August 2015

FII Exit

In the month of August markets corrected by close to six percent. We witnessed close to four billion dollar exit by FII’s since May – 2015 from India equities. This was part of a global sell-off and majority of equity, currency and commodity markets saw deep cuts. Consensus on the street is relating this to China slowdown, Chinese Yuan devaluation, uncertainty over Fed rates & withdrawal by sovereign wealth funds from oil producing countries. Some unique micro situations are also emerging in India which may have significant impact on profitability of large sectors. A case in point being the recent guidelines issued by RBI on marginal cost for deciding base rate which will significantly impact margins of the banking industry. This led to sharp selloff in some of the banking stocks.

Once again we have outperformed the market during this fall. The fall in our portfolio values were much lesser than the benchmark index plus we created alpha of more than three percent in this fall. Our underweight position on banks helped us to a large extent in protecting the portfolio value. Our overweight position on NBFC’s in place of banking is greatly helping all our portfolios to manage volatility and produce outperformance. In last 2 years both the NBFC’s in our portfolios delivered more than 180% return whereas a premier bank like HDFC Bank has delivered just 50% return in the same period.

As a company we focus more on avoiding mistakes. Most of our alpha has come from avoiding big mistakes like the way we avoided banking in the last one year. We are proud to share that we have delivered a one year return of close to 40% producing an alpha of over 36% which was best in class at extremely low volatility. We have delivered these returns at almost zero churn in the portfolio.

Regards,

Vinod Jain