Do it yourself

  Friendly banker who likes to have more “likes” on facebook Raghuram Rajan in his first interview after taking over as RBI governor had proclaimed that “The Governorship of the Central Bank is not meant to win one votes or Facebook “likes”.” But in Washington last week, he did try to earn some “likes”. His efforts so far have provided much needed stability to the currency and soothed many ruffled feathers. He has taken many “popular” measures that have earned him votes of foreign investors. The recent proposal to liberalize the regime for foreign banks is also a step in that direction. Otherwise, the fact is that in past one year many foreign banks have indeed scaled down/exited their Indian operations. The banks which are there in India since many decades have mostly remained an urban phenomena and are not exactly known for their good practices. The foreign banks contribute nothing positive to the objective of financial inclusion. The negative contribution ...

The equity markets globally have been unusually buoyant past couple of trading sessions. Except for somewhat easier liquidity and stable INR noting seems to have changed in domestic economy. Chinese export data suggests that Asia in general might have further deteriorated. Recently all global agencies, e.g., IMF, World Bank, European Commission etc. have warned that emerging markets, mostly BRICS, present greater risk to the global economy now, as compared to Europe and US couple of years back. US political impasse US political impasse is only worsening from midterm perspective and offers no sustainable solution. Even if they agree to enhance the debt ceiling at the 11 th hour and government starts working again, there are enough indications that the US may continue to witness many recurrences of stalemate in the remaining term of Barack Obama. Anyways, in 2011 episode of debt ceiling break below supports that led to accelerated losses in the equity markets ac...

Core Portfolio (67%) In our view, the core portfolio should be constructed with the longest possible timeframe and expectation of returns better than other asset classes, e.g., fixed income, gold, and real estate. We call it “Generational Portfolio” signifying that these are stocks are such that could be passed on to next generation comfortably. Strategy Accumulate by buying 10-15% quantity in each month beginning November 2013. Hold till the investment theme remains valid. Rebalance for any major change once in a year   (Alternatives: Nestle, Britannia, Asian Paints, Dabur, ) Tactical portfolio (33%) The tactical portfolio should have a time perspective of next economic cycle (normally 3-5yrs) with a relatively higher return expectation. Strategy Accumulate by buying 10-15% quantity in each month beginning November 2013. Hold for 3-5years or more. Rebalance for any major change once in a year. (Alternatives: Tata Steel, Eicher, Glen...

It is a common perception among countrymen that the Congress Party and therefore UPA government is controlled by the Gandhi family, mostly Mrs. Sonia Gandhi and her son Mr. Rahul Gandhi. It is also a popular practice for the Congressmen to publically ascribe all successful endeavor of the government or the Congress Party to the Gandhi family and all the failures and delinquencies of the government and Congress Party to others. The paradox however is that when someone conforms to the said perception and practice usually no one believes him/her. For example, when a Congress spokesperson ascribes the loss of Congress party in last UP election to the local Party unit rather than Rahul Gandhi – not a soul in the country believes him. The spokesperson fully knows that no one will likely believe his statement, but still he/she makes it. Similarly, the government’s media campaign claims credit for MNREGA, Food Security, Aadhar, RTI, Bharat Nirman, but Congress spoke...

Constructing a model Indian equity portfolio is somewhat similar to electing members for Indian parliament. Investors like electorate have limited choice. As suggested yesterday , there are not more than 100 companies that have demonstrated capabilities to remain relevant over many business cycles due to their product, market and technology leadership, strong financial position, lower beta to macro fundamentals, and proven managerial capabilities. Only 80 odd companies have given consistent good positive return over past 10years, 5year and 3year time horizon. We took three approaches to identifying companies for our model portfolio. Firstly we applied a slight variation of the classical investment approach. We looked at value of various companies and short listed the companies which have been, still are and will likely remain relevant in Indian and global economic conditions. However, since there are just a few of these businesses are available in India, these comp...

