Vault Digest 2 | The balancing act of knowing it all without reacting to it all
Waterfield Advisors
Independent Multi-Family Office and Wealth Advisory firm, providing holistic advice aligned with the investors' interest
Dear Reader,
The only certainty around any event is the uncertainty of the outcome.
7 out of 10 events don’t go as planned. When it’s about the stock markets, the elections, or the monsoon, the rate is 10 out of 10. If the election results were not surprising enough, wait for the rains to pour the heaviest on the day predicted to be the calmest.
We are irrational beings, trying to establish a rational system.
We are facing increasing global downturns, geopolitical conflicts, and market volatility despite technological advances. This is a particularly delicate trend to monitor for investors and business owners. To develop an understanding of everything, and yet not react to everything, is the balancing act that’s at the centre of this month’s Vault Digest.
This month, we are sharing an optimistic note in the aftermath of the Indian elections, talking about the futility of trying to predict economic outcomes and highlighting 5 reasons investors should expect the unexpected.
Have a thought-provoking read!
I. This month's big story
Aftermath of Indian Elections | Optimism is the only reality
No one can plan for the future – much less invest successfully in it – without believing in the future. We don’t advocate hope for the future despite present reality, but because of it. Indeed, we maintain that optimism is the only realism, the only worldview which squares with the facts, and with the historical record of our vibrant economy and our stock markets.
The historical record and statistics show that a diverse economic engine like ours has delivered despite a variety of global and domestic challenges, including political shifts and uncertainty.
We continue to believe that the dynamism of our economy and our unique position in the global economy will allow us to achieve good relative economic growth among the larger economies while also producing above-average earnings growth.
Capital Markets
Going into the election season, there was some uncertainty regarding the prospect of capital gains tax changes, which is a major concern for the stock market. And post the general election results, the market is eagerly awaiting clarity on this in July when the next budget is likely to be announced.
Finally, stock prices ultimately reflect corporate earnings and are slaves to them. And India's earnings growth has been strong, with NSE 500 companies reporting a healthy 14% YoY growth. So far, net flows have been favourable, but hereon, the market trajectory will be driven by continued good earnings performance.
Money on sidelines/dry-powder
As a house, we had encouraged investors to keep some dry powder (depending on their objectives) given the magnitude of the event risk that general elections pose, and we have avoided FOMO despite the markets' strong performance in recent months.
Stock prices currently have both good and unattractive traits. P/E ratios are moderate to slightly elevated, business profits are substantial, and balance sheets are solid. On the other hand, there are geopolitical concerns and worries over the continuation of the previous government's policies.
According to experts, the most objective way to deploy money in an unpredictable market environment is to negotiate the transition from a current cash position to a neutral (fully invested) position depending on current and changing market valuations, because there is a strong causal relationship between valuations and future returns.
As advisors, we focus on capital-preserving tactical shifts. In other words, when prices in certain sections of the market are significantly higher than typical, it is sensible to reduce the allocation.
Based on our analysis of the relative valuations of large versus mid/small caps, we continue to favour large caps. We propose making these tactical tilts inside the stated strategic ranges for each of these market sub-sectors, specifically in the upper and lower bands of the defined strategic ranges.
II. Handpicked goodreads for you
(i). How to remove human biases & build an "all-weather" portfolio?
Sir Isaac Newton once said, "I can predict the movement of heavenly bodies, but not the madness of crowds". As financial market cycles are getting shorter, hotter, and faster, creating a well-diversified, "all-weather" portfolio would be prudent.
Read this article by Prashant Tandon , Senior Director - Listed Investments, Waterfield Advisors , published in Forbes India .
(ii.) Five reasons investors should expect the unexpected
Joseph Stiglitz, the Nobel-prize-winning economist says, the problem with “seemingly complex and sophisticated econometric modelling [is that it] often fails to take into account common sense and observable reality”.
III. Data to ponder upon
In our Women of Wealth survey of 104 Indian women with a net worth above INR 10 Crores, more than 80% strongly believe in the need for dedicated wealth management for women in India.
You can access the complete report here.
IV. Upcoming must-attend events for UHNIs
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