Bad loans & they have become only worse for banks.....

The gross non-performing assets of scheduled commercial banks have zoomed 10 times in the last ten fiscal years. In FY16, the stressed assets of these banks were a whopping Rs 5.41 lakh crore. Rewind a decade. It was a mere Rs 51,000 crore in FY06. The banks' reporting of bad loans increased in the last two years or so after former RBI Governor Raghuram Rajan had ordered them to recognise their stressed assets.   Rajan had set a March 2017 deadline for the lenders to fully disclose their bad loans and make adequate provisions. And it explains why just in the last fiscal year, immediately following the order, the gross non-performing assets of these banks rose 67 percent in FY16 from the year before.   

Household fin savings at 5-yr high, set to grow further in FY17 Gross financial savings (GFS).of households increased to 10.9 percent of the gross domestic product (GDP) in FY16 from 10.1 percent in FY15, says a report by domestic broking house Motilal Oswal Securities quoting Reserve Bank of India data. Moneycontrol Bureau India’s household financial savings saw its first improvement after nearly 6 years in FY16 driven by higher exposure to capital markets, currency holding and government deposits. Gross financial savings (GFS) of households increased to 10.9 percent of the gross domestic product (GDP) in FY16 from 10.1 percent in FY15, says a report by domestic broking house Motilal Oswal Securities quoting Reserve Bank of India data. Capital market exposure (investment in both shares and debentures) of households at Rs 918 billion in FY16 was the highest absolute amount in a single year on record since 1950s. Currency emerged the most preferred method of savings, with holdings increasing to 13.5 percent of GFS in FY16, the highest since 1990. Despite lower interest rates, savings in government schemes also increased considerably.  Although the GFS to GDP might look trivial compared to average 14.4 percent seen in the decade leading up to 2011, it gains significance as being the highest increase in the GFS growth rate since. This did not account for any real improvement in savings rate at the net level due to similar increase in financial liabilities of households alongside. Net financial savings (NFS) inched up only marginally to 7.8 percent in FY16 from 7.6 percent of GDP in FY15.  Although the highest NFS rate in five years, it was much lower than the average rate of around 11 percent of GDP in the decade to FY11. Motillal says a look at several leading indicators to gauge household financial savings for FY17 points to further pick-up in GFS.   The build-up in bank deposits growth in the first five months of FY17 is 3.6 percent versus 2.9 percent in the corresponding period last year, the note says. Similarly, currency till August 2016 was up 4.7 percent, as against 2.7 percent in April-August 2015 and exposure to equity also seems to be stronger, the note adds. "While GFS is likely to increase further in FY17 – a definite positive development – higher borrowings may keep improvement in NFS limited," the note concludes.

Herd and miss out feelings....

In Investing

Have you heard of the joke about an oil speculator who dies and reaches at the gates of heaven to meet St. Peters? “Heaven is already full of oil speculators. No place left for you,” declares St. Peters.

“I make my own place.” With these words, the oil speculator leans through the gates and yells, “Hey, boys! Oil discovered in Hell.” A stampede of men with picks and shovels duly streams out of Heaven and enter into Hell.

“I guess you do deserve a place in Heaven. Come on in,” an impressed St. Peters waves the speculator through.

“No thanks,” says the speculator. “I’m going to check out that Hell rumour. Maybe there is some truth in it after all.”

That kind of sums up the way Observer Effect plays out in stock market. A famous investor, let’s call him Mr. X, openly talks about his recent investments. Small investors (and sometimes even big ones too) get influenced by this and start buying the stock which results in a jump in stock price, precisely because of increased buying activity. This jump in price will seem to validate Mr. X’s hypothesis. And in short term you see a positive feedback loop reinforcing the stock price. This further reinforces Mr. X’s confidence in his investment and he starts considering buying even more.

It should be obvious to any serious value investor that a stock’s attractiveness rests on its purchase price and if a good business is available at expensive valuation, it ceases to be a good investment. So in this case, just because a good business became visible (to observers i.e., investment crowd) to many, the stock’s attractiveness changed.

