Do it yourself

The past few months have been quite trying for investors and traders in the financial and commodity markets. The markets have been jittery, and indecisive. Obviously, the market participants are becoming somber in their market outlook for the short term. The global order is perhaps undergoing a major reset and the picture of emerging global order is incomplete. Consequently, the present global economic, geopolitical and financial conditions are quite uncertain and challenging. As per the conventional wisdom, at this time the investors should be busy assessing the likely contours of the emerging global order, forecasting the investment opportunities and positioning themselves as per their assessments; whereas the traders should be deciphering the opportunities arising due to the transition. The shifting investors’ positioning may create opportunities for the traders in the markets. I noted the following key trends in the markets to assess how the investors’ positioning is shifting...

The government is making an offer for sale (OFS) for 3.5% stake in the Life Insurance Corporation of India (LIC). At Rs 902, the lower point of the price band fixed for OFS, the LIC will be valued at Rs 5.7 trn. At this valuation it will be the fifth largest publicly listed Indian entity. The OFS will yield Rs199.7bn to the government, about 30.6% of the total disinvestment target of Rs650bn fixed for FY23. The government has apparently cut the offer size from 5% announced in February 2022 to 3.5%, considering the jittery market conditions. We shall therefore see multiple follow-on offers from the government in the coming years. 10% of the shares offered for sale are reserved for the policyholders of LIC; and 0.7% shares on offer are reserved for employees of LIC. 31.25% of the offer is reserved for household (retail) investors. Applicants from these categories will get a discount of Rs45 (Rs. 60 for policyholders) on the actual offer price. For all these categories the maximum appli...

If we go by the popular media narrative, the country is facing acute power crisis. Many states are witnessing scheduled power cuts of 1 to 3 hours. The headlines screaming about worsening coal shortages are scaring the users, as the already hotter summer weather is entering its peak phase in May and June. Some industrial units in the states like UP, Haryana, Delhi, Punjab, Rajasthan, Tamil Nadu and Andhra Pradesh etc., are reportedly considering production cuts, in case power situation worsens further, considering the high cost of diesel based power backup. The government on its part has outrightly denied any power or coal crisis in the country. The concerned ministry and related officers have also assured availability of adequate coal stock. Not surprising, the power sector has been one of the most favorite sectors with investors in the past few months. The stock prices of the power sector companies, encompassing the companies in the business of power generation, power transmissio...

In the past one century, Drug lords in the Latin America; Italian mafia in the USA; war lords of the Africa and Arab world; Russian oligarchs; Japanese Zaibatsu; Australian media moguls etc. have perhaps been as popular with the media and entertainment industry as the intelligence agencies like CIA, KGB, Mossad and MI6. It is widely acknowledged that they did exert influence over political establishments, judiciary and financial systems in their respective jurisdictions; and many a times even beyond that. In the post global financial crisis era, some entrepreneurs have emerged as the center of power. Historically, the large entrepreneurs have been influencing policy making, but their domain of influence was mostly limited to the policies relating to trade and finance. Geopolitics, for example, was usually not on their agenda. However, it seems to be the case, no longer. The corporate czars are now widely believed to be influencing politics, geopolitics, trade and finance, with impunity...

Besides the hydrocarbons (crude oil and natural gas), edible oil is perhaps the most critical item for Indian households, where our country is largely dependent on imports. In 2021 we imported ~US$17.5bn worth of animal & vegetable fats and oils. Volume wise, the annual domestic consumption of edible oils is around 25 million tonnes; whereas we produce less than 12 million tonnes. Thus we rely on imports for over half our requirements, making India the third largest vegetable oil importer, behind USA and China, despite a low per capita consumption of edible oil of less than 6gms a day. Despite all efforts to increase the domestic production of edible oils, our imports of edible oil have grown about 175 percent in the past decade. Area under production of oil seeds in India has hardly increased in the past three decades; though the yield has improved. Last year, the central government set a target to bring...

The stock price of the over-the- top (OTT) streaming major Netflix has fallen ~68% from it's all-time high price of US$695/share in November 2021. The current price is lowest since December 2017. At the current price (US$226/share), the stock discounts trailing twelve months earnings by 32x. The company makes a healthy ~31% return on equity and ~11% return on assets. The revenue, operating margins and net profit margins achieved during the past twelve months are higher than the past 5yr average. The company has been generating healthy operating cash flows, but not yet generated free cash flows. The reason for the latest US$150 fall in Netflix’s share price is the first ever reduction in its subscribers’ base (which may be largely due to Netflix withdrawing its services from Russia). Six months ago, numerous analysts and portfolio managers were jostling with each other to justify a PE multiple of over 100x for the stock, citing the exciting business model and growth prospects fo...

