Do it yourself

The stock price of the over-the- top (OTT) streaming major Netflix has fallen ~68% from it's all-time high price of US$695/share in November 2021. The current price is lowest since December 2017. At the current price (US$226/share), the stock discounts trailing twelve months earnings by 32x. The company makes a healthy ~31% return on equity and ~11% return on assets. The revenue, operating margins and net profit margins achieved during the past twelve months are higher than the past 5yr average. The company has been generating healthy operating cash flows, but not yet generated free cash flows. The reason for the latest US$150 fall in Netflix’s share price is the first ever reduction in its subscribers’ base (which may be largely due to Netflix withdrawing its services from Russia). Six months ago, numerous analysts and portfolio managers were jostling with each other to justify a PE multiple of over 100x for the stock, citing the exciting business model and growth prospects fo...

From my interaction with many market participants over past few days, I noted that most of the active traders and even some of the seasoned investors are now focused on the cyclical businesses like Textile, Paper, Cement, Sugar, Rice, Energy etc. Global food shortages and forecasts of a good monsoon have evoked interest in agro chemicals also. Given that a large proportion of stocks in these sectors are small and midcap; floating stocks are not significant; and institutional interest is low the moves are sharper – something traders like very much. Defense is perhaps the most talked about sector amongst traders. The need to indigenize defense technology and become self-sufficient in weapon and defense equipment production in view of the international sanctions on Russia (our largest defense supplier) is driving the sentiment. The PSUs producing for the defense sector are getting re-rated. Private players are also getting heightened traders’ attention. The attention towards FMCG and ...

Long Covid, is a term commonly used to describe the lingering adverse health effects of the Covid infection. Another dimension of Long Covid is the lingering socio-economic impacts of the pandemic. While only a small percentage of persons who suffered from the Covid infection are showing medical signs of the Long Covid; the socio-economic milieu of almost every country in the world is suffering from Long Covid. The pandemic has definitely widened and deepened the socio-economic economic divide across jurisdiction. A significant proportion of the population that was pulled out of the abysmal poverty in the past two decades has slipped back below the poverty line. Accelerated digitalization of social services like education and health has deprived many underprivileged children. To mitigate the sufferings caused by the pandemic, most governments provided monetary and fiscal stimulus to the poor and small businesses. The stimulus checks (and ration and medicine kits) created artificial...

Last week I highlighted a few larger global trends that are not getting their due attention in the popular market narratives  ( see Gorillas in the Room ) . Today, I want to draw the attention of the market participants towards a major India specific trend that shall have far reaching implications for the Indian economy and therefore Indian markets. “Favourable demographics” has been inarguably one of the major themes of the Indian economy and markets for the past two decades. The latest round of National Family Health Survey (5th Round - 2019-21) highlights that this theme might soon run out of currency and demographic dividend (income) might get replaced by demographic interest (expense). India to become older sooner than previously expected The total fertility rate (TFR) for India is already below the replacement threshold. TFR indicates the average number of children a woman is likely to bear during the age between 15 to 49 years. As per the global standards a TFR of 2.1 ...

In the past few years I have been disappointed multiple times for not reading adequate and missing on most relevant pieces of information. Being an ordinary mortal, I have not taken the blame for this on myself’. I have rather chosen to blame the deluge of data and information that has been persistently inundating my mindscape. The flow of data is so overwhelming that discerning the important from the redundant has been a real challenge; especially because important is usually very marginal and underwhelming. The redundant, manipulated and superfluous is forcefully pushed and pursued relentlessly. The lines between the truth and untruth, conscientious and manipulative, data and information, relevant and redundant have been obviously obliterated or should I say brutally violated. Most of the financial and economic literature I have come across in the past couple of years has focused on analysing the topics like digitalization of economy, modern monetary theory (unsustainability of i...

The quarterly result season has started on an encouraging note with IT Services major TCS announcing mostly inline 4QFY22 and FY22 numbers. Although I do not assign much importance to the quarterly results in the context of my investment strategy, I shall be watching this season very closely, for three reasons: (i)    The management commentary for FY23 would be important to understand the impact of global growth, inflation and geopolitical conditions on Indian businesses. BY now most of the corporate management would have assessed the impact on their respective businesses and their assessment would be reflected in their guidance for FY23. (ii)   The present earnings estimates of analysts for FY23-FY24 may not be factoring the latest developments, especially with regard to monetary policy, inflation, and demand outlook. Since the previous result season most agencies have downgraded India’s growth forecast; increased inflation (wage of raw material cost inflat...

