SANDIP SABHARWAL

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A BRILLIANT YEAR 2021

The year 2021 in many ways turned out to be different that what was expected during the beginning of the year where at the same time last year when Vaccines were being rolled out I had thought that at the same time this year Covid might be over. However as I write the Omicron wave is on big time and daily cases are at the highest ever. There was also an expectation that Gold should do well given the increasing inflationary pressures all around however gold ended absolutely flat for the year. Stock Markets did very well even after a brilliant pull back in 2020 which was much better than what I expected. Indian Markets have now risen every year for the last 6 years which is a record. 2021 saw markets rise 24%. Our advisory products across long term investing, short term investing and trading generated huge wealth for our investors this year with massive outperformance in long term products and huge profits in short term plans.

So in a nutshell I believe making forecasts for what will happen in 2022 is futile. We need to make our views on the overall markets, stocks and sectors and play them in a manner that we do well. Bond Yields are finally moving in line with the growing threat of prolonged higher inflation worldwide. The US Fed has indicated that they will start moving faster than earlier expectations and my guess is that other central banks will do the same once the Omicron wave subsides as inflationary pressures driven by higher food, commodity and as a result wage inflation are becoming more and more entrenched. This will create volatility but not end the bull market.

In my view we will see a return of Value Investing this year. Growth investing driven by new generation companies with no profits and valuations driven by huge liquidity flows will be challenged this year. I expect a very tough year for Cryptocurrencies as they have largely been liquidity driven. There are nearly 13000 coins that trade in the market now. I expect 12500 plus to go to zero over the next 1-2 years. There could also be 10-90% falls in most of the others. As this plays out this year could be that of Gold which has completely gone out of the investors radar at this stage.

Valuations worldwide are likely to get challenged as liquidity reduces with the Market Capitalization to GDP for most markets trading at all time highs. However the key is that the bull market will still go on for some more time. The reason is that till interest rates become restrictive for growth I do not see growth rates revival getting challenged. The US Fed Funds rate needs to go to near 2% for that which is not likely over the next 18-24 months. However there will be deep loss in value in sectors favored by Venture Capitalists and PE’s where valuations are far beyond reasonable. On the other hand there will also be winners from these sectors that will be extraordinary multibaggers over the next 5-10 years. We will need to capture them as reasonable values come.

The key threats to the performance of the Indian Markets are

1. Higher inflation leading to higher interest rates which could impact the valuations especially in high priced Growth Stocks
2. Potential liquidity withdrawal by global central banks which has been the primary reason for the valuations moving up and money flowing into high yielding Emerging Markets over the last two years
3. Very high earnings growth estimates which creates potential for earnings misses which at elevated valuations can lead to deep market cuts
4. A selloff in the rupee if RBI keeps interest rates low at a time when other central banks start tightening
5. A global equity market selloff as last year saw over $ one trillion flow into equity assets which was more than the last 20 years combined. Even 10-20% of outflows can create lot of volatility in the Indian Markets
6. If Covid doesn’t end with the current wave and there are more waves it will impact economic growth as well as bank asset qualities

Positive factors

1. Fiscal Deficit of the government seems to be well in control thus creating potential for stimulus if required
2. Most companies have announced large capital expenditure plans and the infrastructure pipeline also seems to be strong which could propel fixed asset creation
3. The first phase of rate hikes by global central banks leads to downsides, however till rates become restrictive normally markets bounce back and that is the most probable cycle that we will see
4. Central bank tightening could rein in commodity price spirals which could address one of the biggest concerns of inflation
5. FDI flows are very strong and can contribute to economic growth prospects

In this context my overall view on the markets is that global markets including India will see a selloff in the first half of the year and then a bounce later as interest rates would still remain conductive for positive economic growth. The concern is only about valuations and near term froth and overvaluation. From the investors perspective we should see a comeback in value stocks this year versus growth stocks as the valuation differentials between the two are at all time highs. The bull case scenario is for a 12-15% market growth this year and the bear case is for a flat overall market with some volatility. However such markets tend to be very good for stock picking which should work well in 2022.

