Sensex Plunges 900 Points As US Fed Signals Hike In Interest rates

Indian benchmark indices plunged in trade along with Asian markets as the US Fed indicated that a hike in interest rates was coming and it would end its bond buying programme in March, 2022.

Indian markets are expected to remain weak in the coming days, given that they are vulnerable to any hike in US interest rates. Indian markets have been in a sweet spot over the last 1-year over lower interest rates, but, that is likely to change.

What happens when interest rates in the US rise?

When interest rates rise in the US, there is outflows from emerging market stocks by Foreign Portfolio Investors. These set of investors start chasing high sovereign bond yields in the US, which are safe. The stock markets were in a sweet spot in the last many years. Interest rates were low, which pushed investors to invest in stocks. With interest rates now likely to rise and the Fed also hinting at shrinking its balance sheet, emerging market stocks are likely to come in for a pounding.

The real situation of the Indian economy

 The real situation of the Indian economy is much more forbidding if one considers rising inflation and high joblessness

The current projections for the Indian economy’s growth rate are estimated to be around 9 per cent. These are being highlighted by government sources as signs of a remarkable recovery in the shape of a ‘V’. The nation’s obsession with macroeconomic growth rates diverts attention from a serious discussion of other important macroeconomic trends. As Raghuram Rajan has pointed out, all the deep drops in production are marked by a V-shaped recovery. As such, the shape of the recovery means nothing. Indeed, diving a little deeper, many economists have pointed out that the recovery is more in the shape of the letter, K. The lower arm’s decline implies that the poor have done worse while the upper arm’s rise signifies that the rich have become richer. Moreover, the sizes of the two arms are vastly unequal. This unequal recovery is borne out by the latest Oxfam report, which estimates that in 2021, 84 per cent of all households experienced a fall in income while the number of billionaires grew from 102 to 142 during the same period. Other data reflect the budget management of a callous government where healthcare expenditure was reduced by 10 per cent from the revised estimates of 2020-21. There was a 6 per cent cut in the education budget, and the spending on social security schemes fell from 1.5 per cent of the total Union budget to 0.6 per cent. The collective wealth of the richest 100 people in India hit a record high of Rs 57.3 lakh crore. At the same time, the wealth owned by the bottom 50 per cent of India was a mere 6 per cent. During 2020, according to United Nations’ estimates, 4.6 crore Indians fell below the poverty line into extreme poverty. According to an extensive survey conducted by a Mumbai think tank, the poorest 20 per cent of Indians experienced a 53 per cent slide in their incomes during the past five years. The next lower middle 20 per cent also experienced a decline of 32.4 per cent of their income in the same period. But the top 20 per cent, the study found, have seen improvements in wealth and incomes to the tune of 39 per cent.

The real situation of the Indian economy is much more forbidding if one considers the rising rate of inflation and the high rate of joblessness, especially amongst youth in the labour market. What is arguably the worst aspect of the current situation is that the impoverished and the deprived seem to have lost their voice — a voice that is critical in the running of an efficient democracy based on mass politics.

India's banks poised for double-digit loan growth as economy gains traction

 

India's banks poised for double-digit loan growth as economy gains traction

Indian banks are set to expand lending and improve their net interest margins in 2022 as they benefit from the nation's economic recovery.

"Indian banks are ready to shift into a growth phase, just in time to meet rising demand as the country's economy recovers," said Nikita Anand, associate director for credit risk at S&P Global Ratings. "Faster loan growth will be bolstered by improving asset quality and a normalization in credit costs over the next 12-18 months."

Overall bank credit growth accelerated to 9.2% year over year in December, according to Reserve Bank of India data in a Jan. 14 report. That compared with 5.2% growth in March 2021. HDFC Bank Ltd., India's largest private sector bank, said its total advances as of Dec. 31, 2021, increased 16.5% year over year.

The World Bank expects India's economy to grow 8.3% for the current financial year ending in March, and 8.7% next year, according to the Global Economic Prospects report released Jan. 11. In contrast, global economic growth is likely to slow amid the surge of cases of the omicron variant of COVID-19, and higher inflation, debt and income equalities, the World Bank said. India's GDP grew 8.4% year over year in the July-to-September quarter, reversing a 7.4% contraction from a year ago, according to government data released Nov. 30.

