Sunday, January 1, 2023

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 %







Debt Long Duration


Debt Medium Duration


Debt Short Duration


Debt Ultra short


Debt Liquid


Nifty 50


Nifty 500


Nifty Midcap Select


Nifty Smallcap 100




icAdvisorIndia average


    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




icAdvisorUSA average


    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.


    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

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