Now coming to product performances.

WINNERS PLAN

Winners Plan had an excellent 2021 with the average return of all open recommendations ending at 88% for this year which is a very strong performance. Our best performer from the Small Cap recommendations of this year was Everest Kanto Cylinders which moved up by nearly 900% since it was recommended 15 months back. There were several other strong performers. The key of small cap investing is that returns cannot be benchmarked. Since its purely bottoms up there will be times of huge underperformance and then periods of huge outperformance. The challenge for investors is to accept this as part of small cap investing. Many of our recommendations still have huge growth potential.

TARGET MIDCAP PORTFOLIO

The Target Midcap Portfolio built up its performance and increased the gap with all Midcap MF’s as well as PMS products. This was despite the fact that some of our reopening trades got sold out in December due to the Omicron wave. The year saw Target Midcap give returns of 59% and since inception returns are nearly 130% . We made a few changes during the year and on a risk return paradigm I believe we are much better placed than most Midcap Portfolios. This is an excellent product for investors willing to take some risk for high returns over the next 2-3 years. We outperformed big time in 2020 and it has continued in 2021

PLATINUM PLAN

Our oldest long term plan PLATINUM had another brilliant year 2021. The portfolio comprising Small Caps and Large Caps moved up by 44% this year and outperformed all Flexicap products in the market. The portfolio has a good mix of largecaps and smaller midcaps which have good potential over the long run. The portfolio performance should pick up going forward.This is an ideal medium risk portfolio. Since inception returns are now 450% plus much higher than benchmark returns and nearly 28% CAGR.

TARGET BLUECHIP PORTFOLIO

Our low risk Bluechip portfolio had a good year despite the caution I exhibited by taking lower risks and always having substantial cash. The portfolio was up 29% this year Vs 24% of Nifty and hit our target of 5% outperformance. We deployed some of the cash as markets corrected, however we still have a reasonable amount of cash to deploy. The since inception returns are 125% much above Nifty returns of 70%. This is an ideal product for low risk investors.

POWER ALPHA STOCKS

Power Alpha Stocks performed exceptionally well in 2021 with all recommendations except one making profits. After a brilliant 2020 I was not sure if we could repeat the same in 2021, we did not do as well but still made huge profits. Last year profits were Rs 432000 (2020) and 2021 ended with Rs 403000 which is a huge profit and nearly 67% on average capital deployed of Rs 6 Lakhs and 50% plus on overall capital. Overall opportunities will be good for this product even in the future and we will look to capture them. Earlier during the initial years we used to take higher risk in this product which would sometimes lead to significant volatility. However over the years it has converted into a lower risk product with significant positive performances. It’s a unique product in the entire market place.

ONLY FOR TRADERS

Only for Traders had a strong year and overall 2021 performance was very strong with a 2 Lot Profit of nearly Rs 630000. We will get 3-5 very good months in a year 3-5 average months and 3-5 not very good months. The ROI of this product is running very high at this point of time. The ROI of this product is quite high. The last two months could have been better as we took the right calls which worked better once the Stop Losses got hit. However despite that we did well. In my view the payoffs will be very high sometime in the next two months when the view plays out right and we can realize full profits. This is an excellent product for high risk investors/traders who want to leverage to make profits with adequate downside stop losses.

POSITIONAL TRADING CALLS

Our top performing trading plan Positional Trading faced challenges in the first few months of 2021 as the strategy did not play out, however made a huge comeback over the last few months and ended the year with good performance. The last three months saw profit booking of Rs 460000 with profits of above Rs 150000 in each of the last three months. The good thing in trading is that a period of 2-3 months of good performance can make up for a few subdued months. We hope that this performance will sustain. This has been one of our best products in the past however faced some challenging strategy issues. We hope to continue to do well going forward

For more details write to us at info@asksandipsabharwal.com . You can also call us up at 7303163931/022-66666931 or visit www.asksandipsabharwal.com