Some food for thought
"It is better to travel well than to arrive."
—Buddha (Indian Saint Philosopher, 563BC - 483BC)
Word for the day
Applesauce (n)
Nonsense; bunk.
First random thought this morning
For past 3months, I have been daily watching the fury of nature
of on my TV screen. Scenes of incessant rains; massive floods; cloud bursts; landslides;
broken roads; submerged schools; inundated pathways; colonies, fields &
villages; and buses & trucks drifting haplessly in furious streams etc. all
made me believe that we have witnessed a furious monsoon season with bountiful
rains all across the country.
But the final IMD data says that the country received 9% below
average rainfall this year, against an official forecast of +4%. Some
analysts have found fault with the IMD data and concluded that the rains may be
even lesser than what IMD is claiming. This is fifth straight year when IMD has
overestimated rains. Lots of people are thus raising doubts over credibility
and integrity of IMD.
Many people are wondering why IMD people were so aggressive
about their normal monsoon forecast! There are doubts over this 9% deficit
number too. A 10% deficit would mean official declaration of drought,
triggering a lot of claims and procedures.
I find it pertinent to highlight that many village folks had
suggested to me as early as February 2018 that the weather this year may be
abnormal and we may see poor rains. (See here)
Last week, PM Modi has emphasized on some revolutionary changes
in our education system. I think, it would be highly pragmatic to incorporate
our traditional knowledge base in the formal education system. IMD may also
consider tweaking its models after making a scientific evaluation of the
conventional wisdom.
Chart of the Day
What's making investors jittery?
In the month of September the benchmark Nifty fell ~6%; Broader
NSE500 fell ~9%; and Nifty Small Cap 100 corrected over 20%
The precipitous fall in equities has made the investors jittery
for the following reasons:
(a) This was for the
first time in past one year that Indian equities moved contrary to the global
trend. Even though for the 12months ending September 2018, Indian equities have
still outperformed the major global markets, for the month of September India
was the worst performer. This raises the probability of further
underperformance of Indian equities in an attempt to revert to the mean.
(b) It was not only
equities, but many debt portfolios also recorded negative returns in the month
of September. This trend may have reignited the memories of post Lehman market
freeze. To make the matter worst, the performance of well diversified
portfolios and balanced fund was no better. (See table on next page)
(c) Given that the
government is walking a very tight rope on fiscal front, and there is little
leeway available for monetary easing, investors are not anticipating any
material stimulus for economy or markets.
(d) The country is
entering a prolonged election season that should last till May 2019. The early
indications are that the battle is going to be extremely intense and
acrimonious. Though it is too early to reasonably forecast any outcome, it
would be fair to say that unlike 2014 there is no clear wave in favor of PM
Modi. Though PM Modi remains the most popular national leader, BJP may have to
fight intensely for every seat. To that extent, an element of political
uncertainty has certainly arisen.
(e) A spate of news
about corporate misgovernance has shaken the confidence of investors, especially
in many stocks popular with active traders.
(f) The real estate
market in many pockets has shown distinct signs of stabilization. The
commercial real estate in fact has shown decent improvement in past one year or
so. Many market participants fear that the large investors may get diverted to
the real estate in next few months. The market may therefore not see any
"V" shape recovery even after the elections, unless the foreign flows
return meaningfully to India.
(g) The earnings
downgrades post 1QFY19 results suggest that the market expectations of full
fledged earnings growth revival may be belied yet again. Though earnings
improvement is seen in many pockets, overall earnings have failed to justify
the market valuation levels. There is little indication to suggest any material
improvement on this front.
