Zee Business Mutual Fund Helpline 10 Sept 2019 Mr Prakash Ranjan Sinha ...

Economic slowdown. cause and remedy

Economic slowdown. cause and  remedy

( PL READ - YOU DONT NEED TO BE AN ECONOMIST TO UNDERSTAND THIS ISSUE )

Everyone is blaming government for slowdown . This article is make people understand what economic slowdown means , how it happens and how can be corrected . 

The creation and correction lies totally in the hand of consumer . So any citizen if he blames government should read this article .

Consumer or citizens create demand by buying any product . Industries and companies are supplier who cater to the demand I.e manufacture and sell to the consumer . 

Now since everyone wants a better life , have aspiration for better lifestyle products demand grows and so grows the purchase . To meet the growing demand supply also grows through more products manufacturing . Up till now no issues .

Now enters the lending institutions ( Banks and NBFCs) . Seeing the growing demand they start providing loans to individuals and  capital for investment for more manufacturing . 

It's a general principal of life " paav Uti hi pasaro Jitni lambi Chadar Ho " . Simply meaning live within your means or spend from your earnings or borrow only that much which you can pay comfortably on time . 

But since everyone is chasing growth , availability of money is easy so overspending starts . All of us took pride in 8% GDP growth but anyone ever even questioned that was it a sustainable growth ? 

What happened that very soon individuals expenses which has overgrown the income realised this and the only way they could have countered the situation is go slow in purchase I.e buying getting deferred or lowered till the income -expenses mismatch normalised . This is what led to economic slowdown . In India there are other structural changes also happening ( consumer choices and preferences changing like shared mobility through Ola ,Uber preferred in place of car purchase ) .There are many structural and demographic changes also happening leading to emergence of new style of living , emergence of new type of industries and may be some traditional industries either die or reshape themselves . 

Now the supplier I.e companies have already taken loans from bank and they have to pay interest . they have got other costs ( salary cost of increased manpower strength ) but there income from reducing sales gone down and so profit also getting reduced . Now these companies think one of the decision is to lay off some employees to counter the situation . 

I request my readers to see the audited balance sheet and profit and loss statement of any company which is laying off employees and crying of losses . I find in last 5 years all have earned huge profit every year , good reserves and surplus , paid good dividend also to their shareholders , good book value . So where is the loss which any of these companies are talking about . Yes profit might have got reduced vis a vis last year but is that a loss ?

Now the moment companies lay off employees or do salary cut more people are now added who have lesser money to purchase and again adding to more slowdown . 

Government has to step in and through certain policy measures along with RBI they try to reduce interest rate so that loans are cheaper , some tax advantage also given so that more money for spending at the end of individuals .

Economic slowdown is nothing but an after effect of chasing unrealistic aggressive growth by all in economy but it is led by individuals and only individuals can again end this slowdown by their normal purchasing activities . 

My only fear is that this economic slowdown might not get compounded because of greed of promoters of companies . They might aggravate the situation by laying off employees rather than taking the brunt for a year as they all have huge accumulated profit in their balance sheet . If these companies operate at a low profit for a year believe me this economic slowdown is just a matter of some months or max a year but if they add fuel to the fire ( laying off employees ) then will prolong. Government role is just to make policies which can ease the situation but action of individual consumers and companies will what eventually make this good or worse. 

Economic Slowdown catalysed by few Individuals

Economic Slowdown catalysed by few  Individuals

To understand economic slowdown and massive talk about auto slowdown I tried to look into balance sheet and income statement of Maruti ( which has 50% market share in car segment ) .

