Do it yourself

In past couple of weeks, the financial and commodities markets world over have been spooked by mere hint of tapering of US$85bn/month bond purchase program of US Federal Reserve (Fed). The popular media debate these days is completely engrossed in highlighting the ‘disastrous impact’ it might have on global asset prices should Fed reduce the bond buying by let’s say US$10bn/month. In our view, the debate is little premature and somewhat misdirected. We could not find data about how much bond buying Fed has actually done in past three months, but there is enough evidence to suggest that since beginning of Operation twist in US (September 2011), OMT in EU (August 2012) and Abenomics in Japan (4Q2012) – developed market equities have given positive return while much larger markets, viz., commodities, bonds and currencies have lost ground. US economy has shown some random signs of recovery, while growth has definitely decelerated in Europe, Japan, BRICS, Australia, etc. In that...

In deference to the popular debate and pronounced concerns over sharp depreciation in INR value versus  US dollar, we thought it appropriate to begin this series with a simplistic view and outlook of INR. Portfolio investment of few billion dollars may not have any lasting impact on the exchange rate. We do not expect any meaningful rise in inbound FDI till the new government takes charge and spells new rules of the game. This may take at least 15months. Bharti and HUL transactions may though help a bit in short term, provided RIL or some other entity does not make a large overseas acquisition. Like any other tradable thing, the exchange values of a currency vis a vis other currencies depends on the relative demand and supply of these currencies at any given point in time. The recent sharp depreciation of INR vs. USD in recent months indicates that the demand for USD vs. INR has sharply outpaced the supply. There are several reasons for this higher USD ...

Making profitable investment perhaps did never sound so complicated and complex as it does today. A plethora of often contradictory data emanating from diverse sources on hourly basis seems to be confounding even sophisticated investors. The raging debate over implications of continuing with or withdrawal from the ‘tiger ride’ called quantitative easing (QE); consumption squeeze due to European austerity and US sequester; proverbial great rotation from bonds to equity; gold vs. risk assets; developed markets vs. emerging markets; credibility of Chinese growth data and its sustainability; will Abenomics succeed in bring Japan out of economic abyss; how will the new normal slower growth period impact the “commodities’ world” especially Australia, Canada, Russia and host of developing LatAm and African economies; and above all are we heading to a massive currency crisis much bigger than mid 1990’s, is keeping investors perplexed. Adding to the intrigue is the geo-political ten...

Our team travelled to Chhattisgarh in last week of May’13 and was in the capital Raipur when Maoists ambushed the convoy carrying many Congress party leaders and killed over 25 people. We visited 11 districts of the state. We could not visit the southern tribal districts of Bastar, Dantewada, Bijapur and Narayanpur due to security reasons. On first impression, we found the state full of paradox and perplexing. It took some real deep probing the common man to find some of the answers. For example more than 2/3 rd of the state’s population comprises of SC/ST and dalits. The industrial infrastructure is largely public sector. But the political forces like BSP, SP and communists have only marginal presence in the state – not only at legislative level but at the ground level also. This seemed counterintuitive in first instance. We probed over 250 people from various walks of life to find the reason. What we discovered is that the state has an extremely deep rooted Sufi trad...

We travelled over 7500kms through 24 districts of Madhya Pradesh (MP) spanning 7 divisions and five major regions, i.e., Bundelkhand, Baghelkhand, Mahakaushal, Nimar and Malwa. The first impression is that MP is truly an agrarian economy. People are friendly and complacent. Life moves slowly, except in Indore which has large immigrant population and has evolved as major education and ITeS center over past decade. Poverty is in abundance. Economic divide is relatively wider. Social and religious divide was however not as prominent as seen in the neighboring Gujarat, Rajasthan and UP. The key highlights of the trip were as follows: (a)    The state is truly an agrarian state. People are generally complacent and youth is not running for greener pastures as was seen widely in the neighboring UP. The best part is that people are extremely conscious of nature and environment – a trait not seen commonly elsewhere. Bhopal would be a serious contender for best cities ...

