MyWay Wealth Weekly Update (Issue #30): Decoding the elections, corporate earnings revival & more

“If you can keep your head when all about you Are losing theirs and blaming it on you,”
“Yours is the Earth and everything that’s in it, And—which is more—you’ll be a Man, my son!” ~Rudyard Kipling (If, 1910)

The above verse is an excerpt from Rudyard Kipling’s collection and often quoted as Warren Buffett’s favourite poem that keeps him going through volatile times.

With many investors getting worried about the upcoming election results and the uncertainty it brings to the Indian political backdrop and consequently in the stock markets, this poem definitely offers some guidance.

Here’s an interesting perspective to how markets have reacted during the pre-election and post-election seasons in the past 38 years (10 General Elections).

Prima facie, one may concur either one of the following:

  • 70% of the times, SENSEX has either recovered from the pre-election slump or posted a growth spurt
  • 30% of the times, during problematic election results (eg: hung parliament), SENSEX dipped further

So, here’s the idea. Elections come & go, each time elections happen there are two events that manifest every single time – we always get a government and two, life goes on!

Equity, at a very basic level, is nothing but a part of a business and businesses do not come and go with elections. Businesses are here to stay, grow and create wealth.

And if you look at Q4 earnings this week, you’ll notice that we are perhaps at the cusp of an earnings revival and equity outperformance that comes along.

Company Name
Q4 Earning Result Date
Commentary
Results vs. Analyst Expectation
HDFC Bank
24-Apr-19
Reported a record quarterly net profit of 58.85 billion rupees ($848 million)
Reason: High fee & interest income
Beats Estimates
Ultratech Cement
24-Apr-19
Reported a quarterly net profit of INR.1,017 crore 
Reason: Acquisition of Binani Cements
Beats Estimates
Maruti Suzuki
25-Apr-19
Reported a quarterly net profit of INR.1,795 crore 
Reason: High foreign exchange rates and commodity prices
Beats Estimates
Axis Bank
25-Apr-19
Reported a quarterly net profit of INR.1,505 crore 
Reason: Provisions & Contingencies dropped by 62% Y-o-Y
Did not beat estimates
Tata Steel
25-Apr-19
Reported a quarterly net profit of INR.2,295 crore
Beats Estimates
Yes Bank
26-Apr-19
Reported its first-ever quarterly loss at ₹1,506 crore 
Reason: Total provisions during the quarter increased more than nine-fold. Bank has outstanding loan to Il& FS group
Did not beat estimates

 

For those wondering if it is the right time to invest given that elections are in progress and markets are volatile, here are my two cents:

Ask yourself another question – when would it be the right time to invest?
After the dust settles?
When will the dust settle? And, will it ever settle?

Equity markets are structured to be volatile and volatility is where real profit is made.

Governments come and go, but equities continue to grow.
Why sit on the fence when the field is so opportunistic?

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If you have any concern, please write to us at ask@mywaywealth.com or call at 080 48039999we would be happy to answer your query.

Thanks,
Nirav (Head of Research)
MyWay Wealth

MyWay Wealth Weekly Update (Issue #29): A sticky affair: What’s oil economics without crude politics?

I’m a free trader, the problem with free trade is you need smart people representing you we have the greatest negotiators in the world, but we don’t
use them, we use political hacks and diplomats.”
-Donald Trump (much before the recent sanctions on Iran)

Leaders of major Asian countries woke up to find themselves in deep water as the alleged poster boy for free & fair trade – Donald Trump made a not-so-free-and-fair announcement to cancel all waivers awarded to the sanctions on Iranian oil. While the reason for such an announcement was mentioned as – an attempt to curb terrorism financing; however, the United States’ equivocal stance on Pakistan does not add much credibility to their apparent concerns around terrorism.

Asia contributes to ~35% of the total global demand for oil and is incidentally a key importer of Iranian oil. Within Asia, China and India are the top two importers of the Persian oil.
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MyWay Wealth Weekly Update (Issue #28): Mutual Funds shift gears (& portfolios) this election season and more…

As the election season closed in and the pre-poll month of March’19 presented a rally – largely driven by foreign inflows, mutual fund managers capitalised on the rally to get rid of some slag and re-align portfolios in light of post-election expectations.

Here’s what the portfolio rejigs for the month of March 2019 looked like:

As evident, the industry seems to be loading up on retail consumer-oriented sectors while majorly selling off bulky wholesale business sectors. The above graph illustrates only the top five sectors bought and sold; however, the total value of stocks bought & sold in Mar’19 was INR 2,350 Cr. & INR 1,645 Cr. – net buying of over INR 700 Cr. (more…)

MyWay Wealth Weekly Update (Issue #27): Ab ki Baar, Nifty 12,000 paar? & more…

India has begun conducting the world’s largest, democratic general elections this week. Opinion polls have swung towards reinstating faith in the current government, albeit with reduced majority.
Here’s what the opinion polls conducted in March’19 look like:

While the general elections typically induce capital market volatility as most investors choose to sit tight till there’s more certainty around the political situation, this time seems to be different.

Most times, foreign investors remain fence-sitters as the great Indian elections come into play, but this time, they’ve jumped the fence onto the field – right at the beginning.

Bellwether indices have been charting new highs – Nifty at 11,700 & SENSEX at 39,000.

 

 

 

 

 

 

So, is this all happening just because everyone is expecting the current government to be re-elected? Stronger election result anticipation is definitely a factor, but that’s not all of it.
Here are a few other factors that may be aiding investment growth in India:

Stronger Currency

INR strengthened by almost 2.3% in March 2019 making it the star currency in all of Asia.