In other words, markets can influence the events that they anticipate. George Soros’ theory of reflexivity too is based on Observer Effect. He writes –

When we act as outside observers we can make statements that do or do not correspond to the facts without altering the facts; when we act as participants, our actions alter the situation we seek to understand.

Untill unless the Psychology of People will not change to Positive there is little chance of Growth in the Economy..

I am still o0f the opinion after reading so many books that two things are necessary to move the economy...one is money and the other is Psychology of the Masses..Untill unless the negative  psychology barrier of the masses  is not broken which presently is of fear ...skepticism..doubts ...uncertainty... things cannot move...and so will the economy of the world will lag and starve for growth..still say all this printed money will have its catostrophic effetcs within the next few years from today and mother of all bull market is going to mhit us in the distant future...believe in the Demographs of India and its future unstoppable growth...happy long term investing...

Let us forget about the levels of growth, let us talk about can growth rate move up. Let us talk about what is it that allowed growth in last two years. One of the big factors that drove growth positively in the last two years was this massive positive terms of credit shock that came from this huge decline in commodity prices. Now that is gone. So, you need to look forward to what is going to replace that. So, we have a bit coming out from monsoon, government spending is probably going to struggle given where the fiscal deficit is, so you are not going to get anything out for public investment itself. So, you really have to go back and look at private investment. For the last 4-5 years the private investment has continued to languish and slow and has come to a point where unless that moves up it is very hard to see growth moving up. I am not even going where the level should be. Q: We are still at 70 percent and under 70 percent capacity utilisation. Aziz: That is exactly the point. The point is that what is the reason why private sector is not investing. I would say that apart from the various supply side impediments that the government is addressing through reforms etc, I think the bigger thing is that and it is a global phenomenon, is that there is no visibility of sustained demand which goes back to the growth slowdown story. If there is no demand, as a private sector why would I expand capacity. Q: You think we could end up in disruptive policies if we chased 8 percent? Oganes: The focus should not be in obsessing about targeting a high rate of growth but rather how to get there. How to get there is, there has got to be a re-ignition of private sector investment. There is a lopsided growth dynamics in India right now which is excessively relying on consumption which is product of positive terms of credit shock that is now exhausting itself. There is an attempt by this administration of trying to narrow the fiscal deficit which means that fiscal policy will not be providing the same support to growth that it has up until now as well. So, what is going to replace that? Global trade is weak, so exports maybe they have some room to recover but it is difficult to imagine that, that being the source of growth going forward. So, it has got to be private investment and for that you need more reforms to make private investment more viable, more attractive, more appealing and for the private sector to feel that there is some money making opportunities to be pursued given the reforms.

The Power of Compounding for Long Term Investing....

Investing and Fear of Missing Out...........

