Do it yourself

Every day the stock markets in India (and other parts of the world also) are cheering the "positive data" and rising towards the previous highs. In my view, it may be a case of total cognitive dissonance. The market participants are selectively choosing the data that gives them hope of better days ahead; completely ignoring plethora of evidence indicating that economy is tottering on a long and winding road entering the dark woods with only scattered sunlight and no end in sight. Many experts have highlighted this case of dissonance between equity markets and economy, questioning optimism of investors and corporate managements. For example— The incumbent RBI governor Shaktikanta Das recently highlighted that "There is so much liquidity in the system, in the global economy, that's why the stock market is very buoyant and it is definitely disconnected with the real economy. There will definitely be a correction but we can't say when." The minutes of the ...

Continuing from yesterday (see Preparing for chaos - 3 ) In April, I had shared my thoughts about the investment strategy for post COVID-19 world ( see here ). The strategy was based on the assessment of situation based on the information available till then. Though the strategy has worked out very well so far, I must admit that luck might have played some part in this. The present circumstances indicate that the socio-economic, geopolitical and political repercussions of the COVID-19 pandemic would be much deeper and wider; and would be felt over a much longer period than earlier anicipated. I continue to believe that 1.     The current crisis is unprecedented in the sense that it has seriously impacted the liquidity, solvency and viability of a large number of businesses, all at the same time. The number of businesses going out of business before this crisis ends would therefore be much larger than the crises faced by global economy in past 75 years since the ...

Continuing from yesterday (see Preparing for chaos -2 ) As I said earlier, the world will be a materially different place in five year from now. However, notwithstanding the technological advances and development of advanced forecasting techniques, it may not be accurately predict the contours of the global order in 2025. The learnings from great depression may only inform us that changes will be dramatic. However, these may not guide us about the nature and direction of the changes, because the present circumstances are very different from 1930s. Given that I am a tiny investor, and my concerns are mostly limited to the local Indian assets, I would like to only assess (a)    Where India stands in this melee? (b)    What changes are required in my investment strategy to mitigate the impact of transformative changes that may take place in next 5 years? I hear lot about a Industrial revolution in India. The government has spoken about many ideas like "Make ...

Continuing from yesterday (See Preparing for chaos ) I believe that severity of any geopolitical event, financial crisis, economic event, natural calamity, industrial disaster, technological evolution, pandemic, etc. must be assessed in terms of its impact on the human lives. Any event that severely impacts the asset prices but its impact on human lives is limited to a small segment of people does not qualify to be a called a global crisis in my view. I put the financial crisis of 2008-09 in this category. The impact of that crisis was largely limited to financial markets and investors. It had almost no implications for the human life per se. It actually impacted more populated developing economies positively as the unprecedented amount of liquidity manufactured in developed markets found its way to emerging market assets enhancing the wealth effect in there. Similarly, the events like 9/11 attacks in New York city, 26/11 attacks in Mumbai city, Nuclear accidents in Chernobyl ...

The undeniable fact is that FY21 could see most pervasive contraction in global economy in post war era. The economic impact of novel coronavirus led lockdown is deep and wide, engulfing most economies, most sectors and most people. The impact may not be evenly spread as services sector have suffered more due to restrictions on mobility; and consequently the developed economies with larger share of services in their economy have also suffered more. The economies based on commodity exports have also suffered extensive damage due to lower demand and logistic challenges. The economies based on agriculture may be the least impacted as demand and supply chain for food have been least impacted due to pandemic. If we consider the impact of pandemic from socio-economic distress view point, the poorest countries perhaps would end up suffering the most. Poor health infrastructure, cut in global development aid, sharp cut in remittances, fall in exports, etc have hit the poorest the most. T...

The brokerage firm, Sanford C. Bernstein in a recent report highlighted some noteworthy points. The firm evaluated whether the recent sharp fall in economic growth would mark the end of the slow growth cycle triggered by the global financial crisis a decade ago; and beginning of a sustained high growth cycle leading to a multiyear bull market in Indian equities. The issue is relevant from many points. But as an investor, I find it more pertinent in view of the current market sentiment. The huge divergence between the macroeconomic data and equity markets has disturbed even seasoned investors. The common investors on the other hand are swinging wildly between the opposite polls of greed and fear. Each one percent rise in equity prices ignites the greed and slight fall in prices imposes the fear. Obviously, swaying by these extreme emotions, not many investors/traders are able to maintain their composure and losing money. The rising volatility in the prices of precious metals is maki...

The 1QFY21 results announced so far have been mostly better than average estimate of various analysts. About two third of the companies in Nifty 50 universe have declared their results so far. Out of these about 10% companies have missed the analysts on EBIDTA front; while 60% have surpassed the estimated with decent margins. This has obviously comforted the investors. Nifty sales has declined 28% (yoy) while EBIDTA decline is marginal at 1%. This highlights that most companies have managed their cost very well. The empirical evidence suggests that cost savings are mostly sticky with most of the Indian companies. This certainly augurs well for the future profitability of companies. The good news however ends here. On macroeconomic side, the incremental data is indicating that the economic recovery might be stalling after small recovery in May and June. Many economists and strategists have underlined this phenomenon in their recent reports. For example, note the following: ...