Better balance sheets and an appetite for small and medium-sized enterprise lending can raise overall bank credit growth to more than 10% in 2022 and to between 12% and 13% thereafter, Jefferies said in a Jan. 4 report. Bank credit growth improved steadily in 2021 thanks to stronger retail demand, economic recovery and an inflationary push, Jefferies noted.

Stronger footing

"Economic activity in India remains strong, with upbeat consumer and business confidence and upticks in several incoming high frequency indicators," according to a Jan. 17 report by the central bank's economists. The aggregate capital to risk weighted assets ratio of Indian banks strengthened to 16.6% at end-September 2021, from 14.8% in March 2020. Their return on assets climbed to 0.8% from 0.2% in the 18-month period, it said.

Their return on assets climbed to 0.8% from 0.2% in the 18-month period, it said.

Banks can now focus on credit growth after spending the previous years on monitoring their asset quality, said Nitin Aggarwal, a research analyst at financial services firm Motilal Oswal. After reducing their bad loans, banks are now better prepared. "We have not seen as much of stress on the corporate side," Aggarwal said.

Asset quality

The banking sector improved asset quality in 2021 with the ratio of gross NPAs down to 6.9% at the end of September, from 8.2% at the end of March 2020, according to the Reserve Bank of India, or RBI. Stress tests conducted by the central bank predict aggregate nonperforming assets to rise to 8.1% by September under a baseline scenario and to 9.5% under a severe stress scenario as overall lending grows. Still, all banks would be able to comply with the minimum capital requirements even under severe stress scenarios, the RBI said in a December 2021 report.

"We do not see much fresh stress build up even from the new COVID wave, which does not seem to be severe enough to induce full scale lockdowns," said Emkay Global banking analyst Anand Dama. Most of the bigger-ticket bad loan formation is a thing of the past, Dama said.

The government will likely step up infrastructure spending and announce incentives for the agriculture and manufacturing sectors in its budget for the next financial year that will be presented Feb. 1. Finance Minister Nirmala Sitharaman will likely continue the government's support for growth even as she seeks to keep fiscal deficit in check, Nomura analysts Sonal Varma and Aurodeep Nandi wrote in a Jan. 21 note.

"The government's fiscal policy since the pandemic began has prioritized growth and fiscal transparency over fiscal consolidation, in the hope that robust medium-term growth prospects will help with debt sustainability," Nomura wrote. The government will likely announce it is on course to meet its fiscal deficit target of 6.8% of GDP in the current fiscal year ending March 31, and set a target of 6.4% for next year, Nomura noted.

 

Buffett, Shiller share a worry on Indian equity

Photo: Reuters

1 min read . 06:23 AM ISTHarsha Jethmalani

Indian markets’ valuation measured using Buffett’s m cap-to-GDP ratio has surpassed its historical average

Listen to this article

The Indian economy is likely to grow by 9.2% in FY22, according to the National Statistical Office’s (NSO’s) first estimate of gross domestic product (GDP) growth for the financial year. This is lower than the Reserve Bank of India’s forecast of 9.5% and points to a slower growth for the country in the second half of FY22.

However, the Indian stock market isn’t perturbed. The new year has begun on an upbeat note with the benchmark Nifty50 index rising by 3.7% so far, surpassing the 18,000 mark on Monday. Unsurprisingly, the Indian equity market’s valuation measured using Warren Buffett’s market capitalization-to-GDP ratio has surpassed its historical average. “It is probably the best measure of where valuations stand at any given moment," according to Buffett. For FY22, the reading stands at 119%, ahead of its long-term average of 79%, showed Motilal Oswal Financial Services Ltd’s latest data. This ratio is the highest in at least a decade.

How to Differentiate STOCKS in Bull Market

 Well in Bull Market there are 2 CATEGORIES of STOCKS......

First catagory is STOCKS having good Fundamentals and Businesses.......The STOCKS Prices move on Fundamentals......

Second Catagory is STOCKS moving on News and Particularly on Stories......The Prices of STOCKS moves on Investors Anticipation Hope Greed of making Quick Easy PROFITS...... Generally in Bull MARKET News and Stories of STOCKS particularly in Penny Stocks are Floating Everywhere......So one has to be very careful when you Buy a Stock only on News and Stories......This type of Investing if you are lucky can make you money in Short periods of time but when the tide reverses the Investor will lose all the gains made earlier and also the Principal Amount INVESTED.......

