Sunday, December 6, 2015

You Are Your Own Biggest Asset

The winds of change fan across the country.Somehow that has coincided with a surfeit of articles talking of attitudes,failures,Leadership,being cool etc

Reminds me of another quote from Warren Buffett,"You are your own biggest asset".

Somehow we tend to overlook ourselves.Underrate our talent.Overrate competition.Try to go with the herd.

Its like all those lessons we learn as schoolchildren praising honesty,to not lie,to help others and yet believing that such things do not give you an advantage in the real world?Real politik is a hard headed,pragmatic beast.

But is it really so?

Leaders thrive on fear.Setting targets and holding out punishment(monetary or otherwise)if not achieved.So all of all mice start running.Its easy to create fear.Have you met a leader who inspired you to achieve a target?Told you do not be afraid to fail?I would love to hear such stories...

Then I read a quote by Dan Reeves,"Difficulties in Life are intended to make us better
                                                           Not bitter"
The fires burn all over,in Syria,in Turkey,Libya while Paris tries to rise like the proverbial Phoenix from the aftermath of deadly shootings.Technology tries to steal blue collar jobs,crude price fall brings economic misery to the Middle East.

Its not as if the troubled times are something new.Right from the middle ages there have been wars,epidemics etc but never has change been occurring faster than it has in the last decade.

With myriad forces pulling in all directions and one small misstep leading to major repercussions....it is all the more imperative to BELIEVE that its possible to face all the issues and emerge unscathed.

To be not afraid to lose.But hate to lose!

No one does motivational quotes better than Richard Branson but  this time I will not repeat his.Each of us needs to find their own level of satisfaction and find the lever that pulls them in the direction they want to go.

"Je suis Paris,London,California......"

Tuesday, November 10, 2015

Festival of Lights...2015

As the sounds of crackers going off reaches a crescendo on diwali eve the BJP and its undisputed 'sardar',Mr Narendra Modi have lost the election in Bihar.Rancourous,foul tempered campaign from the party and leader that we least expected it from.

That is the thing about life,logical,rational people behaving as if they had just landed from Mars.After this show and the events of the last one year leads me to believe 2 characteristics about Mr Modi

1.He has this fascination to be accoladed and be approbated by the USA(there was a time when made    in USA was synonymous with quality and being perfect) and all things american

2.He is a rigid,religious man with little sense of humour who has picked on this theme that he feels
   will resonate with the public and King of dryspeak.

He might not have the fiery oratory of Vajpayee,the warmness of Advani but I did expect him to have original thought.The visible evidence is very thin on the ground.

Do the 'Hindutva'hawks control him or is it vice versa?
What is Modinomics definition of REFORMS?

What is Modinomics?How much did he develop Gujarat or was it in the Gujarati psyche?

Is building a cult around yourself,banning everything,suppressing dissent,avoiding commenting on controversial issues the way to lead a nation of One Billion people?

At this time I only have questions.The economy will take care of itself.The people will forget.But the global tailwinds(read low crude prices)wasted by this Government have become a legend

Monday, September 28, 2015

Is A Rate Hike Diabolical?

Reams have been written before today regarding the consequences of an increase in interest rate by the Fed.Although that has been kept in abeyance with the global situation, refugee crisis, China currency devaluation all playing their part, the tone of the meeting suggests a hike in rates in the USA sooner rather than later.

It may be as early as October 2015 or may be spread over November and December which begets the question,is an increase in rates actually such a disaster for emerging markets?

Well,for those with shaky currencies or too tight controls and dipping growth,read China,it may very much encourage a flight of capital.

Which brings us to India.The USDINR holding the 66-67 level gives a sense of stability amidst all the turmoil witnessed recently.The fall in crude is another huge positive.If the monsoon gives aparting kick to the central Indian plains then we can safely assume that rate hike or not the domestic consumption engine will pick up.

Secondly,does a move of 25bps and a rate of .5% tempt FIIs in a big enough manner that they stampede back to invest in US assets?

In fact an increase in rates by the Fed might prove providential for India.

(a)Asset prices in India which have gone up higher than fundamental levels will correct and begin a virtous  cycle that will encourage new buyers

(b)Monetary authorities have elbow room to maneuver in case of a new crisis,when rates near zero then there are not many tools for the Government policy to work

(c)A higher interest rate prompts internal savings,although consumption is necessary to kickstart growth,savings is an important part of National capital availability

Yes there will be a correction in stock markets in emerging countries including ours when rates rise but is that necessarily such a bad thing.The prices aligning with quarterly profits will see value emerge in the better managed companies.

