4 common questions we have recently been getting
1. Is this still a good time to enter markets?
2. Will you invest all additional capital at present?
3. Will you take some cash calls because markets have run up so quickly?
4. Will you rejig the portfolio as cyclicals may do better short term?
Read MoreOver the last few years, traditionally defined “Value” stocks have continued to get cheaper while “Growth” oriented cos have done very well. The divergence is stark and is now prompting questions whether Value Investing is dead.
The categorization of stocks between “Growth” and “Value” is erroneous. Anything that is low PE multiple and out of favour with markets is typically labelled “Value” and anything with high multiples and fast growth is labelled “Growth”.
Read MoreSEBI came out with new guidelines last evening where Equity Multi-Cap Funds now compulsorily need to invest at least 25% of their corpus in “Mid Caps” (firms ranked between 101-250 in pecking order of Market Cap) and another 25% in “Small Caps (firms ranked 251 or higher in pecking order of Market Cap). This needs to be achieved by 31 Jan 2021.
In this note we want to address the following issues
a) How did SEBI get here?
b) Our view on this order
c) What this order means for Small and Mid-Caps in the short term?
Read MoreWe are in the midst of an economic shock. India has not been able to flatten the curve and the number of infections continues to rise. There is no visibility of a vaccine or a cure. SMEs are in distress. Neighbourhood shops are doing very little business, if any at all. Yet stock prices seem to ignore market conditions and have reached the levels of February 2020.
What is going on? Are markets ahead of themselves? Should Solidarity be taking a cash call at present to preserve some of the gains?
Read MoreWe have had a few conversations with partners on why we are reluctant to take a 20% cash call at present despite the current uncertainty to re-enter when prices are more favourable. I thought it may be appropriate to share our thought process with all our partners.
I want to separate the question into 2 parts
a) The cash call on “Asset Allocation” – which is for partners to make
b) The cash call on “portfolio construct”- which is for Solidarity to make
Read MoreWill the lockdown in India end on 17 May or will we as a country go deeper into “economic hara-kiri” ? (Anand Mahindra)
The first lockdown was perhaps right. In the fog of war, you have to act decisively till you figure out a course of action. However, post mid-April, we seem to acting more out of fear, than with “systems thinking”.
Read MoreIn trying to optimize short term performance and also long term performance simultaneously is a very hard game to play. We can choose to be smart in the short term or in the long term – but can’t choose both. It’s a rare genius that can trade short term and invest long simultaneously. Most people who claim they can do this lie about their returns.
Read MoreFranklin Templeton Mutual Fund, on Thursday announced it would wind up six credit funds with a large exposure to higher-yielding, lower-rated credit securities.
Why did they do so? The Corporate Bond markets in India are fairly illiquid. FT schemes have got impacted because they invested in papers with low credit rating (they actively took on credit risk).
Read MoreAs a follow up on the 2 scenarios we shared earlier on 18 March, the scenario likely to play out is perhaps something between Scenario 1 and Scenario 2 that we envisaged. No one knows, “for sure”, the road map to normalization. We are likely to see 2 steps forward and 1 step back approach based on “trial and error”.
Read MoreEvents of the last month provide significant lessons. We have been introspecting on what we could have done differently – and there will be a time to share that with you.
However, I want to share a few other observations with you today which are topical before the event passes and memories fade.
1. The only way to protect yourself from “tail risks” is through Asset Allocation.
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