I wish you and your loved ones a Shubh Diwali. Getting to collect together with family members, a bit of shopping, a bit of crackers, lots of light, good food & sweets, and above all – the joy and optimism around Diwali – this what makes Diwali a special moment for us.
Almost like every year, this year had its ups and downs. Some of them were on expected lines and a few of them were the usual surprise gate crashing events. In my last Diwali note of 2021, I wrote possible risks which were gaping ahead >
“Many pockets are having hyper inflation which are an outcome of sharp run-up in commodity prices. The impact of high fuel prices comes with a lag, but pinches all. Ultra cheap money cycle has to normalise. When that happens, lesser money is available at disposal to buy for consumption and speculation (yes I chose that word with an intent). Interesting investment options like Crypto currencies are cropping up where people are jumping into without having a clue of what they are.”Diwali 2021 Note
I am not glad to say that all of these risks transpired along with a super catalyst of a war which is still raging ahead with no end in sight. While COVID has apparently moderated for most of the world, it continues to haunt China, the most populated country. High energy prices are crippling the world, more punitively for the European countries. Cheap money supply tap is now being reduced with interest rates going up for almost all economies. In a connected global eco system, we are not immune to the shocks created in one part of the world versus people living in other parts of the world. It is tough to contemplate how remaining part of the year will transpire.
However, one thing is clear – there is no dearth of bad news flow. Good news, if out there, is in isolated pockets. Good news flow and good opportunities (valuations) rarely come together. Rather, it is times of bad news flow, we get mouth watering entry points. Different assets / markets react differently to negative news flow and a patient long term investor would make use of these opportunity windows to add to their long term wealth kitty. A few examples of the impact of the recent negative news flow are below :
- Chinese markets have nearly halved from their life time highs
- Gold has corrected from its highs of $2050 per ounce to $1650, a 20% decline
- US markets – particularly NASDAQ 100 Index has corrected from its highs of 16K to 11K level, a 30% decline. S&P 500 has declined from its highs of 4700 to 3600 levels, a ~25% decline.
- Indian markets are apparently standing strong, declining from their highs of 61K levels to 59K levels, a sub 5% decline.
- Bitcoin (one of the cryptos) declined from its highs of 64K to 19K, a 70% decline.
I can not predict if the worse time are over or if they have yet to come in. But it is clear that a lot of froth has been taken off from the table (refer to the key risk I highlighted in the above para from my 2021 note). It is likely we should see increased levels of uncertainty, but these are good times to stay calm and continue to manage the asset allocations in the portfolio. Keep asking yourself a question – if you were happy to invest in a particular long term asset when the prices were high, why should you feel uncomfortable if the prices of the same asset have come down by 30%. If the long term fundamentals aren’t impacted, should your reaction be to stay invested, if not add more to such fallen assets.
Lastly, whole of India got a good Diwali gift with India winning an amazing match. The lead stage was taken by the Virat Kohli whom not many would have banked upon considering his recent past performance. But yesterday I was only hearing praises about him. The best description of the situation was coined by Mr. Nilesh Shah of Kotak Mutual Fund >
In Cricket : Class is Permanent. Form is temporary.
In Market : Quality is Permanent. Momentum is temporary.Twitter Message – Nilesh Shah
With that, may I end my note with my wishes for all of you – It great to see families uniting and people travelling like normal post COVID. It is heartening to see the hustle & bustle of Diwali markets & shopping. Let us unite with our loved ones and continue to focus on the importance of health along with wealth. May the Goddess Laxmi bless the required wealth on you.
Best wishes from our team