Market Notes 14.06.25
CorrectionOver, Digestion, SIPs, PerformanceMeasurement, Macros, Themes, EarningsDigest.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. We may own positions in all stocks, sectors and indices discussed and can exit them without notice. You will very likely lose money if you use any information in this post without your own due-diligence.
Revisiting the correction.
I said the below in my last market note in February. I am highlighting it not to tom-tom the prediction but because it’s an important concept that we all need to understand - that corrections eventually end and the rallies off the correction are as ferocious as the correction itself has been. This means anyone who sells once the correction is deeply in, will find it very difficult to make up the lost returns. Here’s what i said on Feb 16th. The correction eventually, in full hindsight, ended on March 4th.
The Nifty since then is up 12% and the smallcap index is up close to 25%. Individual stocks as we all know are up 30-50% or more. The lesson is not to predict the bottom but once a correction has set in don’t make the big mistake of selling out in panic. Switching is ok but reducing exposure is not. Either panic early or panic before investing to ensure you’re only betting what can stay invested even with a 20-50% or more drawdown because sooner or later you will face this in the markets. There is no running away from it. The level-up for this ofcourse is to figure out how you can invest in a correction but let’s leave that for another day.
Digestion.
Cut to now. The best way to summarize what’s happening right now, in a big picture sense is - Digestion. We’re just digesting the big gains that have been made in the last couple of years. This is a very natural phenomenon that happens time and again in the market. See the chart below:
After every big bull market there is a period of correction and consolidation and we’re likely going through one. Hopefully we’re more than halfway through it. But i would call 2025 as a the year of digestion. When we’re in such an year no matter how much one struggles one can’t generate high returns. We will need to wait for this period to pass and for the next to start which eventually will, hopefully soon!
SIPs.
Contrary to what a lot of people said on media - which i agree is often taken out of context and blown up - these periods are the ideal time for the SIP investor. The SIP investor doesn’t make money because they are regular or disciplined. They work because you’re having a system that buys during corrections and difficult periods of chop and consolidation. A SIP in a bull market is worse off. The SIP works over the long term precisely because you unknowingly buy during the worst phases. It is those worst months that give you an overall superlative return. I would say stop you SIP if you want in an out and out bull market but never stop it in a bearish phase. That’s where you’re making the big money.
While we’re on the topic the best returns for a SIP investor will always be made in an asset that is very volatile in the short term but generates the highest return in the long term. In our universe that asset is the mid and small cap space. They are very volatile in any given year but if you see the long term term returns they are the best asset class. This is where alpha is generated and this is where any serious investor should operate. Of course if one’s risk profile is markedly moderate or conservative picking large caps is the right thing but one has to take that conscious call.
Often is many data points i have seen that over the long term the bottom quartile small and mid caps would have done better than top quartile large cap funds. So what’s the catch? The catch is the volatility and large variation in returns over the short term that many people find difficult to stomach.
Performance Measurement.
Another related concept which i think is misunderstood is how to measure performance. It could be your own performance or the performance of the mutual funds you own or any fund manager.
Most of us are anchored on measuring performance on some periodicity. It could be 3 months or 6 months or 1 year or 3 years and so on. This is probably because in general we have an opportunity cost clock running in the background. So let’s say the fund manager has under-performed over 1 year we immediately calculate two things:
How much could i have made in an FD?
How much could i have made in a comparable index fund?
How much could i have made in the best performing fund?
Whatever is that difference is perceived as a loss and we start thinking on the lines of whether we made a mistake selecting that scheme or fund or pms etc. That makes us take a decision to exit the said fund only to find out in another year or two - that fund has ended up as one of the top performers. I am sure this has happened to all of us. This happens not just in funds but also with stocks we own. We get frustrated and we sell only to see it double in next six months.
The point here is not to tell you so much as to how to analyse the performance but understand the nature of returns in the stock market and then let you figure out how to use that concept to take better decisions. Although we want the returns to be linear and on our timeframe, the reality is that the returns in the market are very very lumpy.
You can have periods of 2-3-5 years of nothing and then in the 6th and 7th year you make 150% returns and still end up with a decent 15% CAGR over that 7 year period, which is twice of a FD. This is exactly what happened with the small cap index - from 2018 to 2023 it went almost no where and from 2023-2025 it went up ~150%. So if someone measured returns linearly and exited in 2022, were in for a rude shock.
That was the index but this effect is worse with individual stocks.
What’s the way out? It is just for us to understand these discreteness in the the returns and also to understand how asymmetric returns can be. Which is to say that there is nothing stopping an index or portfolio to go up 100% in an year to make up for all the lost years but you have to be around to get that one year which ended up being more important that may the four other years.
The way is to stick to a fund as long as you dont think there is something massively wrong - often different strategies are just seasonal - if you think the lack of performance is to the strategy or the underlying asset class being “out of season” - just give it time. If you do have to sell, always take an incremental approach to selling out that will allow you to buy more time but with a reduced risk.
Macros.
Getting back to the markets. Let’s look at some macros - they key to how liquidity moves globally.
Crude - I think crude has a big headwind in terms of renewable energy adoption as well as more than enough supply. If not given multiple wars and threats given that crude is still below 80 - i think this is just a short term worry and its headed back to below 70 and eventually may settle between $50-$70 - which is a very very comfortable position for India.
Dollar - Lot of articles on structural weakening of the dollar led by the unsustainable debt levels of the US and an increasingly likely multi-polar world. This kind of a structural weakening of the dollar and consequently strengthening of INR can be a massive tailwind for fund flows to India. One needs to monitor this trend carefully. Ofcourse we want the dollar to slowly depreciate because if there is a crisis or a crash then everyone will suffer atleast initially.
India yield - Out 10Y is at ~6% and is the lowest in a while and spread with US lowest in a long long time and the US yield is at 4-5%. The spread between India and US yields is also probably the lowest in a while. This shows that the bond markets think US today is almost as risky as India which is phenomenal for us.
Gold/Silver/Metals - basically all these are dollar weakness plays and they’ll just move in alignment with how the Dollar index moves. There is nothing more here.
Themes.
The best returns are often had where there is a thematic tailwind. These thematic liquidity chase happens because they promise a multi year secular growth in earnings. I had listed out a few on twitter - will reproduce the same here.
https://x.com/prabhakarkudva/status/1928418337677361217
The last three lines are key :)
Earnings Digest.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. We may own positions in all stocks, sectors and indices discussed and can exit them without notice. You will very likely lose money if you use any information in this post without your own due-diligence.
Some earnings that i liked:
One Source
Genus
Techno
Bluejet
Manorama
PGEL
GRSE
Coforge
ITD Cementation
Power Mech
Pearl Global
Transrail
Waaree Energies
TD Power
AurionPro
Sorry about typos if any, as this is written in a natural flow (my apologies to AI). Thank you for reading.
Most awaited one
Verry good 👍👍👍