A detour to economic recovery

Thought for the day

"Nothing can be beautiful which is not true."

—John Ruskin (English, 1819-1900)

Word for the day

Ostentatious (Adj)

Characterized by or given to pretentious or conspicuous show in an attempt to impress others

(Source: Dictionary.com)

Malice towards none

One of the accused in infamous Sheena Bora murder case - Peter Mukerjea is reportedly selling his house to pay for his legal fees.

This is certainly not an isolated instance. There are hundreds of litigants who have to sell their house, land, organs and even family members to pay for legal fees. Unfortunately, many of them still do not get justice!

First random thought this morning

I could not help noticing that after rattling that world markets for better part of past 12months, "China" is gradually disappearing from front pages and top headlines.

I am unable to decide whether "China" has cease to be a concern for global economy; or it's a strategy of Chinese authorities to keep low profile and carry out necessary corrections; or the global markets are just playing ostrich to the Chinese threat; or it's just a temporary pause before Chinese concerns again start dominating the headlines!

A detour to economic recovery

In a classical economic recovery (a) consumption rises, usually led by rise in wages and/or lower interest; (b) prices rise as demand growth outpaces supply; (c) demand for investment rises as producers rush to create additional capacities; and eventually (d) employment rises leading to further rise in consumption.

Whereas in a pump primed recovery driven by government stimuli, rise in employment leads the cycle. To begin with usually the rise in employment is at the cost of productivity. Hence, if the rise in employment induced by fiscal incentives fails to kick start the virtuous cycle of income—consumption—investment—income, there is a risk of economy getting pushed even deeper into slowdown. In past one decade we have seen beginning of the pump primed virtuous cycle, albeit at a lower trajectory. But the effort has so far been futile in Europe and Japan.

Now coming to Indian economy. Arguably an economic turnaround is taking shape here. Though these are still early days, but I strongly feel that the recovery is not taking the Classical path. More importantly, severe fiscal constraints and unsupportive external environment may not allow the recovery to be materially pump primed.

In my view, the economic recovery in India is taking a detour to the Classical path. Some of the key highlights of the recovery, as I see it, are as follows:

(a)   The consumption level in the economy is rising, but it is not rising in the classical Maslow's evolutionary style. The consumption rise is more aspirational in nature. Accordingly, the demand for services is rising much faster than the demand of products. The capacity addition therefore is more likely in "seats" rather than "machines".

(b)   Productivity gains are likely to play major role in the growth. The recovery may therefore not result in creation of much real assets.

(c)    Faster and wider redistribution of wealth is the key underlying theme of the growth strategy. Higher taxation, exploitation of high savers through low or negative real rates, elimination of middlemen, and higher social sector spending will be amongst the key features of the growth cycle.

The good part is that efficient social sector spending (minimum leakages in subsidy distribution, emphasis on building quality human capital through better education, health and training) shall add to productivity gains achieved through better use of technology and management of redundancies.

The flight of capital is a real risk in the short term as the rich try to protect their wealth from being snatched by an aggressive regime. But I am not worried on that count. I feel that the new businesses will generate enough resources to compensate for the withdraal by traditional businessmen. Besides, foreign capital will also be encouraged by an open, transparent and receptive regime.

I shall discuss the investment strategy implication of this scenario in coming days.

"To cut or not to cut" is not the question

Thought for the day

"Punishment is the last and the least effective instrument in the hands of the legislator for the prevention of crime."

—John Ruskin (English, 1819-1900)

Word for the day

Wordmonger (n)

A writer or speaker who uses words pretentiously or with careless disregard for meaning.

(Source: Dictionary.com)

Malice towards none

Any guess why "112"  has been chosen as "911" of India?

My take - It might be the extension number of the PS to TRAI chief, the authority that has suggested this as the national emergency number.

First random thought this morning

One business that is flourishing these days is the business of "likes" on social media.

A chance meeting with some professionals, who provide "likes" and "followers" on social media on payment basis, informed me that after politicians, the religious gurus are the second largest users of their services. This group of three IT professionals claimed to be providing services to at least 12 gurus frequently appearing on various TV shows and public functions. They were elated to note that the top BJP leadership has recently provided them a huge business opportunity in UP!

Make hay when sun is shining!

Thought for the day

"The higher a man stands, the more the word vulgar becomes unintelligible to him."

—John Ruskin (English, 1819-1900)

Word for the day

Skullduggery (n)

Dishonorable proceedings; mean dishonesty or trickery; bribery; graft; an instance of dishonest or deceitful behavior

(Source: Dictionary.com)

Malice towards none

India could simply blame Pakistan for every act of terrorism on her soil.

