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