Market outlook by Navneet Munot, SBI

From: Navneet Munot
Subject: Market outlook

Attached herewith is our monthly “market outlook”.



October 2016.pdf

On Why China and India Are Growing Much Faster Than the West; Animal Fast and Diabetes!

From: aditya rana
Date: Sat, Sep 24, 2016 at 12:42 PM
Subject: On Why China and India Are Growing Much Faster Than the West; Animal Fast and Diabetes!


Economic growth matters, not only from the perspective of increasing household income but also due to its impact on the stock market’s performance over the long run. So what is the reason behind the wide differential in growths rates between the developed world (2% or less) versus China and India (over 6%)? John Ross, Senior fellow at Renmin University, wrote an interesting piece which highlights the key fundamental reason behind this wide gap. To summarise:

-China and India are the world’s fastest growing major economies, due to rapidly growing state investment while Western (US, Europe and Japan) economies remain mired in slow growth due to their reliance on private investment which is growing slowly or declining.

-In 2015, China and India’s per capita GDP growth rates were 6.4% and 6.3% respectively, while for the West they were a meager 1.7% (EU), 1.6% (US) and 0.6% (Japan). This trend has continued into 2016, with China and India maintaining their per capita GDP growth rates while growth rates slipped even further in the Western world (see chart below). Data for the 2nd quarter 2016 show a further widening of growth rates, with the US level slipping to 0.4%, implying that China’s per capita GDP grew 14 times faster than the US over the preceding year.

-Looking at this trend over a longer period (2007-2015) starting from the year prior to the global financial crisis and the last peak of the last US business cycle, per capita GDP grew by 85% in China , 52% In India, but only 3% in the US and 2% in the EU and Japan (see chart below).

-The driver for higher growth in China and India was the growth rate of state-owned investment, which as 23.5% for China and 21% for India, while private investment growth declined to 2.8% in China and actually fell in India by 1.4%. (see two charts below).

-State-owned investment in China follows differing regional paths- for example, in Shanghai where many state-owned companies have diversified ownership and have become shareholding companies, pure state-owned investment actually decline by 11% , pure private investment declined by 5.1% but investment outside the purely state sector actually rose by 15.0% due to the 30% rise in investment by companies with both state and private ownership.

-Comparing the levels of state and private investment in China and India with the US (as representative of the Western world), the increase in private investment in the US over the year ending in the 1st quarter of 2016 was similar to that of China and India – 2.4%. Private investment in the US has been falling steadily and, in contrast to China and India, it is not being compensated by a rise in state investment (which grew by only 1.2% over the year prior to 2nd quarter 2016 versus over 20% in China and India).

-Both the Chinese and Indian governments have deliberately taken the decision to increase state investment while the US is ideologically opposed to state investment. After the slowing of the Chinese economy in late 2015-early 2016, the government deliberately stepped up state investment – mainly in infrastructure covering railways, highways, waterways, airports and urban rail transit. Similarly India in 2014, led by the new economic advisor to the government Arvind Subramanian (formerly of the Peterson Institute for International Ecnomics , a specialist on China’s economy and author of Eclipse: Living in the Shadow of China’s Economic Dominance), explicitly made public investment as the main driver of growth.

-By contrast the US, driven by an ideology of “state=bad” and “private=good” rejects state investment and also does not have a developed state sector capable of delivering a rapid build-up of state investment.

-The role of the state investment in driving growth is not limited to China and India as many other EM economies are following a similar path, as noted by the Harvard economist Dani Rodrik:

-“In Africa, Ethiopia is the most astounding success story of the last decade. Its economy has grown at an average annual rate exceeding 10% since 2004, which has translated into significant poverty reduction and improved health outcomes. The country is resource-poor and did not benefit from commodity booms, unlike many of its continental peers. Nor did economic liberalization and structural reforms of the type typically recommended by the World Bank and other donors play much of a role.”

-“Rapid growth was the result, instead, of a massive increase in public investment, from 5% of GDP in the early 1990s to 19% in 2011 – the third highest rate in the world. The Ethiopian government went on a spending spree, building roads, railways, power plants, and an agricultural extension system that significantly enhanced productivity in rural areas, where most of the poor reside. Expenditures were financed partly by foreign aid and partly by heterodox policies (such as financial repression) that channeled private saving to the government.”

-To summarise “ Global factual trends therefore show clearly that as President Xi Jinping rightly put it in an earlier economic discussion, for economic success China requires both the ‘invisible hand’ and the ‘visible hand’. This is counterposed to the ‘state bad, private good’ dogma which as has been shown is doing great damage in the West.”

-Interesting and thought provoking piece which certainly calls into question the ideology of “state=bad” and “private=good”. While, this does not necessarily imply the reverse “state=good”, “private=good” , what one can possibly conclude is that there needs to be a balance between the two, and depending on local and global conditions, the importance of one relative to the other should change. For developing economies, where the main focus is on increasing household incomes, a dominant state/semi-state sector is critical to cushion the fluctuating cycles in private investment which are more dependent on global demand. Additionally, maintaining robust growth in income levels driven by public investment set the stage for subsequent increases in private investment down the road.