But it's not easy for Pakistan.

In fact, in most cases, Pakistani establishment may end up blaming itself for the act of terrorism on their soil.

First random thought this morning

It has been a usual practice in India to put pictures or idols of Gods in staircase and on outside walls of properties to dissuade passerby from spitting and urinating on the walls.

I find a similar pattern in invocation of names of Ambedkar and Gandhi by the politicians these days. These two names are being frequently (mis)used to dissuade any kind of opposition to their respective ideas and arguments.

The funny part is that since no one appears to be an actual believer in strength of this Shield, they may not be using it when needed most.

Make hay when sun is shining!

In spring of 1992, soon after completing my education and training, I had my first tryst with the world of trade & commerce. It was the time when PVNR led government had just begun to unshackle the Indian economy from the clutches of pseudo socialist regime that worked under material influence of feudal lords and capitalist cronies. Many landmark events took place in the ensuing years.

I would in particular like to highlight three of those events - (a) Private competition for the civil aviation monopolies Air India (Overseas) and Indian Airlines (Domestic); (b) Private competition for the twin telecom monopolies MTNL (Delhi & Bombay) and BSNL (Rest of India) and (c) Private competition for monopoly fund manager UTI.

How these monopolies ended in ruins is there for everyone to see. BSNL that was reportedly valued at Rs1trn as late as 2007, is a cash guzzler today, so is MTNL and Air India. UTI survives in a miniature version of its old self.

In the events of past 2-3years, I see 1992 occurring all over again.

·         Private competition in power equipment manufacturing is diminishing the stature of public sector behemoth BHEL. The day may not be too far when this cash cow will start reporting loss and guzzling cash.

·         The commercial mining of coal is being experimented in a small way. I do not see why Coal India should not go the MTNL or Air India in next 10-15yrs, given its bloated cost structure, strong unions, bureaucratic management setup and peaking demand for coal as a preferred fuel.

·         The government is making sincere efforts to boost local production of defence equipment by engaging domestic and foreign manufacturers. This will seriously undermine the dominance of companies like BEL and BEML.

·         It may look little farfetched at this point in time, but I do not mind imaging demise of public sector banks from number 11 to 27 in next two decades. (I am leaving the top 10 just out of the fear that my readers may find me insane and stop reading further.)

The point I am trying to make that the government and trade unions (IDBI union please note) need to draw a lesson from the past experience.

The government should seriously consider selling larger stakes in these large institutions and let these reinvent themselves to stay competitive in the evolving scenario where global competition in domestic markets is going to intensify manifold.

The trade unions should actually be asking the government to initiate steps to professionalize these valuable institutions to safeguard the future of their kids. They need to realize and accept that by resisting the change they can save their jobs (with no growth whatsoever). But by adapting to change they can seek growth in their career and ensure a better future for their future generations.

Nifty: Preparing for the next market cycle

Thought for the day

"The essence of lying is in deception, not in words."

—John Ruskin (English, 1819-1900)

Word for the day

Amaranthine (Adj)

Unfading; everlasting

(Source: Dictionary.com)

Malice towards none

AK makes to Fortune's 50 greatest!

What does this reflect?

First random thought this morning

All appears well and the country has moved on. MSD has regained his mojo. We have got a new God in Virat Kohli. Mehbooba has finally yielded to the charm of PM Modi. Rahul Gandhi has proved his nationalistic credentials by playing Holi and dispelling rumors of his British citizenship. Shashi Tharoor has stormed the social media. NaMo is now following AK. Most important, no one bothered to report who played (and who did not) Holi with LKA.

Nifty: Preparing for the next market cycle

As I have been insisting for past few weeks, Indian markets have completed the market cycle that started on 28 August 2013. The cycle started from Nifty 5285 level (closing), peaked at 8922 on 04 March 2015, and ended on 29 February 2016 at 6987 Nifty level.

The cycle was one of the smaller ones, both in terms of time period and the distance covered. I expect the next market cycle to be the largest one yet both in terms of time period and the distance covered.

However, as of today, the market appears to be in no hurry to announce beginning of the new cycle. I would say the market is presently witnessing some nice sunny days in the winter.

It is difficult to say whether we would get some wet, chilly and grey weather before the spring arrives. But I would not lower my guards. I would rather stock up dry wood, keep my woolen stuff ready and carry my umbrella and fur coat even during warm sunny afternoon stroll in the market.