From my interaction with many market participants over past few days, I noted that most of the active traders and even some of the seasoned investors are now focused on the cyclical businesses like Textile, Paper, Cement, Sugar, Rice, Energy etc. Global food shortages and forecasts of a good monsoon have evoked interest in agro chemicals also. Given that a large proportion of stocks in these sectors are small and midcap; floating stocks are not significant; and institutional interest is low the moves are sharper – something traders like very much. Defense is perhaps the most talked about sector amongst traders. The need to indigenize defense technology and become self-sufficient in weapon and defense equipment production in view of the international sanctions on Russia (our largest defense supplier) is driving the sentiment. The PSUs producing for the defense sector are getting re-rated. Private players are also getting heightened traders’ attention. The attention towards FMCG and ...

Long Covid, is a term commonly used to describe the lingering adverse health effects of the Covid infection. Another dimension of Long Covid is the lingering socio-economic impacts of the pandemic. While only a small percentage of persons who suffered from the Covid infection are showing medical signs of the Long Covid; the socio-economic milieu of almost every country in the world is suffering from Long Covid. The pandemic has definitely widened and deepened the socio-economic economic divide across jurisdiction. A significant proportion of the population that was pulled out of the abysmal poverty in the past two decades has slipped back below the poverty line. Accelerated digitalization of social services like education and health has deprived many underprivileged children. To mitigate the sufferings caused by the pandemic, most governments provided monetary and fiscal stimulus to the poor and small businesses. The stimulus checks (and ration and medicine kits) created artificial...

Last week I highlighted a few larger global trends that are not getting their due attention in the popular market narratives  ( see Gorillas in the Room ) . Today, I want to draw the attention of the market participants towards a major India specific trend that shall have far reaching implications for the Indian economy and therefore Indian markets. “Favourable demographics” has been inarguably one of the major themes of the Indian economy and markets for the past two decades. The latest round of National Family Health Survey (5th Round - 2019-21) highlights that this theme might soon run out of currency and demographic dividend (income) might get replaced by demographic interest (expense). India to become older sooner than previously expected The total fertility rate (TFR) for India is already below the replacement threshold. TFR indicates the average number of children a woman is likely to bear during the age between 15 to 49 years. As per the global standards a TFR of 2.1 ...

In the past few years I have been disappointed multiple times for not reading adequate and missing on most relevant pieces of information. Being an ordinary mortal, I have not taken the blame for this on myself’. I have rather chosen to blame the deluge of data and information that has been persistently inundating my mindscape. The flow of data is so overwhelming that discerning the important from the redundant has been a real challenge; especially because important is usually very marginal and underwhelming. The redundant, manipulated and superfluous is forcefully pushed and pursued relentlessly. The lines between the truth and untruth, conscientious and manipulative, data and information, relevant and redundant have been obviously obliterated or should I say brutally violated. Most of the financial and economic literature I have come across in the past couple of years has focused on analysing the topics like digitalization of economy, modern monetary theory (unsustainability of i...

The quarterly result season has started on an encouraging note with IT Services major TCS announcing mostly inline 4QFY22 and FY22 numbers. Although I do not assign much importance to the quarterly results in the context of my investment strategy, I shall be watching this season very closely, for three reasons: (i)    The management commentary for FY23 would be important to understand the impact of global growth, inflation and geopolitical conditions on Indian businesses. BY now most of the corporate management would have assessed the impact on their respective businesses and their assessment would be reflected in their guidance for FY23. (ii)   The present earnings estimates of analysts for FY23-FY24 may not be factoring the latest developments, especially with regard to monetary policy, inflation, and demand outlook. Since the previous result season most agencies have downgraded India’s growth forecast; increased inflation (wage of raw material cost inflat...

I am almost illiterate insofar as the concepts of mathematics, physics, chemistry and biology are concerned. I have even not considered reading any guide for dummies to understand some elementary things about these concepts, though many times I have felt the need for this. The consequence is that whenever anyone uses these concepts to explain a practical situation to me, I have only two options – either believe that person fully and accept the explanation offered by him or reject his explanation completely and leave the problem unresolved. Usually, it is not the explanation offered by that person, which governs my decision to accept or reject. It is my faith in that person itself. If I trust that person, I accept his explanation in full; and vice versa. When I see people blindly following (or even refusing to hear) some religious preacher, politician, business leader, domain expert, investors, trader, etc., I fully appreciate their behaviour. It is primarily due to (i) total refusal ...