Do it yourself

 I find some of the recent analysis of US politics and its implications for financial and commodity markets, rather amusing. Most experts are presenting their prognosis of the future direction of asset prices (stocks, currencies, bonds, gold, oil, and other commodities) based on an upside down pyramid, with politicians and central banks as the primary basis of their assumptions. The overly simplistic analysis indicates that the new US government will have to find a balance between the cost of servicing monstrous public debt (interest rates) and growth. The growth will look healthy in 2021 as the poor base effect kicks in; and so will the inflation. This shall prompt the Fed to normalize the policy rate to bring benchmark 10yr yields from present 0.95% to pre Covid level of 2.5%. This rise in yields will make the servicing of burgeoning debt extremely difficult, if not impossible. The Fed will therefore be forced to check the benchmark yields below the pre Covid levels, say at 2%....

Famous Spanish-American philosopher George Santayana famously said, “Those who do not remember the past are condemned to repeat it”. One of his less famous saying however was, “And those who do study the past are just as likely to make the same stupid mistake as those who do not”. The latter thought applies to the stock market participants more than the first; Even though the standard guidance to the market participants is that historical performance is no guarantee to the future performance; most of the analysis and behavior is usually based on extrapolation of the past trends. Analyzing the present consensus view of the analysts, strategists, investment managers and traders about the likely performance of Indian equities in short term (mostly next twelve months), I find that there is an unusually overwhelming consensus on the following trends: (a)    The small and midcap stocks may do significantly better than their large cap peers largely due to sharper earnings upgra...

  "It is difficult to make predictions, particularly about the future." — Mark Twain There must have been times, not long back in human history, when making economic forecast was a straight forward process based on rational thinking. The economists could predict the demand supply equilibrium and consequent price tendencies with reasonable accuracy. The investors and traders could use these forecasts to make a strategy best suited to the likely economic trends. The governments (and later central banks) could rely on these forecasts and design their monetary policy and fiscal response. If that were not to be the case, economics would not have got recognition as scientific discipline of study. However, by observing historical trends in correlation between the economic forecasts and investors’/traders’ behavior and policy response to the forecast, I find that investors, traders and policy makers have seldom taken these forecasts seriously. In fact, the developed economies, wi...

  Wishing all readers a joyous New Year,  and a brilliant 2021 ahead.  Stay Healthy, Stay Blessed.   Top performers of 2020 In this last post of 2020, I would like to pay my tributes to those, who in my view are top performers of the year. Many readers may find it deeply personal view, totally unrelated to the investment strategy. However, I keep these at the core of my investment strategy. Without these performers, making any case for investing in Indian equities would be tough for me. Migrant Laborers One section of the population that has been hit the hardest by the pandemic is migrant laborers. These people mostly sustain on daily wages and have negligible savings. On announcement of lockdown, these people lost their livelihood, shelter and savings in no time. The uncertainty over resumption of normal life forced them to leave “unaffordable” cities and return to their villages. They got almost no support from the baffled and paranoid administration or industry. N...

2021 – Market Outlook and Investment Strategy The 2020th year of Christ is ending on a mixed note. Economically, socially & politically - the environment is filled with a myriad of emotions. There is  hope and anticipation  of victory over pandemic and life returning to normal in 2021. Each piece of improvement in the economic data and healthcare statistics brings relief and stokes optimism. The wealth effect created due to higher asset prices is comforting people in more than one ways. The technological advancement and digitalization has made tremendous progress in past 12 months. The global effort towards climate change appears more promising than ever. There is  fear  of new variants of Covid-19 virus disrupting the recovery effort and bringing the life to a standstill gain. There is widespread distress caused by the health and economic shock of pandemic. The people in numerous countries are unrestful as they resist increased state surveillance and struggle to...

 A literal interpretation of the latest statistics would indicate that Indian economy is passing through a recession and faces a specter of stagflation. A young demography like India can certainly not afford this condition. The government officials have termed the recession as a “technical” one, induced temporarily by the total lockdown imposed in the wake of the outbreak of Covid-19 pandemic. The economic managers of the government have also vehemently denied any possibility of Indian economy slipping into a stagflationary trap. In my view, however, this entire discussion based on official statistics might be “technical” in nature. Wandering through the streets of large cities and fields in the hinterlands over past few months, and interacting with people from various strata of the society, I am convinced that more than two third of Indian population may already be trapped in the stagflationary conditions, with their real income stagnant or declining over past few years and es...

The year 2020 has been a period of extremes for markets. During past 12months, the equity markets have kept swinging between extreme fear and greed. The year began on a buoyant note. The benchmark indices scaled their all-time high levels on 24 January, after rallying for past 4 months. In the following 2 months the indices corrected ~40% from their January highs, refreshing the fading memories of 2008 crash. A sustained rally thereafter saw the benchmark indices scaling new highs in next 9 months. This rally was remarkably different from September 2019-January 2020 rally in terms of volumes, market breadth, and participation. Foreign investors and domestic household investor have been notable buyers in 2020 rally, while the domestic institutions have been net sellers. In my view the top 10 highlights of the performance of Indian equities in 2020 were as follows: 1.    Though benchmark indices indicate that mid and small cap indices have done materially better than th...