2025 - Letter to Clients

 

    2025 was clearly the year of the precious Metals. Both Gold and Silver gave such stunning returns especially in the latter half of the year that investors were just left awestruck by the movement in prices of these two metals. Gold has now been the top annual performer in five of the past ten years, across asset classes. In the Indian context, the past year was a testament to the growing maturity and inherent strength of India's financial ecosystem, marked by a fascinating tug-of-war between global headwinds and domestic resilience.

India Markets

Here is how the various asset classes in India have performed in the past decade

    2025 was the year when the Nifty and Sensex gave positive returns for the tenth consecutive year. The broader market also gave positive returns, although in single digits. Smallcaps however got dragged down and gave negative returns during the year. Although the Midcap index also gave positive returns during the year, many midcap stocks followed smallcap stocks by being in negative territory during the year. 

    A defining narrative of 2025 was the stark contrast in institutional flows. Foreign Institutional Investors (FIIs) were net sellers to the tune of over Rs1.5 lakh crore, pulling money out amid global uncertainties. However, this was more than countered by a tidal wave of domestic money. Domestic Institutional Investors (DIIs) poured in a staggering Rs5.65 lakh crore, supported by record-breaking retail participation, particularly from non-metro regions. This domestic liquidity acted as a formidable shield against global shocks.

    The year had its clear winners. The PSU Bank sector was the undisputed champion, soaring over 28-30%. Other sectors like Metals and Auto also delivered strong double-digit returns, outshining the broader market. The BankNifty index was another standout performer. However, in summary 2025 was a spectacular year for precious metals, with both Gold and Silver significantly outperforming equities, and acting as a safe haven for investors. The primary market also saw a flurry of IPOs during 2025, some of them being already well known names.

    A major morale booster for the markets was the decisive action on monetary policy. With retail inflation moderating to record lows, the Reserve Bank of India (RBI) embarked on a rate-cut cycle, reducing the repo rate by a cumulative 125 basis points throughout the year. This easing of repo rate coupled with rate cuts by the US Fed, injected confidence in the markets.

    

    The continuous injection of liquidity in the markets via lowering of interest rates by the RBI is bound to stimulate credit growth leading to revival of the capex cycle, demand in jobs as well as demand in consumption. Many investors who entered the stock markets in 2024 and are still seeing red in their folio – they can expect to see some relief in 2026.

What to expect in 2026

    

    The consensus view suggests a double-digit growth year in 2026 once again. The primary catalyst for this is expected to be a robust recovery in corporate earnings. The lower interest rate environment inherited from 2025 is expected to start paying dividends in 2026. Cheaper credit is likely to boost demand in rate-sensitive sectors like housing and automobiles. Furthermore, expectations of pro-consumption government reforms, including potential GST restructuring and income tax relief, could put more money in consumers' pockets. After a period of distress, the rural economy is also showing signs of a turnaround, aided by good monsoons and government stimulus. A revival in rural demand is seen as a key theme that could drive growth across several sectors. Finally, a major potential trigger for an outsized rally would be the return of foreign investors. While FII flows remain dependent on global factors like US interest rate cycles and geopolitical stability, India's strong growth story could eventually lure foreign capital back.

    There are some risks to the above scenario. Geopolitical tensions and tariff wars could continue to create market turbulence. Certain pockets of the market, particularly in the small and mid-cap space, may face a correction if earnings don't keep pace with valuations. Finally A sharper-than-expected slowdown in major global economies could dampen sentiment and impact export-oriented sectors.

USA Markets

    The US stock market during 2025 was defined by extreme volatility, record-breaking highs, and a tug-of-war between aggressive trade policies and a massive artificial intelligence (AI) investment boom. Despite a major "flash crash" in the spring, the market ended the year with strong double-digit gains, marking its third consecutive year of growth.

    Here is how the various asset classes in USA have performed in the past seven years

    The Trump administration announced sweeping tariffs (including a 10% baseline and much higher rates for China), at the start of April 2025 triggering the largest global market decline since the 2020 pandemic. The S&P 500 fell nearly 12% in days before rebounding when the administration paused and renegotiated some measures. Artificial intelligence remained the primary engine of growth during the year. The buildout of data centers and the demand for specialized chips saw companies like NVidia lead the bull rally and become te first US company to reach a $5tn valuation during the year. Meanwhile, after battling "sticky" inflation for much of the year, the Federal Reserve cut interest rates three times in the fourth quarter to address a softening labor market. As with other markets, Gold and Silver had a standout year even in the USA – the latter due to its industrial role in green energy and in the AI grid. Bitcoin also hit a lifetime high during the year before settling down by the year-end. 

