Do it yourself

Have you ever been to the vegetable market after 9:30 p.m.? The market at 9:30 p.m. is very different from the market at 5:30 p.m. At 5:30 p.m., the market is less crowded. The produce being sold is good and fresh. The customer has a larger variety to choose from. The customer is also at liberty to choose the best from the available stock. The vendors are patient, 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 a little impatient and less polite and mostly in "take it or leave it" mode. By 9:30 p.m., most of the stuff is already sold, and poor-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 a big discount on buying large quantities. Vendors are aggressive and very persuasive. Customers now are mostly bargain hunters, usually the small & mid-sized restaura...

  The latest G20 Summit, hosted by India ended on a cheerful note. Apparently, most delegates and dignitaries enjoyed the Indian hospitality, especially the colorful ambiance and brilliant food. It was perhaps for the first time ever that a host country added so much festivities to a G20 summit. The city was virtually shut down to control traffic, minimize air pollution, and allow safe passage for the delegates. Overall, the theme appeared similar to the famous three-day-long fat Indian wedding. The guests were welcomed in the same manner as a traditional Indian household would welcome a bridegroom’s family. They participated in a variety of events, unrelated to the G20 geo-economic agenda. The main venue of the summit (Bharat Mandapam) was decorated like a grand marriage pandal with colorful lighting, décor, traditional dancers, and all welcoming staff dressed in fine attires. The bride’s family displayed its finery (UPI, rich culinary traditions, classical architecture, colorful ...

  In the past few days, I have picked up many red flags that have further strengthened my conviction that the markets may be running far ahead of fundamentals. In my recent posts, I have pointed out how the market participants have been extrapolating events like ISRO Moon mission ( see here ). For example, the following three occurrences underline greed's dominance and gradually permeating irrationality in investment decision-making. 1.     Recently, one popular finfluencer tweeted a list of some small and micro-cap stocks highlighting that their market cap is less than their current order book. Many of these stocks witnessed heightened buying interest, apparently from small household investors, following the tweet. The message was fervently circulated on other social media, like WhatsApp. I received the message through at least nine forwards from different sources. All forwards appeared to endorse this seemingly manipulative message. No one on social media que...

  The total foreign exchange reserves of India stood at a comfortable US$594.8bn; appx 16% of the estimated FY24 nominal GDP of US$3.6trn. To put this number in perspective, in the last twelve months, India’s trade deficit (Export-Imports) was US$229bn. For FY23, the total current account deficit was US$67.1 while net receipts of capital account were US$57.9bn. Notably, the forex reserve position of India has not changed materially in the past five years. The forex reserves of India stood at US$422.53bn at the end of FY18, appx 16% of FY18 nominal GDP. The reserves peaked in September 2021 at US$642bn as Covid-19 induced lockdown resulted in the collapse of trade. The recent low was recorded in October 2022 (US$531bn). Since then the Reserve Bank of India has recouped over US$60bn of reserves, bringing the reserves to a comfortable position. For records, the forex reserves broadly include foreign currency assets (89%), Gold (7%), Special Drawing Rights (3%), and reserve position in...

  I indicated yesterday that I see markets fast moving to a point where it becomes worrisome. The argument for fresh buying or taking a leveraged position is vitiating every day. The sentiments of Greed (making some quick money) and Fear (of missing out on a rally) are already beginning to dominate the conventional wisdom, in my view. To put things in perspective, the latest market rally, particularly in the broader markets, was driven initially by a combination of macro improvements and undervaluation. But now most of the macro improvement seems to be tiring. In fact, it is very much possible that during 2HFY24 we may actually see some of the macros like growth, twin deficit, consumption and investment growth, gradually deteriorating. On a micro level, the earnings upgrade cycle might peak with 2QFY24 results; and we may actually see some downgrades occurring due to poor rains (poor rural demand); further clouding of global demand outlook; margin compression for banks; and the...

My discussions with a variety of market participants in the past couple of weeks indicate that we are at a stage in the market cycle when the investors and analysts begin to change their valuation arguments. Extrapolation of one-quarter performance to the next ten years, “story” pages of corporate presentations, political visions of growth, etc. begin to dominate the assumptions in the valuation matrices. Three to five years of forward earnings are being considered for arriving at twelve-month price targets. My experience of the past three and half decades suggests that this kind of deviation always leads to mispricing of stocks and eventual sharp corrections. It is important to remember that the return on the investment in publicly traded equities is a function of three factors: (a) earnings growth; (b) changes in price earnings (PE) ratio and (c) dividend. The earnings growth is a function of multiple factors, e.g., (a) capacity (production capability); (b) demand environment (market...

