Some food for thought
"The best way out is always through."
—Robert Frost (American Poet, 1874-1963)
Word for the day
Knackered (adj)
Exhausted; very tired
First thought this morning
Last week I had the opportunity to visit a Jan Aushidhi Kendra
(Public pharmacy) to buy few medicines for a laborer suffering from serious ailment.
Though the overall experience was not exactly great, the good part was the
prices. I could buy the entire 2month prescription for just 18% of the money I
would have paid at any regular pharmacy. The best however was yet to come. When
I discussed the matter with St. Google, I learned that there is no subsidy
involved in the sale of commonly used essential drugs at these pharmacies. The
persons or organizations running these pharmacies are actually allowed to make
a decent 20% profit on the cost of procurement from the public sector
manufacturers of these drugs. The only cost to exchequer is the salary, wages,
office expenses, and publicity expense in the initial years. Gradually these
are also proposed to be recovered from trade margins.
The questions bothering me since weekend are (a) why do we not
have thousands of such pharmacies dispensing commonly used essential drugs to
poor people all over the country? and (b) why no party is making such a
benevolent initiative one of their primary campaign point?
The scheme was in fact started in 2008 by the then UPA
government. But it could not be expanded to the desired scale for the reasons
best known to the administration. The incumbent NDA government re-launched the
scheme in September 2015. So both national parties have legitimate claim over
the credit for initiating a brilliant scheme. In fact in 2014 election
manifesto Congress Party had promised Right to Health as a fundamental right to
citizens. I have not heard any UPA leader raising this issue now.
Another scheme that does not figure in the UPA campaign is the
Right to Education (RTE). In 2019-20 academic session many beneficiaries of RTE
shall complete 10yrs of quality education. In 3-4years all these beneficiaries
shall become voters. But none of the UPA-2 constituents is reminding these
people the life transforming initiative they took for their benefit!
Rafael and Balakot occupying the prime positions in campaign of
parties is unfortunate; especially when they have legitimate issues like health
and education to discuss and promote.
Chart of the day
FOCE vs FOMO
The sharp rally in Indian equities during past 4weeks has
changed the complexion of the investors' mood. From "Fear of Capital
Erosion (FOCE)" to "Fear of Missing Out (FOMO)", the mood
transformation had been quick.
A shallow analysis suggested the following five catalysts for
the change in investors' mood:
- Barrage of buying by overseas investors (~$6.5bn in 5weeks) leading the Indian equities to rally over 10% in last 6weeks. Consequently, INR is one of the best performing emerging market currency in March.
- Change in policy stance by US Fed and RBI improving visibility of easy monetary conditions in 2019 at least, raising hopes for another rate cut later this week. The benchmark yields have therefore eased, raising relative attractiveness of equities.
- Distribution of Rs200bn cash under PM-Kissan scheme raising hope for revival in sagging consumer demand.
- Adequate liquidity infusion by RBI, preventing an imminent crisis in NBFC space. IL&FS crisis has virtually vanished even from inner pages of pink newspapers.
- Improved ratings of PM Modi post Balakot strikes tilting election forecasts towards BJP led stable government post elections.Two most common sayings in financial markets are (1) "Mr. Market is never wrong!" and (2) The price on the board must be respected, as it reflects the collective wisdom of all the market participants taken together.I always follow these two maxims, because none of these force me to change my strategy or stance on the market. Not challenging Mr. Market's current status does not preclude me from anticipating his next move; and the price on board does never force me to place a buy or sell order with my broker.The only hypothesis that would force me to deploy my dry powder would be that the economic conditions are mostly bottoming and could only improve from here. As of this morning however, I have no reason to use this hypothesis.What I have this morning is the following:
(a) CBDT has raised
alarms over more than 15% short fall in dierct tax collections in FY19. The tax
officials have used all tricks in the trade to get maximum amount of revenue
out of tax payers' pocket, including ridiculously frivolous demands and
delaying refunds. GST revenues have failed to grow. GST tax filings peaked in
September 2018. Average GST collection per filing is still quite erratic,
indicating that system is far from stabilized.
(b) The consumer
demand scenario is actually worsening month after month. Almost all consumer
product companies (FMCG, appliances, auto etc.) have expressed concerned over
demand slow down in their recent commentary. This should reflect in 4Q numbers.
(c) Private capex
has likely slipped for the 8th consecutive year in FY19. The social welfare
scheme promised by various political parties shall impact the public sector
capex too.
(d) Rural wages are
at multi year low.
(e) Real interest
rates are at multi year high.
(f) The election
outcome is far from certain. Congress has upped the ante with promise of
Rs72000/pa NYAY scheme.
(g) The global
economic conditions are likely to worsen before they start improving, monetary
easing notwithstanding.
(h) India is the most
expensive emerging market globally. Macro fundamentals may worsen a little more
in FY20, even if we assume a normal monsoon; though some agencies are
cautioning about El Nino getting active this summer.
Overall, I am not excited by the current market rally. Would
stick to my strategy and themes. FOCE or FOMO, I shall stay equanimous.