It could be a matter of debate whether the current economic down cycle will hit the rock in FY15 or the economy will continue to slither down even in FY16. One may also argue over the shape of the recovery, viz., it will be a ‘V’ or ‘U’ or ‘J’ or an “L’ shaped recovery. However there could be little difference of opinion that the economy would continue to struggle with below par growth through 1H2014 at the least. The election season has already been kicked off in India. If the recent round of policy statements by US Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE) and Bank of Japan (BoJ) and utterances of IMF and ADB provide any indication – the monetary stimulus driven global economic recovery is firmly stuck in first gear and not likely to pick up speed in near future. The political impasse in US over critical fiscal Bills is also not helping the cause. Under the circumstances, for being relevant, any investment strategy has to be focus...

India, encompassing society, economy and markets, is indubitably passing through a period of crisis. However, the current phase of crisis is not the first, not the last or the worst ever. In fact, since gaining geographical independence in 1947, the country has consistently been under crisis of all sorts with some brief periods of respite patched in between. The current down trend in Indian socio-political and economic spheres presents an opportunity, in our view, to make a holistic assessment of the six decades of progress (or otherwise, as some would like to argue) and make necessary mid course correction. From an investor viewpoint, it is important to assess whether there is anything structural in India story or it is all cyclical. We believe that so far India has been a cyclical story in all respects and we have completely failed in evolving any structural socio-political and socio-economic model that would put Indian economy on a sustainable growth path. Besides a few ...

Last Friday we highlighted that in our view, Nifty would likely gyrate in the range of 4700-6700 in next 15months, i.e., a range of 15-18% from the current level. We suggested that the catalysts for the move on the upside would largely be domestic and therefore increased domestic participation and return of EM generally in favor is the key to the bull case for the market. Case for 4700 The down move in Nifty, in our view would largely be driven by external factors leading to significant outflow of funds and/or relative downgrade of Indian equities by global investors. Historically, large FII flows in a short period of time have caused huge volatility in Indian equity markets. A reversal of USD carry trade, if and when US Federal Reserve decides to moderate liquidity conditions in US, will certainly cause this event. Though in our view, the liquidity moderation would not be disruptive to the global economy, in the short term it will certainly lead to gl...

Despite alarming deterioration in many macro indicators, fall in currency value, hike in rates, sub-par corporate performance and moderation in flow (both domestic and external) during 1HFY14, the Indian equities have been rather resilient. Nifty has averaged ~5800 in 1HFY14, almost same as 2HFY13. The collective wisdom of the market therefore appears to be much more sanguine about the economic conditions, and therefore corporate performance, as compared to most sell side analysts. In our view, both of these two may eventually prove to be right. Nifty may gyrate in the range of 4700-6700 in next 15months, i.e., a range of 15-18% from the current level. We evaluate the cases for 4700 and 6700 Nifty levels and suggest a strategy which in our view would be appropriate under the circumstances. Case for 6700 The rise in domestic participation and return of EM generally in favor is therefore the key to the bull case for the market. In our view, the up...

The next positive turn in “India story” could therefore be that with a strong and accountable leadership at the helm (a) bureaucracy will not be afraid to take decision and (b) businessmen will feel confident that “once they pay, their work will get done”. The jammed investment cycle may hence get moving. Anyone expecting more than this should be ready to face major disappointment. Three notable political events have occurred this week – (a) Jagan Reddy of YSR Congress was released from Jail after 16 months and instantly got tremendous welcome from his supporters, almost bringing Hyderabad to a halt; (b) Narendra Modi addressed two gatherings (Delhi and Mumbai) and got tremendous response; and (c) Lalu Prasad Yadav, RJD Chief was convicted and arrested in 17years old fodder scam and just few hundred of RJD supporters got mildly agitated that too mostly in front of TV cameras-no stone pelting, no Bihar Bandh, no effigy burning, no arson. These events, read under th...