Get ready to stock up

Some food for thought

"I don't set trends. I just find out what they are and exploit them."

—Dick Clark (American Entertainer, 1929-2012)

Word for the day

Sippet (n)

A small bit; fragment.

 

First thought this morning

(Festivals of India)

 

Get ready to stock up

A large number of brokerages appear to be investing substantial resources in assessing the political scenario in the country. Many of them are apparently conducting surveys to assess and forecast the election outcome. They have also tried to relate their assessment of the likely political scenario post 2019 general elections with the likely trends in benchmark indices.

I find it encouraging, to the extent that analysts are taking time to move away from their desks & spreadsheets, and spending sometime on the ground. This surely would help in expanding their horizon. Insofar as the political analysis and forecast is concerned, I may not necessarily agree with most of them.

I had chance to read 20 odd election related research reports in past one month or so. Most of these reports have tried to draw a direct correlation of economy and markets with the political outcome. None of these have however presented any credible evidence to suggest that the form (single party or coalition), constitution (minority or majority) or inclination (center, right or left) of the incumbent political dispensation have any direct bearing on the performance of the economy or financial markets for that matter.

Though not mentioned in these reports, there is certainly a feeling of discomfort amongst market participants, concerning the outcome of 2019 general elections. Many investors are worried if a coalition government (unanimously assumed to be instable) results post the elections, Indian markets may suffer.

I have been insisting that in past 35years, since I started watching Indian financial markets, there has never been any instance of any political establishment purposely acting in a manner that is prejudicial to the Indian economy or financial markets. Incidentally in this period we have seen all sorts of political combinations and permutations. We have seen governments where communists and socialists were key parts or supporters of the government. We have seen brute majority of Rajiv Gandhi and abysmal minority of Devegowada. We have seen helpless Manmohan Singh and AB Vajpayee, and we have also seen assertive Vajpayee and Narendra Modi.

If we take the performance of stock markets as a benchmark, the minority governments have been mostly good for the stock market. Any worry on this count is totally unwarranted. If BJP does lose in 2019 and market does fall in May 2019, that will be a good opportunity to stock up!

Missing elephant in the room

Some food for thought

"It is a queer thing, but imaginary troubles are harder to bear than actual ones."

—Dorothy Dix (American Journalist, 1861-1951)

Word for the day

Gallinaceous (adj)

Pertaining to or resembling the domestic fowls.

 

First random thought this morning

The sight of large garbage dumps, overflowing garbage containers, walls & signage colored with red spits, etc are common in states like Uttar Pradesh, Bihar, West Bengal, Delhi and Haryana, etc. In fact these are so common that most residents of these cities would even not take an exception to this. This is accepted as an integral part of their life. Dirtiness in India is not only a problem of resources, logistics or habits. It is as much a problem of mindset and consciousness. The impact of the National Cleanliness Mission must be assessed keeping this in mind.

I consider the following as decent progress on this account, and accept this as a personal success of the prime minister himself.

• There is an emphasis on cleanliness at administration level.
• State is making effort to create awareness about the benefits of cleanliness.
• A separate head of resource allocation has been created in budgets of central government as well as many state governments.
• Some shift in mindset is clearly visible, especially in urban middle class people. Even if they indulge in littering and spitting, it is not without guilt. Many of them in fact do make effort not to be seen.

Of course, there is a long way to go, but a decent beginning has been made. Thing may not change dramatically in short time, but things have started to move in right direction for sure.

 

Missing elephant in the room

The global growth cycle that started a few years back has almost peaked. Two large economies, viz., Japan and Germany, have already reported contraction in the quarter ended September 2018. US and China growth also distinctly indicated a slowdown.

Commodity prices have been volatile this year, but of late many commodities have shown a distinct weakness in price trends.

Inversion in yield curve is commonly seen as harbinger of slowdown. Many economists and analysts track the spread between US Fed fund rates and long term (30yr) yields to forecast recessionary phases. As per Bloomberg data highlighted by some analysts, we now have 11 large economies with 30-year yields lower than the fed funds rate. South Korea just joined the pack last month.

Some analysts have highlighted that the global economy might be close to a liquidity crunch, as indicated by the collapsing global yield curve.

 

The global economy is already experiencing some deflationary pressures, due primarily to (a) persistently poor real wage growth; (b) absence of capital expenditure in capacity building; and to some extent (c) winding down of monetary stimulus created in the aftermath of global financial crisis during 2008-09.

The economics history suggests that deflation is much bigger malice than the inflation, especially for the growing economies like India. It's a silent killer like low blood pressure.

In this background the debate over inflation in India seems bit out of place. Unfortunately, most of the politicians here do not seem to understand the basic difference in prices of goods and services and (rate of) annual inflation in these prices.

The prevailing price of fresh green peas (a seasonal vegetable) in the local markets (not air conditioned malls) in Delhi NCR is about Rs150/kg. Whereas, the rate of annual vegetable inflation in October 2018 was recorded as negative 8%. Overall Food inflation was also marginally negative. The worry is not price change relative to last year. The real problem is the absolute level of price of essential goods that is becoming unaffordable. More on this tomorrow.