Do it yourself

 In past one year, ‘K’ has emerged as one of the most popular letters in economic jargon. Unlike past economic crisis when ‘R’ (recession and recovery) and ‘D’ (depression and deflation) were popular letters, this time a multitude of dichotomy created by pandemic is subject of popular narrative. In fact, I believe that these dichotomy in various trends was always present, but the pandemic has just exacerbated these, making them look more prominent. In past few months, a ‘K’ shaped movement has been reported in many segments. For example, consider the following – (a)    The developed world, China and few other emerging economies appear to have mostly recovered from the pandemic shock; whereas numerous emerging and underdeveloped economies are still struggling to emerge from the pandemic related losses. (b)    Another manifestation of ‘K’ shaped movement is seen in the price movement. While the Purchasers’ prices (wholesale inflation) have seen sharp surge i...

 I had an opportunity to e-meet the promoter of a decent sized enterprise yesterday. His company manufactures some auto parts mostly for replacement market. The business of this company had been doing extremely well for past more than a decade, before it hit a small bump last year. It recovered from the fumble in two quarters and was about to regain its pre Covid trajectory in 1QFY22. The intense second wave has however derailed the business from recovery path. The promoter now expects the business to normalize not before summer of 2022. Even for that he is not very confident. I have known this gentleman for past 17years. It was for the first time I found the gleam in his eyes missing. A driblet of sweat on the temple was also rather conspicuous. He is not only worried about his business. The worries are in fact emanating from a variety of factors. For example, ·          Having lost couple of senior family members to Covid, the family is...

 “Commodities” is the most important buzzword in equity markets these days. Chartists, analysts, economists, strategists and traders et. al. are predominantly talking about stocks of commodity companies. The strong rally in the stocks of commodity producers is primarily based on the material rise in the global commodities’ prices, especially in past one year. I analysed the market performance since announcement of first lockdown (25 h March 2020). I also looked at the market performance in three other timeframes, viz., (i)     Since January 2021, because most of the restrictions announced in March 2021 were lifted, US elections were completed and vaccine launches had already begun. (ii)    Since February 2021, because a market exciting budget was presented with strong on infra building and fiscal discipline; and UK exit from EU was complete, and global trade had started to normalize. (iii)   Since April 2021, when a second wave of pandemic sta...

 The localized lockdown and mobility restrictions in past 6weeks have led to scaling down of FY22 GDP growth estimates. The new estimates mostly imply that Indian economy may record marginally negative growth during two period from April 2020 to March 2022. These estimates though assume (i) No community transmission of infections; (ii) no nationwide lockdown; (iii) no wider shutdown of industries and construction work; and (iv) normalization of mobility restriction in 2HFY22. Any further worsening of pandemic situation may lead to further downgrade of growth estimates resulting in spillover impact over FY23 as well. The global rating agency S&P, recently published a note saying, “The possibility the government will impose more local lockdowns may thwart what was looking like a robust rebound in corporate profits, liquidity, funding access, government revenues, and banking system profitability.” The note further stated that agency is “looking at two scenarios, both entailing a...

In an unscheduled press conference yesterday, the RBI governor admitted that the Covid19 pandemic has recently intensified in India. This intensification could derail the still fragile economic recovery. He implied that the impact on livelihoods due to restrictive access to workplace, education and income mediums could be significant and needs immediate attention. The governor also highlighted that “The global economy is exhibiting incipient signs of recovery as countries renew their tryst with growth, supported by monetary and fiscal stimulus. Still, activity remains uneven across countries and sectors. The outlook is highly uncertain and clouded with downside risks.” He underscored that “Consumer price index (CPI) inflation remains benign for major AEs; in a few EMEs, however, it persists above targets on account of firming global food and commodity prices.” The governor also highlighted the emerging inflationary pressures and softening bias in bond yields as follows: ·  ...

 In his latest policy statement, US Federal Reserve Chairman Jerome Powell commented “Inflation has risen, largely reflecting transitory factors.” The FOMC noted that “inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time” and said that “the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent.” ( see here ) These comments of Federal Reserve have triggered a fresh debate on probability of imminent “hyperinflation” and a global “commodity supercycle”. As per a recent report of Bank of America Securities (BofA) after the third week of earnings. mentions of “inflation” have now quadrupled YoY; and after last week, mentions have jumped nearly 800% YoY! BofA analyst also concludes from the corporates’ earnings commentary that “On an absolute basis, [inflation] mentions skyrocketed to near recor...

Many people I regularly speak with have expressed surprise over market’s resilience despite (i) worsening pandemic conditions; (ii) persistent FPIs’ selling; (iii) downgrade of economic growth forecasts for FY22; and (iv) likely earnings downgrades due to renewed mobility restrictions. To be honest, I am not at all surprised with the market resilience. I believe market resilience is underlined by the following five major factors – 1.     Sharp rise in global commodity prices and consequently elevated inflationary expectations fuelling a rally in commodity stocks, especially metals and agro commodities. 2.     Extreme pressure on MSME sector, especially those in unorganized sector. This is resulting in accelerated consolidation of business in top companies resulting in sharp rise in their valuations. 3.     RBI commitment to lower rates. 4.     Consistent rise in non-institutional participation in market. This segment ...

 Once upon a time a sparrow couple made their nest in a wheat farm. In few days, lady sparrow laid four eggs. In two weeks eggs were fully hatched and four chicks were born. In the meantime, the wheat stems had started growing tall. In another two weeks, the chicks started to fledge and the wheat kernels began to turn golden. This was the day when parent sparrows first discussed about leaving their nest and move somewhere else. “The crop will be soon ready for the harvest. Our nest shall be exposed and trampled by the harvesters”, the lady sparrow feared. Her companion however was not worried as yet. “Nothing to worry as yet”, he assured her. In another three weeks, the farm turned completely golden with wheat completely ripe to harvest. The lady sparrow was terribly worried now. “We must fly out now. The chicks have also grown up now and can easily fly to the woods behind the hill”, she argued with her companion. “Nothing to worry as yet. We have plenty of food here. Let chick...