-The Western world, constrained by poor demographics, a private debt deleveraging cycle and high levels of public debt, will be unable to boost private investment and economic growth unless private credit begins to rise above historical trend. On this front, the US is showing initial signs of ending the deleveraging cycle with household debt/GDP rising above GDP for the first time since the global financial crisis, while Europe and Japan continue to be in a deleveraging mode.

-Higher economic growth rates generally imply superior stock market returns over the long run, and the case for having a significant weighting in EM assets in a global portfolio continues to be intact. While long-term historical stock returns in India (in US$) have actually exceeded GDP growth, they have lagged growth in China. This is partly due to the speculative nature of retail investors in the market, but also due to the insignificant weighting to financial assets in household portfolios which are heavily weighted in bank deposits and real estate. This has begun to change with the government introducing various measures to institutionalize (and internationalize) the stock market, which is likely to attract a greater pool of household savings over time, leading to a catch-up of stock returns with GDP growth.

Animal Fats Increase Risk for Type 2 Diabetes:

-Interesting research which calls into question the current focus on carbohydrates as being the major risk factor for diabetes.

PRCM, Sept 23, 2016:

-Fats specific to animal products increase the risk for type 2 diabetes, according to research presented last week at the 52nd Annual Meeting of the European Association for the Study of Diabetes (EASD). Researchers followed the consumption of various types of omega-3 and omega-6 fats in the diets of 71,334 women and tracked diabetes incidence rates. Those who consumed the most fats increased their risk for diabetes by 26 percent when compared to those who consumed the least. Specifically, omega-3 (DPA) and omega-6 (AA), both of which are mostly found in meat, fish, and eggs, almost doubled the risk for type 2 diabetes, and, when controlling for weight, by as much as 41 and 49 percent, respectively.

-The authors noted that “the incidence of type 2 diabetes is influenced by many modifiable risk factors, with diet being one of the most important. However, focus has been placed heavily on carbohydrate consumption, though fats are responsible for a large part of energy intake and also have strong metabolic effects. Fatty acids are required for normal growth and development, but preliminary evidence is suggesting that excessive intake of certain fatty acids may have negative health effects. We wouldn’t necessarily recommend cutting these sources out of our diet, but perhaps diminishing meat intake, as it is often consumed in quantities much greater than our nutritional requirements."

Dow C, Mangin M, Balkau B, et al. Fatty acid consumption and incident type 2 diabetes: evidence from the E3N cohort study. Poster presented at: the European Association for the Study of Diabetes (EASD) 52nd Annual meeting; September 14, 2016: Munich, Germany

-Here’s to reducing the intake of all types of meat and replacing it with healthy plant based food!

​ ​
I will be travelling over the next two weekends so the next newsletter will be sent out on October 15.​



On Long Term Expected Returns – DM vs EM; Insulin Spikes!

From: aditya rana
Date: Sat, Sep 17, 2016 at 11:34 AM
Subject: On Long Term Expected Returns – DM vs EM; Insulin Spikes!


With global markets taking a breather this month (MSCI world stock index down 1.3%) from their relentless surge over the previous few months, it would be helpful to take a look at expectations for longer term returns. John Bogle, the founder of the world’s largest provider of mutual funds ($3.6 trillion) Vanguard, gave a recent interview where he discussed a simple, and useful, method for estimating long term stock market returns. To summarise (via Ben Carlson):

-John Bogle: “I have a reasonable expectations kind of formula that I’ve been using for 25 years and it’s worked the whole 25 years almost perfectly. There’s some decades where it doesn’t work as well as it should but for the full period the reasonable expectations have been almost exactly the same as the returns actually delivered by the S&P 500. And it’s a simple system.”

-“And that is you’ve got a dividend yield that’s 2%. Going back a long time it was four and a half or five percent, so there’s a loss right there, suggesting lower returns in the future. Earnings growth has been about 5%. I think it’s going to be very tough to do that in the future, maybe we can do 4%. And stocks are highly priced. The first two are what I call investment aspects of the investment return and the second one is the speculative return — that is what will people pay for a dollar’s worth of earnings. “

-Bogle’s formula is this:

Future Market Returns = Dividend Yield + Earnings Growth +/- Change in P/E Ratio

-The formula currently gives him an estimate of stock market returns in the 4-6% range, well below the long-term average that falls in the 8-10% range.

-Looking back at how this formula has worked since 1900 (see table below):

-Dividend yields are much lower now than the were in the past (something that can be partially explained by the increase in share buybacks) while earnings growth and the P/E multiple expansion or contraction have been somewhat more volatile.

-What’s interesting here is how inconsistent the change in P/E has been decade-to-decade. At times high earnings growth has led to multiple expansion while other times it led to a contraction in the multiple people were willing to pay for earnings. Fundamentals matter over the very long-term but even over decade-long stretches investor sentiment can trump all. And the reason for this is because the P/E change is really a gauge of investor sentiment or emotions.

-When investors are feeling good they are willing to pay a higher multiple of earnings for stocks. When they are feeling nervous they are willing to pay a lower multiple of earnings for stocks. The problem with trying to forecast stock returns is that you’re really trying to guess how people will feel in the future.

-Bogle again “I can’t forecast the future, let’s be honest about that. But I can make judgments using reasonable expectations about the future and it seems to me the handwriting is on the wall for lower returns than we’ve had historically.”

-And that’s all you can really hope for as an investor when dealing with an uncertain future.

