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Commentary

Happy Diwali 2019! Predictions and the Scorecard from Last Time

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It’s Diwali time again! Wish you and yours a wonderful Diwali 2019, and hope the year brings prosperity and wealth!

It’s also time for the annual game of predictions as well. Last time, we said a bunch of things, how did they pan out?

Speaking macro – the US markets are likely to see the benefit of economic growth but will slow towards the middle of next year as interest rate hikes take their toll.

The US did see the slowing and then held off on rate hikes, and after some serious twitter whining by Donald Trump, eventually cut rates and introduced a quasi-QE recently. (Read here about how they’ll do about $280 billion of repos) So I’ll count this as a +1.

A geopolitical problem will come and batter markets somewhat, and this is unlikely to be from India or the US. Possibly Europe, or Japan.

There are some geopolitical issues, but nothing that’s battered markets even somewhat. The issues have been with China-Hong Kong, which has hurt the HK market but not elsewhere. The situation in Turkey/Syria and the recent killing of Baghdadi are quite important, but not in markets. There is political unrest in Chile, Venezuela and Haiti, and there’s the whole drama around Brexit, but it hasn’t yet hurt the world markets. So -1.

India’s economy will recover but markets will be volatile until election spending kicks in. There will be a lot of drama and it may be useful to buy media companies, perhaps!

The economy hasn’t recovered – it’s still in a slowdown and it’s probably getting worse. There was a lot of drama, markets have been volatile, and no, it has been horrible to buy media companies!

Zee has fallen 50% in the year (though that wasn’t a media problem). So have DB Corp, Jagran, Network18, TV Today and so on.

So -1.

The NBFC crisis will be done and dusted by March, but there will be some points of extreme fear and some of the companies will be acquired or merged with others.

Haha. Only banks have been merged, and Gruh has merged with Bandhan Bank but of course it wasn’t a troubled NBFC. So this was perhaps a little too early. -1.

Corporate banks and lending will see a big revival. Corporates have deleveraged and over some time, they will have enough room to borrow more.

There is a pretty big revival in corporate banks like Axis and ICICI, but corp lending remains subdued. Banks that lent to real estate developers (Yes bank for example) are in a spot, and others like PMC Bank, which fraudulently lent too much to real estate, are in serious trouble. Corporate lending itself had actually seen a revival but not by much.

The Indian retail investor will return towards the middle of next year, and be a larger driving force than foreign investors for Indian stocks. But this will show up mostly in larger cap stocks, and midcaps/smallcaps still have a while to recover.

This has been true. Between April to September 2019, SIP investors (nearly all retail) have added more than 49,000 cr. rupees to markets. This is inspite of foreign investors exiting markets during this time. And indeed, the large cap/mid cap dichotomy has continued, with large caps doing much better than midcaps.

In the middle of 2019, RBI will start on the rate cutting cycle, as inflation remains low.

This is again a win, because RBI has cut rates five times in the year, starting from Feb 2019 at 6.25% which is now at 5.15% on the repo. Inflation’s remained less than 4% for most of this time.

The end score: everyone wins!

At Capitalmind we have seen a few changes!

  • We substituted ETFs for stocks in the large cap portfolio (See post)
  • We started with Momentum portfolio in Capitalmind Wealth and that’s been quite fascinating so far.
  • We even did an index portfolio at Wealth, with 0.25% per annum as fees, which has done well in that it had a chunk of the Nasdaq 100 ETF
  • We even did a brilliant fixed income portfolio at Premium

Now for this year

Let’s make some predictions for the year to come:

  • We’ll see an NBFC go down. This could involve merging it with others. Or that it enforces haircuts on people who have given it money. But that’s likely to happen in the next 12 months.
  • Revival in the Indian economy will be slow, but the next year will belong to mid- and small-caps, though there will be extreme volatility. The problem is that the revival will get beaten up and there could be multiple cycles of stocks falling and recovering.
  • Interest rates in India will fall further. Below 4.5%.
  • There will be at least one big account such as Essar Steel that is fully resolved through the bankruptcy court. Rules will be changed to remove discrepancies.
  • Stocks in the auto sector will rebound. They may not be valued as richly as before though. This is a good point to make a bet on a few of them.
  • Many of the quality names that have now reached 60+ P/E without much growth will see markets flatten them out. However, a deep crash will only happen if the stock markets crash.
  • I’m not betting on a big crash, but I believe we will see at least one -20% move down in the next 12 months.
  • The US and China will pretend to make up, and then break up, at least three times in the next 12 months.
  • Brexit will happen, and strangely, it won’t be as bad as it was thought about earlier.
  • If you were looking for stocks to buy:
    • Nifty 50 and Nifty next 50 ETF (1/3rd each, of your portfolios)
    • Nasdaq 100 (for the remaining)
  • How can ETFs be great, you ask? Well, they will be better than stock portfolios, for the most part. (except our own stock portfolio 🙂

Let’s see where those go next year!

At Capitalmind we are making a few changes:

  • We will be retiring Capitalmind Snap and Stratoptions . Some pages may still work but they will remain only for internal testing. The main reason is that we aren’t pushing much into the F&O space.
  • Current offerings of portfolios will be augmented with our fixed income portfolio (web page etc)
  • More of our podcasts! (www.capitalmind.in/podcast)
  • We’ll get a lot more content and advise around financial planning for the long term, even for premium members. Watch out for more on this front at Slack.
  • A lot more awesome content at Capitalmind (Free) and Capitalmind (Premium)

Capitalmind Plan (https://plan.capitalmindwealth.com) will see a major makeover. You will be able to build your own plans, save them, review them and even buy funds directly from us over the next year. The platform will be absolutely huge, and will help you build a simpler thought process for your longer term goals.

The focus for Capitalmind is to be a better advisor, helper and guide. In Capitalmind Wealth, we run a portfolio management service, which is geared towards low cost goal based automated allocation to stocks and fixed income. We will bring this to people who aren’t covered by the Rs. 25 lakh minimum that SEBI requires of PMS providers, into a mutual fund based, research backed portfolio for equity and debt allocations, fully automated through our tools! We’ll have this and much more!

Earlier Diwali Posts: