Markets with Bertie | Slowdown–structural or cyclical?

Of late, Bertie has noticed opinion pieces and commentary by foreign banks about the structural slowdown in India. Economic growth is slowing and a host of high frequency indicators are mirroring that loss of momentum so it is not surprising to him that structural slowdowners are crawling out of the woodwork. But Bertie has a fundamental problem with the term. He does not know what it really means but like its twin ‘structural reform’ it gets generously thrown around in opinion pieces and by talking heads.

Whenever Bertie feels at sea about the meaning of such big words, he turns to his friend and economics guru Ron for enlightenment. The duo decided to head to the Mumbai Cricket Association ground and watch the all-stars Mumbai Ranji team take on minnows Jammu and Kashmir. Bertie was hoping that between scintillating shots by M/s. Sharma and Jaiswal, they would find a bit of time to clear the slowdown fog. Unfortunately, they found a lot of time.

“Structural slowdown” Ron began “is hard to define.” Bertie felt a bit relieved that even Ron did not have a straight answer. “But it has to do with potential growth; the rate at which an economy can grow in the long term without over-heating. If for whatever reason, you think that the potential growth of the economy is coming down, the slowdown is structural.” Bertie looked confused. “I know Bert. We are using one woolly term to define another. But that’s macroeconomics for you.”

“But here is a rule of thumb. See if core inflation and current account deficit is increasing along with slowing growth. That is a good marker of a structural slowdown.” Bertie knew that both core inflation and the deficit were well behaved. “So, the slowdown right now is not structural?” Bertie asked, just to be sure. “Seems unlikely” Ron said in his usual measured voice.

“So, what’s causing this? “Bertie persisted. “A host of factors Bert. Both fiscal and monetary policy are tight. Government capital expenditure growth has been near zero, private capex has not picked up the slack and regulatory tightening has weighed on credit growth. To add to it, liquidity in the money market has been scarce too.” Ron was on a roll. 

“Growth will improve but not to the heady levels of 8%. You will read op-eds from both sides but remember that truth generally lies somewhere in the middle.” Looking at the sorry scoreboard, they concurred that the game had been decided in the first session itself and glumly headed to their respective offices.

Learning from others’ mistakes

A jaded Bertie was flipping news channels on Friday evening. Quarterly results season was in full swing and Bertie had realised that he had lost the battle against the deluge of numbers. As he lay limp on his swivel chair, TV remote loosely held, he stopped at a channel where a panel of investors were discussing their investing mistakes. Experts gloating over their successes was the staple fare on business news, so this change of palate piqued Bertie’s interest.

He listened to one veteran investor talk about overstaying his welcome in a certain scrip. Within a few minutes, another talked of selling some stock too early. A lady narrated the story of how her proximity with the promoters of a certain company led her to whole-heartedly embrace the narrative around a stock and not pay attention to what hard data and numbers were telling her. Later, another panellist talked about how he missed inflections in the technology sector as he was too busy analysing the reported numbers. “The narrative changes much before numbers,” he said.

The discussion made Bertie’s mind wander to a one-day cricket match many moons ago when an Indian all-rounder was promoted up the batting order to accelerate the run scoring. The batter failed miserably. Neither did he not accelerate the scoring, he, ended up wasting too many deliveries in the crucial power play. 

The captain then was severely criticised for this move. 

Three months later, but this time under a different captain, the same player was promoted up the order in an identical match situation. This time he came out all guns blazing and took India to a famous victory. 

The new captain was lauded for his strategic genius.

As the winsome anchor Meera closed the show by thanking the participants for sharing their wisdom, she exhorted the studio audience with a Buffett line about learning from others’ mistakes. Bertie was not convinced for he thought an adaptation of the famous Joan Robinson quote about India would have been more apt: “Whatever you can rightly say about investing mistakes, the opposite is also true.”