13 Apr

Coronavirus curbs have impacted the cement supply chain – JK Cement

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,505 (+1.4%). Top gainers in NIFTY50 were M&M (+7.8%), Bajaj Finserv (+6.6%), and Tata Motors (+5.4%). The top losers were Dr Reddy (-3.9%), TCS (-3.9%), and Tech M (-3.3%). The top sectoral gainers were PSU BANKS (+4.5%), AUTO (+4.3%), and FIN SERVICES (+3.4%) while the sectoral losers were IT (-3.3%) and PHARMA (-1.2%).


Excerpts of an interview with Mr. Rajnish Kapur, COO, J.K.Cement (JKCEMENT) with CNBC -TV18 dated 12th April 2021

  • Currently. lockdowns have not impacted the production per se in any of their operations. What they are now witnessing is on the supply side, movement of the cement outside the plant has got affected. In some of the cities, there are partial lockdowns, some places it is night curfew, and in some cities in MP where the day movement is also not allowed. 
  • Raw material cost is a matter of concern. The pet coke price has risen ~110 per cent and today imported pet coke is costing about $ 126 per tonne. 
  • Similarly, coal prices have increased by 54 per cent so these two combined would have an impact of anything about Rs 250 per tonne on the cost of production.
  • They are actually looking at total power and fuel cost increase of somewhere in the region of Rs 250-275 in 1Q and 2QFY22. 
  • There doesn’t seem to be any indicators at this point in time that the cost is going to go down. There has been a marginal increase in the price of cement by ~Rs 5-10 in the markets where they operate.
  • At an industry level, they are not much concerned about demand at this point in time. They feel that the country has got enough to work upon. 
  • As an industry, they are looking at something between 10 and 12 per cent growth in FY22 which has just started.

Asset Multiplier comments:

  • Cement production reached 329 million tonnes (MT) in FY20 and is projected to reach 381 MT by FY22. However, the consumption stood at 327 MT in FY20 and is expected to reach 379 MT by FY22. (https://www.ibef.org/industry/cement-india.aspx)
  • India has a high quantity and quality of limestone deposits (the raw material for cement) throughout the country. Hence, the cement industry has a huge potential for growth.
  • The Eastern states of India are likely to be the newer and untapped markets for cement companies. These could contribute to the cement companies’ bottom line in the future.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of JKCEMENT was ₹ 2,852/- as of 13th April 2021.  It traded at 27x/ 23x the consensus earnings estimate of ₹ 107/ 123 for FY22E/23E respectively.
  • The consensus price target is ₹ 2,574/- which trades at 21x the earnings estimate for FY23E of ₹ 123/-

 Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


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12 Apr

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

Update on the Indian Equity Market:

 

On Monday, Nifty plunged 3.5% at 14,310 due to rising COVID-19 cases, vaccine supply issues and the possibility of a lockdown in various parts of the country. Within NIFTY50, DRREDDY’S (+7.1%), CIPLA (+2.7%), and DIVISLAB (+1.1%) were top gainers, while TATAMOTORS (-9.7%), ADANIPORT (-8.9%), and INDUSINDBK (-8.6%) were the top losing stocks. Among the sectoral indices, PSU BANK (-9.3%), MEDIA (-8.1%) and REALTY (-7.5%) were the highest losers, and there were no gainers.

 

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

 

Excerpts of an interview with Mr. Sunil Kataria, CEO, India and South Asian Association of Regional Cooperation (SAARC) at Godrej Consumer Products (GODREJCP), aired on CNBC-TV18 dated on 9th April 2021:

  • All the SAARC countries have continued to do well and growth has been robust for Godrej Consumer. Exports faced challenges in the 1HFY21 primarily because of lockdown, but it bounced back strongly in 2HFY21.
  • Thumb rule for FMCGs is whenever FMCG grows well, the Indian rural growth lead by 1.5x of urban growth. Pre covid, rural growth had gone down to 0.8x of urban, but the good news is now it has regained to 1.5x-1.7x of urban growth.
  • Mr Kataria expects
    • Good monsoon and with strong rural investment done, rural story will continue to hold very strong.
    • In this Budget, there is a lot of investment gone behind infrastructure sector which will stimulate demand and growth in core sectors. This will lead to good urban growth.
  • The top 3 important areas for Godrej Consumer are:
    • Household insecticides: Godrej Consumer is the category leader in this segment and have done most of the innovations here. India’s outlook towards health and hygiene has changed permanently, a strong momentum in this category is seen by Godrej Consumer this year and expects to continue to hold this momentum
    • Health and Hygiene: Godrej Consumer have done a lot of investment will continue to invest in this segment. It has moved beyond personal wash into being personal and home hygiene portfolio.
    • Go-To-Market Strategy: Sharp investments done in building a next level of GTM, this will be a big enabler in future.
  • Godrej Consumer Products posted a strong Q4FY21 update. The company said it has clocked in broad-based sales across all key categories and sees India sales growth around 30 percent this quarter.
  • This time, the COVID upsurge will see more of localized lockdowns rather than very far-ranging, wide impacting lockdowns. Therefore, a localized geography-based limited impact will happen on demand, which could impact certain discretionary categories.
  • People have started taking hygiene categories more casually and some stabilizing of demand is happening. Essentials and hygiene categories are expected to see an uptick again.
  • The whole consumption demand has looked up well across most of the segments and Mr. Kataria is pleasantly surprised with the kind of recovery in the demand that has happened even after the festive season.
  • Growth has been broad-based across all segments and that gives a lot of confidence and it talks about the quality of company’ growth across all the 3 segments – soap, hair color and household insecticides.
  • The company has taken calibrated price hikes across the portfolio and it is going to keep a close watch on price and demand of the products. More price increases are expected going forward if inflation continues, but not at the cost of volume growth. Therefore, some short-term pressure on gross margins is expected to be seen.

Asset Multiplier Comments

  • Post the virus outbreak, FMCG companies have stepped up supply chain agility and increased the GTM approach to ensure adequate stock. Teams have been put on “hyper-alert” to ensure that supply chains are uninterrupted in the case of disruptions due to localised lockdowns and curfews.
  • Overall, FMCG companies might get impacted due to regional lockdowns but this time it would be milder than last time lockdowns.

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of GODREJCP was ₹ 715 as of 12-April-2021. It traded at 40x/ 35x the consensus EPS estimate of ₹ 18.5/20.9 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 814/- implies a PE multiple of 39x on FY23E EPS of ₹20.9/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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11 Apr

Adopt to survive and thrive

Robert Vinall writes that there are two contrasting approaches to investing – one placing more weight on the future; the other on the past. They are a reminder that the optimal strategy is a function of the era you invest in. If you are in a market characterised by rapid and widespread change, it pays to be forward-looking despite the inherent difficulty of judging the future. If, on the other hand, you are in a market where the pace of change is slower and more localised, then it may simply be better to bet on reversion to the mean as the future is too uncertain and genuine change too infrequent.

The older generations of value investors invested based on the assumption that historical patterns of cashflow generation would reassert themselves – better known as “reversion to the mean” – seemed the better strategy. Many of the great investing track records were built by investing in stable, unchanging businesses when they went through a period of underperformance on the assumption that they would eventually recover. It was an approach to investing that was based on a good understanding of a company’s history and the assumption that the future would not look too different to the past. It worked far better than betting on companies with short histories and big plans for the future, and it seemed obvious that it would continue to.

When the investing era changes, older investors have to adapt, which in practice does not so much mean learning new tricks as unlearning old ones. The former is certainly easier than the latter as learning is fun, but parting ways with cherished ideas are painful. In one important respect though, there is an advantage to experience. When the nature of the market does change, it should, at least in theory, be easier for the investor that has lived through different types of markets to adapt than for the investor who has only experienced one type. The younger investor suddenly finds themselves in the position of the older investor without the benefit of having experienced a change in the market before.

To increase the chances of adapting to different markets, Vinall sees one big thing an investor should do and one big thing they should not. The single biggest thing they should do is commit to adapt. The single biggest thing an investor should not do is tie themselves to a particular investment style or geography or industry or any other categorisation. 

 

 

 

More accuracy

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11 Apr

The Week in a nutshell (5th April- 9th April)

Technical Talks

NIFTY opened the week on 5th April at 14,778 and closed on 9th April at 14,835, a muted weekly gain of 0.4%. On the upside, 15,336 could be a resistance to watch out for. On the downside, 100DMA of 14,249 might act as a support. The flat trending RSI of 52 and reducing negativity in MACD indicates that the market might see some uptrend in the coming days.