Avoid 2 Cognitive Biases

 MONEY

Think You're a Good Investor? Science Says You're Not (but If You Avoid 2 Cognitive Biases, You Could Be)

Research reveals that what you say drives your investment decisions isn't actually the reason. (Which might explain why the average investor rarely outperforms the market

Even though it's mathematically impossible, research shows that if you provide people with a survey about almost any trait, the vast majority will rate themselves as above average. (For example, nearly everyone considers themselves to be an above-average driver.) 

Take investing. While I know I'm no Warren Buffett, I do think I make thoughtful, rational, data-driven investment decisions.

But that's probably not the case.

A working paper published earlier this year in National Bureau of Economic Research shows that the reasons "retail investors" (meaning people like us) give for making certain investment decisions don't match their actual behavior.

Like when I bought Blue Apron stock a few years ago. For a while, I was up on paper. Then the share price tumbled. Finally -- way too late -- I got out. I was bummed. I felt really stupid.

So I made other investments. A few made a little money. Others didn't. I bounced around a fair bit, searching for that one killer trade to earn back what I had lost.

But that's probably not the case.

A working paper published earlier this year in National Bureau of Economic Research shows that the reasons "retail investors" (meaning people like us) give for making certain investment decisions don't match their actual behavior.

Like when I bought Blue Apron stock a few years ago. For a while, I was up on paper. Then the share price tumbled. Finally -- way too late -- I got out. I was bummed. I felt really stupid.

So I made other investments. A few made a little money. Others didn't. I bounced around a fair bit, searching for that one killer trade to earn back what I had lost.

(That behavior didn't make me above average. It made me decidedly average: Research also shows that retail investors perform poorly relative to the market index, and those who trade more often typically perform even worse.)

If asked, I would have said I was trying to balance volatility with return. I would have said I was using past performance to predict future performance. I would have said I was using information to estimate potential returns.

But what I was really doing was what the authors of the NBER study found were the two factors that drove most investors' decisions: hoping to generate a huge win, and assuming I knew something that the broader market did not. (Granted, that bias is inherent in almost every investor's decision-making: If we all know the same things, we'll all achieve the same results.) 

That made me just like everyone else. To paraphrase the researchers, even though gambling preference -- a cognitive bias where we tend to aim for big wins -- and perceived information advantage have substantial explanatory power, most respondents pointed to other factors that supported their investment decisions. 

Or, in simple terms, why I say I do certain things isn't actually why I do certain things. (Hi, cognitive biases!)

Why? Because we're people. To borrow the title of Dan Ariely's book, we're predictably irrational. That's why consumers aren't always rational. That's why markets aren't always rational.

But that's probably not the case.

A working paper published earlier this year in National Bureau of Economic Research shows that the reasons "retail investors" (meaning people like us) give for making certain investment decisions don't match their actual behavior.

Like when I bought Blue Apron stock a few years ago. For a while, I was up on paper. Then the share price tumbled. Finally -- way too late -- I got out. I was bummed. I felt really stupid.

So I made other investments. A few made a little money. Others didn't. I bounced around a fair bit, searching for that one killer trade to earn back what I had lost.

(That behavior didn't make me above average. It made me decidedly average: Research also shows that retail investors perform poorly relative to the market index, and those who trade more often typically perform even worse.)

If asked, I would have said I was trying to balance volatility with return. I would have said I was using past performance to predict future performance. I would have said I was using information to estimate potential returns.

But what I was really doing was what the authors of the NBER study found were the two factors that drove most investors' decisions: hoping to generate a huge win, and assuming I knew something that the broader market did not. (Granted, that bias is inherent in almost every investor's decision-making: If we all know the same things, we'll all achieve the same results.) 

That made me just like everyone else. To paraphrase the researchers, even though gambling preference -- a cognitive bias where we tend to aim for big wins -- and perceived information advantage have substantial explanatory power, most respondents pointed to other factors that supported their investment decisions. 

Or, in simple terms, why I say I do certain things isn't actually why I do certain things. (Hi, cognitive biases!)

Why? Because we're people. To borrow the title of Dan Ariely's book, we're predictably irrational. That's why consumers aren't always rational. That's why markets aren't always rational.

