Do it yourself

FY23 was mostly a year of normalization. After two years of disruptions, uncertainty, and volatility, both the markets and the economy regained a semblance of normalcy in terms of the level of activity, trajectory of growth, direction, and future outlook. Building on the momentum regained in FY23, the Indian economy and the markets made a steady move forward in the financial year FY24. The resilience of growth has been surprising, given the tighter money conditions and challenging external environment. The global economy was also stable despite geopolitical and climate challenges. Global markets accordingly performed well. The sentiments remained mostly positive and supportive of risk. The following are some of the highlights of the performance during FY24. Equity Markets Indian equity market was amongst the best-performing global markets. The benchmark Nifty yielded a return of ~29% (27% in USD terms), which was in line with the US markets (S&P500 +28%), but much higher ...

A   new study   by the World Inequality Lab highlighted one of the most obvious facts, i.e., the income and wealth inequalities in India have been rising and are now worse than the colonial period. The study highlights that “Inequality declined post-independence till the early 1980s, after which it began rising and has skyrocketed since the early 2000s. Trends of top income and wealth shares track each other over the entire period of the study. Between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. By 2022-23, the top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India’s top 1% income share is among the very highest in the world, higher than even South Africa, Brazil and the US.” The study suggests that “A restructuring of the tax code to account for both income and wealth, and broad-based public investments in health, education and nutrition are needed to enable ...

In the past few days, three noteworthy events took place in the global financial markets. These events highlight the policymakers’ dilemma and the uncertainty faced by the financial markets. First, the Bank of Japan changed its policy stance of “negative interest rates” ending its massive decade-long monetary stimulus exercise to a virtual close. Addressing the press after the policy decision, Governor Kazua Ueda emphasized that BoJ has “reverted to a normal monetary policy targeting short-term interest rates as with other central banks” He also added that “if trend inflation heightens a bit more, that may lead to an increase in short-term rates”. An overwhelming market consensus now believes that BoJ will hike the policy rates from the present 0-0.1% to 1% in the next year. However, given the massive debt accumulated over the past two decades, Japan may not afford any rate hike beyond 1%. USDJPY (151.38) is now at its lowest level since 1990. Second, the Swiss National Bank (SNB) cut ...

The financial market regulators (RBI and SEBI) have repeatedly cautioned investors and intermediaries in the past few months. However, regulators’ cautions mostly went unheeded as both intermediaries and investors continued to ignore fundamentals, moved with the momentum, and exceeded their limits – regulatory and financial. Consequently, the regulators have begun affirmative action. Following some preventive and corrective actions the regulators took, there is palpable panic amongst the market participants. There are a lot of queries, especially from small investors, who are usually gullible and easily get misled by the manipulative tactics used by the devious operators and end up buying junk stocks at high prices. The queries usually include – “should I buy more to average my cost?”; “it’s already down 40% from high, how much more could it fall?”; “The stock is falling daily, should I sell it now and buy lower?” I do not have any specific answers to these queries. However, from my ex...

 The National Sample Survey Office (NSSO) released the results of the latest Household Consumption Expenditure Survey a few days ago. The report highlights some interesting trends in household consumption patterns over the last two decades. The changes in the rural consumption patterns are particularly noteworthy. Some of the key highlights of the survey could be listed as follows: Consumption levels ·          The average monthly per capita consumption expenditure (MPCE) in rural areas is Rs3773 while in urban areas it is about 71% higher at Rs6459. ·          Rural population spends 46% on food and 54% on non-food items. While in urban India this ratio is 39% and 61%. Consumption disparities ·          There is a significant regional skew in both rural and urban expenditure levels . Sikkim has the largest MPCE (Rs7731 for rural and Rs12105 for urban...

We are currently in a market phase where most asset prices are rising. Equity indices (Nifty over 22200) are close to an all-time high. Gold prices (over US$2125/oz) are at an all-time high. Bond prices (benchmark 10-year yields 7.05% from 7.50% a year ago) have recovered from their recent lows. Bitcoins (US$66000) are trading at an all-time high. Real Estate prices in India are also close to their highest levels in most metros. Prima facie, all investors should be celebrating FY24 as one of the best years in their investment journey. However, a recent interaction with many small (retail) and high-networth investors indicates that for a significant proportion of investors, it may be a “glass half empty” kind of situation. The common regrets of over 100 investors I spoke to at three different gatherings could be listed as follows: ·          They stayed invested with the top-performing fund managers of 2018-2020. However, these fund managers ...

The tax-free status of agricultural income has been a contentious issue amongst the urban middle class of India for a long time. The issue is raked up every year close to the budget presentation. It is also commonly used as an argument against farm subsidies, MSP, and other farm sector reforms. In my view, the whole debate and discussions around the taxation of agriculture income in India amongst the urban middle class is driven by misunderstanding and ignorance about agriculture economics in India. Constitutional status of the Agriculture Income It is important to understand the constitutional and legal status of the agriculture income in India, before discussing the taxation aspect. ·          Agriculture is a state subject as per the Constitution of India (Entry 46 in the State List of Schedule VII). The power to tax agriculture income vests in the respective state government. The central government cannot tax agricultural income. A few...

Continuing from last week The development of Artificial Intelligence (AI) is still in the early stages. How many more job losses shall we witness in the coming years due to automation? Last week, one of the popular viral videos on Indian social media was about the views of Mr. Rahul Gandhi, Lok Sabha MP, and Mr. K. Annamalai, Tamil Nadu State President of BJP, on the challenges of artificial intelligence (AI). In the video, Mr. Annamalai is seen eloquently explaining the challenges of AI to young students, while Mr. Gandhi is seen doing some whataboutery to hide his lack of proper understanding. Discussing the matter with many people who chose to forward the video to me, I found that the key reason for their forwarding this video is to show Mr. Gandhi in a poor light and not bother about the challenges of AI. They deliberately chose to ignore that both Mr. Gandhi Mr. Annamalai may not be in a position to make policies, at least for the next five years; whereas Chief Ministers of...