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

Investing lessons from the COVID pandemic

 2020 has been an eventful year for investors – one that they are unlikely to forget anytime soon in their lifetime. In many ways it has been similar to 2008, the only difference being that both the downside and upside in 2020 has been much more rapid than in 2008. Surely 2020 is one for the ages – tales about the pandemic and how investors first lost money and then made more money will be narrated to progeny on many a dinner table. So what investing lessons can we take from this pandemic? Here are some that I have put together in no particular order.

• Take volatility in your stride

Stock markets are volatile in the short term. That is because all kinds of people – from traders to Institutional Investors with different time horizons – are plugged into the markets every day, each one trying to work it for their own benefit. Consequently ups and downs are a natural attribute of the stock market. Hence do not be perturbed by volatility. Learn to ignore it or if possible even take advantage of it – to invest even more on every significant correction. 

• Invest for the long term

Remember that behind every stock that is trading in the market, there is a real business that is serving real Customers and generating real revenues. As long as the overall economy is growing (which it will, because this is a common objective of all Governments worldwide), many of these businesses will prosper and grow faster than the economy and will be rewarded by the stock markets. This takes time – months and even years. Always invest for the long term and have the patience to let the markets reward your conviction.

• Stay Diversified

In the past 20 years, not a single investment asset class — Large Cap Stocks, Small Cap Stocks, Real Estate, International Markets, Gold to name a few — had the best returns in back-to-back years. Each year the best investment category flip-flopped. Staying diversified, as per your recommended asset allocation, gives your portfolio the best chance to benefit from all asset classes in the long term

• Focus on Asset Allocation

Long term wealth is created not so much from superlative returns in the stock markets as much as from a judicious mix of asset categories in your portfolio. Assets such as Debt, Real Estate, Gold, etc. have their days in the sun and are also capable of generating superlative returns. Hence always focus on the asset category mix of your portfolio in order to generate wealth for the long term.

• Rebalance your portfolio regularly

Business performance changes over time with changing market conditions. For instance, in 2020 Technology stocks have done very well due to the high demand for Work from Home whereas Airline stocks have languished due to the diminished travel demand. If you could have foreseen this change in March/April 2020 and rebalanced your portfolio accordingly, it would have performed very handsomely at the end of the year. At this time technology stocks have run up too much and further upside may be limited. This may create demand for value stocks once again. Hence rebalancing your portfolio for this change may help you in 2021.  

So there you have it – a mini capsule of investing lessons from 2020. These lessons are not revelations – they have been repeated ad nauseam by various investment experts using different words and sentences. Yet many of them remain in theory and rarely get implemented in their true spirit. This is where an Investment Adviser can help. If you are not able to implement these lessons on your own, then consider hiring an expert to advise you on your portfolio and be by your side to help you navigate the markets ups and downs. 

Corona pandemic – rebalance your portfolio now

Only when the tide goes out do you know who has been swimming naked.

Warren Buffett

We are now in the 13th day of a three week lockdown in India that is being enforced by the Government to arrest the spread of the global corona pandemic which has gripped the entire world. The speed with this virus has spread all over the world is truly terrifying. But perhaps it indicates how much people are on the move nowadays, and how much more they have to travel regularly in today’s commercial world. As of today more than 90 countries and half of humanity is in complete or partial lockdown all over the world! This is because the most effective way of stopping this virus from spreading is to maintain physical distancing from everyone else.

As I had mentioned in my previous post, lockdowns may stop the virus from spreading but they have economic consequences. Shutting down businesses means people lose jobs. The Government is urging many employers to let their employees work from home. While this is eminently doable for services business, it is hardly possible to implement work-from-home in the manufacturing sector. Even if people do not lose jobs, their income will be curtailed in the short term reducing their purchasing power thus negatively impacting the economy. Governments have announced major fiscal stimulus packages in anticipation of such economic slowdowns. There have been debates in some countries whether the economic cost of a lockdown will be more than the damage caused by the virus itself. That is why the response of Governments around the world to this virus has been different. This is illustrated nicely in the chart below

Notice that India is highest on the stringency scale and lowest on the fiscal stimulus scale on this chart. What does this imply – in short it means that India has the best chance among all these countries to be the least affected (economically) by the virus. And in case India’s containment strategy falls short, the Government has more room to announce more stimulus packages in the future. As of today, when I compare the corona virus numbers, India’s strategy seems to be working - touchwood. Notice also that China which adopted a less stringent policy than India has already started coming out of the lockdown and has started resuming normal manufacturing activities, in less than three months. You can extrapolate this to estimate yourself how soon normal life will start resuming in India.

The United Nations estimates that only China and India, among the large economies, will come out of this pandemic with a positive GDP growth rate. The rest of the world will go into a recession. The chart above certainly gives credence to this forecast. If you also believe that the India growth story - while impacted in the short term - is going to be largely intact in the medium and long term, then this is the right time for you to do the following:

• Review your portfolio now and rebalance it to invest into those businesses that will be the beneficiaries of India’s growth story.
• Review your asset allocation. It is likely that your exposure to equities has fallen due to the correction in the stock markets. This is the time to restore your asset allocation by moving some money from debt to equities.
• Diversify your portfolio as per your own risk profile. Be aware that too much diversification may negatively affect your returns.
• Keep at least six months of living expenses in cash/liquid instruments. 
• Finally, stay calm and stay invested.

