9 Questions On Top of Our Minds at The End of 2016

Dec 30, 2016

In this issue:
» Will the RBI's printing presses fail to achieve the targets?
» Continuous deterioration in banks' Return on Equity
» ...and more!
Tanushree Banerjee, Co-Head of Research

Eventful would be an understated adjective for 2016. What started as a year of hope, has ended to be a year of bleak stark uncertainties. And this is not just about demonetisation! In fact, am quite sure that there is a lot more that even you are worried about.

Take a pen and paper and put down the questions that you would want to ask and to whom. I just did. And I am looking forward to the replies to these questions in 2017...

  1. To Prime Minister Modi
  2. 80% of your reforms seem to address about 20% of India's economic challenges. When and what will be the 20% policy changes that solve 80% of our problems?

    The list is long: Jan Dhan Yojana, Swachh Bharat, Digital India, Skill India, Make in India, and so on. You could claim these are initiatives are steps towards Acche Din. But honestly, all these moves put together still aren't enough. Demonetisation was, no doubt, a bold move. But numbers suggest that it will hardly rid the system of black money. As time runs out before the next elections, what will be the game changer?

  3. To RBI Governor Urjit Patel
  4. At what point will the central bank take action to weed out the structural incentives for corruption in the Indian banking system?

    Depositors are losing trust in banks. They ignored the loan-for-bribe scandal. They were patient with the banks. But one scam after the other is taking a toll. What will the RBI do to rid India banks from the perception of being the 'new corrupt'?

  5. To SEBI Chief UK Sinha
  6. Can we have a 'Most Credible Companies Index' to compete with the Sensex?

    Most investors in India use the BSE Sensex as a benchmark for safety and returns. But the Tata fiasco shows that companies with the most market cap and liquidity may not always be safe and credible. Do lay investors not deserve to know which companies in India are the most credible? Such an index, along with the Sensex, would serve investors well.

  7. To Niti Ayog Vice Chairman Arvind Panagaria
  8. Why don't you think the impact of demonetisation on India's GDP will be significant?

    The smallest shops to the biggest industries in India have seen demand fall by as much as 50% since 8 November. This isn't likely to improve until sufficient currency is made available. Digital payment options aren't enough. What then is that math behind your optimistic prediction? And when will Niti Ayog be known for better planning than the erstwhile Planning Commission?

  9. To US President-Elect Donald Trump
  10. Will you change the definition of 'fair and reasonable' in US trade deals like you did in your real estate deals?

    The book Trump Strategies for Real Estate suggests that you have, from time to time, changed the definition of 'fair and reasonable' to make your real estate deals more profitable. Should Indian companies with US trade relations expect Trump shockers like these during your presidency?

  11. To US Fed Chief Janet Yellen
  12. How long will you and your fellow central bankers in the eurozone use fake monetary policies to stay in your job?

    Fake reasons to keep interest rates low. Fake money to keep asset prices high. Fake monetary policies to keep your job. None of this is any longer a mystery. What else will you and your fellow central bankers pull out of your hats to stave off a collapse of the financial system (a collapse that you helped create)?

  13. To Warren Buffett
  14. If you were starting Berkshire today with a small amount of capital and had the choice between India, China, and the US for a base, where would you go and why?

    In your philanthropic pledge to the Bill and Milinda Gates Foundation in 2006, you wrote,

    'My wealth has come from a combination of living in America, some lucky genes, and compound interest.'

    With the same genes and magic of compound interest, do you think India or China would be a better place to start Berkshire today?

  15. To You, Dear Reader
  16. We've all had failures over the past year. Looking back, what do you blame the most for yours - stocking picking, bad luck, or skill?

    Readers like you often write in to us saying whether it is their stock picking process, luck or skill that they blame for missing out on multibaggers. In hindsight, which of these three, according to you would have helped the most in picking stocks in 2016? Let us know.

  17. To Ourselves
  18. How will the next twenty years be better the last twenty years?

    Equitymaster celebrated its 20th anniversary in this year. We took a unique pledge on 22 April 1996. And the last twenty years have been about trust, transparency, integrity, and performance. What will make the next twenty years even better? Maybe you could help us answer?


Just seven more days to go! Vivek will send his petition to the President of India on 6th January 2017. Sign the petition today and spread the word so that we get equal rights.

03:20 Chart of the Day

The Reserve Bank of India (RBI) yesterday released its Financial Stability Report (FSR) for 2016. The central bank has, as usual, raised the red flag on quality of loans in public sector banks. The latest NPA numbers show significant levels of stress.

Continuous Deterioration in Banks' Return on Equity

As a shareholder in banks, if the NPA number does not worry you, here is something that should. The sector's average Return on Equity (RoE) has crashed from 10.4% in FY15 to just 3.6% in FY16. All thanks to the profits written off on account of NPA provisions. 70% of them in the books of public sector banks. More importantly, the drag in the ROE is likely to persist in FY17 too. So shareholders of public sector banks have a reason to re-think the margin of safety required to invest in such stocks.


