During the announcement of the first economy stimulus, which was taken positive by the market, FM had indicated two more meetings to announce further steps to revive the economy, in the coming weeks. The market was eagerly waiting to know about those upcoming steps and its implication. Well, the second announcement was about the merger of PSUBs. It had no real effect on the market, at least in the short-term, since these were well predicted measures which did not have any add-on to revive the slowing economy. It did not change the sentiment of the market since they were qualitative factors to the recap plans of PSUBs as indicated during the first announcements and budget. As a result, market circumvented this announcement and moved negatively as per the momentum of the global market and economic data of India which had turned weak.
Having said that this measure is a well thought decisions for PSUBs, which will bring significant improvement in the country’s financial system since it is accompanied by a good amount of PSUB recap. It will take about one to two years for the respective banks to complete the merging process and get back on track to attain the benefits of synergy and integration. In the short-term market is interested to know about the final details of swap ratio, degree of dilution, change in business outlook and asset quality of the merged entities. Based on previous experiences, merger of SBI with its associates and BoB with Dena and Vijaya bank, had a limited effect on the stock prices and valuation in the short-term. And it was also noticed that the performance of weaker PSUB improved during the short-term as they were merging into a better entity. Regarding NPA issue of PSUBs, it is being worked-on and will improve as IBC (Insolvency & Bankruptcy Code) cases resolve, synergies of merger and economy improves in the coming quarters. Few highly graded PSUBs can be considered as an investment for the long-term but only for a very minor part of your portfolio.
The low GDP data that came out on Friday had a bad effect on the market. They were well below the market expectation and increased the risk of further downside in economy outlook. It also stated that economy will take more time to revamp in spite of the supportive measures announced by the government. We will need more supportive measures from the government like higher spending and stimulus to industries. Post the release, Rupee has depreciated by 60paise to Rs72.04, 4th Sept closing to USD. Depreciating rupee expresses the weak outlook on Indian economy and since FII outflows are high it is having a significant impact on the market, being multiplied by the low liquidity in domestic equity market today.
We can anticipate for moderate improvement in the Indian economy by the third quarter of FY20 led by stability in the country’s financial liquidity as NBFCs and PSUB recovering from the NPA issue, support from government spending, good monsoon, demand from festival seasons and reduction in interest rate. For a strong recovery, there should be an improvement in exports which is currently stuck due to trade-war, Brexit, high bond yield and geo-political issues.
Posted: September 2019.
I advise my friends to avoid PSUBs , as they will continue to bleed in coming years . Over two years back , in an Investors-meet , the Speaker was giving a rosy picture of Equity_mkt , I interrupted to say , that his projections , have not taken into account that PSBs will be a drag on Economy & that the NPAs of 2004- 2014 will have a disastrous impact , surmounted by the succeeding years in NPAs . It has now been more than prophetic ! A loan from a Bank , especially from PSBs , is availed with a decision of NOT paying it back , Corporate-sector being the worst culprit . Unless , the PSBs , insist on a Quarterly Loan Utilisation Report , signed by the CMD & Auditors , the NPAs will only increase at the same rate in increase of Credit-growth . Also , the Auditors of a Company must be approved by the Majority of Non-promoter Holding . There must be Cap on vulgar salaries paid to Top 1 % of the Employees , and must not exceed 50 times the median salary of the Company . At present , the CMDs/ MDs / their Nephews/Nieces take away a substantial part of the Projected profits of next three years in the name of Salary / Perks , calculating 12 % return of the Promoter-Component in Capital . Accounting Frauds is a norm in most Companies . Warren Buffett / Peter Lynch/ Fisher/ Rogers/ Bogle will all lose their shirts , if they are to run MFs in India . Our Corporate Sector is run , mostly by Crooks , with very few exceptions . Any amount of reading of Books on Investing Wisdom will not help here . There are hundreds of Companies that are only on Paper . They are Virtual Companies . SEBI is a pathetic onlooker when Investors are bleeding with wounds inflicted by these Fraud-Companies . They wake up & bolt the Stables only after the Horses have run out . If a few Investors succeed , it is by sheer luck . Also , only less than 10 % , really succeed in Stk-mkt . Greed & Fear dominate them , and they generally act with Herd-mentality . Be fearful when all others are greedy and be Greedy when all others are fearful . Most of us act in reverse ! People must be advsed in Companies with reasonably good governance in Pharma / Steel / Cement , and in sector specific percentages . Good Brokerages like GEOJIT must spread Investor- Wisdoms to see that a substantial portion of Personal Savings come to Equity -Mkt , which alone will bring real growth in Economy . K. Balasubramanian ( Coimbatore-5 )