Wealocity's perspective on market happenings Monthly Market Commentary Sept '17

The Infy saga Indian corporates are not outstanding at corporate governance but certainly Infosys had a better perception among the investor community and is badly hit with the Sikka vs Founder tiff. To bring a perspective, MF industry held investments of Rs.21,285Cr in this stock as on 31st July '17 as per NAVIndia. Out of the 782 equity schemes, Infy was part of 421 schemes with the stock among the top 5 holdings in 222 schemes and is the top holding in 19 schemes. There was pressure to bring Nilkeni on board to set things right ASAP. Marking the Markets In the graph of NIFTY (Jan'96 - Jul'17) the green line represent the returns on a yearly basis where the biggest annual return is in the year '08-'09 when the Sensex delivered a stupendous return of almost 80% while in the very previous year the returns plunged to negative 53%. The least volatile year i.e. 2015, the volatility (orange line) was about 19% but the annual return was a negative 5%. This doesn't help us to conclude that every lower volatile year yields to lower returns. What we infer from this graph is that one shouldn't rely on past performance while investing and a systematic investment helps to counter the volatility. The North Korea Conundrum It's futile for the US to exert pressure on China unknowing the history of the alliance. It dates back to the Korean war where the Chinese forces fought against the South (even Mao's son lost his life) and to cut ties would be more than over optimism from the US admin. And the Chinese worry that any more stringent actions could lead to collapse of the regime, not a desirable outcome. Xi would be more worried if this could escalate in arms build-up in the region (Japan & SKorea) at odds with its policy The Russian Probe The relationship between the arch rivals has taken a further downward spiral with the accusations flying high about the Russian meddling of the US elections and the emails exposing incumbent family's involvement has co-mplicated things. Adding to the woes are the frequent attrition of WH staff. These digress the current issues that need attention - debt ceiling leading to a possible govt shutdown, tax overhaul, response to hurricane Harvey, Irma, etc. derailing the nascent economic upturn. The investor of today does not profit from yesterday's growth ~ Warren Buffet. Equity  The MF inflows continue to surpass the older records which touched Rs.20,000 Cr in Aug alone. The structural changes of demonetisation and GST have contributed to a bit of contraction in the GDP than anticipated. There's been a significant dip in the manufacturing and stagnant services probably due to de-stocking, though a recovery is anticipated while a slight tax base expansion is already witnessed. We continue to remain overweight on Equity though a staggered approach is recommended with a large cap bias. IT & Pharma continue to wander in woods while Infra seems to be attractive as a theme. Debt  With RBI's intervention in currency markets along with tight monetary policy has resulted in greater FPI inflows. The industry and household credit remained low providing a headroom for further rate cut.   Dynamic bond funds still suit investors with a longer time horizon due to their very nature of dynamism and flexibility.  Alternates  There's been a growing interest in the investor community on the crypto/digital currencies. We continue to remain cautious despite the announcements by various countries.   Investments in these could turn speculative and should be looked as such at this juncture. Greater penetration would surely entice Govts to take notice and could well restrict their growth.  Copyright © Wealocity, All rights reserved. Our mailing address is: dreams@wealocity.com Disclaimer: All the views expressed are strictly personal and we recommend consulting your financial advisor for making any investment decisions based on your risk appetite, timelines and goals.

Wealocity's perspective on the market happenings.                                                             Monthly Market Commentary Aug'17

