Tuesday, August 14, 2018

Economic and market review - 3

"Truth stands, even if there be no public support. It is self-sustained."
—Mahatma Gandhi (Indian, 1869-1948)
Word for the day
Littoral (adj)
of or relating to the shore of a lake, sea, or ocean.
Malice towards none
If your child is using the same shoe for more than a year, it does not necessarily mean that he/she has become more responsible or careful. It may also mean that he/she has stopped growing.
 
First random thought this morning
Delhi High Court recently decriminalized begging. Henceforth, begging in Delhi will not be crime. Though, it is not clear if it makes begging a legitimate vocation and add to the number of job opportunities.
In the meanwhile, contours of New Delhi Smart City project finally defined:
High speed Wi Fi in Connaught Place Area (not Rajeev Chowk?!); 4 mechanical road sweepers; 2 litter picking machines; 10 Auto tippers; smart poles; solar tree; ideation center; 10 LED interactive screens; 2 hi tech nurseries and a garden; release of a book titled "Green and Colorful NDMC - A Transformational Journey".
Would be useful to note that NDMC area, being seat of the central government and host of all foreign missions, is the highest spend area in the country.

Economic and market review - 3

Most analysts and economists forecast Indian economy to grow between 7.2% and 7.5% in FY19 as well as FY20. Growing at this rate, India is popularly touted to be the fastest growing economy in the world. Nonetheless, the opinion around India's macroeconomic fundamentals has never been so vertically divided in past couple of decades at least.
On one side of the spectrum are the global agencies like IMF & ADB etc., and many international brokerages that rely primarily on the government propaganda for their opinion. This set of commentators and analysts have used hyperbole like "...an elephant that is ready to run"; "...a potential safe haven in global turmoil"; etc., to describe the state of Indian economy.
I personally am delighted to read the comments and opinions from this group. It makes me feel proud and good.
On the other side of the spectrum are many independent analysts, economists, senior bankers like Deepak Parekh, and industrialist like K. M. Birla etc., who believe that all may not be well with the Indian economy and macro fundamentals may actually be weakening gradually.
Drawing from the thoughts of both these factions, my views on the current macroeconomic conditions in the country are as follows:
(a)   Indian economy has mostly recovered from the disturbances caused by replacement of all high denomination currency notes in late 2016 (popularly termed demonetization); and implementation of a common nationwide Goods and Services tax (GST) to replace a plethora of state level and central taxes. Normalized for these two events, the economy continues to grow at a sub-optimal or below potential rate.
(b)   The capacities created in many core sectors during past decade or so are still not fully utilized. Despite marginal improvement in recent months, the visibility is still poor for fresh capacity additions in core sectors like telecom, power, railways, shipping, civil aviation, corporate banking, mining, capital goods manufacturing etc.
(c)    After expanding for couple of years, the government is shrinking its consumption as well as capital expenditure to sustain fiscal discipline.
(d)   The debt and reserve profile of government has worsened in past couple of years. The proportion of short term debt has risen materially as compared to the past episodes of external shocks, making India vulnerable to external shocks.
(e)    Current account balance is worsening, putting pressure on currency and yields.
(f)    Monsoon so far has been sub optimal.
(g)    External risks have risen materially in recent months.
...to continue on Thursday

Friday, August 10, 2018

Economy and market review - 2

"The only defense is offense, which means that you have to kill more women and children more quickly than the enemy if you wish to save yourselves."
—Stanley Baldwin (English, 1867-1947)
Word for the day
Debunk (v)
To expose the sham or falseness of.
Malice towards none
When religion begins to become a menace, the society needs to stop, sit and introspect. If any changes are needed, implement those changes. Else, life is moving on anyways!
 

