ABC Portfolio - Jun'22 update

Performance & Portfolio updates - Jun'22

Performance

Jun ’22 saw an acceleration of the unwinding across equities, FX, commodities and crypto. Bond yields rose sharply till mid-month and have softened since. Indian markets mirrored the global trend across assets.

All currencies weakened v/s the USD driven by the Bank of Japan’s policies (see Yen effect). The FED ultimately hiked rates by 70 bps with chances of more in July. This shifted the narrative to a potential economic recession and if further rate hikes may result in a policy error.

In India, the RBI did a pre-emptive 50 bps rate hike in early June anticipating similar moves by the FED. Import duty on Gold was hiked to ease pressure on the INR. Export duties on refined crude by private refiners benefitting from cheap Russian crude were increased to shore up Govt. finances. These actions are broadly symptomatic of wartime economics.

Developments in trends we invest into in the ABC Portfolio

1. Manufacturing ecosystem – Liquidation of the commodities complex globally on recession fears impacted the metals & mining exposures. This will likely cause a postponement of capex plans which is longer term bullish.

2. Organized agri-business – A cooling of agri commodity prices has eased some pressures here and raw sugar exports may restart. The intensity of the monsoon rains is likely to be a bigger driver here in coming months.

3. Digital platforms – The RBI’s concerns on systemic risks posed by digital lenders lead to guidelines for bringing them under regulatory supervision. A reality check in this space will help in healthier growth down the road.

4.Supporting infrastructure – The finance minister re-iterated the focus on Govt. capex in infrastructure as a key driver of economic activity.

5.National Champions – Oil refining & marketing firms will likely see some benefit from cheaper Russian crude supplies. Digital initiatives continue to be a focus for transforming the PSU banking space.

Summary & Outlook

June was month where sectors we own saw significant selling pressure while ones we don’t did comparatively better. Policy actions have impacted sectors like metals, mining, energy, food etc. highlighting their strategic importance in the new multi-polar world order.

Existing global economic & currency systems will likely be upended and the need for self-sufficiency will drive decision making over economic profits or extreme efficiency. The ABC Portfolio’s themes are built for such a world and we continue to nibble in whenever negative sentiment presents lower prices.