The Trump Presidency and its Impact on Global and Indian Markets

With Donald Trump confirmed as the new U.S. President and Republicans likely controlling both the Senate and House (a “Red Sweep”), markets are bracing for potential shifts in economic policy and investment dynamics. This development has fueled a global “risk-on” rally, where investors are optimistic and shifting capital into riskier assets like stocks, the U.S. dollar (USD), and cryptocurrencies. However, the fundamentals suggest that high volatility may continue, which could affect portfolios in both the short and long term.

Let’s explore how this new political landscape might shape the global market and what it means for Indian investors.

A Global Market Rally – But With High Volatility

The Trump Effect
The “Trump trade” is back, with investors expecting policies that may benefit businesses, such as tax cuts and spending on infrastructure and defence. However, these expectations come with a catch. While markets are rallying now, global growth and inflation are likely to experience increased fluctuations. This higher structural volatility challenges traditional investment strategies like “buying the dip” (investing after a price drop) and timing market rallies. Instead, investors may need to take a more flexible, adaptive approach to navigate the ups and downs that lie ahead.

Interest Rates on the Rise
A “rising term premium” is a trend likely to persist under Trump’s economic policies. This means that bond yields are expected to climb, making borrowing more expensive and affecting the returns on fixed-income assets. Higher yields also raise the likelihood of “currency wars” — situations where countries might try to weaken their currencies to boost exports. These developments, if sustained, could redefine the risks for various asset classes over the coming years.

Currency Volatility
One early indicator of these shifts can be seen in currency markets. The U.S. dollar index (DXY) could rise to 110. Such moves would have significant ripple effects across economies, particularly emerging markets with weaker currencies.

India: Facing FX and Rates Market Turbulence

For India, the immediate effects of Trump’s presidency are likely to be felt in the FX (foreign exchange) and rates markets.

The Indian Rupee (INR)
The INR may weaken due to currency pressures. The INR’s natural weakening bias could create challenges for Indian investors, who may need to consider hedging strategies for international investments.

Bond and FX Volatility
The rise in bond yields and currency fluctuations could lead to increased volatility in the bond and FX markets, potentially putting pressure on the Reserve Bank of India (RBI) to prioritise financial stability over its usual focus on inflation management. This shift might limit the RBI’s ability to cut interest rates, potentially resulting in a shorter rate-cut cycle than anticipated.

The Market Impact of Trump’s Economic Policies

Trump’s economic strategy involves tax cuts, higher spending on infrastructure and defence, and significant changes to trade policy. Here’s how these factors are expected to play out:

  1. Fiscal Expansion
    Trump’s proposed extension of the 2017 tax cuts, set to expire in 2025, would add around $4.6 trillion to the U.S. deficit over the next decade, potentially rising to $7.5 trillion with expanded policies. This fiscal stimulus could lead to higher interest rates and influence bond markets worldwide.
  2. Tariff-Driven Trade Policies
    Trump’s stance on trade includes tariffs such as a proposed 60% tax on Chinese imports and 100% on electric vehicles from Mexico. These policies could benefit certain U.S. industries but also increase costs for U.S. consumers and businesses. Tariffs of this scale would heighten trade tensions, disrupt global supply chains, and increase operational costs for companies with international exposure.
  3. Implications for the Dollar
    While Trump has previously favoured a weaker dollar to benefit U.S. exporters, the fiscal stimulus under his administration might actually strengthen the USD, amplifying volatility. This trend may exert pressure on Asian emerging market currencies, including the INR, potentially dragging down purchasing power and investment returns in those regions.

What This Means for Indian Investors

India’s lower reliance on foreign portfolio investors (FPIs) for sovereign debt (around 3%) and its strong domestic demand could help it maintain a relatively lower bond risk premium than some other emerging markets. Indian equities may see temporary gains due to speculative moves by FPIs, but sustained growth in earnings and a solid fiscal position will be key to driving long-term gains.

How Growthfiniti Wealth Can Help You Navigate These Shifts

As volatility becomes the new normal, staying agile and informed is critical for high-net-worth individuals. At Growthfiniti Wealth, we specialise in crafting strategies that anticipate and adapt to market changes, allowing clients to seize opportunities even when market conditions are uncertain.

