Vijay Kumar Gaba

इशरत-ए-क़तरा है दरिया में फ़ना हो जाना 

दर्द का हद से गुज़रना है दवा हो जाना

— मिर्ज़ा ग़ालिब

(Aspiration of every drop of water is to get extinguished by immersing itself into the ocean. For a person who is hurt in love, extreme pain is the only relief.)

I interacted with a small but reasonably representative sample of investors in the past few days. The interactions were in person meetings, discussions over telephone and WhatsApp chats. We discussed a wide range of topics that are current in investors’ memory. The idea was to understand their current outlook on markets. From my discussions I have concluded that currently a majority of investors are ambivalent about their investment outlook and strategy. They are perplexed, greedy, fearful and relieved all at the same time.

The following are some random thoughts based on my latest interaction with a sample of investors.

Some random thoughts

It is customary to read and quote investment classics during market turbulences. However, in my view these classics are more relevant in the times that could be explained by rational thinking. For market situations where the investors’ psyche is overwhelmed by greed, fear, anger, disillusionment, delusion, etc., philosophy (of life not money) provides better answers. I find that the present market situation is one of those situations where investors’ may be better looking for guidance in philosophy books.

In this digital era of human civilization, the life of common people is significantly influenced by the media, especially social media. Our brains are increasingly becoming like RAM (Random Access Memory) of our computers. It is a playground of active dataset, which gets erased as soon as the new dataset becomes active. It works strictly on GIGO basis (Garbage in Garbage Out). If the feedback of my sample is any indication, the activity of investors in the markets is aptly represented by the messages they send/share on their social media timelines or chat boards.

The activity of a common man on social media is a good indicator of his current state of mind. I find an unusual rise in funny memes relating to the markets, portfolios and investors’ misery. Even seasoned investors and advisors are sharing jokes and memes about the serious drawdown in their portfolios; as if they are vindicating what legendary Mirza Ghalib said 200 years ago. Once the drawdown in the investment portfolio goes beyond the tolerance limit, it becomes a relief.

Many younger investors are perplexed; especially those who have started investing on their own in the past 2years, and experiencing their first major market correction. These youngsters who have been learning investment from the benevolent guides on social media and star investors frequently seen on electronic media, are already questioning what they have learned in the past couple of years. For example, consider the following inquisitions:

·         I was told that the markets are decoupled from macroeconomics. But now all experts are warning about inflation, current account deficit, policy rates, USDINR, GDP growth etc.

·         I was told that this decade belongs to India. The Indian economy is the fastest growing economy and the pace of growth will accelerate even further. The government of India is doing all the right things to ensure faster growth in the coming decade. But the experts who were telling this are worried about the ruling party losing election in one state and advising caution.

·         I was told that Electric mobility, ESG standards, clean energy etc. are the power themes that will drive markets in this decade. However, two weeks of spike in fossil fuel prices has made these themes redundant, rather than strengthening belief in them.

·         I was told “Zomato, one of the top 5 unicorns of India, is a platform company which has successfully solved for convenience by connecting restaurants with customers. By using technology and a fleet of delivery partners, Zomato has created a capital light compounding machine which creates an eco-system wherein the best of the restaurants will make more money (as Zomato brings more customers driven by quality reviews/ratings) while customers enjoy convenience along-with right-quality product and delivery partners enjoy part-time income. Platform companies have ruled wealth creation globally. We believe, Zomato, as a platform and being category leader, will continue to drive outperformance in the food services industry in India.” But the stock is down over 25% from my buying price and now experts are telling me to sell.

A deeper inquiry suggested that most of these investors were overweight on new economy stocks, which have been the worst affected in this correction. They are not sure whether they should sell their current holdings at prices 30-40% lower than the cost of acquisition, or just stay put.

Many seasoned investors who started the discussion with the question “what should be done?”, were found swinging between “greed” and “fear”. From their experience they know that these are temporary turbulences and eventually markets will be alright. Thus they are seeking opportunities in this fall. However, the persistently negative news flow is making them fearful. The fear of losing capital due to further sharp drawdown is overwhelming. These people are thinking about selling and buying in the same breath.

Some of the global institutional investors who were “structurally” bullish on Indian equities are suddenly discovering that many developed markets may be offering relatively much better valuations than India. Some domestic fund managers are the most ambivalent at this point in time. They cannot afford to give a “sell” call publicly but in private discussions they are scared since the new “skin in the game” rule has put their own money at stake.

Overall, it appears that the process of bottom forming has already started. The fear (and indifference) shall soon overwhelm the greed and capitulation would befall. Till then enjoy the memes: