Do it yourself

Thursday, October 9, 2014

It's windy, wet and depressing out there

Thought for the day

”All generalizations are false, including this one."

- Mark Twain (American, 1835-1910)

Word for the day

Foremost (Adj, Adv)

First in place, order, rank, etc.

(Source: Dictionary.com)

Teaser for the day

Lalu Prasad Yadav was given bail after 10months. So may be the case with J. Jayalalithaa.

So what is the law here?

Should we have a definite law for bail in different cases, or it should continue to be a matter of discretion of the presiding judge?

It's windy, wet and depressing out there

The weather in global markets has suddenly turned grey. The sunshine has disappeared. It's all windy and wet out there. The chill is not biting yet.

The Absolute Return Letter for the month of October puts the mood succinctly, and I take liberty to quote - "When I look at the world passing by outside my window, there is little doubt in my mind that the world is not as safe today as it was six months ago. For starters we have just had a very important referendum in Scotland. We now know the outcome but not yet the full implications. In about 3 years – unless Labour regains

the control of the UK parliament – we will have an even more important referendum in the UK (more important economically if not emotionally) on the future relationship between the UK and the EU.

In the meantime, Putin and his cronies have played a very dangerous game in Ukraine. This is his third war, following armed conflicts with both Chechnya and Georgia, and the signs are that he is not going to walk away quietly. Even without Putin’s (outright) involvement, we have armed conflicts and new terror threats in many countries at present. Libya, Syria, Iraq, Sudan and Israel/Palestine to name a few.

In Europe, the economic recovery is limited to a handful of countries and the ECB has been forced to not only prolong but also intensify its de facto QE programme. The European powerhouse of yesteryear, Germany, looks surprisingly vulnerable and Italy is not in a good state either. The combination of almost zero inflation and high national debt, as in the case of Italy, is a bad one."

Many other are echoing the same sentiments. Some like Stephen King even going to the extent of calling the situation akin to 1984 where war was a constant thing.

Analysts at Brookings find that "The economic recovery in many advanced economies is stalling and growth in emerging markets seems to be losing its momentum, according to the latest TIGER (Tracking Indexes for the Global Economic Recovery) update. The U.S. is now the sole major economy still showing signs of strength."

The latest release of TIGER (Brookings-FT Tracking Indices for the Global Economic Recovery) paints a grim picture. The world economy is in a parlous state, with just a couple of bright spots discernible through the gloom.

The global economic recovery has stalled and become unbalanced, with the U.S. now the sole major economy still showing signs of strength. Growth in China and many other major emerging markets seems to be losing momentum. The world economy is now being powered along essentially by one engine, with the U.S. business cycle at least temporarily delinking from the rest of the world. (read more detail here)

Indian economy has shown signs of stability, though at a much below potential level of growth. Accordingly, this oasis has received significant attention from the yield hungry global investors.

The mute point is could India and US sustain their outperformance in a world that is under serious turmoil? If yes, for how long? I will discuss this in more detail later.

Wednesday, October 8, 2014

My "truth" not the same as yours

Thought for the day

”To succeed in life, you need two things: ignorance and confidence."

- Mark Twain (American, 1835-1910)

Word for the day

Supplant (trn verb)

To take the place of (another), especially through intrigue or underhanded tactics; as, a rival supplants another.

(Source: Dictionary.com)

Teaser for the day

Congress in catch-22 over the issue "whether it carries a national legacy or its legacy is limited to the Party itself."

If Gandhi, Nehru, Patel, Azad were national leaders then any Indian can claim their legacy. If they were just Congress leaders, what legacy is there to claim?

My "truth" not the same as yours

I believe this world is like a prism. You see different pictures, colors and hues depending upon from which angle you are viewing the world and in what light you are viewing. Therefore, while all views and colors are equally valid, your "truth" is always what you see from the point you are standing at a given point in time and under the current light.

In past few years inflation has been the driving force of RBI's monetary policy. Both Gov. Subba Rao and Gov. Raghuram Rajan have consistently emphasized on perils of higher inflation. In his recent statements Gov. Rajan appeared very firm and committed in his fight against inflation.

I spoke to 10 people from various sections of society yesterday to understand how inflation affects their lives. To my surprise, all of them had different perception about inflation. Certainly they all view the issue from their own angle and under the light of their own circumstances.

My problem is under such conditions what is the relevance of RBI's fight against inflation? From my interaction with people and experience of travelling across the country I understand that through tight monetary policy only a small part of the problem could be handled. The development, fiscal, monetary authorities may need to work in tandem to provide a holistic solution to stabilize the prices. The following are the few pertinent points to consider in this context.

