The title of this piece must have tickled the skeptic in you, just like everything else 2020 has had to offer so far! The fears, while many, dons a big voice when talking about health – both, of the body, and the bank. 

Let us at Fisdom, your beloved financial caretaker, alleviate the financial fear, by questioning and breaking-down the skeptic fervor, and make some room for much-needed optimism.

The Rise of The Skeptics

Nearing the 9th Month, COVID headlines are now emblazoned at back of everyone’s brain. The viral virus landlocked the world, both, literally and economically, in a fashion never seen like before. 

In wide-spread panic, Fear acclimatized itself with investors, global and domestic alike, with them dumping equities overnight, and rushing for rejuvenated belief in safe-haven asset of Gold. Riddled with all-time high volatilities, indices wiped out trillions in a matter of 2 months, witnessing their biggest drop (-~40%) in 10 years to in a matter of 4 months.

The Fall of The Skeptics

As March rolled around, the skeptics volumes amplified, rising high and quick, but dampened even quicker. The painting of the full story tells us why. Have a look!

As can be seen, if the 1st 4 months of 2020 were about falling, the next 4 were about getting back up! Now, this naturally raises the question about where we go from here!? But we first ask you to analyze how we got here!

The current market levels, while nearly half-way there, still have half-way to go! But are we really half-way there?? Reading in between the lines (where the real details lie!) tells us otherwise!

As can be seen, much of market’s magic run has come from within its top performers. The index ex-Reliance alone, would have returned ~10% less! And that speaks volumes about how today’s levels are more representative of stock-focused gains, than a more holistic picture! This presents good news, for now we know the unrealized upside potential markets still have to offer! So, what are you waiting for? Get in touch with us, and let’s draw you up a smart and savvy fiscal approach!

Nation’s Pedal-to-the Metal: Growth Gears in Motion

As the optimist in you takes shape, let us add fuel to the fire, so we can merit what is to come, and abandon what’s happened. There are 3 key components which we feel will mute short-term pain, and welcome faster-than-expected growth. They are as follows:

• India’s Economy In Prime Position – Revving & Roaring

4 times since 80’s, US recession with falling US bonds, and, crashed oil prices has been followed by a strong Indian economic recovery. In fact, India has NEVER witnessed an economic recovery without a US recession preceding it! 

Today, we have – US recession, smashed crude prices and falling US Government bond!

As Economies Open up, India oils up its pillars of growth, oompahing India’s ability to deliver to investors and citizens alike!

• Sanctimonious Synchronization between the Govt. and Central Bank

Pictures say more than words, and the 2 graphs above do just that. The relief package (10% of GDP), at time of announcement was the 5th highest in terms of value across the world! A mix policy and credit guarantees, the package was widespread like an umbrella, ready to tackle financial issues of any kind!

The actions of the Centre were supplemented by its banker, the RBI also, recently declared a 50K+ Crore dividend to the govt. (3+ years in a row, now!) bankrolling it’s announcements, and putting money where the mouth is!

With Centre and bank taking front-foot, any external pressure, may not stand long! The catalyst to welcome faster growth is the nation’s magnetic macros, with Forex reserves standing at all time high, and seeing growth like never before! Pushing current account to a surplus, the reserves can cover India’s import bill of more than one year!

Investor Takeaway

Investing is a hiccup-full journey. COVID 19, after the last 4 years, is another speed-breaker that markets will tide over in the medium-long term. Sure, it will bear short-term pain, as is seen in the health of growth indicators, and contractions of powerhouse economies. But where there is a problem, there is an opportunity. It all depends on how you see it.
As economies continue opening, the room for growth gets an extra leg to stand on. As the economy learns to walk again today, it does so with a focus to gallop tomorrow.
If you want to yield the results of tomorrow, you got to act today.

We, at Fisdom, eagerly await your call to help you define your tomorrow. Here is your chance to grow with your motherland!

India gears up to celebrate its well-fought for 74th Independence Day today. This time, in ironical fashion, as India celebrates its freedom from colonialism, it is simultaneously at battle, weaving the path of freedom (read as: unlocking economy) from the viral virus.

Today, as was yesterday, and as will be tomorrow; the commonality between rich and poor, between differing risk-return profiles, and across castes, creed, and religions, is/was/ & will be “LOANS”! The only bond stronger than loans, is all of humanity’s desire to rid themselves of these loans at the earliest possible times. 

The potency of loans has never been so bold as was in the last few months when the country went into lockdown. Amongst all panic that set-in, one that was on top of everyone’s list was their ability to pay loans, and the dent it was going to make in their savings. In a country where daily wages were key to survival, putting a halt to all activity was certainly detrimental to not only living but also surviving!

