Recent events in the world and the prices of crude point to the possibility of oil racing towards $ 70 per barrel have brought in the bears out of their winter sleep. The talk is all about how crude will hit $100 per barrel and how INR will be devalued to INR100/USD. Some pundits are gleefully rubbing their hands in anticipation and waiting to say "I told you So".
When all this is going on in the foreground, the background has the cacophony of mass movements of combining the power of "Mazdoor and Kisan" to overthrow the regime.
Now let us take a look at some more figures which would matter. The RBI is its recent policy (THE MONETARY POLICY COMMITTEE) said the following things about the economy.
" various indicators suggest that economic activity has continued to be strong. The progress of the monsoon so far and a sharper than the usual increase in MSPs of kharif crops are expected to boost rural demand by raising farmers’ income. Robust corporate earnings, especially of fast moving consumer goods (FMCG) companies, also reflect buoyant rural demand. Investment activity remains firm even as there has been some tightening of financing conditions in the recent period. Increased FDI flows in recent months and continued buoyant domestic capital market conditions bode well for investment activity. The Reserve Bank’s IOS indicates that activity in the manufacturing sector is expected to remain robust in Q2, though there may be some moderation in pace. Rising trade tensions may, however, have an adverse impact on India’s exports. Based on an overall assessment, GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4 per cent, ranging 7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2, with risks evenly balanced; GDP growth for Q1:2019-20 is projected at 7.5 per cent"
That was before the catastrophe in Gods own country. Now the picture may be a little different as Rubber and Coffee have to be adjusted to the vagaries of nature.
As far as the realities on the ground are concerned, Traffic keeps increasing despite the rising petrol prices. Our youth keeps taking out motorcycle rallies protesting against rising petrol prices. Rural demand keeps going up, People keep buying fancy mobiles even if they have to skip a meal because they have access to free data. Food may be expensive but data keeps getting cheaper. Clients keep complaining that the MODI SARKAR has bungled on the economic front but keep making money on the stock markets. Those who do not make money on the markets keep complaining that only a few make money in this world. Some of them complain that business has suffered due to demonetization and then say that since all the money came back to the banks, the measure has failed. Every comment has been two sided and oxymoronic (if there is a word like that).
Coming to the markets. Nifty at 11500 is prima facie scary but there are 30% good companies whose stocks are near the 52 week lows. Perhaps, looking to go to their multiyear lows. My take on the stock markets is : LIQUIDITY IS CONTINUOUSLY FLOWING TO THE MARKETS AND THEREFORE UNLESS SOME DRASTIC THING HAPPENS TO THE COUNTRY OR THE ECONOMY, THE MARKETS WILL CONTINUE TO GO UP.
As far as Crude is concerned, it is going nowhere. $75 is unsustainable, the Sheikhs will have to settle for sub 65 dollars always. this is a hiccup which will not last long. (reasons are aplenty)
As fas as the USD is concerned, its time to call the bluff, USD will hit its highest point in the nearest future and INR will come back strongly, on the back of strong exports and strong growth. A real rate of 2.5%, GDP growth of >7% and a fast growing economy needs investments and those looking through the Trumponion (or should i say trumpotatoe) glasses will eventually see merit in investing in the fastest growing economy and move from MAGA to MIGA
Sarve Janaha Sukhino Bhuvantu !!
Thursday 6 September 2018
Friday 16 March 2018
MONETARY POLICY COMMITTEE ??
Managing an economy with a committee format is a challenge in itself. A professor friend once joked and said that "A Camel is a horse as defined by the Committee".
Inflation based on wholesale prices has been reported at 2.8% and Consumer price based inflation has been reported at 5.1% at these inflation numbers the real interest rate is 3.2% (based on the repo rate of 6% as the nominal interest rate). This must be one of the highest real interest rates in the recent past. When we look at these figures a casual question that pops up in the minds is: Why doesn't the RBI reduce its rates?
Probably the committee form of decision making is the culprit. when the five wise men meet to decide the fate of interest rates in the country, some members tend to look far into the future and predict an upsurge in inflation or a deep plunge in the value of the INR. The members must be thinking really hard about the future and doing a lot of number crunching. This reminds me of another professor of mine who used to say "too much of analysis leads to paralysis". That's the same paralysis that afflicted the UPA government during 2011-2014. I am afraid that the same disease has contracted the NDA too.
A lot of people have been talking about the banking system being full of NPAs and the whole system has gone to dogs. I wish to remind the readers about our government's own quantitative easing during 2008-2012 when the purse strings of all banks were loosened and laid bare before the corporate borrowers, the central banker was "Gung Ho" on having managed the world financial crisis in 2008. This loosening of Banks purse strings has come to roost. The Banks are staring at NPAs from large scale borrowers in the corporate sector.
Whenever somebody points out at the cause of rampant economic mismanagement in the erstwhile regime, one is branded as a "BHAKT". The previous regime has not only been guilty of mismanaging the economy but also played a part in manipulating the stock markets on various occasions. The minister was known to make dangerous statements and pull the market down and then retract the statements to assuage the investors on a regular basis.
Now the new regime is treading the path cautiously and has given the responsibility of setting interest rates to the MPC. Not only that, but the right / responsibility of deciding the GST rates has also been given to a committee of finance ministers (that makes it more than 30 wise men on a committee). Democracy in picking a ruling party and entrusting governance to a party is alright but entrusting major policy decisions to committees slows the entire decision making process and holds the country to ransom.
Hope that some corrective action is taken, some responsibility is taken and not everything is entrusted to committees of bureaucrats.
Inflation based on wholesale prices has been reported at 2.8% and Consumer price based inflation has been reported at 5.1% at these inflation numbers the real interest rate is 3.2% (based on the repo rate of 6% as the nominal interest rate). This must be one of the highest real interest rates in the recent past. When we look at these figures a casual question that pops up in the minds is: Why doesn't the RBI reduce its rates?
Probably the committee form of decision making is the culprit. when the five wise men meet to decide the fate of interest rates in the country, some members tend to look far into the future and predict an upsurge in inflation or a deep plunge in the value of the INR. The members must be thinking really hard about the future and doing a lot of number crunching. This reminds me of another professor of mine who used to say "too much of analysis leads to paralysis". That's the same paralysis that afflicted the UPA government during 2011-2014. I am afraid that the same disease has contracted the NDA too.
A lot of people have been talking about the banking system being full of NPAs and the whole system has gone to dogs. I wish to remind the readers about our government's own quantitative easing during 2008-2012 when the purse strings of all banks were loosened and laid bare before the corporate borrowers, the central banker was "Gung Ho" on having managed the world financial crisis in 2008. This loosening of Banks purse strings has come to roost. The Banks are staring at NPAs from large scale borrowers in the corporate sector.
Whenever somebody points out at the cause of rampant economic mismanagement in the erstwhile regime, one is branded as a "BHAKT". The previous regime has not only been guilty of mismanaging the economy but also played a part in manipulating the stock markets on various occasions. The minister was known to make dangerous statements and pull the market down and then retract the statements to assuage the investors on a regular basis.
Now the new regime is treading the path cautiously and has given the responsibility of setting interest rates to the MPC. Not only that, but the right / responsibility of deciding the GST rates has also been given to a committee of finance ministers (that makes it more than 30 wise men on a committee). Democracy in picking a ruling party and entrusting governance to a party is alright but entrusting major policy decisions to committees slows the entire decision making process and holds the country to ransom.
Hope that some corrective action is taken, some responsibility is taken and not everything is entrusted to committees of bureaucrats.
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