(a) For almost half the population, primarily living in rural areas, food inflation may not be a matter of serious concern. This section mostly survives on grain based nutrition and obtains their staple ration through PDS or sustenance farming. Healthcare, agri input, and to some extent transportation inflation is a matter of serious concern for them. Effective implementation of food security, better connectivity, drinking water, sanitation and primary healthcare close to home would provide material comfort to this section of the society.

(b) Urban, semi-urban households suffer from a variety of inflation. Prominent amongst these are education, health, energy, transportation, communication, rental, protein, fruit and vegetable. The political rhetoric and central banker's focus exclude many of these critical elements in their fight against inflation. Better public health, education and transport services, energy efficiency, affordable housing, and better employment opportunities closer to home would be a more suitable solution here.

(c) Debt laden infra and realty developers are more concerned with inflated cost of capital and wage inflation. Energy and transportation cost also bothers them. Better execution standards, simpler administrative procedures, automation, good corporate governance structure, stricter compliance norms and vibrant retail debt market could alleviate many problems for this sector.

We need to appreciate that maintaining the negative real rates for households (household inflation minus term deposit rate) for a long period is the biggest scam perpetrated on the poor people of this country. The inflation tax, as I call it, paid by poor and middle class savers for cheaper financing of “crony socialism” and unscrupulous businessmen, has after all caused serious damage to the basic fundamentals of the Indian economy.

Tuesday, October 7, 2014

Some catching up

Thought for the day

”It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt."

- Mark Twain (American, 1835-1910)

Word for the day

Stoic (n)

Not affected by passion; indifferent to pleasure or pain, joy or grief.

(Source: Dictionary.com)

Teaser for the day

Should the government enforce a mandatory "Annual Cleanliness Certification" for all residential areas (urban and rural). All elected representatives (Corporator/Panchayat member, MLA, MP etc, of the areas should be collectively responsible for obtaining the certificate from the "National Cleanliness Authority of India".

Some catching up

After having a great holiday in panoramic Himachal Pradesh, I am back to work. I have spent past two days catching up with the events of past ten days. It appears to me that last week was quite eventful in terms of news flow. Though I could not find little material that about which I can say authentically that "I missed it", there are few things worth taking note of.

In particular I find the following event noteworthy as these could have long term impact on general economic environment of the country and therefore may influence the investment strategy.

(a) Law of the land caught up with the mighty Ms. J. Jayalalithaa. She is the third tall leader after Lalu Prasad Yadav and O. P. Chautala to have been sentenced in a corruption case. Though Mr. Chautala has shown brazen contempt for the law last week, I am sure he will regret it, much like Sahara group chief Subrata Roy, in days to come.

(b) The prime minister Narendra Modi made most of his elusive US VISA by staging a grand show at famous Madison Square Garden of New York city. A typical Indian shown organized by the local Indian community seems to have impressed many US lawmakers. May be many of them will want to emulate Modi's campaigning style for their forthcoming elections. PM also seems to have promised a lot to global businessmen in terms of the quality and length of "Red Carpet" waiting for them on Indian shores.

I guess they take some time in formulating their fresh India plans. A hurried visit may compound their disappointment.

(c) After Sardar Patel, BJP and RSS have sought to appropriate legacy of Mahatma Gandhi. This is an auspicious sign for the socio-economic structure of the country. I have been advocating since long that salvation for Indian economy lies only in Gandhian economic thoughts. (For example, see here).

Besides, the attempt to mainstream RSS is also approvable. In my view, it is akin to listing of a PSU. The board who is used to work in surreptitious ways, suddenly becomes transparent and accountable to public and open to media scrutiny. The content of the supremo Mohan Bhagwat's RSS establishment day's speech only advocated secularism, tolerance, nationalism and inclusiveness.

(d) The PM Modi made yet another serious attempt to move up the political ladder. Rising above the image of a protagonist of free market and business interests, he sought to don the robe of a Lok Nayak. A success in this endeavor could potentially accelerate India's socio-economic development exponentially.

(e) Hong Kong students scared the mighty Chinese regime by putting up a spirited demonstration. In my view, we shall see far reaching impact of this resistance on Chinese administrative and governance structure.

(f) Commodities' world witnessed turmoil with oil, metals, food, rubber all taking a serious plunge. Equities corrected slightly, while USD surged.

At the end I would advice tourists to Himachal Pradesh to avoid Shimla, a city having 1000x more people & vehicles than it is designed to handle.

