ABC Portfolio - Apr '22 update

Performance & Portfolio updates - Apr ’22

Apr’22 saw a continuous pull-back of the March rally, as the focus shifted to policy response by Central banks.

With Japan pegging 10 yr. yields, there is a differential v/s US yields for traders to capitalize on, in turn raising hedging costs of USD/JPY, making it unattractive for Asian buyers of US debt. This raises US bond yields & USD causing stock markets correct globally. It is a double whammy for China as Japanese exports become cheaper, while rising US yields tightens financial conditions – the makings of a currency & economic war.

In this complicated global backdrop, Indian equities & INR moved in sync with global price action but continued to be resilient. India hasn’t really been on the global radar in the past decade which leaves fewer sellers. Monthly FII sales of ~40k cr is barely 0.2% of India’s market cap today and <1% of India’s annual domestic savings.

Developments in the trends we invest into in the ABC Portfolio

1.Manufacturing ecosystem – Energy and materials continued their strength and is the stimuli for the energy transition & the supply chain reset. An attempt to kickstart a semi-conductor supply chain in India is underway.

2. Organized agri-business – Larger subsidy for P&K fertilizers was announced given higher import/input prices. The crop cycle may however be affected given extreme heat conditions nationwide.

3. Digital platforms – Pilot projects for ONDC – the unified interface for e-commerce was launched in April. This is part of India’s strategy of not allowing 1-2 corporations dominate digital infrastructure, unlike the West.

4.Supporting infrastructure – PM GatiShakti starting to show gaps in project development – key to faster execution

5.National Champions – India’s largest national champion launched its IPO at a scaled down valuation

Summary & Outlook

Market volatility will be the norm of this decade given its defining components – energy & goods supply chains and reserve currencies are in a state of flux.  Visits by various foreign dignitaries in recent times signals India’s likely emergence in this time.

Keeping faith in India’s transition to a middle-income economy and focusing  on the critical areas needed to make that transition happen is our consistent mantra in the ABC Portfolio.