Dear Friends:
As we reflect on the conclusion of Financial Year 2024, it’s evident that the past twelve months have been rife with significant global and local developments, shaping the economic landscape in profound ways. Amidst the myriad events that have unfolded, one overarching theme that captures our attention is the prevalence of wars in various parts of the world. From the ongoing Russia-Ukraine conflict to the persistent internecine strife in different regions of Africa and the recent escalation in tensions between Israel and Hamas, the toll of armed conflict on innocent civilians cannot be overstated. While leaders engage in geopolitical maneuvers from the comfort of their offices, it is the ordinary citizens who bear the brunt of violence and disruption, with economies often regressing several years in terms of growth. As stewards of capital, we remain steadfast in our hope for a world where diplomacy triumphs over conflict and where prosperity is shared equitably among all.
Despite the backdrop of geopolitical turbulence, the resilience of global economic growth has been noteworthy. While Europe has grappled with its own set of challenges, the US economy has displayed remarkable resilience, even in the face of a confrontational stance from the Federal Reserve. Although there has been a marginal uptick in US unemployment figures, the labor market continues to exhibit strength and resilience. The Fed’s proactive signaling of potential interest rate cuts underscores its commitment to preserving economic momentum and warding off any downturn. In a similar vein, China has surpassed expectations with a growth rate hovering between 4-5%, signaling a potential stabilization of its economy. Overall, the outlook for global growth remains cautiously optimistic, underpinned by the tenacity of major economies in navigating turbulent waters.
On the domestic front, India continues to shine as one of the world’s fastest-growing major economies, fueled by robust performance across key sectors. Infrastructure development, energy production, and manufacturing activities have been bolstered by proactive government policies and initiatives. Furthermore, sectors such as real estate, automobiles, pharmaceuticals, and banking and finance have demonstrated resilience and dynamism. However, a slight deceleration in consumer spending, particularly in durables and discretionary items, has been observed. Nevertheless, we anticipate commodities to perform well, driven by expectations of global interest rate declines, the resilience of US and Chinese economies, and a resurgence in demand from regions impacted by conflict. As elections loom on the horizon, the prospect of policy continuity in the event of the incumbent government’s return to power bodes well for sustained economic growth and stability.
In the financial markets, both globally and in India, the prevailing sentiment has been overwhelmingly positive, with small and mid-cap stocks enjoying a period of unprecedented prosperity. Large-cap stocks, while still performing admirably, have been eclipsed by their smaller counterparts, highlighting a significant valuation gap between the two segments. While it may be premature to speculate on whether the markets will replicate the stellar performance of FY24 in the coming fiscal year, we anticipate bond markets to outperform most equity indices, buoyed by expectations of declining interest rates. Consequently, while maintaining a strategic allocation to equities remains prudent, augmenting exposure to long-duration debt funds may offer a hedge against market volatility and enhance portfolio diversification.
Turning our attention to our portfolios, while performance remained robust for the majority of calendar year 2023, concerns over stretched valuations in small and mid-cap stocks prompted a cautious and defensive stance in our investment approach. Additionally, the strong rally witnessed in PSU (Public Sector Undertaking) stocks exerted some influence on our portfolio performance. However, we remain circumspect regarding the sustainability of this rally, given the inherent weaknesses in the business models of PSU companies compared to their private sector counterparts. Looking ahead, we are committed to restoring the weightage of small and mid-cap stocks in our portfolios once valuations revert to more attractive levels. Over the long term, we maintain confidence in the efficacy of our “Core and Satellite” strategy, which has consistently aligned with the objectives and risk profiles of our investors. Despite short-term fluctuations, our unwavering commitment to a disciplined investment process and adherence to stringent quality standards ensures that our investors remain well-positioned to navigate both favorable and adverse market conditions with resilience and poise.
At Capital Portfolio Advisors, our guiding principles remain anchored in integrity, expertise, and a steadfast commitment to serving the best interests of our investors. As we embark on the journey into the new fiscal year, we extend our gratitude for your continued trust and confidence in our stewardship of your capital.
Happy Investing!!
Paras Adenwala
Disclaimer:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Past performance is not indicative of the future.
Any part of the content of this article should not be construed as, an offer or solicitation to buy or sell any securities or make any investments. The content shall not to be relied upon as advisory or authoritative or taken in substitution for the exercise of due diligence and judgement by any user nor should it be used as a basis for making any decisions, without exercising user’s own judgment or diligence. As a condition for using this Blog, the user agrees that Capital Portfolio Advisor (CPA), its Founder or any of it’s employees make no representation and shall have no liability for any loss or damage, direct or indirect, arising from the use of the Blog. CPA reserves the right to change the content of the Blog without prior notice.