COVID-19: An Opportunity To Restructure India and Personal Finance
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Monthly Archives: May 2020
Money with Monika. Why Indian equity and debt mutual fund investors behave differently. S4 E10
Money with Monika
Season 4 Episode 10
The Corona Conversations
Indian equity and debt mutual fund investors behave differently?
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Opinion | Why do equity and debt MF investors react differently?
The Indian retail equity mutual fund investor has continued to baffle commentators and policymakers by her behaviour across the previous few mega market mayhem events. Equity flows have remained net positive and the haemorrhage that a covid-19-induced market crack should have caused was clearly missing up to the end of April 2020—with some of the worst one-day falls across a few days covered in that period. Data shows that retail money in equity funds actually rose over the worst of the market crash in the three months of February, March and April 2020 and was 55% higher than the previous year same period. Systematic investment plans (SIPs) have held their flows at about ₹8,500 crore a month—there have been pauses but no dip. But the same retail investor has rushed to redeem his debt fund portfolio and flown to the safety of fixed deposits that have seen a 33% growth over the same period. What’s going on? This should have been the reverse—a rush to safety should have killed the equity funds. When commentators and policymakers put this down to quirky or eccentric investors, they make the error of looking at retail investor behaviour divorced from the marketplace in which they operate. In fact, the actions of retail investors show the robustness or flaws in the regulation that affects how firms behave in the markets and how smartly they are able to bend the rules and thereby reduce trust in the marketplace.
RBI on Covid-19: From inflation over growth to inflation and growth
f there is one entity that has earned the respect of a very cynical and hard-to-please group of people – stock and bond dealers, people in the financial sector and economists – it is the Reserve Bank of India (RBI) under the governorship of Shantikata Das. The confident body language, the measured speech and the emphatic statements about doing what it takes to beat the economy back into shape are in stark contrast to a fumbling finance minister – Nirmala Sitharaman – whose body language largely based on unfamiliarity with financial market terms and concepts, does not instill the same sense of comfort and confidence that Das does.
On 22 May, Das, at his favourite time of 10 am, announced another set of measures to deal with the covid crisis. An earlier than scheduled Monetary Policy Committee (MPC) meeting was held to cut repo (the rate at which banks borrow from the RBI) and reverse repo (the rate at which banks lend to the RBI) rates by 40 basis points. This means that banks can both borrow from and lend to the RBI at lower rates of 4% and 3.35%.
Money with Monika. The 20 trillion question
Money with Monika
The Corona Conversations
Decoding the Rs 20 trillion package
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Opinion | 20 Ts to fund 4 Ls, and the grumble about its source
We’ve gone from asking for a 10% of GDP covid-19 relief government plan to a grumble about the announced ₹20 trillion package (which is 10% of GDP) being just 1% of GDP, because the fiscal (what the government spends out of its annual budget) spend is only ₹2 trillion. We seem to care about where the money is coming from and not where it is going and what it is going to do.
A basic question first: why does the government need to spend its way out of this crisis? The covid-induced lockdown has caused both a demand and a supply side shock to the system. This situation needs an external entity—the government—to give lifelines of both income, cheap foodstuffs and credit (through its bank—the central bank) to people who most need them. How much should it spend and for what? Countries like the US, some parts of the EU and Japan announced spends of around 10% of GDP and are using the money for direct cash transfers to a workforce that has been furloughed or is out of work, to open liquidity windows, to buy bonds from corporates directly by the central banks and for existing unemployment benefits that have soared. The developed countries that have the good historical fortune of owning global reserve currencies—that the rest of the world buys to store value—are simply printing currency (it’s also called monetizing their debt) to fund their deficits.
Money with Monika. S4 E8. The nuclear winter of real estate and what it means for you
Money With Monika
The Corona Conversations
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Opinion | Rethinking real estate, as tenant, owner, investor
One good thing out of the pandemic crisis has been the letting go of the physical monitoring and keeping tabs on who is leaving office when that is such a feature of work culture in India. So many people mistake long hours in the office premises for hard work. With work from home successful in many job functions, there is a rethink of who needs to come into work and where they need to be located. Just this one decision is going to change the way we think about real estate—as tenants, landlords and investors. The outlook for both residential and commercial properties is bleak. Pick any report and the deepening of the real estate slump is the prognosis. A Knight Frank report shows the stakeholder (read developer, builder and broker) confidence at an all-time low, both for the present and the future, with scores in the 30s. A score of 50 and less points to “pessimism”. There are already reports of those best able to bargain pushing for lower rents. A newspaper report says that banks are in the process of renegotiating their rent contracts and may stand to gain 10-20% of their rental outgo.
Opinion | Covid-19-induced need versus greed decisions
I could not believe my credit card bill when I clicked it open a few days ago. The card that pays for petrol was zero. Zero. The other one was down to 20% of earlier spends. And I consider myself frugal—spending on what I need and not what I greed—and yet the difference a lockdown made to my own spends left me quite amazed. My age cohort and I grew up in an India of very limited means, choices and options. Basics like milk, water and electricity were in short supply. Less than five homes in 100 had a phone in most middle-class metro colonies and if you owned a car, you had either inherited it or were up to no good in that business of yours. But our generation was also on the ground floor when India opened up and was able to ride the wave of growth that lifted a lot of boats. Things began to change, but slowly. By the time the 1990s kids were born, small luxuries were becoming commonplace—eating out was not that budget breaking exercise that it used to be. The ’90s kids still remember a money-careful approach and some built money habits that usually last a lifetime. It is the parent and kids cohort of the 2000s and above that probably is really struggling with the new tight-money reality of the pandemic.
Money With Monika S4 E7. Is my liquid fund safe?
Money With Monika
The Corona Conversations
Is my liquid fund safe?
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