For investors navigating the impact of Trump’s presidency on global and Indian markets, we’re here to provide guidance that goes beyond the headlines. in**@gr**********.com“>Get in touch with our team to learn how we can help fortify your portfolio against the evolving financial landscape and keep your wealth secure.

Gross Trail Commissions of Top Funds Under Distribution

Timing the Market, Momentum as a Factor for Investing

Successful market timing has long been the elusive goal for many investors. It’s an enticing prospect, especially when there appears to be compelling evidence suggesting that simple valuation measures can forecast future market performance. However, as both researchers and investors have come to realize, consistently outperforming a passive buy-and-hold strategy is far more challenging than it initially appears.

I aim to explore the fundamental question: Is market timing a valuable strategy to enhance investment returns, or is it a perilous path best avoided?

The allure of market timing lies in the belief that by making precise entry and exit points in the market, one can capitalize on favorable trends and avoid steep downturns, thereby maximizing returns. This premise is supported by in-sample evidence, which, when examining historical data, appears to provide a strong case for the effectiveness of market timing strategies, particularly when based on simple valuation measures.

However, the real-world application of market timing often yields disappointing results. The out-of-sample performance, which reflects how these strategies fare in the actual market, tends to be weaker and less reliable. In other words, while the theory behind market timing seems solid when tested on historical data (in-sample), it doesn’t hold up as well in the unpredictable world of real investments (out-of-sample).

Introducing a new perspective that seeks to bridge the gap between the encouraging but in-sample evidence and the often underwhelming out-of-sample performance. The proposed approach involves incorporating a dose of one factor Momentum into value-based timing strategies. Momentum, in this context, refers to the concept that assets that have performed well recently are likely to continue doing so for some time, while underperforming assets may continue to lag. By combining value and momentum factors, investors can potentially enhance their market timing strategies.

The rationale behind this approach is that adding momentum can act as a practical enhancement to value timing strategies. Value-based timing might tell investors when assets are undervalued or overvalued, but it doesn’t necessarily provide a clear sense of when to enter or exit the market. Momentum, on the other hand, offers insights into the current market trends and helps investors identify opportunities for buying or selling.

In conclusion, the pursuit of successful market timing is both tantalizing and challenging. This approach acknowledges that while market timing may not be a guaranteed source of added value, a well-thought-out strategy that combines multiple factors may offer a more effective means of achieving the desired investment outcomes.

Capital Allocation – Factor Strategy

Wish you and your loved ones a Happy Diwali.

In this newsletter, our aim is to elucidate the significance of Capital Allocation.

Markets operate as predictive mechanisms, often anticipating events such as the Federal Reserve’s interest rate hikes. Nevertheless, the extent of these increases was unforeseeable, transitioning from near-zero interest rates to 5% within 18 months, marking a substantial surge.

On October 18, 2021, Indian equity markets reached represented by the BSE 100 a previous peak hit 61,765, and later achieving a historic high of 66,800 on September 20, 2023, resulting in an XIRR of….wait a minute……

4.16%, that’s lower than Fixed Deposits. For those who invested around this period, its been an agonising impatient journey with several other macro factors , wars & geo political challenges adding to the woes.

Since October 18, 2021, off the Top 100 companies 46 of them yielded returns below the 4.16% XIRR. If one contends that a 12% weighted average cost of capital is normal, then 52% of companies generated returns below this. 20 large cap companies have delivered an average of negative 30% during this period. This challenging scenario has posed difficulties for even the most skilled fund managers. Examining the performance of some large-cap fund managers.

Listed here are some of the large cap fund managers who from time to time have often demonstrated top quartile performance and their performance since 18 October 2021.

Though we are comparing amongst a small but a very critical period, did Investing Systematically Work?

It clearly didn’t…the difference is just 6bps.

The BSE 100, comprising the top 100 companies by market capitalisation, has experienced this trend due to investors favouring high-quality firms in a low-interest-rate environment. Quality is characterised by companies with a High Return on Equity and a consistent delivery of a higher incremental Return on Capital Employed. In a low interest rate environment these firms equity valuations have undergone significant revaluation, with their multiples due to its expansion and not necessarily aligning with their earnings. Despite earnings realisation, a substantial portion of the valuation was already factored in. As these are sizeable companies with ample liquidity, corrections may not occur swiftly, manifesting as time corrections that can be arduous. However as written earlier 20 large companies saw swift price corrections from 18/10/2021. Patience, extending over at least another 2-3 years, is necessary for holding onto these investments before one may start seeing gains above cost of capital.

