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

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Archive for the ‘General’ Category

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 »

Giving

Posted by Muthu on May 12, 2019

Many of our long term clients are building wealth which would last even beyond their life time. So I thought let me cover today about giving.

There are two kinds of giving. The first one is what we give to our own blood, the next generation and even grand children. The second one is what we give back to society, helping the needy. We cannot forget that society helped us in creating wealth.

If your wealth is limited to this life time of you and your spouse, you may not be able to leave your children anything other than primary residence. That is fine. As far as giving back to society, please see what best you can do, given your limited resources.

For those who have wealth that would last well beyond their life time, don’t wait to leave everything after your death. If you live well into your eighties, your children would then be in their fifties, way past their prime. They would not be in a position to meaningfully enjoy your wealth.

Don’t be tight fisted. Help your kids during occasions like setting up their family and buying primary residence. Take care of their education till post graduation so that they don’t start with student debt.

Also learn to help less privileged. While you may be doing something on and off during working years, this should start full-fledged latest by the age of 60. Giving while living and seeing how the money is useful to others is bliss. So don’t ear mark wealth for charity only after your life time. Give and enjoy giving at least during last two decades of your life.

In my view, not less than 10% of one’s wealth should be given back to society. If you find this less, do more. If you find this more, at least start with 5%. Charity should be significant. Having a wealth of Rs.100 crores and giving few lakhs a year to charity is sub optimal. Though philosophical, need to remember that you’re not going to take any money with you once you die.

Enjoy money in your life time. Give a part of it to your next generation while you live. Let them also enjoy your wealth. And don’t forget to give it to needy. This is a well balanced life and living this way is meaningful.

Kanchi Maha Periyava and Ramana Maharishi are the two Jnanis I respect most.

I end this note with what Sri Ramana said on giving:

“Giving to others is really giving to oneself. If one knows this truth, would one ever remain without giving?”

Posted in General, Giving, Muthu's Musings | 2 Comments »

The reward is wealth

Posted by Muthu on April 29, 2019

Good things in life never come easy. Take any country, only a small percentage of population is wealthy. Only 1% of us can be in top 1%. Wealth helps to avoid money worries, which is the main worry for most of the population.

Markets over the long run have been providing around 15% annualised returns. We believe India becoming $10 trillion economy over next 12 to 15 years is very much possible. This means growth in many sectors resulting in good wealth creation for investors.

Equity investing is almost the only way for most of us to create wealth. Many private businesses do not have the return on capital of good listed companies. Be it salaried or SME owner, equity is inevitable to create wealth. The path is clear. It is the journey which is difficult.

Markets do not provide returns in the way we like. A stock may not deliver any returns for many years and provide many years return in a single year. Markets can test your patience greatly. Some give up precisely at the wrong time, only to see that stock soaring subsequently.

Markets go through years of positive returns, negative returns and no returns. Our initial experience varies based on when we entered the markets. If in first few years of investment we see negative or no returns, we tend to give up. That’s why we suggest equity for a period of not less than 10 years. Good and bad years get evened out over this period.

Over 10 years investing, 80% of returns come in 20% of time. This means you need enormous patience during the 80% period to reap the reward in the remaining 20%.

Patience is the most difficult trait to develop. Patience involves pain and none of us like pain. But without patience and developing the understanding that returns are never linear but always lumpy; it is impossible to create wealth.

All those who have been investing through for us for last 10 years or more have created good wealth. They would vouch from their experience; the journey has never been smooth. But the rewards are worth the pain.

Only few create wealth from markets because the journey is not emotionally easy. Unless you learn not to react to your emotions, develop right understanding and enormous patience; it is impossible to create wealth.

Nothing meaningful in life can be achieved without pain. So is wealth. Wealth or lack of it makes enormous difference to our life on earth. So embrace pain and patience.

The reward is wealth.

Posted in General, Wealth | 1 Comment »