In our last communication on 5 May, we had shared that we need to be realistic in return expectations as monetary policy is reversing which will have an impact on multiples. We are seeing this play out as the market reprices risk. There is a higher probability vs the last few months that inflation will stay elevated and that developed world Central Banks will need to raise rates aggressively and that could push their economies into recession.
Read MoreConversations with partners over the past few days suggest some partners are not appreciating the change in monetary policy underway and what that means for future returns.
Hence, some points we have made earlier merit repetition.
Read MoreDear Partners:
In order that we can share our thinking on the current situation in Ukraine with all partners, we have put together a brief note that summarizes trends we see, their implications, and how we intend to act. I hope you find it useful.
A caveat. The situation is evolving and we typically see first order effects at present, but there will be second and third order effects which only become clearer with time. Hence, this note is “work in process”.
It is now clear that a macro risk (Russia/Ukraine) has become a known event. Not surprisingly the markets are selling off as new information is factored into prices.
No one knows how this will end or its short term implications. If anyone tells you they do, it tells you more about them than their forecasting abilities.
Read MoreTechnology buzzwords – “ML. AI. Blockchain. Platforms” are fueling investor delusions. We share 2 articles and also explain why we don’t own any “FinTech” as of now.
Technology buzzwords are fueling investor delusions
Read More“In life, the challenge is not so much to figure out how best to play the game; the challenge is to figure out what game you’re playing.” (Kwame Anthony Appiah http://appiah.net/)
CLSA is a reputed broking house. It published a report 2 days ago recommending investors book profit in India.
We agree with CLSAs that valuations in India, on aggregate, are stretched. In our last letter we mentioned, we were “cautious, but not bearish” and that because we have borrowed returns from the future, we could be in for a period of muted returns.
Read MoreYou may observe we are gradually slicing out of our Specialty Chemical positions to re-allocate elsewhere.
A key choice we need to make is whether to trim on valuation excesses or to let positions compound and accept incremental underperformance due to valuation de rating.
Essentially, what game are we playing?
Read MoreA question we introspect on significantly is whether the next stage of value migration in Banking will be from Private Banks to Digital players.
Our working hypothesis at present: well-run Banks will grow aggregate profits; however, their valuations will drift downwards as ROEs will decline.
Read MoreSharpe ratio seeks to determine risk-adjusted returns, or “returns per unit of risk”. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted-performance.
Solidarity’s Sharpe ratio since inception is ~2x that of the NIFTY. This implies for the same level of risk, we have delivered twice the return.
Read MoreThe most frequent question we get from partners is what do you think will happen to the market.
Bitter truth: it is the wrong question to ask because no one knows.
Why is this so? Because markets move due to multiple variables, not all of which are visible or predictable.
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