Saturday, January 20, 2018

Loans on recovery mode – India slowly getting over NPA mess

Last couple of years, we saw NPA raising at alarming pace. But things seem to be turning around. Take a look at three news items in today’s ET.

1. Bhushan Power’s liquidation value doubled to Rs 20,000 crore (Read more at:

2. Lenders to take JSPL account off bad-loan list. The company's total debt was close to Rs 45,000 crore. (Read more at:

3. Enforcement Directorate to sell Rs 4k-cr Vijay Mallya shares in United Breweries. (Read more at:

Around Rs. 70k crore is collectively coming back into system. No wonder why RBI said things are improving during their last monthly report.

We don’t know how much of red figures turn into black. But we can see that trend is reversing. That money if used to fund the right businesses, it would add to economic growth.

Takeaway is, get onto Public sector Bank stocks. (Disclaimer: I am adding Bank of Baroda stocks to my portfolio).

Saturday, January 13, 2018

Life is calling. Don't say you are struck in traffic.

I am a regular user of Bangalore Metro now. It feels like a wonder when you travel in it at a nice speed and you watch the traffic on the roads below it is struggling to move an inch. Ask any Metro passenger, they would appreciate its reliability and convenience. Especially the women passengers, Metro has made life little easier for them. Why the traffic in Bangalore has worsened despite Metro running at full capacity carrying thousands of passengers every hour? I see following reasons for it.

Metro construction: The extension line construction of Metro (at Whitefield, Mysore road etc.) has really taken a toll. New bottlenecks are created and the average speed has come down drastically. A travel between KR Puram and Whitefield, though it is just 8 km’s, takes past one hour to two hours as Metro construction has occupied half of the road width. Everyone agrees the pace of construction is relatively fast but yet it will take good time before the civil works are complete and the lanes are freed up.

Increasing population: More people are moving into the town. Bangalore’s majority population has always been migrants. Not just from other parts of Karnataka and neighboring states but people originating from all parts of India are making Bangalore their new home. Probably Bangalore ranks highest among all towns of India in the number of new jobs being created (while rest of India seems to be under performing in job creation). Those new jobs mean new workforce moving in with their families. It also creates the increased need for supporting services like Schools, Hospitals, and Banks etc. George Soros had called this a self-reinforcing phenomenon, growth creating new growth opportunities. It is good to see Bangalore representing whole of India. But the bad part is all these new people are welcomed by the same old roads of it.

Picked up construction: A secondary impact of the new migrating population is increased demand for housing, office space, and commercial real estate. So the construction activity has picked up and much of construction materials have to come outside of Bangalore into it. All those trucks and the material moving vehicles of all sizes rush in and out Bangalore for brisk business.

Elections: Elections are nearby. National leaders of political parties are frequently visiting Bangalore and the local leaders have become actively engaged too. They roam around a lot along with their party workers. And there are political rally of many kinds being conducted bringing in lots of floating population. They all hit the clogged roads of Bangalore.

Call it a booming economy or a under developed infrastructure, Bangalore’s traffic finds new reasons to worsen with time. The pace of economic growth is not matched with the infrastructure addition. Though Metro is helping, it seems inadequate. Bangalore's seamless growth has its disadvantages. It is not just commute time or air quality, a drought year can bring its citizens a serious trouble over water.

To make it sustainable, industries based in Bangalore need to create jobs in other towns and voluntarily move their offices out of Bangalore. That would happen anyway but to make it early it needs encouragement from Govt. in the form of providing the infra needed for such a move. It seems like Chicken first or Egg first problem for now. Who would make the first move? I think it is the industry and the tipping point for that would be when the costs (real estate, transportation costs and wages) begin to hurt their profitability. May be five years from now, we would be in the middle of that problem. Until then, we need to learn to cope with the traffic or find alternatives to cut our commute time. Yes, find a house near to work location (or find a job near to your house) or go in shifts avoiding the peak hour, do whatever works for you (I have changed my job).

Save yourself from spending all evenings on road. Life is calling, where are you? Don't say you are struck in traffic.

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Friday, January 12, 2018

Rupee is stronger as Dollar is weaker

This blog post title is funny but it is what it is. When we look at the exchange rate of a currency we assume that the reference currency has remained the same. For example, Rupee was exchanged at 66 for a dollar few of weeks ago. Now you need only 63 rupees and some change to get the dollar. At first glance, one might interpret that Rupee is getting stronger and say kudos to Indian economy. But wait, think slow and you will realize that it is Dollar which is weakening against all other currencies. What made it so?

US Fed is raising interest rates, it was supposed to make the Dollar stronger but it did not. Thanks to President Trump. His policies does not promote international trade like his predecessors did. In that situation, the reason for other countries to hold US Dollar in their reserves diminishes. Whether it is political clash or trade disputes, China is not piling up US bonds as before and in fact it may have reduced its dollar reserves. That has increased the supply of dollars in the system and there are no big takers for it. So USD lost to the tune of 10% against Euro and other currencies.

Rupee is benefited too because of this development. Though our economic growth has reduced slightly, trade and fiscal deficits have not changed significantly. So Rupee rallied against USD and scored some points. RBI holds $400B as forex reserves and it is likely to slow down or stop buying the dollars. That will help the gains in Rupee sustain. In case RBI decides to sell some of its reserves (like China did), expect Rupee to trade below 60 a dollar. Good times are coming. Are not they?