Rural Economy is doing good, therefore revival will be faster, Market is going up!!

Rural Economy is doing good, therefore revival will be faster, Market is going up!!

In my earlier blogs, I covered “Boycott China” Impact on our economy and market rally!

Today, attempting to share my thoughts on another factor “Revival in rural demand and which is why markets are going up”

Discussion highlight in media is:

1)      Rural economy is doing well this time due to better crop in quality and quantity.

2)       Tractor sales are good.

3)      Rural consumption is picking up!!

4)      Loan book under moratorium are reducing.

5)      Lower than anticipated NPAs etc.

So, I wonder, if Rural India was in pain for last few yrs, how come one crop season and larger MGNREGA dole out, change the dynamics sustainably? If the rural India had borrowed the money in yester years, they are more likely to repay the loan and de-leverage themselves (important to note that Indians are not credit cultured like western world). If this hypothesis is right than future demand (except basic needs) will suffer. Another point to note is, how rural demand is improving? Aren’t factors like, migration of labour and MGNREGA scheme responsible for the artificial support to demand? Rural India largely consumes basic products (food and essentials). Rural India needs to drive the aspirational product consumption which can be called as the revival. Tractor demand was subdued since years so if there is demand for the same, it can be attributed to necessary replacement demand (can’t wait anymore, but have to change).

Labourers who also support their families in native place (that’s the very reason why they move to cities) which drive the rural demand. The migrant labour is jobless and in his native place. Of the 5 metros - Chennai, Delhi and Mumbai are in lockdown still. I call it lockdown as till the time Local trains, Metro rails and Buses don’t ply, metro cities operate at less than 50% efficiency. In best case scenario, if all the migrant labour will be employed and at the Pre Covid incomes, they would have still lost good 3-5 months of employment and Income. Isn’t it good enough to expect weak demand in future months!! Large rural demand is also supported by the workers who leave India for employment. Gulf countries have many Indians working or doing small businesses there. Their unemployment will have to be factored in. India receives largest foreign remittances in world.

Let’s see another dimension and check the hard numbers of unemployment in India- As per CMIE, unemployment rate in Feb 2020 was 7.76% which spiked upto 23% in Apr and May. Currently the same number is about 13%. MGNREGA helped the unemployment rate come down drastically. Not sure how long the government stimulus will continue. Important point to note is employment does not necessarily mean at the satisfactory salary levels. For example, if skilled labour was earning 25k per month is employed for mere 10-15k per month at farm or MGNREGA. So technically he is employed but his purchasing power has reduced significantly👍.

Let’s examine few industries which employs large number of labour (including white and blue collar jobs)!! Entertainment, Retail, Tourism, Real estate, Hospitality. These industries are going to take lot of time to get back to Pre Covid levels. Isn’t that going to impact the economy for relatively longer time?

 I hope I am able to do justice to the “rural demand revival” story and present another perspective to the same. If you agree and find it useful, pls acknowledge the same on FB, LinkedIn and Twitter.

Be careful in allocation to equity. I don’t think markets can sustain rally for long.

Markets are running on steroid doses of liquidity and hopes of global recovery. Nothing in world (or for that matter, India) has changed for good. Helicopter money is just delaying the worst news!!

Want to have word with me and explore creating wealth? Text me on 9833778887 or drop in a mail on wealthcarein@gmail.com

Bhavesh Damania I Founder and Chief Care Taker- Wealthcare Investments I Personal Finance Guest- CNBC TV 18, CNBC Bajaar, Outlook Money, Mint I Blogger

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Boycott China and Market rally!

Headlines in Media and Social media are Boycott China, Delete Chinese apps, Swadeshi apnao and because of the same India will shine and therefore the markets should receive the valuation premium now!!

And here is the market, going up up and up😊 

I am not able to reconcile my thoughts still, when-

-          Lockdown extended, Market going up!

-          Covid cases going up, Markets going up!!

-          Poor global news- Civilians loot/unrest in US, increase in global Covid 19 cases, anti-China movements, markets going up!!!

-          Second of wave of Covid 19 is coming back, Markets going up!!!!

