- Wealth PMS (50L+)
[This is an excerpt from the May 2023 letter to Capitalmind PMS Customers]
April showed us early signs of happiness in stocks, with markets cheering the RBI not increasing interest rates and in general better earnings. Surge India’s been on a tear too, and the quarterly results have been quite decent across the board – both from a net profit and a revenue perspective.
Results as of May 7, but note that a large number of companies haven’t yet reported earnings.
Earnings are growing, and to an extent, liquidity is returning. After months of selling, foreign investors added 11,000 cr. in April, and in the first week of May, have already added another 17,000 cr. to equity markets. Domestic equity support has always been strong so you get a bump up just because of the lack of selling.
We spoke of this in the last letter: that the drivers of markets, beyond earnings, are liquidity and perception, and both are changing. Perception, though, seems to have gone on the other end of the spectrum. Everyone’s suddenly gushing about how India is a bright spot in the world economy, which as a fund manager, we have to accept is true. After all, optimism is a key feature of anyone managing money. (Or as someone recently said, “Pessimists are often right. Optimists are often rich.”)
But you can’t wear rose rimmed glasses. Mostly because they look terrible. But also metaphorically, you need to have an eye for the things we lag behind in. Here’s a bunch:
This isn’t comprehensive, but they are key areas that still need a lot more participation from India. Some part of it will be critical to generate jobs – when technology takes one job away, another will come in its place. But the rest of it is just to make lives better for the 90%+ of India that is simply not participating enough in the current growth.
But let’s bring back the optimism. Life is too short to agonise over what could have been, and what should have been. The great Terry Pratchett had this in one of his novels: “It is said that your life flashes before your eyes before you die. That is true, it’s called Life”.
We could all look at the negatives and predict a doomsday, but life happens while you’re looking and worrying. In investing, this appears to be more true – we often predict that the world will come to an end, and surprise, it never does.Things move on regardless, and stress does seem to make us stronger. Currently, three of America’s largest bank failures have happened in the last two months. The markets shrugged it off. The Swiss, famous for chocolates and banks, have seen the failure of their second largest bank. The markets decided they’d be ok. (But anyhow, please don’t mess with the chocolates). The US is staring, as it does every few years, at a debt ceiling that their political parties use as a reason to talk endlessly about what they need as a guarantee to allow the ceiling to be raised. And then, they raise it anyhow. Sure, there’s a hot summer – but there’s almost always rain. Even Covid, which brought the world to its knees, is now forgotten. (Btw, South Korea continues to have 20,000+ new cases per day, but no one cares)
We’ve become complacent, perhaps. But also perhaps, it’s meant to be that way; we fix ourselves.
Maybe we’re self serving, but so do stock markets. The eventual direction is up. In the middle there’s a lot of downs and “it’s over, it’s not coming back” type of thoughts. After a period of this kind of drawdown, we’ve always seen markets hit new highs.
That said, I’ve said this forever, and I’ll say this again: the only reason for money to exist is to be spent. Eventually, the money you create, or you invest, only has meaning if it’s used to derive your joys and happiness. Yes, you should have enough of it to not care about the little spends, but once you have enough, it should be used to give you joy. (People seem to be taking this seriously, looking at the airline ticket prices and hotel occupancy!)
Our goal is to get you there faster, to a point where you don’t need to worry. This is a good time to invest. I mean right now. There’s still scepticism, and there still may be a sharp downside, but the markets look very investable. I continue to add more to the PMS portfolios from my savings (I do that every month regardless). I’d encourage you to consider increasing your equity allocations, if you have been wondering when the right time is. (In the spirit of being less biased, invest through other vehicles or funds if you think that’s a better choice. Just commenting on the timing)
As you would have noticed, nearly all the “cash” in all portfolios is fully deployed now. Even the algorithms tell us that good times are here.
(On a happier note, we’ve renegotiated fees with our custodian yet again. ICICI Bank will reduce charges for us from May 1, which means you pay less as fees going forward!)
It’s May already. Let’s hope the rest of the results season gives us more cheer, but also, that there are more opportunities that open up for the giant that India will become. We’ll happily participate.