Weekly Highlights

  • The Reserve Bank of India (RBI) maintained the status quo for the fifth time in a row on policy rate. The repo rate is kept unchanged at 4 percent. The RBI expects economic growth for FY22E to be at 10.5 percent. The Governor said that the recent surge in COVID-19 infections has created uncertainty over economic growth recovery.
  • SEBI: Capital markets regulator SEBI asked institutional investors like banks, insurance companies, and pension funds to follow the ’transparent’ Stewardship Code in order to be truly accountable to their clients and beneficiaries.
  • The country’s foreign exchange reserves declined by USD 2.99 billion to reach USD 579.29 billion in the week ended March 26, RBI data showed. The fall in reserves was on account of a decrease in foreign currency assets (FCA), a major component of the overall reserves. FCA declined by USD 3.2 billion to USD 538 billion. In the previous week ended March 19, the forex kitty had increased by USD 233 million to USD 582 billion.
  • According to AMFI, the equity mutual funds saw a net inflow of Rs 91,150mn in Mar-2021 as compared to an outflow of Rs 44,970mn in the previous month (Feb-2021). 
  • INR saw its worst one-day fall in nearly 20 months on Wednesday on the fears of another lockdown hitting economic recovery. INR closed 1.5% down on Wednesday and closed the week at 74.76INR/ USD.
  • Foreign Institutional Investors (FII) were net sellers worth Rs 23,410mn in Indian equities, against net buying worth Rs 26,044mn in the previous week. Domestic Institutional Investors (DII) continued to be net buyers worth Rs 11,550mn, lower than last week’s buying of Rs 39,660mn.

Things to watch out 

  • The 4QFY21 result season will kick-off on Monday with the biggie, TCS announcing its FY21 audited result. During the week, Infosys and Wipro will announce results. Investors will keep an eye on dollar revenue growth and EBIT margin delivered by IT companies during the result season. Apart from the IT sector, the rising raw material prices are expected to affect the profitability and margins of industrial companies.
  • The key macro numbers like inflation data, Industrial production, Wholesale Price Index (WPI), export and import data are to be announced during the week.
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08 Apr

Uptick in demand to continue for the next 1-2 quarters – SAIL

Update on the Indian Equity Market:

On Thursday, the Indian equities ended with gains despite the weekly options expiry led volatility. The Nifty50 ended at 14,874 (+0.4%) lower than the day’s high of 14,984. METAL (+3.9%), IT (+1.2%), and REALTY (+0.8%) led the sectoral gainers while PSU BANK (-0.9%), PRIVATE BANK (-0.6%), and BANK (-0.6%) led the losers. JSWSTEEL (+9.6%), TATASTEEL (+5.4%), and SHREECEM (+4.8%) were the top gainers among Nifty50 components. SUNPHARMA (-1.1%), INDUSINDBK (-1.1%), and SBILIFE (-1.0%) led the laggards.

Excerpts of an interview with Ms. Soma Mondal, Chairman, Steel Authority of India Ltd (SAIL) published in The Economic Times on 7th April 2021:

  • There are three reasons why steel prices are among the highest in a decade. One, there have been supply-side constraints, even in the second and third phase of Covid, which has impacted the ramping up of capacities in certain parts of the world. Second, China is expected to close down some inefficient units as they have a target for reducing carbon footprint. Last, being raw material supply constraints have led to a rise in iron ore prices. These factors are driving steel prices up and the demand has picked up.
  • The uptick in demand is likely to continue for the next 1-2 quarters. As prices go up, many closed capacities expected to open up, supply constraints will be eased. The increased supplies are expected to put downward pressure on prices.
  • As the vaccination drive in on, the Covid situation is expected to come under control. This will lead to some pick-up in production, which is currently hampered due to increasing Covid cases.
  • The Company is focusing on reducing its borrowing. In April-20, the debt was Rs 520 bn, which was reduced to ~ Rs 350bn by March-21. They would like to bring the debt level even more because they want to start the next phase of expansion.
  • A total focus on the balance sheet, increased volume thrust on increasing efficiencies, reducing cost, and techno economic improvement will help improve the balance sheet and leverage position.
  • The conversion costs are high for SAIL because of wages and salaries. At higher volumes, this would go down. They are reducing their manpower, hence they are not recruiting as much. With a balanced approach to recruitment and increasing their volumes, the cost of production and conversion costs will be reduced.
  • Their primary aim is to meet the domestic demand and having a strategic presence in the export market.
  • With major capacities not coming up anywhere other than in India, she expects the demand and prices to remain strong. With a lower leveraged position, SAIL would plan the next phase of expansion.