A very helpfu​l, and yet simple​,​framework to think about expected returns, and which makes the case for EM stocks (versus developed markets) over the longer run compelling. As the chart below from Templeton illustrates rather clearly, EM returns (in $s) over the long run have vastly outpaced those of developed markets, driven largely by the significantly higher earnings growth (arising from higher economic growth), and rerating of the P/E multiple in favour of EM as institutional investors allocate more capital to EM (see comment below). True, that they have exhibited more volatility (driven by a widely fluctuating P/E as they have fallen in and out of favour with global investors), but for patient investors, downturns should be viewed as an opportunity to accumulate cheap assets (and not pay heed to forecasts of an impending EM blow-up during those times!) Active investors can further enhance returns by also lightening up on EM assets when sentiment is euphoric and valuations are stretched(i.e. 2007).

-The case for increased allocation for EM assets from developed markets is illustrated by this recent observation by the CIO of Reliance Mutual Fund (one of India’s top performing funds). “I met the CIO of one of the large pension funds stationed in Montreal in May. The bottom line was that they had to generate 6-7 percent returns to fulfil their pension obligations. The world is such that they are not even able to generate 2 percent and they were looking at countries which had relatively stable currency, which were able to give them 11-12 percent on a longer timeframe and where they could invest in size (like India).”

– Probably the biggest catalyst for this swing in sentiment from 2015 has been a stabilizing China. As noted by Mark Mobius from Templeton: “ Despite the many ailments in the economy, there are also many strengths fostered by China’s economic rebalancing, including growth in consumption driven by rising wages, an expanding services sector (see chart below) and new infrastructure initiatives launched by the central government.”

On Insulin Spikes:

Another great piece from Dr. Michael Greger which dispels some myths relating to insulin spikes from different diets. , September 6, 2016:

Much of the low-carb and paleo reasoning revolves around insulin. To quote “carbohydrates increase insulin, the root of all evil when it comes to dieting and health.” So, the logic follows that because carbs increase insulin, we should stick mostly to meat, which is fat and protein with no carbs; so, no increase in insulin, right? Wrong.

-We’ve known for half a century that if you give someone just a steak: no carbs, no sugar, no starch; their insulin goes up. Carbs make our insulin go up, but so does protein.

-In 1997, an insulin index of foods was published, ranking 38 foods to determine which stimulates higher insulin levels. Researchers compared a large apple and all its sugar, a cup of oatmeal packed with carbs, a cup and a half of white flour pasta, a big bun-less burger with no carbs at all, to half of a salmon fillet. The meat produced the highest insulin levels.

-Researchers only looked at beef and fish, but subsequent data showed that that there’s no significant difference between the insulin spike from beef, chicken, or pork—they’re all just as high. Thus, protein and fat rich foods may induce substantial insulin secretion. In fact, meat protein causes as much insulin release as pure sugar.

– It is true that having hyperinsulinemia, high levels of insulin in the blood like type 2 diabetics have, is not a good thing, and may increase cancer risk. But if low-carb and paleo dieters stuck to their own insulin theory, then they would be out telling everyone to start eating plant-based. Vegetarians have significantly lower insulin levels even at the same weight as omnivores. This is true for ovo-lacto-vegetarians, lacto-vegetarians, and vegans. Meat-eaters have up to 50% higher insulin levels.

-Researchers from the University of Memphis put a variety of people on a vegan diet (men, women, younger folks, older folks, skinny and fat) and their insulin levels dropped significantly within just three weeks. And then, just by adding egg whites back to their diet, their insulin production rose 60% within four days.

-In a study out of MIT, researchers doubled participants’ carbohydrate intake, and their insulin levels went down. Why? Because the researchers weren’t feeding people jellybeans and sugar cookies; they were feeding people whole, plant foods, lots of whole grains, beans, fruits, and vegetables.

-What if we put someone on a very-low carb diet, like an Atkins diet? Low carb advocates, such as Dr. Westman, assumed that it would lower insulin levels. Dr. Westman is the author of the new Atkins books, after Dr. Atkins died obese with, according to the medical examiner, a history of heart attack, congestive heart failure, and hypertension. But, Dr. Westman was wrong in his assumption. There is no significant drop in insulin levels on very low-carb diets. Instead, there is a significant rise in LDL cholesterol levels, the number one risk factor for our number one killer, heart disease.

-What about the paleo diet? The paleo movement gets a lot of things right. They tell people to ditch dairy and doughnuts, eat lots of fruits, nuts, and vegetables, and cut out a lot of processed junk food. But a new study published in the International Journal of Exercise Science is pretty concerning. Researchers took young healthy people, put them on a Paleolithic diet along with a CrossFit-based, high-intensity circuit training exercise program.

-If you lose enough weight exercising, you can temporarily drop your cholesterol levels no matter what you eat. Just losing weight by any means can lower cholesterol, which makes the results of the Paleo/Crossfit study all the more troubling. After ten weeks of hardcore workouts and weight loss, the participants’ LDL cholesterol still went up. And it was even worse for those who started out the healthiest. Those starting out with excellent LDL’s (under 70), had a 20% elevation in LDL cholesterol, and their HDL dropped. Exercise is supposed to boost our good cholesterol, not lower it.

