Archive for May 22nd, 2017

Empire and the Economist: Analysis of 19th century economic writings in Maharashtra

May 22, 2017

This is a brilliant paper by a brilliant economist – Prof Neeraj Hatkar of Mumbai University.  I just stumbled on the paper written in 2003 .

It reviews history of economic thought of scholars from Maharashtra region in the 19th century.

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Why India needs another statistical revolution..

May 22, 2017

Recently a trio of economists had deplored the decline in Indian statistical system.

Pramit Bhattacharya in this superb piece writes more on the issue:

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Time for passive investing in India is coming…

May 22, 2017

I have always wondered this aspect of mutual funds in India. If Indian equity markets have indeed become more efficient over the years, why is it that active mutual funds continue to do better than passive funds? Why are active funds preferred over passive funds? After all if markets are getting efficient, then information asymmetry is becoming lesser. The fund managers should be knowing as much as entire markets and no advantage can be drawn from any analysis.

Dhirendra Kumar of Valuresearch feels time for passive funds is coming in India:

So should you invest in index funds? So far, the answer has been no. However, I can see symptoms that tell us the time for passive investing is well on its way. So far, index investing has not succeeded because the market was not heavily institutionalised and large chunks of companies were not owned by professional fund management. This is now changing.

Another huge factor which points towards the impending rise of passive investing–the main one, I feel–is rising costs. Fund management costs have now gone through the roof. Actively managed funds charge up to three per cent of total assets. This is something that will now start impacting returns in a way that is noticeable to investors.

The next factor is the size of the funds. Indian equity funds have been seasonal and small. A small fund can opportunistically try many investments in midcap and smallcap companies that can yield returns that have a big impact on the portfolio. This is not possible for large funds. The Indian equity fund universe is now dominated by big funds. There are now more than fifteen funds that have more than Rs 10,000 crores. Seven-eight funds are close to Rs 20,000 crore. Such funds have no choice but to be large cap funds. They’re finding it hard to beat the index consistently. They have a compelling performance track record over a long period and they have beaten the indices by a big margin. However I visualise that going forward, because of their size, because of the expenses they charge, and because of the growing institutionalisation of the market, they won’t find it easy to outperform.

So does that mean that if you are starting an SIP for ten years, you should do so in an index fund? Well, the case is not that strong yet. Over the last five years, the top five actively managed funds would have earned you one and a half times more than a Nifty fund and that’s a big difference.

However, it’s something that an investor should keep a watch on. At some point in the coming five years, there will likely be a time when it will make sense to stop your SIP in an actively managed fund and turn to an index fund. We’re heading in that direction, slowly but surely.

Hmm..

Will be interesting to watch this space. Another interesting aticle says we need more broad based indices before passive funds can kickoff in India..

Who should create jobs in India? Government or private sector?

May 22, 2017

I am quite amazed by recent debates on 3 year anniversary of the Indian government. On one hand ,our experts want Government to get out of most economic activities. But on the other hand, they hold government responsible for every economic activity under the sun.

The Government has got a thumbs up for most such economic activities barring one: jobs. Lack of job creation is seen as a major deficiency of the current government. So much so, the experts say this one deficiency does away with whatever good work the current government has done.

This leaves one to question: How is it that Government can create jobs?

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