Do it yourself

  One of the most common narratives in all the investment advisory pitches is the impact of inflation on investors’ wealth. Inflation is often termed as termite that silently destroys investors’ wealth. Protecting wealth from inflation is therefore one of the primary objectives of almost every investment strategy. Over the weekend I examined more than twenty-five investment proposals, mostly focusing on elevated inflation and its impact on real returns. The common advice is to take higher risk by increasing the proportion of high yielding debt and equities. Discussions with investment advisors indicate the investment strategies aimed at protecting the real (inflation adjusted) value of the investors’ portfolios may be based on poor, and often wrong, understanding of the impact of inflation on investors. Most of them presented the official data of inflation and suggested investment products that may yield a return that is higher than the official CPI (Consumer Price Index) infla...

Seven reasons to expect faster disinflation (Nomura Securities) ... driven by softer momentum and not just base effects. Most Asian central banks are now on a pause, and the window to easing should open up later this year. By mid-2023, we expect inflation momentum (m-o-m, seasonally adjusted) to be closer to central bank targets in most economies. This means most Asian central banks are now in a policy pause phase and, if underlying inflation moderates durably, as we expect, the window to easing would open up later in 2023. #1. Asia’s inflation is driven more by supply than demand-side factors Asia’s inflation differs from inflation in the US/Europe, as it is more supply-side driven, and these drivers are gradually abating. Oil prices are around one-third lower than almost a year ago. FAO food prices have fallen for eleven consecutive months, and this has historically transmitted to Asia’s food inflation with a lag of around six months. Pandemic-driven supply-chain disruptions...

The opening sequence of the classic Ron Livingston starer “Office Space” (1999, Mike Judge), succinctly depicts the popular saying – “the other queue always moves faster”. I always remember this sequence when I see motorists trying a variety of tricks to change lanes at toll plazas on Indian highways. The drivers display daring skills to exit lanes, make lateral moves towards other lanes, mostly blocking the movement in both the lanes and causing an instant commotion – honking and showering of expletives. The show is quite entertaining, if you are not in a rush; else it is annoying and dismaying at the same time. As a regular driver on the highways and expressways, I can vouch that the system of toll collection still needs tremendous improvement – both in terms of operations as well as the method. Inefficient operations and faulty methods have nullified significant part of the benefits of infrastructure upgrade and Fastag payments. Many highway users have also expressed their dissati...

  Exploring India – Part 3 In the past couple of weeks, we travelled to the states of Punjab, Himachal Pradesh (HP) and Haryana. In our nine days of travelling, we covered ten districts of Punjab spread across three divisions, viz., Jalandhar, Rupnagar and Patiala; six districts of HP spread across two divisions, viz., Mandi and Shimla; and eight districts of Haryana spread across five divisions, viz., Gurugram, Rohtak, Hissar, Karnal, and Ambala. It is pertinent to note that these three states in the present form came into existence in November 1966, after enactment of the Punjab Reorganization Act 1966. Through this act, the erstwhile province of East Punjab was divided into largely Punjabi speaking state of Punjab and largely non-Punjabi speaking state of Haryana. Some areas of East Punjab were transferred to the union territory of Himachal Pradesh, and it was granted a full state status. The city of Chandigarh also became a union territory, serving as temporary capital of P...

Nominal GDP growth could be ~7.5% in FY24 (MOFSL) It is remarkable that the first three months of 2023 have already witnessed several different moods. The year began with very strong optimism on global economic growth; however, from mid-Feb’23, the positive sentiment started fading with US economic data turning out to be much stronger than expected. With the collapse of Silicon Valley Bank on 10th March 2023, the caution was quickly replaced by serious concerns. The US Fed hiked rates by 25bp this week, continuing its inflation fight. As highlighted in our earlier QEO, owing to increasing growth concerns in the US economy, inflationary concerns will take a back seat in 2HCY23. India, however, seems to be shrugging off these developments so far. Real GDP growth continues to remain strong but we keep our forecasts broadly unchanged at 7%/5.2%/5.6% in FY23/FY24/FY25. We see nominal GDP growth at 16.3%/7.7%/10% in FY23/FY24/FY25, slightly higher than 14.7%/7.3%/9.3% expected earlier. ...

After two years of disruptions, uncertainty and volatility, FY23 appeared a rather normal year. Both the markets and the economy regained a semblance of normalcy in terms of the level of activity, trajectory of growth, direction, and future outlook. Though, it would be inappropriate to say that skies are blue and bright; it can be reasonably stated that we have reverted to a market that is no longer euphoric. Pendulum swinging back to equilibrium The global economy that witnessed two years of extreme pessimism followed by a period of steroid stimulated exuberance began to normalize in FY23. Central bankers began the process of normalizing monetary policies by withdrawing liquidity and hiking rates. The broken supply chains have been mostly restored. Inflated asset and commodity prices are returning to more reasonable levels. The organs of the global ecosystem which were infected badly by the excessive liquidity, irrational exuberance and unsustainable stress are now getting amputated. ...