Do it yourself

“Courage is the strength in the face of danger, pain or grief, while stupidity refers to behavior that shows lack of good sense or judgement.” From recent interactions with the market participants, I conclude that the recent ~8% rally in the benchmark Nifty50 has materially obliterated the fear of major correction in stock prices from their minds. Of course, most of them are conscious of the factors like financial sector crisis in the developed markets, especially the US; recession like conditions in some of the major global economies; and high real rates impeding the global growth that may have serious repercussions for the Indian economy and businesses. They also seem to be mostly ignoring the unusual weather conditions and possibility of a serious slowdown in exports, and acceleration in FPI outflows if the credit conditions continue to tighten further in the developed economies. It may be pertinent to note that banks in the US are tightening credit in response to fed rate hikes...

The response for my post yesterday ( This summer don’t go nowhere ) is overwhelming; though not fully surprising. Most investors have concurred with my view that Indian equities may be on the cusp of a multiyear structural upcycle. Many of them therefore see no point in waiting for a 5-6% correction and would like to invest more in the current market. There are some, who agree that given the rising uncertainties in the global markets it is more likely that volatility increases materially. It is therefore prudent to wait for the storm to pass. The consensus within this group appears that if we are looking at a secular bull market for 4-5 years, benchmark indices could match or even exceed their best returns of 2003-2007 (~40% CAGR). Waiting for 3-4months may not hurt much. The wait may actually allow time for deeper analysis and a better opportunity. Most traders disagreed with my view that the risk reward for trading at this point in time may be adverse. They feel that there is a...

  In the later part of the eighteenth century, St. Leger Stakes, a popular horse race, was started as the last leg of the popular British Triple Crown. The race would be held at Doncaster Racecourse in South Yorkshire in September of every year. Soon it became a fashion amongst the British elite – aristocrats, investors, and bankers etc. – to liquidate their financial investments; escape from London heat, move to countryside to rejuvenate, and return only in autumn after the St. Leger Stakes race was over. This practice was described as “Sell in May, go away and don't come back till St. Leger's Day.” Later, as the US stock markets gained more prominence over London markets, the adage was rephrased as “Sell in May and come back in October”, to coincide with Halloween. Various research studies observed there is decent evidence to conclude that stock markets’ returns during November-April period usually outperform the returns during May-October period. Based on these observations ...

  The Federal Open Market Committee (FOMC) of the Federal Reserve of the US announced another 25bps hike, taking its key fed fund rate toa target range of 5.00 to 5.25%. This unanimous decision of the FOMC is the 10 th  straight hike in the past twelve months. With this hike, the effective fed fund rate is now highest since the global financial crisis. Besides the hike, the Fed also maintains the plan to shrink the balance sheet each month by $60 billion for Treasuries and $35 billion for mortgage-backed securities. …claims banking system “strong and resilient” Noting the concerns in the financial markets, especially those arising from the failure of Signature Bank, Silicon Valley Bank and First Republic Bank, the FOMC emphasized that "The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly ...

It’s almost a year since the Reserve Bank of India shifted the course of its monetary policy stance and embarked on the path of monetary tightening and withdrawal of accommodation to reign in runaway inflation. In the course of its journey in the past one year, RBI reversed the entire 250bps of rate cuts made during 2019-2020.  Besides hiking the policy repo rate, RBI also enforced correction in banking system liquidity to check the demand side pressures on inflation. The banking system liquidity that was running in excess of rupees eight trillion a year ago, has been completely neutralized. Impact of monetary tightening It is very difficult to assess the direct impact of the RBI’s monetary policy action and its consequences. Nonetheless, it is pertinent to note how various sub segments of the economy have moved in the past one year. This movement could have been caused by a variety of factors, RBI tightening being one of them. Inflation The Consumer Price Index Inflation (CPI...

Economy: Activity holds up; strong sequential rebound led by seasonality (Nirmal Bang) Early data for March’23 indicate that 78.1% indicators were in the positive territory on YoY basis, up from 68.8% in Feb’23. Final data for Feb’23 indicate that 71.4% indicators were in the positive territory on YoY basis. On a sequential basis, there was a sharp rebound in March’23, led by seasonality. Around 75% indicators were in the positive territory in March’23, up from 50% in Feb’23. Final data for Feb’23 indicate that 34.7% indicators were in the positive territory. Urban unemployment edged up to 8.5% in March’23 from 7.9% in Feb’23. Rural unemployment rose to 7.5% in March’23 from 7.2% in Feb’23. Rural wages have sustained their rebound since mid-FY23 and rose by 8.1% YoY in Jan’23 vs. 7.6% YoY jump in Dec’22. In other rural indicators, tractor sales continued to hold up, growing by 13.7% YoY in March’23 vs. 20% YoY growth in Feb’23 (up by 32.9% MoM). Two wheeler (2W) sales grew by 9...

 R ecently, the Central Board of Direct Taxes (CBDT) released the latest data on direct collection in India. The data highlights some interesting trends in direct tax payments in India. In particular, the following points are noteworthy: Personal taxes growing faster than corporate taxes The growth in personal income tax has been far higher relative to corporate tax collections. In FY12 personal tax collection amounted to 53% of corporate taxes. The proportion of personal tax relative to corporate taxes. Top 5 states contribute 3/4 th  of total tax collection Top five states contributed about 73% of the total tax collection in FY22. Out of these the top 3 states (Maharashtra, Delhi and Karnataka) contributed over 61% of the total tax collection in FY22. Though separate city wise data is not available, the anecdotal evidence suggests that the top 3 cities (Mumbai, Delhi and Bengaluru) may be contributing over 30% of the total tax collections. This highlights the massive regiona...

FY23 sales highest ever, PVs lead, 2W lag In FY23, the sales of passenger vehicles in India seems to have reached an all-time high of 3.9mn units, recovering fully from the Covid induced slow down in the previous two financial years. In the next three years the sale of passenger vehicles in India is estimated to cross half a million mark. Two-wheeler and commercial vehicle sales have been slow to recover. These are expected to reach their all-time high levels in FY24e. Overall, 21.4million units of automobiles are expected to have been sold in FY23. The number is expected to increase to 24.7mn in FY24e and 28.7mn in FY25, registering an annual growth rate of over 15%. Besides local sales, Indian manufacturers exported about 3.7mn units of two wheelers and about one million units of other vehicles to other countries in FY23. Government pushing for faster adoption of EVs The government has identified automobile carbon emission as one of the primary sources of air pollution in Ind...

  As per the recent projections made by the United Nations (UN), India may have overtaken China to become the most populous country in the world. The current population of India is projected to be 1.417bn as compared to China’s 1.412bn. Notably, China has reportedly recorded a decline in population in the year 2022, as compared to the previous year. This could possibly be due to Covid related restrictions and deaths, but there is no denial that Chinese population growth has been plateauing for a few years, forcing the government to shed its legacy ‘One Child’ policy and encouraging people to have more children. In respect of India, the official data is not available as no official Census has been conducted since 2011. The data is therefore based on various estimates and extrapolations. Interestingly, The Diplomat , reported that “India’s population has consistently been undercounted. For example, India’s last census, held in 2011, missed 27.85 million people. On the other hand...