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Rupeeting Monthly Performance Update - September 2022

September was a terrible month for the global markets, driven by a bitter economic cocktail, which beat the markets down.

Amid this volatility and downturn, all but one of our portfolios managed to outperform. We attribute this outperformance to our methodology, which has been focused on:

  1. Foresight

  2. Prudence

  3. Stringent selection

The current composition of our strategies has led to outperformance for the last year, and this month (as tough as it gets) is no different.

Markets in September

The world was hit by several events.

Inflation continued to be a problem, and a supply-driven one, with it worsening as Russia shut off the natural gas supply to Europe, and with Russia’s escalation of the conflict with Ukraine.

On the other hand, global central banks continued to drive monetary policy towards demand curtailment. Rate hikes were seen in the US, Europe and India.

England, in this environment, had a bit of a fiscal mishap announcing tax cuts and an energy bill cap, which sent bond prices spiralling down and risking a financial crisis. The Bank of England promptly stepped in and announced a bond purchase programme.

The side effect of this would be more inflation, but well, better than a financial crisis.

  1. Equities: Global equity markets took a severe beating. The Nasdaq 100 was down 11% in September. Relatively, the Indian markets were better placed, falling about 4%.

  2. Debt: Bond prices continued slipping as yields increased. The only asset class to have seen some stability was liquid bonds, with the 1D rate instrument rising by 0.5%.

  3. Gold: Gold continued underperforming after its massive bull run over the last two years. Even the run-to-safety doesn't seem to be supporting prices for gold.

Rupeeting in September 2022 - Equity Portfolios

All our Equity portfolios (barring Disruptors) outperformed the markets. We attribute the success to:

  1. Robust sector allocation (example - 22% exposure to Defence in Monopolies)

  2. Our long-term mindset (for example - we haven't rebalanced Bread & Butter despite the pain, and that’s paying off now)

  3. Superior stock selection (example - several stocks drove overall portfolio outperformance across portfolios)

Digging a little deeper into the reasons for outperformance (and underperformance in case of Disruptors!):

  1. Rocketship: Higher exposure to mid and small caps, bottom-up approach in tough and declining markets

  2. Monopolies: High exposure to Defence, superior stock selection, fundamental strength in stocks, the addition of value stocks

  3. Disruptors: Exposure to stocks like Zomato and Policybazaar

  4. Bread and Butter: Strong demand in consumption despite inflation

  5. Value Migration: Higher exposure to mid and small caps, bottom-up approach in tough and declining markets

  6. Socially Responsible Investing: Fundamentally strong companies which have been appropriately chosen in accordance with market conditions

Rupeeting in September 2022 - All-Weather Portfolios

Due to our opportune decisions at the previous rebalance and careful observation, our All-Weather Portfolios managed to outperform their respective benchmarks.

What worked for us?

  1. Maintaining exposure to midcaps, which fell much lesser this month

  2. Removing international equities from the portfolios

  3. Maintaining minimal exposure to Gold

What could have worked even better?

  1. Could have done with lower exposure to equities, as the environment gets tougher

  2. Higher exposure to corporate debt compared to government debt could have fetched us some more return

For now, we’ll just let the numbers speak for the good decisions we made!

What’s next for the market?

  1. India is the fastest-growing economy in the world, but that alone isn't enough of a reason to drive the markets.

  2. At 20x PE, India is one of the most expensive markets globally, second only after Nasdaq. While valuations for the world have come off sharply over the last few months, India hasn't seen a material de-rating yet. Compared to the MSCI Emerging Market Index, India has historically traded at a premium of 60%. However, it is currently trading at a 130% premium.

  3. Valuations being too high act as a resistance, and so do global economic factors. Given that the tide on the latter isn't looking too great, we’d be positive but still cautious on the markets at this time. We’d like to ride the India growth story, but by only buying into the markets at reasonable prices, that is, when they see dips.

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