Newsletter Dated 02-11-2021

Happy Diwali and prosperous new year to all my friends here. Hope all are doing well and condolences to all those who have lost their near and dear ones due to covid.

 

           It’s been a while since I have written something on financial markets now and even if I would have wrote something, until last week anyone would have had rarely any time to read it. The Bull Run has been so fast and furious that most of us now have their own ideas of investments and have more conviction than even the fund managers or market experts. Everyone is cautious but positions are long and no one wants be left out on the up move. Money is chasing momentum and smart traders. Lot of IPO’s which were valued at just 25 % or even less than their last fund raise just a year or year and half back are selling like hot cakes…thanks to grey market makers and valuation pundits. Frankly speaking looking at them the listed companies look very very reasonably valued. On top of all these we have commodities that have started surging and how…..resulting in inflation and most of the developed nations which made several attempts to increase inflation are now figuring out how to control it. Still there are a few who believe this is due to pent up demand and I have a different opinion here , as china is mostly passing inflation to world and it cant stop with the per capita income rising faster there. There is a fed meeting  on 1st and 2nd November and we shall have our clear date and quantum from when the tapering will start. With all this RBI had also in its last meeting spelt out that the liquidity is surplus in the system and  it is looking at slowing reducing it by 1.5 lac cr. While the euphoric markets have not paid any heed here…in my personal opinion this required great attention. However one very positive news here is extension of tenure by 3 more year of Mr Shaktikanta Das, our RBI governor who in my opinion is Stock market friendly.

 

            Wow ! with all this perfect set up for end of bull market why does some expert feel we are in a 2003 to 2007 era, which was a golden period for equity stock markets, with Sensex almost growing  3 to 4 times ( needless to say with many sharp corrections ). Reasons are many and worth understanding.

 

  • The mess in China is giving a much awaited opportunity to India and help our make in India successful. Last 5 year India has done a lot of hard work here and this is an opportunity which is thrown in hands by china, the intent of the government is also clear with lot of PLI’s announced in last 1 year.

 

  • In last 5 years we have had a GDP growth which is just attributable to our demography and this is evident from the fact that we have had no serious gross capital formation. Capacities created in the past and lying in the IBC have passed from one business house to another. In 2016/17 we had demonetisation, in 2017/18 we had GST implementation, 2018/19 -19/20 we had our own election and the great covid since then

                                                (Data from macro trends).

 

  • If we see the history interest rates for us has been in a declining trend. Its almost 2 percentage points in a decade at least in 2000-2010 we had avg 10 percent, 2010 to 2020 we had 8 percent and looks to me we will be at 6 percent in 2020-2030 and may be even less looking at the FDI’s interest in India, and deep pockets of the fintech companies who have ready to burn purse of their Investors.

 

  • Percapita income in India is at 2200$ and it’s projected to improve to 4000 odd in next 5 years. While this is not just numbers… it will create an urge to consume a lot more and better. If make in India is implemented well we will have a huge capital formation in India itself to feed this demand and low Imports. Also all of us must have experienced in this Diwali how the prices of lot of goods and services have sky rocketed and a major part of this is due to what’s happening at container terminals and pent up demand but nevertheless a large portion shall continue.

 Source: finshot

 

Clearly manufacturing is very low contributor to GDP and the scope seems to be high.

 

  • Oil forms a significant portion of our imports and the pace at which world is moving towards clean energy…the demand for oil post couple of years will definitely start declining though at lower pace initially. This may result in a strong dollar reserve which according to me is strong even as on today at greater than 625 billion dollars.

 

Having said this it is wise to be with quality large, mid and small caps and clearly working on hot tips can be hazardous. While markets have moved fast and so sharp corrections cannot be ruled out…one who keeps his discipline in investment will surely see his/her equity portfolio growing larger and larger. Also we are advising our clients not to put money in longer tenure FDs or bonds now as according to us there is a chance we may have seen the bottom on interest rates as of now.  While there may not be many avenues to earn higher returns on investment, this is surely no time to compare FD returns and invest in equity, be very mindful here.

Once again I wish a very prosperous year ahead to all of you, the way we had last year.

 

 - CA JAYESH GANDHI

 Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are certified investment advisors yet to be SEBI registered. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.

 

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