Vijay Kumar Gaba

Wednesday, February 3, 2016

Rajan puts the ball in Jaitely's court

Thought for the day

"If anything is certain, it is that I myself am not a Marxist."

—Karl Marx (German 1818-1883)

Word for the day

Cupidity (n)

Eager or excessive desire, especially to possess something; greed; avarice.

(Source: Dictionary.com)

Malice towards none

I support Maneka Gandhi's suggestion of a compulsory sex determination test on all fetus!

This should be followed up by appropriate counseling of would be parents and safety precautions for female fetus.

First random thought this morning

Jumping traffic signal is not just a minor legal offence. It is a manifestation of the total disregard for the right to a peaceful and safe existence.

It is no different from selling adulterated food and fake medicine; using infected devices in a hospital; leaving potholes and uneven road behind after digging the road for utility repairs; allowing people to travel on the roof of a train or bus; or simply killing someone in a fit of anger or over joy.

Disregard for others' right to safe and peaceful existence should carry strictest possible punishment and this law should be enforced earnestly.

Rajan puts the ball in Jaitely's court

With a strong backhand smash, Governor Rajan has put the ball forcefully in the government's court.

Like a good teacher, Governor Rajan gently patted on the back of the government and threw in couple of advices embalmed with a good deal of caution.

While appreciating the current momentum of growth as "reasonable", the governor highlighted that it is certainly below the potential and also below the medium term expectations.

Expressing concern over cooling growth drivers, he advised the government to "rekindle the growth drivers" to achieve a "durably higher growth trajectory".

Highlighting the challenges for the finance minister, the governor sought continuous improvement in the business environment to revive the private investments while continuing the fiscal consolidation efforts. The advise embalmed with caution went like this "Underlying growth drivers need to be rekindled to place the economy durably on a higher growth trajectory. The revival of private investment, in particular, has a crucial role, especially as the climate for business improves and fiscal policy continues to consolidate".

To rub off some Davos effect, the Governor did not forget to highlight the responsibility India bears to the global economy. Being one of few islands of stability in otherwise challenged world, India cannot compromise on its commitment to financial stability, fiscal discipline and sustainably faster growth.

Reiterating his commitment to objectivity and transparency in decision making, the governor made it clear that his monetary policy action would be guided by the path of inflation and structural reform measure in the forthcoming Union Budget that would boost growth while maintaining the fiscal discipline. The operative words of the policy statement, in my view, are the following:

"The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation. Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5 per cent by the end of 2016-17."

The following cautionary statement notwithstanding:

"For 2016-17, growth is expected to strengthen gradually, notwithstanding significant headwinds. Expectations of a normal monsoon after two consecutive years of rainfall deficiency, the large positive terms of trade gain, improving real incomes of households and lower input costs of firms should contribute to strengthening the growth momentum. Yet, still weak domestic private investment demand in a phase of balance sheet adjustments, re-emergence of concerns relating to stalled projects, excess capacity in industry, sluggish external demand conditions dampening export growth could act as headwinds."

Tuesday, February 2, 2016

Take the path less travelled.

Thought for the day

"Landlords, like all other men, love to reap where they never sowed."

—Karl Marx (German 1818-1883)

Word for the day

Pugnacious (adj)

Inclined to quarrel or fight readily; quarrelsome; belligerent; combative.

(Source: Dictionary.com)

Malice towards none

Death of Jyoti (aka Nirbhaya) changed a few things.

What will Rohith's death change?

First random thought this morning

The conflict over entitlement of women to enter places of worship in India is reflection of a bigger multifaceted social struggle.

Right to temple entry has historically been a manifestations of the caste discrimination, gender discrimination and economic inequalities.

Recently, a new dimension, i.e., challenge to the outdated socio-religious traditions and beliefs, has been added to the conflict.

The state here has two options: (a) take the popular path or (b) or take the road less travelled.

Take the path less travelled

In recent months, China has repeatedly bothered global markets. A hard landing in China has become the worst nightmare of market participants. The next move of PoBC on CNY value adjustment (devaluation if you like it that way), is widely anticipated as Fed's next move on rates. The Chinese equities are amongst the worst performers globally. The fabled BRICs are no longer mentioned together.

In the meanwhile, the global commodities have crashed to cycle lows, to account for loss of the Dragon's hitherto insatiable appetite.

Exchange rates for commodity and emerging market currencies relative to reserve currencies (e.g., USD, JPY, GBP and EUR) are also at their lowest ebb.