First random thought this morning
IKEA opened its first India store yesterday in Hyderabad. This is a watershed event in Indian lifestyle.
IKEA is not just a furniture company. It represents the modern western lifestyle. Standardization to the last point vs. customization; mobility of the user vs. stability; short life span of furniture akin to apparels vs. lifelong durability; self assembly and maintenance vs. feudal mindset of engaging help for everything etc. are some changes we shall witness.
A number of online furniture retailers shall face serious pressure and even existential threat! Other retailers will learn to think big terms of size.
Economy and market review - 2
Recent data on global economic growth has been little benign. Some analysts see this as peaking of the recovery stimulated by non-conventional monetary policies that have been in vogue since 2008-09. But most have chosen to attribute the weakness visible in the current round of economic data to the tensions related to trade relation and elevated geopolitical risks.
As one of the recent report by Bank of America Merrill Lynch very succinctly outlined, "The global economic outlook remains fundamentally sound. However, there is a long tail of “man-made” downside risks to growth, including a messy Brexit, Japan’s consumption tax hike, a spike in oil prices due to the sanctions on Iran and, most importantly, a full blown trade war."
In the US, the July employment data disappointed, despite very encouraging 2QGDP numbers. Nonetheless, The Fed is expected to hike two times more more this year and three times next year.
In the Euro area, GDP data surprised to the downside as inflation came in higher than expected. Though the EU-US trade tensions have been relieved due to auto tariff ceasefire, there are still many potential areas of conflict that need to be sorted out.
Deteriorating debt dynamics in the periphery of Europe, limited fiscal capacity, higher oil prices, and political risks continue to cloud the outlook on Euro Area growth outlook. ECB is widely expected to hold rates till 3Q2019.
A no-deal Brexit remains a tail risk, but it is becoming more likely due to political compulsions. The Irish border issue is another major challenge to be sorted out. The decision of BoE to hike recently has surprised the markets.
In Japan, inflation continues to rebound for a second consecutive month. The manufacturers are fairly upbeat about the near term outlook. This may force BoJ to hasten the review of monetary policy stance.
In China, growth has slowed down and the impact of trade related measures is visible. The policymakers are attempting to cushion the impact of the trade skirmish with the US. In recent Politburo meeting, president Xi called for policy to stabilize employment, finance, trade, FDI, and investment. Clearly, the policy makers are seeing downside risks to growth and that further policy easing is likely to come.
Insofar as the economists' consensus is concerned, most economists estimate US, EU and Chinese growth rate to slow down in 2019, as compared to 2018. Japan and EM (ex China) in aggregate may do only slightly better in 2019 as compared to 2018.
Also, the consensus feels, USD and JPY to strengthened and EUR and GBP to weaken. Brent crude is expected to average ~USD73-75/bbl, vs. USD70/bbl in 2018....to continue next week

Thursday, August 9, 2018

Economic and market review - 1

"The intelligent are to the intelligentsia what a gentleman is to a gent."
—Stanley Baldwin (English, 1867-1947)
Word for the day
Calescent (adj)
Growing warm; increasing in heat.
Malice towards none
Why no one is taking Varun Gandhi seriously?
 
First random thought this morning
A 6 X 6 temporary shelter has transformed into a massive temple structure, housing 108ft tall Hanuman statute in past two decades or so. It is not in a forest or some hidden by lanes of an unauthorized neighborhood. This is right in the center, at one of most busy crossings, of the city. In fact, in past one decade or so it has become the symbol of Delhi, insofar as the Bollywood movies are concerned. A metro train passing by this statute is one of the most common scene in any movie shot in the city.
About 200meters away from this place, tucked in a reserved forest land close to sensitive radio installations of security agencies, is the allegedly unauthorized Asharm of jailed Asaram.
And suddenly, High Court is asking who permitted all this!

Economic and market review - 1

In recent weeks, a number of experts have warned markets against avoidable exuberance. The markets have though brushed aside all warnings and risk assets, including the much maligned Bitcoins, have registered impressive gains.
A host of global macro data has already hinted that the global growth is threatened by the trade related tensions building in various pockets of global economy.
Besides, the process of normalization of non-conventional monetary policies, in practice since the last global financial crisis, has also begun in right earnest. US Fed has already withdrawn the QE completely and raised interest rate multiple times in past 4yrs. ECB is scheduled to end QE by the end of 2018 and has already hinted at rate hikes next year. BoJ has also given signals about beginning of a tightening cycle as early as from 2019.
Back home, the economy has recovered from the impact of demonetization and GST. The consumption demand has been encouraging in past few quarters. However, there is little to suggest that the economy can gather enough velocity to break past the current rate of growth in near future.
Inflation is already running higher the RBI's comfort level. Elevated energy prices and slower are constraining both current account and fiscal balance.
Fiscal constraints have also slowed down public spending, which has supported the growth in past three years.
The current earning season has mostly been a mixed bag. On aggregate basis, the earnings look marginally below the street estimates. However, there have been pockets of strong growth. As per Motilal Oswal Securities, "Consumption recovery continues with most of the FMCG companies highlighting rural outperformance vs. urban. 2] Within Banks, Private Banks have seen some margin pressures while PSU Banks have reported moderation in fresh slippage generation. NBFC’s post another quarter of healthy core performance. 3] Auto companies have missed profitability estimates led by RM cost pressures and lower other income while demand outlook remains healthy. 4] In IT the demand is showing gradual improvement with continued outperformance of Tier II companies vs. Tier I. 5] Cost pressures have marred the profitability of Cement companies even as volume growth remains in –line.
Foreign flows have mostly been negative in past few months, even though in past couple of weeks the selling pressure seems to have eased a bit. Domestic fund flows have also tapered in past 3months, even though SIP flows have sustained.
In past 6months Indian equities have mostly shown a divergent trend. While the benchmark indices have scaled new highs, the broader markets have underperformed conspicuously. In past couple of week, however, the broader markets have done reasonably well. In next few days, I shall discuss all these trends in some detail.

