Do it yourself

Thursday, November 15, 2018

No space for complacency

Some food for thought

"Never reach out your hand unless you're willing to extend an arm."

—(Pope Paul VI, Italian clergyman, 1897-1978)

Word for the day

Sequacious (adj)

Following, imitating, or serving another person, especially unreasoningly.

First random thought this morning

Waiting at a hotel reception in Agra 10days ago, I casually picked up a piece of local newspaper. It was incidentally the matrimonial page of the weekend paper.

I have always found the weekend matrimonial pages of local newspapers a reflection of the current social pattern and emerging trends.

From the piece of paper I picked up, I found the following two insertions of particular interest. These insertions not only expose the hypocrisy of society, but ridicule all the claims of changing mindsets. Nonetheless, these insertions provide enough comfort that more the things appear changing from media headlines, the more they remain same. The journey of many social reforms lasts only from page 1 of the newspaper to page 11.

This insertion highlights two key trends:

(a) People are bothered least about unethical and possible corrupt behavior in public life. Rather, they may be quite audacious in admitting this. Principal of a government aided inter collage owning and running a personal high school is a clear conflict of interest, even if it prima facie does not prove any corruption.

(b) The prospective groom is apparently an associate editor with a prime national news channel. As a media person, he is supposed to be more upright and aware about these issues. But obviously he too does not bother.

The second insertion also highlights two things:

(a) Studying and working in a developed society like USA, does not necessarily changes mindset of a person. This professor of a USA university wants to marry beautiful girl; nothing wrong in this. But he does not mind if the girl is not educated. That sounds bizarre.

(b) #MeToo campaign may have too long and arduous road to travel, even in USA.

No space for complacency

The US$100/bbl calls have suddenly faded to the backstage and US$25/bbl sounds are again audible from a distance.

People betting on INRUSD 80 are also back to their thinking pods.

The benchmark 10yr yields are also cooler at 7.7%, making the investors who redeemed their bond funds in a tearing hurry last month red faced. The experts frequently seen on business channels are discussing should RBI cut now or wait for couple of more months. Just a few weeks ago, they were lamenting RBI for running behind the curve and not hiking the rates fast enough to protect INR.

Reportedly, the amount of monthly inflows through SIPs in equity mutual funds has been highest ever at Rs7900cr in October 2018. The equity fund in general received inflows of Rs12600cr odd in October, the highest since April 2018.

All the clouds suddenly appeared to have blown away. The sky is sparkling blue!

In my diary, on 20 July 2018, I inter alia noted that the following in my market outlook:

(a) The market may continue to remain volatile in next 12months. Implied volatility has so far remain stuck in lower range. We may see episodes of sharp spikes in India VIX in next 12months.

(b) The overall returns from Indian equities may be very low single digit or negative in next 12months.

(c) Small and midcap may continue to underperform the benchmark. But total divergence in the direction of benchmark and broader market indices may end. Expect a sharper fall in benchmark indices in next 12months.

(d) Financials, consumer non-discretionary, and capex themes may suffer more than others. Global commodities may suffer badly, before any recovering sets in.

(e) Indian equities may suffer de-rating as political chaos clouds growth outlook.

(f) INR may continue to be supported by higher yields and RBI intervention. INRUSD may stabilize around 68.50, after witnessing some volatile moves in the interim.

(g) Bond yields may touch a high of 8.30%, and average above 7.5% in next 12months.

(h) Real estate prices may stabilize in most geographies and continue to recover in select geographies."

Incidentally, most of it has come true.

I therefore am not bothering about the recent movements in crude prices, bond yields, INRUSD, or the movement in equity indices.

The hard facts are —

1. Benchmark indices are virtually flat YTD.

2. Earnings momentum that promised to pick up in 1QFY19, has mostly fizzled. The earnings downgrades are accelerating.

3. The concerns over global growth momentum are rising further. Japan slipped into recession in 2Q2018. (May also read this)

4. Global commodities have fallen materially, raising the specter of deflation in 2019.

Wednesday, November 14, 2018

A random chat

Some food for thought

"Two thousand years ago, we abandoned imperialism and militarism. We have been peace-lovers ever since."

—Sun Yat-sen (Chinese leader, 1866-1925)

Word for the day

Valorous (adj)

Having valor; courageous; valiant; brave

First random thought this morning

In post independence India, there have been many instances when the government of the day has criticized the Supreme Court of India for "overreach" in the matters that technically fall in government's domain. There have also been instances when the government did decide to overturn the Supreme Court decision through legislation. However, seldom the masses got involved in the tussle between the judiciary and executive.

