Do it yourself

Monday, March 21, 2016

Nifty: on the way to 8K, lack momentum to move beyond

NEXT DAILY POST ON 28 March 2016.

WISH ALL THE READERS A HAPPY and COLORFUL HOLI

Thought for the day

"Sunshine is delicious, rain is refreshing, wind braces us up, snow is exhilarating; there is really no such thing as bad weather, only different kinds of good weather."

—John Ruskin (English, 1819-1900)

Word for the day

Saturnine (Adj)

Sluggish in temperament; gloomy; taciturn.

(Source: Dictionary.com)

Malice towards none

Following the footsteps of his mother, Mukesh Ambani's son has shed half his weight only to gain weight in his father's business empire.

First random thought this morning

The government has taken a brave step towards implementation of a critical structural reform, i.e., achieving fully market linked small saving rates. The resistance is likely and natural. Nonetheless a path has been shown. Even if the present government fails to tread on it, someone will traverse it, in not a long distant future.

Nifty: on the way to 8K, lack momentum to move beyond

Since beginning of this month I have been insisting (see here and here) that Nifty faces a credible resistance in 7600-7610 range and a successful crossover will take it to 8000 mark in no time.

The market closed last week right in the top resistance zone. It however looks like that the resistance will be overcome this week and the up move will strengthen further, led of course by financials.

However, the momentum, measured as a matrix of cash delivery volumes, volatility, market breadth, etc., has failed to pick up with the latest up move in the market.

In my view, therefore, it is more likely that the current move may terminate in 7889-7940 range (with a small possibility of going up to 8065 level) and not culminate into beginning of a new market cycle.

My trade in the current circumstance would be (a) Cover shorts immediately; (b) initiate fresh long in large banks; (c) liquidate all trading positions above 7860; (d) initiate aggressive shorts close to 8100 level.

Friday, March 18, 2016

Could it be different this time - 4

Thought for the day

"The true triumph of reason is that it enables us to get along with those who do not possess it."

—Voltaire (French, 1694-1778)

Word for the day

Rodomontade

To boast; brag; talk big.

Malice towards none

Joke circulating on Whatsapp - "The government banned 'Corex' cough syrup just to debilitate Arvind Kejriwal!"

First random thought this morning

As per a recent research report 20 OECD countries might have $78trillion in unfunded or underfunded government pension liabilities. Inarguably, the ultimate sufferer of the so called unconventional monetary policies will be the poor pensioners of the world.

The Ponzi in the name of ZIRP or NIRP can only end when poor & old savers lose most of their savings. Imagine the pain of a pensioner who does not get any return on his savings for 10-15yrs and then suddenly hyper-inflation sets in.

I am suddenly feeling like converting to Marxism.

Could it be different this time - 4

Despite experiencing a number of false starts in past three decades, I am inclined to bet on "it could be different this time".

The events of past 2-3years give strong reasons to believe that the time is finally coming when the interest of people could override the interest of feudal lords and pseudo socialists.

I would like to highlight just five points to emphasize my viewpoint:

(1) The government, regulators and courts have taken a series of decisive actions to mainstream the infamous parallel economy. The steps like cancellation of 2G spectrum licenses & coal block allotments; e-auctioning of resources; real estate regulation; direct cash transfer of subsidies and mandatory linkage to Aadhar; transparency in defense and railways procurements; tax surveillance of large value purchases; challenging the misuse of tax exemptions for agriculture income; charitable purposes & LTCG; one time amnesty for declaring domestic and foreign unaccounted money; etc. some of the measures that would deter corruption in public office & tax evasion and forcefully discourage the parallel economy.

As the traditional ways of doing business are challenged consistently, the business momentum may get disrupted in the short term. But in mid to long term the benefits would be tremendous and sustainable.

(2) The superior emphasis on enablement of people rather than just providing for them is a structural reform, that could make India potentially a globally competitive economy. Undertaking the task of development of occupational skills and entrepreneurship in youth on mission basis could potentially fill the gap between the aspiration and actualization.

(3) The past three union budgets of have shown strong commitment to the mantra of growth with fiscal responsibility. Ignoring the interests of political expediency and short term economic the government has shown firm resolve to make the growth fiscally sustainable. Most state governments and RBI have supported the government efforts well, enhancing the confidence of global investors. The efforts have been widely lauded in the global arena, including by rating agencies. Though analysts are still skeptical of the feasibility of government meeting its fiscal targets, I find no reason to doubt the budget numbers.

