Do it yourself

  Three-month future price of copper at COMEX has corrected almost 27% ~US$3.61/lbs from US$4.95/lbs at the end of February 2022. Moreover, the discount between spot prices three months future at LME widened to the largest since 2006, indicating poor outlook for copper demand in the near term. Copper prices have fallen over 10% in the past one month alone on disappointing growth data from China. The hopes of a sharp recovery in Chinese growth in near term are fading as more downgrades are indicating. Goldman Sachs reportedly revised its average copper price forecast for 2023 by over 11% to US$8698/t from US$9750/t earlier. Though the optimism over Chinese growth and consequent firmness in copper prices is not lost completely. For example, Bank of America is still maintaining its US$10,000/t copper price forecast for 2023 end in the hope of large demand ramp up as China accelerates spending on its power grid. Nonetheless, the general mood is drifting towards accelerated slowdown i...

India with one of the largest and youngest populations in the world is an attractive market for most countries and businesses. India is not only the largest importer of edible oil and third largest importer of crude oil; we are a significant importer of goods from small US$0.1toy to a US$200million supersonic jet. India thus offers an attractive market for most producers in the world. As per Fortune Business Insight The global big data analytics market size was valued at $271.83 billion in 2022 & it is projected to grow @13.5% CAGR to become $745.15 billion by 2030. Compared to this, as per Stockholm International Peace Research Institute (SIPRI) report , in 2020 the global arms trade is estimated to be US$112bn (actual figures may be little higher). Clearly, data and data analytical services are emerging as one of the most product categories globally. Obviously, most businesses and states who want to do business would be interested in data pertaining to Indian population and ...

  The fourth letter of the English Alphabet “D” has held a prominent position in financial market jargon, at least since the Great Depression in the late 1920s. In the past two decades the terms like Dematerialization, Demographics, Depression, Decoupling, Demonetization, De-Dollarization, Digitalization, Deflation etc., have attracted immense interest from the market participants. Some of these “Ds” have had significant impact on the global economy; while the others have been mostly limited to being topics of interesting discussions and statistical analysis. In the current Indian context specifically, I find three “Ds”, viz., Digitalization, Deflation and Demographics most relevant for the economy and therefore markets. The current global situation – investment mix, geopolitics, global trade and gradual shift in strategic power – implies that supply shocks could be more frequent and much more intense in the next decade or so at least. ·        ...

  The investors and other market participants in their 50s and 60s would recall that there have been at least three occasions in the past three decades when India was considered the next best thing after sliced bread. Starting with the opening up of the economy in early 1990s, the narrative acquired a much louder echo after Roopa Purushothaman, a non-descript research analyst coined the term BRICS for a report to be published in the name of legendary Jim O’Neill (Chairman Goldman Sachs AMC) in 2001. During the global financial crisis (2008-2010) that weakened many developed economies, India and China emerged as two strongest pillars of support for the global economy, growing in high single digits despite the global crisis. Post Covid, since India has again emerged as one of the fastest growing economies, leaving even China behind, the narrative is again in vogue. There is absolutely no doubt that the Indian economy has never been intrinsically so strong in the past four decades. Th...

  “The boy who cried Wolf” is one of the most popular Aesop’s Fables. The Fable is about a young shepherd boy who enjoyed fooling the innocent villagers by lying about a wolves’ attack on his herd. Every other day he would raise a false alarm about wolves’ attack on his herd and seek farmers’ help. Trusting him, farmers would leave their fields unattended and rush to protect his herd; only to find that the boy was lying. Over a period of time, he gradually lost farmers’ trust. One day wolves actually attacked his herd. He went to farmers to seek help; but no one trusted him; and he lost most of his sheep. The moral of the story — “when habitual liars are not believed even when they chose to tell a truth”. The latest episode of political squabble over raising the limits within which the US government could borrow to meet its fiscal deficit, reminded of this inspiring fable. In the past two decades we have seen multiple “debt ceiling crisis” in the US. In the 15 years period from 2...

  A stroll through the social media timelines of several self-claimed extremely successful investors and traders (popularly known as finfluencers) would indicate that there are thousands of people who have made extraordinary returns from stock markets in India. Everyone seems to have identified several successful businesses at a very early stage and earned exponential returns by holding it for decades. Everyone seems to have unlimited money to buy more stocks at every market correction, while they would hold on along with their existing positions till eternity. The narrative presented by these so-called finfluencers is clearly oblivious of the fact that there are not more than a hundred companies in India that have operationally performed consistently for more than a decade. Number of companies that become redundant in each business and market cycle is very high. There are numerous research reports and messages which rely on “low per capita consumption in India” and “moat” in I...

