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Monday, December 30, 2013

2014:Looking through Google Glass!

Despite talk of curtailment in US Government support for the economy,the latter half of 2103 proved decently profitable for market traders on India as well as Europe and the US.If there was no rapid improvement at least the economies of France,Italy and Ireland did not degenerate further.Kinda positively negative!
 
Indian equities rallied to their all time highs but it was an empty victory as most stocks(especially the midcaps) lagged and even the PEs of large caps remained modest.
 
Looking forward to 2014;Elections are the key.A majority for any party is critical for reforms,new processes and policies to be shaped.With the AAP win in Delhi legislative elections the picture for the Lok Sabha seems complicated.The BJP and Congress strategy to let AAP form the government in Delhi and (maybe)fail in keeping its promises is the main plank.
 
However that is a double edged sword.Even a 50% achievement of its electoral manifesto by AAP will make it a serious player without doubt.I don't think any political leader in India understood the depth of frustration of the middle class,both urban and rural.Not One!!
 
The RBI Governor showed his maverick streak and kept rates unchanged.Food inflation still shows no sign of abating.The Banking system as per RBI report is suseptible to fallout if a big corporate group bankrupts.Kingfisher Airlines was but one small example.
 
So risks in the system exist.The economy remains fragile.Political future uncertain.
 
On the positives,the exports have started climbing once again.Gold imports are under control and the biggest issue of them all:depreciation of the Rupee versus $.The Rupee has stabilized in the 61-64.50 range although I am sure the RBI would be happy to see it around 60.
 
 
Rural demand remains strong and going ahead Autos and Steel will see demand growth of around 10%.Infrastructure needs a push from the Government and many beaten down stocks of such look like a good investment but do read the Balance Sheets carefully for the debt stats!
 
IT might show some upward trends on currency depreciation only as otherwise there is pressure on margins and new contracts are shrinking.Midcap IT stocks -  Mindtree,Igate are better bets as they try to enter new segments of robotics,data analysis rather than the traditional outsourcing mode.
 
A large number of gourmet restaurants have thrived and those like Oh Calcutta that listed its holding company on the exchanges will be good investment with more urban and semi-urban folks enjoying their fine dining experience along with the Jubilant Foods which have been a craze selling Pizzas.
 
It promises to be a different year with a lot of news expected.Wars still rage in Syria and South Sudan.No big crude finds in 2013 and the slow emergence of electrical cars(which are yet to make an impact in India as we speak) will keep us guessing.
 
Happy investing...!!
 

Thursday, December 19, 2013

RBI:Hawkish tone but Dovish Actions

In the mid term review of the monetary policy,December 2013, the RBI left key rates unchanged contrary to our and consensus estimates(we expected a 25 bps repo rate hike) and left the CRR unchanged at 4%.  It seems like the RBI is talking like a hawk but walking like a dove.
 
Inflation-Core or Headline?
Over the last few years, retail inflation has been persistently high and also largely ignored which is one of the key reasons why the economy  is in the  present quandary of low growth and high inflation. High inflation finds its genesis in high food inflation.  For example, in November, food index under CPI grew by 14.7% while under the WPI index, food inflation grew by nearly 20%.  The other component that is keeping inflation up is the fuel price index (because of deregulation of fuel prices).  RBI has little control over both these factors and hence the argument that a rate hike might not be able to control inflation. 

 The Governor seems to be placing his bets on softening trends in food prices going forward and warned of acting if it turns out otherwise.  Our research shows us that good harvest and seasonal factors can bring down food prices in the months ahead.  Hence inflation on the whole might drop.  But only for a while - a temporary phenomenon.  It will come back to bite us soon after.  This has been the case for the last five years.  Hence why will FY 14 be any different?

Its noteworthy that the Governor does not mention core inflation?noteworthy because EM countries identify more with core inflation than with headline inflation.Why the ambiguity about the target?
 
Fiscal Deficit
 
High fiscal deficit is one of the key reasons for high inflation.  Between Apr - Oct FY 14, the government earned Rs 4641 bn but spent Rs 9220 bn.  Given that the increased expenses are more towards populist schemes rather than capital formation, these expenditures are not going to translate into sustainable growth and output.  If you look at the rural population whose incomes have risen by over 15% over the last five years (thanks to programmes like NREGA), their spending has increased more on food articles than on durables like cars, TVs etc.
 
We have now known for ages that supply side bottelnecks are the main reasons for food inflation and the sudden spikes in vegetables,onions,potatoes etc is due to supply not reaching consumers in quicktime even with a good monsoon.
 
The Governor has spoken like a hawk but his actions have been dovish in this policy.With time we will know if this radical strategy works because as far as food inflation is concerned it will come down but temporarily.



Wednesday, December 11, 2013

AAP Delhi Victory:Turning Point in Indian Politics ?

With all the predictive intelligence and software employed by news channels they still could not fathom the utter alienation of the 'aam admi',common man,hoi polloi - call what you may.
 
From someone taken as some kind of a joke,a non celebrity - Arvind Kejriwal became an overnight gaint killer in Indian politics.People have gone into social service in trying to alleviate poverty or educate the rural masses but here was  a man who looked at the urban 'poor'.
 
Statistics measure poverty through the BPL(Below Poverty Line) parameters but surprisingly there would be more urban middleclass 'poor' people than though and these are the truly neglected.Some who have job losses or become handicapped due to accidents find themselves at the bottom of the ladder without a source of sustenance.where they differ from the rural poor is that people in villages have some parcel of land no matter how small or divided where they can raise at least a minimal amount of food.
 
Cities overun with migrants who have sold their village land and moved with family and lost whatever they possessed before finding a source of income is common.Yet there isn't one single Government iniative to change the status quo.
 
Secondly,all that politicians look for is a shortcut.Pay doles and get votes in return.Look at all the sundry 'Reservation' schemes running across India and across the various political parties!
 
Is there any party that runs education or basic job skills programmes?

No.


That brings us to the AAP.Heartening that their candidates have experienced life - a journalist,an unemployed,a commando who fought terrorists.People who can understand the pathos of daily living.Who know what a struggle day to day life is for most of us.
 
Understanding that most of India will be living in cities in the coming decades.Social issues,issues of communication.No more fiery oratory before elections.A proper report card on how the varios MPs,MLAs,councillors perform.Pipe dreams?
 
At least this bunch of activists turned politicians who have made it their mission to bring some amount of accountability to mainstream issues is a breath of fresh air.Will it sustain?Will innate human greed for money and power destry the innocence of AAP?Will the leadership be able to hold onto their ethics?
 
These are some fundamental questions that only Time can answer.
 
Till then let us enthusiastically welcome this new found zeal to become a more responsible Nation that first improves its own conditions through its own people.That is true 'Swadeshi'.
 
Arvind Kejriwal,Manish Sisodia,Kumar Vishwas&Team.Salute you Davids for taking on mighty Goliaths.May This Courage Never Wane...!!!!!