The markets continued to fare well, and our winning streak continued too!
In a challenging global macroeconomic environment, the markets have been volatile, and that makes it difficult to consistently outperform. However, most of our portfolios have beaten their respective benchmarks.
Monopolies, still continues to be a top performer. It is amongst the top 5 best-performing portfolios on smallcase, on a six month time frame.
Markets in August
Globally, economic conditions didn't see much improvement in August 2022. Despite this, the Indian markets fared well.
Equities: There was some respite seen in the beginning of the month as inflation data in the US and in India showed mild moderation. This has come in on the back of a decline in global oil and food prices. However, the mood soon turned sour with comments from Fed biggies indicating continued aggression on fighting inflation. Moreover, natural gas prices soared globally after irregularities in the supply from Russia to Europe. While the global equity markets were down, India managed to end on a slightly positive note.
Debt: Government bonds performed better than corporate bonds. Yield curves though have been inverting, and longer term bonds performed better than shorter term bonds. For August, the 10 year G-Sec return was at 1.5% versus 0.8% for the 5 year G-Sec.
Gold: Gold underperformed as the month saw a contrast to the previous months, which were marked by a significant shift to safety. But as we said earlier, Gold has performed extremely well over the last year, and the upside here may just be capped.
Rupeeting in August 2022 - Equity Portfolios
Most of our Equity portfolios outperformed the markets. We attribute the success to:
Our long-term mindset (example - we haven't rebalanced Bread & Butter despite the pain, and that’s paying off now)
Superior stock selection (example - massive rallies in several stocks drove overall portfolio outperformance across portfolios)
Digging a little deeper into the reasons for performance:
Rocketship: Minor underperformance of 10 basis points, we wouldn't read too much into it
Monopolies: Our Defence exposure continued helping. In the last month, Data Patters was up 42%, and HAL was up 12%. However, stocks like Sequent Scientific and Satin Creditcare dragged performance lower.
Disruptors: While internet stocks finally stemmed their losses, our July rebalance was responsible for most of the outperformance
Bread and Butter: Consumer stocks have been doing well, and that’s what holds the maximum exposure in the portfolio
Value Migration: Mid and small caps did better than large caps; the portfolio has only 10% exposure to large caps
Socially Responsible Investing: High exposure to banking and financial services served us well
Rupeeting in August 2022 - All-Weather Portfolios
Most of our decisions on asset allocation went right for the month. The Conservative portfolio underperformed, whereas the Balanced and Aggressive portfolios outperformed their respective benchmarks.
What worked for us?
Maintaining maximum possible exposure to equities for all the risk profiles, despite a challenging environment for equities
Maintaining a good balance between large caps and mid caps
Maintaining a good balance between government and corporate debt
Maintaining minimal exposure to Gold
Avoiding international equities
What could have worked even better?
Higher exposure to government bonds
Some movement to longer duration bonds
Because we could have fared better on our decisions within Debt, there is an underperformance in the Conservative portfolio, which is heavily concentrated on Debt.
What’s next for the market?
We are positive on the India story over the long run. India is one of the fastest growing economies despite global challenges. With multiple countries finding it tough to stem inflation, and several even at the brink of a recession, India definitely makes up for a good investment opportunity. Part of that is also reflected in the FII flows in India since July 2022.
That said, we see near-term challenges causing hiccups. Inflation continues to be a problem. Although price declines basis recessionary/downturn expectations have begun, as we have been pointing out, supply-driven issues remain. The recent natural gas price debacle is a good example of supply-led inflation.
A rise in inflation, further weakening of the global economy, dollar strengthening, fiscal pressures on India, and rate increases pose risks to the rise that the Indian markets have been seeing.