Do it yourself

The Indian economy has grown 9.7% (yoy) in 1HFY23, as compared to 13.7% growth recorded in 1HFY22. Given the consensus growth forecast for FY23 is around 7%, the implied growth rate for 2HFY23 is close to 4% (yoy). Further the forecast for FY24 are veering around 6.2% (ranging from 6% to 6.4%), given the rising global slowdown hitting exports further; lagged impact of monetary tightening likely hitting in 1HFY24; investments slowing down on poor demand growth visibility and persisting high inflation further hitting domestic savings. It is therefore likely that the Indian economy might grow less than 5% for the next four quarters. This will be the period that may see a very high decibel drama in the global theatre. The current trends indicate that the monetary tightening by the US Fed and other global central bankers has already started to impact the demand and employment. The consumer demand, housing starts, and high paying jobs are showing a distinct downward trend. Similar trends...

In the past couple of years China+1 has been one of the most popular buzzwords used in the Indian market context. The term is popularly used to refer to a business strategy of diversifying ‘reliance’ from China to other jurisdictions. The reliance on China in this context could be for manufacturing of products; sourcing of key raw materials; customer base for products and services; and/or investments. In the past couple of decades, since the China was admitted in WTO, a large number of global businesses, particularly from developed countries, have significantly increased their reliance on China, to take advantage of liberal government policies towards business, lower cost structure (wages, tariffs & taxation); relaxed emission norms; easy & cheaper access to finance and raw material, and massive local consumer base etc. They offshored their manufacturing facilities to China; outsourced manufacturing to Chinese producers; developed China as a key market for their products; r...

I had a chance to meet a small group of seasoned market participants yesterday. The group included a couple of brokers, some investors, a banker and a few analysts and advisors. After exchanging pleasantries and going through the mundanity of “ kya lagta hai ?” (what’s happening in the market?), the discussion veered around “what could go wrong to make Nifty fall 20% from the present level”. Not surprisingly, only one broker participant outrightly rejected the idea of a potential 20% correction in Nifty. He felt that the worst is over and it is going to be a blue sky scenario in 2023, with India continuing to lead the charge. None of the other participants was so sanguine, though. The surprising part however was to note the participants’ arguments to support their “expectation” of a major correction in Nifty, sometime in the next 6 months. The usual suspects like global slowdown, inflation, geopolitics, valuation and technically overbought were cited by everyone. In fact I have als...

  The benchmark indices in India are now trading at their highest ever levels. In fact, in the past one year, India (+9.6%) has been one of the best performing equity markets in the world, in line with the emerging market peers like Brazil (+8%), Russia (+9%), and Indonesia (+7.5%) etc. Only a few emerging markets like Venezuela (+107%), Argentina (108%), and Egypt (+15%) have done much better. For many Indian investors these statistics could be meaningless. To some it may actually be annoying as the performance of their individual portfolio may not be reflecting the benchmark performance. Regardless, largely the equity market returns have been reasonable, considering the challenging environment. It is therefore a moment to celebrate. Once the celebrations are over, it would be appropriate to ask ourselves “whether at ~18700, Nifty is adequately taking into account all the factors that may impact the corporate performance, risk appetite, liquidity and financial stability in 202...

What is most wonderful? Yaksha asked Yudhishthira “what is most wonderful?” Yudhishthira answered – “Every day numerous living entities are dying and going to the abode of Yama. Yet one thinks/believes one will live forever (Immortal). What can be more wonderful than this?” As the spring was paving way for summers in 2020, the entire country was locked down to prevent the spread of Covid-19 pandemic. A few weeks into the lockdown, the skies became blue; peacocks started dancing on city roads; mountains were visible from long distances; roads were empty; air was serene; a pleasant quietness had replaced the annoying cacophony; many misogynists and patriarchs were helping their wives in household chores; many tech illiterates were quickly leaning to use smart devices for communication, shopping & entertainment; the sentiments of frugality, minimalism, spirituality, & patriotism, etc. overpowered vanity, presumptuousness, pretense, selfishness etc.; and new births and deaths were ...

