Wednesday, August 28, 2013

With the Rupee is at 66 to a Dollar and the sensex below 18000 – what should you do?

The Congress and BJP have joined hands to pass the Food security bill yesterday. There is a general belief that this bill is a vote security bill for politicians and will lead to massive leakage of tax payer’s money.  By spending INR 1.3 trillion per annum on this scheme, the govt would have less to spend on wealth creating assets like infrastructure, education and health. The massive govt purchases of food grains for this scheme will leave less food grains for the open markets and that would mean food inflation and the operational inefficiencies would also mean that the poor won’t get their food.

Not surprisingly the Rupee saw its steepest single day decline in the past 17 years (of 2.84%) and the sensex fell by 590 points.

And there are other events unfolding far away that impacts us -

-The US economy seems to be stabilising and so US Fed is expected to start tapering the Quantitative easing in the coming months.  

-The problems in Syria have escalated since the chemical attack on 21st Aug and that is pushing up the crude oil prices.

Some purists even now tell me that all this is fine – just look at individual companies, their share price and their past performance and look at opportunities to buy at prices that are attractive. If I go by that logic, the market is full of opportunities to buy. HDFC bank is at 561, Asian paints is at 410, BHEL is at 111, L&T is at 705, MARICO is at 207 – all these are great companies and in most cases, at these prices are worth buying right now.

But I believe it is not as simple as looking at individual companies – the macro economic situation does matter. Sliding rupee is going to create problems for all companies in India. Tapering of QE in the US is surely going to result in increased cost of funds globally. The macro situation is fairly unpredictable and when there is such uncertainty, it is best to wait and watch.

So I  recommend that we wait and watch as the situation unfolds.

 -Should you sell your stocks and exit?  That is difficult to answer – I am not selling.

 -Should you invest now?  I recommend a wait and watch policy. As a conservative investor, I would wait till the situation is more stable. May be the buying opportunities would have vanished by then – but that is OK. Peace of mind is more important to me. I intend to wait and watch for some more time.

Tuesday, August 20, 2013

Article in Economic Times Wealth based on my interview

Glad to share this article on "Investing in Land" that was published yesterday in ET Wealth - this was based on an extensive interview with the editor last week and data that I had shared prior to the interview.

Here is the link -

Sunday, August 11, 2013

The impact of Rupee devaluation and where do I invest now?

The USD -INR ratio stayed at 54-55 levels due to the massive inflow of USD into emerging markets as the US Fed kept their economy awash with cheap money. However, a few weeks back, the US Fed hinted at reducing this liquidity, and immediately the Rupee depreciated to levels of 61 to a Dollar. 

A depressed Rupee means that the prices of fuel (which is imported) will be high – and that in turn impacts the prices of transported goods (like food grains and vegetables) and the general inflation. With Inflation high, RBI would not be able to easily reduce the interest rates and that means that the cost of capital to Industries would be high – which in turn impacts the GDP growth and the corporate performance. The devaluation also will make the price of Gold in INR go high. So even though the global prices of Gold have fallen, the Rupee price of Gold is again inching up. Also with this depreciation, the global (FII’s) investing into India lost on their returns and so they withdrew in large quantities – from Debt and from Equity markets in India.   The FII’s moving out of equities has resulted in the sensex being very volatile.

I believe that the Rupee will stay in the 60 plus range – as I believe that India has economic problems that cannot be solved with the current government. The government’s inability to push through reforms announced last year is clearly visible to all.  With elections planned for next year, I do not expect any bold reforms from govt in the coming months. Our current account deficit is high and we are still announcing measures like the food security bill which will put further pressure on the country’s finances.  Only after the next elections, is there a hope of some bolder reform measures – and so till then I expect the Rupee to be under pressure and to be in the 60’s. Due to that:

  • I foresee inflation being high and RBI finding it difficult to reduce the interest rates (despite the new RBI Governor).
  • I foresee Gold hanging on at the current levels  -not giving any great returns beyond 10% per annum– there could also be additional duties on Gold imports (to reduce the imports further).  
  • I see the sensex being volatile till the next elections – export sector like the IT sector would do well – FMCG and Pharma should do better than other sectors. Great companies like HDFC, Asian Paints, HUL  will survive better than other companies. So there can be long term opportunities - but in the next one year, do not expect great returns from stock markets.
  • I believe that the demand supply gap for urban housing in India is so large, that the urban  real estate sector will continue to do well.  So even though there are voices talking about a crash in urban real estate prices in India, I do not think that will happen – the markets will continue to give about 10-15% capital appreciation.

So what should you do?
  • If you have short term money  (less than one year) – keep it in liquid funds or short term debts funds – do not put it in long term debt funds as the interest rates are not expected to go down.  
  • If you have medium term money ( 1-3 years) – for those who do Mutual funds – I recommend sectoral funds in FMCG and Pharma sector.   For those who do direct Equity – you can do select equity investing that can give you good returns. (I am sure my readers know that I have a private equity group for people interested in equity investments – if you want to be part of that group – please write to me at and I will be happy to add you to this group. Here, I share my buy and sell activity real time – and you can chose to follow me. I am a conservative investor aiming at 20% returns per annum over 3 years)
  • If you have long term money (3 years plus) – Urban real estate is a good bet even now. If you are in Bangalore and want some help – you can reach out to me.
  • Gold  - this is neither short term nor long term – it is a separate category by itself. If you have some gold in your portfolio – keep it - it is a good hedge against the flooding of liquidity unleashed by developed countries since 2008. But if you are looking for ROI, investing in gold now would not give you more than 10% per annum for the next one or two years.