Do you think the bull market is at its peak or would you say it will only be a temporary lull in an otherwise roaring bull market?
When it comes to bull market returns, the obscene returns you’ve made in small caps in 17-18 months in India are pretty much crippled. Of course, the tangent will be different now, there will be relatively low returns – nominal returns – in the inflationary environment. It will continue to be good, but not great. . I would be surprised if this is the end of the bull market as it would mean it would be like the 2009-2010 business cycle which ended in a year and a half.

My bet is that in India the bull market would be long and the mid-cycle phase would persist for at least one to two years, if not longer. There will be low but reasonable returns in Nifty. We will have volatile returns on small and mid caps but you never know if policymakers start to surprise you by tightening rates because they start to fear inflation. We also need to prepare for the end of the bull market, but at this point I’m not calling it.

There is reasonable space in the global economy and the Indian economy to grow and that means there will be underlying currents of more gains in asset prices.

I have to say you’re the first of the lot to say it officially, but the point is taken. I understand where the fears emerge. If you are underweight equities, where can you invest? Fixed income securities aren’t yielding, gold hasn’t had the best of the trip like it did in 2020. So where do you park your money? Can’t be sitting on the money?
Fixed income securities are not a place to go, especially duration assets, if you’re worried about inflation. But remember that equity is the longest lasting product. Long bonds are of course of duration and therefore you have to hide in a short duration like assets of three months, six months, one year, but here the real returns are in fact negative. Something cannot change significantly, but it could mean a lot if you buy farmland because it provides the best protection against inflation.

Gold and silver have independent cycles, but there might be some steam there. You cannot have significant exposure to gold and silver as a percentage of a portfolio. So, in general, you always have to be in risky assets at least on an equal weight basis, but you have to diversify, it could be real estate, more specifically agricultural land. Some might go to gold and silver then you have to sit on equity mutual funds or equity focused exposures but just know if this is an end cycle. you need to be careful and quickly reduce exposure even to the large cap Nifty at some point.

All things aside, valuations are nothing but a beast of the stock market. Demand is something you can’t walk away from. What happens to the earnings cycle? It’s not going to peak. Businesses will continue to reduce demand and display the kind of profits they have. Are inflation-sensitive companies decent places to hide whenever the correction takes hold?
Company specific and industry specific there are independent cycles, but there is something called beta. Unless the broader markets are in good shape, a good or a bad sector will tend to underperform bonds relative to equities. But bottom-up stock pickers could still identify sectors and companies that would do well if policymakers started to tighten up again.

I approach the markets in terms of cycles. The early cycles are the times when you are making huge returns and these are the parts of a cycle where no news is bad, but policymakers are overactive in stimulating demand or creating more supply and this ensures that very large stock market returns are actually generated. Now that part is over. We also call it reflation, which basically means policymakers are trying to get the economy going.

Then we go into the middle of the cycle where, as policymakers shrink, the overall profit cycle has accelerated and demand is growing well and this is independent of policy. The equity markets are doing fairly well, but remember that a large portion of the excess returns has already come in reflation trading.

The mid-cycle finally gives way at the end of the cycle in which policymakers surprise on the tighter side, trying to drastically restrict demand that markets don’t like. The markets actually lose money during this period. We are in the middle of the cycle. Maybe over the next couple of years we might be able to generate excess return over bonds, but not significantly. So from that perspective, given that the start of the cycle or the reflation trade is already behind us, it makes sense to be either evenly weighted or underweight equities.

If you take a macro approach to investing like I do for myself and my investors, you will need to reduce your exposure to stocks, in order to prepare for a full exit from stocks at the end of the cycle. This is the approach that I am. But a lot of fund managers and fund houses will tell you that and that is true for an average guy and I have said it many times that if you are not an active investor right now then stay invested and keep going. to allocate money. You will be doing a reasonable job in the next 10, 20, 30 years. But you don’t necessarily have to time it. So this approach – systemic investing, SIPs, and the like can continue as we go along, no matter how the cycles unfold.