However, what is happening now is unprecedented.

In past couple of months the Supreme Court of India has been subjected to severe criticism by common people of the country. The Supreme Court has been virtually reprimanded for first taking a firm stand on Sabrimala temple entry issue and then not affording any urgency to Ayodhya case.

To make the matter worst, the people of the country were incited to burst crackers on this Diwali night, in blatant contempt of the Court's directives. The defiant people trumpeted their contemptuous act on social media, duly backed by the local politicians. Reading of the twitter timeline, day after Diwali felt as if we are living in a banana republic with no rule of law.

At this point in time, I am not taking any sides. In principle, I believe that judiciary has no role in the matters relating to customs and faith. However, in my opinion, the present instances of judicial intervention in customary things must be seen through the broken prism of governance in country.

In my view, it is for the popular government to mobilize public opinions against undesirable customs. Few examples are drinking & gambling on festivals, wedding gifts (Dowry) and unaffordable post death feast of village people, etc.

I fail to understand, if our prime Minister could appeal to people to voluntarily give up LPG subsidy (with stupendous impact as per official claims), cooperate and bear pain caused by demonetization, why he cannot appeal to people (at least to 10cr members of BJP) to not burst harmful crackers, not to burn crop, to manage construction dust properly, etc.

His appeal would have motivated millions of BJP supporters to promote a pollution free Diwali, instead of inciting contempt of the Supreme Court.

Or, our PM is no more confident of his appeal working on people of India?

Chart of the Day

A random chat

Yesterday I highlighted that smart money may have been gradually withdrawing from Indian equities since past many months. I got numerous calls and messages regarding my observations from AMFI data. Surprisingly, many people appear concurring with me. They however are wondering where this smart money may after all be going!

This reminds me of a recent chat with a dear friend and the best fund manager I know. I would take the risk of annoying him, and share some parts of the 'chat' with my readers.

"XXX Ltd and YYY Ltd, despite being fantastic companies on all counts, are not finding any investors interest at sub 12x PE of TTM EPS. Same is true of 100s of other stocks in India and globally. Therefore, the issue to analyze is why smart money is so disinterested in virtually everything!"

"Most styles of investment are failing except for momentum. And momentum is getting narrower since liquidity is critical for success of momentum and liquidity is drying out."

"Is this due to rise of passive money?"

"Whatever it is, one thing I feel is that, lack of adequate private capex recovery in last decade is owing to general disinterest among investors in capacity creation of basic resources like oil and minerals as well as manufactured goods. Just like dot com days, most money is just going into e-commerce. Net conclusion is that, current bull market is akin to Dot com."

"Other observations is that, small/midcap pain has been felt everywhere in the world since Feb including USA. I thought, the pain was specific to India owing to SEBI actions like MF classification and ASM etc."

"I have been saying the answer will come from philosophy and not economics. The markets must be seen from the viewpoint of big Reset that is being attempted globally since GFC. Though only some scattered progress is visible of this Reset, smart money may rightly be waiting at fringes for more clarity to emerge. The key risk this money is taking is that it may be reduced to ashes in entirety (Global DeMo). People are trying things like Cryptoes and derivatives for Chinese assets. But not at a massive scale as yet."

"Real economy and stock markets cycles can be different. Real economy as such is seeing L shaped recovery globally. Exports hub like Korea, Thailand and Vietnam are getting too old. Developed economy quickly getting too old to consume. USA, possibly the youngest in terms of average age of population among developed countries is seeing dramatic changes in demography. Apparently USA is now seeing lowest number of child birth since 1920."

"Along with increase in life expectancy, rise in amount of time spent on retirement, and fall in return on investment, people need to save more and spend less. These are disinflationary for sure. World needs to consume more. All the technological advances like AI will be used to produce more and there is excess supply everywhere. There lies my hope for India which has a billion hungry stomachs. Most of Africa, Latin America and much of Eastern Europe is like India only."

"The most unfortunate part is that India might remain a 'taker' this time too. We will not have any trend of our own, just like in past 150yrs since industrial revolution. Due to shortsightedness of our politicians we are perhaps missing this AI revolution too. The pursuit of strategic power of Modi will go in vain, if it is not adequately supplemented with technological prowess. My worry therefore is not about lack of opportunity. It is rather about the abundance of opportunities, that we are foolishly missing."