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.
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
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:
- 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.
- 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.
- 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.
- 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.
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