Do it yourself

  In a paper published in 1988 researchers William Samuelson and Richard Zeckhauser highlighted that a large majority of people have a cognitive bias against change in their present conditions. In their research, they found that “people show a disproportionate preference for choices that maintain the status quo.” They referred to this trait of human behavior as “status quo bias”. Several other researchers have added subsequently to the findings of Samuelson and Zeckhauser. In my personal life, I have noticed several instances of status quo bias whether it is ordering in a restaurant, making investment decisions, buying vehicles, choosing healthcare professionals, or even voting in the elections. I find that status quo bias is particularly strong during periods of stress or crisis. I have observed that during periods of stress or crisis (actual or perceived) people generally avoid trying new things, people, or places, etc. They prefer to trust their existing captain when the waters ...

  Last weekend the already tense situation escalated materially in the Israel-occupied Gaza Strip area of the Palestinian state. Apparently, the Hamas controlled militia launched a massive ariel and ground attack on Israeli territories, killing over 700 people and injuring many more, including several civilians - women and children. In retaliation, Israeli forces attacked the Palestinian territories in the Gaza Strip, killing over 300 people, including women and children, and destroying several civilian targets. This is the deadliest episode since 1967, in the conflict that started in the late 1940s. The government of Israel has formally declared war on Hamas, committing to a “mighty vengeance” and “a long and difficult war.” They have received support and solidarity from all their traditional allies like NATO members, Australia, and strategic partners like India. As per the latest reports 84 nations have issued formal statements supporting Israel’s right to self-defense. On the ...

Economic Outlook (CARE Ratings) Global economy ·          Global growth is projected to moderate to 3% in 2023 from an estimated 3.5% in 2022 according to the International Monetary Fund (IMF). ·          Global Inflation is projected to moderate to 6.8% in 2023 from 8.7% in 2022., however, it is still elevated compared to the pre-pandemic (2017-19) level of 3.5%. ·          Inflation though moderating continues to stay above the Central bank targets, warranting interest rates staying higher for longer. ·          In the September policy meeting, US Fed opted to keep the policy rate unchanged but offered a hawkish guidance indicating one more rate hike in 2023 and fewer rate cuts in 2024. ·          Global supply chains have normalized. However, weak domestic demand in China are...

The first of the current financial year progressed on the predicted lines. There were no remarkable surprises either in the global macroeconomic developments or market performance. The focus of market participants and policymakers remained mostly on the macroeconomic parameters. Economic growth and trade moderated worldwide with a few exceptions like India. Inflation remained elevated but under control. Monetary policy continued to tighten resulting in higher bond yields, tighter liquidity, and rising cost of capital. Geopolitical conditions remained mostly unchanged. Commodity prices moved in tandem with the macroeconomic, geopolitical, and environmental conditions. Clouded growth outlook led the industrial metals down; higher bond yields and stronger USD weighed the precious metals lower, depleted strategic reserves and larger output cut by OPEC+ led the energy prices higher, and better crop and improvement in shipments from war zones led the agri produce prices lower. Chinese eq...

JPM Bond Index inclusion (YES Bank) JP Morgan included India's government bonds to its Government Bond Index-Emerging Markets Index (GBI-EM) and assigns the highest weight of 10% in the index. The inclusion will be phased over 10 months, starting from 28 June 2024 to 31 March 2025. We expect the cumulative flows to India to be ~ USD 30 bn, considering USD 23.6 bn flows through passive investments, topped up with investments from some active funds. The new entity on the demand side would be in addition to recent large investments by non-bank entities in the G-sec market, thereby potentially leading to demand exceeding supply of G-sec fresh issuances in any particular year. India 10Y bond yields could fall to 6.45%-6.55% in FY25, assuming a 75bps cut in the repo rate in FY25. However, we are not expecting any meaningful impact on USD/INR as RBI could be seen creating additional buffers to mitigate risks of larger potential outflows in the event of risk aversions. India gets the i...

Continuing from yesterday ( see here ). I am convinced that the current global monetary and fiscal conditions will have an enduring impact on the global financial system, trade, businesses, and markets. We may feel comfortable with the resilient performance of the Indian economy and markets in the past couple of years, but it would not harm if we factor in the global conditions and trends in our investment strategy. In particular, household investors with relatively smaller portfolios need to exercise due precautions to protect their portfolios from a negative shock. I have negligible knowledge of global economics, financial systems, and markets. I therefore usually approach these larger issues with common sense and my elementary understanding of the basic concepts of economics. History, of course, always provides some useful support. I usually study the historical behavior of economies and markets to anticipate the likely actions and reactions of the current set of market participants...

Post the latest meeting of the US Federal Open Market Committee (FOMC), the market narrative is primarily focused on the following five points – (i)       Whether the Fed is done hiking rates or it may hike once more in 2023. A larger section of market participants believes that the Fed may hike another 25bps by the end of 2023 and then pause for 6-9 months before cutting the rates from 4Q2024. Another section is however of the view that the economic conditions are too tight to tolerate another hike. This section believes that the hiking cycle of the Fed may well be over and we may see rate cuts from 2Q2024 itself. (ii)      Whether the treasury yields and other lending rates in the US economy will stay “higher for longer”, as forecast by the US Fed, or we shall see a faster decline, as the economic conditions deteriorate. The higher rates have already started to reflect a slowdown in the US housing market. The rate of bankruptcy fili...