The companies that delivered the highest returns in this period.

Top 10 Stocks Contributed Returns
Varun Beverages Ltd.
Adani Power Ltd.
Tube Investments of India Ltd.
Trent Ltd.
Bank Of Baroda
Cholamandalam Investment and Finance Company Ltd.
Bharat Electronics Ltd.
The Indian Hotels Company Ltd.
Coal India Ltd.
Max Healthcare Institute Ltd.

Source : AceEquity.

Examining the current composition of the top-performing funds and their Top 10 Stocks, you’ll notice that the majority of these companies are absent from the active bets made by leading funds. This is primarily attributed to the mandates of large-cap funds, which require them to deploy substantial amounts. Moreover, many fund managers replicate the stocks in the index, and the disparities in excess returns are evidently influenced by the selection of stocks and the applied weightage.

Source : Ace Equity, Morningstar, Growthfiniti Wealth Pvt Ltd Research

Obviously while this has been amongst the most difficult period for markets especially when the index has delivered returns much lower than a fixed deposit, what has stood out is Value as a Factor.

Value, as a factor in investing, refers to the strategy of seeking out stocks or assets that are believed to be undervalued or priced lower than their intrinsic worth. Investors employing a value-oriented approach typically look for opportunities where the market has underestimated a company’s true value, considering factors such as earnings, dividends, book value, and other fundamental metrics. This approach contrasts with growth investing, which focuses on companies with the potential for aboveaverage future growth. Since growth companies had already expanded in a low interest regime, Value did very well in a opposite scenario as investors look to book gains and move to low PE stocks.

The strategy of good capital allocators & wealth firms is centred on the efficient deployment of financial resources to optimise returns for a given level of risk. Successful capital allocators possess the ability to assess various investment opportunities, weighing risk and reward factors, and allocating capital where it is likely to yield the highest returns relative to the associated risks. This involves a keen understanding of the market, and industry dynamics and the effectiveness of an underlying asset. Effective capital allocators may reallocate capital based on changing market conditions and strive to optimise the overall portfolio performance, an exercise that can be carried at a defined level of frequency.

Going forward we believe that one style of investing will not work. Diversification across Factors will be a key to compounding.

Happy Investing.

To know more about the Growthfiniti Efficient Frontier and get your portfolio reviewed write to us at in**@gr**********.com.

Growthfiniti Wealth Pvt Ltd is an AMFI Registered Distributor (ARN168766).

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Growthfiniti Top Mutual Funds (June 30, 2024)

Based on our proprietary ranking model, we are pleased to announce the top funds for some MF categories.

The Power of Behavioural Investing: Understanding and Navigating Market Psychology

In the world of finance, investing is often seen as a rational and logical process. However, human beings are inherently emotional creatures, and these emotions play a significant role in our decision-making, including financial decisions. Behavioural investing, a branch of finance, recognises the impact of human behaviour and psychology on investment choices and attempts to understand and harness these influences to achieve better investment outcomes. In this blog, I will delve into the fascinating realm of behavioural investing, exploring its key concepts, common biases, and strategies to navigate the complex world of market psychology. Understanding Behavioural Investing: Behavioural investing seeks to explain how cognitive biases and emotions influence investment decisions. Traditional finance theories assume that investors are always rational and make decisions solely based on maximising their wealth. However, research has consistently shown that investors often deviate from rationality due to psychological biases, leading to suboptimal investment outcomes. Behavioural investing aims to bridge this gap between theory and reality, providing insights into the ways in which our minds can influence investment behaviour.

