Investing was never easy. Rather it was never supposed to be easy. However a longish bull run in the markets – from 2009 onward has made us believe that investing is easy! Well Charlie Munger would have called you STUPID to have even thought that investing is easy!

Let us look at the macros – whether it is Current account deficit – we are not really expecting it to come down. Inflation is at an all time low – but inching up. Surely the US $ is headed up, not down. Interest rates are headed up.

Bad macros for sure.

The current crop of results from corporate India is good. Even Tata Motors which had bad results has posted good India numbers. Tata steel too had good India numbers. So good that they bought Bhushan steel without adding fresh debt (well not much).

Let us look at all this from the investor’s point of view:

Uncertainty is high, interest rates are low in the world, asset prices are high, asset buying is tough – all assets have been made expensive by low interest rates, salaries and other compensation is amazingly high, expensive acquisitions are being made or planned.

When I see this in the mirror I can see: it is not worth buying assets (investing), expect interest rates to go up, salaries to go down esp in the bfsi at the lower end – the higher end takes care of itself, bad acquisitions will backfire (Hindalco),….

How does one invest? by keeping expectations low and being prepared for a long hard grind. Do we think the sensex is headed to 50k? well it surely is – we have no clue 2 years or 5! We do not know whether we will see 33000 before we see 50,000.

The other worry is the 2019 elections. This will make it more uncertain.

Going forward from now to say April 2019 markets will see a lot of turbulence. This is not to say that the market has not seen volatility in the past – but now the standard deviation could be higher. Large cap companies will see more money going into them – remember indexing is becoming fashionable in India, and most of the NPS money is still going into the index. Not sure if you saw the article in www.mfcritic.blogspot.com about how Kotak puts the NPS money in a bunch of equity mutual funds. I would like to believe that such a thing is wrong (it dramatically increases costs) and is an exception.

A lot of the returns will now have to come from the EPS going up. And the EPS will go up only for the good companies, and those managements which bring operational efficiency. Many of the low hanging fruits have been taken.

Expect to see more IPO – the Hdfc Amc OFS was so successful that one can expect to see a spate of AMC IPOs. Will Birla list the mutual fund and the insurance arms also? not clear. So Uti, Kotak, DSP, LnT,….all are potential amc waiting in the wings to do an OFS. This would be necessary to give meaning to the esop that some of the employees must be holding….

What else? well nothing really. Keep your sip going. If you have a long term view, sticking to the correct asset allocation – what you as the client decide(d) should be good!