A note from the founder - Apr 22

We are witnessing certain trends that affect our money matters.

1. Rising Inflation – both businesses and individuals are facing high inflation. Businesses get affected with their raw material and supply side prices rising. Businesses may or may not be able to pass on the higher costs immediately to their customers. This leads to reduced profit margins. Oil price rise, electronic chip shortage are examples of this. As a result, businesses see a drop in their share prices. However, well run businesses will recover from such circumstance. Individual families are also facing steep inflation. Consumer price inflation in India is now 6.02%, a high in last 8 months. This may affect consumption and savings of rural and lower middle class. This in turn affects sectors such as two-wheeler sales, FMCG etc.

2. Rising Interest rates – the last 3 months or so has seen an increase of ~100 bps (or 1%) in 10 year government bond, a benchmark for long term rates - from 6.0% to 7.0%. This is a consequence of increased government borrowing. Same is the case in the USA. The central bank in the US has also been raising rates last couple of months with promises of more increases during the rest of year. All this has an impact of Institutions rushing to buy more bonds and less flows in equity.

3. Property cycle turning – Real-estate markets move in long cycles (typically 7 year). We are beginning to see a lift in property markets especially in Mumbai and Delhi NCR. This means more transactions are happening and increased price (by 10-15%). This contrasts with the last 5-7 years of a relatively dull period for property market. Home loan growth Year-on-Year is very robust across India further confirming this trend.

4. Uncertainty of Russia-Ukraine war – If Covid made the world uncertain last year, it is now the war. No one can reliably predict the outcome, duration and impact of this war.

From the above, we see the importance of building an “all weather” portfolio. Long term trends of interest rates, equity market cycles, property market cycles, change. As advisors we try and create investment strategies and portfolios that minimize impact of such changes and, in fact in many cases, benefit from the changes. The idea is for one to have peace of mind about one’s overall portfolio. Your goals don’t change, and it is more important that irrespective of what trends are or how they change, we meet our goals.