Global economic recoveries are still far from Mar 2020 levels but markets are running past the recovery😢

I tried to figure out the possible reason from various people in Investment fraternity, and the responses I received are as follows:

1)      Large amount of liquidity is been pumped in by Central Banks.

2)      World is realising to “live with Covid 19” and cure/Vaccine will be out soon.

3)      US election in Nov ‘20 and POTUS (President Of The US) wants to keep markets high until then.

4)      Indian Government is ensuring that China shouldn’t buy stake in Indian Jewels (good companies) at throw away prices. Like it did in HDFC Bank. So keeping markets supported. Not sure how is it possible and how long can government do it.

5)      Global manufacturers will move out of China and their choice destination will be India. Therefore India deserves the premium.

6)      Few Indian trader’s body voluntarily decided to stop Chinese import and support Indian manufacturers therefore India should do well!!

I have written about the global economic recovery and Covid 19 etc in past. Let me share few thoughts on the Chinese angle today.

While India and world is angry and unhappy with China’s attitude and its suspicious role in recent past, there is little that can change for India in short term. What can change for India in long term will be outcome of government policies. Recall, we announced tax sops in Sept 2019!! That’s not enough. Any foreign company (or domestic entrepreneur) will also seek easy laws on labour, land, tax compliances and better infrastructure for transport, storage etc. You know its not easy task in India🙏

In short term also, I am not very bullish that we can actually get rid of Chinese imports even by 20-25% adjusted to fall in demand. Patriotic echoes are loud but are more emotional and less practical. We must, in medium to long run, be self sufficient country with least imports from China. Its good even economically😊. But China has made deep inroads into global supply chain that no country can boycott Chinese products. It’s an era of consumerism, you can’t make something unavailable to people.

My guess is, in almost every products, 10-90% of the parts/components are made in China!! Now just imagine, can a product be ready for sale even if 1 or 2% parts/components are missing? So next alternate would be to procure domestically or import from rest of the world. If this is done, cost of production will go up therefore price will go up or margins will shrink. Both are not good for India. There are many products or components, we don’t manufacture in India. There are a few which only china manufactures for the world. In such cases, import will be the only option.

Higher price would mean lower consumer demand and lower margins would mean poor corporate performance leading to unemployment, lower debt servicing etc.

Just to add to all the stories, if we reduce Chinese imports, what can China do to us politically, economically and diplomatically? Just think about it👍. Many critical infrastructure projects (incl 5G network and few government projects) are not possible without China.

So in nutshell, do not get carried away by the china related development, if there is development, its negative (strain in relationship with China, war not possible).

Be careful in allocation to equity. I don’t think markets can sustain rally for long.

Markets are running on steroid doses of liquidity and hopes of global recovery. Nothing in world (or for that matter, India) has changed for good. Helicopter money is just delaying the worst news!!

Want to have word with me? Text me on 9833778887 or drop in a mail on wealthcarein@gmail.com

Bhavesh Damania I Founder and Chief Care Taker- Wealthcare Investments I Personal Finance Guest- CNBC TV 18, CNBC Bajaar, Outlook Money, Mint I Blogger

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Lessons for Investors, advisors and AMCs from winding up of 6 schemes of FT

Lessons for Investors, advisors and AMCs from winding up of 6 schemes of FT

I have written a blog on Mutual Fund Sahi Hai and covered good bit about the Mutual Funds and its advantages also. If you have missed it, read it here.

https://www.blogger.com/blog/post/edit/7225299464715636707/1228797090538678759

Would urge you to read above blog before reading this blog!! It will help you understand it well.

I see many (so called) experts who flood social media who may or may not have direct investments into these 6 schemes of FT are also talking about it and spreading their view points. I also thought to voice out my view point. Hope this helps existing and prospective investors of MF too!!

Before going further, I will make disclosure that-

1)      “I haven’t suggested or Invested monies in any of the FT debt funds nor had any allocation in Credit Risk funds of industry. In fact if any investors, had monies in Credit Risk funds, I have promptly told them to redeem (despite the fact that these Investments were made thru us). I believe it’s my duty to guide on overall portfolio of the client.

2)      I understand the pain of the Investors who’s monies are stuck in these 6 FT schemes and have empathy for them.

