The recent change of guard at the RBI caught some by surprise, though there were indications that the Govt wasn’t too thrilled with the focus on inflation at the expense of growth over the past few months. The Q2 GDP number was expected to be low but the actual number caught many by surprise. It kind of confirms what many business leaders were hinting at, that this doesn’t feel like a healthy growth economy right now. When you have the largest consumer businesses struggling at sub 5% volume growth, the real GDP number cannot be an impressive one.
The market reaction to the Q2 GDP number reinforces a key aspect of investing – the market tends to price in many developments in advance. Once something is priced in, the market doesn’t react much to bad news. Going by the market reaction, the current slowdown is expected to be a cyclical one that should get better in a few quarters. Govt capex should see a healthy rise through H2 to make up for the slowdown in H1. Consumption should get better on a YoY basis in rural India, through it will take some more time for overall consumption to show a healthy growth trend.
In the meanwhile the US equity market continues to be on an uptrend, though it has taken a bit of a breather in December so far. There is just too much going on in the world right now and it might stay that way for a few months. It has been fashionable for investing gurus to emphasize that macro changes are something that investors need to live with, rather than build investing strategies around. We agree on this when it comes to the medium term and the long term, however when it comes to the short term macro changes become very important. Regime changes, politics, commodity prices & interest rates affect liquidity in the asset markets, and liquidity is what moves the needle in the short term. Even in an asset class like real estate, a liquidity event like Flipkart employees getting an exit for their eSOPs or a Swiggy listing creates a new category of home buyers overnight. Ignore liquidity and supply-demand dynamics at your own peril when it comes to managing the short term in investing.
Our overall take on the macro environment is that this transition will most probably go the 2016-17 way. There was a lot of volatility across commodity markets, currency markets, interest rates that affected asset prices – but over a period of 6-12 months stability was the norm again. Once the market digests the new rhetoric of the POTUS and the expected dislocations in policy, it will figure out what it needs to focus on an track. For this reason, we keep harping that “fastest finger first” is never a great approach in the market, unless one is in a clear trending market. In a range bound market that is likely to take time to make up its mind, needless activity is to be avoided. Money parked at 6%+ p.a. in a liquid fund can give you peace of mind and optionality in action. Through FY25 we have done more selling than buying in the portfolio, more importantly whatever we have added is well in the money so far.
We have come to the view over time that a healthy amount of churn keeps the portfolio in line with changing market dynamics. One should stick to a buy and hold approach only in a few stocks where the long term growth potential & competitive strengths are beyond doubt, for all other stocks one should be open to calibration based on market conditions. It is extremely easy to fall in love with what one owns, to the extent that you have this bias well documented in behavioral finance. We still believe that the current environment is one where mistakes are to be avoided, though there are enough stocks that can potentially make it to the portfolio.
One of the best outcomes of the microcap stocks series we started in May this year is that we are forced to evaluate at least 3 new stocks every month. It is difficult to build fantasies when you force yourself to smell the grass and to see the ground reality every week. In a behavioral sense, it has been a good decision to put our research team under the pressure of churning out 3 microcap business research notes every month.
One of the priorities for us at Congruence Advisers over CY26 is to build better digital presence across channels so that more people can discover us and evaluate if we can add value. Balancing this priority without losing focus on the core aspects of building portfolios and delivery healthy investing outcomes won’t be easy. But what is easy is rarely valuable and vice versa. Getting things done and adding value to the investing ecosystem are what will keep us relevant in the long run.
In this context, one of the other initiatives we have recently started is our Instagram profile where we are focusing on content of a different kind. Over there we will be covering important trends in sectors & the overall economy one needs to focus on. With bottom up active investing it is very easy to zone in on a few companies and focus all of our efforts there, but when data and obvious trends hit you in the face one is forced to dive deeper into newer themes and areas. Please do give us a follow on our IG profile.
One of the underrated aspects of becoming a good investor is the ability to consistently identify areas of improvement and cover all bases over time. Some investors are great at depth of analysis but lack the breadth needed to become more well rounded. Some others are great at navigating into the current themes but are sub optimal at building conviction and position sizing. Knowing yourself well and working on the areas of improvement is a very valuable skill not just in investing but in many other aspects of life. This calls for one to do regular soul searching and lose the obsession and touchiness we have with our own ego, not an easy task by any means.
If there is one category of people who are more likely to do this well compared to all others, it would be serious investors. The market is brutal enough to teach you very important lessons, if only one is open enough to learn. One can survive and thrive for 20 years in a professional career but it is very unlikely that a serious investor will go 20 years without a bear run where one loses > 30% from the peak.
We aren’t a fan of new year resolutions but if it is something that is up your alley, one of the most productive resolutions you can make is to spend more time reading every week. We aren’t referring to casual reading but to reading content that can enhance the world view you have and open your mind to more perspectives. One should ideally be reading content across demographic changes, policy making, economics, investing, health & self improvement. In today’s digital era, there is no shortage of content in any field. The real effort would be needed in figuring out who is worth reading/listening to and who isn’t. Please go out and identity 4-5 such sources you want to learn from every year. If we do this for the next 3 years we will all be much smarter and richer in our perspectives and thought process than we are today.
Wishing you all a happy festive season and new year in advance.