Dear Stakeholder / Reader / Investment Enthusiast,
VBS Investments wishes you and your beloved family a wonderful and happy new year 2020. You are a very vital part of our business, and it is our responsibility to communicate about the investment world in the last quarter and what we feel about it going forward.
We are in the year 2020 and hope that the next decade redefines India as one of the top three economies in every possible good aspect. The last quarter and the last decade have been very eventful and important both on the Indian and Global landscapes when it comes to investing our wealth.
The Monetary and Fiscal Propellers of our Indian economy
The monetary policy controlled by the RBI and the fiscal policy controlled by our central government were the two main entities performing most of the economic activities this past calendar year.
The RBI has reduced its lending rate by 1.35% to a recent low level of 5.15%. It has also introduced external benchmark lending which makes banks follow RBI rates rather than their internal rates helping a great deal in transmitting the interest rate cuts to the common public.
In December, RBI has stopped cutting interest rates as of now and started artificially changing effective interest rates via their “Operation Twist”. This move by the RBI helped our investment decisions which were favouring longer duration bonds over lower duration bond mutual funds.
Our central government has been putting in a lot of efforts to boost the capital spending in the economy through corporate tax cuts and approving a large infra fund to boost economic activity.
We are concerned about the fiscal deficit level of our government not only on its balance sheet but also through government-run entities like FCI, NHAI etc. We expect more public sector company divestments and asset sales happen as we strongly believe that “Government has no business in doing business”.
We are optimistic about the budget that is coming this February and hope that investment values will go up due to steps like tweaking Dividend Distribution taxes or LTCG but not personal tax cuts as it will further deteriorate the government’s balance sheet.
The Silent State Economies
This past year was very crucial for a few economically important states in our country which got impacted negatively due to several reasons.
We always discuss about fiscal deficits, GST, defence budget and national projects and highways but the state economies are ignored to a great extent. The state governments of a few important states like Andhra Pradesh, Karnataka, Maharashtra and Madhya Pradesh have seen a very busy and noisy political situation which hampered a lot of economic activity and progress. Sharp turns and rigid decisions by state governments have resulted in slowing the pace of economic activity.
When was the last time our economists took a serious look at state governments’ balance sheets and their deficits? We believe this is the right time for state governments to work with the central government and add new synergy boosters for the economic growth of our country.
It was a delight to see the Madhya Pradesh and Karnataka Chief Ministers to visit the WEF at Davos for boosting their state economies by attracting new business investments.
The Global Economy
On the global landscape, we are concerned about diplomatic uncertainties more than anything. We believe that if all of the current diplomatic issues are resolved, it will result in improved economic activity and progress.
The USA and China have been at loggerheads for more than a year and this has resulted in slowing down the GDP growth rate of China to the lowest in many years. It was a sigh of relief to see both these economic and political global heavy weights to sign the first phase of their trade deal.
The UK has voted a new government in favour of Brexit and on 31st January 2020, The UK will no longer be a part of the EU putting an end to a four and a half years uncertainty and confusion.
We hope that the military tensions between Iran and the USA get resolved diplomatically without any escalation. We see this as a very high threat to the global economy and the investment landscape.
Responsible and Resourceful Investing
Coming to the most important aspect we would like to discuss and communicate with you as our stakeholders is investing but in a conscious and responsible way. We believe that this new decade will be the epicentre of the topic on how we handle the environment around us physically.
The question and debate of climate change is an everlasting thing, but one sure thing is that as people with common sense being brought up in a very rich culture, we have always learnt that we should be resourceful and responsible with everything in our life.
Every successful and sustainable change in this world should be driven by demand but not be forced on people. Capitalistic economies have been very successful at driving demand for change via the assets we own or the investments we make. Any assets or investment’s price in this world fundamentally is derived by the demand and supply situation of that asset or investment. Though sometimes regulation impacts their value, it has a limited impact.
For example, mass crowds will never buy electric cars unless they are competitive in price compared to petrol or diesel cars. In the last year, even though India does not have any significant lithium mines, we have seen the launch or nearly half a dozen mainstream electric cars in our markets.
Every Warren Buffet follower knows that he highly respects and invests in companies with wide business moats. We believe that the new age business moats are whether they are sustainable in Environmental, Social and Governance aspects. Companies like Satyam Computers have failed due to governance failures. Companies like ITC face a lot of social challenges even though they are highly profitable. Metal and mining companies face a lot of environmental issues as a part of its business. We believe that any company will be a successful investment if they can sustain while balancing the ESG factors of their businesses.
ESG centric investments, indexes, ETF’s and mutual funds currently amount to around $30 Trillion on the global level. We are very proud to inform you that we definitely consider the level of sustainability of the investments we choose at VBS investments for you via the ESG (Environment, Social and Governance) approach.
Let us be more responsible and resourceful with all the things around us and make our world a sustainable one for our future generations.
We are always here as an Investment Advisor to serve you as our stakeholders and hope we grow together.
This activity of communicating with all our stakeholders through time to time is inspired from my mentor my boss for life, Janet Wills and the inspiration of every investor, Warren Buffett.
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SEBI Registered Investment Advisor INA200012683