-The paleo diet’s deleterious impact on blood fats was not only significant, but substantial enough to counteract the improvements commonly seen with improved fitness and body composition. Exercise is supposed to make things better. On the other hand, if we put people instead on a plant-based diet and a modest exercise program, mostly just walking-based, within three weeks their bad cholesterol can drop 20% and their insulin levels 30%, despite a 75-80% carbohydrate diet, whereas the paleo diets appeared to “negate the positive effects of exercise.

Here’s to sticking with tried-and-tested dietary traditions and ignoring the new dietary fads!



On Why Emerging Market Small-Caps?; Health Benefits of a Plant-based diet – Part IV!

From: aditya rana
Date: Sat, Sep 3, 2016 at 1:19 PM
Subject: On Why Emerging Market Small-Caps?; Health Benefits of a Plant-based diet – Part IV!


Emerging markets have seen a remarkable turnaround in both sentiment and performance since the end of January of this year, advancing by 21% since then. As is almost always the case (the iron-clad rule of mean reversion at work again!) , extreme bearish sentiment prevailing over the prior three years (culminating in more than a trillion dollars of outflows since mid 2014) was quickly replaced by the current bullishness. As the market technician Mark Galaseiwski (and author of the Asia-Pacific Financial Forecast) observes, Reuters reported on January 20, 2016 that many participants at the 2016 Davos feared that “investment returns across the sector are unlikely to recover soon”. The MSCI EM index bottomed out the next day!. So where does one now look for opportunities in the EM sector? Mark Mobius and Chetan Sehgal from the Templeton EM team argue the case for the small cap sector. To summarise:

-EM small cap stocks continue to offer strong growth potential at attractive valuations, while being an overlooked sector due to misconceptions regarding their volatility, liquidity and scale as an asset class. However, EM small caps offer many advantage, structural and tactical for investors.

-Structurally, smaller EM companies provide exposure to areas which complement the large-cap sector, particularly in the health care and consumer areas which are driven by favorable demographics and a rising middle class. EM small caps are also under researched and under-owned by foreign investors , have ample liquidity, thereby providing numerous opportunities in terms of market inefficiencies.

-Tactically, the widespread sell-off across the EM space over the last several years has created attractive valuations, while having more local market exposure and lower correlation to the large-cap sector. However, they also carry higher risk (of principal loss) and more volatility than large companies. Looking ahead, with the sector evidencing increasing interest from global institutional investors, it offers an attractive risk/return profile over the coming years.

-The EM small-cap space comprises more than 23,000 companies with a aggregate market cap of $5 trillion and daily turnover of close to $60 billion., with broad liquidity of the sector approaching that of the large-cap space. EM small-cap stocks are disproportionately held by domestic retail investors who typically trade more often, and with shorter time horizons than foreign institutions, thereby boosting their liquidity.

-EM small-caps are only 3% of the MSCI EM index, while being 28% of the market capitalization of all emerging market companies.

-EM small-caps stocks are more prone to be overlooked by overseas investors as they are vastly under-researched, with many companies not being covered at all (see chart below). This creates various mispricing opportunities to be exploited.

-EM small-cap companies have greater exposure to domestic markets, driven by domestic demand, favourable demographics, local reform initiatives and innovative niche products. This results in differing exposure to sectors than the large-cap space as illustrated by the chart below, particularly in high growth areas like consumer discretionary and health care. By contrast the large-cap companies have greater exposure to financials, energy, information technology and telecom, which tend to be more affected by global and country-level macro trends events. They also have a larger weighting in state-owned companies which may not be as well managed.

-The market pricing inefficiencies prevailing in the EM small-cap sector can be best illustrated by India, which has a vast number of such companies and a notable skew towards ownership by domestic investors. During the 2008-2014 period, domestic retail investors in India allocated capital to real estate and gold, and any inflows from foreign institutional investors were made through index-based investments which were skewed towards the large-cap stocks. This is reflected in the 27% ownership by foreign institutions in the broad market index, while having only 13% exposure to the small cap index. So Indian small-cap companies are not only more exposed to the domestic economy, but to the local investor base as well.

-Therefore, from 2009 until 2013, the negative sentiment of domestic investors towards equities led to notable valuation discount of small-cap stocks to the large-cap sector. The sentiment change in 2014 with the election of the pro-business Narendra Modi led to a significant rerating in the valuations of small-cap stocks.

-In a global low-growth environment, EM economies continue (despite the slowdown in recent years) to offer considerably higher growth opportunities than the developed world. Investing in EM small-caps provide exposure to the fastest-growing companies in the fastest-growing economies globally. This growth is also more organic that growth driven by central bank induced macro-economic factors or financial engineering techniques like share buybacks (particularly in the US). In addition, the potential upside from being added to an index, increased research and being targets of M&A activity offer further upside opportunities. Given the higher risks in this sector relating to poor governance, poor quality of management and other factors, it is important to be able to identify the likely winners with thorough research or through an experienced manager with a long track-record.

Interesting piece which makes a forceful case for EM stocks in general, and the small-cap sector in particular. However, has the popularity of the asset class already reached excessive levels?

