) final estimates using the performance of sector indices in the first 7 to 9 months of the current financial year. These estimates may be subject to substantial revision in case of a material event that may impact the economic performance during the fourth quarter of the current financial year, e.g., lockdown during March of FY20. FY22e Real GDP to grow 9.2% NSO has estimated FY22 GDP to grow at 9.2% (-7.3% in FY21), lower than the recent estimates of RBI (9.5%). Although the FAE accounts for slower growth (~5.6%) in 2HFY22 against 13.7% in 1HFY22, these estimates may not have fully factored in the impact of rece...

Last week, I mentioned that unemployment in India is a multidimensional problem and it would require a multipronged strategy. The traditional “industrialization” strategy may not yield much significant results in the modern Indian context as the industries are now mostly capital and technology intensive and offer significantly lower opportunities for unskilled and semi-skilled workers, which form a large part of the Indian workforce. Implementing the traditional Keynesian model of creating employment through public spending is also challenging due to stressed fiscal conditions, focus on privatization of public enterprises, and diminishing labour intensity of construction activity. In the past fifteen years MNREGA (Rural capacity building) and PMGSY (Rural roads to improve accessibility) have been extremely successful in generating rural employment. These two schemes have not only supported the rural economy during the period of stress, but also created much useful capacities in the r...

 As I mentioned yesterday ( see here ), unemployment in India is a multidimensional problem. Unemployability (skill deficit), underemployment, disguised unemployment, gender disparity, regional disparities, are some of the contours that define the state of unemployment in India. The genesis of the reasons responsible may be traced to traditions, education system, colonial legacy, economic policies, and demographics. Obviously, the solution for a multidimensional problem also needs to be multidimensional. The classical solution, i.e., industrialization alone is definitely inadequate for managing the complex unemployment situation in India. Employment framework in India As per 6 th Economics Census (2013), there were 58.5mn business establishments (excluding public administration, crop production & plantation, defense and compulsory social service activities) operating in the country. Of these ~96% establishments were privately owned while just ~4% were government owned. The...

Shade 1 Subhash Pandey (45yrs commerce graduate) was working as an account assistant at a small shoe factory in Kanpur when the nationwide lockdown was imposed in March 2020. He lives in a rented house, and has two daughters aged 12yr and 9yr. Jyoti, his wife (39yrs, political science graduate) undertakes tailoring assignments from a local boutique to help in meeting household expenses. Post lockdown, Subhash lost his job, and tailoring assignments for Jyoti have also reduced. The expenses on education of the daughters have risen; and kitchen expenses have also gone up due to food inflation. Subhash now works as a delivery agent for online retailers and food delivery services. He gets Rs7-10 per delivery he makes. He needs to make at least 80-100 deliveries per day to earn (net of fuel expenses) what he was earning before lockdown. Jyoti is now working 8hrs (against the earlier 4-5hr) doing miscellaneous jobs (tailoring, pickle making, packaging etc.) to earn the same amount. Their sav...

  योगस्थ : कुरु कर्माणि सङ्गं त्यक्त्वा धनञ्जय | सिद्ध्यसिद्ध्यो : समो भूत्वा समत्वं योग उच्यते ||2:48|| Be steadfast in the performance of your duty, O Arjun, abandoning attachment to success and failure. Such equanimity is called Yog. (Srimad Bhagavad Gita, Chapter 2 Verse 48) बुद्धियुक्तो जहातीह उभे सुकृतदुष्कृते | तस्माद्योगाय युज्यस्व योग : कर्मसु कौशलम् ||2:50|| One who prudently practices the science of work without attachment can get rid of both good and bad reactions in this life itself. Therefore, strive for Yog, which is the art of working skillfully (in proper consciousness). (Srimad Bhagavad Gita, Chapter 2 Verse 50) In the present times, ‘politics’ is a struggle to find balance between economics and popularity. Good economics (fiscal prudence; balanced monetary policy; equitable taxation; etc.) usually does not get popular votes. Whereas poor economics (subsidies; helicopter money; unsustainable incentives like tax concessions, lower rates...