“You know I saved 50 rupees today,” declares the husband to his wife as he enters the house in the evening. “And how did you do that?” the surprised wife asks. “I missed the bus and ran behind it all the way from office to home.” The air of pride was palpable in the husband’s voice. “Well, then you should have chased a taxi and saved 200 bucks!” the wife said. And her logic was spot on, wasn’t it? Here is question for you – how much do you think the poor husband saved? Rs 50 or Rs 200? Extending the wife’s argument, the guy could have chased a Limousine and saved Rs 2,000. Do you see the absurdity of the logic? Although it’s a joke but more than that it’s a sarcasm for those who are always worried about missing the taxi? That chronic anxiety about losing something which is either irrelevant or outside your reach is called FOMO or Fear of Missing Out. This has a very strong implication in investing. Let me share my own experience which many of you can relate to. In July 2010 when I first started investing money in the stock market, one of the first books that I read was Peter Lynch’s One Up On Wall Street. I loved his idea of finding businesses based on observing things around us. I love eating Domino’s pizza. So Jubilant Food Works (which owns Domino’s in India) was one of the first few businesses that I started studying. The problem was that I knew nothing about analyzing a business nor did I have any skills in stock valuation. So even though I liked the pizza and Jubilant’s business, I couldn’t figure out if the stock was worth buying for Rs 300 (the price then). So I gave it a pass and kept the cash, which I had earmarked for Jubilant, in a bank fixed deposit. Fast forward to July 2012. My fixed deposit had earned 6 percent (post tax) but Jubilant’s stock was trading at Rs 1,200. It had quadrupled in 2 years. Had I invested Rs 10 lac in it, it would have turned into Rs 40 lac. That was a huge loss of Rs 30 lac, or so I thought. It took me a long time to understand this distinction that Domino’s wasn’t really a missed opportunity. It was never in my circle of competence, for two reasons – (1) I didn’t understand Domino’s business and its valuation in 2010. So buying it would have been an act of speculation. (2) I never had Rs 10 lac to invest in the first place so it wasn’t really a loss of Rs 30 lac. Remember the bus vs. taxi logic I shared above? But the fear of missing out was so strong that I bought Jubilant in July 2012. I still couldn’t tell if the stock was worth Rs 1,200 but I didn’t want to miss my taxi again! Fast forward to July 2014. Jubilant’s stock hadn’t budged an inch. That made me research it further and I learned that a very small percentage of the company’s outstanding shares was owned by retail investors and rest by promoters and large FIIs, who had no plans of selling their stakes. Which means, inspite of being a good business, the price-value gap may not close for a long time. But the point wasn’t that. I had bought the stock for wrong reasons. FOMO was driving my decision. But now I could say that my opportunity cost for owning Jubilant was at least 6 percent. Had I invested my money in fixed deposit, I would have at least earned 6 percent. Fixed deposits are well within my circle of competence. That was my true opportunity cost. FOMO in Investing The lesson is things which are outside our circle of competence aren’t potential opportunities. In other words, missing a 10-bagger (which was outside your circle of competence before it became a 10-bagger) is not the same as missing a 2X opportunity which is inside your circle of competence. As value investors, our circle of competence is finding good businesses run by ethical management and then let our money compound over long term. If someone is making quick and easy money in day trading, derivatives, real estate etc., which is akin to traveling by taxi, it’s not our opportunity cost. So what’s a better option to invest your money? In bank deposits earning 7 percent interest; Mutual funds earning 12-15 percent returns; Investment in fundamentally strong businesses earning 18-20 percent; or Derivatives promising 25-40 percent returns. All things being equal, the last option is a no-brainer. Isn’t it? The answer isn’t as easy as you would hope it was. Because all things are never equal for an investor. Before answering the above question, what’s even more important to know is the certainty of the return in each case. In other words, what’s the risk? Here’s a brilliant insight from Prof. Sanjay Bakshi – Should we reject projects that are within our circle of competence and which promise to deliver a return of 20% p.a. just because some other projects that are outside our circle of competence promise to deliver a higher return, say 25% p.a.? In other words, should we allocate capital based on our own ability to understand the fundamental economics of the project, or should we look over the fence to see what the other fellow is doing, and if he is doing better than us in things we do not understand, should we feel envious and not do something sensible that will, over time, make us rich? So one of the more basic emotion underlying FOMO is envy. It’s human nature to feel envious about the grass which is greener on the other side of the fence. To quote Charlie Munger, who said the following in 2000 – There’s one big truth that the typical investment counselor will have difficulty recognizing but the guy who’s investing his own money ought to have no trouble recognizing: If you’re comfortably rich and you’ve got a way of investing your money that is overwhelmingly likely to keep you comfortably rich and someone else finds some rapidly growing something-or-other and is getting richer a lot faster than you are, that is not a big tragedy. And if you’re not comfortable and don’t understand the fact that somebody else is getting rich faster, so what? How crazy it would be to be made miserable by the fact that someone else is doing better because someone else is always going to be doing better at any human activity you can name. Even Tiger Woods loses a lot of the time. And, on another occasion, he said – Suppose, any one of you knew of a wonderful thing right now that you were overwhelmingly confident- and correctly so- would produce about 12% per annum compounded as far as you could see. Now, if you actually had that available, and by going into it you were forfeiting all opportunities to make money faster- there’re a lot of you who wouldn’t like that. But a lot of you would think, “What the hell do I care if somebody else makes money faster?” There’s always going to be somebody who is making money faster, running the mile faster or what have you. So in a human sense, once you get something that works fine in your life, the idea of caring terribly that somebody else is making money faster strikes me as insane. Apart from envy, Mr. Munger, of course, is referring to the fundamental ignorance of an enormously important mental model from mathematics – the power of long-term compounding. As Prof. Bakshi writes – Even small sums of money, when compounded at a rapid rate over the long term, become enormous, regardless of how much more rapidly, someone else is compounding money. And, if you are competent enough to compound money at a rapid rate, simple arithmetic shows that you’re going to become rich. And if that outcome is virtually certain, then how in the hell does it matter, if someone else got richer than you? Of course, it doesn’t. But try telling that to the capital allocators of the world – corporate boards or investment committees of institutional money managers. Don’t compare your investment performance to some other money making strategy which you don’t understand. Stick to your circle of competence. In spite of knowing this, FOMO remains a powerful motivator. It causes even smart investors to do stupid things. It leads to poor decision making not only in investing but in many other areas of our lives. It is not uncommon for advertising and marketing campaigns to employ the appeal of FOMO. Brands and companies often inform their customers of “can’t miss out” experiences or deals. One very common marketing technique is to include a countdown timer as a way to explicitly show customers how long they have until they miss out on the sale. Like those latest smartphones available online on Wednesday flash sales. Look at the comments people leave on popular e-commerce web sites for such flash sales products. Most people are upset not because of the product or service but because the item went out of stock before they could buy it. FOMO keeps us using social media – “What if I miss that important news story or fall behind what my friends are talking about?” But if we drill down into that fear, we’ll discover that it’s unbounded. We’ll always miss something important at any point when we stop using something. Living moment to moment with the fear of missing something isn’t how we’re built to live. And it’s amazing how quickly, once we let go of that fear, we wake up from the illusion.

