Do it yourself

“Sir, I rise to present the Budget of the Central Government for the year 1962-63. The main purpose of this Budget is to place before Parliament an account of the finances of the Central Government for the current year and to obtain from the House a vote on account to meet the expenditure of the Government until the new Parliament considers the Budget again.” (Shri Morarji R. Desai, Minister of Finance, introducing the interim budget for the year 1962-63) Tomorrow, the union finance minister will present an interim budget for the fiscal year 2024-25. An interim budget is necessitated due to the impending general elections, which ought to be completed by the end of May 2024. The union budget for the current fiscal year 2023-24 authorized the expenses of the union government till 31 March 2024. The incumbent government has the mandate to be in power only till the general elections are completed and a new government is sworn in. It is a convention of parliamentary ethics that the incumben...

Not putting all eggs in one basket is perhaps one of the oldest risk management techniques. In the financial investment parlance, this is commonly called “diversification of portfolio”. Over the years this technique has worked well for investors in managing risk. In earlier times, diversification was a rather simple exercise. This usually involved allocating money to asset categories (equity, debt, commodity, real estate, etc.) that carried divergent risk profiles. During low inflation, easy money periods equities and real estate outperformed the debt; while in high inflation tighter money periods, bonds and commodities did better. However, as the markets became more globalized, financialized, and dematerialized, the performance of various asset classes started to become more correlated. With more and more assets offering a similar risk profile diversification of portfolios started becoming a complex and complicated exercise. In the past decade, we have seen sovereign bonds carry...

I had an opportunity to meet with a group of investors last week. The discussion revolved around the present market conditions and the likely direction of equity and bond markets over the next few months. The views about the equity markets were divergent. However, the views about the bond markets were surprisingly similar. A substantial number of people believed that the interest rates have peaked and may move lower in the next 6 months. Long bonds thus appeared as a consensus trade. Almost all of them have been advised by their respective advisors (or friends) to increase the “duration” of their debt portfolio to avail maximum benefit of the declining interest rates. A deeper inquisition highlighted several interesting issues related to the “long duration” positioning of the investors. I want to share some of these issues with the readers to seek their views in this regard. ·          Most of the investors were not fully conversant with the...

Yesterday’s post ( China+1...rhetoric apart ) evoked a rather aggressive response from some readers. They strongly disagree with my skepticism about China+1 strategy, at least in the short term (5-7yrs). Some of them claim to have already witnessed the stupendous results of this strategy for many Indian corporations. Since my posts are mostly my personal views and observations, criticism does not affect me. I usually politely agree to disagree. I would thus avoid responding to criticism or the views to the contrary. Nonetheless, I may reemphasize my views as follows: ·          In the short-term (5-7 yrs) any business or investment strategy that assumes substantial decoupling of China from India’s trade specifically, and Western countries in general, may not be successful. ·          Presently, China+1 trade is confined to a few businesses (not sectors), where (i) China has explicitly implemented capac...

Last month, in one of my posts ( read here ), I mentioned that “From the events of the past few years, it is evident that the era of peace and global cooperation, which started in the aftermath of two devastating wars in the first half of the twentieth century and flourished after the end of the Cold War in the late 1980s, may be coming to an end. In my view, the year 2024 will see a new paradigm unfolding in global economic, political, and geopolitical spheres. The new paradigm which would take a couple of decades to manifest fully, may inter alia see multiple axes and alliances emerging in the global order, competing with each other for supremacy. Consequently, global trade may get fragmented into multiple trade blocs.” I also expressed a view that “The trend in the financialization of economies may reverse. Physical resource ownership and localized manufacturing may become the primary focus again.” A team of the International Monetary Fund (IMF) analyzed the economic impact of t...

One of the key factors that may influence the performance of Indian equities in the current year would be how the global asset managers rebalance their portfolios in light of the changes in interest rate trajectory, movement in USD and JPY, geopolitical tensions, disinflation/deflation, etc. 2023 has seen significant disinflation in most developed and emerging economies. Most central bankers are well on course to achieve their inflation targets. Global growth, especially in advanced economies, commodity-dominated emerging economies, and China has taken a hit. Presently, many European economies are struggling with stagflation. Japan is witnessing positive real rates after a decade. US COVID stimulus has faded, leaving consumers vulnerable. Higher positive rates are impacting discretionary consumption and investment in many other economies. It is to be watched whether the current trend stops with  disinflation  or pushes the major economies to a state of  deflation . P...

“Economic efficiency” is one of the fundamental principles of economics. An efficient economy exists when every resource is allocated in the best possible way while minimizing waste and inefficiencies. The objective is to optimize productivity – producing goods and providing services at the minimum possible cost. A state of full efficiency is, of course, a theoretical concept. Nonetheless, by striving for this state economies, enterprises, and households aim to minimize waste and optimize the cost of producing goods and providing services. The principle of ‘economic efficiency’ is at the core of the globalization of trade and commerce. Countries have their strengths regarding resources (man, material, money etc.), technology, infrastructure, policy framework, etc. Affording countries to produce goods and services according to their strength means optimum utilization of the available resources for the benefit of all the trade partners. However, local political and geopolitical conside...

Last week the National Statistical Office (NSO) released its first advance estimates (FAE) of the national income for the current financial year 2023-24. The growth in real GDP during 2023-24 is estimated at 7.3% as compared to 7.2% in 2022-23. This projection of growth is higher than the latest forecast of the Reserve Bank of India (7%) and professional forecasters (6.0 to 6.9%). Given the economic momentum, it is likely that growth for the next financial year FY25, currently pegged ~6.5%, may also get revised upwards. As per FAE, the Nominal GDP (GDP at Current Prices) in the year 2023-24 is estimated at ₹ 296.58 trillion (USD 3.56trn), as against the Provisional Estimate of GDP for the year 2022-23 of ₹ 272.41 trillion. The growth in nominal GDP during 2023-24 is thus estimated at 8.9%, much slower than 16.1% in 2022-23. It is critical to note that most statistical numbers relevant to the financial market investors are benchmarked to the nominal GDP. For example, corporate pro...

  Wishing all readers, a joyful holiday season and a happy new year. J. P. Morgan: Too early for a victory lap As we head into 2024, a combination of solid activity and falling inflation has seen the market narrative increasingly shift towards the prospects of a soft landing. •        We are a little more skeptical . Even though Western economies may be less rate-sensitive than in the past, we expect that the “long and variable lags” of monetary policy transmission are at least part of the better explanation for the economic resilience seen so far. •        We think  it's too early for the central banks to declare outright victory  over inflation, and anticipate that rate cuts in 2024 are unlikely to pre-empt economic weakness. •        We therefore think  interest rates could be set to fall later than the market currently expects,  but eventually they may also fall further...