Some food for thought
"Honesty is a good thing, but it is not profitable to its
possessor unless it is kept under control.
—Don Marquis (American Poet, 1878-1937)
Word for the day
Nisus (n)
An effort or striving toward a particular goal or attainment;
impulse.
First thought this morning
The festival season has started in India with Shravan Mela. It
will gather pace with Eid-ul-Adha (Bakr Id), Ganpati Festivals, followed by
Navratri, Dussera, Diwali, Christmas, New Years of all the communities, and end
with Holi.
This is the period when the entire country is in celebratory
mood. Post monsoon crop brings prosperity and marriage season post harvest
brings joy and ushers new hopes.
Unfortunately, over the years the religious practices and
rituals for celebrating these festivals have degenerated to a large extent.
Vanity and pretense have clouded the devotion and faith. To many, festivals
bring stress and ailments instead of joy and bliss.
Millions of animals are sacrificed on Eid and waste is left to
rot in the open, making it a major health hazard. Millions of PoP idols of Lord
of Wisdom Ganesha and destroyer of all evil Mother Durga, laced with harmful
chemicals are submerged in public water bodies, causing irreparable damage.
Millions of tonnes of firecrackers are bursts on Diwali and New Year, making
the already most polluted air in world a little more dangerous for the
citizens.
The most unfortunate part is that the citizens who suffer most
from the degeneration of these religious practices and rituals have turned this
critical issue of protecting environment, for the sake of future generations,
into an internecine communal debate.
A strong narrative has been built that since one community is
allowed to pollute therefore all community must have the right to do so! A
deluge of social media message is created to encourage citizens to defy Supreme
Court orders and civil society's appeals and destroy the already fragile
ecology of our cities and towns.
The elected governments are scared to intervene for the fear of
losing popularity. The enforcement agencies refuse to follow court orders for
the fear of stoking civil unrest. Citizens try their best to outdo other
communities in destroying the ecology. Civil society makes some feeble protest,
but since these are mostly (and strangely) targeted at majority community,
these protests are rejected with utmost contempt and derision.
Something urgently needs to be done to reverse this trend of
self destruction. No politician today seems to capable of doing it. We the
citizen of India must take the initiative and pledge our contribution in terms
of self restraint. We must denounce religious rituals and practices which could
destroy both the religion and the followers. Its time to demonstrate the power
of ONE.
Chart of the day
What's bothering Indian equities - 1
Indian equity are
going through a sever correction since February 2018. For first 6months the
correction was mostly limited to broader markets. However since September 2018,
almost the entire market, with the exception of a handful of stocks, has seen
significant price erosion.
In this context,
it may be interesting to note the following:
1. The current market cycle started from the
presentation of Budget for FY17 on 29 February 2016 when Nifty made an intraday
low of 6825. Since then Nifty has given a CAGR of 14.8%. Midcap and Small Cap
Indices have returned a CAGR of 10.1% and 7.7% for the 41 months period since
February 2016. India has outperformed most of the major global equity markets
in this period.
In the previous
major market cycle (June 2006 to March 2009), Nifty had not returned anything,
while midcap and smallcap returned a negative yield of -4.2% and -12.7%
respectively.
Some readers may
be tempted to assume that there may be significant downside still left in the
current market cycle. But in my view, a comparison with 2006-09 market cycle
may not be totally appropriate given that period witnessed total freezing of
global financial markets, which is not the case this time. Most global markets
have either not seen a frenzied rally like previous cycle or have already
corrected significantly.
2. From March 2016 till yesterday, foreign
investors have put in Rs125bn in Indian equities (primary and secondary
market). The domestic institutions have invested Rs223bn in the same period.
This investment
is positive but not significant in historical context, if we measure this as
percentage of market capitalization.
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Moreover, the much talked about FPI selling appears routine if seen in context of trends of past three years. Domestic money has not shown any signs of withdrawal so far.
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3. Nifty 50 has corrected ~8% from its recent high, whereas the broader markets have witnessed much deeper correction. Nifty Midcap and Nifty Small Cap have fallen ~24% and ~42% respectively from there last top.
4. The period from February 2016 has witnessed
some significant events like total and sudden demonetization of high
denomination currency notes, implementation of nationwide GST, identification
and large amount of NPAs for Indian banks and beginning of resolution process
under new Insolvency and Bankruptcy Code (IBC).
The popular
narrative is that the market correction has been caused primarily due the
factors like to tax imposed on long term capital gains, additional tax imposed
on super rich and certain class of foreign investors, solvency crisis in non
banking finance companies, consumer demand slowdown, export slowdown due to
global trade conflicts, lack of adequate policy response in terms of monetary
& fiscal stimulus and public investment etc.
I am however not
able to find convincing evidence about these issues having material impact on
the markets. Even in the Month of July so far, net institutional investment in
Indian equities is about Rs60bn positive.
I am inclined to
believe that the market correction may have more to do with some fundamentals
issue about the listed companies' performance and perhaps some structural
regulatory issues like failure in breaking the promoter-operator nexus.....more
on this tomorrow.