Wednesday, August 8, 2018

There Is Something About Mary

"War would end if the dead could return."
—Stanley Baldwin (English, 1867-1947)
Word for the day
Mufti (n)
Civilian clothes
Malice towards none
No jobs, no reservation.
Matter settled and disposed.
 
First random thought this morning
There must be thousands of Indians staying illegally in Europe, Americas, Africa and Middle East. What should be done with them?
Is there anything wrong, if the local people and politicians speak against them in threatening voices and harass them in violation of international laws?

There Is Something About Mary

In past two months I have received numerous communications criticizing me for irresponsibly criticizing the government. The primary and common theme in all such communications is that the incumbent government has taken many innovative, unprecedented and revolutionary steps for the upliftment of poor, farmers, women and youth.
I would like to close the discussion on this topic with the following reproduction of a conversation from the popular 1998 Hollywood movie "There Is Something About Mary":
"Hitchhiker: You heard of this thing, the 8-Minute Abs?
Ted: Yeah, sure, 8-Minute Abs. Yeah, the exercise video.
Hitchhiker: Yeah, this is going to blow that right out of the water. Listen to this: 7... Minute... Abs!!!
Ted: Right. Yes. OK, all right. I see where you're going.
Hitchhiker: Think about it. You walk into a video store, you see 8-Minute Abs sittin' there, there's 7-Minute Abs right beside it. Which one are you gonna pick, man?
Ted: I would go for the 7.
Hitchhiker: Bingo, man, bingo. 7-Minute Abs. And we guarantee just as good a workout as the 8-minute folk.
Ted: You guarantee it? That's - how do you do that?
Hitchhiker: If you're not happy with the first 7 minutes, we're gonna send you the extra minute free. You see? That's it. That's our motto. That's where we're comin' from. That's from "A" to "B".
Ted: That's right. That's - that's good. That's good. Unless, of course, somebody comes up with 6-Minute Abs. Then you're in trouble, huh?
Hitchhiker: No! No, no, not 6! I said 7. Nobody's comin' up with 6. Who works out in 6 minutes? You won't even get your heart goin, not even a mouse on a wheel.
Ted: That - good point.
Hitchhiker: 7's the key number here. Think about it. 7-Elevens. 7 dwarves. 7, man, that's the number. 7 chipmunks twirlin' on a branch, eatin' lots of sunflowers on my uncle's ranch. You know that old children's tale from the sea. It's like you're dreamin' about Gorgonzola cheese when it's clearly Brie time, baby. Step into my office.
Ted: Why?
Hitchhiker: 'Cause you're fuckin' fired!"
In next few posts, I shall present my thoughts on the current state of economy and markets.

Tuesday, August 7, 2018

Build character, develop method and enhance engagement



"I am one of those who would rather sink with faith than swim without it."
—Stanley Baldwin (English, 1867-1947)
Word for the day
Chevelure (n)
A head of hair.
Malice towards none
Will NRC (National Register of Citizens) also meet the fate of NPR (National Population Register)?
 
First random thought this morning
RBI governor has reportedly said, "The fundamental mission of economists is not to forecast crises but to explain how the mankind behaves in the ordinary business of life and in doing so they do warn of crisis formations, suggest pre-emptive strategies and formulate mitigating policies that address those crises that slip through macroeconomic surveillance."
If we ignore the subtle distinction between "forecasting crisis" and "warning of crisis", this is one of the best defenses put forward to absolve the economist community from allegation of failure to "forecast" and/or "warn" about the 2008 crisis.