Tuesday, September 8, 2015

Lessons From a Rollercoaster Market

The 24th of August 2015 will simply be called ‘Manic Monday’.Not since the fall of Lehman Bros and the subprime crisis of 2008 have markets seemed so roiled,edgy and ready to slip into chaos with the slightest breeze of bad news.

Records were set for biggest intraday reversal by the Dow,largest daily move and recovery,emerging markets currencies folded almost to levels last seem 7-8 years ago.Was there a method to the madness?Was it a one day blip in world markets?

We should not dismiss the events of that day and week as a mere sideshow.The fundamentals of markets across the World are without doubt fragile if not weak.Centrals Banks from the US to Japan have printed or are continuing to print currencies to prop up economies that leave them bereft of fundamentals.

This is leading to an exodus every time the data points come in weaker than expected and be it retail,HNI or FII investors rush to exit holdings leading to a vicious cycle that is not leaving even the companies with solid financials and a 3-5% cut in prices has now become common.50 out of the 50 nifty stocks were in the red on that Monday.

With the increasing presence of HFT and algo trading there is real fear that the Exchange systems are in danger of getting overwhelmed when the herd tries to stampede out all at the same time,although Indian exchange mechanisms have been robust so far.

Chinese authorities attempts to curb volatility in their markets seem to have left them exhausted,their ammunition almost spent.Curbing selling side,rate cuts,devaluating currency.What next?The palpable lack of trust by investors in such measures has not been reassuring.

You the investor needs to ask yourself if you have the trading capacity to swallow such volatile markets,enough liquidity to buy the value that will emerge in fundamentally sound companies an most importantly having the raw courage to hold on even when the value dips 15-20% from your buy value?

Go ahead only if you answer in the affirmative to all the above questions!Wishing you luck on the ‘Market’ rollercoaster!!

With the Fed set to take a decision on rate hike next week the markets will live on the edge despite many saying that a hike is already factored into the price.

India looks like its in the process of bottoming out and will look to domestic numbers from the second half of September.

Tuesday, August 25, 2015

Are You waiting for "Green Shoots"

Dear Investor,

Yesterday the stock markets across the world fell 5-6%.For many it was the biggest single day fall in a decade or so.
On social media the picture of the big bull in front of NYSE lying on its side(apparantly shallow breathing)are trending!!
All the 'talking heads' on TV who till saturday felt unthreatened are all talking of the world going into recession.

You,the investor,what are you thinking?Will markets fall further and should you exit your portfolio which is in loss at present and wait for lower levels to buy back?Can one ever understand how far the markets will fall or rise?

Or are you waiting to see the 'green shoots' emerge before committing?

Believe me that by the time the 'green shoots' are visible the market would already have moved up.Unless you are so risk averse,in which case you should be adding to your Bank fixed deposit,this right now is to get in.

Get in.Not commit fully.The Current Account deficit(CAD) is under control,the Rupee looks not too worried,crude is below $40.

Yes China's trillions $ economy is a cause for worry.Yes Eurozone is having economic and immigration issues.Geo political tensions,terrorism,El Nino all loom on the horizon.

The business cycle will change in the next 2-3 quarters.Depreciated rupee will help exports - ITES,food items.

Be prepared to see the stocks you buy today or tomorrow fall another 10-15%,even 20%.Add more.Believe that World growth might come down from projected 3.3% to 3% but that would still be much above the recessionary zone of 2-2.5%.

The time to BUY & HOLD is upon us.

Tuesday, August 11, 2015

Era Of 'Free Money' Drawing To A Close

Between September to December 2015,an epoch will come to an end.Started by the US Federal Reserve and Alan Greenspan's post 9/11 attempt to lift the economy and then the subprime crisis that hit the US harder than any cyclone,the printing presses of the Fed will most likely come to a halt.

Rates will inch up.Fourteen years is a long time to print money to boost the economy.Those who were for it and those against both have some positives to draw from this era.

However this is not the end of such measures.Central Bankers of Japan and China have taken over the baton as they attempt to keep their respective systems buzzing.Europe looks undecided.Temporarily stocks,real estate will benefit.

"You can fool all of the people some of the time. Some of the people all of the time. And most of the people once in a while. You can obstruct price discovery and you can disguise and distort the real value of things. But Mr. Market will get even some day. He always does."
Bill Bonner

The Commodity bubble built over the decades is winding down.For countries like India that import 80% of their energy requirements its a heavensent.For Russia,Venezuela,Nigeria and the middle east its a worrisome factor.

China is at an uncertain period in its economy that ran a sprint for over one and a half decade.Soft landing.Withering of its manufacturing behemoth?Stock price bubbles finally catching up(as predicted by yours truly for past One Year!!).

