Say you are driving down the freeway/ highway/ motorway at a constant and comfortable speed which does not bother you much when suddenly you realise that you are running late to your destination. At this point you decide to speed up beyond your comfort pace, although totally in the safe zone, but still uncomfortable. While at this rather uncomfortable speed, you come across an obstacle, a risk ahead, the usual reaction also would be to break a much faster (frantically) rate rather than your cool comfort slowdown. What is also interesting to note is that after a while that uncomfortable speed would begin to feel more comfortable and would become the 'new normal'.
Being a patsy again has become a second nature to me, a testament to my inherent momentary stupidities. Mind you, this stupidity is not just contained to my capital market decisions (even my children call me stupid sometimes, my wife, all the time). Although I am happy that I do not possess the ego to accept that I am/ maybe wrong.
What I described above is what I believe happened in the month of January, February and March. As equity markets zoomed at the prospect of 'synchronized global growth' (nice terminology) in January, the upward acceleration trying to price in favorable earnings globally was probably too much for market participants to consume. Of course, at such times, awareness of hurdles or risk disproportionately rises and suddenly this absurd 3% mark on the 10Y Treasuries became a perceived risk (throw in some trade war fear as well).
If we look into the real fundamental data, the fed rate still remains low and even after two or three more hikes would be relatively low compared to past history. Considering wage increases have not really materialized as feared probably owing to increase in the labor force participation rate, which in my view can still increase to ~65%, we may be looking at lower rates for longer. I am not in the camp that the Fed will err on the side of caution on interest rates as the risks are too great for Mr. Powell.
All in all, the patsy (with a sticker) in me saw the technical correction (over reacting to normal risks) as a fundamental one. The downside to equity markets may not be over but I do feel that it is probably limited as all it would take for the Fed to suggest that it will be 'lower for longer' to prop markets again. It is difficult, in my wisdom now, to see this bull market ending without an overheated economy, which we currently don't have on the plate.
In short, I am on the camp, given the current context, that we still have some room to run on the upside.
Back in India, we are looking at general elections late this year or early next year. It is highly likely that the BJP gets the second term just due to the 'Modi' effect. It is interesting and somewhat disappointing to find that there is not even a close suitable alternative at present. Democracy always functions best when checks and balances are in place.
This earnings season so far has not been very bad for corporate India, although that could be said for most of global stocks. TCS became the first $100 Bn market cap company from India's shores. Private banks are slowly eating market cap (and share) away from public sector banks and that trend is likely to continue. Wage growth has been anemic in India this year but that has not deterred the consumption story. Who needs income now when you can borrow?
Regarding the recent saga of frauds in the public sector banking industry in India, 'surprise' is not the word but 'of-course' is the word to describe it. Anyone who has dealt with public sector banks in India knows how incompetent and rather corrupt lending managers are in these institutions (honesty and integrity is an exception). Looking to the future, the most probable course of action is for the public banking industry to dwindle in liabilities while the private sector banks consume market share.
To end this months' commentary, while it may seem that I have a very good hold of how things are panning out, it is but just one of the many possible paths that the future may take shape on. As Mr. Dalio explains in his book 'Principles', what kills is not to accept an alternative path and recognize it.