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Friday 29 September 2017

Do we need Fiscal Stimulus or just Stimuli

Fiscal stimulus is a more dreaded word than Hydrogen bomb these days at least on Dalal Street. The world is slowly moving out of easy money policy as evident from the recent central bank signals.  Bank of Canada has raised its rates and Bank of England may follow soon. European Central Bank has indicated that both the Euro and its economy are in better shape. Madame Yellen has made up her mind for gradual rate increases starting this December. So it’s too late for us to join this party, especially when even the hosts have left. Yeah Of course, Japan is still out there to give us company, in case we need it. But do we really need Fiscal Stimulus.

Even before government machinery could make up its mind, FPI money started exiting towards safe havens where interest rates are set to rise and economy seems to be in rosier condition. But this has been happening over the past few months as a stronger rupee has made arbitrage profits lower for many FPIs and thus the drain continued. Though domestic institutions have done their bit, what remains to be seen is whether their confidence in domestic economy will pass its litmus test in the coming quarters.

Our economy currently is going through the side effects of two major surgeries performed during a gap of just 6-7 months, I mean demonetization and GST. So definitely, some side-effects of such heavy dose of strong antibiotics will linger at least in the short term. Parallel cash economy will take some time to come into the legal net shoved by demonetization and throttled by GST. The small & medium enterprises which contribute about 38% of our GDP are still taking time to enroll in online GST up-gradation and thus a short term blip was expected.

Need of the hour is not to give heavy dose of steroids hurting the economy’s immune system in the long run but remove impediments present in the daily churning of the domestic economy. This can be either in the form of improving supply chains, simplifying GST further and prodding PSU companies to put their surplus to meaningful capex. For GST, I think what Jim Collins once said sums it all,

“Why on earth would you settle for creating something mediocre that does little more than make money, when you can create something outstanding that makes a lasting contribution as well?”

Friday 22 September 2017

Thursday 21 September 2017


Nifty touched its lifetime high of 10171 on 18th September to the delight of our domestic institutional investors. Our MFs are driving the party. Plowing in some Rs. 15000 crore in August when FPIs sold equivalent cache from Indian markets was commendable. Now why FIIs are selling is no mystery at all, thanks to the now more expressive, humble & transparent US FED under Madame Yellen. But how long our MFs would charge taking out their “Make In India” weaponry as “kings in shining armor” of the so called overheated or over- valued market. Are we really over-valued? Investors who are busy thinking that and waiting for a correction might miss out the burgeoning bull rally. In the absence of earnings recovery hit by GST & Demonetization, NPA woes and lack luster private investment, burgeoning stock market indices seems to be a scary phenomenon moving in just one direction. Is it because of the inundating monthly inflows received by the Mutual Fund industry or the GREAT EXPECTATIONS theory resulting in an inflated bubble? I think it’s Both.

Tata Steel jumped 1% in early trade as the company announced 50/50 joint venture of its European operations with ThyssenKrupp of Germany. The joint venture is expected to benefit through cost synergies, higher quality and technology up-gradation. The agreement between both the companies is also expected to result in job cuts of about 4000. But who is worried about that till earnings visibility looks promising. Now if one stock can jump 1% on higher expected earnings in the near future, can anyone estimate the bouncing spree of the Indian stock markets after roll out of GST or the undergoing digital revolution in every sphere of our economy? Informed investors are able to estimate the benefit accruing to the economy with parallel cash economy coming under formalized or legal tax net. Not only that the organized established players will benefit further with unorganized sector losing its cost advantage. Sectors from FMCG, to Auto to Footwear have been rallying after the GST rollout. Sectors like logistics are getting benefited as transit time has been trimmed down aggressively. Transit time between Kolkata & Mumbai has come down by one day and transporters are able to commute from Chennai to Gurgoan in 72 hours. This feat could be achieved by dismantling check posts in every state after implementing GST. All this cannot appear in immediate quarterly numbers but are going to be a major game changer for the economy as a whole. Not to mention the input credit advantage, Good & Service Tax is a long term benefit and is therefore expected to increase the GDP beyond 8% which in the current quarter stands at 5.7%. Coming back to the expectation theory which is also playing out in the Financials space moving northwards even as NPA woes and Bankruptcy code plays out. Even with lower corporate credit growth, investors are betting on retail and housing incentives given by the government. Public sector Banks are expected to get back to their feet by the end of the next financial year nudged by government policy and prodded by RBI. Private sector banking has always been a happy space for investors fulfilling their long term expectations. In addition to all of this, sectors like cement & auto considered as proxies of economic growth are consolidating. So is this just a BUBBLE. No it’s not, as this run up is not fueled by hot foreign money but by patient domestic investors who have waited for these economic reforms for decades. As for retail investors, information & analysis would be the key for investment in this bull market. And don’t miss out on Fundamentals as Fundamentals Create Wealth.