    The Federal Reserve’s monetary policy remained a central focus. The above graph shows how the Fed has injected liquidity into the system by reducing interest rates by 200bps during the year, even though inflation has not reduced at the same rate. This strategy of front-loading the interest rates can be risky if inflation rears its ugly head once again.

What to expect in 2026

    The consensus view is that 2026 can see high single digit growth in the US. This view is backed by expectations of corporate earning growing much higher than the 10-year average of 8.6%. Further, growth is expected to spread to stocks behind the Fab seven, as they begin to realize productivity gains from AI. Markets are also likely to price in a reduction in trade fiction, as the shock of the 2025 tariffs fade and new trade agreements are finalized. Finally the "One Big Beautiful Act" (tax cuts passed in 2025) will continue to lower corporate tax bills through 2026, acting as a massive fiscal stimulus for US-based companies.

    The risks to the above scenario include the ability of the Fed to keep inflation under control and lower interest rates further, ability of the vast majority if businesses to harvest AI for productivity gains, geopolitical stability and Policy stability by the Trump administration, especially on the tariff front.

2026 outlook

    According to the International Monetary Fund (IMF), the global economy is entering 2026 with a theme of "Tenuous Resilience." While growth is holding steady, it remains below historical averages as the world adjusts to a new era of trade protectionism and shifting industrial policies. 

    As shown in the graph above, except Japan all major economies are expected to grow slightly more than they did in 2025. Global growth is therefore expected to remain relatively flat compared to 2025, with a slight deceleration as the "AI investment boom" begins to normalize and the impact of 2025's trade tariffs fully filters through global supply chains. India remains the fastest growing major economy in the world with DP growth expected at 6.6%. US is expected to grow at 2.1% on the back of domestic demand and tax reforms, although sticky inflation remains a big risk. China is forecasted to grow at around 4.8% as the country struggles to balance its property sector debt with aggressive investments in green energy and high-tech manufacturing. The IMF notes that the 2026 outlook is a potential "Goldilocks" period for specific markets—where inflation is cooling fast enough for central banks to cut rates, but growth remains robust enough to avoid a recession.

Summary

    In summary, 2025 was a sub-par year for Indian investors, and a super year for US investors. While 2026 holds out the promise for continued economic growth, certain global events can derail this possibility. Long term investors should look for opportunities to accumulate quality assets into their portfolio at every possible opportunity and stay invested. Keep in mind that stock picking is a highly overrated skill whereas having the patience to stay invested is highly underrated.

    Meanwhile I am using this occasion to reiterate the fundamentals of long-term investing 

1. Asset allocation – Diversify your financial assets across Debt, Equity, Real Estate, gold, International Equity, etc. depending on your risk profile and age. Real Estate and Gold assets should ideally be used to satisfy consumption needs only. One simple rule of thumb to do this quickly is to subtract your age from 110. The number you get should be the percentage of your assets that you should allocate to equity - the rest should be allocated to Debt and other assets.
2. Financial planning - Identify your financial goals and classify them by time horizon – short term, medium term and long term. Use Debt assets to achieve short term goals, mix of Debt and Equity assets to achieve medium term goals and Equity assets for achieving long term goals. This will be the basis of your financial plan.
3. Reviewing your plan - Review your financial plan yourself or with the help of your advisor ideally once a year and make adjustments to your asset allocation depending on the prevailing market situation.
4. Invest right - When it comes to equity, invest in quality businesses with a reasonable margin of safety and then have the patience to allow the markets to give you returns. This calls for persistence in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.

    I also want to take this opportunity to thank you for putting your faith in our investment thesis and in our icAdvisor service with your hard earned money. Your continued trust makes us stay committed to the vision encapsulated in our tagline – ‘Growth through Knowledge’. I am available to address client queries at all times and am approachable via email or whatsapp.

    Finally I wish you and your family a very healthy, happy and prosperous 2026 in the hope that our relationship will continue to strengthen and grow in the years ahead!

