Gross underperformance of Indian stocks vis-à-vis global counterparts
Samir Arora of Helios Capital, a FII, has deep knowledge of Global markets.
He produced shocking data to establish that the Indian stock markets are grossly under-performing their foreign counterparts.
2017-18 Poor year for Indian markets.
1 year returns:
MSCI In US$ terms:
Emerging Mkts: 22.2%
Asia Ex Japan: 23.1%
S&P 500: 11.5%
— Samir Arora (@Iamsamirarora) April 1, 2018
While Indian stocks delivered a return of only 8.8%, its arch rival China delivered a fabulous return of 37.5%.
The entire emerging markets basket has delivered a handsome return of 22.2%.
Even the S&P 500 did better with a return of 11.5%.
Four reasons for the underperformance of Indian stocks
In his latest article, Akash Prakash has provided a clinical analysis of the reasons why the Indian stock markets are performing so badly.
(1) Global investors have faith only in NAMO, political uncertainty is spooking them
It is a fact that the bungling by NAMO and Arun Jaitley has alienated even their die-hard followers.
The starkest example of this is provided by Porinju Veliyath who is known to a staunch supporter of NAMO and the BJP.
He ruefully admitted that the dream of “Acche Din” which NAMO promised may never be realized and that we are condemned to live with a “corrupt Political system”.
Seems #IndiaNotChanging ?
'Margin Of Safety' is when you are ready to live with a corrupt Political system, Ignorant Voters & venomous Media. Remember, Value Investors have created wealth in the past DESPITE politicians. It’s a huge Bonus if #ChangingIndia sustains!
— Porinju Veliyath (@porinju) March 21, 2018
He also issued a “charge sheet” of “7 mistakes that eclipsed good governance”.
— Porinju Veliyath (@porinju) March 22, 2018
Later, almost as an afterthought, he stated that he is still a fan of NAMO because the alternatives are “simply horrible”.
Am still a @narendramodi fan!
Knowledgeable Good Citizens want the continuation of the regime for the follow up on much-needed reforms like DeMon, GST, and IBC. Political alternatives are simply horrible!
— Porinju Veliyath (@porinju) March 25, 2018
PN Vijay, the veteran stock picker and member of the BJP party, also homed in on the “mistakes” that NAMO has committed.
Modi made two mistakes. One have grand strategies and a poor team to execute it. Second letting Amit Shah- a mediocre but clever Neta- to take over the Party. For example Shah made no effort to reach out to South and BJP is paying the prize. People inside too scared of him
— P.N.VIJAY (@pnvijay) March 18, 2018
If perception is everything in politics then Modi govt has lost the war. The rot in our political system is so deep both in the opposition & in the party that is in power that, i am convinced no political party will do anything good for the common man.
EVERYTHING IS ABOUT POWER
— PhD in Bakchodi (@Atheist_Krishna) April 2, 2018
Other influential commentators are also irked at the mishandling by NAMO, especially with regard to giving allegedly tainted politicians like Narayan Rane and Naresh Agrawal a seat in the Rajya Sabha.
Ex Maharashtra CM & Prime Accused In Multi-crore Money Laundering Scam, Senior Congress Leader Narayan Rane Gifted Rajya Sabha Seat From Maharashtra By BJP.
— Sir Ravindra Jadeja (@SirJadeja) March 11, 2018
— Ashoke Pandit (@ashokepandit) March 12, 2018
#IndiaWithPMModi I was with modi but i felt shocked with naresh agrawal joining Bjp…I will not vote for BJP but Will never vote Congress
— Rajput (@Abdevilliers94) March 15, 2018
@BJP4India going Congress way. New low for BJP with Rane n Naresh Agrawal
— Neha Bhole (@Neha_Bhole1) March 12, 2018
Louts like Naresh Agarwal and Narayan Rane should be in captivity: of their own debased minds: these kind of louts don't belong to mainstream parties and / or in Parliament. Big mistake by a party claiming to be one with a difference. @BJP4India
— SUHEL SETH (@suhelseth) March 12, 2018
With Naresh Agarwal also in BJP and Narayan Rane recommended for Rajya Sabha – which corruption and Congress mukt Bharat are the Bhakts tripping on?
— richa singh (@richa_singh) March 12, 2018
Did Modi meet the expectations of the people?
Hell NO. He is way short of fulfilling the dreams that he sold in 2014.
So will I vote for Modi in 2019?
I will not vote for Modi if you give me a better alternate to him in the present scheme of things.
— PhD in Bakchodi (@Atheist_Krishna) April 2, 2018
Farmers on the streets, Dalits on the streets, Journalists on the streets, Job-seeking youth on the streets, school students on the streets. While Modi is busy making 3D videos of him doing Yoga. pic.twitter.com/CHR2qQkK6R
— Sitaram Yechury (@SitaramYechury) April 4, 2018
Akash Prakash has opined that this sorry state of affairs is spooking foreign investors.
“What was seen a sure thing even a few months back, the current regime coming back to power, is now seen as more complex and not straight forward,” he has said.
“At the moment global investors have little faith in any alternative to the current regime,” he has added, implying that the prospect of RaGa occupying top position will lead to an exodus of foreign investors from India.
(2) LTCG Tax Fiasco
The LTCG tax imposed by Arun Jaitley in Budget 2018 has come at an inopportune time and spoiled sentiments of investors.