Common Biases and Cognitive Factors:

  1. Herd Mentality: People often feel more comfortable following the crowd rather than
    making independent decisions. This behavior can lead to market bubbles or crashes
    as investors tend to overvalue or undervalue assets based on others’ actions rather
    than objective analysis.
  2. Loss Aversion: Investors tend to feel the pain of losses more intensely than the
    pleasure of gains. This bias can lead to a reluctance to sell losing investments,
    hoping that they will eventually rebound. It can also result in missed opportunities to
    exit winning positions due to the fear of giving up potential future gains.
  3. Overconfidence: Investors often overestimate their abilities and knowledge,
    leading to excessive trading or taking on undue risks. Overconfidence can cloud
    judgment and result in poor investment decisions.
  4. Anchoring Bias: Anchoring refers to the tendency to rely heavily on the first piece
    of information encountered when making decisions. Investors may fixate on a
    specific price level or a past reference point, which can hinder objective analysis and
    lead to incorrect valuation.
  5. Availability Bias: Investors are more likely to rely on readily available information,
    news, or recent events when making investment decisions. This bias can lead to
    overreaction or underreaction to new information, causing mispriced assets in the
    market.
  6. Confirmation Bias: People tend to seek out information that confirms their existing
    beliefs and ignore or downplay contradictory evidence. In investing, this bias can
    result in a failure to adequately consider alternative viewpoints, leading to a skewed
    investment thesis.

Strategies for Navigating Market Psychology:

  1. Education and Self-Awareness: Understanding the various cognitive biases and
    emotional tendencies can help investors recognize and counteract them. By being
    aware of their own biases, investors can make more rational decisions and avoid
    common pitfalls.
  2. Diversification: Building a well-diversified portfolio across different asset classes
    can help mitigate the risks associated with emotional decision-making. By spreading
    investments across a range of assets, industries, and geographical regions,
    investors can reduce the impact of any single investment’s performance on their
    overall portfolio.
  3. Long-Term Focus: Adopting a long-term investment horizon can help counteract
    the short-term emotional fluctuations in the market. By focusing on the fundamentals
    of investments and having a disciplined approach, investors can avoid the
    temptations of short-term market noise and stay committed to their investment
    strategy.
  4. Systematic Investing: Implementing a systematic investment plan, such as rupee-
    cost averaging or value averaging, can help remove emotions from investment
    decisions. These strategies involve regularly investing fixed amounts or adjusting

investments based on predetermined rules, rather than reacting to market
fluctuations.

  1. Seek Professional Advice: Engaging the services of a financial advisor or wealth
    manager can provide an objective perspective and help investors make more
    informed decisions. Advisors can act as a counterbalance to emotional biases,
    providing guidance based on expertise and experience.

Conclusion:
Behavioral investing recognizes that humans are not purely rational decision-makers
and that emotions and biases can significantly impact investment outcomes. By
understanding and navigating market psychology, investors can develop strategies
to counteract these biases and make more rational decisions. Recognizing common
biases, fostering self-awareness, and implementing strategies such as
diversification, long-term focus, systematic investing, and seeking professional
advice are crucial steps towards achieving success in the complex world of
investing.

When to sell your investments

We often get advised what to buy when it comes to investing, however what about
the opposite, on when to sell.
Selling an investment decision can arise due to various factors. Let me rephrase and
explain each bullet point:
Poor earnings performance: This refers to a decline or underperformance in a
company’s financial results. When a company consistently fails to generate
satisfactory profits or experiences a significant decrease in earnings, investors may
choose to sell their investments in that company.
Negative business outlook: If a company’s future prospects appear gloomy or
uncertain, investors may decide to sell their holdings. This could be due to factors
such as declining market demand, disruptive technologies, regulatory changes, or
other challenges that could negatively impact the company’s operations and
profitability.
Economic uncertainty: When the overall economic environment becomes uncertain,
investors often become cautious. Economic uncertainties could include factors like
inflation, interest rate fluctuations, political instability, or global economic downturns.
These uncertainties may be utilised to sell your investments as a way to mitigate
potential risks and preserve capital.
Intense competition: Strong competition within an industry can erode a company’s
market share and profitability. If a company struggles to compete effectively against
its rivals, investors may sell their investments in anticipation of diminishing returns
and the potential for a decline in the company’s market position.
High valuations: When a company’s stock price becomes significantly overvalued
relative to its fundamental value or industry benchmarks, some investors may opt to
sell their investments. This can occur when market expectations become
disconnected from the underlying financial performance of the company, raising
concerns about a potential market correction.
Failure to maintain competitive advantage (moat): A company’s competitive
advantage, often referred to as its “moat,” can be a crucial factor in its long-term
success. If a company loses its ability to protect its market position and sustain a
competitive edge over time, investors may sell their investments to avoid the
potential negative impact on the company’s future profitability and growth prospects.
Deterioration in corporate governance: Corporate governance encompasses the
practices and structures that guide a company’s decision-making processes and
ensure accountability to shareholders. If there are significant concerns or evidence of
poor corporate governance, such as unethical behavior, conflicts of interest, or lack
of transparency, investors may choose to sell their investments due to the perceived
increased risks and potential negative impact on the company’s performance.