Abhijit Talukdar

Founder, Attainix Consulting

SEBI Registered Investment Adviser – INA000006703
Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

2024 - Letter to Clients

 

2024 was the first Covid free year after the pandemic first appeared in 2020. The virus not only affected human health and took lives but it also negatively affected economic activity around the world. As the pandemic started receding in 2023, Central banks lowered interest rates and Governments started handing out doles and essential food items in order to support life and restore the economy.  The cumulative effects of these actions were visible in 2024.

India Markets

Here is how the various asset classes in India have performed in the past decade

The Indian markets saw significant recovery and growth in 2024, particularly in Midcap and Smallcap stocks, which gave impressive returns of 24.0% during the year. The broader market also did well with a 14.5% return, outperforming the Nifty which delivered 8.8%. This trend was bolstered by improved corporate earnings, rising consumer demand, and sustained foreign portfolio investments (FPIs). In this backdrop the icAdvisorIndia portfolios, which are oriented towards a mix of Largecaps, Midcaps and Smallcaps, also delivered superior returns during the year. Gold saw notable gains of 19.0%, reflecting its appeal as a safe-haven asset. Debt markets provided modest returns, with long-term instruments yielding 7.0%, slightly benefiting from rising interest rates. Debt instruments, particularly at the longer end of the duration curve, also provided stable returns, benefiting from RBI's interest rate trajectory.

The RBI continued its dual mandate of controlling inflation within the target band of 4% (+/- 2%) while fostering economic growth, maintaining the repo rate at 6.5% for the year, emphasizing inflation control and economic growth. The year saw inflationary fluctuations, peaking at 6.21% in October before easing to 5.48% by November. These dynamics impacted market sentiment, with sectors reliant on discretionary spending witnessing intermittent volatility. In 2023 and early 2024, the RBI's proactive repo rate adjustments were instrumental in curbing inflation, which had shown signs of acceleration due to global factors such as elevated energy prices and supply chain disruptions. By mid-2024, inflation began to stabilize, aligning closer to the RBI's target range. This stabilization has created room for potential future rate cuts, signalling a shift in monetary policy towards growth stimulation.

Additionally, speculation around the general elections and policy continuity influenced investor behavior, causing fluctuations in key indices during the latter half of the year. Before the election, the net profit of the Indian banking sector surpassed $35.9 billion at the end of April 2024 for the first time. During the election, Indian equities saw their worst day in 4 years, dropping 6% after exit polls showed no absolute majority for the BJP. The Indian stock market surpassed the $5 trillion mark, reflecting strong performance, but faced short-term instability. Ripples from China’s deepening real estate challenges affected global investor sentiment, although India remained relatively insulated due to its strong domestic consumption base. The escalating Middle East crisis and its impact on energy prices created short-term market volatility, particularly in energy and logistics sectors.

In summary, 2024 offered a mix of challenges and opportunities for Indian stock market investors. The equity markets benefited from strong domestic demand and strategic government interventions, even as external headwinds tested investor resilience. Those with diversified portfolios and a focus on emerging sectors found the most success, positioning themselves well for the potential growth of 2025. However, those investors who entered the Indian markets in the latter half of the year are most probably seeing red in their folio at the end of the year, and waiting to recoup their losses in 2025.

USA Markets

Here is how the various asset classes in USA have performed in the past six years

The US markets continued their robust recovery in 2024, with the S&P 500 gaining 23.3%, building on its strong 26.9% rally in 2023. Technology stocks, which led the rebound in 2023, remained a driving force behind the market's performance. The Dow Jones Industrial Average (DJIA) rose by 12.2%, while small-cap stocks outperformed, with the Russell Smallcap Index climbing 25.0%. In contrast, bonds offered modest returns, with high-yield bonds yielding 7.0%. Inflationary pressures eased compared to the highs of 2022 and early 2023, but the Federal Reserve maintained its cautious stance, keeping interest rates elevated to achieve its 2% inflation target.

The icAdvisorUSA portfolios, with their strategic focus on technology and growth sectors, delivered competitive returns, aligning with the continued strength of the tech sector. As inflation moderates further, opportunities in growth-oriented assets are expected to persist, setting the stage for potential outperformance in 2025.

The US elections, held in November 2024, played a pivotal role in shaping market sentiment throughout the year. Historically, election years are marked by heightened volatility, as investors weigh the implications of potential policy changes. This trend held true in 2024, with market fluctuations intensifying in the months leading up to the elections. Speculation around fiscal policies, taxation, and regulatory changes led to intermittent corrections in key indices, particularly in sectors sensitive to government spending and policy shifts, such as healthcare and energy. Despite the election-related uncertainty, markets rallied post-election as Investors largely viewed the results as conducive to economic growth, providing a boost to the markets.

