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

The Ukraine crisis - what to do now?

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.

Warren Buffett

We seem to be living in a crisis ridden world nowadays. Just when the financial crisis unraveled by the Covid pandemic, that has ravaged entire economies and destroyed livelihoods worldwide, seemed to be coming under control, a new crisis has overtaken us. To be sure the Ukraine crisis has been simmering for a long time – just that it has taken war like proportions only now. As of the time of writing this post, there are reports of bombings in many cities in Ukraine by Russia and NATO members are in an emergency meeting to plan an appropriate response. Sanctions will be imposed on Russia by the NATO member countries no doubt – the question is whether they will also follow it up with a military response. If so, that could quickly escalate into a world war and the markets are fearful of this exact possibility.

Stock markets worldwide are deep in the red today in response to this crisis. The Nifty has corrected over 11.3% from the top with 4.5% of that correction coming just today. Many individual stocks have corrected much more than the Nifty. The point to note, however, is that the Nifty correction today is the fifth highest in the world markets after Russia (29%), Poland (10.3%), Turkey (8.7%) and Austria (6.4%). The reaction of the Indian market seems to suggest that the Russian invasion of Ukraine will have a significant impact on Indian businesses and Indian markets. There will be a ripple effect of this crisis on Indian also no doubt but I for one am not convinced that it will be on the same scale as that on the other East European countries. The days ahead will tell us more for sure.

But this crisis is not very different from the one that struck us in March 2020 during the onset of Covid. The markets had corrected steeply at that time too because of the fear of the unknown only to recover much more than the correction. The same pattern is repeating again now. Those investors who panicked in March 2020 and liquidated their holdings found it difficult to go back into the markets again at an opportune time. Consequently they probably lost more money than those investors who stayed invested during the crisis.

What to do now?

1. First of all – do not panic. Realize that this crisis has affected every stock market worldwide only because institutional investors do not like uncertainty. They pull out their money in the face of uncertainty only to come back in again with greater momentum when certainty returns.
2. Retail investors do not have the means to time the market and should avoid trying to do so anyway since it is a futile exercise. Rather, retail investors should remind themselves that they are invested for the long term and have time on their side. With the passage of time, every crisis will eventually resolve itself.
3. This is also a good time to review your asset allocation, which may have become distorted due to the correction in the stock markets. Moving some part of your debt allocation to equities in order to restore your asset location may be a good idea at this time 
4. The correction has also created many opportunities – because good businesses are now available at lower prices than before. If more correction follows, their prices will become even more attractive. If you already hold such good businesses in your portfolio, you can accumulate them if you have extra cash. If not, just sit tight and let this crisis pass 
5. Inflationary fears are also looming large since oil prices are climbing swiftly due to this crisis. Rising interest rates will increase the cost of borrowing for growing businesses. Therefore at this time you should prefer businesses where the Debt to Equity ratio of the business is reasonable.

If you still have questions or doubts, reach out to your SEBI Registered Investment Adviser who will be guide you through this patch of global turbulence.

2021 - Letter to Clients

 

2021 started out as a year of hope against the Corona pandemic that had ravaged the world during 2020. Various vaccines appeared at the start of the year with the promise to protect humankind against this virus. In tandem, Governments across the world started the mammoth process of rolling out these vaccines in right earnest. As the rollout of the vaccines gathered momentum, economic activity and market confidence also recovered slowly. But just three months into the year, the lethal Delta variant of the Corona virus struck, not only infecting a large number of people but also inflicting a large number of casualties. The markets reacted accordingly and corrected sharply in the face of this new threat. The world community learnt to deal with the threat of this variant over the course of the next six months. The pace of vaccination coverage also increased slowly and correspondingly the markets also recovered over the course of the rest of the year. But just as the situation started inching towards normalcy, the highly contagious Omicron variant appeared right at the end of the year. The impact of this variant is still unfolding as I am writing this post. 

India markets

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

Asset class	2021 return %
Gold	-5.19
PPF	7.10
NSC	6.80
Debt Long Duration	3.57
Debt Medium Duration	4.87
Debt Short Duration	4.08
Debt Ultra short	3.48
Debt Liquid	3.2
Fixed deposit (1 year)	5.0
Nifty 50	24.12
Nifty 200	27.47
Nifty 500	30.19
icAdvisorIndia average	56.12

Gold lost its sheen during 2021 after blockbuster returns in the previous two years. Returns from debt instruments were also suppressed during the year. Equity instruments gave the best returns during the year as indicated by the three Nifty broad market indices above. However it is a matter of great personal satisfaction for me that the average performance of all icAdvisorIndia managed portfolios during the year clocked in at just above 56%. This was more than twice as much as the Nifty itself. Here is how many of our client portfolios outperformed these three indices in percentage terms during the year

Index	% folios outperforming the index
Nifty	88.9
Nifty 200	88.9
Nifty 500	88.9

The Nifty saw three trends during the year – a big downtrend at the start of the year followed by an even bigger uptrend for the rest of the year. A small correction was also seen in the last two months of the year.  The quantum and duration of these trends were as follows:

Trend	Quantum%	Period
Downtrend	-39.6	Jan to Mar
Uptrend	148.1	Apr to Oct
Downtrend	-6.6	Nov to Dec

These three trends can be easily seen in the daily chart of the Nifty during 2021 below..

USA Markets

Turning to the US markets now, the SP500 which is the most popular broad market index there did very well in 2021. However, the icAdvisorUSA folios performed even better as shown 

Asset class	2021 return %
S&P 500	26.89
icAdvisorUSA average	32.42

And here is how many of our client portfolios outperformed the SP500 in percentage terms during the year

Index	% folios outperforming the index
S&P 500	75.0

The S&P 500 also saw three trends during the year – a big uptrend at the start of the year followed by a correction and then another uptrend for the rest of the year as shown below

2022 Outlook

What can be look forward to in 2022? Here is IMF’s GDP forecast for the top ten leading economies in the world for the coming year

As can be seen from the above forecast, among all the large economies, India, China and USA will be the top three fastest growing economies in 2022. This forecast of GDP data can also be correlated and confirmed with the following data point which shows the Unicorns by country in the past eighteen months in the top five economies

Summary

In summary, 2020 was a difficult year and 2021 compensated for that by giving fabulous returns in the stock markets in both India and the USA. While 2022 holds out the promise for robust economic growth in all the leading economies, stock market returns during the year may be more muted just to account for the higher base effect.

Meanwhile I am taking this opportunity and reiterating the fundamentals of long term investing and enumerating them here for quick reference:

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 and then have the patience to allow 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 2022 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