It is worth recalling that Samir Arora and Shankar Sharma had sent the clear warning that the move is not desirable because it would discourage foreign and domestic investors.
LTCG is most idiotic Proposal in this year's Budget by Modi Govt
Killed Market Sentiments
Screw up Fund Raising Plans of PSU & Pvt companies
Govt wont get any Tax during Fy 2018-19
Killed MF mobilisation & asset diversification
22 lakh cr Market Cap loss from the top
— Rishi Bagree ?? (@rishibagree) March 23, 2018
To compound matters, Dr Hasmukh Adhia, the Finance Secretary, made an imbecilic statement that the LTCG tax is justified because capital gains accrue “without any effort”.
Capital gains don’t accrue from any effort, Finance secretary Hasmukh Adhia says – Times of India https://t.co/wVUB04lO1s
— Suhas Govilkar (@suhasgovil) February 4, 2018
Naturally, such idiotic statements from officials at the highest levels of the Government got the goat of investors who are struggling to make ends meet.
Hey Hasmukh @adhia !!, I give you 1000k w/o interest … Please show the world how make capital gains from stock market without any efforts… and hey @narendramodi pls tell us from which planet you brought this nut Adhia? We can mass make him into a robot for capital markets..
— Bharat Thakkar (@Bharat400053) February 4, 2018
Was Mr. Adhia's statement about No efforts in earming capital gains irresponsible and does it show this Govt's arrogance & Ignorance?pls ask
— K.P. (@kpthakershy) February 4, 2018
The real joke is a statement from Finance Secretary Hasmukh Adhia "Capital gains don't accrue from any effort"
— Waman Shirwaicar (@Shirwaicar) February 3, 2018
“The long-term capital gains (LTCG) tax has not helped. Most of the truly long-term capital investing into India from the US is t. exempt. The LTCG reduces their expected return. It also reduces the relative return advantages for equity domestically. Any reversal of domestic flows and markets will immediately be in serious trouble,” Akash Prakash stated.
(3) PSU Banks NPA Fiasco
Akash Prakash also points out that the colossal loss suffered by PNB and other junkyard PSU Banks has shocked the wits out of foreign investors.
Worse, even their private counterparts such as ICICI Bank are walking on the same path and notching up hefty NPA losses amidst scams.
Scandalous! The clear case of quid pro quo in ICICI Bank headed by ChandaKochhar giving 3250 Cr loan to VideoCon (which has become NPA)&loans from Dhoot's companies to Kochhar's husband's Company.Oh what a tangled web we weave, when we practice to decieve! https://t.co/Yy4QwZSXby
— Prashant Bhushan (@pbhushan1) March 29, 2018
Paid to Chanda Kochhars hubby = 325 cr. Loans from @ICICIBank & others = 32,500 cr
325/32500 = 1%
Typical loan arrangement commission = 1%
It's all just sheer coincidence of course.
— Mahesh Murthy (@maheshmurthy) March 28, 2018
What a comedown! Chanda Kochhar has for long years been held up a role model for women. Her life was supposed to make us believe that talented women can be even more successful than men. We didn't know it included outperforming men in corruption, loot & nepotism.
— MadhuPurnima Kishwar (@madhukishwar) March 29, 2018
“Foreigners are concerned by the Punjab National Bank (PNB) fraud and the seemingly never-ending banking system clean-up. When will this end? When do the non-performing assets (NPAs) stop piling up? How can a banking system have 20 per cent of its corporate exposures turn bad in the absence of a recession?” Akash Prakash has asked with extreme frustration in his tone.
He has also warned that the new Reserve Bank of India norms on asset recognition and provisioning will cause a “bloodbath in bank balance sheets”.
(4) GST Fiasco, Oil on the Boil
GST was touted as a game changer. However, it has earned the dubious reputation of being the “most complex” system in the World.
— As (@ashishism_) March 20, 2018
In fact, not a single day passes without the GST Department issuing a press release, circular or notification clarifying yet another obscure point of the GST tax.
“The complexity seems to be leading to misuse, avoidance and collections continue to undershoot. Will this much heralded and critical reform also disappoint?” Akash Prakash asked.
The surge in crude oil prices to $65-70 a barrel is wrecking havoc with the macro levels and will lead to inflation and high interest rates, Akash Prakash further warned.
“The tailwinds of easy liquidity and falling interest rates are over,” he said in a grim tone.
Not all gloom and doom
Finally, after listing out a long litany of woes, Akash Prakash has pointed out that there are a number of positive factors about India and that it is not all “gloom and doom”.
He has explained that India will see growth acceleration over the coming years and that 7 to 8 percent GDP growth is “eminently doable”.
“Earnings will rebound, profit margins will regress to the mean, and we will see double-digit earnings growth,” he said.
“Once we get thorough the current uncertainties, investors will come back to India,” he added.
Towards, the end Akash Prakash has confidently asserted that foreign investors have no choice but to come to India because “it remains a sustainable long-term growth story in a world devoid of structural growth”.
It is explicit from Akash Prakash’s analysis that the present underperformance of the Indian stock markets is a blessing in disguise for us because we can tuck into high-quality stocks at bargain basement prices. Once the clouds of uncertainty lift, the stocks will surge like rockets and shower mega gains upon us!