Marking a milestone Life isn't a matter of milestones, but of moments. ~ Rose Kennedy. For the first time in its history, the NIFTY has crossed 10,000 and closed above it. It’s a very big psychological mark and the journey so far has been pretty interesting ala a rollercoaster from 1,000 in 1995 to 10,000 in 2017. However, during the same period the market capitalization has seen a 48x at a CAGR of 20% while for the investors it has delivered a 11% CAGR on the index. The first 1K increase was at the slowest pace taking almost 9 years while the next slowest is the journey from 6,000 in '07 to 7,000 in '14 about 7 years. The quickest 1K jump is from 5,000 to 6,000 in 2007 which took just 52 trading days while the next quickest is the race from 7,000 to 8,000. Elaborating further into the statistics, the index has hit new all-time highs twice in 2006, 2007, 2014 and in 2017. Do we see a third high or is this the last for this year? Time is the real judge! The landmark tax overhaul came at the start of July and it’s still creating jitters among the market participants. As most earlier thought, the initial hiccup didn’t seem to surface and seemed to be a smooth transition. The benefit/impact would nevertheless be felt only in the long run, the short to medium term gains would soon rationalize in the long run. Despite some hitches, the new system is in place and certainly needs tinkering which would be carried out by the committee.  The disastrously low bond yields across the world and the insatiable appetite for purchase of assets by the central bankers excepting the US Fed has resulted in deluge of liquidity into equity markets. Excepting the geo-political tensions of Indo-China border dispute and US-N Korea tensions, there isn’t any possible untoward surprises in store. Watch out for these flashpoints for future course on the liquidity movement and the asset allocation matrix. Equity The recent restrictions from the SEBI on ‘shell’ companies have created a chaos in the domestic bourses creating a knee-jerk reaction pulling the mid & small cap indices down. With the earning season not providing any hope, the latest move only provided a good reason for the retracement in the march by the stock markets. We believe a further down side and the disappointing company results could pull back a bit more in the short term and provide an opportunity to enter the market. We recommend continuing staggered entries to equities while taking potshots at dips. Debt The falling CPI and the rate cut by RBI has further diminished the gleam out of bank deposits. The MPC also continued its neutral monetary policy stance monitoring the pain points for possible inflationary cycle. With corporates wobbling in their performance, it’s become difficult to hunt for good bargain in the bond markets. The medium term (5-10yr) govt. bond are at an attractive spread over repo. Investors looking for better returns could explore dynamic bond funds though it would increase the risk profile owing the duration play in these funds. Copyright © Wealocity, All rights reserved. Our mailing address is: dreams@wealocity.com Disclaimer: All the views expressed are strictly personal and we recommend consulting your financial advisor for making any investment decisions based on your risk appetite, timelines and goals.

Recently one of my friends asked me to suggest a multi-bagger stock and I asked him to elaborate his requirement. Then he said that he could invest a large sum now and forget it for a long time and it should translate to a multi-fold return. Then I mentioned stocks like Wipro & Infosys that if one had invested couple of decades back could’ve made returns in exponential times, for which he inquired if there’re stocks like Eicher Motors & Bosch which have multiplied in less than 5years time. I gave up reasoning.

First one needs to understand that one can’t always end up getting a stock which is a phenomenal winner. While those who invested in the above stocks didn’t restrict their entire money into that. It was an allocation that went right while may be there’re many misses also. So, when someone thinks to strike gold by identifying one particular stock then probability of the success is nothing but chance.

Over the past 100 years, only one company featured in the Dow 30, the Dow Jones Industrial Average (DJIA) consistently and its General Electric. And nearer home, NIFTY, the 50-stock index had a churn of over 150 stocks in about two decades. That’s how competitive the businesses are and merciless the expectations are. So, to just identify one stock and invest all only into is not a great move for any investor. The Dow’s average age of its constituents is 111 years while that of the Nifty is a mere 46 years while the oldest company is about 121 years old (PNB) that of DJIA is DuPont at 214 years. Another stark point is the youngest companies of these indices is about 10 years for Nifty and over 30 years for DJIA.

The last statistic provides for a critical inference that the competition is heating up and the average age of the businesses is shrinking and also their time to succeed. We’re witnessing and living in the world where the trend of Unicorns (valuation of $1bn and more) and their rise within a short span of less than 5 years. So, with this backdrop, how could one make greater returns from stocks?

It might interest to bring an analogy of cricket (with the IPL fever alive) to understand the investment. When we watch some fabulous individual contributions by a player while over the same pitch at the same ground on the same day with the same opponent, their team members fail to capitalize, we wonder how this player had succeeded. We credit him with his technique, style and sense of responsibility but if these are so easily identified and measured then why couldn’t other emulate. There’re times the spectators, critics and the commentators would simply define this by using adjectives like talented or gifted. But, one common feature of that performance would be of little or no mistakes.

How to read that in the investment context? It means that the most rudimentary part of investment is about not making mistakes or avoiding them. This is critical than making the best of the investment decisions. This is what happens when investors are obsessed to find the top-performers in stocks or mutual funds. This leads the investor shuffle between the stocks/funds and not spend the required time to realize the benefits. It needs to be accepted that unless one is a genius or chance lucky, that always does end up with such multi baggers.

How to avoid the losers even if not making stellar returns? This is possible only by working with a stiff timelines and/or performance range. Simply put, one has to either have a targeted returns or time while investing in a stock. At each point when the stock hits the targeted level, needs to reassess to the holding limit (i.e. to add or shave off) and derive a newer target. In case of a MF, one has to make investments in a systematic or staggered manner with top-ups at any attractive levels while profit booking at advantageous times. This way one could not only make returns but also increase the investment pie.