The Federal Reserve’s monetary policy remained a central focus. Inflation moderated compared to the peaks of 2022 and early 2023 but stayed slightly above the Fed's 2% target. Consequently, the Fed maintained elevated interest rates to keep inflation in check, avoiding rate cuts despite growing investor anticipation. This approach provided stability but also kept borrowing costs high, tempering growth in certain interest rate-sensitive sectors like real estate and fixed income.

Looking ahead, the 2024 elections has set the stage for policy continuity or potential shifts that could shape economic trajectories in the coming years. The resilience of US equities during a politically charged year underscores their appeal, but investors will closely monitor fiscal and monetary developments in 2025 for further opportunities and risks.

2025 Outlook

Growth in 2024 for India has been revised up by 0.2 percentage point to 7.0% relative to 2023, as rural consumption is benefiting from an improved agricultural season, and as public infrastructure investment continues to expand. According to the IMF, India’s GDP growth is expected to moderate to 6.5% in 2025. With this, India remains the world’s fastest growing major economy. 

As the above chart shows, India, China, Russia and the United States are forecast to see slower growth between 2024 and 2025. There have been several notable revisions since the July 2024 World Economic Outlook. For example, the U.S. has had an upwards revision to a forecasted growth of 2.8 % in 2024, from the previously estimated 2.6 %. In 2025, growth is expected to slow to 2.2 % in the U.S. as fiscal policy is gradually tightened and a cooling labor market slows consumption. This is still an improvement from the July forecast, which had estimated growth at 1.9 %.

In terms of risks ahead, the IMF warns of new potential spikes in commodity prices amid ongoing geopolitical conflicts as well as knock-on effects if China sees a deeper - or longer than expected - contraction in the property sector.

Summary

In summary, 2024 was a goodyear for investors, both in India and in the USA, despite the impact of elections. While 2025 holds out the promise for moderation of inflation and reversal of repo and Fed rates, certain global risks can delay these events. Long term investors should look for opportunities to accumulate quality assets into their portfolio at every possible opportunity.

Meanwhile I am using this occasion to reiterate the fundamentals of long-term investing 

1. Asset allocation–Diversify your financial assets across Debt, Equity, Real Estate, gold, International Equity, etc. depending on your risk profile and age. Real Estate and Gold assets should ideally be used to satisfy consumption needs only. One simple rule of thumb to do this quickly is to subtract your age from 100. The number you get should be the percentage of your assets that you should allocate to equity - the rest should be allocated to Debt and other assets.
2. Financial planning - Identify your financial goals and classify them by time horizon – short term, medium term and long term. Use Debt assets to achieve short term goals, mix of Debt and Equity assets to achieve medium term goals and Equity assets for achieving long term goals. This will be the basis of your financial plan.
3. Reviewing your plan - Review your financial plan yourself or with the help of your advisor ideally once a year and make adjustments to your asset allocation depending on the prevailing market situation.
4. Invest right - When it comes to equity, invest in quality businesses with a reasonable margin of safety and then have the patience to allow the markets to give you returns. This calls for persistence in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.

I also want to take this opportunity to thank you for putting your faith in our investment thesis and in our icAdvisor service with your hard earned money. Your continued trust makes us stay committed to the vision encapsulated in our tagline – ‘Growth through Knowledge’. I am available to address client queries at all times and am approachable via email or whatsapp.

Finally I wish you and your family a very healthy, happy and prosperous 2025 in the hope that our relationship will continue to strengthen and grow in the years ahead!

Happy Investing.

Abhijit Talukdar

Founder, Attainix Consulting

SEBI Registered Investment Adviser – INA000006703

Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

2023 - Letter to Clients

 

    The year 2023 is when the Covid pandemic finally came under control. Although it reared its ugly head once again during the months of April and May, this turned out to be a temporary phenomenon. The widespread vaccination program as well as the precautionary habits inculcated in the population stopped the spread of the virus very quickly. Variants of the virus may yet emerge in the future, but the fatal threat of this virus has been likely blunted forever. 

