Moneycontrol Pro Panorama | A coin toss for risk

A friendly inflation print couldn't make any ripple in the markets.

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

It took one plane crash to bring home mortality or the risk to life and it took one country’s military strike on another to bring home the fragility of markets. Risk is that single element that continues to befuddle and bewilder everyone.

The ill-fated Air India flight bound for London from Ahmedabad turned into a fireball within minutes of taking off on Thursday. The 242 passengers onboard wouldn’t have thought about the possibility of this when they set out on their journey. But it is a fact that all of us take the risk of things going wrong when we board a flight but not boarding one isn’t really keeping us safe either. The litany of reports that inform us of various vehicular accidents are an embodiment of the risk we all take.

Same is the case with investing. Choosing an asset class, one stock or one bond is rife with risk even with almost all possible information available with the investor. That does not mean one should not invest because the alternative of keeping money under a mattress is riskier.

That is why people buy stocks that look dodgy but may be sound and even those that look sound but may be dodgy. People also board flights, trains, and boats to travel even though we do not know when it is time for these metal contraptions to collapse.

Risk may look like a coin toss, but it is quantifiable. The quantifying depends on factors such as time, space, and the position of the risk taker.

Boeing, the maker of the aircraft runs yet again the risk on its reputation. The Ahmedabad plane crash shines the spotlight once more on Boeing’s shortcomings and the aviation industry’s vulnerabilities. As the investigation proceeds to find out what caused the ill-fated aircraft to crash, Boeing’s shares would be under scrutiny (the stock lost 4.8 percent overnight). While being a near-monopoly cuts the risk on earnings for Boeing’s shareholders (airlines need airplanes to fly and Boeing is one of the two big suppliers), there is the risk of reputation which is more potent.

The second event that has brought geopolitical risk to the forefront for markets is Israel’s attack on Iran’s nuclear sites. This has flared up the tensions in Middle East, already quite flammable, even more. The fallout has been a surge in crude oil prices which is one of the risks for Indian policymakers. With crude now near $70 per barrel instead of the more languid $60s, it chips at the exuberance gotten from the low domestic inflation print for May. Retail inflation, below 3 percent now, has not only vindicated the Reserve Bank of India’s policy move to cut repo rate by 50 basis points and chop reserve ratio by 100 basis points but has also lent some credence to hopes of more rate cuts. Recall that the RBI has categorically said there is little room to ease more. Our Chart of the Day captures the inflation positives and the reason why analysts don’t mind pencilling in one or two more cuts later this year.
This friendly inflation print couldn't make any ripple in the markets, right now obsessed with global upheavals of which the Israel-Iran strikes are the latest. As the US and other nations wade into this through diplomatic rhetoric, financial markets are in for yet another volatile period. Risk is high, a vague quantity, but nevertheless important. Shishir Asthana, in a quick take here, explains why investors should brace for a new global uncertainty in the aftermath of Israel's attacks.

Once quantified, it is critical how investors respond to risk. That again hinges on the time and the position of the risk taker. Some investors may believe it isn’t worth taking a risk by staying invested in the aviation industry, what with crashes and shutdowns of airspaces the world over. Others may be willing to stomach a higher risk if time and position are on their side. The fact that airline stocks have plummeted and the broader market is bleeding shows that investors would rather avoid risk than take it.

India’s retail investors seem to be big avoiders. Ananya Roy details how mutual funds have lost their mojo with inflows falling steadily over the past few months as retail investors lose faith in the markets.

Some risks are sudden (like a crash), others are gradual and blindside us. Larissa Fernand warns in her piece about one such risk, the lifestyle creep. Indulgences that look logical may eat into our income in a way that we may eventually not be able to afford a reasonable lifestyle.

In investment parlance, the balance of risk-reward is always discussed. However, whether the reward contains in taking the risk or avoiding it is visible only post facto. Therein lies the coin toss.
Investing insights from our research team

Equity Strategy: How to navigate choppy markets in the face of escalating Middle East tensions

Weekly Tactical Pick: Can this consumption play take advantage of tailwinds?

This hospital chain is aiming for high growth, but is it already priced in?

Oswal Pumps taps solar opportunity with IPO-backed expansion

What else are we reading?

Microfinance Q4 a wake-up call for companies, policymakers

A B-school programme in temple management is finally here

Central banks are beginning to fret about dollar swap lines (republished from the FT)

BlackRock and alternative investments (republished from the FT)
RSS draws global attention as US delegation attends RSS meet

How India’s decision to slash alcohol import duties impacts domestic spirits industry

Keeping foreign policy hostage to domestic political optics hurts India

Markets

Israel-Iran Conflict: Geopolitical risk biggest concern for Indian equities, finds Moneycontrol Market Poll

Tech and Startups

Bad loan sale, credit shock push Kinara Capital into Rs 351-crore loss, trigger audit red flag

Technical Picks: JUBLFOOD, ZEEL, GESHIP

Aparna Iyer Moneycontrol PRO