India Value Migration Story

Tremendous wealth is created when you can spot a value migration story and bet big on it. Few examples from the past that you will easily recognize

• Scooter to bike migration (Bajaj to Hero Motocorp) 
• Single screen to multiplex (Shanti cinemas to PVR)
• Photographic film based camera to digital camera (Kodak to Canon/Smart phones) 
• Landline to mobile migration (BSNL/MTNL to Airtel)
• Doordarshan to DishTV
• Manual work to Software automation & services (account books to Infosys/Wipro)

One would assume that such opportunities are rare and difficult to spot, but right now in India, several of these are evolving right in front of your eyes and moving fast. India is like a haystack of multiple value migration stories, then why are you looking for the needle instead?

Value migration happens over a long period of time as masses of people slowly migrate from some product, service, or habit to a new product service or habit in phases. There is also a compounding effect in the migration as more adoption drives even greater adoption and it starts slowly but once it catches pace, it happens very fast. So you need to spot it and position on it while it is still in nascent stage.

Current value migration stories in India

• non-tax compliant society to tax compliant society (91 Lakh new taxpayers registered, double digit growth in annual tax revenue)
• cash to cashless/less cash society (paytm, UPI, digital banking)
• Power deficient to power surplus & rural electrification  (coal block allocations, Uday/Ujala schemes, 24 hours power even in summers)
• Migration from savings based society to investment based economy (from gold, land, cash to increasing interest in equity markets)
• Migration from uninsured to insured society (healthcare, savings, old age, high value possessions, travel, etc)
• Migration from a cash in locker society to a fully banked society (increase in money velocity & leverage, Kotak 811)
• Migration from unorganized to organized sector to create huge global mammoths and consolidation through mega M&A deals (Cairn-Vedanta, Vodafone-Idea, HDFC-Max, SBI Associates merger)
• Migration from basic spending (roti, kapda, makan) to discretionary/luxury spending society (BMW, Harley Davidson)
• Migration to brand conscious society (Tailored clothing to Levis/Van Heusen/Jockey)
• Migration from poverty ridden to poverty free society(several govt schemes skill India, employment generation schemes, one nation one market, DBT)
• Migration from fossil fuels to renewable energy sources (solar/wind energy available cheaper than fossil fuel based energy sources)
• Tubelight/Filament bulbs to LED based lighting
• Migration from BS-III to BS-VI, electrical vehicles (Climate change, Paris agreement)
• Privatization & FDI in large sectors like defense, railways (Pipavav/Reliance defense, L&T)
• Low oil price commodity cycle (subsidy based pricing to market pricing)
• Developing commodity market (dabba trading to the most advanced commodity exchange MCX, GIFT city)
• One nation one tax - GST (inefficient tax based planning vs business efficiency based planning)
• One nation one identity -  Aadhaar (Easy tracking, efficient authorization)
• Corruption friendly to corruption free society (demonetization, e-governance, etc)
• Traditional bank loan based funding to Private Equity, REIT, InvIt for infrastructure and real estate, startup financing
• small kaccha projects to huge infrastructure, housing, smart city push (Huge development in some states like Andhra Pradesh)
• Paper companies, non-transparent, low corporate governance companies to credit rated & internationally certified businesses especially in the SME segment (CARE, ICRA, CRISIL)
• Chor real estate companies to highly regulated professionally managed, consumer friendly companies (RERA)
• Import into India to Make in India (good progress in manufacturing sectors like textile, chemical, auto, electronics)
• Conservative, Risk averse business to strong visionary businesses like Reliance Jio, Patanjali
• Leadership position in low cost space research & exploration (ISRO)
• Job seeker, labor & hard work oriented professionals to startup inclined professionals & innovative smart younger generation
• Alcohol drinking is sin to drinking is a sign of luxury & class society
• Coalition govt to single party, consensus majority and power mandate central govt (Congress to BJP)
• Improved rating & ranking on several parameters like ease of doing business, investment destination, tourism destination (pending credit rating upgrade)
• Developing/Emerging economy to developed economy

Negative Value migration:

• High salary & employee cost in less efficient PSU companies make them more uncompetitive and less attractive for investment. However increasing middle class income will be drivers for consumption

book your fucking losses

It is that time of the year when you need to book your fucking losses to make some money! YES you read that right. It's March, end of financial year. Once we cross March 31st we need to pay tax on a the short term capital gains made last year. We tend to do a lot of profit booking but we hold on to stocks that are loss making. So we end up paying tax on all the profits generated and we make more losses on our loss making investments by holding on to them. That is double loss!
So book your losses adjust it against the profits and then pay tax only on net profit. Save lot of money and thank me someday :)