-Blackrock’s Global Chief Investment Strategist, Richard Turnill, wrote an interesting commentary recently:

-“The chart below shows where the crowds are, based on our analysis of fund flows, fund positioning and price momentum. We consider positions with scores between 1 and 2 (and -1 and -2) as popular, and those with scores above 2 (and below -2) as very popular. The higher the score, the more popular the overweight is. The lower the score, the more popular the underweight is. The most popular investments today: overweight U.K. government bonds (gilts), emerging market (EM) sovereign debt, developed market credit and gold, as well as underweight eurozone equities.

-“We advocate reducing popular positions where prices have moved beyond fundamentals (examples are gilts and bond-proxies such as utility stocks). We also would resist taking contrarian positions in sectors facing big structural challenges (e.g. European banks). But popular overweights with supportive fundamentals and valuations (such as EM debt and U.S. credit) are still worth considering (see chart below) , and gold can offer portfolio diversification benefits. Our overweight EM equity position doesn’t appear popular despite recent inflows into the asset class. Be mindful of the short-term risks embedded in consensus trades, and look for potential opportunities the crowds haven’t yet reached.

-Regarding exposure to EM small cap stocks, there are a variety of ETFs to choose from, but a fund with a solid long-term track-record could be a better alternative given the risks associated with small cap stocks. The Bloomberg chart below compares the performance of two such funds (the Templeton TEMMX:US fund-yellow line – and the Wisdom Tree DEMSX:US fund) versus the ETFs EWX and DGS. The outperformance by the two funds over a 5 year period is clearly exhibited. In addition, single country small cap ETFS and funds can offer interesting opportunities. While Indian small caps have had a great run since late 2013 (index up 121% versus 43% for the market index) and are prone to a short-term reversal, they continue to offer solid long-term upside potential. Other countries like Brazil (despite the recent move) , Russia and China also offer superior upside over the medium to long term.

Health Benefits of a Plant-based diet – Part IV:

-To follow-up on Part III which summarized some of the notable nutrients in pants ()from the Permanente Journal – a US based peer-reviewed journal of medical science, social science in medicine, and medical humanities), Part IV summarises the plant-based macronutrients (to be serialised further):

-All calories come from some combination of carbohydrates (4 kcals/g), proteins (4 kcals/g), and fats (9 kcals/g). Alcohol also provides calories (7 kcals/g) but is not considered an essential nutrient. The ideal ratio of intake of these 3 macronutrients is highly controversial and debatable. There is plenty of evidence supporting health and weight management benefits of low-fat/high-carbohydrate diets, as seen in the traditional Okinawan diet and in studies by Dean Ornish and Caldwell Esselstyn on the reversal of advanced coronary artery disease, and by Neal Barnard on the reduction of glycemia in type 2 diabetes using a plant-based diet with 10% of calories from fat. Similarly, the Mediterranean and many raw food diets consisting of upwards of 36% or more of calories from fat show consistently positive health advantages. Thus, it appears that it is likely the quality of the diet that is responsible for health outcomes rather than the ratio of macronutrients.

Carbohydrates: The Institute of Medicine’s adequate intake of carbohydrates is 130 g/d for everyone (except during pregnancy and lactation) beginning at age 1 year. Optimal sources of carbohydrates, such as wholesome vegetables, fruits, whole grains, and legumes, are high in fiber and nutrients. Refined carbohydrates from sugars, flours, and other processed foods can lead to malnourishment and promote illness.

Protein: Adequate intake of protein is based on weight and is estimated at 0.8 g/kg/d for adult. Protein is readily available throughout the plant kingdom, but those foods that are particularly rich in protein include legumes, nuts and nut butters, seeds and seed butters, soy foods, and intact whole grains.

Fats: Fats—or fatty acids—are more complicated because there are several different chemical varieties based on level and type of saturation. Each category of fatty acid performs different functions and acts uniquely in the body.

-The essential fatty acids are polyunsaturated and include both omega-3 and omega-6 fatty acids. Omega-3 fats are found in their shorter chain form as alpha linolenic acid and are used as energy. They are also converted by the body to the longer-chain EPA acid and then DHA acid. Because this conversion process can be inefficient, some people may require a direct source of these longer-chain EPA and DHA in the form of a microalgae supplement. AlA acid can be found in flaxseeds, hempseeds, chia seeds, leafy green vegetables , soybeans and soy products, walnuts, and wheat germ, as well as in their respective oils. A direct plant source of EPA and DHA is microalgae, through which fish acquire them. Plant sources may be superior because they do not contain the contaminants that fish contain, including heavy metals, such as mercury, lead, and cadmium, as well as industrial pollutants. Also, plant sources are more sustainable than fish sources.

-Monounsaturated fats are not essential but have been found to impart either a neutral or slightly beneficial effect on serum cholesterol levels, depending on which nutrient they are replacing. When swapped for saturated fats, trans fats, or refined carbohydrates, monounsaturated fats may lower low-density lipoprotein and raise high-density lipoprotein cholesterol. These fatty acids are found in olives, avocados, macadamia nuts, hazelnuts, pecans, peanuts, and their respective oils, as well as in canola, sunflower, and safflower oils.

-Saturated fats, as mentioned above, are not essential in the diet and can promote CVD. They are found primarily in animal products but are available in some plant foods, mostly in tropical fats and oils, such as palm and coconut, and also in other high-fat foods, including avocados, olives, nuts, and seeds. If a vegan diet contains an average of 5% to 6% of kcals from saturated fat, which is what the American Heart Organization recommends for a heart-healthy diet, any added serving of animal products will significantly increase the total intake.