Some facts

Profit & Loss account of Maruti Suzuki India

------------------- in Rs. Cr. -------------------

Mar '19

Mar '18

Mar '17

Mar '16

Mar '15

Sales Turnover	86,020.30	81,994.40	77,266.20	65,054.60	55,133.60
Reported Net Profit	7,500.60	7,721.80	7,350.20	5,364.30	3,711.20
Earning Per Share (Rs)	248.30	255.62	243.32	177.58	122.85
Equity Dividend (%)	1,600.00	1,600.00	1,500.00	700.00	500.00
Book Value (Rs)	1,527.46	1,382.33	1,206.01	989.28	784.70

Balance Sheet of Maruti Suzuki India

------------------- in Rs. Cr. -------------------

Mar '19

Mar '18

Mar '17

Mar '16

Mar '15

Reserves	45,990.50	41,606.30	36,280.10	29,733.20	23,553.20
Networth	46,141.50	41,757.30	36,431.10	29,884.20	23,704.20
Current Liabilities	15,976.80	16,915.50	13,865.00	11,564.70	8,013.60
Book Value (Rs)	1,527.46	1,382.33	1,206.01	989.28	784.70

I do not have last 3-4 months data but assuming that sales are down as per various report should this company can be called a loss making company which has fired thousands of employees .

Sitting on a net profit of 7500 cr which rose from 3711 cr in just 4 years . Reserves doubled in same 4 years . Its very simple the promoter wants book value not to go down and so be the very very high dividend payout rate ( 1600% on face value of a share ) so has reduced the current liability through salary cut/losses by firing employees .

Economic showdown is a result of lesser spending due to lesser earning . Those thousands employee will add more to slowdown and not solve the economic slowdown problems . If the Management had been prudent they would have withered the present situation at least for a year as has enough reserves ( 3 times of their current liability ) , can think of skipping/reducing extremely high dividend ( reward to shareholder but most going to promoter ) .

This is the analysis of just one company . If 100 such companies behave the same manner then the economic slowdown which could have been avoided will definitely balloon to unmanageable level as personal income will get reduced drastically ( layoffs ) which will have an impact on spending and consumption ,

Just think and analyse how economic slowdown are catalysed even by a profit making big company . Its not a God creation but a result of greed of few individuals .

Nurture India Consultants : Confusion of an Equity investor – what to do now ...

Nurture India Consultants : Confusion of an Equity investor – what to do now ...: Confusion of an Equity investor – what to do now   ? Last 2 years return from equity fund has been low to negative , present looks ba...

Confusion of an Equity investor – what to do now ?

Confusion of an Equity investor – what to do now  ?

Last 2 years return from equity fund has been low to negative , present looks bad and future many saying worse yet to come. Now many equity investors might be thinking

1.       Did we do mistake by investing in equity mutual fund ?

2.       Should we get out and stop our notional loss ?

3.       How long we need to wait ?

Today economy is slowing down , corporate earnings reducing , job cuts happenings in various industries , bad debt rising in banking sector .

If someone ask me how long this slowdown will continue or when we will see reversal in these negative trends it will be just a guesstimate based on what I am reading or hearing . There also what I am reading , hearing is contradictory. Some say nothing wrong but its structural issue, some saying its cyclical problem  , some saying worse yet to come ….. . some defensive , some optimist , some pessimist . whom to believe and whom to not ?

I have always believed that there is no other teacher in this world than your own experience and observation ?. Believe yourself and what you can cross check yourself. So here I have tried to answer based on what I have seen and I will like others to also cross check based on their own observation on what has actually happened and is supported by facts .

The biggest risk comes from economy and all good or bad we have seen or talked has been  emanating from state of economy and economic factors .

Economy has always been growing in long term ( > 7 years time horizon ) and have been unpredictable/uncertain /good/bad in short term ( < 3 to 5 years ) . In every long term please remember there are many short terms . So even if I take my 20 years of experience which is good that has mix of some small term bad experience also .

Market is a reflection of how the economy stands at that point of time . Again this also has to be viewed in long term and short term .

Market ( Stock market ) has always been growing in long term ( > 7 years time horizon ) and have been unpredictable/uncertain /good/bad in short term ( < 3 to 5 years ). In every long term please remember there are many short terms . So even if I take my 20 years of experience which is good that has mix of some small term bad experience also .