Indian IT: Precariously Placed (Jefferies Research) An unexpected decline in revenues: During 4QFY23, aggregate revenues for Top-5 IT firms declined by 0.8% QoQcc - first QoQ decline in 11 quarters - the key disappointment. While revenues in 4Q were especially impacted by sequential decline in Communication and Tech verticals, growth across verticals moderated sequentially. In local currency terms, Americas and Europe both witnessed de-growth, indicating weakness in both regions. Aggregate growth for mid-sized firms was a bit better than large IT firms though they all disappointed in 4Q. TCS and Coforge disappointed the least while Infosys' reported the weakest results. ... derails margin recovery: Aggregate margins for our coverage universe contracted by 20bps QoQ and were 40bps below our expectation, mainly due to revenue miss. Employee cost (-120bps) weighed on margins due to muted growth, while Subcontracting costs (+50bps) and others overheads (+40bps) supported margins....

“Courage is the strength in the face of danger, pain or grief, while stupidity refers to behavior that shows lack of good sense or judgement.” From recent interactions with the market participants, I conclude that the recent ~8% rally in the benchmark Nifty50 has materially obliterated the fear of major correction in stock prices from their minds. Of course, most of them are conscious of the factors like financial sector crisis in the developed markets, especially the US; recession like conditions in some of the major global economies; and high real rates impeding the global growth that may have serious repercussions for the Indian economy and businesses. They also seem to be mostly ignoring the unusual weather conditions and possibility of a serious slowdown in exports, and acceleration in FPI outflows if the credit conditions continue to tighten further in the developed economies. It may be pertinent to note that banks in the US are tightening credit in response to fed rate hikes...

The response for my post yesterday ( This summer don’t go nowhere ) is overwhelming; though not fully surprising. Most investors have concurred with my view that Indian equities may be on the cusp of a multiyear structural upcycle. Many of them therefore see no point in waiting for a 5-6% correction and would like to invest more in the current market. There are some, who agree that given the rising uncertainties in the global markets it is more likely that volatility increases materially. It is therefore prudent to wait for the storm to pass. The consensus within this group appears that if we are looking at a secular bull market for 4-5 years, benchmark indices could match or even exceed their best returns of 2003-2007 (~40% CAGR). Waiting for 3-4months may not hurt much. The wait may actually allow time for deeper analysis and a better opportunity. Most traders disagreed with my view that the risk reward for trading at this point in time may be adverse. They feel that there is a...

  In the later part of the eighteenth century, St. Leger Stakes, a popular horse race, was started as the last leg of the popular British Triple Crown. The race would be held at Doncaster Racecourse in South Yorkshire in September of every year. Soon it became a fashion amongst the British elite – aristocrats, investors, and bankers etc. – to liquidate their financial investments; escape from London heat, move to countryside to rejuvenate, and return only in autumn after the St. Leger Stakes race was over. This practice was described as “Sell in May, go away and don't come back till St. Leger's Day.” Later, as the US stock markets gained more prominence over London markets, the adage was rephrased as “Sell in May and come back in October”, to coincide with Halloween. Various research studies observed there is decent evidence to conclude that stock markets’ returns during November-April period usually outperform the returns during May-October period. Based on these observations ...

  The Federal Open Market Committee (FOMC) of the Federal Reserve of the US announced another 25bps hike, taking its key fed fund rate toa target range of 5.00 to 5.25%. This unanimous decision of the FOMC is the 10 th  straight hike in the past twelve months. With this hike, the effective fed fund rate is now highest since the global financial crisis. Besides the hike, the Fed also maintains the plan to shrink the balance sheet each month by $60 billion for Treasuries and $35 billion for mortgage-backed securities. …claims banking system “strong and resilient” Noting the concerns in the financial markets, especially those arising from the failure of Signature Bank, Silicon Valley Bank and First Republic Bank, the FOMC emphasized that "The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly ...

It’s almost a year since the Reserve Bank of India shifted the course of its monetary policy stance and embarked on the path of monetary tightening and withdrawal of accommodation to reign in runaway inflation. In the course of its journey in the past one year, RBI reversed the entire 250bps of rate cuts made during 2019-2020.  Besides hiking the policy repo rate, RBI also enforced correction in banking system liquidity to check the demand side pressures on inflation. The banking system liquidity that was running in excess of rupees eight trillion a year ago, has been completely neutralized. Impact of monetary tightening It is very difficult to assess the direct impact of the RBI’s monetary policy action and its consequences. Nonetheless, it is pertinent to note how various sub segments of the economy have moved in the past one year. This movement could have been caused by a variety of factors, RBI tightening being one of them. Inflation The Consumer Price Index Inflation (CPI...