How we have maneuvered the markets recently !!!

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Our commitment to the principles of Asset allocation with dynamic rebalancing and combining that with our deep expertise of both domestic & international financial markets has once again, served us well.

Our style of investing, that identifies opportunities in more attractively valued asset classes (debt, equity, international equity, gold, and sub segments such as IT, Banking & Pharma for equity and longer end, shorter end for debt etc,) based on parameters such as growth, risk etc., and at the same time, combining this with an evaluation of what could be the possible triggers for the mean reversal, has continued to deliver for us, more often than not.

Since last one year, we have been significantly increasing allocation to US Tech segment (close to 20% of portfolio). In more recent months, we have moved our fixed income allocations to the longer end. While we were somewhat underweight Indian equity for the last 12 to 18 months, we took the opportunity to bring it to neutral weight, when NIFTY came down to 16,800 to 17,000 levels recently and added banking & pharma sectors. We strongly believe that there is value emerging in these segments.

All the above asset allocation calls have worked exceedingly well, except the one on IT services that has yet to deliver.

Our call to significantly overweight US Tech sector (20% of the portfolio) over the last one year, has boosted our portfolio’s performance significantly. Particularly at a time when Indian markets have been languishing, since last 18 months.

The call to overweight US Tech was not only based on the inherent value in the tech sector as the world becomes more technology intensive (AI, autonomous driving, EV, metaverse, blockchain, cloud, Biotech, gaming, AR & VR etc,) but it was also a call on how inflation & interest rates will pan out. We all know that the tech sector, more particularly growth stocks, are much more sensitive to interest rates, as more of their profits are in future.

For the last 9 to 12 months, we have been passionately arguing in every conceivable forum, that inflation will not be as big an issue as it is being made out to be. That inflation is all about inflationary expectations. That the common man draws on his recent experiences to form an opinion about what inflation would be. Since high inflation has not been experienced over a long period, our bet was that high inflationary expectations had not got entrenched in the mass psyche and hence it was not going to be so difficult to squeeze out. This was the basis for taking a strong contrarian call on the US Technology sector.

We remain constructive on the markets going forward, as Inflation is behaving well both in India as well as in US. In USA, it has dropped from a high of 9.1% in June 2022 to 5% in March 2023. In India too, inflation has fallen from the peak of over 7.8% in Apr 2022 to 5.66% in March 2023. After the collapse of SVB bank, Fed funds rate too is indicating that fed is more or less done with raising rates.

What is our take going forward ??

  1. While, we do not expect a runaway bull market, however in view of the benign interest rate environment, we believe that the markets will be well supported at lower levels. While, we are currently neutral weight Indian Equity, our advice is to increase equity levels further if for any reasons NIFTY falls, to 17,000 levels.
  2. For someone who does not have exposure to US Tech, we also see any sharp sell off (10%) in NASDAQ as an opportunity, to build exposure to US Tech sector.
  3. As regards IT sector, should there be a sharp sell-off, because of dismal show by TCS & Infosys in quarter 4 results and guidance, we see it as an opportunity to increase allocations. Over the weekend, Infosys has lowered its growth guidance for Fy 24 to 4 to 7%. With the collapse of Credit Suisse & SVB bank, analysts are worried about the outlook of BFSI segment. However, we see this as a issue for a quarter or two only. Firstly, as per quarter 4 announcements of TCS & Infosys, clients have deferred but not cancelled orders. Secondly, there is no reason to doubt that the long term trend, that the world is becoming increasingly more IT intensive is impacted. Finally, the US markets are not at all forecasting a deep recession.
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