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