Friday, September 26, 2014

Consumers to lead Nifty beyond 10k mark

Thought for the day

”Some say the world will end in fire, some say in ice."

- Robert Frost (American, 1874-1963)

Word for the day

Defenestrate (Trn verb)

To throw out of a window.

(Source: Dictionary.com)

Teaser for the day

I said "Bharat Ratana for K. Radhakrishnan"!

Twitratti said "Who's he?"

Consumers to lead Nifty beyond 10k mark

In past few weeks some reputable global investment Gurus have joined chorus with numerous analysts and strategists in pronouncing secular bull market for Indian equities. India is thus gradually becoming a consensus overweight in global portfolios.

I am also putting up in the same camp, but finding it difficult to adjust with the cacophony. I often find the arguments supporting the "secular bull market" incongruent, incomprehensible and frenzied. I also see the dissonance in the actions of bull market proponents insofar as the construction of portfolios are concerned.

In my experience, a secular bull market invariably sprouts from grave of the previous bull market. It therefore needs to have new themes, players, and business models.

The last bull market in Indian equities was primarily based on large capex predicated on availability of easy and cheap credit. That bull market ended with collapse of global credit market in 2008-09. Since then little has changed. To the contrary, (a) the domestic credit cycle has worsened materially and (b) global credit markets are now preparing for the transition to tighter money regime that would be ushered by US Federal Reserve raising policy rates, may be as early as summer of 2015.

It therefore sounds counterintuitive to me to assume that a fresh secular market could be build again on themes like large capex and credit.

This brings us to the most natural theme for Indian market, i.e., 1.3bn consumers.

It is in fact these consumers who are keeping Indian economy and therefore markets afloat since 2009. Of course, the global consumers have also contributed their pennies towards this theme. So we have (a) domestic consumption plays like consumer staples, durables and services like e-commerce, media & entertainment, consumer credit etc. and (b) global consumption plays like healthcare and ITeS doing exceedingly well in the markets. On the sideline, lower global commodity prices have played their role.

The dissonance here is that this space is universally acknowledged as highly overvalued and closer to bubble territory. Therefore no one is willing to bet big with high conviction on this theme. On the other hand the capex or the popularly called "cyclicals" theme is not working and in my view, not likely to work in near term.

The dilemma thus I see in the camp is that people are invested in the right theme, i.e., consumption, but they cannot advocate this for the fear of big market correction in near term; whereas they lack conviction in the theme they are advocating, i.e., "cyclicals".

In strict technical terms, I feel the preliminary leg of the bull market that began in September 2013 is over. Nifty must correct to 7450-7620 range and consolidate there for few months. The low point of the correction could be 7170. The second leg of bull market should see Nifty closing above 10800 in the following 22months. A big bubble it will be. But ain't that the case always?

Happy Holidays!

Next post of Investor's Diary will be published on 7th October 2014

Thursday, September 25, 2014

New jargon on the street

Thought for the day

”The woods are lovely, dark and deep. But I have promises to keep, and miles to go before I sleep."

- Robert Frost (American, 1874-1963)

Word for the day

Malversation (n)

Misconduct, corruption, or extortion in public office.

(Source: Dictionary.com)

Teaser for the day

After telecom licenses, coal blocks, should SC look at cases of large land allotment also?

New jargon on the street

I had the most uneventful visit to India's financial capital early this week. I met some large investors, business consultants, equity analysts, wealth managers and businessmen.

Despite a stupendous run in the stock market on the back of stable macros, political stability not seen in past three decades, improving US economy, huge foreign flows, return of domestic risk appetite after six long years, super success of couple of IPOs, I found the mood on the street rather underwhelming. The Euphoria seen during the interactions early this summer had given way to suspicion and confusion.

Though hope still survives and there is no major disbelief, the certainty of "Good Times" in immediate term is widely doubted.

I learned some latest jargon on the street, i.e., "Quality Bubble", "Power Consumer" and "I of the BRICS".

Few things in particular I find pertinent to share with my readers.

· Quality bubble is a popular term for the crowded trade in high quality stocks that has led the valuations to cross over to bubble territory. This is probably first time that Indian equity markets are witnessing beginning of an economic and therefore market cycle beginning with such high valuations in quality stocks. Usually this happens at much later stage in the bull market.

The worrisome part is that nobody is showing any willingness to go down on the quality ladder and look at the relatively cheaper peers.