  Manulife Investment Management – Disruptive tightening and China key risks Monetary policy—Global central banks are sounding more hawkish—U-turns from the Bank of England (BoE), policy adjustments from the European Central Bank (ECB), a Bank of Canada (BoC) that’s actively tapering, and a U.S. Federal Reserve (Fed) that’s set on winding down its asset purchase program. While our base-case expectation is that the market will be able to absorb these tightening measures if they’re implemented gradually, it’s still worth noting that: • Global liquidity is declining, which has historically been problematic for growth • If real interest rates climb too quickly, it can derail the equities market (as it traditionally has done), particularly as rates approach 0% • The current environment creates scope for policy miscommunication that could create volatility in global interest rates and currency markets The downside risks in the coming quarter are most concentrated in China, wher...

The latest macro data indicates that the Indian economy may be standing at an inflection point. Having survived a major accident in the form of Covid19 pandemic, the economy looks stable, having progressed well to reach closer to the pre Covid level of activity. Of course, for next few quarters the economy may still need to use the support of government spending, before the virtuous cycle of higher investment and consumption kick starts. Post pandemic, the challenges before the government are multifold; and so are the opportunities. A successful resolution of these challenges could trigger a virtuous cycle of growth and catapult the economy to the higher orbit. A failure may not be an option, as it could cause a disaster of unfathomable proportion. Besides, merely achieving a full ‘V’ recovery to the pre pandemic level of economic activity will be inadequate, since pre pandemic the economy was slowing for many years and was completely unable to generate adequate jobs for the burge...

The valuations of Indian equities, or the global equities in general, has become subject of intense debate, with participants analyzing the markets with personal biases and prejudices. A variety of models, methods and timeframes are being used to justify the current valuations as reasonable, or reject these as unsustainably high. Many analysts have preferred to ignore the aggregate valuations and adopted different yardsticks for various classes of businesses. Given that the benchmark Nifty has close to 38% weight of financial services, it may not be appropriate to give undue consideration to the aggregate PE ratio of the index for benchmarking the “market” valuation. Some analysts prefer to use global indices (e.g., MSCI India Index) to assess the valuations of Indian equities. Many new age businesses which are solely focused on revenue growth and may not be profitable in short to mid-term. For these businesses applying the conventional valuation methods might not be appropriate....

 The Indian equities performed decently in 2021. Investors would normally have nothing to complain about the returns on their equity portfolios. ·          The benchmark Nifty is up ~21% YTD2021. It is 6 th consecutive year of positive return on Nifty. Nifty has now returned positive return in 9 out of past 10years (2012-2021). ·          Nifty has averaged 15881 (based on daily closings) in 2021, which is 44% higher than the same average for 2020. Based on change in average, this is best performance since 47% gain in 2006; implying strong returns for SIP investors. ·          For long term buy and hold investors, five year rolling CAGR in 2021 is ~15.7%, which is best performance since 2013. Five year absolute Nifty return in 2021 is ~107%, also highest since 2013. ·          The market returns were fairly broad ba...

 In its latest policy statement, RBI has reiterated its unwavering commitment to growth, ignoring the concerns about it missing the inflation curve. There are not many precedence in past two decades when the RBI has shown such unwavering commitment to growth despite mounting inflation concerns and global tightening pressures. The decision of the Monetary Policy Committee of RBI to maintain status quo on policy rates and keep the policy stance “accommodative” despite mounting inflationary pressures has provided some relief to the financial markets. However, it has divided the experts on the mid-term economic impacts. The bankers have generally welcomed the RBI’s policy stance as credit and growth supportive. However, economists believe that this leniency on inflation may not end well. They believe that this profligacy of RBI will leave it much behind the curve and force it to make disruptive tightening in mid-term. There are some questions over the autonomy of MPC also. A smal...