Monthly Archives: November 2016

Win the war,ignore the rattle

Dear friends,

I write this note in the midst of lurking uncertainty on the outcome of USA elections, the growing nervousness in Indian markets and a continuous sell off by FIIs.

i write this at a time when a no of my fellow investors have turned uncertain and nervous and most Broking houses have stopped recommending buying to clients. One of the recent highly subscribed housing IPO’s faces a probability of a muted listing and there has been a huge unwinding of future contacts per market data. Call and put writings are at a high and volatility index is suggesting a nervous time.

I am also writing concious of the fact that I am not  a financial consultant or advisor and not geared with so much global information as may bless some who do this as a full time job and spend hours in assessing truckloads of data.

The writing suffers the risk of reflecting personal thoughts that as of today are untested including at the risk of my own money at what is perceived as “risk”.

The article is a frank expression of a few thoughts that touch my assumed rationale and must be measured by all of you on your own thesis of it, be it an agreement, disagreement or indifference.

All I know, is that God lives above. Or in our hearts and beliefs. There is no God In the markets. You may be blessed by luck or belief and in a way God but you are as human as anyone.

It is thus a matter of truth and certainly that it remains beyond any human capability to repeatedly and accurately predict the direction of the markets in the short term. This logic applies even to qualified funds, advisors, well read investors, chartists, mutual fund investors or even veterans. This is comforting as it leaves my views on the market in the company of like minded people with no clue.

 

It is however equally interesting that markets over a period of time move away from voting (literally) and weigh value and growth.

sometimes we can do ourselves a lot of good by asking ourselves when there is uncertainty as reflected in market price of stocks or volatility or behavior, if we think what is happening is reasonable or emotional. Thinking rationally itself is a huge positive as irrespective of the outcome it demonstrates a correct process rather than a spur of the moment reaction.

I cannot say whether a rational thinking would make you buy or sell stocks or who will be right or wrong in the next few days but to me it appears:

1) the markets are assuming too much Clinton or Trump. They say if Clinton wins markets will rally (which is good) while if it’s Trump they will fall which they have been doing including for 8 consecutive days in USA as I write this note. A look at history of USA elections suggest USA markets usually don’t move much in the short term  (up or down 2-3 pct) including the pre election and post result impact. Markets are far more mature in USA and to think the extent of reaction has been beyond historical, suggests to me that then event of a “perceived” disssapointment  of  Trump win is priced in. Insurances by selling or buying or selling calls and puts which were always meant to be instruments of hedge seem to have found their takers last few days.

2) I don’t think Trump has even once suggested he is anti india. His campaign has been against china and perhaps some parts of the world and if it is assumed he acts on this, I feel the trade between USA and these countries has some probability of shifting to india.

3) oil has tumbled sharply last few days. Oil is a major influencer on the Indian economy and balance of payments and leaves the govt richer with lesser deficiet. At a time when govt spending on infrastructure, digitizations and e-governance are rising. Countries movement from emerging to developed are partly a result of infrastructure spending and the path looks up. It is easy to get disillusioned with road blocks, traffic snarls or pollution but  transition is not overnight but a directional move.

4) the govt has committed to a uniform tax called GST that amongst other things aims to ease doing business. It cannot be overlooked that the steps taken including on tax rate notifications are a progress. It is always easy at the first stage to criticize things for lack of clarity or ambiguity but as true about most things. Things settle with experience and I think it’s a great steps for corporates that some uniformity and certainty will be setting in soon.

5) there has already been an announcement by the govt of a desire to reduce tax rates to upto 25 pct. the govt has about 3 years to take some action before elections and if the govt bites the bullet or part of it, the likelihood of a tax reduction is fairly high in the coming budget. Let’s not overlook the budget too has been advanced this year and is expected to be presented with a merged railway budget. The advancement should invoke some market expectation and rally, on a time factor that is not too far from where we are today.

6) the world liquidity stands at a record high. Interest rates and alternate sources of investment at a record low. In an excellent data point shared on Twitter by Vala Afshar, Chief digital Evangelist of @salesforce one of the most progressive cloud companies, he shares the Economic history of the world in 1 minute. There is a meaningful depiction of how wealth originated from india and shifted west and is now shifting back to india. This is evident in several forms in the country.

7) I saw a wonderful interview by Mr.Raamdeo Agarwal of Motilal Oswal who talks of how a person with a 1 lac salary may save 10,000 rs for discretionary expenses net of taxes and his lifestyle needs. Hence 10 percent. But when the same person moves up the salary ladder to say 2 lacs, the basic expenses don’t rise in same proportion and he is left with 1.10 lacs of discretionary spending. Thus he moves up 10 times with funds he will use to consume more cars, bikes, travel, amusement, food and beverages etc which are a huge catalyst for a country like india.

8) the assumption of a tough india stand by a newly elected USA President ignore that most of the best performing stocks in india are in the first place a bet on india consumption not USA consumption. This includes banks,  housing finance, nbfc, plastics, paints, chemicals, wealth management and asset management cos, branded textiles, a large part of tractors, auto ancillaries, Hospitals and medical services, diagnostics to name a few. Even in a dire situation FII’s can tame india investing but can’t ignore it and some of these companies offer a huge growth opportunity. In some cases, it is rare to find such companies and their growth rates and many gems in india are now fairly well owned by promoters many of whom are even resorting to buy backs now.

9) we are close to an year end. The year has not given any meaningful return to most foreign institution investors, who are either on cash and will need to bottom fish to keep their nav intact or use cash before exploring their client pools for additional new year funds.

i can keep adding more and more factors but I’m not selling you india. To me it appears that brokers are confused, tv chartist have switched loyalties in just 4-5 days and funds are too obsessed with daily benchmarking.

I find more reasons to selective keep investing and exploring the fascination that lies ahead. I term this reaction as a bout to nervousness and see the next one as one of grit and determination. The bull market has been a hated one with less making more and I feel the trend could continue.

without making any prediction that may wonder into the sphere of gambling, I see a good possibility of fortune favoring the brave. A battle is a shorter horizon. You need to plan to win the war. The rattles are to distract babies and to make noise. The focus is to generate compounding.

I remain fully invested .

Happy investing and much good luck.

(do share your feedback. My advise is a personal view and not of a Regd consultant. Stock investing is risky and one should use surplus funds that can be set aside for longer term. Due apologies for any typos. in a war you look at the opportunity ahead not the color of your shoes 😀)

cheers.

 

 

 

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