Our Mid-monthly Newsletter Edition 1/Vol 5/Apr '17

No, it’s not what you see but it’s how you respond to what you see makes up the market. This 4 yrs old cartoon of Kal depicts that either we’ve not known to live with him or he’s not bothered to accommodate with the world. North Korean leader has found an equally temperamental US President to dodge with and now the world is waiting with bated breath on how the present tussle unfolds. It’s very unfortunate that our rhetoric on geo-politics defining this year is turning true.

This April, May announces election in June. The surprise election call by British Prime Minister Theresa May seems an astute political move. The UK economy suggests to be in a sweet spot, with low unemployment, inflation still not affecting the consumers and none of the Brexit fears yet to materialize into any negative wobbles; what better would it be to consolidate her power while crushing the already disarrayed opposition. Her party, conservatives, have a 21-point poll lead and this snap election could extend the thin lead her predecessor won in ’15; a tactic working in her favor to retain power beyond ’20. Would the French buckle the trend? The protectionist and nationalistic fervor being played by the leaders from North Korea to the US to Australia to their masses is making the world more unstable . Macron and Le Pen are leading in the four-way race while the Fillon and Melenchon close behind moving into the second round of the French Presidential election. Unlike May’s fortunes the early Le Pen fortunes are drifting as the opponents are catching up and hopefully the French voters would clip the protectionist trend by not leaning to any of the extremes. This is of course, overcast with the latest terror attack in Paris.

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Buzz 

Midorexia - a label for the middle-aged and older consumers who act younger than their years.

This Australian Open when for the first time the finalists in both the men”s and women”s singles finals were all 30+ in their age (considered veterans in the pro tennis) also when the Indian Cricket team recalled Yuvi, Nehra and Dhoni (all 30+ veterans), it was like watching matches a decade old. Most of us regaled feeling that we’ve gone down by 10 years of our age. This is not just a feeling but a revolution unfolding across the world.

Its just highlighting the shifting status and expectations of a demographic whose members are living and working for longer and prioritizing wellness while challenging the typical age-appropriate behavior of older people. These consumers are transforming what it means to be older in terms of lifestyle and are more demanding in their consumption needs, creating what is increasingly referred to as the “Longevity Economy”. These changes are inspiring the financial advisors to extend the traditional boundaries of planning and execution of the retirement.

The Union Budget has set a tone of incrementalism and continuity, which within a few years would turn into a non-event, ideally how it should be. This budget had all the expectations of turning into populist as its between two big events of denonitisation and big state elections but we're impressed at the restraint shown by the FM. 

Wealocity sees a reformist path other than merging the railway budget are: 
5% reduction in the corporate tax for cos less than Rs.50Cr turnover,

lowering cash donations to the political parties,
making it unlawful to deal in cash over Rs.3L,
reduction of 5% in the 1st slab of individual tax,
restricting the tax concession for housing loan interest to Rs.2L and reduction of holding period form 3 to 2 years for considering LTCG. 

The icing on the top is the empathy for tax payers who're a minority while crunching big data (the govt.'s keenness to hook the non-complaint).

The new US administration is on a mission to issue executive orders in it's attempts to live up to the election promises. This has resulted in pulling out of the burgeoning TPP though it was expected to add just 0.2% of GDP to the US in over 15 yrs. So, the cost of withdrawing seems small. But it would be a big blow to the free trade across the world and also significant deterrence would be lost to the ever expanding influence of China.

Already the new visa ban laws have attracted wide negative attention across the world while innumerable suits filed within the US by organisations and institutions. Despite all this political turmoil, the US economy continues to chug along with increasing consumer confidence. While US stocks touched newer highs, clouds are gathering over the lengthiest bull run ever in it's history.

The RBI's decision to hold the interest rates in this quarterly monetary policy is considered as surprise and hawkish. But, Wealocity believes the stance change from accommodative to neutral is pragmatic considering the unknown effects of demonetisation, the possible crude price hike, the strengthening US dollar and the impending FED rate hike.
By remaining neutral, the committee has shown that they would wait and watch the situation than have a preconceived approach. The bonds had the biggest rout in three years with this announcement.

The UK as it explores to invoke the article 50 of the EU, it tries to fight within while struggling to have a soft exit. To achieve this, they're warming up to the US, their natural and largest ally.
China's growth has become what economist's call Goodhart's law. It says, when an economic metric becomes the goal of a policy, it loses meaning as a metric. So, once the Chinese govt. decided to target GDP at 8% or 7% or 6.5%, the GDP growth lost its meaning as a reliable guide to Chinese economic performance. The biggest concern going into this year is the debt-trap the economy faces. 

What's in it for you:

Equity: The much better-than-anticipated quarterly results post the demonetisation have given a fillip to the markets. The pre & post budget rally has added gleam with a sudden reversal in the FII has contribution, though the domestic inflows remained strong and historical highs. However, we believe the impact of demonetisation could be felt in this quarter results. 
This is an opportunist time to have exposures to equity with higher allocation to large caps and select mid & small cap stocks/funds.

Debt: Though the reversal in stand without warning by the RBI  in the interest rates, we believe further rate cuts could happen and has given an option to enter in the gilts now. The ideal exposure to dynamic bond funds would be good for fixed income space.