Asset Multiplier Comments

  • The demand from the auto, construction, and white goods sector and infrastructure focus by the Indian government has led to the creation of demand for steel.
  • The strong demand and rising prices since the easing of lockdown restrictions are expected to continue driving the profitability of Indian steel manufacturers.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of SAIL was ₹ 96/- as of 08-April-2021. It traded at 7x/ 6x the consensus earnings estimate of ₹ 14.6/ 15.8 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 82 implies a PE multiple of 5x on FY23E EPS of ₹ 15.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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07 Apr

Volume boost expected from commissioning of Western Dedicated Freight Corridor– CONCOR

Update on the Indian Equity Market:

 

On Wednesday, Nifty closed 0.9% higher at 14,819. Within NIFTY50, JSWSTEEL (+5.3%), WIPRO (+2.4%), and SBIN (+2.2%) were top gainers, while ADANIPORTS (-2.8%), TATACONSUM (-1.4%), and UPL (-1.3%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.9%), AUTO (+1.6%), and PRIVATE BANK (+1.5%) were the highest gainers, while no sector ended with losses.

 

Volume boost expected from commissioning of Western Dedicated Freight Corridor– CONCOR

 

Excerpts of an interview with Mr. V Kalyana Rama, MD& Chairman, Container Corporation of India (CONCOR), aired on CNBC-TV18 dated on 6th April 2021:

  • CONCOR had good volumes in 4QFY21. Overall for FY21, handling volumes for CONCOR were 2.8% less YoY, while originating volumes were higher on a YoY basis.
  • Rama hopes FY22E will be a good year as demand has picked up and is expected to continue. Export demand has also increased in the last 6 months.
  • CONCOR has paid Rs 5,900 mn to Indian Railways in relation to a dispute, and the issue is now resolved.
  • According to a comment by DIPAM (Department of Investment and Public Asset Management) secretary, divestment of CONCOR may not happen in 1QFY22E. CONCOR divestment can take place only after Indian Railways finalizes land lease policy, which has to be approved by the Cabinet.
  • Commissioning of Western Dedicated Freight Corridor (DFC) is expected to be completed by June 2022. Connection up to Palanpur is expected to start any day now. This will help in connecting to 2 ports- Mundra and Pipavav. This will be a big volume boost in the northern India container movement business. The connection upto Mumbai port will take another year.
  • The DFC will lead to higher revenues. There is also a possibility to increase EBITDA margins due to double stacking and high capacity wagons. CONCOR is planning to have a 100% double stacking movement for all containers meant for northern India.
  • In the short term, Mr. Rama expects more growth in EXIM business as exports are picking up. In the domestic market, he is seeing more people coming toward containerization which will also aid growth. In addition, CONCOR is focusing on bulk transportation of commodities.

Asset Multiplier Comments

  • In the Union Budget for FY22E, Government of India (GoI) has budgeted inflow of Rs 17.5 lakh mn from divestment in PSUs.
  • To kick start the privatization of PSUs, GoI will float the Expression of Interest (EoI) for divestment in CONCOR. GoI plans to divest 30.8% stake and cede management control in the Rs 355 bn market cap (as on 6th April 2021) company.
  • Several Indian as well as global companies seem to be interested in getting a stake in India’s largest container and terminal operator.
  • There has been scepticism on whether GoI will be able to successfully execute their PSU divestment strategy.  Success of this privatization will pave way for further divestments in other PSUs.

 

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of CONCOR was ₹ 583as of 6-April-2021. It traded at 35x/ 27x the consensus EPS estimate of ₹16.7/21.4 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 520/- implies a PE multiple of 24x on FY23E EPS of ₹21.4/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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06 Apr

Tractor volumes show record growth, Momentum expected to continue: Escorts

Update on Indian Equity Market:

After yesterday’s rout markets traded flat to end the day as Nifty closed the day 45 points lower at 14,683.  Within the index, ADANIPORTS (+12.6%), TATACONSUM (+4.6%), and ASIANPAINT (+4.0%) were few of the gainers while POWERGRID (-2.3%), GRASIM (-1.3%), and EICHERMOT (-1%) led the losers. Among the sectoral indices, PHARMA (+1.8%), METAL (+1.4%), and REALTY (+1.2%)  led the winners while BANK (-0.5%), PRIVATE BANK (-0.4%), and MEDIA (-0.3%)  led the losers. 

