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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Chinese virus and Indian markets

Posted by Muthu on March 26, 2020

In 1918, an influenza pandemic, popularly known as Spanish Flu (though it did not originate in Spain) infected 500 million people, equivalent to one third of global population then. Out of the 500 million people, it is estimated that at least 50 million died. So around 4% of global population was killed by the virus then.

It was the time of World war I. No social distancing was followed. Information flow was heavily curtailed due to war time. Compared to now, the medical advancement was abysmal and so was the necessary infrastructure.

The Coronavirus, COVID-19, should deservingly be called as Chinese virus, for the way China mishandled and lied about the crisis, especially in the initial months. This Coronavirus is the most serious epidemic, occurring after 100 years of last such epidemic in 1918.

The world though was complacent initially has now become aware of seriousness of the problem. India too is currently under 21 days lockdown. The world is better equipped and informed now to handle the problem. Though it may be some time before peaking out, various measures taken by all affected countries would yield fruits over a period of time.

When there is complete lockdown, economy and it’s growth suffer drastically. It wouldn’t be a surprise if our GDP growth, already low, can go down further in 2020-21. The poor who form major portion of our population are the first ones to go through maximum pain due to lockdown and also reduction in economic growth. To help the economy, many countries and their central banks have announced various relief measures and packages.

In the coming days, both the central government and RBI is expected to come out with such similar relief measures. This would alleviate the suffering of the economy.

When we make investments in markets, it is very difficult to anticipate and plan for very rare black swan events like this. In the matter of few weeks, markets fell by 40%, the fastest fall ever. Markets hate uncertainty. It can withstand any bad news provided it is able to anticipate when it would end. This uncertainty is what created huge fall and extreme volatility every day.

This is bound to continue for some more time, till markets get confident that the contagion is peaking out. With all countries taking lockdown measures seriously, this should hopefully happen sometime this year.

I feel by this time next year, things would be far better; in terms of epidemic control, improved economy and markets.

Though nothing prevents early recovery, I would like you to assume that the pain would last for a year. It is not wise to judge performance of any asset class, more so equity, when such unexpected catastrophe happens. These are rare exceptions.

All of you have online access to your portfolio. I would sincerely advise you to stop looking at your portfolio for months to come. For the first time, we are not going to do year end review. With many portfolios becoming deeply negative and the uncertainty expected to last some more time, there is no point in any review now. We would not be sending your portfolio reports as well, though you can access it any time online. When everything is deeply negative, the best protection you’ve against taking any impulsive decision is by not looking at portfolio. We should not end up converting temporary losses into permanent losses.

It is fine if you lack money or conviction to buy in these market conditions. But don’t ever sell anything. Don’t stop your SIPs. The very purpose of SIPs is to make you buy more units in bear markets. With the same amount of investments, you are now getting lot more units. The effect of which would be seen in subsequent bull market.

Both in good and bad times, we think it would last forever. The reality is that everything is cyclical. Good times would definitely come back. All you need is patience.

During last century, humanity has progressed a lot; despite Spanish flu, world wars, millions getting killed by tyrant dictators and so on. Trust that we would continue to grow and progress. What we are now going through is a temporary problem. Human resilience is more powerful than all these problems. Sooner or later, we would overcome this.

What you need to do is simply stay the course. Don’t panic sell and make notional losses into permanent ones. At any cost, don’t stop your SIPs. I humbly request to avoid looking at your portfolio for some more time to come.

Your temperament would decide your investing future. Keep calm. Trust me, this too shall pass.

 

Posted in Economy, General, Muthu's Musings, Stock Market | 1 Comment »

Good and bad

Posted by Muthu on September 1, 2019

Bad news, which started trickling in April, has reached its height on Friday, when GDP growth rate of Q1 was published as 5%

Will it get worse than this?

Yes, the current quarter (Q2) may be equal to or worse and than Q1.

There are two kind of voices always dominating the narrative; those who blindly believe and of those who blindly hate Modi.

Most of us are in the middle path, judging each action by its merit. Though we are many, our voice is not heard to the extent it should.

The government has failed big time in anticipating the economic trouble and also not using the budget opportunity to revive the economy. In fact, budget added some more woes.

The good part is that since second half of August, government has realised it’s mistakes and implicitly accepted that the economy is in a trouble.

They have been taking measures for the revival of the economy since then.

These are incremental measures and not any big bang reforms.

Assuming they would continue only with incremental measures; still this would result in better liquidity situation and lower the cost of capital.

Ample liquidity and low cost of capital would trigger economic revival.

Without any major reforms, I wouldn’t expect the growth rate to go beyond 7%.

We need 9%+ growth rate even to aim for $5 trillion economy by 2024.

Reasonable growth is possible but dream of $5 trillion may only remain as dream.

We can safely say that the economy has reached the bottom as the government has accepted the problem and have been actually working on it.

We may see the earliest sign of recovery only in Q3.

As I’ve explained many times, market reflects the future and not the present. Though I’ve no capability of market predictions, I’m aware that markets do not wait to till actual growth to manifest and start reflecting the same sometime before. This is true for both good and bad situations.

The bad news is that we have slowed down.

The good news is that this is the beginning of the recovery.