Too early to write an epitaph.The spread of terrorism,the nucleur deal with Iran,the continuing uncertainty over Greece.

Domestically the frozen Parliament and deferment of GST and Land Bill delays our recovery.The Government focus on non core issues - beef ban,moral policing,is not adding anything to aid the much touted 'Make in India'The Industrial Production figures look too good to be true at times.

On the ground except for high flying PE deals which look crassly overvalued,as I write a local firm that sells Indian-chinese dim sum called WOW MOMO has been valued at 100 Crores....?There is a real bubble in these ecomm firms and I hope we dont have a deluge of housing.com kind of stories...!!

The real economy is not seeing any pickup in investments,agriculture still monsoon dependent,infrastructure poor.The strength of the Indian Rupee versus the $ has been an exception and when the Janet Yellen raises rates it will hopefully not lead to a too severe repercussion in indian markets.

Even if India grows at 5-6% we will still be better than most of the other countries.The long term holds out a lot of hope.

Wednesday, July 8, 2015

Time To Revisit Risk In Your Portfolio(While the Birds come home to Roost in China)

The 30% spiral in mainland Chinese market in the last One month could be a harbinger.This blog has consisted talked about a bubble in China for at least the last six months.Add the situation in Greece,Puerto Rico into the mix and we have the stage set for super volatility.

Harry Markowitz and his book,"Portfolio Selection"gave us a Nobel Prize level option on how to use risk to select a portfolio where the sum of the stocks held had lower risk(standard deviation) than individual stocks in the portfolio.

This is the time to revisit Risk in your portfolio.The mathematics of Modern Portfolio Theory(MPT)are too complex to describe and keep many academics busy their whole career.Suffice to say that 'higher risk leads to higher return'.How much pain are you ready to bear for the returns that you expect from the market.And yes i am talking about MPT and not S&M...!!

If you are risk averse.SIT OUT.

If you are a long term investor(3+ years).You are not exactly in heaven,but just a little way away.

If you are a trader.Do Yoga.Cause you will have difficulty in understanding which way is up and which is down!

This is a market where both the Bulls as well as the Bears are overconfident.Its tempting to short at higher levels and afraid to go long at lower.

Best would be to build a diversified portfolio although India looks insulated from Greece and China at the moment.Brent crude at $56 is lower than the new $120 i.e. $60.Base metals fall also means a lower inflationary trend for Indian economy.

Negatives will be the lower corporate earnings for previous quarter,all the sundry scams that have descended on the Government this past month,no clarity if GST will be passed this monsoon session,the Monsoon after being 23% over in June has lagged slightly in July.

Nifty after building a strong base at 8000 seems to be going into the 8200 - 8500 range.Wait for Europe to stabilize.China and Hongkong other than sentiment will not impact materially.

But paraphrasing a Biblical warning,"He who looks back at the prediction of Market Gurus will die of remorse".

Wednesday, June 24, 2015

Multi-losers Or Multi-baggers:Take Your Pick

Investing has many facets.Terabytes of data,millions of websites,books,esoteric algorithms,secretive formulae devised by Ph.Ds from ivy league colleges and your humble retail investor as well.All wanting to buy at the best valuation.

So many methods.So  much madness.

“Inverse,always inverse.”Reportedly a saying by Charlie Munger,Buffett doppelganger,an acclaimed investor in his own right,who took this from Carl Jacobi,a 19th Century mathematician.

Valuation by inverse is to work backwards through the data on the target firm.It is easy to find firms trading below Book Value(BV) or even below the value of their net assets.Does it make the stock of that firm a good buy?

Is the firm heading towards bankruptcy?what are the vendors saying?Legal issues?Many companies with BV below 1x, viz MTNL,Reliance Infra genuinely have lost their way and taken on so much debt that the income is not enough to even service the interest.

In the same way,stocks trading above 20x BV might not have much headroom left to give the desired returns.Hindunilever,Page Ind,Eicher Motors will really have to achieve dramatic results to sustain the returns given in the past.

There is so much data available on the internet that unlike a professional analyst you need not take the trouble to go and meet the management in person,although it helps if you have the contacts.

The market always surprises.No one in 2008-09 could have forseen the CMP of stocks like DLF,IndiaBulls Real Estate,Lanco Infra etc

Inverse analysis helps to match price to valuation at prevailing market levels.In earlier blogs I have discussed keeping emotion out of investment decision making being one of the toughest things to do.I feel it is more difficult to predict multi – losers rather than multi-baggers.All you can do is:-

i)Avoid investing emotionally
ii)Avoid going with the herd
iii)Act decisively when the opportunity comes

Do not hold on to losers if fundamentals or management makes you uncomfortable

Talk of Sensex scaling 40,000 by 2020 is but talk.What is important is the return that you get at the end of the year.Talk to your Investment Advisor,not just listen to him or her!