Note that you can offset your short term capital gains only with short term capital loss and not with a loss in  a long term investment. But still this is a good time to review those long term loss making investments also and dump them down the drain where they belong ... unless you are in love with the psychopath who has kidnapped your portfolio and is one day going to shoot it down. And unless you are harley quinn "daddy's little monster" I suggest you you look for these little monsters in your portfolio and weed them out .. and reduce your tax outgo by doing the same before 31st March in the next 5 days

Pay your taxes

If you don't declare your capital gains, I strongly suggest start doing it else the taxman is surely coming to your door sometime soon (Aadhar, KYC, digitization and single view dashboard of all records, they can catch you easily if they want to). Modi and Jaitley are one of the smartest politicians and they know people are making money in the stock market and they would want you to contribute some of that back for Nation building (not unfair at all). So unless you are harley quinn and don't give a shit ..start declaring your short term capital gains religiously. Once you start declaring it, you would want to save on it. To save you need to book your fucking losses. And trust me you will gain much more by getting rid of these loss making investments using tax planning as an excuse to convince your heart into taking this difficult decision, than you would lose by paying your capital gains tax. 

So let's do some accounting jugaad because in real life harley quinn is just a dream ! 

practical optimist

The temperament of a investor plays a very important role in his success or failure. Whether he is optimistic or pessimistic influences what he does which in effect decides the result he gets from the market. Let's take the BJP or Modi victory in UP state elections and look at how different investors would react to it.

The Optimists's View
The optimist would see this as a great tailwind for the market which will take it to new highs. He would further say that this actually seals the BJP victory in 2019 and is a long term positive event for several years to come. It would make passage or implementation of major reforms like GST, attack on black money, bad loan cleanup, digitization very easy for the ruling party and keep good news flowing into the market and hence he would suggest that people should invest blindly in this market.

The Pessimist's View 
The pessimist would see this as an expected event that the market has already factored in. Any run up in the market according to him would be a good opportunity to book profits in the market. He would argue that elections and other political events have only short term impact on the market and going forward market would focus on results, monsoon, FED rate hike, EU elections, geopolitics, and the continuing trend of outflow from EM's to DM's

The Practical Optimists's View
A practical optimist would say that look market can do whatever it wants to do. It may go up or it may have factored in the UP victory and will face resistance and profit booking at higher levels or it may be range bound reacting to various global triggers... but it's going to be definitely better than what could have happened had BJP lost the UP elections. No doubt about that! Now that's a Practical Optimists's View that cannot go wrong can it ? better days ahead for sure !

Who am I ? I try to be the practical optimist .. always .. who are you ?

WorthRead

MIPA

Make India Prosperous Again

The adjective prosperous often describes a person or a person’s future, but it can apply to anything that’s experiencing growth and success. Prosperous derives from the Latin word prosperus, meaning “doing well.” Great pronouns of this happy word include golden, well-heeled, flourishing, and thriving.

Routine vs Potential days
Most days are normal routine days and some days have potential. Potential to change normal and routine into exciting possibilities. Union budget 2017 on Feb 1st could be one of those days. Not saying it will be for sure, but it could be. Opportunity is not lottery, it is a possibility. An opportunity turns into success only for those who bet on the possibility it opens up.
What if the opportunity doesn't work and becomes a threat? Accidents happen, we recover from them and look for new opportunities. That's simple.

Budget'17 the opportunity
I have high hopes from this budget. The banking system is flush with cash, thanks to demonetization. Rural sector is on a recovery path, thanks to monsoon. The groundwork behind most of the major reforms like GST, land acquisition bill, bankruptcy code are in place, thanks to Modi & his team. The government has ambitious plans digitization, FDI reforms, defense, housing for all, infrastructure, smart cities, 24*7 power and electrification. Modi government has completed 2.5 years in office , enjoys massive public support and goodwill .. it's now or never for the Modi government. I would be very disappointed if the Budget on 1st Feb is anything short of revolutionary. As a high stakes investor I am always prepared that things may not work out the way I want it to but at the same time I am always hopeful that the next opportunity will be a life changing opportunity.

Make India Prosperous Again (MIPA)
If it works out the rocket is ready to launch, get onboard. If it doesn't, remember the day had the potential. There will be another day and we will bet on it again. Now I will keep quiet and leave it for Jaitley to decide to make India prosperous again or wait for another time.
Why a Trumpistic angle to this blog? .. because public don't like Trump but I think there are two sides to everything and I am not afraid to appreciate the good side .. Make America Great Again was an absolute master stroke .. this blog is dedicated to a similar idea of making India prosperous again !

accept facts to win

How can you deny what has happened? What is the point in wishing that it should have not happened? Once something has happened, it has happened. What happens is not random, it is a function of everything else that happens. Unless you believe in parallel universes, this is what it is. Off-course in future you can try to change things but first you need to accept what has happened. Denial of facts is for losers.

