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.
Read MoreWhat risk in the market do you worry about the most at present?
Markets seem to be ignoring the risk of significantly higher inflation down the road and abrupt change in monetary policy. At present, the markets are complacent that the US Fed will not raise interest rates in the short term and are justified in this because the US Fed, the most important Central Bank in the world, is still buying USD 120 B of Bonds monthly which keeps long term interest rates low. However, company after company is reporting higher inflation in the US even as economic growth in the US is surging.
Read MoreCommentators are wondering why the Indian stock market is “shockingly resilient” amidst the devastation caused by the Covid second wave. Their premise is that Covid’s second wave is causing significant devastation and death. 2021 GDP growth has been downgraded. Rising raw material prices will erode margins. The virus has spread across the country and will cause massive unemployment. Analysts have started downgrading estimates. Stock price valuations are 2X of China. So why has the market fallen only 5% since February?
Read MoreIn our last blog we explained we don’t intend taking cash calls just because markets may seem overvalued.
In this note we provide more rationale for the same. Even if one was to get market timing – selling and re-entry – both legs perfectly right, and that is a big assumption, the net impact on your incremental IRR vs staying invested is marginal.
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