Build character, develop method and enhance engagement

Anyone who has visited Greece would appreciate how much leverage they derive from their history and mythology. Tourism has indubitably been the mainstay of Greek economy, especially in past two decades. Sun, food, shopping and mythology are mostly what they offer to the tourists from across the world.
Like India, Greece also has a long history, rich culture, inspiring mythology. It had also been under the foreign rules (Ottoman Empire and Nazis). It remained under attack from Persians for long and paid heavily for the long and expensive war campaign of the Alexander. But similarities almost end there.
97% of the Greece is now Orthodox Christian. Only 3000 odd people now worship mythological Greek gods; unlike in India, where people are still steadfastly following their traditions, culture and mythology in their day to day life.
A common man in India identifies Greece with Alexander the great. We, in fact, have one of the most popular ongoing TV serial based on Alexander's invasion of India. But, in Greece you would seldom find people talking or discussing about Alexander. He is mostly a subject of academic discussions in schools, to tell the youth what and how not to do things.
The paradox is that Greek mythology and history provides employment to an overwhelming majority of people, who feel naturally proud of it. Whereas, in India we use history, religion (associated mythology) and cultures to fight amongst ourselves and a significant part of the population feel ashamed about it.
The point is that to make tourism one of the primary sources of employment and revenue in the country, we may need to change a whole lot of basic things.
First of all we urgently need to begin the exercise of building character of our youth. The primary and secondary education must place an overwhelming focus on character building rather than cramming totally useless stuff to pass ill designed examination with unbelievable scores of more than 90%.
The Jugaad mindset (cutting corners for short term benefits without bothering about quality, sustainability, and propriety) needs to be completely eliminated from all walks of life. Education, business, and life need to be driven by thoughtfully designed processes, and governed by a strong sense of ethics and respect for others' life, dignity, safety, rights, preferences, views, opinions, and styles.
Secondly, the State needs to work closely with the people to reorient our legacy (religion, culture, traditions, arts, food etc.) to make it marketable to the global audience as well as the youth of our own country.
This would require shedding the "secular" tag by the State. The State machinery would need to assign religious heads, the responsibility of ushering an Indian renaissance, entitling them with adequate powers, empower them to interpret the religion in the modern context, and engaging them in the task of nation building.
Third, the State should mobilize and motivate people to build or rebuild the tourist attractions of global standards. For example consider the following:
Vrindavan, the place associated with numerous legends relating to Lord Krishna, is one of the most popular pilgrimages in the country.
Unless you are a deeply religious person, a trip to the holy town on a weekend is more likely to feel like a journey to the hell. You would most likely have to deal with:
  • thousands of visitors and hundreds of raucously honking vehicles jostling through the narrow & inadequate lanes and slender by lanes of the town;
  • thousands of rogue monkeys always looking to attack your spectacles and handbags;
  • hundreds of unscrupulous touts in the garb of tourist guides or temple agents persistently trying to fleece you on different pretext;
  • hundreds of stray cows, dogs, pigs etc. jostling for space with human;
  • filthy and stinking open drains overflowing with human waste;
  • thousands of baggers chasing you ominously closely;
  • numerous shops serving food in totally unhygienic conditions;
Despite thousands of people visiting every weekend and spending tons of money, there are no clean urinals, no place where young kids could be nursed, no decent hospital that could be used for emergencies, and virtually no arrangement for disaster management.
The story is not much different in other holy towns like Haridwar, Rishikesh, Varanasi, Gaya, etc.
This does not inspire any confidence. The State need to engage with the local populace, motivate them to agree to a modernization plan for the holy town. The State also needs to engage with the various temple managements (mostly families of priests) and urge them to confine themselves only to performance of rituals. The management of infrastructure and facilities should be delinked with rituals and undertaken by an autonomous board led by the District Magistrate rank officer.
The popular tourist places like Shimla, Mussoorie, Nainital also feel like hell during the summer season.
I guess I have made my point.
I would now like to reiterate the following suggestions, for building/improving the tourism infrastructure in the country:
(a)   Indians spend more than $25bn annually on education and related overseas travel. Creating 5 Special Education Zones (SEZ) with liberal VISA, forex, taxation and real estate ownership rules, and allowing foreign institutions to freely set up campuses in these zones, could potentially reverse this flow. Students from India, far-east, middle-east and Africa who find it difficult to get VISA for US/UK etc., or find that unaffordable, could also benefit from this. Our politicians have spoken about recreating Nalanda and Takshila. This in my view is the easiest way to do that.
(b    Lack of proper infrastructure has traditionally constricted the growth of tourism sector in India. Indian outbound tourists flow is also rising fast. Developing some world class self-contained international tourism centers, e.g., on lines of Macau, Disney, Las Vegas, etc. with liberal VISA, Forex, taxation and real estate ownership rules could potentially reverse these flows.
(c)    Vindavan, Tirupati, Varanasi, Gaya, etc. all have potential to be as desirable, venerable and popular destinations as Mecca, Vatican and Jerusalem. Converting these centers of Indian religion and culture into self contained special zones with international airport, adequate lodging facilities and annual event calendar could get substantial forex revenue.
(d)   Develop at least 1000 tourist places on a variety of themes like adventure, spirituality, yoga, Indian food, traditional arts, history, religion, language learning etc. These should be world class destination with adequate sustainability considerations. Corporate sector could be engaged in this through lucrative tax incentives and mandatory CSR spending.
(e)    Subsidize domestic tourists' transportation cost for visiting far off place in north, north east and south, besides creating decent accommodation to be managed by local youth specially trained for this.
(f)    Establish at least one specialized tourism skill & training institute in every state that will train youth to work in the sector. This should include Indian ethos, language skills, history lessons, food preparation, and driving skills etc.