I am almost illiterate insofar as the concepts of mathematics, physics, chemistry and biology are concerned. I have even not considered reading any guide for dummies to understand some elementary things about these concepts, though many times I have felt the need for this. The consequence is that whenever anyone uses these concepts to explain a practical situation to me, I have only two options – either believe that person fully and accept the explanation offered by him or reject his explanation completely and leave the problem unresolved. Usually, it is not the explanation offered by that person, which governs my decision to accept or reject. It is my faith in that person itself. If I trust that person, I accept his explanation in full; and vice versa. When I see people blindly following (or even refusing to hear) some religious preacher, politician, business leader, domain expert, investors, trader, etc., I fully appreciate their behaviour. It is primarily due to (i) total refusal ...

As I highlighted yesterday ( see here ), the bond yields are raising a red flag over equity markets valuations. However, by no means it is the only red flag. There are some other warning signals, cautioning investors to tread cautiously as the road ahead could be bumpy with some obstacles blocking the path. For example, the following are some of the red flags I have recently noted from the research reports of brokerages: BoP almost zero, as foreign flows dry up : 3QFY22 saw a marginal net foreign investment outflow of US$1bn compared with the past five-quarter average of ~US$20bn. This is mainly due to: 1) FPI turning negative with outflow of US$6bn, and 2) FDI dropping to US$5bn compared with the recent quarterly average of US$13bn. FII selling has worsened in 4Q, with our latest estimate putting it at US$15bn vs US$7bn for the whole of 2021. As the US Fed continues tightening, FIIs may not be major buyers for the rest of the year, though they may not sell too much either, after a...

The market participants in India must be relaxed after a strong equity market rally in the past 4-5weeks; and stable INR and bond markets. To that extent the RBI has played its part rather well. It has repeatedly reassured the markets about its commitment to the economic growth and stability in the financial markets. Despite turmoil in the global energy and food markets and geopolitical concerns, the RBI managed to contain the volatility in currency and debt market to very moderate levels. With this background in mind, the market participants are obviously complacent to the likely outcome of the meeting of the Monetary Policy Committee of RBI this week. It seems to be a consensus view that the MPC may use some stronger words to express the concerns about rising prices and exacerbated fiscal pressures, but may stop short of hiking policy rates or changing its accommodative policy stance. Given the fragility of the economic recovery and elevated global uncertainty, the last thing RBI w...

Though one calendar quarter is too short a period to change one’s investment strategy, I have a habit of reviewing my assessment of markets and investment strategy every quarter. In my last Outlook and strategy review, I had highlighted that given the present circumstances, the outlook for the next year is pretty simple and straightforward. The return expectations of the investors may be moderate and focus may remain on capital preservation. I therefore continued with my standard asset allocation, and decided not to trade actively. In my latest review of market outlook and investment strategy I noted the following: (a)   The economic recovery post pandemic continues to be uneven. The larger unorganized sector continues to lag, while the formal sector is progressing well. The tax collections are therefore buoyant, and fiscal pressure is not constricting the public sector spending. The overall consumer demand growth however remains poor. The overall economic growth estimates...

  Wishing all Readers on the auspicious occasion one of various Indian traditional New Years, popularly celebrated as Chaitra Navratri, Gudi Padwa, Ugadi, Chetti Chand etc. in different parts of the country. It is a pleasant coincidence that beginning of new financial year is coinciding with traditional New Year in many parts of the country. May the Lord Rama bless all with conscience, wisdom, devotion and courage to pursue the path of righteousness. ===============================   FY22 started on a frightful note. The deadly second wave of the pandemic had just hit the country. The cities across the country were gasping for oxygen. The hospitals were terribly overcrowded and so were cremation grounds. In a country that supplies medicine to the entire world, thousands of people were begging for couple of doses of medicine. Remdesivir, Tocilizumab,  Dexamethasone and Ivermectin had become common household names. Vultures were hoarding and black marketing essential medici...