Equity Advisory

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Sunday, 12 June 2022

Sit tight, fasten your seat belts and enjoy the bumpy ride :-)


Edited excerpts of communication sent to subscribers on 12-Jun-22

As I have mentioned in all my previous videos and emails in the last few months, the next few months are likely to remain extremely volatile. Markets will fall sharply and when people get really scared and you start hearing doomsday all around you, it will surprise everyone and turn around and rally for a few days. 

Markets, as is life, move in cycles. Sometimes, the times are good for us and sometimes they are challenging. The interesting part is people often forget this reality. In good times, they forget that bad times are ahead. And in bad times, they forget that good times are ahead. In Chinese, there is a concept of Yin and Yang. It talks about a system being composed of complimentary but interconnected or interdependent forces. Bull and bear markets are similar. 
What To Expect From The Market
There is a possibility of a sharp down move in the next month or so, probably led by global cues. However, it is a possibility only and not a certainty. You would have noticed that both in Hitpicks and Quant, we have a large part of the portfolio in cash. The reason is that these are short-term oriented and I would want to be a bit more certain of the overall market trend before committing fully.

In the long-term service, we have about 15% in cash. I am not inclined to sell more and go to cash aggressively even though the possibility of a sharp downswing cannot be ruled out. One reason for that is, as the name suggests, it is based on the long term, and most of the stocks do look good from a two-three year perspective and if I just ignore the immediate next one-two months of concern. So, the objective for me is to look out over a 1-3 year horizon in the long term service and calmly accumulate stocks which can give me a decent return over the next 2-3 years.

For those who are in our PMS service, you would have seen that we are deploying your capital in a slow, steady and systematic manner. We will continue to do so.
The Medium-to-Long Term Outlook
I am actually fairly positive. Maybe unusually so. I see a fair deal of optimism in the management of companies during concalls. As long as we don’t see another bout of Covid flare-up or a nuclear war or some such black swan event, the Indian economy actually seems to be on a very strong wicket compared to what is happening in the world around us.

Inflation is a concern, but 75% of Indian inflation is related to food and I expect it to come down with the monsoons. Inflation also will start cooling down once the base effect of last year kicks in. The rate hikes which everyone talks about are a non-event for me. We are just correcting the Covid era rate cuts. It is unlikely to have a great deal of effect on corporate growth. Bank credit to commercial enterprises is steadily going up signifying underlying recovery in the business.
The China + 1 theme is playing out very strongly on the ground in multiple sectors like chemicals, textiles, engineering and electronics. Over the next few years we are likely to see a silent out move of MNCs from China and into other sourcing markets like India, Vietnam, Indonesia, Malaysia etc. Covid and the Ukraine-Russia war coming back-to-back has necessitated a major strategic shift in single country sourcing. While this is going to be long term inflationary in nature, countries like India, with abundant manpower and natural resources can benefit.

A lot of sectors are looking good and some cyclical sectors are at the cusp of recovery - autos, real estate, infrastructure, engineering and capital goods, agrichem to name a few. My promise of some changes in the Long Term stocks still remains unfulfilled. I have multiple good stock ideas but am waiting and twiddling my thumbs because I think we will get a better entry point :-) 

As I mentioned in my previous mail, those who are doing SIP can continue to do so. Just spread it out a little bit more if possible. And if you are a bit active in the markets, try and buy a little on days when the world seems to be ending :-) 

My sense is that we are headed for a very good 2-3 year period once we cross this volatile period in the next couple of months. So, sit tight, fasten your seat belts and enjoy the bumpy ride :-)
  • My past article in The Economic Times somehow seems to have caught the fancy of a lot of people and I received a lot of mails, DMs and WhatsApp messages on it. You can read it here if you haven’t already: http://blog.intelsense.in/2022/06/investing-like-federer.html
  • Also, last week I shared some views on the LIC IPO on ET NOW 9pm news. You can watch it here: 
LIC IPO - What to do now?

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