Unprecedented US$2.5trn worth of bonds are trading at negative yield. And there is no sign of this anomaly being corrected in near term. On the contrary, we are hearing credible murmurs about more monetary easing by ECB Chief Mario "Whatever it Takes" Draghi. Many believe, US Fed's chairperson Janet Yellen might also have to stay or even reverse Fed's decision to end ZIRP regime.

The global trade has virtually stalled. Most economies are just managing to avoid technical recession in headline numbers. Otherwise, the sentiments and disaggregated data is almost recessionary.

Given this grim scenario, it is normal for any finance minister to compromise on fiscal discipline and make proactive efforts to encourage domestic growth and make exporters competitive.

Governor Rajan does recognize this like everyone else. Therefore, he is right in advising the political establishment to refrain from any fiscal profligacy at this point in time. I am sure, besides poor manufacturing and agriculture growth, a busy election season ahead will also be on the back of his mind while cautioning the government.

In my view, it is a defining moment in Indian economic history. Choosing the right path could lead India into a golden period of sustainable growth and prosperity. One mistake here could drag us back by couple of decades.

I might be a small insect, completely oblivious of the global economic realities, and foolish enough to comment on this subject. But on the basis of whatever information I could get, I firmly believe that China is definitely going the Japan way. It is not going anywhere for next decade or may be two. It is certainly not collapsing either. In next 6-12 months, the global investors may realize this and move on.

If India could show some character by keeping a strict fiscal restraint and allowing the private enterprise to flourish, in next two decades we may have a different growth path than Japan, China and Brazil. Otherwise, we may be heading towards a precipitous stagnation; remaining a low middle class economy perhaps forever.

More thoughts on this later this week.

Monday, February 1, 2016

Nifty: Collapse prevented, trend reversal yet far away

Thought for the day

"The production of too many useful things results in too many useless people."

— Karl Marx (German, 1818-1883)

Word for the day

Insouciant (adj)

Free from concern, worry, or anxiety; carefree; nonchalant.

(Source: Dictionary.com)

Malice towards none

"Intolerance" drama of 2015-16 is no different from the "Policy Paralysis" drama of 2012-14.

The actors though have reversed their roles, with villains of yesteryears playing the protagonist today and vice versa.

First random thought this morning

There is increasing evidence suggesting that Japan is heading the Japan way. The excesses of last two decades might take an equal amount of time to get absorbed and adjusted. The rest of the world though might move on in couple of years. There is no point worrying too much about China. We should rather look for opportunities.

Nifty: Collapse prevented, trend reversal yet far away

Nifty successfully tested its midterm support level of 7200 (recording a low of 7241) last week and closed above its significant resistance level of 7560 on monthly charts. On weekly charts also Nifty is forming a strong bottom. A close above 7610 this week will confirm even a short term bottom in 7350-7440 range. On Daily charts though Nifty appears little hot and may need some cooling down.

1. With this Nifty has made a firm bottom in 7190-7240 range on medium term charts. Any fall below 7350 on intra month basis in next 3months may be a good buying opportunity for investors with 3-5yr horizon.

2. Market may witness rise in intraday volatility in the market. If not accompanied with material rise in implied volatility, traders with 3-6months horizon may use such intraday falls as buying opportunities.

3. Short Bank Nifty - Long Nifty trade could be close to maturity. About 1% further outperformance of Nifty may provide opportunity to short term traders to initiate a Long Bank Nifty - Short Nifty pair trade.

4. Short trade might be avoided for this week. Short position, if any, may be held with strict stop loss of 7610 Nifty level on closing basis.

Friday, January 29, 2016

4QFY16 may not be much different

Thought for the day

"No eulogy is due to him who simply does his duty and nothing more."

—St. Augustine (354-430)

Word for the day

Ludic (adj)

Playful in an aimless way: the ludic behavior of kittens.

(Source: Dictionary.com)

Malice towards none

The courts in India are deciding on matter which in usual course should be decided by RWAs, Municipalities, and legislature.

What does it reflect?

First random thought this morning

Republic of India is mother of 36 children who live under the same roof but each of them cooks in his own kitchen and runs his own shop. All Indians who have lived in joint families and then separately under the same roof, would understand what I am trying to say here.

The point worth pondering is why these 36 children are living under the same roof along with their 69yr old mother. Is it out of love & affection for each other? Is it out of fear of losing independence to some outsider? Is it their weakness? Is it their strength? or is it something else?