-Trans fatty acids are laboratory-made via hydrogenation and are found in processed, fried, and fast foods. Although they were originally developed to be a healthy alternative to butter and lard, trans fatty acids were found to significantly increase CVD risk. In November 2013, the US FDA issued a notice that trans fatty acids were no longer considered safe and is now trying to eliminate artificially produced trans fatty acids (there are small amounts found naturally in meat and dairy products) from the food supply. Be aware that a nutritional label can state a food product contains “0 g trans fats” even if it contains up to 0.5 g per serving. Thereforefocus on the ingredient list on food products and to avoid anything with the words “partially hydrogenated.”

-Dietary cholesterol is a sterol that is found primarily in animal products. Although cholesterol is required for the production of hormones, vitamin D, and bile acids, the liver produces enough cholesterol on its own. Excessive intake of dietary cholesterol is associated with increased risk of CVD.

-Phytosterols, which are similar to cholesterol, are plant-based sterols found in all plant foods (especially wheat germ, nuts, seeds, whole grains, legumes, and unrefined plant oils). Phytosterols reduce cholesterol absorption in the gut, thereby optimizing lipid profiles. Together with viscous fibers, soy proteins, and almonds, phytosterols have been found to be as effective as statins in some studies in lowering low-density lipoprotein cholesterol.

-It is crucial to note that all whole foods contain all three macronutrients. It is a pervasive misunderstanding to identify a food as a “carb,” “protein,” or “fat.” Instead, these are all nutrients within a complex of other myriad constituents that are beyond the oversimplification perpetuated by the media and trendy diet fads. Ideally, a healthful diet is loaded with wholesome carbohydrates, moderate in fat, and temperate in protein. The emphasis must be on the quality of the totality of foods coming from whole plant sources as opposed to calculations and perfect ratios.

-Here’s to making careful note of the above paragraph and incorporating it in your daily diet!



Snapdeal – Valuation Model – Feedback requested

Nakul has posted valuation on Snapdeal, An online marketplace company in India.

Please send feedback to

Nakul Verma <nakulverma2110>

Please find the link to the blog below:

On China’s Transition to a more Productive Economy; Health Benefits of a Plant-based diet – Final Part:

From: aditya rana
Date: Sat, Sep 10, 2016 at 1:03 PM
Subject: On China’s Transition to a more Productive Economy; Health Benefits of a Plant-based diet – Final Part:


The China hard landing risk factor has receded somewhat from the forefront of global markets, but what are the underlying themes which are likely to drive Chinese growth in the coming decades? The McKinsey Global institute came out with a fascinating report recently titled “Capturing China’s $5 trillion productivity opportunity” which lays out the critical issues which need to be dealt with to capture the significant potential opportunity for China going forward ( To summarise:

-The investment-led growth which has driven the extraordinary growth of the Chinese economy over the last three decades has allowed China to become an upper-middle-income nation (as per the World Bank). However, there are now some clear signs of stress in that model of growth.

-2015 was a year of turmoil for China with GDP growth falling to a 25-year low, corporate debt spiraling upwards, foreign exchange reserves falling by $500 billion and the stock market dropping by 50% from its summer high. Returns of China’s top-performing companies are at par with those of top US companies, but a large segment (bottom 50%) of poorly performing companies is pulling down the average. 80% of economic profit comes from the financial sector which is a clear sign of a distorted economy.

-The key for China’s economy going forward is to shift from an investment-led model to a productivity-led model, which could generate an additional $5.6 trillion of GDP by 2030 with household income rising by $5.1 trillion (see chart below).

-China has the capacity to transition this key shift to a productivity-led model: 1) ample fiscal and monetary resources financed by sovereign debt and as well as utilizing the vast ($18.6 trillion) amount of state-owned assets; 2) China has a vibrant private sector earning three times the returns of state-owned companies; 3) 116 million strong middle-class households (earning income of at least $21,000 per year), rising from just 2 million in 2000. With labour productivity at only 15-20% of developed country levels, China has a large potential opportunity to capture.

-Pursuing a productivity-led approach would create more sustainable jobs and support the growth of the middle-class, allowing China to achieve advanced economy status. This approach would require investment to be refocused on areas which have the capacity to raise productivity and create jobs, and away from weaker sectors which are dragging down profitability, and allowing them to fail.

-This shift in focus has an immediate urgency – the longerChina relies on debt to boost growth the higher the risks of a hard landing. The current estimated nonperforming loan ratio is closer to 7% rather than the official 1.7%, and could rise to 15% if no progress is made towards reducing exposure to underperforming companies. This scenario would require as much as $1.3 trillion of bank equity in 2019, or $310 per year of delay. While this would not lead to a systemic banking crisis given the ample resources of the government, it would create a liquidity crunch for corporations and negatively impact consumer and investor confidence which would lead to a significant slowdown in growth.

-Additionally, the investment-led growth (which has been channeled into infrastructure and urbanization) has reached its capacity with China’s current infrastructure stock at over 70% of GDP which is about the world average. With urbanization slowing from a growth rate of 2-3% a year to 1%, the big driver of economic growth in the past will fade away. Lastly, this model has lead to a rise in inequality with the top 20% of the households now controlling about 50% of the economy.