3)      I am not biased towards FT and have zero AUM with them. I also believe FT should satisfy the large number of Investors and draw up a plan to liquidate the assets in best possible manner, that investors feel satisfied.

4)      I also believe that what has happened shouldn’t have happened as “liquidity on call” is MF’s promise and therefore Investor’s right. But I also understand that the situation got aggravated with lockdown and negative sentiments in Bond market.

5)      I also believe that regulator and industry is all set to correct the course and bring back confidence/ transparency in MF industry. Satisfying all parties will never be possible, but satisfying most would mean justice done👍 .

In hindsight, everyone is right. If the fury is from affected investors, it’s justified but if it’s from the watcher or critic, they need to be responsible and not try to attract eyeballs!! Everyone has freedom to speak and write😊

I tell my clients “Post Mortems are successful but operations can fail.” So as Advisor/Investor/ Fund Manager, who does operation, are likely to fail sometimes.

Let me now talk about the responsibilities of 3 constituents of Investments viz Investor, Advisor and the Fund Management team (AMC).

AMC:

1)      AMC and the fund Management team should have acted more wisely in the scenario when Lockdown was quite possible and expectations were built 1 month before.

2)      Credit scenario was bad and clouds were not off the sky since 2 yrs. This should have prompted fund managers to cut their exposures in high risk and illiquid holdings. Bravado attitude of higher yield to investors was avoidable for some time. It would have meant low AUM but want bring situation to wind up of 6 schemes.

3)      Investors found to be smarter than the fund management team, who exited schemes before the time in anticipation of problems. AMC did fail to be ahead here.

Advisor:

1)      WM/RM/Advisors/agents or distributors should have done due diligence and study before advising any product. It’s your responsibility to do because clients invests money on your trust, knowledge and prudence.

2)      Advisors have fiduciary responsibility towards the Investors and should have watched the situation closely. If NPAs are making headlines since 4-5 yrs, how can a portfolio with low rated papers be sold to Investors on expectation of higher returns?? These 6 schemes are also sold as alternate to FDs in some cases – a crime in my language.

3)      There were continuous downgrades and defaults in many schemes. Big names like ILFS, DHFL, Indiabulls, Essel, Vodafone etc have surfaced in 2 yrs. This should have been enough to trigger caution.

4)      If your investor insists on high yield investments, have you shared your perspective on the possible risk attached to it? If Investor knew it all, he will not invest thru you!! You should do your job no matter what the pressure be like. Today the same client will leave you and go to another person.

Investor:

1)      With pinch of salt, investors must also accept that they are not holy cow. It’s your own hard earn money! Have you done enough research about who you are investing with? I know lot of people invest thru relatives, neighbourhood agent, old known source etc. If you do not pay attention to your money, how good is it to expect someone else will pay attention. Child with maid and child with mother, who does better?

2)      Haven’t you seen segregated portfolio in your valuation report? Have you monitored your portfolio with diligence from time to time? Did you ask right questions to your advisor? Did you get satisfactory response from advisor?

3)      While investing, a thought that you worked hard to earn this money, will make you more responsible towards it!! I am not asking you to be fanatic but in unusual times, you must also become vigilant.

4)      Spend some time in identifying good advisor. See if your goals and his goals are aligned. Is he/she can offer continuity and consistency of relationship? Check the knowledge levels and can you trust your money with them?

5)      Caveat emptor- “Buyers Beware”. Investor should beware that if there is loss, it will be only your’s and not advisor’s or AMC’s. So choose wise advisor who has knowledge and pedigree to steer thru cycles. Best drivers and the one’s who can drive on rough terrain.

Not to underscore the responsibilities of AMCs and Advisors, It’s Investor who needs to be careful in choosing. That’s why our signature line is “Risk comes until you know what, where and why you are investing”

I am willing to offer free consultation on your queries, concern over the phone. Pls text me on 9833778887.

Bhavesh Damania I Founder and Chief Care Taker- Wealthcare Investments I Personal Finance Guest- CNBC TV 18, CNBC Bajaar, Outlook Money, Mint, Navabharat I Blogger

wealthcarein@gmail.com and 9833778887

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"Risk comes until you know what, where and why you are Investing”