Do it yourself

It seems like billions of gallons of water have flown down the Ganga since the first page of a newspaper made some gratifying headlines. It’s mostly the same disappointing narrative every morning. The positive news, if any, comes mostly in the form of government claims, which I find hard to accept on their face value. Yesterday (Tuesday, 12 July 2023) was apparently one of the usual days. The newspapers were full of disappointing news relating to accidents, crimes, disasters, and platitudes. However, I found five headlines which appeared particularly alarming. These headlines highlight apathy, inconsistency, and incompetence of policymakers. While it may not be a revelation to anyone; what amazes me is the steadfast refusal of a majority of newspaper readers to question the otherwise claims of the government. As an investor, I find it critical to take note of these headlines, because these underline the risks to the India Story, which is gaining currency again. Hill states devast...

The Reserve Bank of India constituted an Inter Departmental Group (IDG) in December 2021 “To examine issues related to Internationalisation of INR and suggest a way forward”. The Group submitted its   recommendations   in October 2022; and the same have been made public last week. The following are some of the highlights of the IDG recommendations. Terms of References The terms of reference of the IDG were as follows - ·           To review the extant framework for use of INR for current and capital account transactions and assess their current levels; ·           To review the extant position of use of INR for transactions between non-residents and the role of off-shore markets in this regard; ·           To propose measures, consistent with the desirable degree of capital account liberalization, to generate incentives for use of INR for trade...

  One of the elementary principles of economics is that the price of anything is determined by the equilibrium of demand and supply. Though sometimes, in the short term, a state of inequilibrium may exist leading to higher volatility in prices; the equilibrium is usually restored by operation of a variety of factors. This principle usually applies to all things having an economic value, including currencies, gold and money (capital). The traits of human behavior like "greed", "fear", "complacence", "renunciation", and "aspirations" are usually accounted for as the balancing factors for demand and supply and not considered as determinants of price as such. However, the case of currencies and capital is slightly complex given currency’s dual role as a medium of exchange and a store of value; and use of money as a policy tool to achieve the objectives of price stability, financial inclusion, poverty alleviation, social justice etc. As a me...

Monsoon, agriculture, prices (Yes Bank) The focus for economic agents over the last few weeks was the onset of the SW monsoon, especially as the El Nino risks have been now moved to an “Alert” from “Neutral”. This year, the monsoon had a delayed start as was predicted, and its progress was also initially stalled by the cyclonic conditions that developed over the Arabian Sea. However, monsoons have now covered the whole country. From, a deficit of around 55%-60% in the initial part of June, cumulative rainfall till 3rd July shows a deficit of only 8%. This is good news, but the worry comes from an uneven spread of the monsoon. Southern Peninsula is currently seeing a large deficit of around 43% while the North-West region has a large surplus of 40%. East and North-East India sees a deficit of 16% while the deficit for Central India is 4%. Even as the IMD has predicted a normal monsoon for July, tracking the temporal and spatial progress of the SW monsoon in July and August remains imp...

The latest credit and deposit statistics highlight some noteworthy trends in the Indian economy. During the first fortnight of June 2023, the credit offtake continued to grow at a healthy pace of 15.4% (yoy); though it slowed down on sequential basis. The deposit growth accelerated to 12.1% (yoy) narrowing the gap between credit-deposit growth to 337bps, the lowest in over a year. The gap recorded a high of 875bps in November 2022. Rise in deposit rates and withdrawal of Rs2000 denomination currency notes primarily led to the rise in deposits. Credit deposit ratio at pre pandemic levels The Credit to Deposit ratio has been generally improving since the later part of FY22 due to faster growth in credit compared to deposits. On a sequential basis in June 2023, it improved by 60 bps from the immediate fortnight (reported June 2, 2023, due to lower deposit growth than credit growth. The CD ratio is now closer to the pre-pandemic level of 75.8% in Feb 2020 and 75.7% in March 2020. Liq...

  The first half of the year 2023 has been good for risk assets. Despite strong headwinds in the form of aggressive rate hikes, banking sector turmoil, political & geopolitical events and credit warnings, the stock market made a steady move up with very low volatility. Another notable feature of the global market movement in 1H2023 was the stark underperformance of emerging market equities as compared to the developed markets – even though the development markets appeared to be facing serious growth challenges and financial sector stress. The emerging markets like India demonstrated much stronger economic resilience and price stability. Equities and Crypto recorded strong gains in the first half of 2023; while commodities (especially energy), USD and bonds lost some ground. The rally in risk assets though lacks belief of investors, as underpinned by high cash levels. Though at present equity markets appear strong on the back of a resilient demand environment, easing geopo...