-The five main areas to increase productivity by 2030 are:

-1) Catering better to the middle class would create $6 trillion more of consumption.

-2) Increase the creation of new business through digitization.

-3)Raising innovation to move up the value chain, especially in R&D intensive sectors, where profits are only one-third of global leaders.

-4)Improving efficiency of businesses through lean techniques and higher energy efficiency, delivering a 15-30% productivity boost.

-5)Improving competitiveness by strengthening global connections , raising productivity by 10-15%.

-All this would require opening up more areas to competition, enabling corporate restructuring, developing capital markets further, raising skill levels of workers and encouraging labour mobility. In addition, the government would need to manage conflicts amongst various stakeholders and shift incentives which currently favour only GDP growth .

-An interesting and important analysis which highlights the critical importance of rebalancing of the Chinese economy. Looking at the macro picture, a post from the IMF (see below) shows encouraging signs on this front though the pace of credit growth remains a concern.

Consumers growing in importance“Until 2011, this reduction in the external imbalance was reflected in a growing internal imbalance as the investment to GDP ratio rose to even higher levels, reflecting the strong fiscal stimulus (see chart below). Since 2012, however, internal rebalancing from investment to consumption has made headway, with a notable acceleration in 2015—consumption is now contributing more than two thirds of GDP growth.”

Deindustrialization: speedy transition: “China has made substantial progress on switching from industry to services. The speed of its transition is in line with international experience (see chart below)”.

Credit: China’s Achilles’ heel : “But, critically, progress has lagged on reducing reliance on credit. For example, credit intensity, the amount of new lending provided for each additional unit of output, has more than doubled since the global financial crisis (see chart below).”

Pollution and inequality: on the high side : “While the energy intensity of output has fallen, air pollution remained very high in cities. Similarly, income inequality remains very high, though labour’s share of GDP is rising (see chart below).”

Falling savings ;“With population ageing and the envisaged strengthening of social safety nets, household savings are expected to fall gradually and consumption to rise. This is good, as it will allow investment to moderate while keeping the current account balance broadly stable. The importance of the services sector will likely continue to increase, helping reduce environmental pressure and increase labour’s share in national income.”

Health Benefits of a Plant-based diet – Final Part:

-To follow-up on Part IV which summarized the macronutrients in plants (from the Permanente Journal – a US based peer-reviewed journal of medical science, social science in medicine, and medical humanities), Part V (the final section) summarises the micronutrients in plants.

-All nutrients, with the exception of vitamin B12 and possibly vitamin D, which is ideally sourced from the skin’s exposure to the sun’s ultraviolet rays, can be found in plants. They are also packaged together with thousands of powerful disease-fighting nutrients that work synergistically to support optimal health.

Vitamin B12 is the only nutrient not directly available from plants. This is because vitamin B12 is synthesized by microorganisms, bacteria, fungi, and algae, but not by plants or animals. Animals consume these microorganisms along with their food, which is why this vitamin can be found in their meat, organs, and byproducts (eggs and dairy). Vitamin B12 deficiency can lead to irreversible neurologic disorders, gastrointestinal problems, and anemia.

-The body can store vitamin B12 for approximately three to five years, but after that, with no repletion or with inability to absorb, deficiency symptoms may present. Because of this lag time and because serum tests for B12 levels can be skewed by other variables, irreversible damage may occur before a deficiency is caught.

-In a vegan diet, vitamin B12 can be found in fortified plant milks, cereals, or nutritional yeast. However, these are not dependable means of achieving B12 requirements. Although there are claims that certain types of food can provide B12, the vitamin is not usually biologically active. These inactive forms act as B12 analogues, attaching to B12 receptors, preventing absorption of the functional version, and thereby promoting deficiency. The most reliable method of avoiding deficiency for vegans or anyone else at risk is to take a B12 supplement.

-Because the body can absorb only approximately 1.5 µg to 2.0 µg at a time, it is ideal to supplement with a dose greater than the RDA to ensure adequate intake. Plant-based nutrition experts recommend a total weekly dose of 2000 µg to 2500 µg. This can be split into daily doses or into 2 to 3 doses of 1000 µg each per week to help enhance absorption. Because vitamin B12 is water soluble, toxicity is rare.

Vitamin D is also known as the “sunshine vitamin” because it is the only nutrient that is acquired from the sun. Although human bodies evolved to produce vitamin D via the sun, there appears to be a worldwide epidemic of deficiency. Vitamin D is not widely available from the food supply. Sources of preformed vitamin D include fish liver oil, oily fish, liver, and in smaller doses, meat and egg yolk—foods that also contain high concentrations of saturated fat, cholesterol, and other less-than-ideal components.

-Vitamin D from sunshine and animal sources is in the form of vitamin D3. A second form vitamin D2, is found in plant sources. Dietary supplements may contain either D2 or D3, both of which can be effective at optimizing blood levels. The Institute of Medicine has concluded that adequate serum 25-hydroxyvitamin D levels are ≥ 50 nmol/L (≥ 20 ng/mL).

