Thinkpad: Thank God It’s…Year End!
Can you believe it’s year-end already?
Remember when the year started? Many of us toasted to a Covid-free year. It wasn’t to be. A few months into the year, we found ourselves in the midst of a vicious second wave of infections and as we end the year, we are fearing a third.
But business, like life, goes on. And it was an eventful year in many ways.
Central banks continued to be centre-stage. The balancesheets of the top four central banks grew another 10% in 2021, after having ballooned the previous year, according to Yardeni Research. Their combined balancesheet now stands at over $30 trillion.
A unique cocktail of fiscal and monetary stimulus, alongside supply disruptions, means that large central banks go into 2022 worrying about what they haven't had to for years—inflation. The fight is already intensifying as you will see from this summary of recent central bank actions.
India is on a similar, yet different, footing. After a contraction in the second-wave hit April-June quarter, the economy recovered. But, as the minutes from the latest Monetary Policy Committee showed, there is discomfort on whether the growth momentum will plateau. But if inflation continues to accelerate alongside, even though India hasn't seen a large fiscal boost, Indian policy makers will have tough choices to make.
This year also brought out the stark divergence between wealth and income. Equity markets soared, making the wealthy wealthier. Income earners saw a slower recovery. Inequality widened. The top 1% of wealthy Indians took 38% of all additional wealth accumulated since the mid-1990s, with an acceleration since 2020, showed a recent study by the Inequality Lab. We go into 2022 with the overhang of these imbalances.
While those invested in the markets had a good year, making money in 2022 may be much tougher, writes Kotak Securities. This was also a year when markets, despite all the liquidity sloshing around, were not actually driven by foreign investors. It was domestic investors and the retail trading brigade that actually dominated.
Those wanting to cash out via the equity markets had an even better time. 2021 was undoubtedly the year of the IPO with over Rs 1 lakh crore raised. Sadly, the government, eager to disinvest, didn’t get a large piece of the action.
The government did continue the work of putting building blocks in place for a new investment cycle. A big decision this year was to put an end to the ghost of retrospective taxation. A series of steps, including a bad bank, have also meant that the overhang on the financial sector has reduced. The capital markets have played helper and aided in a clean-up of corporate and bank balancesheets. Production linked incentive schemes have been rolled out.
All this, it seems, is being done with the idea of kick-starting a new investment cycle. There is still the small problem of demand... Can private investment becoming the theme of 2022? Or at least 2023? Something to think about.
The year wouldn't have been complete without the comedy of errors that was crypto legislation. We started the year expecting legislation that will either ban or regulate cryptocurrencies. We end the year expecting legislation that will either ban or regulate cryptocurrencies. Everything that happened in between—and a lot happened—almost seems irrelevant. To be fair, India is not alone in grappling with how to deal with digital currencies and we'll likely hear a lot more about the subject in 2022. Meantime, a growing number of 20-year olds are getting their first take of investing with Bitcoin and Ethereum, Dogecoin and Shiba Inu.
On that slightly surreal note (to end another surreal year) we'll sign-off and return after a week's break.
Crank up the volume, put on auld lang syne and say goodbye to 2021.
♫For auld lang syne, my dear...For auld lang syne...We'll tak a cup o' kindness yet...For auld lang syne♫