India markets

    Here is how the various asset classes in India performed during the year

Asset class	2023 return %
Gold	9.35
PPF	7.10
NSC	7.70
Debt Long Duration	6.87
Debt Medium Duration	6.63
Debt Short Duration	6.59
Debt Ultra short	6.70
Debt Liquid	6.91
Nifty 50	20.09
Nifty 500	25.84
Nifty Midcap Select	44.94
Nifty Smallcap 100	55.81

    Midcaps and Smallcaps which got hit badly during the previous year bounced back with a roar and delivered superior returns in 2023.  The Nifty also delivered superior returns compared to its historical average of about 14%, however this was less than half of that of Midcaps and Smallcaps. Debt returns were higher on the lower end of the duration curve on the back of rising interest rates whereas Gold had a subdued year compared to the previous year. In this backdrop the icAdvisorIndia portfolios, which are oriented towards Midcaps and Smallcaps, also delivered superior returns during the year.

    As the economy was coming out of Covid, Governments across the world increased spending and their central banks turned on the liquidity tap in order to revive their stalled economies. However, the availability of easy capital put an upward pressure on inflationary trends. Since inflation affects and hurts the lowest strata of society the most, it is also incumbent on the Government to keep a lid on inflation. One way this is done is by the moderation of the repo rate (the rate at which commercial banks borrow funds from the central bank) by the central bank. The RBI has a stated policy of managing inflation within a band of 4 percent +/- 2 percent, while also supporting growth by feeding the liquidity tap. The below graph shows how the RBI managed these two opposing objectives over the past two years

    As we can see, the proactive repo rate management by RBI during 2022 and 2023 has been effective in keeping a lid on inflation. If this trend continues for few more months, RBI may actually be encouraged to reverse its policy stance and start lowering the repo rate once again in order to stimulate even more growth. This is the opportunity that Indian equity investors should look forward to in 2024. If and when such a reversal happens, long term debt is likely to benefit. 

USA markets

    Turning to the US markets now, the SP500 which is the most broad based market index, rallied nicely in 2023. This was on the back of a 19.4% correction in the previous year. The net result of these two movements was that the SP500 closed 2023 at about the same levels as where it was two years ago at the start of 2022. The rebound was led by technology stocks that had tanked in the previous year. Consequently, the icAdvisorUSA folios, that are oriented heavily towards global technology leaders, also delivered superior returns during the year

Asset class	2023 return %
S&P 500	24.3

    The recovery in the US markets mirrored that in the Indian markets. Inflationary trends appeared to be in a runaway mode during much of 2022. Although the Fed was relatively slow in increasing the Fed rate (the rate at which commercial banks borrow funds from the Federal Reserve) its actions started to show results during the first half of 2023 when inflation moderated. The chart below shows the actions of the Fed (in red) in response to the rising inflation over the past two years.

    The Fed has been steadfast in its policy to adhere to a target inflation of 2%. At the end of 2023, this inflation was 100 basis points higher than this target. Hence we can expect the Fed to maintain the Fed rate, or even increase it a notch in 2024, until inflation moderates further.  As soon as that happens, we can expect technology stocks to be the biggest beneficiary once again, since they have led the rebound in 2023. This is the opportunity that US investors should look forward to in 2024. Note that this very scenario had played out during 2021 on the back of which the icAdvisorUSA portfolios had outperformed the SP500 by more than 20%!

2024 outlook

    What can be look forward to in 2024? Here is IMF’s GDP forecast for the leading economies in the world for the next 5 years

    IMF also predicts that India will become the top 3 economies in the world in the next 5 years

    However, this forecast can be negatively impacted in 2024 by the unfolding of one or more or the following risks

• Escalation of the middle east crisis leading to disruption in supply chains and energy prices 
• Sticky inflation that refuses to moderate further despite tightening of monetary policy
• Unexpected results in elections in India and USA
• Deepening of China’s real estate crisis

    These risks are difficult to assess, leave alone forecast. The only practical option for investors therefore is to rely on the collective intelligence of the market for the impact of such risks if and when they occur.

    

    Of course, the icTracker will also continue to track the intrinsic value of listed companies in the India and the US. In fact this tool has become so popular with investors that at the end of 2023, it has broken into the top 600K global websites, the top 40K Indian websites as well as the top 1000 Indian financial websites. 

Summary

    In summary, 2023 was a fabulous year for investors compared to 2022, which was a nothing year, both in India and in the USA. While 2024 holds out the promise for moderation of inflation and reversal of repo and Fed rates, certain global risks can delay these events. Long term investors should look for opportunities to accumulate quality assets into their portfolio at every possible opportunity.

