Moneycontrol Pro Panorama | Five questions on investors minds

The risks continue to be high, risks that market valuations seem to be ignoring.

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. 

In today’s edition, we are departing from our normal practice of writing around a single topic. Hope you like it!

If Buffett is in cash, should you be too?

Berkshire Hathaway reported its quarterly results over the weekend and what really caught attention is its growing cash pile, that’s been rising this year. At $157 billion, it qualified for that rather useless moniker of an all-time high, but more importantly, it signals the veteran investor’s faith in cash and short term treasuries. If interest rates are going to stay high and growth is going to slow, eventually if not now, why leave the safer haven of high-yielding debt. Adjusted for risk, are equities giving better returns? That’s a question investors in India too should be asking as bank FDs are yielding near 7-8 percent returns and if you look elsewhere, then the yield goes up by a few more percentage points.

But the thing about emulating Buffett is that he can change his mind faster than it takes one to get through a See’s candy. And when he’s convinced he makes outsized bets, and as an investor he has shown the ability to give up big gains if he’s unconvinced, accept losses as a part of investing life and play the long waiting game that few can match. Everyone can’t be him. When life gives him yields, he has shifted his asset allocation. What are you doing?

Has geopolitics gone on to the backburner?

Geopolitics seems to have, like US interest rates, moved into the hotter-for-longer category. The Ukraine-Russia war is threatening to prolong longer than anyone in the markets can have envisaged. Meanwhile, the Middle East is seeing the Israel-Hamas war boil over with outrage building over civilian casualties in Gaza and growing cries for international intervention. Israel seems determined to complete its objective. What that is and how it will get there, no one knows for certain. The manner in which Russia managed to get support from friendly or neutral countries, making the task of continuing the war easier, raises the prospect of a similar support for Hamas from friendly nations, which could see the Gaza conflict prolong. Europe, the Middle East, what’s next should be the question but instead, markets seem to have assumed that these are contained conflicts, with bigger forces coming together to ensure that a blowout, if any, will be contained. Is this what complacency looks like, in hindsight?

Is winter coming? Ask the crows.

Not the season, but in the stock market. My colleague Sachin Pal believes it is. “While the US and the Indian economies are still going strong, the recent realignment in global equity, bond, and currency markets is sending early cautionary signals to investors to prepare for the upcoming cold winter!,” he writes in a thought-provoking analysis in today’s edition. He looks at a diverse set of indicators, in the US, China, Japan, Russia and across asset classes and even points to ‘three black crows’ on a line to say that the outlook does not look good. If you are a bear, you may break into a dance, but if you are a bull, then a stiff drink of your favourite poison is recommended as a pre-antidote. Coffee works too.

What about the near term?

Unfortunately, Pal and my colleague and resident expert on markets Shishir Asthana both believe we are in for volatile times. In his newsletter Market Outlook, that should have reached your inbox early morning today (and every Monday), today’s edition is helpfully headlined: We may not be out of the woods. He writes: “A look at the few instances of correction highlighted in the chart shows that the ratio does bounce back for a while. Still, eventually, the market dips again and makes lower lows, forming a positive divergence before bottoming out. Usually, after such a big rally, we may see the ratio testing the second line. To conclude, there can be an interim bounce in the market, but once the pullback fizzles out, we can see a market correction again”. Do look out for it every Monday.

A kink within the K-shape?

The government is allocating extra funds to meet a surge in demand for the rural employment guarantee programme—MGNREGS. The government has also decided to extend the free foodgrain programme, for 80 crore Indians, for another five years. That’s a sign of continuing rural distress and we have written about it in today’s edition. While this is a humanitarian crisis that needs to be tackled that comes with a fiscal impact, FMCG companies have been talking about poor rural growth for long.

But there’s one aspect that’s a bit puzzling. While individual FMCG companies may have reported dull rural sales growth, the rural market itself did much better. Then there was the sight of companies such as Nestle India reporting that they saw good growth continuing in their ‘rurban’ markets. What explains this? First, within rural also, there are markets where some consumers are doing better than others. This could be geographic differences or class differences – landowning farmers versus labourers.

Second, the fat margins on display by FMCG companies signal a resistance to lower prices in a bid to secure faster growth. This is visible nearly across the board. Pricing that does not reflect a changed reality breaks the value equation for a consumer, who is willing to buy an alternative that offers more value. A flood of smaller and regional brands that are offering cheaper products may be making merry at this moment, while the bigger brands seem frozen in their tracks. These small companies and businesses may not be listed, but they are capitalising on the fact that hard-up consumers’ brand loyalty is always a qualified one. Unless high inflation comes back roaring to life, the bigger companies will eventually have to offer lower prices to protect their business. Or, they will suffer deep market share losses that will become difficult to recoup.

All these questions point to the fact that risks continue to be high, risks that market valuations seem to be ignoring.

Investing insights from our research team

Protean IPO — Should investors subscribe?

Wage provisions mar SBI’s Q2 earnings; still it’s a worthy bet

Mas Financial Q2 FY24 – Why we see a decent upside

Titan Company: Strong Q2 FY24; shining show to go on

IndiGo: Stellar numbers, a flight for the long haul

Dabur India: Can investors bank on a rural recovery?

Aditya Birla Capital: Superior performance in Q2, outlook promising

What else are we reading?

MC Pro Inside Edge: D-Street biggie cashes biotech cheque, Agent Vinod’s NSE sales, Big Papa sits tight

In The Money | Stuck with a stagnant stock? Go for a Covered Call

SBI’s Q2 shows retail focus, but capex coming soon

Chart of the Day | Global food inflation trends downwards

The Eastern Window: Bhutan King seeks Indian support amid rising China threat

Generative AI may favour authoritarian systems over democracies

AI summits are necessary, but the beast may no longer be controllable

The coming battle between world leaders and bond vigilantes (republished from the FT)

Rajasthan Elections 2023: Centrestage beckons Vasundhara Raje after spell at the sidelines as BJP top brass blinks

Israel-Hamas War: What if Benjamin Netanyahu stepped down?

Tata and Vedanta offer India lessons in industrial policy

Shinde buys time for Maratha quota, but the distress fuelling protests is a ticking time bomb

Increasing women in leadership roles needs to go beyond checking boxes

How Japan became the land that the energy transition forgot

Personal Finance

Investing in fixed deposits through online FD platforms

Technical Picks: Godrej Properties, Infosys, Mentha oil, Bharat Forge, USD-INR and Zomato (These are published every trading day before markets open and can be read on the app).
 
Ravi AnanthanarayananMoneycontrol Pro