(4) There has been a conscious effort to devolve more powers on the state and local governments. The difference this time is that devolution is coming with assignment of various responsibilities. The states are being engaged actively in the development of railways, upgradation of civic infrastructure and ensuring sustainability of power sector.

(5) The best part is that unlike the past, the promotion of self reliance is not being sought to achieve by stifling global competition. To the contrary, the global participation is being encouraged to make India self reliant in technology, manufacturing and optimum exploitation of local resources.

Also read

Could it be different this time - 1

Could it be different this time - 2

Could it be different this time - 3

Thursday, March 17, 2016

Could it be different this time - 3

Thought for the day

"Judge a man by his questions rather than his answers."

—Voltaire (French, 1694-1778)

Word for the day

Natter (v)

To talk incessantly; chatter.

Malice towards none

If 2014 Bihar elections were Modi vs. Nitish; 2015 TN elections are Jaya vs. Karuna; 2015 Bengal elections are Mamta vs. Sitaram; — what will be 2017 UP elections like -

Maya vs. Mulayam

Modi vs. Mulayam

Amit Shah vs. PK

Hindu vs. Muslim (Yogi vs. Azam)

Tolerance vs. Intolerance

Where does Akhilesh fit in this?

First random thought this morning

The central government has revised grid connected solar power generation capacity target from 20GW to 100GW by 2022. The current installed capacity is 5.7GW. Besides, the off-grid use of solar power is also rising fast.

This is happening at a time when the growth in conventional power supply is outpacing demand growth, leading to sustained fall in merchant power tariffs. Given the economic forecast for FY17, the condition is not likely to change materially in next one year.

Would be interesting to know how Rajan & Arun Jaitely plan to manage PM & Piyush Goyal's ambitions, without compromising banks' asset quality?

Could it be different this time - 3

Personally I do not prefer the term "black-money", as (a) I am never able to distinguish one money from the other and (b) I find it kind of racist.

From my experience I know that trading, real estate, and bribery have been the most prominent amongst various sources of generating un-taxed money in the economy.

Besides gold, Agriculture income and long term capital gain in listed equities have been the most popular methods to regularize the un-taxed money. Both these methods have been used blatantly in past decade to evade taxes on income.

There has been a concerted effort on past of the government to plug these avenues of tax evasion through various legislative and administrative means.

In an ideal world, GST shall curtail under reporting of trading income; real estate and land acquisition regulations shall institutionalize the real estate business; and duty/TDS on purchase of valuable items will constrict use of un-taxed income.

However, taxing fraudulent agriculture income and capital gains will deal a fatal blow to the parallel economy.

For decades, politicians have avoided the issue of tax on agriculture income for obvious reasons. It is common knowledge that they themselves are the largest beneficiary of this exemption.

For statistical purpose, I may highlight that about 92.5% of Indian farmers own less than 5acre of land. In fact only 2.24% own land in excess of 10acres. 68% of total land is used for growing cereals and pulses and only 2% each is used for orchard and animal husbandry.

Given the standard of yields in India, it is therefore safe to assume that 95-97% of Indian farmers do not fall in tax net (Annual taxable income Rs2,50,000 or more). So what tax exemption politicians are debating about is not difficult to guess.

If I am forced to hazard a guess, I would say in next five years appx. Rs20lakh crore of income could be brought to tax net by implementing GST & real estate regulation, and preventing misuse of exemption for LTCG and agriculture income. The other things remaining same, this will almost double the income tax collection.

The fringe benefits will include, material fall in housing prices (and therefore accelerated growth in construction sector), material improvement in banks' CASA deposits and therefore lower cost of funds businesses, better targeting of subsidies, etc.

This combined with materially lower leakages in the public expenditure due to use of technology, direct cash transfer, engagement of local bodies in executions, shall be good enough to move into higher growth orbit for Indian economy.

...to conclude tomorrow

Also read

Could it be different this time - 1

Could it be different this time - 2

Wednesday, March 16, 2016

Could it be different this time - 2

Thought for the day

"If God created us in his own image, we have more than reciprocated."

—Voltaire (French, 1694-1778)

Word for the day

Apatetic (adj)

Assuming colors and forms that effect deceptive camouflage.

Malice towards none

What is more worrisome for Americans at this point in time:

(a) Trump may become the president of the country; or

(b) If Trump gets Republican Party's nomination, then a woman might become the president of the country?

First random thought this morning

After ECB, the BoJ has also cautioned the market about the poor economic outlook. All eyes are on FOMC meeting outcome today. If Fed also holds rates and uses a similar language to express its concern over global economic outlook, the alarm bells may begin to ring rather raucously.