· There appears to be a consensus that availability of electricity is going to improve substantially in next 2-3years. The power industry consultant I met confirmed that while PLF at thermal plants may substantially improve in next 12-15months, and substantial wind and solar capacities will likely become operational in next 24-48 months. The market has sensed this trend. Most electrical appliance manufacturers have seen their market value rising 2-4x in past few months. No one is yet betting on power producers or capital equipment suppliers.

· In past one year India has decoupled from its BRICS peers in terms of macro improvement. With EU, Japan and most of Asia not looking great, India is becoming a center of hope (outside USA) for investors.

· The cyclical rally that was expected to gain momentum after unexpected election results in May'14 has completely fizzled out. With industry leaders like DLF, BHEL, JP Associates, SBI, and L&T etc. giving away all the gains seen in past few months. The exporters (IT, Pharma and Auto) and consumers have led the rally so far. They now appear tired.

· The derivative traders are frustrated by record low implied volatility.

The market participants and observers are therefore perplexed about the next market move. I will share my take on this tomorrow.

Saturday, September 20, 2014

Case against "Make in India" - IV

Thought for the day

”Happiness is when what you think, what you say, and what you do are in harmony."

- Mahatma Gandhi (India, 1869-1948)

Word for the day

Disport (v)

To amuse oneself in light or lively manner; to frolic.

(Source: Dictionary.com)

Teaser for the day

Shocked to find millions of examiners evaluating an "Answer" without any reference to the "Question"!

Case against "Make in India" - IV

I am amazed at the ferocity of criticism to my Friday's column wherein I just wished that the "better life" for 1.3bn citizens should be the primary force behind government's development agenda rather than some meaningless numbers on the Excel Sheets maintained by CSO statisticians.

Some of my friends from Mumbai feel that I have become a communist after moving to Delhi early this summer. I strongly refute. Nothing could be farther from the truth. In fact, I have become a serious capitalist in past six months. From a monthly and quarterly performance dominated portfolio, my investment strategy is now focused on generational portfolio that will create and protect wealth for my next generation. This is certainly not communist thinking.

I am a core supporter of modernization and industrialization. But I do care a lot about sustainability.

Investment without realistic assessment of future demand and credible revenue model will only bring distress, as we have seen in past many credit cycles. Development unmindful of Mother Nature will only bring disaster.

India could not be fathomed as an economic story without her 1.3bn strong populace. Unless at least two third of the population actively participates in the process of "earning-consuming-saving-investing", the story is without a plot.

Industrialization that brings riches to 5-7% elite and leaves 40% "struggling to survive" and another 30% "barely surviving", is not sustainable.

The western world managed this type of industrialization when the whole world, including golden goose like India, was their slave. China has so far managed with rather oppressive policies.

India of the day is not ready for this. The aspirations and expectations are flying too high. We can hardly afford any civil unrest over economic issues.

In my view, the sustainable solution for India’s economic problems could be found only by looking within. Borrowing from the thoughts of Mahatma Gandhi, economics needs to follow ethics and not the vice versa. The primary consideration needs to be “man” and not “money”.

To achieve this means Gandhi advocated trusteeship, decentralization of economic activities, labor intensive technology and priority to weaker sections. Many criticize Gandhian economic ideas based on altruism, self reliance, and non-violence as an impractical alternative to free market economics. I believe this criticism is unfair and suffers from parochialism.

I believe borrowing blindly from the western economic models would not work in Indian context. The Indian model will have to be quintessentially Indian. It has to effectively tackle the problems of class conflict, unemployment and poverty while attempting to preserve the lifestyle and values of rural Indians, which are eroding fast with unmindful urbanization, industrialisation and modernisation.

Friday, September 19, 2014

Case against "Make in India" - III

Thought for the day

”It's easier to resist at the beginning than at the end."

- Leonardo da Vinci (Italian, 1452-1519)

Word for the day

Ken (v)

Knowledge, understanding, or cognizance; mental perception

(Source: Dictionary.com)

Teaser for the day

QE3 completely tapered.

Equity markets are at all time high.

US and European Bonds are also close to their peak.

No crash.

No great rotation.

No hyper-inflation.

What'd be the next "big theme"?

Case against "Make in India" - III

The apparent motive behind "Make in India" mission is to alleviate poverty through creation of large number of employment opportunities. This objective, the protagonists claim, will be achieved by acceleration in economic growth through higher industrialization.

I am not sure if there is much evidence to substantiate this optimism. To the contrary, there is some evidence to the effect that during high growth phases in past couple of decades the employment opportunities in industrial sector have remained mostly stagnant. Most employment growth has occurred in services sector, notably construction.