Wednesday, June 17, 2015

Monsoons: A Much Needed Blessing

For centuries the trade winds have blown from Africa towards the Indian subcontinent and back twice a year.Since the dawn of civilization they have been the harbingers of good fortune or bad depending on the amount of rain they brought.

No matter where you stand on the Indian plains,after three months of summer,the sight of blue black clouds low in the horizon,the cold wind on your back and the smell of water in the air,cannot be expressed.The sheer joy of it can only be felt!

The sight of farmers staring at the sky,sitting on parched,riven dry earth have been imortalized in countless movies and documentaries.Yet the Indian farmer is still dependent on the monsoon rains.

This year stock market analysts await the rains more eargerly than the farmers or so it seems.Having touched India 4 days behind schedule,the rain gods have showered a surplus of 11% till date.Crucial to see how the whole season pans out before declaring the prediction from private player Skymet as the winner over IMD(Indian Meteorology Dept).

The biggest failure post independence for this country has been the inability to get irrigation technology or in plain speak - water to the individual farmer where and when he wants it.Underground acquifers are running dry across the entire state of Punjab and Haryana,which once led the green revolution.

The way to uplift the farmer has been to offer freebies or the MSP(Minimum Support Price) rather than getting investments flowing into technology.Countries like Israel,Denmark and Netherlands have developed such wonderful methods and the system of drip irrigation,yet none of the development has touched the Indian farmer.

The RBI governor talk of inflation control is doomed unless we can stop the suicides and mass migration to urban areas as the diminishing returns from agriculture destroy an entire clan of people leading to destruction of traditional knowledge and suitable methods to increase production.Add a lack of storage and supply chain issues and I for one do not see food inflation coming down in the near future.The cycles of rise-and-fall are diverging and becoming more pronounced.

Not difficult to change the situation in Sixty odd years but well nigh impossible to change the attitude of people in power,

Till then enjoy the pouring rain as it comes down hard releasing the typical earthy smell,washing down the dust,leaving the few city trees and shrubs gleaming green.....hopefully you will think of the forlorn figures pending down to planting paddy that comes to us as rice from the nearest department store.

Tuesday, June 2, 2015

Guv'nor Goldilocks

The RBI meet 2nd June 2015 introduced us to the 'goldilocks' policy.The Governor may have his compulsions but then so does the economy!

I understand that the RBI needs to hold itself to meet future challenges in terms of weak monsoon,fuel prices,low corporate earnings,rising NPAs.
What is disappointing is the contradiction in cutting rates yet the commentary warned of possible inflation ahead due to sub normal monsoon.Why not wait till July by when we would have known about the rains and then gone ahead and taken a decision for a bigger rate cut?

Is the pressure from the Government greater than thought?

The issues of crude oil prices,monsoons etc have vexed the nation for centuries and it is nothing new,in fact with crude down by 50%,forex situation under control and even inflation at manageable proportions I would have expected a greater stance from the RBI Head to try and kickstart growth.

Is he a 'doom and gloom' guy?Is his paranoia with inflation hurting India and affecting policies that could reignite the economy.I remember in 2011 when India was growing at 8.5% and the rates were hiked,it led to a rapid shrinkage in liquidity and nothing the RBI done has brought down inflation.

Global factors have been mainly responsible.We all known the famous supply side issues in India that make inflation difficult to control.

Keeping all this in mind I would have expected a 50 bps cut in repo rates or some tinkering with the CRR and SLR which remain unchanged.

The Governor sticks to his conservatism and sees challenges looming over the horizon.But when are there no challenges.The situation is much better than the 1980-90 period.

He is not in his own words a 'cheerleader' for the markets.We do not want him to be.We just want him to use the elbow room he has to maneuver the economy to grow higher and moderate inflation.Not kill it...!

Wednesday, May 20, 2015

Elephant in the Dragon's Shadow...When Dreams Break

Despite the rhetoric,the history and tweets on weibo etc,much cannot be said of the Prime Minister's visit to China.None of the major issues were discussed seriously,let alone being solved.No big policy announcements and only a few endgame deals by Indian businessmen allowed a few PR moments.

There is a sense of deja vu` in Goverment policies,over the last one year sometimes it feels as if the old UPA government is still at the centre,other than a huge PR exercise that is.

Almost 50 years after the Chinese army overran our eastern borders and led to a withering of Nehru's political and cultural heart,we still seem to be kowtowing to Chinese might. Arunachal,Sikkim,Ladakh are still disputed by them,yet we have recognised their suzerainty over Tibet.They issue stapled visas to Indians from these "disputed"zones while we give them e-visas?