The best case for markets would be if FOMC decides to stay on course by hiking 25bps and shows flexibility by assuring in "whatever it takes" language.

Could it be different this time - 2

Since past two years, we have seen some material changes in the Indian economic policy framework. The impact of these changes, though not yet being acknowledged publically by anyone for obvious reasons, is far reaching. Though, I do not want to ascribe these changes to any political party, it would be unfair to deny the role of the strong commitment of the current leadership in enforcing and accelerating the pace of these change. And it is this pace and intensity of the changes that is giving me confidence that it could be different this time.

I would highlight few examples to explain my point:

Like all other emerging economies, the debate in India has always centered around “crony capitalism”. All political parties have accused each other of pursuing crony capitalism. I have always maintained that this debate is completely misdirected, for (a) it leaves the biggest scam out of the purview of debate and (b) it does not focus on “crony socialism”, which to my mind has harmed the country more than anything else.

Maintaining the negative real rates for households (household inflation minus term deposit rate) for a very 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” for the benefit of politicians and "crony capitalism" for the benefit of unscrupulous businessmen, has caused tremendous damage to the fundamentals of the Indian economy.

It has resulted in wasteful public expenditure, misallocation of capital, and unsustainable economic growth (that is visible mostly in the statistics). Not many social and qualitative indicators corroborate the kind of growth politicians claim to have delivered.

For years, poor and middle class households have probably funded almost the entire subsidy bill of the government through this inflation tax. Whereas it is common knowledge that large part of subsidies has historically gone to enrich a few. For records Rajiv Gandhi put it at 95%. Current claims range between 50-70%.

The best way to understand "crony capitalism", I often use the example of a typical municipal school child in Mumbai or Delhi wearing a worn necktie, torn & dirty shirts, and plastic or rubber Chappals.

Politicians and administrators have sought to achieve the equality between government and private schools by prescribing a necktie as part of uniform for poor kids who cannot even afford to wash their uniform thrice a week!

To make the matter worse the parliamentary debate is focused on “who is the supplier of the neckties” instead of “how to improve the level of education in government schools”.

The current political dispensation at the center is taking both the menace - "crony capitalism" and "crony socialism" - head on.

...to continue tomorrow

Also read

Could it be different this time - 1

Tuesday, March 15, 2016

Could it be different this time - 1

Thought for the day

"I have never made but one prayer to God, a very short one: 'O Lord make my enemies ridiculous.' And God granted it."

—Voltaire (French, 1694-1778)

Word for the day

Commodious (adj)

Spacious and convenient; roomy: a commodious apartment.

Malice towards none

"Intellectual Bankruptcy".....huum!

Should government consider making it part of the proposed Bankruptcy Law?

First random thought this morning

The monkey of Brexit has been riding the back of global financial markets for some time now. No respite is seen from this lingering worry till June.

There have been strong arguments made, both in favor and against Brexit. The June referendum might settle the matter for now.

What I fail to decipher is how Britons would overcome the lure of free ECB money and free European market that may explode with rehabilitation of millions of refugees. My vote is "nay".

Could it be different this time - 1

To the question I raised last week (see here), I want to answer like this:

In my view, Indian economy and hence the Indian financial markets (equities, bonds, currency) are on the cusp of a major transformation. A successful crossover may lead to multi decade bull market in Indian assets; whereas a failure at this juncture will push us back by a decade at the least.

The markets are certainly sensing this opportunity. But the investors remain skeptical about the chances of success given their disappointing empirical experience.

The first generation reforms that began to take shape in mid 1980s when a non-career politician (Rajiv Gandhi) and his sundry friends took over the mantle to unshackle the Indian economy from the traditional feudal lordships. The outcome was rather disappointing. The traditional feudal lords, and the new uncontrolled "whatever it takes" class of entrepreneurs overwhelmed the good intentions of inexperienced leaders.

The economy ended a happening decade in an unprecedented fiscal crisis with domestic investors badly bruised by the first major scam in the Indian financial marked bruised . I call it Reliance-Harshad phase.

The fiscal crisis of early 1990s forced Indian government to initiate next phase of reforms, including opening Indian market to foreign investors . The reforms in this phase, in my view, were hurried, reluctant, and guided purely by short term goals. The adhocism in the policy making was too palpable. The conceptual framework for inclusion and holistic growth was conspicuous by its omission in the entire "reform" narrative. The consequence was rise in income inequalities, civil unrest, and social division. Though this phase provided a good platform to take off, the Indian economy did never really took off. Despite getting a humongous opportunity in Y2K, for lack of conceptual development framework we could not make India a knowledge base economy.