Simultaneously, I would be preparing for the spring as well. I shall diligently plough the fields, buy good seeds that would blossom into colorful fragrant flowers and sweet & juicy fruits in spring time.

Though I have not yet fixed my tryst with the spring, I expect this to take place sometime in next 4-5months.

In the meantime, I do not expect Nifty to fall below 7200 level, with a 50% probability of it not falling below 7490 level.

 

Rally may strengthen led by banks

Thought for the day

"Appreciation is a wonderful thing: It makes what is excellent in others belong to us as well."

—Voltaire (French, 1694-1778)

Word for the day

Psittacism (n)

Mechanical, repetitive, and meaningless speech.

(Source: Dictionary.com)

Malice towards none

When morality takes over the rule of law - stars bite dust, everyone gets to play saint, mob imparts the justice, and no one is winner.

First random thought this morning

I shall be ever grateful to our hyper-enthusiastic TV news anchors and our parliamentarians. They helped generously in treatment of my addiction to the idiot box. There was a time, I would watch anything showing on TV. But no longer. My pendulum has swung to the other extreme. Now I loath to go to the rooms where TV is playing. As they say, "whatever happens, happens for the good".

 

Rally may strengthen led by banks

Greed being conquered by fear, time for a new beginning

In past few months, broader markets have materially underperformed the benchmark indices. In past week, there was some signs of stability in the top half of the market, while the bottom half still remains jittery. This is a sign of greed being conquered by fears and euphoria subsidizing, an essential pre-requisite for a new market cycle to begin. Save for a black swan event, we may see a new market cycle emerging in next 6months.

...led by financials

History is repeating; only it may be much bigger this time

Thought for the day

"Democracy is the road to socialism."

—Karl Marx (German, 1818-1883)

Word for the day

Rabble-Rouser (n)

A person who stirs up the passions or prejudices of the public, usually for his or her own interests; demagogue.

Malice towards none

Dear FM, if nothing else is working, trying renaming the proposed GST Act  as Rajiv Gandhi GST Act (RGGA)

First random thought this morning

The famous 2014 general election win of PM Modi also popularized his designer kurtas and phoren returned PR agent cum election strategist Prashant Kishore. The day is not far when our vigilant media discovers the hair stylist responsible for the new look of Modi Ji.

It is good that PR agencies, fashion designers, hair stylists are getting their due share in Indian democracy. I hope a day will come soon when Indian politicians will publically proclaim their life partners and a victory kiss in full public view will not be a matter of blasphemy or national shame. That day, the statute book will rewrite itself and "gender equality" will no longer be a mere "intent".

History is repeating; only it may be much bigger this time

On March 09, 2009 when Nifty 2555, many were left wondering, whether it's the end of stock market investing.

Today, after seven year, Nifty is 3x, and many people are still wondering whether they should be investing in equity at all.

A Wikipedia tour of human history is sufficient to realize that the "globalization" is as old as the human race itself. Since ancient times, people (and animals) have been immigrating to far off, and often unknown, places in pursuit of water, food, congenial weather, and safety of children. The pursuit of material knowledge and spiritual elevation has also taken people to new places. In relatively recent history, people have also moved in the search of wealth and power.

With people, also immigrated their knowledge, food, life style, traditions and prejudices. The global growth was therefore faster, more symmetrical, and definitely development and growth oriented. The quality of human life improved dramatically each century till the end of 19th century.

Though the concept of travel permission and documentation is known to have existed since long, it was not till WW1 that it became restrictive. The history would suggest that most modern day fundamental scientific inventions were made in pre war era. In post war period the scientific developments have been more oriented towards defence (including internet and means of transportation), offence and disease control.

The modern day concept of Nationalism (restrictive immigration of knowledge & people) has not helped anyone but a handful of people endowed with leadership qualities who chose to become political or military leaders. The global growth therefore has been slow, asymmetrical and often harmful to the humanity in general.

The evolution of modern day mathematics, and therefore, other branches of scientific enquiries, are a classic example of collaborative research, enabled through free movement of people and knowledge. The concepts of zero and decimal conceived in Indian sub-continent travelled unhindered to the western world via Arab mathematicians and laid foundation for modern economics, mathematics, physics, astronomy, aeronautics, etc.

The entire north American continent is outcome of mass immigration of people from various parts of the world. Regardless of the repeated political rhetoric no one has ever tried to stop foreign knowledge and resources entering US borders. That is the strength of the US economic and political model. Trust me, no one (including Trump and Hillary) is even dreaming of closing US borders to foreign knowledge, workers or money.