Having said all of the above, Be aware that this is the time to be aware and alert. There is no room for complacency, because of the possibility that the situation may get worse before it gets better.

2019 - Letter to Clients

After a lackluster 2018, 2019 turned out to be another difficult year in the stock markets for Indian investors. Here is how the year panned out for various asset classes during the year.

Asset class	2019 return
Gold	23.8
PPF	7.90
NSC	7.90
Debt ultra short	6.92
Post office 3-year deposit	6.90
Debt Liquid	6.32
Fixed deposit (1-3 years)	6.25
Nifty 50	12.02
Nifty Midcap 100	-4.32
Nifty Smallcap 100	-9.53
icAdvisor average	-2.84

No one could have guessed it at the start of the year, but Gold was the star performer during 2019. Appreciation in Gold, an unproductive asset, normally signals a defensive approach by investors. The stock markets were anything but defensive though. The Nifty started the year at 10,862 and ended it at 12,168 – giving a healthy return of 12.02% in the process. The Nifty Midcap 100 and Nifty Smallcap 100 on the other hand gave negative returns of -4.32% and -9.53% respectively. This was the second consecutive year when these two indices gave negative returns. This means that investors with growth portfolios in the midcap and smallcap space will have to increase their investing timelines in order to first break even and then generate a positive return. As far as our icAdvisor advisory service is concerned, the annual return of client portfolios under our advice clocked in at -2.84% this year. More than 90% of our client portfolios are Growth oriented and with this constraint we were still able to outperform both the Midcap 100 and Smallcap 100 indices. Here is how many of our client portfolios outperformed the three indices in percentage terms

Index	% folios outperforming the index
Nifty	32
Midcap 100	68
Smallcap 100	79

 2019 was also a year which was marked by a peculiar trend – large cap quality stocks that were already costly became more costly at the expense of quality midcap and smallcap stocks, which were shunned by investors as being too risky. This led to a situation where the Nifty ended the year at a PE of 28.3, very close to its lifetime high of 29.9 and two standard deviations away from its average of 19.8. 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 qtr results which are starting later this week will be interesting to watch from this point of view.

In terms of trends the Nifty once again saw three broad trends during the year – two uptrends and one downtrend. The quantum and duration of these trends were as follows:

Trend	Quantum%	Period
Uptrend	14.3	Jan to Jun
Downtrend	-11.9	Jun to Oct
Uptrend	15.0	Oct to Dec

This can be seen visually in the daily chart of the Nifty during 2019 below

The previous year also witnessed three broad trends in the Nifty and 2019 continued this trend. Consequently volatility remained high during the year. In response to this volatility we continuously advised our Clients to sit on cash whenever possible. During the end of the year we saw the emergence of a new trend although in small proportions – booking profits in stocks that had run up way too much and investing into quality names in the midcap and smallcap space. 2019 was also marked by a lot of upheavals in individual businesses, notable among them being DHFL, Mcleod Russell, Cox and Kings, Thomas Cook, Yes Bank, Sintex, Reliance Home Finance, Reliance Communications, Café Coffee Day, Jet Airways, Reliance Power, Reliance Capital, Jain Irrigation, Lakshmi Vilas Bank, Vodafone Idea and HDIL amongst others. All of these stocks lost more than 80% of their market cap during the year. It was perhaps the consequence of this kind of literal carnage in so many stocks that investors flocked to quality large cap names and kept pushing up their price to stratospheric levels!

On the economic front there was bad news all around. The GDP growth rate slumped to 4.5% during the year, the lowest growth rate in decades. Unemployment continued to be high and GST collections also slipped during the year confirming a slowing down of the economy. These and other indicators have put the Governments target of $5tn economy by 2024 at serious risk. On the bright side, the Government was active in acknowledging the problem and took many remedial steps to reverse the trend including a lowering of corporate tax. The cumulative effect of these measures is likely to show result in the next couple of quarters.

What can be look forward to in 2020? The Indian economy has slowed down but the Government is making all efforts to revive it once again. The fact that the elections are behind us and that there is a stable Government at the center with an even larger mandate is assuring for investors. The stock markets have run up already in anticipation of the moves made by the Government. Quality large cap stocks are trading at stratospheric levels and are due for a correction unless their December quarter earnings support their high prices. Quality Midcap and Smallcap stocks however are looking very attractive at the moment. This I believe will be the sweet spot for 2020.

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, etc. depending on your risk profile and age. Real Estate and Gold assets should be used to satisfy consumption needs only. It means that your financial assets should be invested only across Debt and Equity. 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.
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 your advisor at least once a year and make adjustments depending on the prevailing market situation.
4. Invest right - When it comes to equity, invest in quality businesses and then give markets time to give you returns. This calls for patience in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.