4QFY16 may not be much different

In concluding part of my latest assessment of the trends in trade, consumption and real estate, I would like to share the following observations with the readers.

It is pertinent to note that the conditions are no different from August 2015, when I surveyed the markets last time. So some of this might sound repetitive to the regular readers.

(a) Most traders suggested that the sales volume growth is definitely and substantially lower as compared to past three years. Some relatively younger ones suggested that they have never seen such sluggish demand conditions in their career.

(b) Almost everyone complained about extremely tight liquidity conditions. The informal lending market has shrunk substantially. Inventories have corrected in past six months, but high carrying cost may prevent fresh inventory buildup in near term. Bank credit is expensive and difficult to get.

(c) Most traders confessed that the regulatory pressures have risen materially in past six months and consequently the compliance levels are rising. This appears to be a structural change that shall help once the economic cycle gathers pace.

(d) There is no sign of pickup in demand for new houses. The investments made in residential real estate has become totally illiquid. The sales agents for developers in NCR region suggested that there is no perceptible change in inquiries post announcement of pay commission.

(e) The packing material volumes continue to be lower on year on year basis. Traders suggest that this should translate in sluggish consumer demand growth in the current quarter also.

(f) The Republic Day Sale does not appear to be encouraging. Despite larger discounts and longer sales periods, traders are disappointed. Couple of franchisees for large global apparel brands suggested that the sales volumes this quarter could be lower even after accounting for online sales.

(g) The rural demand continues to be poor in all areas. Textile is impacted particularly.

(i) China is not a major cause of worry for traders. The people who import regularly from China are in fact comfortable with CNY depreciation and slower Chinese growth. This in their view will lead to improvement in their margins. A couple of them indicated that Chinese vendors might extend some credit to them, for the first time ever. So far, they have been buying from China against all cash payment.

Small manufacturers are though a much worried lot.

Overall, the demand conditions remain challenging with little of improvement in the near term.

Thursday, January 28, 2016

Tendulkar then Kohli now

Thought for the day

"Give me chastity and continence, but not yet."

—St. Augustine (354-430)

Word for the day

Nimiety (n)

Excess; overabundance. E.g. nimiety of mere niceties in conversation.

(Source: Dictionary.com)

Malice towards none

President rule in Arunachal Pradesh!

Is BJP serious about Budget Session, especially GST?

First random thought this morning

Difficult to fathom a few years back, Persian-American friendship could very well be the highlight of 2016. The kind of welcome and "surrender" President Hassan Rouhani is getting on his current Italy visit tells a lot of things.

One, post Paris attacks, the west might be looking at Shia Iran as the most potent partner in fight against the threat of IS. Two, with Libya, Iraq and Iran threats mostly neutralized and energy independence achieved, US may no longer need Saudi friendship the way it needed a few years back. Three, Iran and Iraq could be much more reliable and progressive allies as compared to Pakistan and Saudi.

It may be good news for India.

Tendulkar then Kohli now

Yesterday, I had suggested (see here) that the core issues which are seriously constricting economic growth and development of India include preference to form over substance, governance deficit, lack of corporate social responsibility, skill deficit, and infirmities in the commitment to public service.

To have a better understanding of what I am trying to suggest, please visit any popular market near you on a security high alert day. There are 75% chance that you would find a pirated CD/DVD vendor selling his stuff openly and fearlessly within 50mtr distance of a police post or PCR van.

The issues like inflation, fiscal deficit and foreign portfolio investments etc are at best tertiary issues that impact economic growth on the fringes, in my view.

Another factor that is seriously impeding the socio-economic development of the country is lack of inspiring leadership in public and corporate life. (In fact this problem has been a serious global problem in past two decades.)

Especially after unfortunate demise of JP movement in late 1970s, our search for a truly national leader has remained unsuccessful. Leaders like NTR, Rajiv Gandhi, LK Advani, AB Vajpayee etc. briefly appeared to take the mantle; but none lasted more than a few years.

In between, Indian populace has also experimented by idolizing sundry sportspersons, movie stars, and corporate leaders only to be disappointed in no time.

Recently, the prime minister Narendra Modi did evoke more support than even JP. An overwhelming number of youth truly believed him to be the Redeemer, who will redeem India from the ills of poverty and underdevelopment. However, the current approval ratings and electoral setbacks suggest that his Charisma may already have begun to fade.