The mass immigration that we are witnessing in Europe today, may be similar to what happened, more recently, in Europe during 8-12th century, and during 16-18th century in the USA, Asia and Indian subcontinent. It is bound to have significant economic ramifications - mostly positive.

The Congress style of Nationalism has perhaps irreparably damaged largest pool of knowledge, skills and other valuable resources. by making India a closed economy in post independence era. It needs to be immediately deserted and buried forever. The world is presenting a humongous opportunity that comes once in many centuries. VISA restrictions are easing worldwide. Global capital is looking for avenues where it can earn some nominal return. In my view, the whirlwind global tours of PM Modi should be evaluated in this context.....to continue tomorrow

Tippy Tippy Tap - What color you want?

Thought for the day

"History does nothing; it does not possess immense riches, it does not fight battles. It is men, real, living, who do all this."

—Karl Marx (German, 1818-1883)

Word for the day

Sylvan (adj)

Of, relating to, or inhabiting the woods.

Malice towards none

Want freedom from traffic jams - call the FM to your area and keep him stuck in jam for two hours!

First random thought this morning

Since Kanahaiya Kumar and Richa Singh have taken over the headlines, the common man is being seriously deprived of the "real" news, e.g., Why did Anushka and Virat break up? Why did Ranbir and Katrina break up? Why Aamir Khan has been chosen as brand ambassador for irrigation department of Maharashtra? Why Salman and Shahrukh have crossed swords again?

By the way, do you know the viewership statistics of the latest videos of RaGa, NaMo and KK's on Youtube?

Tippy Tippy Tap - What color you want?

Traditionally, the divergence of global markets from the real economic conditions is usually followed by a sharp correction that leads to convergence of realty with hopes.

I have not been able to derive a pattern in such corrections. But sentimentally I feel that the correction are sharper and more painful when hope runs much ahead of ground realty. Many more people lose money in this correction as compared to the people who earn supernormal profits during the course of divergence.

The sharp fall in stock prices during past six months was clearly a case of reality whipping the hopes. The correction has been sharp and painful. It will quite some time before investors' sentiments recuperate.

In the reverse case, i.e., when real economy does much better than the markets, the corrections are protracted and less euphoric. Few people participate in the up move. A majority of investors join the party late, usually when all the fruits have been plucked by smart investors. What is left is either few scarred fruits at the top which are risky to pluck or the overripe rotting stuff scarred all around.

The rally in Indian stocks from 2003 to 2006 was a classic example of this instance.

The key point to ponder this morning is what pattern market is forming today!

(a)   Is market sensing an imminent economic recovery, which many investors are unable to anticipate; and hence the shallow rally from the recent lows may gradually strengthen further in next 6months, before investors' sentiment improve and they jump in to participate? and/or

(b)   Have global investors started to see India separately from the entire emerging world, in view of its stronger macro fundamentals, and hence Indian assets (INR, Equities and Bonds) are witnessing a stronger interest from global buyers? Or

(c)    The global economy is expected to remain in slow lane for at least another 12months. China has already started working with lower (6-6.5%) growth estimates. Japan and Europe have remained on the brink, never really looking like recovering from recession post 2008-09 global crisis. US growth has remained feeble ever since post recession and not likely to log a rate over 3% in next 12months or so. Despite that commodity prices have surged in past one week at most frantic pace in recent history. Brent crude has jumped over 42% since lows of 20th January 2016. Copper and Iron Ore are not behind.

       So, is the sharp rally in March is just a caper in a longer bear market?

Would be glad to have readers' thoughts on this. I shall be sharing my thoughts on this later this week.

Nifty: All star aligned for an up move

Thought for the day

"There is a specter haunting Europe, the specter of Communism."

—Karl Marx (German, 1818-1883)

Word for the day

Factotum (n)

Any employee or official  having many different responsibilities.

Malice towards none

Brent Crude is up staggering 41% since the low recorded on 20th January this year.

The domestic petrol prices are down by over Rs3 during this period.

First random thought this morning

In a series of media interviews post his release from jail, a soft spoken Kanhaiya Kumar (KK) evoked emotions by playing a perfect victim; with a conspicuous glee on his face already declaring a victory.

I find him "not honest to himself", "no icon", a sequel to Arvind Kejriwal (AK) may be, but "no JP or Lohia".

Nifty: All star aligned for an up move

After almost six months, daily, weekly and monthly charts are aligned for a move of the similar magnitude in the same direction. Nifty faces a credible resistance in 7600-7610 range. A sustained cross over may see Nifty crossing 7900 in next following 7weeks.