The constant dependency on a stream of regular income with no room for interruption, is top contender for financial sin. The lockdown revealed the true imagery of the citizens – A blank canvas with the phrase, ‘DROWNING IN DEBT” painted in Red, signifying their bleeding pockets, and their degree of dependency on their income and their ability to pay loans. 

In fact, the loan situation was so gruesome, that, of the many policies announced via relief packages, one that disguised as an umbrella, courtesy of it having implications, on retail investors and domestic institutions alike was the “Loan Moratorium”. 

It is evidently clear, that currently, we are a country where daily wages is not only key to living but also survival. This startling thesis is the key principle driving this piece.
As your trusted and chosen financial caretaker, we highlight how you can tackle your loans in a smart and efficient manner!

It is in times like these where inactions of the past creep up as regrets of today. Let this be a lesson about the perils of overhanging loans and a key step you can take to combat and crunch all loans in near and far future!
While loans can’t disappear overnight, their longevity can be reduced! “How?” you ask! “SIP” is I say.
The mathematical illustrations shown below highlight SIP’s prowess to reduce a loan life.

As we have seen, it is investments, which can help you tackle and curb your loan problems. Particularly SIPs, an every-man, time-agnostic, investment tool designed to help tomorrow you live your dreams, rather than worry about your next loan payments.

The graph below highlights how SIP can help compound wealth over time, irrespective of when you invest and tackle loans right from the get-go!

The next time you pay your EMI, you can do so with a smile, as while you work an 8-hour day, SIP works the other 16! Via SIPs, lay the foundations today, stone by stone, so you can use your wealth to visit the Taj Mahal and not settle for its replica, courtesy, the never-ending loans!

We are waiting, eager and excited, to hear your success stories about your own personal 1947 moment!

2020 has been the year of the coronavirus, bringing to a standstill, the socio-economic landscape of India and the world.

Central banks unleashed unprecedented relief packages to clot the economies from bleeding further. The relief, however, deemed not enough, saw global markets riddled with all-time high volatilities, as indices wiped out trillions in a matter of 2 months.
The virus followed suit for domestic investors, as markets went from touching all-time high levels to their biggest drop (-~40%) in 10 years to in a matter of 4 months.

In hindsight, the India VIX at 80+ levels reflected the retail investor dilemma, as they rushed to exit portfolios, with a sudden shift to wealth preservation to generation.

This is where Mutual funds got to revel in their livery as a simple and intelligent investment product

Mutual funds, beneficiaries of diversification, undertook multiple actions to tackle various market mood. The key initiatives taken are described below:

Seasoned Professionals & Active Management

2020 markets presented a multitude of opportunities, testing investors at every turn. Most squandered their chances, falling victim to emotional biases. However, for Mutual Funds, it was just another event-filled year. The vintage of mutual funds, and, old-as-time, management experience at the helm were the industry’s greatest asset.

Having been subject to multiple crises over years-&-decades, fund managers’ have witnessed big falls, and bigger euphorias, to stand firmly by investment processes and not given in to temptations.

As can be seen, MF Fund managers have navigated through financial and health crisis, multiple times before, fully aware of the potential of markets and even more so, of sound investment principles!

The calloused fund manager hands were on display as they smartly held onto/deployed cash balances to maximize returns, while minimizing risk. The chart below highlights the same:

MF Industry Level: Cash % of total assets

Hence, acute, and active management style has helped MFs in the past and will continue to do so in the future!

Hungry Hunting by a Bargain Hunter

Coronavirus fears shrouded the market in dirt-cheap valuations, as investors deserted equities, and eyed comfort in Gold. Remembering, Warren Buffet’s quote: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”, MF industry tightened their grip on the markets by purchasing stocks and sectors, showcasing near and long-term potential, at once-in-a-lifetime prices!

When retail investors abandoned equities, MFs stepped in, turning net buyers in equities in March at ~Rs. 29,000 Crores!

Do not be smart; a smart fund management team is working for you.

The same story stands true for Sectors too, as can be seen below:

While it may not be correct to construe the above information as an insight to support direct equity investing or any equity calls, it allows an insight into understanding that fund managers have been taking aggressive calls

Investor Takeaways:

“Improvise. Adapt. Overcome.” With these words emblazoned at the heart of every Mutual Fund, the industry successfully differentiated noise over news, and grappled the covid climate with reason and ration. Where investors feared wealth erosion, MF results have shown otherwise.

MFs outperformed the country’s primary index in the short-term and long-term! There is a reason investor say, “Mutual Funds Sahi Hai!”.

While it may not be correct to construe the above information as an insight to support direct equity investing or any equity calls, it definitely allows an insight into understanding that fund managers have been taking aggressive calls and this, in light of recent developing situations. In any case, unless there’s a change in your financial goal or asset allocation, there should be no reason for you to take any action on your portfolio – rest assured, the fund manager is doing the job pretty well.

If you feel so otherwise, please do tell!

