Do it yourself

 The benchmark indices are scaling new highs every week for past seven weeks as least. The sharp recovery in markets, from deep correction in March, must have surprised most market participants. Many who panicked and sold off in summer are wondering whether it’s time to “Buy” again. Many who remained invested are wondering whether it’s time to ‘Sell”. The broader question therefore seems to be, whether we are in a new bull market since April 2020, and the stock prices have a long way to travel north before any meaningful correction sets in; or it is a bear market rally that is normalizing the steep fall in March 2020 in the wake of total lockdown announced post outbreak of pandemic. The last bull market started from August 2013 and lasted 5yrs till August 2018. In case we believe that it is new bull market that would mean that the bear market that started in August 2018 ended with panic bottom of March 2020. However, if we believe that March 2020 panic fall was an aberration ...

 In a recent note, Matthew Hombach, Chief Rates Strategist of Morgan Stanley, wrote that Central Banks will inject another $2.8trn of liquidity in the global financial system in 2021. This would be the double the amount of highest liquidity injection in any year prior to 2020. This abundant liquidity, in Matthew’s view, will support the riskier investments at the expense of investments entailing lesser risk; implying weaker USD and US Treasuries and Stronger EM currencies and Equities. The caveat however is “if central banks signal a reduction in liquidity earlier than we expect, or our economists’ buoyant expectations aren’t met, risky assets could experience a wobble, a theme that might very well feature in our 2021 mid-year outlook”. In Indian context, J P Morgan stated in a recent note that though the activity may not be strong enough to drive broad earning upgrades, nonetheless the benchmark Nifty could cross 15000 (presently ~13550) by December 2021, dragged by the global t...

Formulating an investment strategy for investors in India had never been as challenging as it appears today. For past three decades, the secular growth narrative built on economic reforms, infrastructure development, demographics (large middle class, secular demand growth, accelerated urbanization, educated workforce, etc) and deeper and wider integration of Indian economy into the global economy, made the job of investment strategists easier. All policy failures, inadequacies in terms of physical and social infrastructure, political instability (especially mid 1990s), civil unrest, terrorist violence, geopolitical tensions, and market corrections due to these factors were accepted as “opportunities” to buy a secular long term growth story at a bargain price; and all such adventures were rewarded handsomely by quick reversal in mrket trends. What you needed to be a successful investor in India, in my view, was the following– (a)         Courage t...

 Before I say anything, I would like to make it clear that I use the terms “investor”, “trader” and “punter” in the context of equity investments, very judiciously. To me an investor is a person who thoughtfully invests his money in a business to participate in the future growth of that business. A trader is person who is trying to optimize his return on capital by choosing from the best instruments available at any given point in time. It may be bond, fixed deposit, equity stock, gold, crypto currency, foreign exchange, other commodities etc. or a mix of these. Traders do not invest with the objective of “wealth creation”. Their focus is usually earning more than the risk free return while maintaining liquidity of his money. Punters buy financial assets or commodities just like lottery tickets. They get kicked by the prospects of hitting a jackpot someday and do not mind losing their entire capital in the process. Here we are talking about investors only. In summer of 2007, ...

 Inflation has been one of the central themes in global trading strategies in past one decade. During 2010-19, the central banks of developed countries (primarily US Federal Reserve, European Central Bank and Bank of Japan) struggled to build inflationary pressure in their respective economies, to attain a minimum level of inflation they considered necessary to motivate investments and sustainable growth. Incidentally, none of the Central Bank targeting higher inflation has so far been successful in their endeavor. Nonetheless, the sharp rise in global commodity prices in past few months has triggered a rush for “The inflation trade”.   In Indian context, prices of all key commodities (metals, energy, food, cement, textile, and plastic etc), communication, healthcare and education, etc have seen strong inflation in past 6 months. In its latest monetary policy statement, RBI admitted that “The outlook for inflation has turned adverse relative to expectations in the last two...

UK has allowed the administration of vaccine for SARS-CoV-2 virus (commonly known as Covid-19) developed by Pfizer. Russia and Chinese authorities have also confirmed approval of separate vaccines. In India also couple of developers has expressed confidence that an effective vaccine will soon be available for Indian population. This is certainly a matter of relief for the distressed mankind living in fear since outbreak of the pandemic. However, for the investors in stock markets wider availability of vaccine could be a matter of slight concern. So far the investors in equity have had a decent run in 2020, regardless of the severe correction in the early days of the pandemic. In my view, a large part of the price gains in equity stocks could be attributed to the accommodative monetary policy adopted by the central bankers world over. In past 9 months, a significant part of the cheap and abundant money may have actually flown to the financial assets (mostly equities) as (i) the re...

 As per an old maxim, “beauty is in the eyes of the beholder”. This essentially implies that beauty or attractiveness of something (or someone) is mostly subjective. It is entirely possible that someone finds something beautiful, while at the same time someone else considers this thing to be ugly. This maxim applies, mutatis mutandis , to equity investing also. A stock is found attractively values and prohibitively expensive by different market participants (analysts, fund managers, and investors) at the same time and price point; even though all of them may have access to the same set of data and information about the underlying company. The stock of ITC is a classic example of this dichotomy in the present day context. The stock is believed to be a top wealth creator and wealth destroyer at the same time by the different set of people. I am sure no one would have any problem with this divergence in views about the future prospects of various businesses and companies. In fact ...

After hearing the finance minister (and Hindi translations of what she says by her Deputy) many times in past 7 months on the issue of stimulus for economic recovery, most market participants now appear disinclined to hear her anymore. I actually found many market participants wishing that the government actually does nothing and lest the economy recover on its own. When the RBI governor comes out to brief media about the outcome of last Monetary Policy Committee’s (MPC) meet of the current financial year at 11:45Am today, most market participants shall be praying for a very “brief statement” and “No Action” by RBI. Not many would be expecting any further easing from the RBI, given the facts that— (i)     Food inflation has remained rather sticky and non-food inflation has also started to rear its head higher; (ii)    Liquidity in the system has surpassed the comfort level, leading to unsustainable fall in short term rates; and (iii)   the real rate...

 I remind myself of this narration almost every market cycle. I think, it is the time to reiterate once again. Have you ever been to vegetable market after 9:30PM? The market at 9:30PM is very different from the market at 5:30PM. At 5:30PM, the market is less crowded. The produce being sold is good and fresh. The customer has larger variety to choose from. The customer is also at a liberty to choose the best from the available stock. The vendors are patient and polite, and willing to negotiate the prices. As the day progresses, the crowd increases. The best of the stuff is already sold. Prices begin to come down slowly. The vendors now become little impatient and less polite and mostly in "take it or leave it" mode. By 9:30PM, most of the stuff is already sold, and only inferior quality residue is left. The vendors are in a hurry to wind up the shops and go back home. The prices are slashed. There is big discount on buying large quantities. Vendors are aggressive and ve...

  The statistics for economic growth during 2QFY21; consumption, investment, exports and financial indicators etc. for the month of October were announced last week. The data has been received very enthusiastically. The general commentary is that the growth is “surprising”, and the recovery is much quicker and superior that previously estimated. The “buoyant” data and further encouraging news on vaccine development & launch kept the momentum in the stock market busy yesterday. Since, most of the “surprised” reports are basing their arguments on the “Pre-Covid” and “Consensus Estimate” benchmarks; I find it pertinent to note the data with the usual year on year comparison. 1.    The production in eight core industries has contracted for eight consecutive months. In October 2020, the index of core industries fell by 2.5% compared to October 2020. It is important to note that in the base month October 2019, index had also contracted 5.5%. While coal, fertiliser, cem...