Saturday, February 26, 2022

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.

Wednesday, January 5, 2022

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

Sunday, January 3, 2021

2020 - Letter to Clients

 



2020 is a year which all of us who have lived through it will remember for a very long time. At the start of the year, ‘pandemic’ was a term that to the vast majority of us was a word restricted to the dictionary. But by the end of the year, that changed drastically as it became a household syllable. All of us can righty claim to have lived through a pandemic now. The Covid19 pandemic affected every aspect of every one’s lives all around the world. This virus originated in Wuhan in China in late 2019 and just three months later it had spread around the entire world. So rapid was the spread of this virus that governments worldwide had to resort to complete lockdowns of various durations in order to stop it from spreading and multiplying further. City after city around the world started resembling ghost towns due to lockdowns, and entire economies worldwide came to a grinding halt. In this scenario, investors resorted to safety and flocked towards Gold. Consequently Gold became the star performer for the second year in a row. Here is how various asset classes performed during 2020 in India.

Asset class

2020 return

Gold

27.00

PPF

7.10

NSC

6.80

Debt ultra short

5.13

Post office 3-year deposit

6.90

Debt Liquid

3.96

Fixed deposit (1-3 years)

5.30

Nifty 50

14.90

Nifty Midcap 100

21.87

Nifty Smallcap 100

21.47

 

 

icAdvisor average

39.71


That Gold gave the best return amongst the above asset classes during the pandemic was not that much a surprise. The bigger surprise was that the Nifty managed to give a positive return at all. The pandemic had so scarred investor sentiment during March and April that the turnaround during the rest of the year was nothing short of sensational.  In the midst of all of this, I am happy to report that the average performance of all icAdvisor managed portfolios during the year clocked in at just short of 40%. This was almost thrice as much as the Nifty and about twice as much as the Midcap and Smallcap indices. Here is how many of our client portfolios outperformed these three indices in percentage terms during the year

Index

% folios outperforming the index

Nifty

88.46

Nifty Midcap 100

80.77

Nifty Smallcap 100

80.77


The Nifty saw two 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. The quantum and duration of these trends were as follows:

Trend

Quantum%

Period

Downtrend

-38.6

Jan to Mar

Uptrend

80.4

Apr to Dec


These two trends can be easily seen in the daily chart of the Nifty during 2020 below.



Nifty ended the year at a PE of 38.45, very close to its lifetime high of 38.55 reached the very next day! At these dangerously high PE levels Nifty stocks have only two possibilities – either deliver increased earnings to justify the stratospheric PE or face a price correction. The December quarter results which are starting later this week will be interesting to watch from this point of view. 

On the economic front there was bad news all around. Annual GDP growth went into negative territory for the first time in decades. GDP growth slumped to -23.9% for the April-Jun quarter and then improved slightly to -7.5% for the July-September quarter. Two quarters of consecutive negative growth implies that technically we are in a recession. It is in this context that the GDP numbers for the October-December quarter are keenly awaited. Unemployment continued to be high and GST collections also slipped during the year. These and other indicators have put the Governments target of $5tn economy by 2024 at serious risk, to the point that no one is even talking about it anymore. The focus at the moment seems to be to stop the spread of the pandemic so that the economy can recover back to normal. The problem created by the pandemic was compounded by China’s military expansionist activities in the Ladakh region. This forced the Government to move military resources heavily into that region, putting further stress on the finances of the Government. The upcoming annual budget will be interesting from this context. 

What can be look forward to in 2021? Here is Nomura’s GDP forecast for leading economies in Asia for the next two years

Nomura predicts that India will be the best performing economy in Asia in 2021, growing at 9.9% which will be even faster than China’s 9.0%. The stock markets have run up already in anticipation of this forecast and Nifty has hit a lifetime high at the end of the year. Quality Midcap and Smallcap stocks have run up even more than the Nifty. Hence the entire market is very costly at the moment in anticipation of this high growth. The December quarter results will give us a glimpse of which stocks will be at the forefront of this growth.

At the end of this difficult year, it is a good idea to take a moment and review the fundamentals of long term investing. We enumerate 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 at least 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 having patience even in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.
I 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 2021 will also be the year where the focus will shift from the pandemic to vaccinating the population. It is in this context that I wish you and your family a very healthy, happy and prosperous Happy New Year 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