Growth steady; sequential momentum decelerates (Nirmal Bang Institutional Equities) Early data for July’23 suggest that 68.8% indicators were in the positive territory on YoY basis, up from 65.6% in June’23. Final data indicates that 70.8% indicators were in the positive territory in June’23. On a sequential basis, 31.25% indicators were in the positive territory in July’23, down from 37.5% in June’23. Final data indicates that 45.8% indicators were in positive territory in June’23. Rural recovery remains mixed, although July’23 did see a dip in rural unemployment, aided by a pick-up in monsoon. The Manufacturing sector remains resilient despite some sequential deceleration. In the Services sector, formal job creation is under pressure while traffic indicators witnessed a sequential deceleration. Rural recovery mixed: Rural unemployment moderated to 7.9% in July’23 from 8.7% in June’23, aided by pick-up in monsoon and kharif sowing activity while urban unemployment rose margin...

It was the spring of the year 2006. Prime Minister Manmohan Singh and President of the United States George W. Bush (Jr.) signed a historic civil nuclear cooperation deal on 06 March 2006 at New Delhi. The markets were obviously very excited about this new chapter in the strategic relationship between the two largest democracies in the world. The benchmark Nifty would rise ~17% (3185-3750) within 10 weeks of signing the deal. However, Nifty fell 30% (3750-2647) in the following five weeks as the deal faced strong opposition from the left parties that were part of the ruling UPA-1 alliance, as well as the opposition parties like right-wing BJP, etc. Eventually, the deal was signed in August 2007, after the prime minister won a no-confidence motion in the parliament on this issue. After the deal was signed, the government fixed a target to install 20GW of nuclear power generation capacity in India by the year 2018. Presently, there are 22 nuclear reactors operating in India with a tota...

Recently released minutes of the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) highlighted that the latest policy stance is primarily ‘Wait and Watch”. This stance is driven by the hopes of: (a)    Mother Nature helping a bountiful crop (especially vegetables); (b)    Current rise in inflation being transitory in nature; but MPC is ready to preempt the second-round impact; (c)    Capex (both public and private) sustaining despite positive real rates and diminishing liquidity and continuing to remain broad-based; (d)    Growth in the Indian economy staying resilient enough to withstand the external challenges; and (e)    Government taking adequate steps to mitigate supply-side shocks, while maintaining fiscal discipline, trade balance, and growth stimulus. Evidently, RBI has no solid basis for making these assumptions. The monsoon is not only deficient, it is poor both temporally and spati...

  I have often seen that when we fail to find solutions to our problems with the help of science and economics, we tend to look towards the heavens and seek to find answers in philosophy. It is not uncommon for businesses, administrators, and policymakers to seek divine intervention when science and economics are not helping to resolve a problem. The global policymakers and administrators seem to have reached such a crossroads one more time, where the conventional practices, accumulated knowledge, and past experiences do not appear to be of much help. Their actions appear driven more by hope than conviction. The war in Ukraine; the economic slowdown in China; and the monetary policy dilemma in the US and India are some examples of problems where the administrators and policymakers seem to be hoping for divine intervention. I see the recent speech of the US Federal Reserve Chairman Jerome Powell at the Jackson Hole symposium and the minutes of the last meeting of the monetary poli...

Soft underbelly of India’s robust economic outlook (AXIS Capital) Is private consumption growth weak due to job distress or weak real income growth? Official labor surveys show that jobs are not a problem in urban India. Participation rates are stronger and unemployment rates are lower than 2019 levels. Both jobs and real incomes were improving over the past few quarters. But the latest bout of high food inflation is a setback for real income and hence broad-basing in consumption. India’s macro position is being hailed due to its relatively robust GDP growth and well-contained risk parameters like core inflation (within the headline target band) and current account deficit (<2.5% of GDP). However, the soft underbelly of India’s otherwise robust economic outlook is weak private consumption, with growth in real terms near 3% YoY as of the Mar’23 quarter. There is reason to be hopeful of stronger private consumption over the medium term, since the current growth is primarily led ...