Excerpts of Interview with Bharat Madan, Group CFO of Escorts Ltd. with CNBC-TV18 dated 5th April 2021:

  • Escorts posted very strong 10 percent tractor sales growth in March compared to the previous month. FY21 ended on a strong note with total tractor sales rising 24 percent vs FY20.
  • Escorts achieved an annual production level of 100,000 units for the first time in its history on the back of robust growth in sales despite the Covid-19 pandemic.
  • The rural sentiment is expected to be strong after a good Rabi season and a favorable monsoon outlook.
  • Demand is expected to grow for the next 6 months on account of expansion in South India.
  • Rising Covid-19 cases has not yet impacted demand but remain a concern. However, it is not expected to hamper any supply-side considerations.

Asset Multiplier Comments:

  • The Company is witnessing a strong demand on account of economic recovery and the company is poised to continue this upward trajectory for the upcoming 2 quarters.
  • Overall, the outlook for the auto industry is favorable and the effect of supply chain issues seems to be muted so there’s scope for sustained growth.

Consensus Estimates (Source: market screener website):

  • The closing price of ESCORTS was ₹ 1,223/- as of 06-April-2021.  It traded at 15x/ 13x the consensus EPS estimate of ₹ 84/ 94 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 1470/- which trades at 16x the EPS estimate for FY23E of ₹ 94/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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05 Apr

Expect more stability hereon: Indiabulls Housing Finance

Update on Indian Equity Market:

Markets started the first week of FY22E on a negative note as Nifty closed the day 230 points lower at 14,638. The fresh restrictions amid rising COID-19 cases might be the reason behind the move. Within the index, HCL TECH (3.2%), TCS (2.4%),and WIPRO (2.3%) were few of the gainers while BAJFINANCE (-5.7%), INDUSINDBK (-5.5%), and SBIN (-4.5%) led the losers. Among the sectoral indices, only IT (2.0%) and METAL (0.9%) led the winners while PSU BANK (-4.1%), BANK (-3.5%), and PVT BANK (-3.4%) led the losers. 

Excerpts of an interview with Mr. Gagan Banga, Vice-chairman & MD, Indiabulls Housing Finance (IBULHSGFIN) with CNBC -TV18 dated 1st April 2021:

  • CRISIL has upgraded the rating outlook for IBULHSGFIN. This is the first rating upgrade for the company in two years. The asset-light model is now stabilized and is now starting to scale up. The ample amount of liquidity buffers created by the company is appreciated by CRISIL.
  • He said that the macro picture in the country is improving and favorable. Home sales continued to inch up through the month of March-21. The current month (April) is looking much better compared to last year. The company expects more stability from hereon.
  • There is a lot of work to be done on the collections front. The company is very careful about improving the collection efficiency of the company.
  • IBULHSGFIN has raised a total of Rs 210bn capital through shareholders. The company continues to operate by investing in a corporate governance framework. 
  • Some of the borrowers are paying ahead of the schedule. The company is also witnessing pick-up in sales in all realty markets including Delhi, NCR, Bengaluru, Hyderabad, etc.

Asset Multiplier Comments:

  • Post IL&FS era, the rating upgrade is the first relief for the company in two years. This highlights the recovery of the quality of fundamentals aided by the asset-light model and may aid in building confidence in investors. The recent capital raising also highlights the same.
  • The focus on improving collection efficiency will lead to a reduction in gross stage 2 & 3 assets in the coming months for the company. This will improve the quality of the loan book. 

