Saturday, 9 July 2016

RISK AVERSE INDIAN GROWTH RATE

India no more following the Hindu growth rate in the present volatile global scenario has been a debatable issue over the last two years. Changing the GDP methodology from factor to market based price, has spurted our GDP making it one of the best performing Emerging Markets. Economists and analysts have made their observations quite vocal at regular intervals, so the recent US government report hasn’t come as a shocker neither for the government nor for the Indian masses. But what is of a major concern are the facts which have come to light in the recent Financial Stability Report.

Both credit and deposit growth rates of SCBs have not only remained in single digits but have declined. Credit growth rate has declined to 8.8% in March 2016 from 9.40% in September 2015. Deposit rate at 8.1% in March 2016, fell by around 180 basis points over the same period. As per Bloomberg report, syndicated loans of about $ 8.6 bn were signed by Indian borrowers, which is 44% lower in the second quarter than the previous three months. Corporate sector is on severe diet control due to over-gorging on easy stimulus available by Indian banks at the time of 2008 crises. So right now de-leveraging is the sole mantra for the Indian corporate and thus stimulating private investment or expansion is a farfetched goal both for the Indian government and banking industry. Small and medium enterprises have been the major martyrs facing double edged sword of a slowing economy and stringent bank credit regulations. As a result leverage or DER of small and medium companies has gone up.


Big companies and established industrial houses are busy giving endorsement to new government initiatives and policies, but when it comes to implementation, purse strings don’t loosen up and excess cash gets invested in mutual funds, bank deposits, government bonds and other financial assets bloating ‘other income’ of these companies year after year. Do we have poor risk taking ability? Everything insured and assured makes sense to us either by central or state government or some big industrial house. May be our general mentality is to play safe till the global tidal current settles down. We have already lost decades waiting for liberalization and now that we have reforms on daily basis we should not be looking at the FED or ECB or BOJ. What we need today is not just ease of doing business but easing ourselves mentally to take on the world as it comes.  I had recently read somewhere, “There are two main dangers in life, risking too much and risking too little”. And we Indians risk too little. 

Sunday, 3 July 2016

POST BREXIT RALLY OR ETERNAL SUNSHINE OF SPOTLESS MIND

Nothing to do with fundamentals, this is what the analysts are saying these days, after markets have rallied spectacularly after Brexit. Even currency markets have stabilized now. Have the markets become immune after years of stimulus packages, interest rates close to zero or even negative and low confidence in central governments. Or has it got to do something with Eternal Sunshine of a Spotless Mind. Yeah may be global investors have erased Brexit memories…. Just joking….. 

Bank of England has signaled monetary loosening and the FED, BOJ and ECB have nodded in unison bringing about this global rally fuelled by liquidity which may lead to overheating or overvaluation of Emerging Markets at least in the medium term. So the party goes on till some Act of God like Brexit, completely misread and miscalculated by the markets hits them again. After Brexit, no trigger factor in sight and central banks becoming more and more predictable, stock markets have become barometers of liquidity than economic fundamentals. Even in the current tumultuous times, we need not worry as the ongoing reform process has made it impossible for any class of investors to obliterate Indian economy from their investment portfolio. Reforms in aviation sector, harmonizing telecom spectrum, Rs. 6000 crore package for textile sector and the new National Mineral Exploration Policy in less than fortnight has shown commitment of Indian government to fight global uncertainty on the front foot.  Thus Indian investors are in a sweet spot and to make the most of it follow they just need to the fundamentals as Fundamentals Create Wealth.