    Meanwhile I am using this occasion to reiterate the fundamentals of long term investing here, once again:

1. Asset allocation – Diversify your financial assets across Debt, Equity, Real Estate, gold, International Equity, etc. depending on your risk profile and age. Real Estate and Gold assets should ideally be used to satisfy consumption needs only. One simple rule of thumb to do this quickly is to subtract your age from 100. The number you get should be the percentage of your assets that you should allocate to equity - the rest should be allocated to Debt and other assets.
2. Financial planning - Identify your financial goals and classify them by time horizon – short term, medium term and long term. Use Debt assets to achieve short term goals, mix of Debt and Equity assets to achieve medium term goals and Equity assets for achieving long term goals. This will be the basis of your financial plan.
3. Reviewing your plan - Review your financial plan yourself or with the help of your advisor ideally once a year and make adjustments to your asset allocation depending on the prevailing market situation.
4. Invest right - When it comes to equity, invest in quality businesses with a reasonable margin of safety and then have the patience to allow the markets to give you returns. This calls for persistence in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.

    I also want to take this opportunity to thank you for putting your faith in our investment thesis and in our icAdvisor service with your hard earned money. Your continued trust makes us stay committed to the vision encapsulated in our tagline – ‘Growth through Knowledge’. I am available to address client queries at all times and am approachable via email or whatsapp. 

    Finally I wish you and your family a very healthy, happy and prosperous 2024 in the hope that our relationship will continue to strengthen and grow in the years ahead! 

Abhijit Talukdar

Founder, Attainix Consulting

SEBI Registered Investment Adviser - INA000006703

Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

2022 - Letter to Clients

    The year 2022 started out once again with the highly contagious Covid omicron variant spreading rapidly through the population in India. Fortunately fatalities due to this variant were relatively lower and coupled together with the Government’s active vaccination drive, the situation normalized after a couple of months, only to rear its head once again during June/July. Whereas the situation is normal since then, reports from China suggest that virus can ravage India once again in the near future. The next few weeks will be crucial in this regard.

India markets 

    Here is how the various asset classes in India performed during the year

Asset class	2022 return %
Gold	13.31
PPF	7.10
NSC	6.80
Debt Long Duration	1.83
Debt Medium Duration	3.92
Debt Short Duration	4.10
Debt Ultra short	4.28
Debt Liquid	4.72
Nifty 50	4.33
Nifty 500	3.02
Nifty Midcap Select	-2.41
Nifty Smallcap 100	-13.8
icAdvisorIndia average	-9.79

    As the economy came out of the Covid crisis during 2022, inflation started making its presence felt increasingly, on the back of easy liquidity unleashed by the central bank during the Covid crisis. Consequently gold was the best performing asset class during the year – proving once again that it is a time tested hedge against inflation. PPF and NSC returns were constant during the year, whereas the remaining asset classes – whether Debt or Equity - had a nothing kind of a year. Consequently the icAdvisorIndia portfolios, which are oriented towards Midcaps and Smallcaps, also gave negative returns during the year.

Both Debt and Equity investments were impacted by rising interest rates - the policy stance adopted by the central bank to bring inflation under control. The below chart shows the actions of the RBI (in red) in response to the increasing inflation observed during the beginning of the year. 

As we can see, the proactive repo rate management by RBI during 2022 has already started showing results, to the extent where Inflation has actually dropped below the repo rate at the end of the year. If this trend continues for another couple of months, RBI may actually be encouraged to reverse its policy stance and start lowering the repo rate once again in order to stimulate growth. This is the opportunity that Indian equity investors should look forward to in 2023. If and when such a reversal happens, midcaps and smallcaps will be the biggest gainers – since their prices are already depressed and they will anyway be the biggest beneficiaries in a growing economy. Note that this exact scenario had actually played out last year in 2021, on the back of which the icAdvisorIndia portfolios had outperformed the benchmark Nifty by more than 100%!