The huge imbalance in trade tilted towards China shows no sign of changing.Should we be falling over backwards to invite their companies to trade freely in India knowing that chinese hackers have tried to get to Pentagon servers of all things!

One year of this government and the promise of "good days are here again" seems to have evaporated like wispy reminders of winter snows on a summer day.The tailwinds this government got was a heaven sent:-

  • Crude,despite recent rally,down 50% from highs
  • inflation down by 40%
  • global growth up 1%,Greece crisis limited
  • Fed yet to raise interest rates
  • IIP up from its worst phase
  • CAD under control
Yet we find:-
  • crude prices up 20% domestically
  • no dynamic reforms
  • struggling with MAT,retro tax on FIIs
  • Right wing Hindu organisations on 'quote a day' spree
  • extraneous issues like ban on beef taking prominence
How long can we run on unadulterated public relations?Will the public have to wait for the 4th year of this government to see meaningful reforms just before next elections?Crime stats have not changed.Infrastructure has not changed.

Corporates are not investing.Hiring is down.The Prime Minister says now Indians abroad can feel proud...!!Were we living in a country without taking pride in it despite the dents and all or has the Prime Minister made a freudian slip?

What is clear is that he is not a delegator.Where we were expecting a tightly run ship has become a one man show.There is no team.At this moment I am afraid that he does not have a Plan A,forget Plan B or C...

When dreams break,it has the potential for social conflict which India has a fair share of anyways-Maoists,Naga insurgency,Kashmiri unhappiness.

Its too early to write an epilogue but a reduction in corruption scams should not be the benchmark to judge performance of a man and his team that came into power with such positivity.

My blogpost is not an accusation but a call to action for people who first showed us that we could reach for the stars and now they hide behind convoluted jargon.

Sunday, April 26, 2015

Chinese Hard Landing Amidst Overstated Growth Nos?

China's worse than expected Trade data shows the struggle that the party faces in ensuing a soft landing for an economy that looks increasingly troubled.

Post 2008 and the rise of China as  a manufacturing powerhouse shipping everything from smartphones to tuna fish across the world seemed like a modern miracle of millions turning their toil and tears into golddust.

Seven years later with the Chinese contemplating an american style Quantitative Easing(QE) program,its clear that the strategy of cut price goods,shoddy workmanship combined with a recessionist Eurozone and still 'zero interest' US put together are not working out for the economy.

What many do not realise is the fundamental shift in policy envisaged by the top party bosses.From a fiscal stimulus driven investment led style to a consumption led model.

After pumping in billions into infrastructure development,cheap credit to expand manufacturing,degrading the environment has led to an unsustainable situation viz.pollution and also a sharp decline in exports.

Those in the know believe that GDP growth in China is currently around 3% and not the 7% as officially stated.Global trade is still down from pre 2008 levels,wages are rising,overcapacity,fall in housing prices by 6% compared to double digit growth a year ago,rising non performing assets-plenty of stories.

So will the next big crash come out of China?

Sometime in the next couple of years China will have to depreciate the renmimbi quite sharply(20-25%)to stay competitive,A warchest comprising $3.7 trn foreign exchange reserves gives them the headroom to take appreciable measures without panic.

However its open to conjecture if it will curb Chinese companies from chasing energy assets all over the world,something that has had Indian companies worried.The iron ore suppliers will face lower prices which mean a good time for Indian users.

Despite all the pessimism,this is the basic reason why India should outperform in emerging markets.We have always been a consumption led economy and even a miniscule success for 'Make in India' will add an additional 1-1.5% to the GDP,which if added to the current 5% will easily make it one of the fastest growers globally.

Saturday, April 11, 2015

India IIP:Of Troughs and Crests

IIP for February 2015 is 5% against survey prediction of 3% and prior fig of 2.6%(revised to 2.8%).Capital Goods up 8.8% holding out some hope for the capital goods sector.

As seen on the right its been an up and down ride this past year despite the stockmarkets having one of their best periods with the Nifty returning 27% annualized.The midcaps and smallcaps having gone over the top.
TOI 11th April

Would you like to buy Bosch(an auto component company) at a 
 of 80...?A profit of 1100 Cr on a market cap of approximately
77,000 Cr...?

We have many such examples in the market ever since the new
dispensation came to power and despite a few desultory tweets
expressing impatience at the current government's apparent
slow progress on the pre poll agenda the general positive
sentiment remains.

Strange to talk of 'green shoots'when in one year the 'shoots'
should have become 'green stalks'...!