Posted in Economy, General, Muthu's Musings | 3 Comments »

Positive development

Posted by Muthu on August 24, 2019

By this time, you would have heard about the various announcements made by finance minister last evening.

The budget she presented last month lacked focus to address the problems faced by various sectors in the economy. Not only there was nothing progressive but also there were regressive steps as well.

There has been lot of voices against the apathy showed by the government on economic front.

Finally government has taken series of positive measures. These measures include some progressive steps and withdrawal of some earlier regressive steps.

What this would do immediately is to build positive mind set in the business and investing community.

The beginning of all good things is positivity.

It may take probably six months or so to start seeing the impact of these measures on economy.

I’ve no clue about how markets work in the near term. Still it may start reflecting the development even before it happens. Markets rarely reflect the present but it’s opinion about the future. So I wouldn’t be surprised if markets start recovering from the last 20 months of bear run.

So it is only a matter of time for things to start looking better.

The finance minister has also promised more positive measures to be announced in the coming weeks. This also augurs well for the future.

Bull and bear markets keep following each other. There is no permanent bull or bear market.

In bull markets, the NAV goes up. In bear markets, the units you acquire goes up. In the long run, combination of both only creates good wealth.

Though some of you became very anxious recently, all of you stayed the course.

Ultimately staying the course is what matters and that alone creates wealth.

Be ready for positive things in the months to come.

A good beginning has been made yesterday.

Posted in Economy, General, Insurance, Muthu's Musings | 1 Comment »

Thoughts on current situation

Posted by Muthu on August 11, 2019

Usually I write to you not less than once a month. This time there has been a gap due to some unavoidable reasons. Kindly accept my apologies.

In the beginning of 2018, all of you were very happy looking at your portfolio.

Last 20 months has changed the situation upside down.

The government in the last term was focused on providing basic but essential things like bank accounts, LPG, electricity, toilets etc. They did a decent job on this front. Balakot attacks saw a significant political will in defending the country’s security.  There were no terrorist bomb blasts across the country; which once used to be routine news.

Initially when demonetisation was done, many of us thought that as essential to fight corruption and black money.  In hindsight, the realisation is that it has caused more damage to the economy than the benefits it brought. In the name of clean up, also started was more instances of harassment by tax authorities. The government’s key focus became wealth distribution rather creation.

The expectation from the government second time was that they would focus on major economic reforms and wealth creation. This was based on Modi’s development record as Gujarat CM. Having focused on helping the poor in the first term, the natural expectation was creating prosperous economy in the second term.

Budget gave an opinion that this government is focused only on distributing wealth with no clue as to who would create it. It was anti wealth creators. Since this government never had a great economic track record to begin with, markets got afraid as to what is in store for the future.  Having realised the damage Budget has caused, the finance minister has started consultation with all stakeholders in the economy.

This is where we stand today. I don’t know how things would phase out from now on. The government with its brute majority may see no need for listening and course correction. Or Modi being identified as one of the pro development chief ministers in the past, there may be real course correction too.

George Bush senior won the Iraq war. He was very popular because of the same. Still he lost the elections as the economy was not doing well. Bill Clinton’s tenure was marked with controversies; still he won the election because economy was doing well.

Economy is less dependent on the government of the day. It’s a complex mechanism having its own life. Like markets or businesses, it also goes through cycles. At best a government can reduce the pain or incentivise the growth. It has no ability to prevent economic cycles.

If the government becomes responsive, the pain would get over sooner than later and we can explore if 8% growth is possible.

If the government continues with its dismal economic performance, recovery would still happen as a part of the economic cycle. Probably we may have to wait for a year or so for the same and accept 6% as our growth rate.

So it is clear, government can advance or postpone growth but cannot stop it. It can be a deciding factor between 6% or 8% growth; still we would continue to grow.

Assume the best and get ready for the worst. You would be fine in both the scenario.

Don’t try to time the market based on this. Market would never wait for actual growth to happen. It moves based on anticipation. This holds good for both upside and downside.

Since I’ve no reason to be a long term pessimist, I continue to be optimistic.

Stay the course.

Posted in Economy, General | 6 Comments »

Don’t talk about wealth

Posted by Muthu on June 23, 2019

Other than your family, close friends, auditor and financial advisor; stop talking about wealth.

More and more we talk about our wealth, relationships become superficial and we end up a terrible bore.

World being what it is, talking about wealth would attract wrong people.

Also don’t tie up your ego to the size of the house or car. What is good for ego is bad for you and your wealth.

Only encourage people who come to you for what you are and not for what you own.

In the same way, relate to others for what they are and not on what they have or don’t have.

Don’t discuss about wealth while looking for marriage alliance for your children. You may then end up with wrong choice.

Also learn to enjoy wealth. Once you’re financially independent, have a good life style. Enjoy things and experiences. There is no use of wealth if it ends up a mere bank, demat or mutual fund balance.

Provide to children for their education, marriage, when they buy their first house etc.

At the same time, don’t promise your entire wealth to them. Even if you want to provide everything to children, better not to promise it. Let them not take your wealth for granted.

Don’t provide everything to children during your life time. That would be a sure shot way for a miserable old age. It should happen only after you and your spouse is no more.

When I was achieving certain financial milestones, I shared that with more than required people. I stopped it subsequently.

Now I value discretion a lot.

You should value it too.

Posted in Wealth | 9 Comments »