Do it yourself

The first tranche of Sovereign Gold Bonds (SGB 2015-I), issued in November 2015 are maturing tomorrow (30 November 2023). The final redemption price of the bond has been fixed at Rs6132 per SGB unit. SGB carries a coupon rate of 2.5% p.a, payable at six-month intervals. The investors in SGB (2015-I) have thus earned a 12.7% CAGR on their investment. To put this return in context, the Nifty50 index has grown at 12.4% CAGR in this period. An average Large-cap mutual fund has yielded ~13.75% CAGR; an average Small-cap fund has yielded ~23% CAGR and an average Gilt fund has yielded ~7.25% CAGR over the past eight-year period. Of course, the return of equity and gold are not comparable as equities carry much higher risk and entail significantly large volatility. The risk profile of SGB and a normal gold ETF is different since SGB bears a coupon of 2.5% p.a., has no management fee, and carries an implicit sovereign guarantee. It may be considered better than holding physical gold as it is of...

Global Economics Intelligence executive summary, October 2023 (McKinsey & Co) The global outlook is unchanged despite weaker readings in trade, consumer confidence, and business activity. Still-elevated inflation and interest rates are acting as headwinds to economic growth. According to the International Monetary Fund’s (IMF) October World Economic Outlook, global growth is forecast to slow from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024 (Exhibit 1). This is similar to April’s report, which forecasted global growth of 2.8% in 2023 and 3.0% in 2024. Furthermore, the October report states that, although the likelihood of a hard landing has decreased over the past six months, China’s property sector crisis could deepen. Near-term inflation expectations have increased and, in turn, could contribute to the persistence of core inflation pressures. Furthermore, more than half of low-income developing countries are in or at high risk of debt distress. The Conference Board shows tha...

I have been tracking the news flow and experts’ opinions regarding the developments in global commodities markets for the past couple of years. Of course, I am a novice in matters of global economics, trade, and finance; but the commodities markets are particularly something I could never understand. From my elementary understanding of economics and human behavior, I understand that aging demography, deeper & wider penetration of dematerialization & digitalization in human lives, rising awareness about climate change, and deteriorating growth potential of the developed economies, and perhaps China also, definitely do not augur well for the commodities’ demand in the long term (10-15yrs). However, the opinion of experts is overwhelmingly in favor of a bull market in commodities in the short term (2-5yrs). The key arguments presented by experts in favor of a bull market in commodities could be summarized as follows: (a)    Energy prices have corrected back to the p...

Have you recently received calls, emails, and/or text messages from banks and NBFCs offering a variety of products and services? If the name of the institution making the offer is removed, would you be able to differentiate which call, email, or message came from which institution? Do they all not look and sound the same? ·          They all offer credit cards with attractive cashback offers, discounts, access to airport lounges, flexible limits, and purchase protection. ·          A few years ago, Yes Bank started offering higher rates on saving accounts (with conditions). Many other banks like RBL, AU, Kotak, IDFC First etc. followed suit. ·          There is not much to differentiate between SME, Housing, and personal loan offerings of various banks and NBFCs. ·          Most banks have made retail/consumer business a ...

Before going on the Diwali break, I had mentioned some of the investment strategy challenges ( see here ) that a tiny investor like myself is facing due to sharp divergence in the macroeconomic evidence and market performance. Speaking specifically in the Indian context, the macroeconomic evidence is not particularly strong to support the investors’ enthusiasm. The market participants are spinning new stories to overcome every new challenge. For example, consider the following— Overheated consumer credit market Last month, the Reserve Bank of India expressed concerns about the overheating consumer finance market. His statement read,  “Certain components of personal loans are, however, recording very high growth. These are being closely monitored by the Reserve Bank for any signs of incipient stress. Banks and NBFCs would be well advised to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their own interes...

Wishing all the readers, family, and friends a very Happy Diwali. May the Lord enlighten all of us and relieve everyone from pain and misery.   ========================================================================== The growth is slowing across the world. The engines of global growth - India and China – are also expected to slow down in 2024. Most European countries are flirting with recession. Canada is technically in recession. The US growth is stronger than estimates but not enough to support the Growth decelerating As per the latest  World Economic Outlook  report released by the World Bank, global growth has slowed down to 3% in 2023 from 3.5% recorded in the year 2022. The global economic growth is expected to further decelerate to 2.9% in 2024. The advanced economies have grown by 1.5% in 2023 against 2.6% in 2022. Their growth is likely to further decelerate to 1.4% in 2024. Economic growth in Emerging economies is also not accelerating. These economies are exp...

Pollution has been a key challenge for 70 million plus people living in the National Capital Region (NCR) for more than two decades. People have been suffering from the consequences of air, water, and noise pollution. In the past decade, in particular, air pollution in the autumn and winter months has become a major crisis. The air quality of Delhi and surrounding areas deteriorates to the severely poor category, requiring several restrictions, including school shutdowns, mobility restrictions, construction ban, etc. Pollution has become a serious impediment to the health, life, and productivity of the local population. Besides, since this is the peak tourist arrival season for North India, it also negatively impacts the local economy. Every year, governments and administrations pretend to take serious note of the problem and promise to take effective steps to control the air quality. However, the problem is worsening every year. In my view, air pollution is a major issue that re...

  The latest festival season has started on a rather buoyant note, in Indian cities. As per initial reports luxury cars, smartphones, luxury watches, jewelry, home appliances, apparel, etc. are witnessing good consumer demand in most cities. Several high-end cars reportedly have a waiting period of one month to twelve months. Several stores have reported shortages of expensive smartphones and large-sized televisions. On the other side, rural markets are reporting a noticeable slowdown in demand. Most companies catering to the rural sector, like farm chemicals, farm equipment, consumer staples, building materials, etc., have commented in their presentations about the slower rural demand. The Reserve Bank of India, several commercial banks, and other lenders have highlighted rising stress in personal loans, credit card outstandings, and micro-lending. Two wheelers and entry-level cars are also not quite reporting encouraging numbers. There are reports about common households down...

As widely expected, the Federal Open Market Committee (FOMC) of the US Federal Reserve, unanimously decided to keep the key fund rates at 5.00% - 5.25% for the second consecutive time. The FOMC had last increased the rates in July 2023. The Committee noted, "Economic activity expanded at a strong pace in the third quarter". It also acknowledged “the tighter financial conditions faced by businesses and households”. Upgrading its outlook for the US economy, Fed Chairman Jerome Powell remarked, “The process of getting inflation sustainably down to 2% has a long way to go”. After the last meeting in September 2023, the monetary policy statement issued by the FOMC had noted that “credit conditions have tightened” consequent to the eleven consecutive hikes delivered by the Fed. This time, the Committee added “financial” to the credit conditions, noting the rising stress in the financial system as a consequence of rising bond yields. Caught between the resilient economy and bu...

I vividly remember it was the winter of 2007. The global markets were in a state of total disarray. The subprime crisis was unfolding in the developed world. In the US, the financial system was on the verge of collapse. Several banks, insurers, and other financial institutions were reporting massive write-downs on their subprime Collateralized Borrowing and Lending Obligations (CBLO). The cost of protecting debt (Credit Default Swaps) was rising sharply. The US administration and Federal Reserve were mostly in denial, at least in their public posturing; even though the Fed had started to cut the benchmark fund rates from September 2007. Signs of a sovereign debt crisis had started emerging in peripheral Europe. In countries like Portugal, Iceland, Greece, and Spain (popularly called PIGS) treasury default swaps had spiked to indicate imminent default. The financial markets in the developed world had started correcting sharply. Both equity and bond prices had fallen. The emerging ...