For all the talk of 'Make in India',there has been no coherent
push in terms of on the ground reforms.

I remember talking to clients about this great push coming in
infrastructure development-roads,highways,ports,SEZs etc

In two decades,Haldia,the premier port in the East is but a
shadow of itself with only 3 slots handling goods with tonnage
handled down by 55%.Labour issues,shallow draft at the
Sandheads not allowing ULCs through and the business
moving further south and onto the western seaboard are
but mere excuses.

The much touted flow of Chinese merchandise flowing through Nathula has not materialized.Calcutta Port is in much worse shape and there is no escape in sight.Other than Gujarat I do not think any state has made any appreciable progress in terms of industrialization in the past five years.

We continue to live on hope and rhetoric!!

Wednesday, April 1, 2015

The Summer is Back And it Promises To Be Long

After a dramatic and at times fairytalish equity run on Indian bourses,not that the Dow and S&P were far behind,in which Nifty gained 27%,the CNCMIDCAP gained 51% and the CNX500 was up 34%,its time to wind down the expectations somewhat.

The markets are likely to pause and reflect...On the reforms yet to be undertaken.
On the expected hike in interest rates by the Fed.
On all this qausi religious mix in politics,beef ban etc
On the spreading conflagration in the Middle East

The biggest expectation of 'bigbang' reforms not being met has been mitigated to some respect by the micro vision laid out in this year's budget.Hence the first hald of FY15-16 is likely to be dominated by Power,Infrastructure,Defence and Construction stocks

The second half of FY15-16 will probably belong to Bank and metal stocks.If I were to make a tentative portfolio that could be bought on corrections,it would be as follows:-

IL&FS Transport
Max India
Dredging Corporation
Tata Power

I am however uncertain as to the events unfolding in the Middle East and the expected repercussion on the Indian economy.Its a difficult subject to quantify but clearly states like Kerala,Andhra that recieve inward remittances from their residents working across Iraq,Saudi Arabia,Libya,Qatar and also Yemen face uncertaintly.As I write,evacuation flights are being organised by Indian authorities to rescue the citizens trapped in Yemen civil war.

Globally the 'lone wolf' attacks are not helping Europe recover from dismal growth and the chances of more political turmoil and war fears is an unsettling thought to take into the new financial year.

Wednesday, March 18, 2015

Positive US Job Data negative for India(emerging markets)...?

The Fed meets.All eyes on Janet Yellen.Will she?Won't she?

What if she does?

How will emerging markets and India in particular respond?

The RBI governor has been trying to cut swap deals with the likes of Sri Lanka,etc to try and keep the volatility manageable.

Going by past record of Ms Yellen,its clear she will not risk a 1937 style slump despite Ray Dalio,chief of the $ 165 bl Bridgewater Associates hedge fund being apprehensive that a rate hike will lead to a rout in the markets.

The strength in the US job market has led a lot of experts to predict that the numbers will be strong going forward.Dissenting voices say the job addition is low paying jobs replacing high paying ones.

If the Fed stays patient?

The $ that has seen a huge runup will most probably correct strongly.The US dollar Index has risen 25% since July 2014.A dovish surprise postponing the rate hike will trigger a sudden,strong decline but the majority view is that the Fed will remove the word 'patient' from  its statement this time.

Mohammad El Erian is of the opinion that June might be too soon but September will certainly see rates moving northwards.A strong dollar and sharp decline in crude prices in the last six months has brought down US inflation,in January 2015 it contracted 0.1%.

A strong dollar is negative for the US economy and that is what the doves are holding on to.

As far as repercussions on India goes,the quantum of withdrawal of QE should not be cause for concern as there is still abundant liquidity in the market.The GDP has been growing 5% and going ahead with the measures unveiled in Budget 2015 the momentum push in infra and manufacturing will begin to have a positive impact on growth,coupled with crude prices staying between $40-$60 where India remains dependent on imports.

Sunday, March 1, 2015

Budget or Vision Document?

This truly was a historic budget.More than get into the nitty gritty of the economy or outline micro measures,this vision doc looks all the way uptill 2020.

By now the numbers have been dissected over and over again so i will not take that road.But the highlight for me are the following:-

  • All previous budgets have talked about it but for the first time financial inclusion for the underprivileged has got a  roadmap
  • Creation of social security for all Indians,pushing infrastructure development and employment generation
  • Push towards federalism and more power to States,desire to simplify the complex Tax structure
  • focus on agricultural sector - micro-irrigation,organic farming,solar energy
  • Reducing Corporate Tax to 25% over 4 year
The middle class might feel aggrieved to not get fresh tax sops but I am sure that the temporary pain will be well worth it if the economy can grow 8%+ over the next 5 years.