It was 23rd March 2020 and major Indian indices gave way. The darling duo – NIFTY & SENSEX managed to hold itself still only after a free-fall of almost 40%. 

Cut to today, the duo has managed to recover a lot of lost ground. In fact, to put a number to it, it has managed to trek upwards by almost 50% from its low four months back.

While the slump, as well as the uptick, have made for equally sensational headlines, the unfortunate part is that it has left investors more puzzled than before. 

I have spent the last couple of months speaking with more investors than I did in all of last year. Most retail investors (excluding the outliers) can be grouped into two basis their opinion on recent index performance. 

1. The Critic: There’s irrational liquidity flowing into the market. The index is a façade. The market is due for another round of correction.

Now may not be a good time to invest in equity mutual funds.

2. The Believer: The Indian economy is showing signs of recovery, maybe that’s what the indices have already priced in. Guess it’s too late.

Now may not be a good time to invest in equity mutual funds.

Isn’t it funny how two completely contrasting opinions could result in the same conclusion?

At this juncture, my opinion on the most popular opinions is going to be just another opinion. So, let me comment on the conclusion instead.

Now is a good time to invest in equity mutual funds.

I know, you almost saw that coming. But I also know that you’re still inquisitive about what is it that ‘The Believer’ as well as ‘The Critic’ missed!

Here’s what you know, and probably don’t.

Indian capital markets are home to over 5,000 listed entities. 

The NIFTY represents 50 stocks – which is < 1% of the listed entities. (SENSEX represents 30 stocks)

Now, these are the bluest of all blue chips that the bellwether indices represent.

Taking a step closer, you will notice that every stock on the index has a different weightage assigned. Considering NIFTY; for instance, Reliance Industries constitute 12.45%, HDFC Bank constitutes 10.65% and so on till the sum of weightages assigned to the 50 stocks sum up to 100%.

The index performance is an average of how every stock on the index has performed. Weighted average – in line with what per cent does the stock represent on the index.

Here is a brief illustration of how index performance works:

This brings me to my next point.

Continuing the example illustrated above. 

1. How do you think will the index returns move if Stock A’s performance is increased by 20 percentage points to 50%? The overall returns will move up to 33%
2. How do you think will the index returns move if Stock C’s performance is increased to 50% instead? The overall returns will move up to 31%

You would have noticed that though both stocks A and C were considered to deliver a higher return – 50%, the index moved higher when Stock A delivered the uptick and not as much when Stock C delivered the uptick.

This is how weightages and performance of individual stocks matter. For the untrained eye, it may seem like the index has done well when, in fact, it is just the heavy-weighted stocks doing well.

Getting to NIFTY.

Here’s a representation of what happened since the dreadful drop towards the end of March’20:

As can be observed, ~60% of the uptick in the NIFTY was delivered only because the top five stocks in the index performed extremely well. In fact, >75% of the uptick can be attributed only to the top 15 stocks in NIFTY.

Trivia: Reliance Industries Ltd. made headlines for raising a huge round of capital funded by large global investors. The effect was seen in the stock price as it soared by ~125% in the period illustrated above

Remember, there are at 5,000+ listed entities in the Indian capital markets out of which Indian mutual funds invest in shares of ~1,500 companies. This includes the 50 companies listed on NIFTY. NIFTY’s performance has been driven largely by the performance of 5 companies.

Are you a critic? Do you still think that the broader market has peaked?

Are you a believer? Do you still think that the market has completely priced in/reflects the impending economic recovery?

Why don’t you write to us and share your thoughts on how do you perceive the index’s recent performance? We would be glad to hear you out!

“Indian Economy has started seeing ‘green shoots’ of recovery and that the country remains one of the most open economies in the world.”

 

– PM Narendra Modi at India Global Week 2020

The brightest minds and costliest resources have been dedicated to the fight against the pandemic. At the same time, persistent attempts are being made to keep the economies buoyant. India seems to be managing both fronts better than most global counterparts.

The same is reflected in the increasing number of patients recovering from covid-19 as well as maintaining lowest death rates in among countries with 1 million+ total cases, India is fighting the covid-19 battle in an admirable way. 

The country has not only restricted itself to curbing virus effect on the health of its citizens, it has also curbed the effects on the economy. On the economic front, despite most lockdown restrictions still being In force in many cities, the macroeconomic indicators reflect resilience.

Here are a couple of green shoots visible at the moment.

Green Shoot 1: Industrial/ Construction activity, though largely in contractionary phase, has started looking up.

Green Shoot 2: Uptick in high-frequency indicators; will take time for a complete rebound

Green Shoot 3: Rainfall Pattern in subdivisions – Good monsoon progress; A sigh of relief for rural consumers

Out of 36 sub-divisions, nearly 82% of the sub-divisions have reported a higher-than-average monsoon.