The consequence of the lack of inspiring leadership is - (a) rising incidence of non-compliance amongst citizens; (b) difficulty in evolving consensus on various issues of national importance (including foreign policy and defense); (c) poor federal cooperation; and above all absence of a national approach to any issue or policy, etc.

On a mundane note, the equity markets are also showing absence of any credible leadership - a pre-requisite for any sustained bull market.

The private consumption, exports and financials that have led the bull market since the lows of 2009 appear tired. Financials had quit the race long back. Consumers are languishing since past two quarter, especially on the back of poor rural demand post a poor monsoon season. Amongst exporters - pharma has suffered due to regulatory and over-valuation issues; IT is holding so far but there are signs of fatigue and CNY devaluation and poor European demand has put question mark on sustainability of textile bulls. Aviation and Sugar are some foot soldiers marching ahead - but may lack adequate ammunition to sustain on their own for long.

Wednesday, January 27, 2016

Cognitive Dissonance

Thought for the day

"The world is a book, and those who do not travel read only one page."

—St. Augustine (354-430)

Word for the day

Vociferous (adj)

Crying out noisily; clamorous.

(Source: Dictionary.com)

First random thought this morning

After an unusually warm Christmas, US is facing some seriously inclement winter. Since Washington DC is directly impacted, I hope the climate control discussions will progress at much faster pace and with deeper commitment.

Back home, Arvind Kejriwal's cough may not be sufficient to create the kind of awareness about environmental hazards that is urgently needed, amongst politicians, administrators and general public.

Cognitive Dissonance

I had said it two years back. Despite deep invasion of technology in my normal life, I have still kept the monkey in me alive. I like to do many things in the traditional way. Reading morning newspaper is one of these things. I like to break my fast every morning reading the latest news from around the country and familiarizing myself with divergent views of various experts. Not to say, I like the aroma of newsprint as much as I like my Darjeeling tea.

A little has changed in past two years. it continues to be irksome to find that the front page of the newspaper is now placed at 3rd or 5th. First few pages are cramped with ugly but alluring promotion campaigns of retailers and real estate developers.

Last weekend I revisited some malls, popular retail markets and wholesale markets of Delhi. As usual while I thoroughly enjoyed my stroll in the narrow lanes of Sadar Bazar, Chandni Chowk, and adjoining wholesale markets, visiting swanky malls was a poor experience.

The malls were crowded and mismanaged. The additional security in view of enhanced security threat and consequent traffic jams were exasperating.

I find it pertinent to share the following observations with my readers:

(a) The cognitive dissonance of the government about substance over form was conspicuous from the security arrangement. The traditional markets, where many more people visit and much more business is done as compared to swanky malls in the southern parts of city, had scanty security apparatus. Whereas the mall areas had overwhelming presence of security personnel. It is difficult to gauge what is primary concern of the government.

This dissonance is also clearly reflected in the policy making where the height of Sensex graph and exchange value of INR appears to be taking precedence over core issues of hunger and poverty.

(b) I enquired from many private security guards posted at the entrances of malls, mechanically scrutinizing vehicles and people entering these mall. When asked what they are looking for under the bonnets, at the bottom and in the trunks of the cars. "Explosive materials", pat came the reply. However, to my astonishment, none of them was aware as to how explosive material they are searching for, may look like. None of them was ever trained to identify and remove explosive material. None of them even possessed a customary wooden stick. In case of a Mumbai like attack - the disaster is ensured.

Administrative callousness to human life, serious skill deficit, and form over substance are real issues constricting our economic growth.

(c) Private security industry is indubitably growing fast and it is reflecting poorly on the "government" who is primarily responsible for ensuring safety of private life & assets, and "mindset" of business owners who take the life of their customers so lightly just to save a few bucks.

Public service, governance and CSR may still be just concepts.

...to continue

Monday, January 25, 2016

Nifty: Road to 7950 is full of hurdles

Thought for the day

"The words printed here are concepts. You must go through the experiences."

—St. Augustine (354-430)

Word for the day

Presenteeism (n)

The practice of coming to work despite illness, injury, anxiety, etc., often resulting in reduced productivity.

(Source: Dictionary.com)

Malice towards none

Neta Ji files are open to public scrutiny.

Will it bring closure to a long pending issue or open a can of worms?

First random thought this morning

Everyone knows that trillions of dollars in stimulus in past one decade have not helped any economic growth. The world economy and markets remains as vulnerable and tentative as these were in 2008. Many punters and ingenious bankers have though become unduly rich.

I wonder why then markets are still excited about some more stimulus by ECB and/or BoJ?

