Thinkpad: Disconnect, Disinflation And Dislocation

Hello from team BQ.

We live in times of information overload. Articles on social media. Articles via WhatsApp. Reports. LinkedIn posts. General gyaan. And so on.

Some you may ignore. Some you may glance through. Some you may read once. And a few may make you think. So each week, BQ will bring you a quick short Sunday note morning note on things to think about. The Thinkpad.

So here goes.

The markets had another reasonable week. Both the Sensex and Nifty gained over a percent each. Financial stocks, which were lagging the market until recently, gathered steam. Even PSU banks did. Why? Search me.

The disconnect between the markets and the economy has never been starker and you’re hearing more people talking about it.

One view is that the markets have discounted FY21 and are looking ahead, as they typically do, to FY22. But there is more to it. Some interesting ‘things to think about’ here. One, as Credit Suisse’s Neelkanth Mishra pointed out, money supply growth in the economy (M3 in technical parlance) is running well above economic growth in nominal terms. With the economy weak, inflation in goods and services may not rise but asset inflation is rising Mishra expects that this will also continue for some more time.

There was also an interesting view from Nobel Laureate Robert Shiller who said most investors have no clue what to make of an unprecedented event like a pandemic. “Stock-market movements are driven largely by investors’ assessments of other investors’ evolving reaction to the news, rather than the news itself.” And maybe that’s what is happening now.

Here’s another thought. From Viktor Shvets, head of Asia-Pacific and global strategy of Macquarie Group. The virus is “mere noise” for the investors. The real question is whether it moves us from a disinflationary world to an inflationary one? Those who get the call correct will bag the gains. Read and think.

What else should make us think?

Mutual funds. Now one month does not make a trend. But what happened here that led to a 95% month-on-month fall in net inflows? As markets rose, perhaps a number of investors chose to cash out. But mutual funds need to take a hard look at performance, particularly over the past five years. ‘Mutual Funds Sahi Hai’ but are they really “Sahi” for returns? Retail investors also appear to be rushing towards direct stock trading. Discount brokerages and technology have enabled this. Is this party destined to end badly?

The irony in all of this, as one analyst pointed out in an offline chat, is that for all the excitement over financialisation of savings in India, you may eventually have been better off if you invested in good ol’ gold a few years back!

Meanwhile, most of us continue to work from home. A number of companies have resigned to the fact that most employees may be working from home till the end of the year.

For some companies and industries, it will mark a longer-term shift. TCS, for instance, has said that by 2025, only 25% of its associates will work out of company facilities. As the tech giant’s CFO told BQ, it’s not just about cost....”But more important is that you will have a talent cloud.”

What are you and your company gaining and losing from WFH? Think about it... in the time you have saved yourself by avoiding the long drive to work.

Till next week.