The world is constantly moving in a direction. Your best chances of winning lies in aligning yourself to this direction. On the opposite side lies nothing. Note I am not saying that you cannot change things, but even to change things you still have to align yourself to this larger direction. If you try to change things by going in the opposite direction, you will be left behind and forgotten.

The winning formula
Keep an open mind. Accept. Move forward. Move in the strongest direction. If you want change, lead the change from the strongest direction. Over time movement in all other directions will perish, only the one's in the strongest direction will persist.

Trust me, you will need it this year
In stock markets, I believe being able to align yourself to the strongest direction will be the winning attribute that will get you through this year.  2017 is going to be a tough year. Trump policies, aggressive rate hikes by US Fed, instability in EU, volatility in currency, commodity, bond markets. These things will happen. You have to accept it, find the strongest direction and move in that direction. If you try to go in the denial mode, run away from these events, you will perish in any other direction.

For me a lot is at stake always in the stock markets at any time. After 2016, it is painful to think that we have another year ahead of us full of uncertainties and volatility, but it is what it is. Will not try to run or hide from it. 2017 will be the year I will bet on the market most aggressively and will wait for the strongest direction to emerge and when it happens, hopefully will be among the front runners in that direction. And that's the way to go for me !

threats and opportunities

Threats

US FED Rate hike
US Fed has guided for 3 rate hikes during the year 2017 which is one of the dangers for the markets addicted to free money. The FED meeting dates are given below and is important to watch out for

Oil price
India is a developing economy and heavily dependent on oil imports. Rising oil price can throw all the govt plan of lower deficit and higher developmental spending out of order completely screwing the macro picture. It will also lead to higher inflation hitting the household budget. If oil spikes above $60, we will have to re-think everything. This will be a difficult problem even for Modi-Jaitley-Patel together. Similar argument applies to other commodities also where India is a net importer.

EU
Elections and referendums are expected to happen throughout the year in EU. Be it a follow up on Brexit, fiver star movement from Italy, German elections, Scottish referendum, Greek debt problem. They are all going to haunt the markets throughout the year.

Geopolitics & Terrorism
While situation in Syria is slightly better, the problem is far from over. EU refugee crisis, terrorist attacks around the world, the south china sea problem, the north korea problem, the African & M.E crisis, I wonder how long can the market ignore all this...

Trump effect
If market finds investing in America more attractive then very little is left to invest into emerging markets. These are tectonic shift events that can lead to few earthquakes here and there. However things will settle down eventually. Not all that worried about this.

US bond market
Something about rising yields and crashing bond markets that could lead to chaos in the world markets. US bond market is supposedly in a big bubble that can burst anytime, however we have been saying so for nearly everything realty, stocks, bonds, .. so let's see.

Opportunities

Economic recovery from demonetisation
As the cash availability improves there will be a burst in the commercial activity due to pent up demand. All I can say is that the worst is behind us and golden days are ahead. This was a historic event and I am just happy that we are done with it

Gloal India Rankings & Ratings
Expect India to improve in several areas in global rankings like ease of doing business, corruption, etc which will make it an attractive investment destination

Politics
Hopefully recent measures has only strengthened Modi's position in Indian politics as a leader who genuinely wants to fight corruption and uplift the huge poor population of the country. It is only in India that people will accept so much suffering and still support the leader. It is called being invested. The suffering was not optional so people want to give Modi some more time hoping that the rewards will follow. UP election will be a litmus test for the same, but an adverse outcome will not be disastrous either.

GST
GST along with demonetization and digitization brings huge opportunities for the organized sector in India to grow into global behemoths.Expect huge wave of consolidation in the market. We will soon enter the phase when the big will keep getting bigger and better. This will present one of the largest wealth creation opportunities once the snowball starts rolling.

Infrastructure/Housing for all/Defense/Digitization push
It is a super ambitious project and could trigger a China like growth in India. I am not sure how much we will achieve on the ground but surely this can lead to some spectacular gains in stock markets

monsoon
Another year of good monsoon is extremely important. The rural sector could not leverage the good monsoon to the fullest due to demonetization and is still very fragile. A bad monsoon this year will be disastrous, but let's just hope that la nina was not just a one year wonder. A good monsoon on the other hand will bring in all round prosperity for everyone.