Consensus Estimates (Source: market screener):

  • The closing price of IBULHSGFIN was ₹ 194/- as of 5-April-2021.  It traded at 0.47x/ 0.48x the consensus Book Value estimate of ₹ 412/ 407 for FY22E/23E respectively.
  • The consensus price target is ₹ 155/- which trades at 0.38x the BV estimate for FY23E of ₹ 407/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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04 Apr

The Week in a nutshell (30th March-1st April)

Technical Talks

NIFTY opened the week on 30 th March at 14,628 and closed on 1 st April at 14,867, a weekly
gain of 1.6%. On the upside, 15,536 could be a resistance to watch for. On the downside,
100 DMA of 14,139 might act as a support. RSI on the uptrend at 52 and reducing negativity
in MACD indicates that the market might see some uptrend in the coming days.

Weekly highlights

● The government has approved a Rs 109 bn production-linked incentive scheme for the food
processing industry (PTI). The scheme will attract investments from global and domestic
companies in the food processing sector.
● GST collections rose 27% to hit a record high of nearly Rs 1,240 bn in March, helping to
narrow the deficit for the full financial year to ~7%. Revenue from imported goods jumped
70%, while those from domestic transactions, including services imports, were 17% higher
than the corresponding periods of 2020. Economic activities are picking up which will be
positive for economy linked stocks.
● A sharp recovery in the US dollar, hints of a strong global economic outlook, and a surge in
US treasury yields continue to hit the safe investment demand and thus the price of gold.
The Gold futures have fallen from a high of US $ 1962 to the US $ 1730 on April 1. A
possible physical demand recovery due to the upcoming marriage season in India and China
can attract fresh buyers.
● OPEC+ agreed on Thursday to gradually ease its oil output cuts from May. The new U.S.
administration called on Saudi Arabia to keep energy affordable, mirroring Donald Trump's
practice of calling OPEC's leader over oil policy.
● Auto volumes for the month of March-21 were reported. Companies have been talking of
the supply chain being impacted due to the global chip shortage issue. Despite the supply
chain issues, most companies reported good performance. Maruti and Tata Motors reported
2% and 15% MoM growth. NIFTY AUTO witnessed a gain of 1.6% on Thursday.
● Foreign Institutional Investors (FIIs) were net buyers in Indian equity of Rs 26,044 mn,
against net selling of Rs 67,013 mn in the previous week. Domestic Institutional Investors
(DIIs) continued to be net buyers of Rs 39,660 mn, lower than last week’s buying of Rs
50,181 mn.

Things to watch out
● RBI Monetary Policy Committee to announce the new policy on 7 April. No interest rate
changes are expected in this meeting too. After a cumulative reduction of 115 bps in the
policy repo rate to 4.00 per cent in two of the out-of-cycle meetings held in March 2020 and
May 2020, the Monetary Policy Committee (MPC) kept the repo rate unchanged in the
subsequent policy reviews. Since the last policy review, the CPI inflation has risen from a low
of 4.1 per cent in January 2021, to a sharper-than-expected 5.0 per cent in February 2021.
Consensus expects no changes in interest rates.
● Due to the everyday rise in covid cases, the Government is planning a weekend lockdown in
Maharashtra and planning to close restaurants, Malls, parks etc. How the market reacts to
these rising cases in the country will be the key thing to watch out for.

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04 Apr

Big Risks

Big risks are easy to underestimate because they come from small risks that multiply.

Big risks are easy to overlook because they’re just a chain reaction of small events, each of which is easy to shrug off. A bunch of mundane things happen at the right time, in the right order, and multiply into an event that might look impossible if you only view the final outcome in isolation. Math is hard, but exponential math is deceiving.

Covid is the same. A virus shutting down the global economy and killing millions of people seemed remote enough for most people to never contemplate. Before a year ago it sounded like the one-in-billions freak accident only seen in movies.

But break the last year into smaller pieces.

A virus transferred from animal to human (has happened forever) and those humans interacted with other people (of course). It was a mystery for a while (understandable) and bad news was likely suppressed (political incentives, don’t yell fire in a theatre). Other countries thought it would be contained (exceptionalism, standard denial) and didn’t act fast enough (bureaucracy, lack of leadership). We weren’t prepared (common over-optimism) and the reaction to masks and lockdowns became heated (of course) so as to become sporadic (diversity, same as ever). Feelings turned tribal (standard during an election year) and a rush to move on led to premature reopenings (standard denial, the inevitability of different people experiencing different realities).

Each of those events on their own seems obvious, even common. But when you multiply them together you get something surprising, even unprecedented. Big risks are always like that, which makes them too easy to underestimate. How starkly we have been reminded over the last year.

Source: Morgan Housel

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