Dec CPI reading likely to be sub-4%: SBI Research......

"Our recent projections indicate that December 2016 CPI reading will be sub-4 percent while at least 4-5 readings in FY17 will be sub 4.5 per cent," SBI Research said in its Ecowrap report. The decline in inflation trajectory is expected to be driven by several factors like fall in pulse prices, projection of above normal monsoon, among others. "From historical data, it can be inferred that there is a clear downside of at least 60 basis points to headline CPI numbers over the medium-term," the report said, adding that this alone will pull down CPI to sub-4.5 percent. The distribution of core CPI over the last 20 months indicates a nicely shaped Bell curve, with mean CPI at 4.5 percent, it added.
On RBI's monetary policy stance, the report said the Central Bank is expected to go for a 50 basis points cut in key policy rates this fiscal. "We are still maintaining a 50 bps repo rate cut in FY17, though we believe RBI may go more aggressive on liquidity for rate transmission in Q2FY17," it said.

New People asking me Investment tips...

in recent days i got phone calls from 2 people for tips to invest in the stock markets...one person called me after 6 years to ask for tips as he came to know about my newly developed skills in stock market which is still 1 %....there we are now...new people now want to start investing in the stock market...so we are entering the stage of cautiously optimistic phase...the anxiety to invest and earn in the stock market is now started going up.. the left out feeling has started to be felt by the people awaiting on the sidelines...but one note of caution to all the investors...invest like a monkey which sholud grow to a gorilla and then finally to become King Kong...so all your investments in the long term should grow to King Kong size...