I want to inform all my Clients that during the year we made further improvements to our stock picking algorithm. These improvements include using advanced technical indicators in addition to fundamental indicators to ensure that we get the timing of investments right also. I believe these improvements are already working in favor of our Clients.

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, let me wish you and your family a very happy and prosperous Happy New Year and hope that our relationship will continue to grow for many years to come!

Abhijit Talukdar

Founder, Attainix Consulting

SEBI Registered Investment Adviser - INA000006703

2018 - Letter to Clients

After the stellar run of the stock markets in 2017, 2018 turned out to be somewhat of a damp squib for Indian investors. Here is how the year panned out for various asset classes during the year.

The Nifty started the year at 10,533 and ended it at 10,863 – giving a meager return of 3.14% in the process.  But at least it gave positive returns. The Nifty Midcap 100 and Nifty Smallcap 100 on the other hand did much worse, giving deep negative returns during the year. In comparison, the average annual return of client portfolios under our advice clocked in at 2.29% this year. Considering that our client folios are made up of a mix of Largecap, Midcap and smallcap stocks depending on the client’s risk profile, this performance was very satisfactory. Inflation was at 4.7% during the year which meant that only the relatively safe asset classes beat inflation during 2018 – none of the equity classes did so, as shown by the table above. 2018 was therefore the year of safety - but more importantly it was also the year of volatility. There were three major trends in the stock markets during the year – two on the downside and one on the upside. The quantum and duration of these trends were as follows:

This can be seen visually in the daily chart of the Nifty during 2018 below.

Although volatility is a basic attribute of the stock markets, high volatility of this kind spooks retail investors and scars them for life. As for our part, we saw the first downtrend coming in early Jan and advised our clients to sell major portions of their portfolio and sit on cash at that time. We got them back in the market after April when the results of the quarter started coming in. This action benefitted all our Clients. However, we missed catching the next downtrend which started in early September, primarily because it was not a systemic downtrend – rather it was based on fears about risk in the NBFC space triggered by default of IL&FS – a leading lender to the infrastructure sector. The extent and impact of such sector specific risks are always difficult to assess but the markets always take a safe route by first pushing prices down and then analyzing the impact. Since none of our Client folios had investments in the NBFC space we considered it prudent not to react to this kind of downtrend but rather ride it out. In hindsight we can say now that this approach did not do too badly for our Clients.

On the economic front, the year was characterized by high crude oil prices (which moderated towards the year end), inflation fears, fiscal slippages and systemic liquidity concerns. State elections in five major states during the year also made the market nervous. SIP inflows into equity mutual funds continued at an increasing pace reaching a run rate of billion dollars a month by the end of the year, despite high selling by foreign investors. These flows found their way mostly into largecap stocks leading to their stability at the expense of midcap and smallcap stocks.

What can be look forward to in 2019? For one, the Indian economy continues to be the fastest growing economy in the world growing at a rate of 7.2%. It is poised to become the fifth largest economy in the world this year overtaking the UK in the process. The central elections are due in May 2019 and this will be a time when we can expect some nervousness and volatility in the markets. If the elections throw up a majority Government, then the markets will settle down and could even start a rally. If on the other hand the elections throw up a fragmented mandate then we could be in for a long phase of consolidation. At this point the best thing to do therefore is to stay invested. Investing is a long term game and those who stock to their convictions during difficult times get rewarded by the stock markets ultimately.

At the end of such a difficult year, it is well worth the time 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, etc. depending on your risk profile and age. In the current scenario, real estate and gold are no longer sources of capital appreciation. Hence these assets should be used to satisfy consumption needs only. It means that your assets should be spread only across Debt and Equity. 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.
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 your advisor at least once a year and make adjustments depending on the prevailing situation.
4. Invest right - When it comes to equity, invest in the right businesses and then give markets time to give you returns. This calls for patience in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.

Finally, I want to inform all my Clients that during the year we made optimization improvements to our stock picking algorithm based on observations and our own backtesting. These improvements will ensure that we pick long term winners that have a high probability of returning generating alpha for our Clients. Having said that I have to add that there is always scope for further improvements in our stock picking and monitoring process and with the help of the active support of our Clients we will keep working diligently on such improvements. I also want to thank all my Clients whose active support and trust in us got recognized by Silicon India magazine in their 2018 ‘Consultant of the Year’ award to us.

In passing, 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 believe that we can grow only when you see value in our service and growth in your own portfolios. I am available to address client queries at all times and am approachable via email or whatsapp. I am also open to feedback and suggestions and welcome you to provide the same. I also hope that if you have benefitted from our service, you will spread the word to your own friends, family and colleagues and have them share the benefit as well. 

Finally, let me wish you and your family a very happy and prosperous Happy New Year and hope that our relationship will continue to grow for many years to come!

Abhijit Talukdar

Founder, Attainix Consulting

SEBI Registered Investment Adviser