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 More
A 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 More
Sharpe 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 More
What 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 More
Commentators 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 More
In 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.Read More
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 More
Over 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 More