Build A Money Mindset

It has been an incredible journey, starting from a modest annual salary of Rs 6000 to earning
a seven-figure salary and beyond & giving up everything to bootstrap a startup. Here’s a
concise summary of the key steps:

  • Set an audacious and seemingly impossible time-based goal. Initially, it may appear
    unattainable, but dare to believe in its realization. Whether your rich or starting out or
    somewhere in the middle, it doesn’t matter…

  • Break down the goal into actionable steps and meticulously outline an action plan to reach
    it.

  • Work tirelessly and relentlessly, as if there is no tomorrow. Put in maximum effort and
    dedication. Maintain unwavering belief in yourself and your team. Trust in your abilities and
    rely on the collective strength of your colleagues.

  • Continuously strive for improvement and stay ahead of your competition, regardless of the
    industry you’re in. However, always remember that your ultimate objective is to serve your
    clients’ interests. Expect setbacks along the way, but learn from them and rise above. Weed
    out toxic individuals from your circle.

  • Adopt a disciplined approach to saving. Make it a habit to save diligently and consistently.

  • Develop your knowledge of investments by reading extensively. Set aside 20% of your wealth in liquid assets.

  • Cultivate a strong mindset that can weather volatility. Embrace market fluctuations as opportunities and invest that 20% and more during market crashes, knowing that they will eventually rebound.

  • Regularly review and adapt your plan as necessary.

  • Above all, recognize that you are your most valuable asset. Prioritize yourself, family,
    investing, cultivate a money mindset, and seek professional wealth management services to
    aid in your wealth creation journey.

Generational Wealth

Steps to Creating a plan for generational wealth, this involves careful financial and estate
planning to ensure the long-term preservation and growth of wealth across multiple
generations. Here are some steps to help you get started:

  1. Define your goals: Clearly articulate your financial objectives and long-term vision for
    generational wealth. Do you want to create a legacy for your family, support future
    generations, or fund specific initiatives? Understanding your goals will shape your strategy.
  2. Develop a comprehensive financial plan: Work with a qualified financial advisor or planner
    to create a comprehensive financial plan. This plan should include strategies for budgeting,
    saving, investing, and minimizing taxes. A professional can help you optimize your wealth
    accumulation and preservation strategies.
  3. Diversify investments: Spread your investments across different asset classes (stocks,
    bonds, real estate, etc.) to reduce risk and increase the potential for returns. Consider a mix
    of low-risk and higher-growth assets, depending on your risk tolerance and investment
    horizon.
  4. Invest for the long term: Generational wealth planning requires a long-term perspective.
    Look for investments that can grow and compound over time. Consider strategies like rupee-
    cost averaging, where you consistently invest a fixed amount at regular intervals, regardless
    of market conditions.
  5. Educate your family: Financial literacy is crucial for the successful transfer and
    management of wealth across generations. Teach your children about money management,
    investing, and responsible wealth stewardship. Encourage them to develop their own
    financial skills.
  6. Establish trusts and estate planning: Set up a trust or trusts to hold and distribute assets
    to future generations. Consult an estate planning attorney to determine the best structures
    for your needs. Consider mechanisms like irrevocable trusts, generation-skipping trusts, or
    family limited partnerships to minimize taxes and protect assets.
  7. Communicate your intentions: Openly communicate your wealth transfer plan to your
    family. Clearly express your intentions, expectations, and values. Promote transparency and
    foster a sense of shared responsibility and accountability.
  8. Continually review and adapt: Regularly review and update your generational wealth plan
    to reflect changing circumstances, tax laws, and market conditions. Work with your financial
    advisor and estate planning attorney to ensure your strategy remains effective and aligned
    with your goals.
    Remember, generational wealth planning is a complex and individualized process. It’s
    advisable to seek guidance from professionals who specialize in financial planning and
    estate law to develop a plan that suits your unique circumstances and objectives.

Union Budget Report 23-24