US Markets

Turning to the US markets now, the SP500 which is the most popular broad market index, tanked in 2022. This was on the back of a 26.9% gain in the previous year. This was the largest calendar-year decline for the SP500 since the 38% drop in 2008! Investors in the US markets also had a highly volatile time, with prices swinging from one extreme to the next in short periods of time.  Technology stocks, including global leaders, got beaten down heavily during the year. Consequently, the icAdvisorUSA folios, that are oriented heavily towards global technology leaders, also delivered negative returns during the year

Asset class	2022 return %
S&P 500	-19.44
icAdvisorUSA average	-33.63

    The steep correction in the US markets was a reaction to the high asset prices that had accumulated during the previous year on the back of easy liquidity by the Fed. Just like the RBI, the Fed had loosened its purse strings in response to the Covid crisis in 2021 – the only difference being that its actions were more extreme than the RBI. High Inflation made its presence felt in the US in 2022 as well in response to the easy liquidity. And the Fed was forced to raise interest rates in order to bring it under the control. The chart below shows the actions of the Fed (in red) in response to the rising inflation during the year.

    As we can see, the Fed’s actions have been sharper compared to that of the RBI. And whereas inflation does seem to have reversed its direction, it is still not under control. Hence the Fed may be forced to continue its upward policy stance, which means that the pain in the US markets is bound to continue for some more time. However, looking at the chart above, we can expect reversal of stance during the second half of the year, in the most optimistic scenario.  As soon as that happens, we can expect technology stocks to be the biggest beneficiary once again, since they have been beaten down the most during 2022. This is the opportunity that US investors should look forward to in 2023. Note that this very scenario had played out during 2021 on the back of which the icAdvisorUSA portfolios had outperformed the SP500 by more than 20%!

2023 outlook

    What can be look forward to in 2023? Here is IMF’s GDP forecast for the leading economies in the world for the coming year

    As can be seen from the above forecast, among all the large economies, India will be the only country that is expected to register a healthy GDP growth in 2023. The Center for Economics and Business Research (CEBR) has forecasted that India will become a $10 trillion economy by 2035. This translates to an average GDP growth rate of around 10% for India over the next 13 years. However, this forecast can be negatively impacted in 2023 by the unfolding of one or more or the following risks

• Covid surge in China spreads to the rest of the world, in a repeat of the scenario that played out during early 2020

• Ukraine war gets out of hand – either by spreading to other countries in the region or through  the use of nuclear/biological weapons

• Central banks over-tighten their monetary policy, delaying or even denying growth

• Higher interest rates and EMI burdens cause a mortgage payments crisis, similar to 2008

• European energy crisis impacts industrial output, leading to recession

• Higher bond yields cause fund flows from Equity to Debt

    Many of these risks are difficult to assess, leave alone forecast. The good news is that the collective intelligence of the market factors these risks into asset prices on a continuous basis. If any of these risks do occur, they may even create an opportunity for long term investors to accumulate quality businesses into their portfolios at rock bottom prices.

Summary

    In summary, 2022 was a nothing year for investors compared to 2021, when they experienced fabulous returns, both in India and in the USA. While 2023 holds out the promise for robust economic growth in India, stock market returns during the year may be subject to the unfolding of one or more global economic risks outlined above. Long term investors should widen their time horizon and look for opportunities to accumulate quality assets into their portfolio at every opportunity.
Meanwhile I am using this opportunity to reiterate the fundamentals of long term investing here, once again:

1. Asset allocation – Diversify your financial assets across Debt, Equity, Real Estate, gold, International Equity, etc. depending on your risk profile and age. Real Estate and Gold assets should ideally be used to satisfy consumption needs only. One simple rule of thumb to do this quickly is to subtract your age from 100. The number you get should be the percentage of your assets that you should allocate to equity - the rest should be allocated to Debt and other assets.

1. Financial planning - Identify your financial goals and classify them by time horizon – short term, medium term and long term. Use Debt assets to achieve short term goals, mix of Debt and Equity assets to achieve medium term goals and Equity assets for achieving long term goals. This will be the basis of your financial plan.

1. Reviewing your plan - Review your financial plan yourself or with the help of your advisor ideally once a year and make adjustments to your asset allocation depending on the prevailing market situation.

1. Invest right - When it comes to equity, invest in quality businesses with a reasonable margin of safety and then have the patience to allow the markets to give you returns. This calls for persistence in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.

    I also want to take this opportunity to thank you for putting your faith in our investment thesis and in our icAdvisor service with your hard earned money. Your continued trust makes us stay committed to the vision encapsulated in our tagline – ‘Growth through Knowledge’. I am available to address client queries at all times and am approachable via email or whatsapp. 

    Finally I wish you and your family a very healthy, happy and prosperous 2023 in the hope that our relationship will continue to strengthen and grow in the years ahead! 

Abhijit Talukdar

Founder, Attainix Consulting

SEBI Registered Investment Adviser - INA000006703