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Learnings from 2024

posted on 13 January 2025 by Sunil Jhaveri

Looking at 2024 Learnings:

Wishing all the readers a very happy new year.

Unfortunately for equity investors, beginning of 2025 has been a very bad start with NIFTY 50 correcting 1.31%, NIFTY Mid Cap 100 down by 4.99% and NIFTY Small Cap 100 down 6.93% till January 10’2025 (last Friday). As I pen this note, NIFTY 50 is down further 01.30% with Mid and Small Cap indices further down by more than 4.25% each.

Let us revisit some of the articles I had written in 2024 and its impact on investor portfolios:

23rd August 2024 : Time to Look Beyond Equities:

Link of the article: https://www.misterbond.in/article/time-to-look-beyond-equities

Here I had stated: Investors need to relook at their portfolios, reduce weightage to expensive valuation segments like Mid Cap & Small Caps, reduce equity exposure based on their asset allocation and add 10-20% in precious metals as stated above to benefit from investment stories that has developed in these asset classes and make their portfolios truly multi asset and hedge against inflation and uncertainties. Make this your core portfolio and let it remain in the portfolio to a) give balance to the portfolio and b) act as a hedge against inflation & uncertainties.

Those who reduced exposure to Mid and Small Caps and added Gold and Silver in their portfolios from this date onwards, their portfolios delivered alpha of 15 to 16% as Gold delivered 9% absolute returns, silver delivered 6.5% v/s NIFTY 50 (5.61%), NIFTY Mid Cap (6.78%) and NIFTY Small Cap (7.51%).

2nd September 2024 – Signals given by some of the Asset Classes for the US Economy:

Link of the article: https://www.misterbond.in/article/signals-given-by-some-of-the-asset-classes-for-us-economy

Here I had stated: This time will be no different, in all probability markets will cheer rates cuts, scale new highs but US economy will go into recession soon thereafter, followed by major market drawdowns. In addition, there are many more factors that I had written about on 22nd November’2023 a link of which is shared here -which points towards a fragile US economy.

……3 of the major macro indicators are pointing towards reallocation of funds from risky asset classes and create portfolios with low risk-high returns going forward. To summarize, strength in 10 year UST prices and Gold prices are indicating expectations of weakness in the markets moving ahead and dollar index going down once again indicates weakness in US economy. Only one asset class which is defying this trend and swimming against the tide is Equities.

19th September 2024 – Post Fed Cut can Financials be the new Defensive Play?

https://www.misterbond.in/article/post-fed-rate-cut-can-financials-be-the-new-defensive-play

Here I had stated: Post most rate cuts and Fed pivot, history has shown that there have been recessions and major drawdowns in markets. In 2001, NIFTY fell 35%, in 2007, it went up initially to drop 60% thereafter in 2008. Currently domestic demand is soft and valuations are stretched. So far, Indian market rally has been broad based. All segments like Large, Mid and Small Caps have performed well. Now, it is time to be cautious and use a FUNNEL (Top Down) to filter where to invest. Also, there should be rotational change in both Market Caps and Sectors.

…..Based on first filter, one should now invest in Large Caps and reduce exposures to Mid & Small Caps where valuations in many pockets are over stretched. Thereafter, second filter is to identify & avoid sectors which are stretched on valuations like autos, PSUs, industrial, metals and go overweight on those sectors which have so far not found investor fancy due to reasons mentioned below:

….You can take advantage of cheap valuations of these sectors (Banking & Financials) and upside going forward due to FII participation which will then fuel DII participation as well. This will be another step towards sector rotation from expensive to less fancied and reasonably valued sectors. This will ensure downside protection from market corrections (as and when that happens) when sectors which are stretched on valuations will have major drawdowns v/s sectors which are reasonably valued.

Though Banking & Financials have also corrected along with broader market fall, this call should play out in 2025 as and when FIIs come back to invest in India. NIFTY Banking PE has come off from 15.31 (as on 19th Sep 2024) to currently (as on 10th Jan 2025) 13.11 and making this sector even more attractive and NIFTY Financials PE has come off from 17.33 (as on 19th Sep 2024) to now 15.76

26th September 2026 – Diversification – the new Buzz Word

https://www.misterbond.in/article/diversification-the-new-buzz-word

Here I had stated: True diversification and its purpose are to invest in negatively correlated asset classes which counter balance each other during times of volatility in any of the asset classes. Some may have positive correlation and some may have negative correlations, it should be able to weather storms under different weather conditions and come out on top……Investors only think of some of these asset classes like Equity, Real Estate, Gold as some of the asset classes for portfolio diversification. But one of the main asset classes which gets missed out in this allocation is CASH or DEBT as an asset class – dry powder to take advantage of market volatility in other asset classes.

…….It is important to understand the role of CASH or DEBT in an investor’s portfolio. Most investors stay fully invested even when market valuations are expensive or stretched. This is a dangerous situation when markets go into major drawdowns and investors’ hands are tied behind their back and they can only witness carnage in their portfolios as a) they do not have the guts to invest further or b) they do not have any additional funds to deploy when opportunities arise as they were fully invested before that.

17th October 2024 – When should you desist from investing in Small Caps?

https://www.misterbond.in/article/when-should-you-desist-from-investing-in-small-caps

Here I had stated: Above data shows whenever this ratio has gone above 70 and investors had invested in Small Caps on those dates and held the investments over next 3 years. Not only the average of 482 such observations is negative but Small Caps have delivered negative returns in 371 observations out of 482 observations which had completed 3 years after investing in different indices when the ratio was > 70. As mentioned earlier, currently this ratio is 0.77 (way higher than 0.70) and probability of earning negative returns from now to next 3 years is very high.

Those who have read my articles and my interviews closely, common thread through all of them was warning investors against getting euphoric, desisting from investing in Mid and Small caps, in fact doing some profit bookings from these segments and rotating investments in asset classes like Gold, Silver and Large Caps. All these predictions are panning out as I pen this article with major carnage in Mid and Small Caps and less corrections in Large Caps with positive returns in Gold & Silver.

This was postmortem of 2024. Now let’s look at what is in store in 2025:

  • Markets will take cues from Global macros which are quite fragile
  • Rising Gold prices and falling crude prices point towards slow down in major economies including India
  • Dollar Index strength v/s other major currencies including India will see outflows from emerging markets – FIIs will be net sellers for some more time
  • DIIs have lost steam and may not have guts or further funds to “PROP UP” the markets (unlike times when FIIs were selling and DIIs were giving them easy exits)
  • US 10 Year Yield at 4.80% will also force many sophisticated investors to switch from equity to risk free debt
  • Trump’s policies of higher tariffs on imports and cutting tax rates are likely to be inflationary and will not allow Fed to cut rates further (again negative for equity markets)
  • Brace for more volatility in 2025

Let me conclude by reiterating my Tweet of 30th December 2024: Learnings from 2024:

Learnings from 2024:

  1. Respect market valuations
  2. No country is insulated from Global Macros and geo political issues
  3. Liquidity can drive markets to an extent but reversion to mean is a reality
  4. Equity is not the only asset class that can generate wealth
  5. There is rotation of which asset classes will perform in a period
  6. Stick to asset allocation
  7. Have enough dry powder to grab opportunities presented
  8. Precious metals have a role to create balance in your Portfolios
  9. Do not get swayed by news and events
  10. Long Term markets will deliver Nominal GDP ++ returns
  11. Temper your returns expectations based on above
  12. Remember, real wealth is created by investing in bear markets (better valuations) than in raging     bull markets
  13. Lower your returns expectations from an asset class if it has delivered stupendous returns in recent past