S & P BSE SENSEX 52483

   Greed is Good! ~ Really!?

Greed is Good! ~ Really!?

“Greed is Good!” ~ remember this classic vulgarity from Gordon Gekko in the 1987 Blockbuster ‘Wall Street’? ~ the role of a Corporate Raider without a conscience essayed brilliantly by Michael Douglas.

Plato, the legendary Greek Philosopher, proclaimed that “Courage is knowing what not to fear” ~ well, if you don’t fear these insane markets then you indeed are very courageous.

FY 21 was a fantastic unparalleled year for the Sensex in terms of an insane re-bounce closing up 68% and 105% in the year and from pandemic lows respectively. MidCaps and SmallCaps were even more boisterous recording gains of 91/136 % and 115/193 % in the same periods.

This insane buoyancy has been driven by unprecedented inflows of @ $ 37 Billion in FY 21 from Foreign Portfolio Investors and a crazy FOMO flurry of new retail domestic investors that stands at over 72 million on June 30,2021 up over 40% from last year. Over 70 % of these new investors are below the age of 30.

The Party continues on the bourses like in Ibiza where partying never really ends and daresay with millions being seduced by this drug of ‘instant gratification’ with money begging to be made in just about every scrip ~ why worry about fundamentals!

Overleaf glance at the S & P BSE Sensex, MidCap and SmallCap Indices over periods in 2020 and 2021 till date to sense this euphoria. They read like Good, Better, & Best

S & P BSE Sensex

S & P BSE MidCap

S & P BSE SmallCap

CY ~ Calendar Year January to December       FY ~ Financial Year April to March

Market Capitalisation and GDP

BSE Market Capitalisation is at Rs 22977769 crs a record or @ US $ 3.1 Trillion with the $=Rs 74.33. Four Months ago, in our March 1,2021 Scrip Standpoint the Market Cap was Rs 20081096 crs @ US $ 2.8 Trillion as on February 26,2021 with the Sensex @ 50000

Our FY 21 GDP is expected to contract 8% due to the pandemic and new government projection in the Budget is at US $ 2.67 Trillion. With an overwhelming second wave in this ongoing pandemic having resulted in extended lockdown and having impacted Q 1 in this ongoing FY 22 the FY 22 GDP projected in the Union Budget at US $ 3.05 Trillion will surely be revised downward. Assuming the projected growth rate of 14% drops to 9% the FY 22 GDP would yet remain sub US $ 3 Trillion at @ US $ 2.9 Trillion at the current exchange rate.

This means we are at 1.1 Mkt Cap/GDP already. While this is not alarming in itself, volatility and vulnerability concerns remain on both the numerator and the denominator. 

Going forward in 2021 and Beyond

Play with the scenarios, taking into consideration new high profile IPOs like LIC in the offing too which will increase the Mkt Cap, you should come to the same conclusion as we do that in the short term of this year 2021 it is highly unlikely and there is limited scope that the Sensex will maintain its momentum and move into the 55000 to 60000 range with confidence and assurance .The Indices Table above already supports this by showing a muted 2021 with the Sensex moving up 10% in CY 21 till date and 6% in Q1 FY 22 ~ a much slower pace than in 2020 .What flags up as Red though is the continuing surges in MidCaps and SmallCaps and we remain concerned at the commentary by many that there is yet lots of steam in these segments in the short term. Be Selective.

Our Equity Strategy and Approach

This pandemic has on one hand, created a Global Liquidity Tap on a scale never before seen and which has surged Equity Markets in the face of low yields too. This Tap needs to sustain any Economy surge too. On the other hand, this pandemic has been a catalyst for Economic Reforms across sectors balancing out the need to make India ‘Atmanirbhar’ while simultaneously relaxing the restrictions for Foreign Direct Investments. Such further opening out of our Economy through Disinvestment, Privatisation, Funding and Tax Sops creates Opportunities as we transit rapidly to an advanced Digital and Green Age. Unemployment remains a key concern even in the longer run when both the economic drivers of consumption and capex are expected to kick in

It’s difficult to spot fundamental value in these elevated markets. This has translated into fewer recommendations and making allowance for increased risk in growth and turnaround opportunities. Our approach will continue to remain fundamental, contrarian when we see it as such, with an eye on preservation of wealth while growing it largely through asset allocation and increasing core segment weightage when indicated.

Normally we request clients to think three years and not three minutes or three months when investing in Direct Equity in India. These are not ‘Normal’ times and thus we are making allowance for any major correction globally in Equities in the coming year or two and have commenced advising clients to look even beyond 2025 and into the end of the decade 2030 and maintain the discipline of Asset Allocation to protect Wealth.

This would position the Portfolio to withstand any potential shock in the short and medium term and avoid a scenario where wealth grown in equities in 2020-2022 gets decisively decimated in 2022-2023. Investors, of course must have the temperament to tolerate drawdowns in long term compounders.       

Cheers,

Gaurav Parikh, Managing Director, [email protected] +91-9820162597

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