That's why the vast majority of investors aren't always rational. Few of us beat the market. Above average? Nope. We aren't even "average."

But we don't have to be. 

For example, take another cognitive bias: loss avoidance. Most of us tend to strongly prefer to avoid a loss than to acquire a gain. We're much more likely to want to avoid losing $100 than to make $100.

In fact, research by Daniel Kahneman, author of the great book Thinking, Fast and Slow, indicates that losses are twice as psychologically powerful as gains. (Yep: A bird in the hand really is worth two in the bush.)

That bias is understandable. A loss means giving up something I actually have. Not acquiring a gain means giving up something theoretical rather than actual: If I have a chance to make $100 but don't, that sucks, but if I have $100 and lose it, that really sucks.

The problem with loss avoidance is that it typically defaults to the status quo. In broader terms, say you decide not to attend a networking event because you don't want to give up an hour of your time. Fine -- but what if you might have met the perfect partner for a joint venture? Or say you decide you don't want to invest $20,000 in your business because you hate the thought of losing it. Fine -- but what if you might have created a product line that would open up a great new revenue stream?

But that's probably not the case.

A working paper published earlier this year in National Bureau of Economic Research shows that the reasons "retail investors" (meaning people like us) give for making certain investment decisions don't match their actual behavior.

Like when I bought Blue Apron stock a few years ago. For a while, I was up on paper. Then the share price tumbled. Finally -- way too late -- I got out. I was bummed. I felt really stupid.

So I made other investments. A few made a little money. Others didn't. I bounced around a fair bit, searching for that one killer trade to earn back what I had lost.

(That behavior didn't make me above average. It made me decidedly average: Research also shows that retail investors perform poorly relative to the market index, and those who trade more often typically perform even worse.)

If asked, I would have said I was trying to balance volatility with return. I would have said I was using past performance to predict future performance. I would have said I was using information to estimate potential returns.

But what I was really doing was what the authors of the NBER study found were the two factors that drove most investors' decisions: hoping to generate a huge win, and assuming I knew something that the broader market did not. (Granted, that bias is inherent in almost every investor's decision-making: If we all know the same things, we'll all achieve the same results.) 

That made me just like everyone else. To paraphrase the researchers, even though gambling preference -- a cognitive bias where we tend to aim for big wins -- and perceived information advantage have substantial explanatory power, most respondents pointed to other factors that supported their investment decisions. 

Or, in simple terms, why I say I do certain things isn't actually why I do certain things. (Hi, cognitive biases!)

Why? Because we're people. To borrow the title of Dan Ariely's book, we're predictably irrational. That's why consumers aren't always rational. That's why markets aren't always rational.

That's why the vast majority of investors aren't always rational. Few of us beat the market. Above average? Nope. We aren't even "average."

But we don't have to be. 

For example, take another cognitive bias: loss avoidance. Most of us tend to strongly prefer to avoid a loss than to acquire a gain. We're much more likely to want to avoid losing $100 than to make $100.

In fact, research by Daniel Kahneman, author of the great book Thinking, Fast and Slow, indicates that losses are twice as psychologically powerful as gains. (Yep: A bird in the hand really is worth two in the bush.)

That bias is understandable. A loss means giving up something I actually have. Not acquiring a gain means giving up something theoretical rather than actual: If I have a chance to make $100 but don't, that sucks, but if I have $100 and lose it, that really sucks.

The problem with loss avoidance is that it typically defaults to the status quo. In broader terms, say you decide not to attend a networking event because you don't want to give up an hour of your time. Fine -- but what if you might have met the perfect partner for a joint venture? Or say you decide you don't want to invest $20,000 in your business because you hate the thought of losing it. Fine -- but what if you might have created a product line that would open up a great new revenue stream?

To generate a return, you can't stay status quo; you have to do something. The key is to properly value the potential loss, and put safeguards in place to limit your loss if the investment goes south. (A stop-loss order would have saved me a bundle when my Blue Apron stock tanked.)

In broader terms, always take a step back and consider why you're making a certain decision. Chances are your initial motive is based on a cognitive bias or two. Instead of falling prey to "myside" bias -- forming a hypothesis and then seeking data that supports your hypothesis -- seek data first.

Then draw conclusions from that data.

That way you're a lot less likely to be biased, and more likely to make smarter investments based on what you know.

Especially about how you make decisions.