From my experience I know that telecom sector has been the largest incremental employment provider in past one decade. The employment opportunities in traditional high employment provider like textile and government sector have actually contracted.

My friends from Congress party would love me for saying this, but truth of the matter is that poverty level has come down due to the government efforts. Unsustainable and profligate social sector spending in past decade has prevented hunger deaths. But that is all. On the other hand, industrial growth has in fact added to economic and to some extent regional inequalities.

The popular illustration cited by the Prime Minister is that if more tourist come to India, tea vendor will get more business. He needs to think, whether we want more tea vendors chasing tourists and more construction labor constructing large factories and massive physical infrastructure for foreigners without acquiring any meaningful skill that would keep them employed post construction period or we want more research scientists, better equipped farmers and entrepreneurs.

I feel one Noble prize in Mathematics, physics, or chemistry can achieve what a thousand Olympic gold medals or Cricket world cups would not. Similarly, 10% higher crop yield and 10% less wastage of agri produce can bring more prosperity to India than 100 smart cities or 100 Industrial zones. Potable water to every home will alleviate poverty much faster than 3000 airports.

Anyone who has travelled beyond large cities in China would confirm that even after 25years of relentless pursuit of industrialization, notwithstanding the impressive aggregate economic data and gigantic infrastructure, there is abundant distress and discontent in the country. It may be another couple of decades when China comes close to developed nations on "better life "parameters. Even if it does, that is.

India does not have that much time. PM Modi has even less. Moreover, "India" is not "China" and "Indians" are not "Chinese" at all.

In my view, the focus of government should be on "better life" for all Indians rather than the banalities like 8% GDP growth, Indian companies in Fortune500 club, number of Indian billionaires, etc.

I sincerely believe that India should follow Gandhi more than Nehru, Mao, or Deng for that matter...to continue next week

Thursday, September 18, 2014

Case against "Make in India" - II

Thought for the day

”You do ill if you praise, but worse if you censure, what you do not understand."

- Leonardo da Vinci (Italian, 1452-1519)

Word for the day

Sporadic (adj)

Occurring singly, or occasionally, or in scattered instances.

(Source: Dictionary.com)

Teaser for the day

What is top priority for "concerned" Indians at this point in time?

(a) iPhone 6

(b) Accessories for iPhone6

(c) Counting abs of Shahrukh Khan

(d) Separate VISA for visiting Edinburgh

(e) Hotel booking for October 2-6 and November 6-9 long weekends.

Case against "Make in India" - II

Making cement is perhaps one of the simplest manufacturing processes. This primarily involves calcining the limestone mixing it with clay or ash and grinding it into fine powder. Having produced it for many decades, many manufacturers in India still claim superiority for using foreign technology in this process. A popular advertisement campaign reads 'Italian technology se bana majboot cement".

Similarly, most automotive companies claim superiority because they have use German, Japanese, American or Italian technology in manufacturing their products. Most heavy engineering, power equipment and consumer electronics manufacturers also use foreign technology in their factories or assembling plants.

In this backdrop, I see the "Make in India" as a mere political rhetoric.

Successive Indian governments since Rajiv Gandhi (1984-1989) have realized that India's strength lies in its vast and diligent labor force. Given the serious constraints in terms of capital, energy, technology and raw material the Nehruvian economic model based on heavy industries (largely converters of natural resources) has therefore been deliberately diverted to a service based economic model that is less energy & capital intensive.

The midway diversion has though remained inadequate in conviction and slack in pursuit. Little attention has been paid in developing and promoting the human resource, which was supposed to be the biggest strength of Indian economy.

"Make in India" would now mark yet another midway diversion to the growth strategy. During parliamentary election campaign early this summer Rahul Gandhi said that his priority would be to get petty low skill mass manufacturing industrial jobs back from China. I fail to understand why on earth you want those low paying low skill jobs and highly polluting industries back. The focus should rather be on skilling the work force and creating high paying skilled jobs in advanced technology industry and services sector.

Besides, starting a manufacturing revolution in India would pre-requisite our energy production to at least grow by 50% in next couple of years. Not even hard core optimists would hope for that.

Allowing foreign manufacturers to establish facilities near the source of raw material and abundantly cheap labor could evoke immense interest. But what about experiences of POSCO and Vedanta. Does Modi government plan to override local concerns, especially relating to sustainability. Are we learning anything from recent Uttrakhand and Jammu and Kashmir disasters.