If the PM was in a position to keep his promise, tomorrow would have been the day free of demonetization troubles. That is not to be. And no one expects currency circulation to get back to pre-November 8 levels before a couple of months.

What could be shocking is if the RBI's printing presses fail to achieve the targets set for them over next few months. And there are already signs of such disasters.

As reported by Mint, workers at the RBI currency note printing press at Salboni in West Bengal have declined to work overtime. RBI's printing press in Salboni, West Bengal, can print all currency notes including the new Rs 2,000 and Rs 500 notes. But the workers' union has refused to work for twelve hours instead of nine.

Given that the workers will not put extra hours, will lead to contraction in supply of new notes. Thus the currency shortage which was anticipated to get normalized by March 2017, is likely to get delayed.

Vivek Kaul, editor of Vivek Kaul Diary has time and again written about the shortage of currency in the system. He has raised concerns over constraints on the capacity of printing. And here is an abstract.

  • ...it is worth remembering here that the capacity of the printing presses supplying RBI with notes is around 300 crore notes per month. This, when the presses work 24 hours a day and for the full month.

    The total number of 500 rupee notes demonetised stand at 1,716.5 crore. At 300 crore notes a month, it will easily take five to six months to replace the total lot. Even if all the notes are not printed, given the push towards cashless, it will be a while before there is enough cash going around in the economy.

In the meanwhile, after opening the day on a marginally positive note, the Indian share markets have continued to remain positive and are trading in the green. All the sectoral indices are trading above the dotted line, with stocks in the FMCG Sector leading the gains. At the time of writing, the BSE Sensex was trading up 276 points (up 1%) and the NSE Nifty was up by 78 points (up 1%). Meanwhile, the BSE Mid Cap index is trading up by 1.2%, while the BSE Small Cap index is trading up by 1%.

04:50 Investing mantra

"You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst).

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5 Responses to "9 Questions On Top of Our Minds at The End of 2016"


Jan 2, 2017

Conservatism is good in investment. But without optimism you can not look forward for better returns. Off late the writings in these columns have been ultra conservative. If you believe the current policies failed, then how do you predict betters returns on your pick advises. In spite of these policies?
To your question 1 to PM, if you aim at the reform in electoral (funding) laws, I agree. But that requires a more roubust/solid political ground which, may be the PM is waiting for. I believe he can do when a opportunity comes, as I turst him as a man who wants to do his best for the nation.


R Gopalan

Jan 2, 2017

Dear Limaye: If you sincerely believe, you have put your money in right scrips at the right prices, then they will give the right results, its a matter of time. Its only a temporary phase ( market uncertainty, which is inherent in investment - which you know). So be hopeful. markets have not crashed due to frauds like harshad metha affairs, or sub prime. its a calculated risk taken by Govt. It can adjust in a shorter term than your investment horizon.( trust you are a value investor).


Raj Sharma

Jan 1, 2017

I have noticed that over the last few months the reportage in this column has been decidedly biased and negative. The same seems obvious in the questions which have framed relating to the economic situation in India. The positives of the situation seem deliberately underplayed.

Like (1)

R V Krishna

Dec 31, 2016

I think you fail to understand Buffet's investment philosophy. Predictability, Credibility and Safety are the cornerstones and not necessarily multi-baggers. A lot of Berkshire Hathaway's profits come from writing Puts on shares they would like to own at strike prices lower than current market prices. And though I'm not sure, once they own the stocks, it would only make sense for them to write calls at strike prices higher than current market prices. These simple strategies ensure BH's constantly growing stream of income. Every stock listed in the major bourses in the US is also on the F&O list. Unfortunately this is not true of India. I've no knowledge of the Chinese market. So why would Buffet or Munger think of India or China? Furthermore, Buffet has less than 15 stocks in his portfolio and BH less than 50. Given their huge success why bother with more. Why even think of India and China.

Stock picking is simple. Knowing when to get out is something else altogether.

Suggest you read the following two books for diametrically opposite views on the future, - Abundance, - the Future is Better than you Think by Peter Diamandis and The Third Curve, - the End of Growth as we know it by Mansoor Khan.

Trump and Yellen owe us no explanations. I look forward to responses from Indians on the list if they are forthcoming.

Like (1)


Dec 31, 2016

Dear Madam,
As an investor I think luck ( which ofcourse is beyond anyone's control ) was the major factor to blame. On a personal side I lost my mother , my biggest well wisher. So far stock picking is concerned , the bad luck was brought about by our PM ! I did invest in right stocks and I do have developed sufficient skills from my almost 40 years experience as stock investor. The implementation of seventh pay commission report and a good monsoon provided a perfect setting for a glorious march of stock market indices. It had put enough money in people's pocket and trends were indeed visible when Sensex crossed 29K in early September. But all this money vanished with the horribly implemented demonetisation. Old notes were invalid/taken away without adequate replacement of new notes forcing a buyer comfortable to buy car/tractor ( M&M ) or garments ( Monte Carlo ) to conserve that little amount of currency obtained after spending hours in queue , for most essential items like groceries and medicines.

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