If the vision can be translated into reality then India can look at having clean cities with strong road/rail infrastructure,citizens with purchasing power,simplified tax rules that incentivise payment of taxes by businesses with a social security net for the less fortunate,easier rules for entrepreneurs leading to more employment.Utopia!

The push for Banks to make capital available to the SME segment that in majority of  cases has to turn to unorganised moneylending system with commensurate high interest rates(which have led to so many farmer suicides).By not introducing new revenue drainage schemes the Government will look to improve its fiscal position,balance of payments and foreign exchange holding.

The negatives are the continuation of populist schemes that have leaked financial resources and not really improved those on the bottom of the pyramid.The lack of concrete assistance to improve exports and the thin support for Prime Minister's favourite 'Made in India' idea.

However the Government has been pragmatic in not going overboard with populism as was expected after the rout in Delhi elections.

The budget has left a bland taste with no major announcements or policy decisions in the short term.Now the focus will be on implementing the measures outlined and making governance easier,starting a business simpler,paying tax smoother with medical health,social security,increased food output.

The vision for India for the coming decade looks good.Now the rhetoric needs to be replaced by action to translate the dream into reality.

Wednesday, February 25, 2015

"Made in India" Budget 2015

No matter how much we say that the annual 'Budget' exercise of the Indian Government is a non event,we still feel the weight of expectations come the end of February.

This year is no different.

The middle class expects tax sops.

The corporate sector expects a cut in corporate tax.

The infrastructure and real estate segment expects liquidity and easier rates to get rid of piling inventory.

This year all eyes are on the Manufacturing sector what with all the hoopla and stress on 'made in India'.

The stabilization in the USDINR rates and appreciation of renminbi are positives for MII.Increase in labour and electricity costs in China have forced many Indian corporates to manufacture here rather than import the entire product from China.ITC,Godrej,Bosch and Micromax are some examples.

Although the last couple of years in India have seen the lowest growth in decades,the general consensus is that this is the time to leverage India's demographic advantage.Additionally the Yuan has climbed 7.2% versus US dollar compared to a 26% fall in $ against the Indian Rupee(INR).

Labour costs too have risen 10% YoY in China especially in coastal regions where most of the manufacturing facilities are located.This though is not likely to make a huge difference.

Aspirations of Chinese workers has risen with the strength in their economy and a shortage of people to perform menial work is also being felt.

Places like Haridwar in Uttrakhand and Baddi in Himachal Pradesh have been joined by cities such as Vizakhapatnam and Dehra Dun which were traditionally non manufacturing areas.With the planned industrial corridors and linkages in transport as well as roads,it will create a complete advantage.

That is where the Budget 2015 is being watched for lead indicators of how this Government plans to execute the vision already communicated by the Prime Minister.

Thursday, February 5, 2015

Be Sceptical NOT Cynical....yet!

Come January or February of every year, middle class India awaits the upcoming Budget,tax concessions or raise,train fare hikes,price of white goods and a whole lot of other expectations.

The Investing community too turns crystal ball gazers,analysing and re-analysing the affect on the price of stocks and which Companies would benefit from whatever announcements happen.

After the underperformance between 2010-2013 we have seen a superb return in 2014 in India post elections with the average return close to 40% annualized.

2015 will certainly be time for a reality check.

Most stocks have run up on expectations and the entire PR machinery of the BJP government has done a commendable job in tom-tomming the various positives.they have had marvellous luck with crude prices crashing leading to a moderation in inflation - the main components that have unsettled the Indian economy for so long.

Looking behind the veil,exports are yet to pick up on MoM basis,the Current account deficit is still above comfort levels,local manufacturing is stuttering,hiring and new jobs across sectors are yet to firm up.If elections in the capital Delhi throw up a negative surprise for the BJP then the invincible looking Modi aura will suffer its first dent.

The prononcements have come think and fast but there has really been no reform 'muscle' behind anything.Its begining to look like this Government is carrying on the policies of the previous regime which they so vehemently opposed.

So should you be cynical ?
Be a sceptic not a cynic yet as there is yet time for new policy measures.

If Greece can manage an ordered exit and save the Eurozone from an economic disaster,we in india can look forward to renewed growth initiatives by the government and the RBI to further lift GDP growth above the expected 5.5%.Talk of India overtaking China are farfetched,though those who read my regular posts will know that I am a cynic on China.Their way of growing at the cost of the environment and people,the lack of transparency and nobody knows what other scams lie buried,the NPAs of Chinese state funded Banks

The Elephant may not be faster than the Dragon.It certainly is the more trustworthy!

Friday, January 30, 2015


Even as I write the new Prime Minister of Greece seems bent on not honouring the Debt agreements under the restructuring plan.

