Appointment of Nandan Nilekani and its impact on India

Nandan Nilekani appointment is not a small event. It shows the willingness of the Indian government to rope in expertise available in the private sector and maket it work for public good. The model has been there in the US for long, but India has tried this only once earlier (where Rajiv Gandhi got Sam Pitroda).

In my view, this is the real reform that India needs apart from what is widely talked about in the media. We need willingness to execute on time and then ability to get the resources from wherever needed.

This is a big positive for Congress which is showing willingness to get things done.

an interesting article

Yesterday i wrote that why equities would fall and investor should put money in fixed deposit.

pl read the article following the link:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=13856176
according to this, i might be wrong.

Where should an investor put money today...

Equities have not given any positive return in the last one month.
Debt funds are negative since Jan 09...
Commodities are also falling...
So, where can investor put in money right now?

We are in uncertain zone..the risky assets had significant run up in the last few months on the expectations of a global recovery. It is still expectation and the numbers have to still show up. In the last one month, the momentum build from Mar 09 to May 09 on the recovery theme is faltering with a downward bias.

On top of it, the rain god has not been kind. Mansoon is late and sub optimal. On top of it, as per reports in the paper today, government has completed 16% of the projected fiscal deficit for 2009-10 in April itself..

The basic premise of the recovery is that lower interest rates and government spending will spur consumption and help in reviving the economy. If government borrows more, resulting in higher interest rates, the basic assumption on which recovery theme has been built, may not hold. Private consumption and investment may not revive back and growth expectation may falter.

So given the uncertainty, a fixed deposit with a bank or cash funds may be the best option in the short term.

Why Indian equities should fall..

Indian market has given almost 20% more than other emerging markets in the last one year. Can this continue, the answer is no.

The primary reason being that investor in both the markets is same. He puts money in other emerging markets and in India also. So, if India becomes expensive, he will put in others.

Indian 10 year yield is trading at 7% while earning yeild of stock market, E/P of India is closer to 6.5%. This means Indian equities, in general, are expensive than Indian bonds. Since stocks are riskier than bonds, stock yield should be higher than earning yield.

Though P/E of sensex is at 16 times but individual stocks are trading at in excess of 20 times, which is way expensive.

Last but not the least, investor's could be betting hugely on the budget and quarterly earnings. They could be in for disappointment.

where do you make the investment in India..

It is probably the most difficult question I face and i really dont know... equities, debt, gold or commodities

Equities are getting cheaper day by day and may get more.. so, does it mean, one should wait.. answer for is probably yes because if the pain is prolonged, one get could similar price or cheaper even next year..

Debt is becoming expensive despite the rate cuts.. huge supply from the government and risk aversion of putting in corporate paper.. so will incremental returns not come.. answer is that returns will come but not in linear fashion.. it will be more range bound and incrementally, 1 -2% extra over the year..

Gold.. everybody is putting money.. is it the same what people were doing for equities till Jan 08 or in debt from Sep - Dec 08.. the asset class is becoming expensive and is a hedge against crisis. once the expectation of crisis is over, this asset class should come down..

commodities.. this is probably the space where one can start putting money incrementally over a period of time. lost value of 60 - 90%.. supply cuts have happened.. so when the growth comes back, this asset class is going to shoot..

Importance of sitting idle in a job

Given the market conditions, most of us who work for financial service companies, don't have much to do during the day.. Sometime passing time becomes so difficult that one does not really know what can do apart from doing normal routine work, reading and watching news etc..

But is it bad.. i really dont think so.. Financial services is a cyclical business, which goes up and down with the economy.. So, if we have chosen this career path, it is better we get used to it..

Sometimes, these environments actually are good for longer term.. one can introspect.. think whether whatever one was doing was right or wrong.. use this time to enhance the skill set (i am trying to do CFA, but with family and kid, it is really tough.. and i dont know still whether i will pass..), meet people, spend time with family etc.. look for opportunities that could come in good times and prepare for that..

Most important of all, which i feel is, it helps you learn how to go through the bad time and makes you stronger.. one realises the importance of money and why basics (P&L of a business) of business are important.. though people might have different view point in hey days.. but at the end, it comes back with full force..

Why Indians were in denial..

Indians were in denial mode since the begining of slowdown in Oct 07.. the reason given was that India is insulated from the world, exports are very small part of the economy, large demand is domestic etc etc.

what actually happened?? the growth came down from closer to 10% to 5.1% and may fall further... now the saying is "we are still growing while the world is contracting".

I think all of us who are in India needs to understand that capital flows are a global phenomenon and India is very much an integral part of it. Indian growth happened because of external capital was available and that could create demand.. now the external capital source is gone and we are back to traditional modes of financing through the banking channel.. obviously we will growth at rates prior to 2003 levels till the capital flow resumes..

Second, directly through exports and indirectly, through capital and oil imports, we are part of the global trade. Any repurcussion of this would have an impact on us..

So, all of us need to get used to slower growth..