After almost 5300years, the human civilization may again be entering a copper age. In the Copper Age 1.0 (which mostly occurred between 4500BC to 3300BC) the human transited from stone age to metal age. Copper age was just before we learned to mix tin with copper to make bronze, a stronger metal to be used for hunting tools. A variety of research shows that the invention of first proper round wheel may have happened in this period. The wheel was initially used primarily for pottery and children toys, before it was used in vehicles to transport man and material. Copper age therefore is considered to be an important watershed in evolution of human civilization. A strong consensus is evolving amongst global expert that acceleration of climate change efforts mean that human may be entering Copper Age 2.0, as the “Red Metal” shall play a critical role in decarbonisation of global economy. As per a recent research note of Goldman Sachs, “The critical role copper will play in achieving th...

The stock price of few top IT services companies in the country recently corrected sharply after declaration of 4QFY21 results. The explanation commonly offered and widely accepted for the fall in stock prices was that “the results were not as per the street expectations”. I find this little intriguing, especially in the current market environment. It is well acknowledged that in recent times, the non-institutional investors (“retail investors” in common parlance) have been the dominant players in equity markets world over. In my past 30years of interacting frequently with this category of investors in India, I know that a large majority of these non-institutional investors are not well versed with financial analysis, especially related to the forecasting of financial performance and deriving fair price based on such forecasts. Moreover, there is an insignificant minority in this category of investors which actually relies on the target prices forecasted for a security by “fundamen...

India's trade gap widened to $13.93 billion in March of 2021 from $9.98 billion a year earlier. The trade gap was however lower than the preliminary estimates of a higher $14.11bn. The key highlights of trade data were as follows: ·          In March 2021 exports soared 60.3% to a record high of $34.5bn (up from $27.5bn in Feb’21), marginally higher than the preliminary estimate of $34bn. ·          The exports surged ~60% yoy in March, driven mainly by $6bn rise in non-petroleum products’ export. ·          Imports in March 2021 were $48.4bn ($40.5bn in Feb’21), led by non-petroleum imports of $38.5bn ($31.5bn in Feb’21). Imports surged 54% yoy ·          Overall exports contracted by ~7.2% yoy in FY21, a reasonable figure given the difficult period for trade due to global lockdowns. ·      ...

India is presently passing through the worst phase of the pandemic. The scenes at hospitals, crematoriums, pathological labs, and in homes are heart-wrenching. Many young lives are being lost for want of basic facilities like medical oxygen and ventilators. Distressed and anguished citizens are begging for help, but to little avail. It is distressing to find that there is no dearth of people who are trying to take advantage of this calamity by hoarding and black marketing essential drugs and medical equipment. The worst part is to find that many highly educated and influential people, who have developed symptoms of the disease, not getting themselves tested or not disclosing it to their contacts; and thereby accelerating the spread. Many people with symptoms have traveled in public transport risking the lives of co-passengers and adding to the alacrity of spread. Last year we all had seen disturbing visuals of pandemic aftermath from developed countries like US, UK, Spain, Italy, e...

 A Newsweek story couple of weeks ago ( see here ) highlighted that Americans may not be splurging the $1400 stimulus checks given by the Biden administration. As per the story, a survey has found that “Americans are generally saving about 42.6% of the third federal stimulus payments, up from 37.2% and 36.4% of the second and first stimulus checks respectively”. It is pertinent to note that the latest stimulus payment of $1400 is larger than the first two, which were $1,200 and $600 respectively. The Survey also finds out that little over one third of the latest payment has been used to repay debt, as compared to 37.4% and 34.5% respectively for the previous two stimulus checks. This data could be interpreted in different ways. The most common interpretation is that the recipients may be saving the money to get some more clarity on the Covid-19 conditions and come out in hoards to spend in next couple of years (2022-2023). Few are interpreting it as harbinger of a structural chan...

 Over past couple of weeks, I had exciting interactions with some professionals from the IT capital (Bengaluru), Pharma Capital (Hyderabad), Engineering capital (Chennai), Financial Capital (Mumbai) and political capital (Delhi) of India. From these interactions I learned that a definite new paradigm is emerging in Indian commercial space. The following are some key take away from my interactions: 1.     Traditionally, a majority of Indian entrepreneurs have not aimed for global scale in their businesses. Despite a rich history in the areas like culinary and textile, few businesses of global recognitions and scale could be created in these areas. However, now the first generation entrepreneurs have materially widened their vision. Many of them are now working on business ideas with global markets and scale in sight. No eye now widens on the mention billion dollar figures. 2.     The skills in Artificial Intelligence are becoming common place. In la...

 Prices of industrial metals and base metals have risen rather sharply in past few months. Most prices are now ruling at multiyear high levels. Though it is not clear whether this trend continues to be driven by the “supply shock” or a “demand shock” is driving the prices of higher. Actually, it could be a mix of both the factors. For example, growth of electric mobility and accelerated adoption of reviewable (solar & wind) energy could be driving the demand of copper faster than the supply; where China’s curbs on steel production to control emission levels may have extended a supply shock to global trade. Similarly, the massive Covid stimulus by developed countries (e.g., US announcing massive stimulus for infra building) may have added to demand acceleration for steel and aluminum etc. while renewed mobility restrictions in many jurisdictions, Suez logjam, container shortages etc. may have added to supply restrictions. There are some conspiracy theories also in the works....