The Germans are equally determined not to agree to longer debt payment schedule or any other kind of relief.The Europeans have also categorically stated that they will not write down any debt.It would set the wrong precedent.

Sadly,Alexis Tsipras does not want to privatise state assets nor does he accept economic reality.

That means a Grexit...!!

If the withdrawal is unorderly,chaotic or mismanaged then the repercussions for Greece in the long term will be severe,especially for its general population.Already talk of Banks failing,the currency depreciating again if the drachma is reintroduced.

Inflation,a catastrophic depression and the risk of Greece becoming a basket case are high.As if the Zimbabwe's of the world needed new additions.

What is proves is that no rigid system will work for countries ever closely linked by trade and people.Whether it be socialism or capitalism in its true form,what is required is adaptability of the political class to a world nuanced to subtle economic indicators.

The Euro was expected to lead to free market reforms across the whole of Europe when envisaged as a single currency but that has not happened and protectism under various guises exists in different pockets of a single country in many cases.

Secondly the economies have not allowed immigration from weaker countries to stronger due to racial and cultural differences that have been in Europe for centuries.

Third,it is unfortunate to expect strong economies like Germany to send billions in aid to weaker nations.

The whole concept of a single currency and a one-monetary-policy-fits all approach has failed.It can never hope to become one country under a democratic system that will satisfy all its residents or make them feel that they belong.

That is what makes me highly pessismistic on the long run survival of the Eurozone as we know it today.

When and if it collapses many years hence,the repercussion of trillions of dollars or pounds of debt being written of or devalued will create a depression so huge that certainly the entire World will be sucked in.

I hope sense prevails and if there is to be a GREXIT then it is managed carefully and sensibly.

Sunday, January 25, 2015

"Service Before Self".The Indian Armed Forces Show the Way

1,129,900 serving personnel.
9,60,000 reserve personnel.
Approximately 3500 Tanks.
Approximately 6700 Artillery Pieces.
Approximately 1750 Aircraft including fighters,transport and helicopters.
2 Aircraft Carriers,11 Destroyers,15 Frigates.

The 4th largest standing army in the world.Fights on Land,Sea and Air.Fights in the frigid arctic conditions of Siachen(AVERAGE TEMPERATURE -50 C).The Thar in Rajasthan(Average temp +50 C),on the turbulent Bay of Bengal,the salty Rann of Kutch.

In fair weather or foul.

Its said that statistics do not lie.Maybe.But sometimes they do not tell the whole story.

When floods threaten the population,call in the Army.
When a Cyclone or Tsunami hits,call in the Army.
When there is civil unrest,religious or otherwise,call in the Army.

Probably the most disciplined fighting force in the World.Defends the Nation's borders,defends the internal security across environments that would challenge the most advanced fighters globally.

The one true Indian institution that has stood above religious and caste considerations.Never have so many sacrificed so much for so little return.The pure naked courage under fire and the attitude of persevering in the face of overwhelming odds has been in evidence right from the World War I in the trenches of France or the sahara in Egypt right down to Afghanisthan,Arunachal or Kargil are too well documented.

Off all the nationistic things that is expected from the new Government I feel that 2 years of military service should be made mandatory for every teen in India.

As I have mentioned in earlier blogs I had the time at one point to work closely with some military personnel at the Eastern frontier and then in New Delhi.The lack of proper snow shoes,goggles,modern webbing and weaponry is shocking.Packed rations,especially for high altitude fighters is the most felt for need that I saw.

Ask any Indian and the one place that 90% feel is truly representative of the people is the - Indian Army.

Jai Hind.

Wednesday, January 14, 2015

Is 25 bips Repo Rate Cut Enough?

Finally the RBI Governor bowed to sentiments,sharp fall in crude globally and inflation in India to cut the Repo rate by 25 bps.

It is nowhere enough to kickstart growth although there are signs that he might cut the rate further in February or March.If we look to pick the positives,the direction in which this step takes Banking Policy is noteworthy.

WPI for December was .11%
Retail inflation climbed marginally from 4.4 to 5%

Some indicators though remain a double edged sword:-

Fall in crude,Brent is trading between $45-48
Copper crashed to a six year low

The oversupply of crude in the Eurozone aligned with fears of stagflation,low growth,China's hard landing are making themselves reheard.
Low crude prices are as bad for Global Growth as is high inflation.

Domestically the Banks Balance sheets will have a negligible effect unless they can clean up their BS of non performing assets before embarking on ambitious expansions.Feeling is that this cut in Repo will not be passed on to the public at large.

Sentimentally good move.But at the moment that is all it is.