"If you are the master be sometimes blind, if you are the servant
be sometimes deaf."
— R. Buckminster Fuller
(American, 1895-1983)
Word for the day
Garbology (n)
The study of the material
discarded by a society to learn what it reveals about social or cultural
patterns.
Malice towards none
Will it be Nath vs. Scindhia
in MP and Gehlot vs. Pilot in Rajasthan assembly elections later this year, to
give a walk over to BJP?
First random thought this morning
The Uttar Pradesh government is relentless in propaganda of its
"achievements in past one year. Last week too it issued multi page color
insertions in national Dailies. The listed achievements included (a) laying foundation
stone of an expressway planned a decade ago; (b) water pipelines in some
villages; (c) electricity polls in some villages; (d) city gas distribution in
Varanasi; (e) community health center in a village; (f) a TCS BPO; (g) cleaning
and renovation of few ghats in Varanasi; (h) improvement and upgradation of few
roads, etc.
It would be interesting to see if the government would like to
take credit for Mukesh Ambani becoming richest Asian during its tenure!
Pain of professional investing
Since past couple of weeks,
markets participants have been quite actively discussing the worrisome
dichotomy in market, i.e., outperformance of benchmark indices (Nifty and
Sensex) over broader market. Nifty has in fact outperformed most of the EM
indices in past couple of months.
The outperformance of benchmark
indices is giving an optical illusion of "all is well" in Indian
markets, whereas most of the investors are experiencing serious loss of value
in their respective portfolios.
After 4yrs of bull market (August
2013 to July 2017), it is normal for the broader markets to underperform and
market breadth to stay negative during the course of the correction. What has
surprised the market participants, in past 8weeks in particular, is that the
move has been totally in opposite direction, viz. Benchmark indices have gained
~4%, while the small and midcap indices have fallen over 10%. Market breadth in
this period has been very poor.
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This dichotomy has created some peculiar problems for investors. For example:
(a) The portfolio investors who hold a large proportion of stocks
outside Nifty universe are not able hedge their portfolios by shorting Nifty.
(b) Sectoral portfolio construction has become difficult as there are
no discernible sectoral trends. The divergences are mostly based on market
capitalization weight.
(c) Portfolio diversification is leading to even higher losses, which
is counterintuitive at this stage in market.
(d) Concentrated portfolio in top Nifty stocks has outperformed, but
given the valuation premium over mid and small cap, the risk has increased
significantly.
(e) In past couple of years, maximum money has been raised by mutual
funds and PMS that aim to invest in mid and small cap stocks or stocks from
specific theme or sectors. Most of these funds are underperforming the
benchmarks, making investor jittery.
Ideally, these short term market
aberrations should not bother an "investor". To the contrary, these
are opportunities for investors where they can buy good stocks at bargain
value. However, this time more investors are worried than ever. The reason, in
my view, is meaningful institutionalization of the equity investment in past
couple of years.
The asset under management (AUM)
of mutual fund, PMS and other institutional investors has grown substantially
in past couple of years. But most of these professional investors (managers who
invest money on others' behalf) are in a fix.
They are given supposedly long
term money to manage but get evaluated on month to month basis, and in some
case even day to day basis. Their remuneration depends on their quarterly
"trading" performance and net new money collected and not on the
basis of new investment idea discovery.
These investors are therefore
under tremendous pressure to generate return on "monthly basis" rather
than creating wealth by investing for long term.
The following viral message on
social media captures the true essence of the point I am trying to make here.
(Please note that I have no means to verify the authenticity of this. I am
reproducing it just to highlight my point without any comment on the
performance or appropriateness of the strategy of the concerned fund
house)...to continue tomorrow
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