"It is only by not
paying one's bills that one can hope to live in the memory of the commercial
classes."
-
Oscar Wilde (Irish, 1854-1900)
Word for the day
Middling (adj)
Mediocre; ordinary;
commonplace; pedestrian.
(Source: Dictionary.com)
Malice towards
none
Corruption of mind, ideas and preferences is equally detrimental
to the progress of a society as the corruption in money and material matters.
First random thought this morning
Till Tuesday morning the financial experts were almost unanimous
on the likely rate cut by RBI. Governor Rajan did not surprise the markets.
However, a couple of days after the policy announcement the street
is vertically divided on the future course of action. Forecasts now vary from
75bps cut to no cut.
The governor has certainly brought back the element of surprise in
the policy making. This un-does whatever Governor Rajan has sought to do since
he took over the mantle at RBI.
In search of opportunities
OECD recently cut its global growth forecast for 2015 from 3.7% to
3.1%. To put this in perspective, the global economy grew at 3.9% CAGR in the
decade through 2011. In 2014 global economy grew 3.3%.
OECD said that unlike past instances where the economic recoveries
were aided by investment in manufacturing capacities and technology, this time
it is not happening. Besides, lack of demand is holding back employment, wages
and consumption.
US and China have been two big engines of global growth in past
decades. Both these engines running out of steam. The OECD sees the U.S. economy
expanding 2% this year, down from 2.4% in 2014. China is expected to grow 6.8%
this year, down from 7.4%.
At first this trend might look ominous for Indian economy and
markets. But a second look exposes underlying opportunities. For example,
consider the following:
(a) The immediate fear
of financial investors worldwide is the reversal of rate cycle in US. Slower
growth and persistent deflationary pressures may delay the eventual
"lift", providing a much needed window of relief to Indian economy.
This may be particularly critical if the monsoon indeed turns out be bad and
financial stress in the economy rises.
(b) Lack of investment
demand in developed countries and China may augment availability of capital for
starved Indian projects.
(c) Persistent
deflationary pressures may keep commodity prices lower, to the benefit of
importing economies like India.
(d) Lack of demand may
render a lot of global manufacturing capacities and capital equipment
redundant. Given the rock bottom freight rates, Indian miners, construction
contractors, and manufacturers may sources these capacities and equipment at
much cheaper rates.
This may be a
threat to the "Make in India" plan and domestic capital equipment
manufacturing industry, but still a big opportunity for the overall economy.
(e) Slower growth
resulting in lower income, lower subsidies and higher fiscal deficit may
strengthen the demand for cheaper services, medicine, clothes, vacations etc.
Thus benefitting economies like India, Bangladesh, Sri Lanka etc. Though some
engineering exports may suffer.
Though some
slowdown in demand is naturally expected, I would not be unduly worried about
severe impact on Indian IT and pharma companies.
In view of this, I am more confident about my underweight on
commodities and cyclical capital goods manufacturers. I would be inclined to
look at large contractors who are in a position to compete with global
construction companies, import/lease equipment's and capacities from overseas
markets and sustain their hare in incremental business.
I am evaluating whether any change is needed in overweight
consumers in light of likely deficient monsoon and Nestle controversy.