Market movement is also linked to behaviour of different participants in it . There also I have observed tow things – (1) Market always over react in both situation more bullish when economy expanding and more bearish when economy is slowing down (2) whether its speculators or arbitrageurs or investors ( different type of participants ) no one wants loss , all wants profit .

Lets look now life and analyse what it was 10 , 20, 30 ….years back and what we can expect 10,20,30….. years ahead . Lets answer one question were more products/services earlier ? Answer is No . Do we expect more products/services in future ? Answer is YES . But why it is so ?

Life for all is governed by GROWTH aspiration . Growth and Aspiration of what ? --- Better life , better lifestyle  --- and that is catered through some or the other product /service provided by some or the other company – so investment if done is some good product manufacturing company which is in demand by people it will earn good return as sales will lead to profit and profit will translate to better valuation of that company share and that will translate to NAV growth .

Yes the risk is of short term as explained above but since our life is of 60,70,80 … years and we do require any product/service every second of life and its demand growing due to growth aspiration in long term good positive return will come .

Life is uncertain in short term but life always want to be good . So in this uncertain world one certainty is we all want a good life .

Now let me answer earlier question which might be hounding the minds of many investors

1.       Did we do mistake by investing in equity mutual fund ? – Definitely NOT . It’s a right decision

2.       Should we get out and stop our loss ?  -- It will be a big mistake if you do now . If you invested without understanding short tern uncertainty then you were misguided

3.       How long we need to wait ? – any recessionary trend ( worst form of economic slowdown  ) does not last long for more than 3 -4 years so may be notional pain for couple of years . You have another 20.30.40…. years to live so why to worry of this short term .

One thing which you should always be taking care is no risk of your short to mid term liquidity requirement and that investment at any point of time should be in safe asset i.e debt and that is liquid, in better quality company and is less or not effected adversely by rising interest rate .

Zee Business Mutual Fund Helpline 19 Aug 2019 Mr Prakash Ranjan Sinha

Economy Slowdown reasons

Economy Slowdown reasons

Many experts are blaming demonetisation and GST as a cause of economic slowdown . Some are even going to the extent of blaming lower cash transaction , increasing tax net etc as a cause of slow business .I am not able to understand their logic . If that’s the case then in most developed economy businesses are operating on non cash , digital transaction basis since last many decades then how they have developed their economies all these years ?

It’s a very silly excuse in India . Where has cash gone ? RBI has pumped back the withdrawn ( 500, 1000 rupee notes ) currencies back into the economy in form of new currency . So cash within economy is at same level . Salaried employees are getting salaries as like earlier times .

Apart from global issues where we have lesser control lets analyse only domestic factors for this slowdown .

Reason is most corporates in order to chase high growth were targeting higher earnings as that would have led to higher valuation and net-worth of promoters . Many went for leveraged money to fuel their growth desire adding more cost on their balance sheet . Stock market also reached a good height in anticipation of better earnings through more sales and revenue . Post demonetisation its not the cash crunch but the unwillingness to disclose cash in a transparent way ( GST ) has left many perplexed . The way many corporates went fudging their financial statements earlier are now not able to do so very easily . Projected earnings which were shown inflated earlier now are muted or getting corrected in the financial statements . Government has also become more vigilant on borrowings of corporates and also the effective utilisation of the borrowed money .

My personal belief is there is no recessionary trend but a slowdown injected into the system more because as an effect of normalisation of the situation emanating from the cleaning process in the economic system. Today many promoters are hesitant to put more money in their business as they are also waiting for normalisation process to complete and reversal of fabricated gloomy situation .

Promoters and businesses in India have to understand that they need to accept the positive changes and move ahead . We might see many businesses dying but at the same time emergence of many new entrepreneurs also who are willing to take risk and operate in a clean manner .