Moreover, it is elementary economics that you should not produce if you could buy cheap. The slowdown in China is deepening. The latest energy revolution in Americas (shale gas) is leading to a fresh manufacturing revolution there. The humongous amount of industrial capacities are lying idle and available for taking. This will lead to large scale spare capacities in Europe, as it slips into deflation and Euro weakens further. We should be looking at buying/using these facilities rather than building our own....to continue

Wednesday, September 17, 2014

Case against "Make in India"

Thought for the day

”The greatest deception men suffer is from their own opinions."

- Leonardo da Vinci (Italian, 1452-1519)

Word for the day

Refractory (adj)

Stubbornly disobedient; unmanageable.

(Source: Dictionary.com)

Teaser for the day

What does various by-poll results suggest:

(a) Modi magic is waning.

(b) Amit Shah's political strategy of polarization on religious line has totally failed.

(c) The era of BJP vs. Rest has firmly arrived.

(d) Cong has a real chance in Haryana and Maharashtra.

(e) BJP needs to change its post May'14 media strategy.

(f) All of the above.

Case against "Make in India"

In past few months leaders from both ruling NDA and opposition UPA have spoken about making India a manufacturing hub. PM's Independence Day "Make in India" exhort has also evoked significant interest in business circles. Investors are obviously enthused by the prospects of beginning of a new investment cycle that would potentially kick start a virtuous cycle in the economy.

As I have stated in past few days, in my view this may not be good economics. It may rather be foundation for yet another bubble. As I highlighted on Monday, though a bubble in itself may not be a bad idea, it invariably leaves financial investors devastated. It therefore calls for abundant precaution to be exercised by my fellow investors.

Before I start arguing my case against "Make in India" program at this stage of Indian economic progress, I would like to reproduce an interesting discourse from Unlearning Economics, I find relevant to the current circumstances. I had in fact presented it earlier this year also.

"First, something which is expected to do a certain job - whether it's an economic system or the economists who study it - is expected to do this job all the time. If your stock broker promises to make money but loses it after an asset bubble bursts, you won't be comforted by the fact that they were making money before the bubble burst. And if an economic system, or set of policies, promise to deliver stability, employment and growth, then the fact that it fails to do so every 7 years means that it is not achieving its stated objectives. In other words, the "invisible hand" cannot be acquitted of the charge of failing to do its job by arguing it only fails to do its job every so often.

Second, the argument implies there was no causal link between the boom and the bust, so the stable period can be understood as separate from the unstable period. Yet if the boom and the bust are caused by the same process, then understanding one entails understanding the other. In this case, the same webs of credit which fuelled the boom created enormous problems once the bubble burst and people found their incomes scarce relative to their accumulated debts. Models which failed to spot this process in its first phase inevitably missed (and misdiagnosed) the second phase.

A lot of the major macroeconomic frameworks (such as Infinite Horizons or Overlapping Generations models) have two main possibilities: a steady-state equilibrium path, or complete breakdown. In other words, either things are going well or they aren't - and if they aren't, it's usually because of an easily identifiable mechanism, one which constitutes a "notably rare exception" to the underlying mechanics of the model. Such a mentality implies problems, including recessions, are not of major analytical interest, or are at least easily diagnosed and remedied by a well-targeted policy. Subsequently, those versed in economic theory may have trouble envisaging a more complex process, whereby a seemingly tranquil period can contain the seeds of its own demise. This causes a mental separation of the boom and the bust periods, resulting in a failure to deal with either.”

...to continue

Tuesday, September 16, 2014

By-polls and markets

The market reacted negatively to the recent by-poll results in which the ruling BJP has received serious setback, especially in the state of Uttar Pradesh.

In my view, the market participants should be encouraged by the current political trend as it will more likely:

(a) Lend further urgency to the efforts of the government to put the things in order insofar as the economic growth and development agenda is concerned;

(b) Push the hardline elements within BJP to fringes.

(c) Motivate scattered opposition to unite to make it BJP vs. the rest in coming elections as well as in the parliament. This brings a strong (though hostile) opposition in place to exercise necessary check and balance on the government. This may also mark the end of fractured coalition politics.

(d) As Amit Shah will emerge as the biggest loser after all this. His brand of polarizing politics will face serious challenge in forthcoming elections.

Some part of the correction is also ongoing due to jitteriness over what Fed will conclude tomorrow evening.

In my view, a change in guidance for rate hike may not be due as yet. However, if it does happen, this could disturb markets in the short term.

This could be a good opportunity for investors looking to buy for long haul.