The two material positives of this phase were (a) emergence of a strong middle class and its acceptance as a political influence group; and (b) beginning of a move towards devolution of greater power to the federal states and local bodies. This was the age of Maruti, Satellite Television and beginning of the end of Congress as sole custodian of Indian democracy. I call it Maruti-SEBI (an epitome of adhocism in policy making) era.

With the nuclear blast at Pokharan in 1998, India embarked on a new phase of economic policy - driven by nationalism and self-reliance. The then NDA government embarked on a ambitious credit driven infrastructure building program to overcome the impact of sanctions and global slowdown. This was a classic mistake of advancement of investment demand; that too without making any concerted effort to augment future consumption demand that would justify the so called advanced investment. The subsequent UPA governments not only continued with the mistake but made it worse through lax governance standards. Indian financial system is still bleeding from the natural fallout of this mistake.....to continue tomorrow

Monday, March 14, 2016

Rally may strengthen led by banks

Thought for the day

"Appreciation is a wonderful thing: It makes what is excellent in others belong to us as well."

—Voltaire (French, 1694-1778)

Word for the day

Psittacism (n)

Mechanical, repetitive, and meaningless speech.

(Source: Dictionary.com)

Malice towards none

When morality takes over the rule of law - stars bite dust, everyone gets to play saint, mob imparts the justice, and no one is winner.

First random thought this morning

I shall be ever grateful to our hyper-enthusiastic TV news anchors and our parliamentarians. They helped generously in treatment of my addiction to the idiot box. There was a time, I would watch anything showing on TV. But no longer. My pendulum has swung to the other extreme. Now I loath to go to the rooms where TV is playing. As they say, "whatever happens, happens for the good".

Rally may strengthen led by banks

Greed being conquered by fear, time for a new beginning

In past few months, broader markets have materially underperformed the benchmark indices. In past week, there was some signs of stability in the top half of the market, while the bottom half still remains jittery. This is a sign of greed being conquered by fears and euphoria subsidizing, an essential pre-requisite for a new market cycle to begin. Save for a black swan event, we may see a new market cycle emerging in next 6months.

...led by financials

Friday, March 11, 2016

Market paradigm shifting

Thought for the day

"Social progress can be measured by the social position of the female sex."

—Karl Marx (German, 1818-1883)

Word for the day

Isonomy (n)

Equality of political rights.

Malice towards none

How and when Dr. Vijay Mallya will be suspended from Rajya Sabha and his privileges, inlcuding diplomatic passport, be withdrawn?

First random thought this morning

Reuters reported yesterday that Chinese banking regulator (PoBC) is contemplating a equity for debt swap scheme to get over the problem of burgeoning NPAs.

The move may allow indebted corporates to reduce their leverage, reducing the cost of servicing debt and making them more worthy of fresh credit. It would also reduce NPL ratios at commercial banks, reducing the cash they would need to set aside to cover losses incurred by bad loans.

Being Chinese, the plan prima facie looked like a huge ponzi; till the time I realized that it is nothing but a copy of our own SDR scheme!

Market paradigm shifting

This Wednesday, I started an exercise to understand the current pattern of market movement (see here). I earnestly believe that the global market paradigm is shifting, and India could get a much larger role to play in this shift, that is if we as a nation are willing to assume larger responsibilities.

The paradigm shift is happening regardless of our commitment. I wrote yesterday (see here) that current government, especially PM, has perhaps recognized the opportunity and committing to it.

When I say that the paradigm is shifting in global markets. I am certainly not suggesting "it is different this time". What I am essentially saying is that "it is the same as always".

I have also written this couple of times before (see here), the global market paradigms have shifted every few decades. The shifts have been caused by a variety of factors. Sometimes it has been led by shift in strategic and geo-political power (spread of European empires in 17-18th centuries and strength of US post WWII). Sometimes technology innovation (industrial revolution in Europe and US, post-war Japanese manufacturing renaissance and then internet revolution in US) caused the shift. Rise of oil economies post 1970's in middle east Asia and Chinese and Korean manufacturing revolutions have also caused material shift in global markets. Nature has also played vital role in causing tectonic shifts in global power equations and market balances. Decline of great Roman empire is case for study.

In most of these market transition phases, currencies have played a key role. Therefore it is pertinent to evaluate the current transition in global market paradigm from this angle also. In most earlier instances the emerging currency (including gold and silver in earlier instances) has changed its relative global value during the course of the shift. Sometimes strength in the currency or gold & silver stock played a critical role, as in case of British and Portuguese dominance in earlier centuries. In some cases weakness in currency supported the shift, as in case of the rise of Korean and Chinese manufacturers causing decline of Japanese dominance.