Nifty: Road to 7950 is full of hurdles

Last week Nifty successfully negotiated its short term support level of 7200 and closed above 7400. There were three remarkable highlights of the trading during last week - (a) No spike in implied volatility despite poor global sentiments; (b) no panic amongst domestic fund managers who continued to absorb more than what FPIs sold; and (c) little panic in retail segment as suggested by almost even market breadth on weekly basis.

On monthly charts Nifty has tested its immediate bottom and looks good for a technical bounce back. A close above 7560 this week will confirm Monthly bottom at 7200.

On monthly basis Nifty faces a strong resistance in 7950-8040 range and is not likely to surpass it easily. On the way to 8000 there is stiff resistance present first at 7560 level and then in 7650-7730 range.

Still, the trade for February would be on the long side if we get a monthly close above 7560 this week.

This week just take care of your short positions.

Friday, January 22, 2016

Time to be greedy coming soon!

Thought for the day

"I have now disposed of all my property to my family. There is one thing more I wish I could give them, and that is the Christian religion."

— Patrick Henry (American, 1736-1799)

Word for the day

Prepossessing (adj)

That impresses favorably; engaging or attractive, E.g., a confident and prepossessing young man.

(Source: Dictionary.com)

Malice towards none

How many politician in the country feel that they would be better off doing something else to serve the large cause of public service, rather than playing a mudslinging match every day?

First random thought this morning

Every market cycle breaks a few myths. For example, the last market cycle broke the myth that emergence of Emerging Market threatens the supremacy of USA; BRICs are a formidable force; India could decouple from global economy and keep growing sustainably at 8% plus rate; printing excess money leads to hyper inflation etc.

The current market cycle is breaking the myth that cheap oil could only be good for the global economy, especially importing economies like India and Japan, large reserve accumulation is a guarantee to economic and financial stability, peripheral Europe matters in the global economy (remember Grexit and PIGS).

But one myth that you can multiply your money in no time by investing in equities is however never broken! Bull Markets are dead. Long Live Bull Markets!

Time to be greedy coming soon!

The global markets have once again proved the Newton's law of gravity. All asset prices that were trying to defy gravity, without having necessary escape velocity, are crashing back to the their respective ground positions.

Now since the asset prices are rushing south at a reckless pace, trampling the traders and investors coming in their way, the questions to ponder are:

(a) When would the asset prices hit the rock;

(b) Whether the rock will be soft or a hard one; meaning whether the prices will jump higher immediately after hitting the rock or they will get stuck there at the bottom, till the next high tide comes to their rescue;

History could be a good guide in analyzing these points and finding appropriate answers. However, 2008-2009 may not be a good reference point in this context, in my view. Because I believe that the current market cycle is nothing but a continuation of 2008-09 crisis.

The crisis began to hurt global asset prices from early 2008 as the economic growth, fueled by a decade of exceptionally loose credit, started to fizzle out and financial leverage became unsustainable.

However, the process of adjustment and correction was interrupted by innovative and audacious monetary policies of large central bankers. Surprised and enthused by the "whatever it takes" approach of central bankers, traders and investors made large bets on a faster economic revival. Consequently, many asset prices in fact scaled higher peaks than seen during the bull market of 2005-2007.

However, as it turned out that the comfort was false. The central bankers did manage to restore stability in the financial system; but the economic recovery remained feeble and unbalanced. The side effects of super-easy money are reflected in strengthening of deflationary forces, deterioration in sovereign fiscal conditions, and rise in corporate debt to beyond pre-crisis level.

Consequently, the asset prices are now rationalizing to factor in the prospects of even slower economic recovery and rise in global imbalances.

The process is expected to be protracted and painful. Nothing will be achieved in a year or two.

The good news, in my view, is that India may decouple once again. As one of the worst sufferers of unfavorable terms of trade, India could be a major gainer as the global imbalances get adjusted to more fair terms of trade.

The corporate results so far are encouraging. The companies have in particular worked well in the areas of cost efficiencies. Raw material advantage has also started to reflect in P&L. The ongoing correction will also bring valuations closer to the "line of reasonability".

Therefore, I am not inclined to believe that Sensex might correct to the extent it did in 2008-09. I feel 5% here or there, we are mostly done; though a larger but unsustainable slide in sympathy with global sell off is not entirely ruled out.

I am also not expecting a sharp bounce back like 2009-10, because we are nowhere close to the line of distressed valuations as we were in March 2009.