Bottom line:

Though numbers may not have reached pre-covid levels, there’s merit in acknowledging that the uptick is in the face of continued (but diminishing) adversity. Unlock 1.0 has resulted in visible green shoots spurting out of the slump. As the world progresses in its fight against the pandemic, India looks promisingly strong in terms of public health & investor wealth

It is almost imperative that investors utilize times like now as opportunities to buy through systematic routes like Systematic Investment Plans & Systematic Transfer Plans.

Food for Thought: India on track to be among the top three economies in the world

Have you ever tried planting a seed? You would notice that the more you touch, move or turn the seed before it germinates, higher are the chances that it will not grow well – in extreme cases, will not even sprout.

Like the process of growing a plant, even investing in equities is about nurturing, watching but not touching the seed/investment for a very long time. Your job should be restricted to offering it the right conditions, right nutrition and letting it grow the way it wants to – this is perhaps the best way to have a beautiful plant and investment corpus over a period.

Below is an illustration of how wealth compounds over different periods. The assumption here is that equities grow at 15% annually. Now, do not focus on the 15% – honestly, it is simply an arbitrary choice of number – what is more interesting is the nature of compounding. If you notice, as more time elapses, the line indicating wealth creation grows in a steeper fashion – over a period, if you let investments in equity compound, you’ll notice it compounding in an exponential fashion rather than linear like most traditional investment products.

But, times like now make it difficult to take a step back and look at the bigger picture. The shorter-term volatility is unnerving enough to distract, and understandably so. Obviously, the growth of your portfolio would not be looking as smooth as the chart above, but the idea is that zig-zags look sharp when they’re zoomed into – when multiple zig-zags are cramped into the same frame to cover a longer period, it tends to reflect the larger trend while smoothening baby volatility.

Equity markets are great asset class as long as investors invest. The moment an investor gambles, the market morphs into a game of chance – seductive but dangerous!

I have seen many investors create wealth through sound investments and observed more lose money when they get reckless with their investing – or better call it ‘gambling’. 

I use the word ‘gambling’ rather loosely here. 

In fact, let me define it in context – “Gambling is when an individual places a monetary bet on a favourable outcome out of a range of possible outcomes.”

To further simplify, a gamble is when the decision is basis probability more than fundamental reasoning. 

This brings me to a commonly observed phenomenon among gamvestors (investors-turned-gamblers. Quirky, no?) – vulnerability to ‘The Gambler’s Fallacy’.

The Gambler’s Fallacy is a behavioural fallacy focusing on how an individual tends to believe that future probabilities are altered by past events when, in fact, they are not.

Let me simplify with an example.

We agree to play a game where I flip a coin and if it lands heads-up, I will pay you a hundred bucks and if it lands with the tail side up, you will pay me a hundred bucks. Fair game.

Now, let’s say the coin was flipped six times and each time it landed with the tail side up – which means you will pay me hundred bucks for each flip. 

At this juncture, I ask if you want to go for a double or nothing flip?

There’s a good chance you blurt– “There’s no chance that coin is going to turn tail side up for the seventh time in a row!” – This is what the Gambler’s fallacy is all about!

This is when your emotions start enticing your thoughts into the room of blurred probabilities. Your mind refuses to accept that each time the coin is tossed, there’s a brand-new probability of 50:50 in force each time and there is no reason for the coin to not land with tails side up a hundred times!

A similar fallacy comes into play often when investors keep looking at stock prices or index charts for too long. 

Investors tend to base their investments on notions like “this stock has been beaten down for too long, it has to recover now!” and “this stock has been moving up since almost a month now, guess this is the end of the cliff”.

However, there’s quite a probability, the stock could be beaten down for a completely fundamental reason that won’t let it see the light of day ever and the other will continue to do well because of the fundamental strength of the business. 

Maybe that’s why stock prices of Kingfisher Airlines never really “recovered” even after a long dry spell and prices of blue-chip companies like Reliance Industries Ltd and HDFC Bank continue to perform over a longer period without quite “falling off the cliff”.

The gambler’s fallacy is not just limited to an expectation of reversal in trend but also an unexplained belief in the continuation of a trend. The fallacy has to do with the perception of chance basis emotion more than mathematical probability.

Obviously, stocks and securities are cyclical – but they are cyclical because of the dynamic demand-supply forces. The problem is when investors choose to ignore the forces that drive prices in a certain direction and instead rely on their gut-feeling about prices – which is often fuelled by a hazy perception of probability. This oversimplification may be seductive but is dangerous!

What should an investor do?

Drawing upon a number of conversations I’ve had with investors on this, I realised the vaccine against this fallacy is pretty simple.

Each time you make an investment decision, ask yourself – “What’s the rationale behind this decision?”. If the immediate response has anything to do with the current price trend, take a step back. 

It does not matter if you are expecting the trend to continue or reverse, what matters is that you are taking a chance and not really making a decision.