Tectonic shit of money from bonds to equity ....

today in the rest of the world because of liquidity overflow and helicopter money if you keep your money in banks you are getting negative returns...but still this money has not found its way to capital allocation and investment in other assests...but slowly gradually money have started flowing to the equity markets throughout the world...and finally this flush of liquidity will finally flow to capital expenditure and other assets...but note because of the negative psychology prevailing in the world as investments are concerned it might take another 2 years to see results on the ground level where round the year the world economy will start kicking and rolling...but one has to be patient till that time...one still not understand where has all these printed money disappeared...note it is there in the system which will come out once the fear factor evaporates and the people psychology is gone and the environment is conducive for capital investments...it will happen and for sure it will happen...right now the water is getting accumulated in the river and in the Dam/resorvoiuor...slowly slowly the water level will reach to overflow levels and the water will start overflowing from the top of the dam...so today in the world water is getting accumulated and in the next few years with so much liquidity getting infused the world will start overflowing with cash and that is the time to get out of all your investments...but before that let the world get overflowed will cash and liquidity and allow the printed cash to play its destructive characteristics after everything has bubbled...

Nifty and Sensex eps.....

Research firms possibly use complex models to forecast earnings growth, price/earnings ratios and other market-driving factors. However, the cold calculations of a model are frequently overridden by a very rosy view, which inevitably leads to a downgrade of their estimates, when reality strikes. This is the pattern every year, in every country. But the farce goes on.

A few brokerages are now expecting the Nifty earnings per share (EPS) to grow by over 20% in FY17 and about 18% in FY18. How realistic are these growth figures? Analysts at Prabhudas Lilladher, a Mumbai-based stock broking firm, expect the Nifty EPS to grow to Rs459.1 by FY17 and Rs543.3 by FY18. This translates in to a growth of as a high as 23.9% in FY17 and 18.3% in FY18. Similarly, Edelweiss Research estimates the Nifty EPS to be at Rs483 in FY17 and Rs572 in FY18, which translates to a growth of 31% and 18% respectively.

Recently, brokerage firm Motilal Oswal Securities said that they have revised their FY17 and FY18E Sensex EPS downwards by 1.7% to Rs1,493 and 0.9% to Rs1,854 respectively, from March 2016. They expect the Sensex EPS to post 12.3% growth in FY17 and 24.2% growth in FY18. Clearly, of the three, Edelweiss is the most optimistic, while Motilal Oswal Securities has moderate expectations for FY17, but expects earnings to grow faster in FY18.

Prabhudas Lilladher explains that the stronger growth of FY17 is more on the back of de-growth in FY16 as well as the large provisioning of banks in last two quarters of FY16. They expect banks, automobiles, engineering & power and cement to lead the growth in FY17. For the June 2016 quarter, Edelweiss states that the top line and net profit of Nifty companies are estimated to grow 3% and 2% Y-o-Y, respectively. “The profit growth is indeed lower than our and consensus full year EPS estimate of 20% and hence there are chances of earnings downgrade,” they admit.

Over the past six years, the Nifty EPS’s peak growth has been 18% on a year-on-year basis. Moving out from an earnings de-growth as seen in FY16, to a growth of 20%+ in FY17 maybe overly optimistic. At 8,514 as on 22 July 2016, the Nifty P/E is at 23.43, which translates to an EPS of Rs364.54, lower than the EPS of Rs370.4 reported in March 2016.

A growth of 20% will put the Nifty EPS at Rs444. Assuming the P/E of the Nifty to be at around 21, (the same level as on 31 March 2016), the Nifty will be at around 9,300, up about 9-10% from the current level of 8,500 as on 22 July 2016. But as we mentioned earlier, a growth estimate of 20%+ is too optimistic.

Let’s assume the earnings to grow by a moderate 12% as suggested by Motilal Oswal. This will put the Nifty EPS at Rs415 in FY17. At a P/E of 21, the Nifty index will be around 8,700. This means that the Nifty will move up about 2% from the current level. In other words, Nifty future growth is probably discounted at the current level. A slight disappointment can push the market lower while a huge EPS growth would be needed to push the market much higher.