Tata Asset Management

It gives us immense pleasure to share with you the September edition of our monthly “Charts That Matter” series. Some very interesting charts and observations in this edition.

I have been getting a lot of queries from anxious investors on helicopter money and understandably so. Does it entail that governments and central banks will literally throw bundles of cash from helicopters into the hands of public? Well not exactly.

I am pleased to share the July edition of “Charts That Matter”(CTM) series. As with the earlier editions, I have tried to keep the charts interesting and diverse. A look at the lending pattern of Indian banks throws up a very diverse pattern between private and state-owned banks. While the state-owned banks are cutting down on lending to new projects citing thin capitalization apart from weak demand, they seem to have no problems in deploying find capital towards retail lending. There is no running from the fact that Indian banks are amongst the most thinly capitalized in the world in terms of reported Tier 1 capital adequacy ratio.

On 23rd June, Britain will vote whether it wants to remain a part of EU or it wants to leave. A vote to leave the EU would start a long and complicated process that would result in a fundamental change in the UK’s relationship with the other members of the EU. There are pros and cons for both parties. Increasing restrictions and introduction of political borders increases the cost of trade and services.

The Reserve Bank of India quite expectedly kept the key policy rates unchanged at 6.5 percent, in its second bi-monthly monetary policy review. In its bi-monthly monetary policy statement of April 2016, the RBI had stated that it would watch macroeconomic and financial developments in the months ahead with a view to responding as space opens up.

I am pleased to share the latest “Charts That Matter” series. The most discussed topic these days is about Indian monsoons – both within and outside the investment community. Skymet & IMD have forecasted strong monsoons this year. At 109% of normal monsoons, are we in for a deluge? After two successive deficient monsoons, we do need a good year. The latest GDP numbers paint a very rosy picture but I believe that the devil is in the details.

This is the 5th edition of the monthly “Charts That Matter” (CTM) series. The CTM series only gets interesting with every subsequent month! This edition I have begun with a chart on how “currency in the hands of public” is surging even in a low inflationary and positive real interest rate environment. This is very counter intuitive.

In a bid to generate wealth from the Equity markets, investors study and use several valuation techniques, both fundamental and technical. Valuations are looked at through the prism of cash flows, earnings, corporate governance, return ratios, debt equity proportion and so on. Within these, the most primary valuation tool used by investors is the Price Earnings (P/E) ratio. I am pleased to share our research on P/E ratio’s predictive power with respect to Sensex returns.

India’s central bank, The Reserve Bank of India (RBI) lowered its repurchase rate by 25 basis points to 6.5% from 6.75% on expected grounds. The RBI also narrowed the policy corridor (repo and reverse repo spread) to 50bps from 100bps. In addition, the central bank also announced changes to the liquidity framework while maintaining its forecast for Gross Value Added (GVA) growth and retail inflation unchanged at 7.6% & 5% respectively for FY2016-17.

This is the 5th edition of the monthly “Charts That Matter” series. We are going through dynamic times and such periods of volatility often throw up some very interesting perspectives. For example, take the example of how India stands to benefit from low crude prices. Im pretty sure we all know the benefits. But did you know that India’s inward remittances dipped 7.4% YoY in 3Q FY16 which has been the worst performing quarter since Mar-09? The correlation between crude prices and inward remittances to India is quite strong; actually stronger than I anticipated until I plotted the graph myself.

Investors need to look at the INR and Indian sovereign G-sec through a fresh pair of lens. Last year, in a major monetary policy overhaul, RBI adopted inflation targeting as a guide to its monetary policy for the first time. India is among the few EM countries in the world with inflation targeting as a monetary policy tool. Inflation targeting will mean that the INR’s depreciation will not be as severe as in the past which will leave more carry in the hands of the investors.

This is the fourth edition of my monthly ‘Charts That Matter’ (CTM) series. As with the previous editions, I have tried to present analysis beyond what we do on a daily basis. For example, did you know that as per the World Bank, the Indian government’s Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) is the largest social security and public works programme in the world, providing social security net to 15% of India’s population.

India’s Finance Minister, Mr. Arun Jaitley presented the 2016-17 Union Budget yesterday where he chose macro stability over short term growth tactics, earning credibility on fiscal discipline and empowering the bottom of the pyramid. The budget clearly outlined the government’s thrust on the rural economy while taxing urban and the top of the pyramid consumption. This is a budget for the masses not the classes! It was about credibility and character, presented amidst heightened global volatility and economic upheaval.