This strengthening of the INR can be attributed to a multitude of factors including foreign portfolio buying stocks & bonds to a cumulative tune of $8 billion this year.

 

 

 

 

 

 

Softening bond yields

The 10-year government bond yield softened significantly as RBI implements a solid monetary easing policy through rate cuts and other measures like the swap auction.
This is expected to increase liquidity and promote credit & growth in India while inflation continues to be in control.
Decrease in yields can be interpreted as increase in price and profits for bond-holders

 

 

 

 

 

 

 

What lies ahead? What should an investor do?

While elections typically lend an air of increased volatility to stock markets but, quite frankly, volatility is where wealth is manufactured.
All indicators seem to point towards a fundamentally strong India and stronger Indian economy. This sets stage for a stronger future for Indian equities. Now is a perfect time to step-up SIPs and for investors with a lumpsum, it is advisable to go through the STP route – invest in a holding fund and periodically transfer to pure equity funds.
Feel free to reach out to understand more around what type of equity funds suit you best and what themes do we expect to play out post-election.

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If you have any concern, please write to us at ask@mywaywealth.com or call at 080 48039999we would be happy to answer your query.

Thanks,
Nirav (Head of Research)
MyWay Wealth

MyWay Wealth Weekly Update (Issue #26): Essel Group fiasco & the way ahead for you!

It is December 2018; the mutual fund industry is just recuperating from the mess created by IL&FS defaulting on its repayment & major AMCs & rating agencies being dragged into the sludge for their failure to recognise the imminent default – intentional or unintentional is a debate for another day.

Though AMCs were nursing wounds caused by an unprecedented event, their portfolios continued to stand bold with almost INR 8,000 cr. plugged into debt securities of an already troubled Essel Group. What’s more is that over 20% of this was held in portfolios of Fixed Maturity Plans and there was no visible attempt to dilute concentration.

Cut to April 2019.

Even as IL&FS taught the industry a great lesson in risk management, many failed to learn or perhaps chose not to. This is evident by the default on FMPs which has resurfaced for perhaps the first time after the 2007-08 fiasco.

What happened exactly?
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MyWay Wealth Weekly Update (Issue #25): Markets have peaked – important action required?

“Do not wait until the conditions are perfect to begin. Beginning makes the conditions perfect.” -Alan Cohen

The new financial year has begun, and capital markets are abuzz with opinions on the upcoming election results, the liquidity situation, foreign inflows and similar talks.

While these economic events are crucial, I would like to reserve these discussion pointers for the posh boys at D-street and shift my vision to the topic that really matters – your wealth-creation journey!

The new financial year brought in a fresh breath of relief as equity markets rallied to touch meaningful highs (Nifty @ 11,700; SENSEX @ 39,100) – indices recovered and grew beyond what it lost in the last financial year. However, there has been an uncanny increase in the number of requests to address variations of a very specific investor query.

“Markets have peaked/tanked; what do I do?”

There is a good chance you opened this email out of sheer excitement to take an action on your investments. But, here’s why you must take a step back and think!

Action bias, or in other words – the urge to do something when something happens even though it does not necessitate you to do anything, is turning out to be the biggest factor to wealth erosion.

Given that the urge to take action is a typical behaviour-driven situation, I would like to quote a self-explanatory sketch from ‘The Behavior Gap’ by Carl Richards –

While this is a very crude sketch, it is perhaps the most powerful I’ve seen.

There is enough and more data to prove how profitable capital markets are, but the fact of life is that most investors haven’t experienced it first-hand and subsequently tilt towards believing that wealth creation by capital markets is actually a myth perpetuated by the industry.

But let me assure –  YOU (read as: your actions) are more responsible for your investment performance than the markets are. Following are the behavioural fallacies that lead to a not-so-good wealth creation experience.

Gap #1: Nobody can time the market, but many try to do so – albeit unsuccessfully

Back to basics. Price of an equity share is determined by the demand-supply mechanics driven by billions of dollars, billions of investors, millions of algorithms. Also, every optimistic buyer at a price point has a pessimistic seller. And hence, it is difficult for anyone to predict the market accurately since that would require predicting the movement of the expansive range of participants.

Gap #2: You can’t wake a person who is awake!

The number one rule for profitability is “buy low, sell high”. Now, I know this is common sense and you already know this. But what you may not know is that most investors tend to do the exact opposite by succumbing to their own emotions. The image alongside, again borrowing from Carl Richards, is how most investors manage their investments:

Gap #3: Time, and not timing, is your friend in the market

Wealth-creation is a long process requiring patience and persistence. It is best to try quick bets in the casino or at the race-tracks. Capital markets, contrary to popular belief, is a more of a wealth-building avenue than a money-minting machine.

Pick any index – perhaps Nifty for this case. In the short term, all you will see is high volatility across a chart reacting to various events. But, in the long term, you will notice an uptrend emerging! It is important to ride the uptrend and ignore the volatility. Be an investor, not a trader.

 Fig. 1.1  Nifty: Short Term : 5-day Volatility                                              Fig. 1.2  Nifty: Long Term : 5-year Uptrend

Like Benjamin Graham put it right on spot – “In the short run, the market is a voting machine but in the long run it is a weighing machine”

Here’s the bottom-line: The only reasons why you must take an action on your investment portfolio is if there is a change in your financial goal/plans or if your portfolio requires a rebalancing.

At a fund-level, we are already keeping a close watch on your investments and will notify you in case of any rebalancing required.

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If you have any concern, please write to us at ask@mywaywealth.com or call at 080 48039999we would be happy to answer your query.

Thanks,
Nirav (Head of Research)
MyWay Wealth