Thursday, August 2, 2018

Its' Chicken-Egg conundrum

"Bigotry tries to keep truth safe in its hand with a grip that kills it."
—Rabindranath Tagore (Indian, 1861-1941)
Word for the day
Improbity (n)
Lack of honesty or moral scruples.
Malice towards none
When you read the promotional material of the Modi government, you only find what the government did for Muslim society, particularly women. No mention of what they did for Hindutava.
Appeasement!!!
First random thought this morning
BJP's outreach program (Sampark se Samarthan) has gathered significant coverage and evoked mixed response in media and political circles. Through this program BJP aims to reach out to one lakh prominent personalities from various fields and explain to them the achievements of the NDA government led by them.
The more one reads about this, the more one gets a feeling that BJP is taking 2019 general elections too seriously. Like in Mahabharta where both the sides approached all the states in Aryavrata for fighting from their sides, BJP is preempting the support of all "the influential" people.
Would be interesting to see how many of these would actually come out and campaign for BJP; and how many voters would get influenced by these!

Its' Chicken-Egg conundrum

As mentioned yesterday, the domestic tourism in India is still in very nascent stage of evolution. Only a third of the population is making overnight trips outside their home city, that too for an average duration of little over 2days per trip.
Most of domestic tourism revolves around medical treatment, pilgrimage, social purposes, and education. Holidaying and leisure account for a miniscule part of the total travel market.
Few states account for most of the domestic tourism origination and destinations. The rural population is forced to travel for medical and education purposes and spend more than the people staying in urban centers. Moreover, the average budget for a domestic tourist (for non-medical purposes) is a very low to support a profitable tourism infrastructure.
This poses a sort of chicken egg dilemma for the sector.
On one hand, the poor infrastructure and higher costs is driving the affluent and even middle middleclass tourists to overseas locations, and keeps the affluent foreign tourists away from most tourist destinations in the country.
On the other hand, the industry is not able to invest in infrastructure or reduce costs as the number of tourists who can afford to pay for services is very low.
It is also important to consider the following what I learnt from an hotelier in Nainital a couple of years ago. He said, "The number of tourists from smaller towns has increased manifold in recent years. These are not necessarily low budget tourists but do not like to spend on 'room rent' and good food. Their social etiquettes do not really match the traditional tourist, who were essentially urbane and educated. Consequently, the traditional tourists are now avoiding this destination and opting for overseas travel. Mass has overtaken the class. There are frequent traffic jams and brawls. Some upscale property owners are already finding it hard to sustain and many low end property owners are extending their facility in an unauthorized manner with the connivance of the local administration."
This is very representative of the current status of the industry in most of the places, except perhaps a few pilgrimage centers like Kashi, Tirupati, Haridwar etc.
What also needs to be considered is that if the current trend continues., we might need to develop more than 10k new tourist destinations in next decade, in the states of UP and Uttrakhand alone. Also, if the sustainability and ecological issues if not addressed immediately and very strictly, the situation will be beyond reparation in next one decade and the consequences will indubitably be disastrous.
The government will need to play an active role in this......to continue tomorrow