… continuing from yesterday Unlike Karnataka, Maharashtra, Goa, Gujarat and Rajasthan we found the state of UP bustling with activity. There was no complacency. Driving over 5000kms through 11 divisions of UP, we gathered lot of hope. The pessimism, complacency and disillusionment seen elsewhere was present in much less proportion. The youth in particular appeared “self motivated”. In that sense the feudal structure of the state appeared to be cracking from many places. The youth is certainly accepting the government facilitation but we found them least reliant on the political establishment or government -- something not found elsewhere, except Gujarat, in our journey so far. Some of the key highlights of our discovery of UP are as follows: (a)    Owning and brandishing guns had traditionally been a passion, especially in Western UP. We found a conspicuous change – utility vehicles have replaced gun as primary passion. Sophisticated revolvers though continue...

In the final leg of Phase II of our ‘Discover India’ tour, we travelled through 65 districts of Uttar Pradesh (UP), Madhya Pradesh (MP) and Chhattisgarh in north and central India. This was the most interesting leg of our journey so far in which we have covered 11 states. In this leg we commenced our journey from Western Uttar Pradesh and travelled through Brij, Rohilkhand, Awadh and Budelkhand regions of the state covering 11 of the 18 divisions. Our first impression of the state strongly reminded us of the famous Anton Chekov story “ The Malefactor ”. Most of youth and middle age people we interacted with, behaved like Denis Grigoryev the protagonist in the story. "Denis Grigoryev!" the magistrate begins. "Come nearer, and answer my questions. On the seventh of this July the railway watchman, Ivan Semyonovitch Akinfov, going along the line in the morning, found you at the hundred-and-forty-first mile engaged in unscrewing a nut by which the rails are m...

In past couple of weeks, InvesTrekk team travelled through heartland of India - Uttar Pradesh, Madhya Pradesh, and Chhattisgarh. It certainly was the most interesting phase of our “Discover India” journey so far. However, before we share the key observations and conclusions with our readers in the coming days, we would like to share a key observation made during our interaction with people across gender, castes, religion, regions and age groups, i.e., “fixation with fixing”. Across 11 states covered so far, we have found that a large majority of people sincerely believe that everything in our socio-economic milieu is “fixed”. We found that this belief is manifesting in three key behavioral traits (a) deep and sometime total mistrust in the government and political establishment; (b) insensitivity to corruption in public life and (c) implicit desire to be part of some sort of ‘fixing syndicate’, un-fulfillment of this desire was often seen reflecting in frustration and disillusion...

4QFY13 results of L&T and guidance for FY14 substantiate our view that domestic investment cycle in India is seriously broken and may take more than marginal rate cuts to get back on track; natural corollary to this is that the path to 8% growth trajectory is not only long but also tedious. Years of fiscal profligacy and misdirected monetary policy are to blame to a large extent, though poor governance and non-compliance by corporates and other tax payers cannot escape the blame. In a recent article Nobel Laureate Michael Spence highlighted that “Accumulating excessive debt usually entails moving some part of domestic aggregate demand forward in time, so the exit from that debt must include more savings and diminished demand. The negative shock adversely impacts the non-tradable sector, which is large (roughly two-thirds of an advanced economy) and wholly dependent on domestic demand. As a result, growth and employment rates fall during the deleveraging period. In...

Many equity markets world over (with the notable exception of China) have mostly recouped their losses of past five years. The same however cannot be said about the macroeconomic data. In fact there are little signs, despite near zero interest rates and persistently low inflation in developed economies, of economic growth stabilizing even at lowest levels or employment conditions improving in any helpful measure. This is leading many, including InvesTrekk, to believe that the extant equity rally may be purely technical and hence should not be considered as beginning of a secular bull market. In exclusive Indian context, the rally has certainly outpaced macroeconomic and corporate fundamentals and valuations in select pockets are already flirting with bubble like conditions. A normal monsoon, complete government post next general elections (hopefully!), lower rate, benign consumer prices and massive election spend may support higher consumption demand and hence justify expe...