The present case appears no different. Japanese are trying to regain their lost market share in global manufactured goods market by depreciating their currency. Germans are struggling to retain their market share by forcing the Euro down. While US has so far been successful in reigning its currency without compromising the supremacy of dollar.

In my view, demographics are playing a major role in the shift of the economic and market context this time. Most developed and even large developing countries are struggling with demographic imbalances presently. The problem is particularly severe in Europe and Japan.

In Europe on one hand population is aging fast and thus straining the fiscal and economic growth (pension, healthcare, lower income growth, low taxes and lower consumption); on the hand the mass migration to west is causing concern over change in socio-religious structure of the population (see here).

India, which has the largest pool of educated & skilled young English speaking people, may therefore be natural partner in bringing the desired demographic changes....to continue next week

Thursday, March 10, 2016

History is repeating; only it may be much bigger this time

Thought for the day

"Democracy is the road to socialism."

—Karl Marx (German, 1818-1883)

Word for the day

Rabble-Rouser (n)

A person who stirs up the passions or prejudices of the public, usually for his or her own interests; demagogue.

Malice towards none

Dear FM, if nothing else is working, trying renaming the proposed GST Act as Rajiv Gandhi GST Act (RGGA)

First random thought this morning

The famous 2014 general election win of PM Modi also popularized his designer kurtas and phoren returned PR agent cum election strategist Prashant Kishore. The day is not far when our vigilant media discovers the hair stylist responsible for the new look of Modi Ji.

It is good that PR agencies, fashion designers, hair stylists are getting their due share in Indian democracy. I hope a day will come soon when Indian politicians will publically proclaim their life partners and a victory kiss in full public view will not be a matter of blasphemy or national shame. That day, the statute book will rewrite itself and "gender equality" will no longer be a mere "intent".

History is repeating; only it may be much bigger this time

On March 09, 2009 when Nifty 2555, many were left wondering, whether it's the end of stock market investing.

Today, after seven year, Nifty is 3x, and many people are still wondering whether they should be investing in equity at all.

A Wikipedia tour of human history is sufficient to realize that the "globalization" is as old as the human race itself. Since ancient times, people (and animals) have been immigrating to far off, and often unknown, places in pursuit of water, food, congenial weather, and safety of children. The pursuit of material knowledge and spiritual elevation has also taken people to new places. In relatively recent history, people have also moved in the search of wealth and power.

With people, also immigrated their knowledge, food, life style, traditions and prejudices. The global growth was therefore faster, more symmetrical, and definitely development and growth oriented. The quality of human life improved dramatically each century till the end of 19th century.

Though the concept of travel permission and documentation is known to have existed since long, it was not till WW1 that it became restrictive. The history would suggest that most modern day fundamental scientific inventions were made in pre war era. In post war period the scientific developments have been more oriented towards defence (including internet and means of transportation), offence and disease control.

The modern day concept of Nationalism (restrictive immigration of knowledge & people) has not helped anyone but a handful of people endowed with leadership qualities who chose to become political or military leaders. The global growth therefore has been slow, asymmetrical and often harmful to the humanity in general.

The evolution of modern day mathematics, and therefore, other branches of scientific enquiries, are a classic example of collaborative research, enabled through free movement of people and knowledge. The concepts of zero and decimal conceived in Indian sub-continent travelled unhindered to the western world via Arab mathematicians and laid foundation for modern economics, mathematics, physics, astronomy, aeronautics, etc.

The entire north American continent is outcome of mass immigration of people from various parts of the world. Regardless of the repeated political rhetoric no one has ever tried to stop foreign knowledge and resources entering US borders. That is the strength of the US economic and political model. Trust me, no one (including Trump and Hillary) is even dreaming of closing US borders to foreign knowledge, workers or money.

The mass immigration that we are witnessing in Europe today, may be similar to what happened, more recently, in Europe during 8-12th century, and during 16-18th century in the USA, Asia and Indian subcontinent. It is bound to have significant economic ramifications - mostly positive.

The Congress style of Nationalism has perhaps irreparably damaged largest pool of knowledge, skills and other valuable resources. by making India a closed economy in post independence era. It needs to be immediately deserted and buried forever. The world is presenting a humongous opportunity that comes once in many centuries. VISA restrictions are easing worldwide. Global capital is looking for avenues where it can earn some nominal return. In my view, the whirlwind global tours of PM Modi should be evaluated in this context.....to continue tomorrow