Do it yourself

Reportedly, Israel and Hezbollah (Lebanon) have successfully negotiated a 60 days ceasefire to the latest round of hostilities which started with Israeli forces invading Lebanon on the 1 st   October 2024. The deal involves withdrawal of Israeli troops from Lebanon and deployment of a UN peacekeeping mission and establishment of a US led international monitoring group. This is an important development in global geopolitics. The Hezbollah group was overtly supported by the Iranian government. Israeli invasion into Lebanon had evoked a direct military response from Iran; threatening a much wider escalation of a hitherto localized Israel-Palestine conflict. The ceasefire deal, which has been welcomed by Iran, diminishes the probability of an immediate wider escalation of the Israel-Palestine conflict. However, since the deal does not cover the ongoing Israeli attacks in Gaza Strip, it does not offer any durable mitigation of the threat. If the outgoing president Biden could pursue Ukr...

The benchmark Nifty50 has rallied over 3% in the past three trading sessions. This rise in Nifty50 has come after a fall of ~11% in the preceding eight weeks. Most market participants have attributed this rally to the assembly election results of Maharashtra. The incumbent alliance (Mahayuti) has registered a sweeping victory, with BJP winning ~90% of the seats it contested. The popular narrative is that the overwhelming victory in the Maharashtra election would strengthen the Prime Minister led union government and reinvigorate the development agenda, especially the infrastructure capex. I find this narrative counterintuitive and mostly speculative. There is absolutely no substantive evidence to support these assumptions. To the contrary, there are some indications of slowdown in infra capex in FY26, as fiscal consolidation gets higher priority. In this context, I take note of the following: ·          Mahayuti alliance was running a stable m...

President elect of the US, Donald Trump has already designated key members of his team. Based on his election agenda, speeches and rhetoric and personal views of his designated team members, market participants are speculating about the likely policy framework of Trump 2.0 administration, and its implications for the global trade and markets. My personal view is that the actual agenda of governance might have some shades of the election rhetoric but its actual path may not materially deviate from the trend seen in the post GFC (2009) period. At this point in time, I do not expect to sight any black swan in global economics and/or markets. With this caveat, let me summarize the current market speculations and its likely impact on India. Trade tariffs Trump has been speaking about imposing high tariffs on the US merchandise imports to promote local manufacturing, cut US trade deficit and strengthen USD. He has been suggesting 20% universal tariff on all imports, 60% tariff on impor...

Lower duty on gold, wider trust deficit In her final budget for FY25 (presented in July 2024), the finance minister had cut the import duty on gold from 15% to 6%. No clarity was provided for this measure in the budget papers. It is widely speculated that the move was to help the RBI in augmenting its gold reserves and bring back its gold stock held with foreign custodians; and also lower the domestic gold prices to help the government to redeem the sovereign gold bonds at a lower price. The move has resulted in higher consumer demand for gold, resulting in larger quantities of gold import having adverse impact on the current account balance. This is prima facie contrary to the intent of the government to encourage household savings to move away from physical assets like gold towards financial assets; and maintain a healthy current account balance to support INR and bond yields. The move dented the credibility of the government and widened the trust deficit a little more. Cooking...

In the past four days, my e-mailbox, WhatsApp message box and social media timelines have been inundated with copies of an Asia Pacific strategy report of a global brokerage. So far, I have received 127 digital copies of the 21 pages (5MB) report, with a rather Tharoorish title – “Pouncing Tiger, prevaricating Dragon” . (I needed to use a dictionary to find out the meaning of prevaricating ). I am not sure how many of those sharing the report have actually read it. Most of them appear to have just forwarded it in the spirit of Diwali – just like Soan Papdi boxes exchanged on Diwali, which are never opened and tasted by intended recipients. The strategy report makes two points that may be of any interest to the Indian investors – (i) Initiation of “Overweight China” trade in the month of September 2024 by some global brokerages was an error of judgement and needs correction; and (ii) the cut in India overweight from 20% to 10% was not warranted and is being restored. It is important to ...

With the conclusion of the US elections, most of the noteworthy events for the current year 2024 are over. Though some traders may be looking forward to 23 rd November (Assembly election results), 6 th December (RBI’s MPC policy statement) and 18 th December (FOMC policy statement), these events are not expected to make any material change in the market sentiments. ·          In the absence of any foreseeable major event, the markets are in maintenance mode for the past couple of weeks. ·          Benchmark indices are consolidating in a narrow range, just keeping the day traders busy. ·          Broader markets are carrying out the process of clearance: the stocks that crossed the red line and strayed into bubble territory are being punished and dragged back to their right place. ·          The stocks that have been u...

The year 2024 is proving to be one of the worst years for political soothsayers. After a debacle in the Indian general elections last summer, psephologists have failed in the US presidential elections. The challenger Donald Trump emerged a winner, gaining popular votes to occupy the White House for four years with a clear majority in the US Congress and Senate. This kind of decisive mandate has been a rarity in US politics in the past four decades. Most of the media, political commentators, psephologists, and other experts completely failed to read the peoples’ mind and anticipated a victory for Kamala Harris. Post the election results, thousands of experts – research analysts, economists, strategists, geopolitical experts, money managers, etc. – have written reports running into millions of terabytes, forecasting the likely impact of Trump's victory on financial markets, currencies, commodities, geopolitics, and trade etc. Most of this analysis is based on Trump's election p...

After the conclusion of the recent Haryana Assembly elections, a lot of people, including some of the senior most political analysts & observers, wondered why the Congress party lost the election, contrary to the popular perception. The ruling party was witnessing serious anti-incumbency issues. The Congress party, being the principal opposition party, had raised all the pertinent issues concerning the common people. Congress leader Rahul Gandhi carried an effective campaign. Almost every poll projected a clear lead for the Congress Party. At a gathering last evening someone asked me “how do you explain the repeated poor performance of the Congress Party, despite the rising popularity of its main leader?” My answer was simple, “Congress leaders are telling people what problems (inflation, unemployment, nepotism etc.) they are facing, as if people are not aware of their problems. Congress leaders, however, do not offer a solution for any of the peoples’ problems. That is why they lo...

The central government presently derives 63% of its resources from taxes (Direct Taxes 36% and Indirect Taxes 27%). 27% comes from borrowing and 10% from other sources. The present socio-political milieu is such that (i) the central government is becoming increasingly dependent on the regional parties, hence it is imperative that it would need to allocate more resources to the states ruled by the supporting regional parties; (ii) a larger proportion of the population is becoming increasingly dependent on the government for the basic necessities like food, shelter, education and healthcare, requiring the basic social sector spending to rise without any major improvement in the quality of life; (iii) supply side pressures are not abetting, keeping the inflation (including imported inflation) elevated, pressurizing USDINR and yields; and (iv) economic growth continues to be disproportionately dependent on government spending (both revenue and capex). Under these circumstances, the governm...

  For me, Diwali this year was certainly not as it ought to be. Untimely demise of many close friends and relatives in the past few months; incessant horrific news flow from the active war zones; conspicuous signs of extreme socio-economic stress in a majority of the population; and apathy of the administration towards common man’s plight and worsening law & order situation dampened my spirit of festival. I spent the week wandering the streets, slums and villages of Delhi NCR region and adjoining districts. What I witnessed and experienced, makes me believe that blaming selling by the foreign investors for the extant pain in the stock markets is like treating “the effect” as “the cause” – which is not only inappropriate but borders foolishness. Household inflation, unemployment (including underemployment, disguised unemployment and most importantly unemployability), lack of basic civic infrastructure (drinking water, sanitation, primary health, decent primary education, etc.), ...