  The minutes of the last meeting of the Federal Open Market Committee (FOMC) of the US Federal Reserve System (Fed), held in November 2022, were released a couple of days ago. The meeting was a joint meeting of the FOMC and the Board of Governors of the Fed, hence the number of participants were much larger than a usual FOMC meeting. After the release of the minutes, the popular media narrative has been that the Fed officials and most participants are concerned about the likely adverse impact rate increases could have on financial stability and the economy; hence, we could “soon” see the Fed scaling down the pace of rate increases. The markets have obviously drawn a sense of comfort from this narrative and decided to move higher. The minutes make some points that I found worth noting. From a plain reading of the minutes, I find that the participants were generally— (a)   Surprised by the resilience of the job market; (b)   Concerned about the persiste...

The latest edition of the FIFA World Cup, arguably the most popular sporting event in the world, is currently being played in Qatar - a tiny Islamic monarchy in Middle East Asia. With a population of 2.9 million, Qatar is hosting approximately 2 million guests, denying them freedom of alcohol, narcotics and sex, considered three major components of FIFA events, besides football. Moreover, the schedule of FIFA World Cup was changed for the first time to November-December from the usual June-July; apparently to suit the weather conditions in Qatar, which is unusually hot during summer months. It is intriguing for most why Qatar was chosen to host this event. Initially there were allegations of bribery and use of unfair means by Qatar authorities; but these were found baseless after a two year long investigation. However, if we consider the trend, the selection of Qatar to host the event might not look inexplicable after all. The three preceding editions of the FIFA World cup were held in...

  The toughest job in the present day environment is risk management. Of course, it has never been an easy job; but when we consider the proportion of moving parts, fragility of systems, disregard for conventions, total lack of mutual trust and disillusionment with the status quo, managing risk appears the toughest job. I can now appreciate the risk managers’ plight during the first half of 20 th   century; when similar conditions were prevailing. To illustrate my point, let me highlight the following instances which may not appear ominous to a common man, but could give cold sweat to risk managers. Interest rates have risen in most parts of the world in the past one year. In many cases the rise in rates has been rather steep, especially the developed economies. Most of these economies were struggling with deflation pressures for the better part of the past two decades. Obviously the rates were low (close to zero and negative in many cases). Many businesses were built assuming...

  The former NITI Aayog Vice Chairman, Arvind Panagariya claimed that India may record a real GDP growth rate of 8% in FY23. However, there are not many who would agree with him. The Reserve Bank of India has projected a growth rate of 7% for FY23, in their latest forecast. Most professional forecasters have much lower forecast for the growth in the next few quarters. The average of professional forecasters’ projected growth of the Indian economy for 2023, as per Bloomberg, is close to 6%. In their latest forecast, Goldman Sachs Group projected the Indian economy to grow at 6.9% in calendar year 2022 and 5.9% in 2023. Morgan Stanley Research expects the Indian economy to grow at 6.8% in 2022 and 6.2%in 2023. Fidelity International expects the Indian economy to grow between 5.5 to 7% in 2023. Recent economic data has been giving mixed signals about the economy. While the domestic sector is showing resilience, the external sector continues to remain a concern. Weak external secto...

The latest earnings season (2QFY23) ended, leaving the markets with “glass half full or glass empty” feelings. The aggregate results were mostly in line with the already moderated expectations; though granular details indicate a wide divergence within sectors. Overall, the management commentary sounded optimistic about easing raw material, logistic and wage cost pressures; though the companies did not sound particularly sanguine about the demand environment, especially the rural demand and export demand. The earnings for 2QFY23 were also mostly driven by financials; while IT, FMCG and Pharma also put up a good show. Oil & Gas, capital goods, consumer durables, telecom, automobiles and cement were notable underperformers. Post the results, FY23 Nifty EPS estimates have seen marginal changes, while FY24e earnings estimates have been moderated further. The long term (5yr CAGR) earnings trajectory is now flatte...