Do it yourself

Wednesday, December 12, 2018

2018 and beyond - key highlights

Some food for thought

"A beast does not know that he is a beast, and the nearer a man gets to being a beast, the less he knows it."

—George McDonald (Scottish Novelist, 1824-1905)

Word for the day

Repartee (n)

A quick and witty reply

First thought this morning

In a popular 1992 Hollywood movie "A Few Good Men", two US marines face court martial for causing death of a fellow soldier while torturing him at command of their senior officer. The court holds them "not guilty" of the charge of murder, but still orders them to be dishonorably discharged from the service.

Hearing the decision, the junior marine Downey asks his senior in bewilderment, "what did we do wrong? We did nothing wrong. We just obeyed the orders!"

The senior marine Dawson answers with brilliant composure "Yeah, we did. We were supposed to fight for people who couldn't fight for themselves. We were supposed to fight for Willie (the deceased marine)."

I could not help this climax scene from the movie replaying back of my mind, while receiving numerous phone calls regarding resignation of RBI Governor, Mr. Urjit Patel.

I feel that silently agreeing to the "political command of demonetization", was a disgrace to the office of RBI Governor. He should have fought for the system, he was supposed to manage and regulate.

I believe that in past most governments have tried to influence the central bank to suit the monetary policy to its political agenda. There is nothing new in this; and perhaps nothing wrong. Most governors brilliantly resisted all such endeavor and maintained the autonomy and dignity of the institution; making RBI one of the most respected central bankers globally.

I strongly believe that if we want to become a relevant economic and political force globally, we need to strengthen our institutions and free them from random political discretions. To meet this end, an autonomous constitutional body must be formed to make all senior level appointments, like heads of all regulators, public corporations, and secretaries to various ministries, etc.

For RBI, my suggestion would be to amend RBI Act, and provide for appointment of the Governor from amongst the head of the largest five commercial banks, provided such person has served minimum two years as such head. Any lateral appointment like Mr. Patel or his predecessor Mr. Rajan, should be made at the bank level. Let them serve there for two years, understand the intricacies of the Indian economy, markets and financial system.

Chart of the day

2018 and beyond - Key highlights

Global economy

Domestic economy

Global markets

India markets

Tuesday, December 11, 2018

2018 in retrospect

Some food for thought

"Dogs are better than human beings because they know but do not tell."

—Emily Dickinson (American Poet, 1830-1886)

Word for the day

Logogriph (n)

A puzzle in which a certain word, and otherwords formed from any or all of its letters, must be guessed from indications given in a set of verses.

First thought this morning

The memory of my phone has been choked by numerous forwards of Ambani family dance show. I am speechless after watching three odd minutes of this mega event staged in Udaipur. The event was apparently attended by hundreds of A list Indian and global celebrities. The scale of the event could be judged from the fact that some mega Bollywood stars were seen as back dancers in the dance show.

Incidentally, all the video clips from the event I received in my inbox were without any comment or any Emoji.

I am not sure if people in contact list love the first business family of the country so much that they wanted to celebrate their family event by sharing these clips with everyone they know. But by avoiding any comment or Emoji, they have complicated the situation for me. I am finding it extremely hard to decipher the objective this data bombardment on my phone. Is it a joke? Is it a satire? Is it appreciation of Ambanis' and Piramals' dancing skills? Is it celebration? Is it protest? Is it regret? Is it hostility? Or is it just the "breaking news syndrome" that makes people automatically forward whatever they get in their inboxes?

Anyways, if the objective was to seek my views/comments on this, I must remind that I have already commented on this five months back (see here).

Chart of the day

Notes from my Diary

If as an investor, I am asked to describe the 2018th year of Christ in one word, I would say "Capricious".

The year started with muted hopes, gained significant momentum raising hopes to new highs, and is ending with despondency all around.

This has been a year, when most asset classes disappointed investors. Higher volatility caused by frequent mood swings, marked the financial as well as physical asset markets. Just when it appeared that the global economy (and therefore markets) may be ready for unwinding of the unconventional monetary policies in vogue since global financial crisis (2008-09), some dark clouds have begun to gather on the horizon.

The global growth cycle appears to have peaked for now and is widely expected to slowdown in 2019. Domestic growth in India appears stable, but the triggers for any acceleration are missing. Risk of current trade & tariff shenanigans escalating into a real crisis is keeping the global economies on tenterhooks.

The macroeconomic picture in India is unclear at the moment.

The government has managed the fiscal balance quite well in 2018; though the challenges still remain. Headline inflation has mostly remained below the RBI target. However, the core inflation seems bottoming out. This leaves government/RBI with little fiscal and monetary leverage to stimulate the economy, should it slow down further.

The external balance has worsened materially in recent months due to a variety of factors, e.g., volatile energy prices & INR, poor export growth, rise in non-oil & non-gold imports, etc. The real rates in India continue rise. However, despite higher real rates, the household debt (as % of GDP) breached the pre GFC high level, that has alarmed the regulators.

The industry wide capacity utilization levels improved somewhat during the year. GST collections have stabilized somewhat, though it still remain much below the budgeted levels. After many initial hiccups, the NPA resolution process appears set to gather some steam. Resolution of couple of large cases has created lot of optimism on that count.

The financial markets are jittery.

While the benchmark equity indices are almost unchanged YTD, broader markets have given up most of the gains made in 2017. Out of the 18 major sectors, only six could give positive return in 2018, while 12 sectors gave negative return. Cash (Liquid Fund) and Gold (INR) returns outperformed most of the debt fund returns during the year.

This has happened despite record domestic inflows into equities; though the foreign investors remained net sellers in equity and debt, first time in five years.

Socio-political conditions are tense.

Insofar as socio-political conditions are concerned, the year 2018 has been marked with widespread farmers' protests, cases of mob outrage, and some decline in the popularity of BJP.

After managing marginal majority in key assembly of Gujarat last year, BJP is expected to cede more ground to the Congress party in states of Rajasthan, MP and Chhattisgarh. Many market participants are taking this as a harbinger of political uncertainty in 2019.

Socially, while no one is starving to death, the people in general are seen to be restless. The primary reason is unreasonably high expectations and aspirations driven by such expectations. There is little indication that this gap between political promise and actual delivery will be mending anytime soon.