India Budget 2017

Last week India had the much anticipated and hyped financial budget 2017. My initial reaction is the budget was practical (not populist despite elections around the corner) and paved the path for job creation. Given the sluggish private sector investments the Govt needs to step on the gas and invest for the future. I firmly believe the growth pause cause by demonetization is behind us as we see pick up in sales for vehicles, mutual funds, insurance policies, oil etc. I must confess some sectors run through the parallel economy would need to change their operating model to start complying with the laws and taxes. With GST in the anvil and lower tax rates for SME I do see tax collections to be robust and compliance to be even better.

Globally the Dow crosses 20000 and Nifty is headed to 10500 obviously with a few bumps which would be good buying opportunities.

All set for the all important UP elections which would give a good sense on future pace of reforms. 

Localizations

Over the last years we have seen countries starting to look inward; focusing on local jobs, stimulating local businesses and giving a sense of power to the people of the country. This has been seen in India with the 'Make in India' initiative; in USA with Trump's victory and 'Make America great again!';  Brexit with rural U.K. voting for opportunity, change and control vis-a-vis London. All these point to the fall of globalization. Now onwards good and services will be produced / procured based on 'political' economics rather than traditional economic theories.

The Trump era like the Modi era will mark the increased polarization of issues and greater mud-slinging politics. Get ready for spicy breaking news!!!

Retirement Planning 2020

Planning for retirement is the most difficult question faced by most of the people.

Although its easier said than done here are three questions one most ponder and decide to have a comfortable retirement life.

1. When do you want to retire?
2. How much do you want to save?
3. How much minimum percentage of your final salary do you wish to target?

The are countless of other questions and bets one will have to take like long term inflation, interest rates, cost of living, medical costs etc to come up with the right pension amount. And I am sure at the end it will feel you should have done more.

My simple advice is take life (professional career, personal life etc) in 5 year buckets. Its much easier to break down long term goals into shorter term targets which are easier to predict, manage and remember!!!

Think about where you want to be in 2020!!!...

Inflation in US

The US FED decided to keep the interest rates low for an extended period due to subdued inflation trends.
The core inflation rate in the US has fallen from 2.5% in mid 2008 to around 1.8% currently.
However this may be misleading.
In the computation of core inflation number a weigtage of 40% is for rent for owners. This basically refers to cost of home ownership by what someone would have to pay in order to rent the house one owns.
In the past two years due to falling house prices and increased vacancy the rental rates have got pushed down. This has in turn brought down the core inflation.

Excluding housing and rent the core inflation has actually increased from 1.8% in mid 2008 to 2.8% currently.

The US FED would be forced to increase the interest rates by Jul-Sep this year since trend would ease out in the coming months.

In India, in contrast the inflation number does not include any housing impact (other than raw materials used for construction). If we bring in the housing impact into the inflation number the number would surely be much higher that what is currently being reported.

China Bank Lending

The total Chinese banks lending in Jan and Feb of 2010 has been around $ 300bn as per the reports of the People's Bank of China (PBOC), the central bank.

This is on the back of a $ 1.4 trillion lending in 2009 by Chinese banks.

Comparing this to our Indian Banking system. In India the total loan outstanding as on Feb 2010 is $ 650bn.

Lets ponder on this number and understand what ramifications this kind of credit in the economy can do. Will write on this later.

Futures Market in China

In China the Futures and Options market started on February 22 2010.
Some of the pre-conditions which need to be satisfied to trade in the F & O Market are
1. One needs to have an investible surplus of RMB 5,00,000 (US$ 73,000 or INR 37.5 lacs)
2. One needs to attend 20 mock trading sessions and must have executed 10 mock transactions.
3. One further need to undergo 10 mock commodities transactions.

Only when you satisfy all the above conditions you are permitted to trade in the Futures.....
India is way ahead in financial reforms....

Food Problem

I recently read an interesting piece of statistics
In terms of R&D specing on food;
95% of the spending is done on pre-harvest R & D initiatives like seeds, fertilizers, irrigation, etc.
Only 5 % of the spending is on post-harvest initiatives like logistics, storage,market-making etc.

This is after we all know that more than half of the food grain output is lost to reasons like improper storage resulting in food grains being consumed by rodents.

The problem identification in this area has gone completely wrong else we would have enough grains to feed the entire world twice.

Bubble Trouble

My biggest learning over the past month has been that a many guys in the investment world could predict the recent stock market fall. That means the future direction after this correction would be severe.

The second big question I kept getting asked these days is how does one play the budget.

My answer is hold cash and short the market on ever high.

My entire hypothesis flows from two thoughts on the stimulas package in the US economy and its effect on the interest rates and with it currency flows and world trade and asset prices. With this hypothesis we are already in a bubble situation.

1. If the economy has surely recovered from the recession then interest rates would need to go up in order control the inflationery position and the US FED would need to withdraw the stimulas package else it would create an asset buble in stocks, commodities and property as cheap money would be avaliable in the system to splash over all assets.

However if it increases interest rates there would be a fall in consumer confidence which will pull down consumer spending and with it industrial production and the entire GDP. If GDP falls the job creation in the economy would be delayed.

2. If the economy has still not recoverd from the recession then the US FED would stick to its cheap money policy. Given the low interest rates scenario this money would be pushed into equities, commodities and property. This increase in asset prices would make them unaffoardable and expensive to justify the current valuation.

This would result in the fall in global asset prices and with it consumer confidence and spending and GDP.

We are currently in scenario 1. The world economy is slowly withdrawing the stimulas and we would see the repercussions in the months to come.

The above hypothesis is also supported by the fact that the last quatere US GDP increase has entirely been due to inventory build up in the system in anticipation of future consumer spending.

We are surely going to fall. When is a question of time. And we would know that in April / May when a $ 51bn of soverign debt of Greece comes for repayment. We can surely expect a default on this count.

Market Direction 2010

We all witnessed yet another year of excellent stock market performance with the average market increasing much over 80%. From here on we feel the the performance in the current year would be below the expectation.

It is very evident from the last year's rally that its only the foreign money roughly $ 6 bn which has poured into India that has made the majority of the profits.
Among the domestic players - domestic institutions, MF & retail have been a net seller in the markets with both selling over $ 1.2 bn.

Given this background there is a growing sense of being left out and when one is in such a mental state one can commit some horrible mistakes.

My analysis of the entire situation is as follows.

If the market does not correct in the next 2 months and by correction I mean a minimum 10% fall from the current levels, then we can be rest assured that the next bubble has surely reached an advanced stage. The analyst community would be projecting future earnings as if they are astrologers. At that stage the technical analyst will tell you that the markets are going even higher. All this was repeated in Dec 2007 and early 2008.

On the other hand if the market corrects by that level, we will have a situation of a very dull market for more than 8 months. This will happen when we have poor inflation numbers with the risk of rising interest rates, crude again starts touching $100 to a barrel, rupee starts appreciating against the dollar etc

The two biggest data to look out for would be the rupee movement and the inflation numbers.

So with this background the only approach to investing would be to focus on companies, financials, management, corporate governance, competencies etc.

Astrology and Stock Markets

Happy New Year

I wanted to draw a comparison between astrology and stock markets. Astrology is a business of predicting the future. In Stock markets if the future is predicted correctly one would be in business. Given this close linkage between these two business I thought why can't you blend the two to astrogically predict the future.
Then I came across Astrological Funds.
It would be safe to assume that market trends based on planetary positions would be a good subject to study in your pass time, but the bottom line is one can make money in the markets by only picking the right company at a right price with adequate margin of safety