-If patients have suboptimal levels, emphasizing food sources (especially fortified plant milks) as well as supplements may be helpful. Dosing may be tricky because of variable responses in individuals and differences in types of vitamin D formulas. Of note, although both of the 2 forms of vitamin D are effective at raising serum D levels in small doses (4000 IU or less).

Calcium is the most abundant mineral in the human body. A mere 1% of the body’s calcium circulates in the blood and tissues; 99% is stored in the bones and teeth. Calcium is a nutrient of concern for the general population with respect to bone mineral optimization during the lifespan. However, because bone metabolism is multifactorial and complex, it is important to emphasize consumption of ample sources of calcium as well as vitamins K and B12, fluoride, magnesium, phosphorus, and potassium; to maintain serum vitamin D levels; and to ensure consistent exercise. Throughout the lifespan, dietary recommendations for adequate intake of calcium fluctuate.

-Excellent plant sources of calcium include leafy green vegetables—especially bok choy, broccoli, napa cabbage, collard greens, dandelion greens, kale, turnip greens, and watercress—as well as fortified plant milks, calcium-set tofu, dried figs, sesame seeds and tahini, tempeh, almonds and almond butter, oranges, sweet potatoes, and beans. 

-Iron is one of the most abundant metals on Earth and yet iron deficiency is one of the most common and widespread nutritional deficiencies. It is the most common deficiency in the world and is a public health problem across the globe. It is particularly prevalent in women of childbearing age, pregnant women, infants, children, teenage girls, and anyone experiencing bleeding, such as people with ulcers, inflamed intestines , or heavy menstruation. Iron-deficiency anemia is no more common in vegetarians than in non-vegetarians.

-Because plant-sourced iron is nonheme iron, which is susceptible to compounds that inhibit and enhance its absorption, the recommendation for vegans and vegetarians is to aim for slightly more iron than nonvegetarians. Fortunately, this is easy to do with the wide array of iron-rich food choices in the plant kingdom. Leafy greens and legumes are excellent sources of iron and a multitude of other nutrients, so it is advantageous to include these foods often. Other good choices include soy products, dark chocolate, blackstrap molasses, sesame seeds, tahini, pumpkin seeds, sunflower seeds, raisins, prunes, and cashews.

-Iron absorption may be diminished in the presence of phytates, tannic acids from tea, calcium in dairy, fiber, polyphenols in coffee and cocoa, and certain spices (eg, turmeric, coriander, chilies, and tamarind). To minimize this, separate iron-rich foods from these nutrients as much as possible. One of the best tips for optimizing iron absorption is to eat iron-rich foods in combination with foods high in vitamin C and organic acids. This improves solubility, thereby facilitating absorption.

-Iodine: Dietary sources of the trace mineral iodine are unreliable and fluctuate geographically because of varying soil qualities. It is crucial for vegans to be mindful of consuming a source of iodine to avoid thyroid issues. Sources of iodine include iodized salt and sea vegetables. One half-teaspoon of iodized salt provides the daily recommended 150-µg dose. Also, iodine levels in sea vegetables fluctuate dramatically, with some (especially dulse and nori) containing safe amounts and others (such as kelp) harboring toxic doses. Hijiki, also spelled hiziki, should be avoided owing to its excessive arsenic levels. A preexisting iodine deficiency, a selenium deficiency, or high intake of goitrogens (antinutrients found in cruciferous vegetables, soy products, flaxseeds, millet, peanuts, peaches, pears, pine nuts, spinach, sweet potatoes, and strawberries) can interfere with iodine absorption. There is no need to avoid goitrogenic foods as long as iodine intake is sufficient. If a patient does not enjoy sea vegetables or is minimizing intake of salt, an iodine supplement may be warranted.

Selenium is a potent antioxidant that protects against cellular damage and also plays a role in thyroid hormone regulation, reproduction, and DNA synthesis. Brazil nuts are an especially rich source of selenium in the plant kingdom. Although selenium content varies depending on the source, an average ounce (approximately 6 to 8 nuts) can provide 777% of the RDA. When accessible, one Brazil nut a day is an ideal way of meeting selenium recommendations. Other plant sources include whole grains, legumes, vegetables, seeds, and other nuts.

Zinc supports immune function and wound healing; synthesis of protein and DNA; and growth and development throughout pregnancy, childhood, and adolescence. Because of the presence of phytates, bioavailability of zinc from plants is lower than from animal products. Zinc deficiency may be difficult to detect in blood tests but can show up clinically as delayed wound healing, growth retardation, hair loss, diminished immunity, suppressed appetite, taste abnormalities, or skin or eye lesions. Consider advising patients to aim for 50% or greater than the RDA of zinc daily by including legumes, cashews and other nuts, seeds, soy products, and whole grains. Preparation methods such as soaking, sprouting, leavening, and fermenting will improve absorption. Table 2 below provides a convenient chart highlighting excellent sources of notable nutrients.

-Here’s to incorporating a varied whole food plant-based diet (plus a Vitamin B12 supplement) which will provide you with all the necessary macro and micro nutrients.



Sept 2016 – Market outlook by Navneet Munot, CIO, SBIMF

Attached herewith is our monthly “market outlook”.



Navneet Munot, CFA

Chief Investment Officer

SBI Funds Management Private Limited
(A Joint Venture between State Bank of India & Amundi Asset Management)

September 2016.pdf