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It is Time for Action

Science of Alpha from Safety

It is Time for Action

It is time for action

It is Time for Action

When the valuations are favorable, the Scientific Investor starts investing

Let us begin with the clarification that this is not—and cannot be—investment advice which depends on each individual’s specific circumstances, objectives and risk profile.

The question on many people’s minds today is should they invest or exit? We are giving our unequivocal response to that in this note. It is an opinion based on our analysis. One is free to act or not act on it. This opinion assumes that an investment and asset allocation plan based on an individual’s investment objectives, financial circumstances, risk appetite is in place. Within this asset allocation, there is a portion allocated to equities. If one has not already allocated fully within that limit for equity allocation, then this opinion is an input for actions related to that. The decision is fully in the hands of the investor and each investor should consult their own advisors and their own thoughts and analysis before making a decision.

It is our opinion that it is a good time to start deploying capital which has been allocated for long-term equity investments, provided one has a risk appetite for portfolio volatility in the short-term (3 years or less). One could put a percentage as lumpsum and deploy the remaining over 3-6 months or even a year in an SIP mode. SIP means systematic investment plan in which one divides the amount to be allocated into portions that are invested every month.

The markets have been in a downward trend since their peak in January incorporating the expected US Fed rate hikes of nearly 2%-2.5%, over 2022-2023, to control inflation and to normalize the Fed rates. The Russia-Ukraine war further dampened the market sentiments and the markets have been down since. Russia is one of the top global exporters of oil and gas with the primary destination being Europe. The war has thus raised the crude oil prices on sentiments and expectations of sanctions.

The March 15-16 meeting of the Fed is crucial. This will announce the actual rate hike for the first time in this cycle and lay the path for future raises as well as provide insights on the future path for the shrinkage of its balance sheet or quantitative tightening. Fed will have to focus on its primary objectives of maximum employment, stable prices, and moderate long-term interest rates. Current unemployment levels are below 4% but the current inflation numbers are close to 8%. Fed has to increase the rates to control inflation. A rate increase of 25 bps (0.25%) is a given. However, a 50 bps is also possible.

What will be more interesting is the Fed’s view on how the geo-strategic risk due to the Russia-Ukraine war and related sanctions could impact growth. Depending on that the Fed might indicate a faster or slower rate increase path then currently expected. If the meeting projects a slower rate hike path in view of the increased risks to economic growth and employment, then the markets are likely to adjust upward.

Currently, the S&P 500 is down by around 10% while the Nasdaq is down by nearly 20% from its peak. Due to the panic selling by Mr. Market, many stocks are available at a significant discount to their intrinsic values. Of course, not every stock which has fallen significantly is at a discount to its intrinsic value. The Scientific Investing framework is designed to identify those stocks which are fundamentally safe, have significant growth prospects and are available at a discount to their intrinsic values.

In our view, it is likely that the current situation is not going to last for too long. The Fed could be more dovish in the March meeting in terms of projecting a more stretched out rate hike path lasting into 2024, and the war could “stabilize” somewhere within the next 3 weeks to 3 months. (This doesn’t mean the war will be over, but the conflict is likely to become stable and conducted politically, diplomatically, and economically rather than militarily.) In this situation, the markets are likely to have more upside than downside.

Download the full report here: OmniView-It is time for action

Disclosures & Disclaimers

Omniscience Capital Advisors Private Limited (Omniscience Investment Advisers) is a SEBI registered Investment Advisory firm with registration no. INA000007623.

Equity investments are subject to market risks. Global investments are subject to currency risk, country risk and other risk factors. Please read all related documents carefully. An investor should consider the investment objectives, risks, and charges & expenses carefully before taking any investment decision. Wherever there is the potential for profit there is also the possibility of loss. Therefore, investors may lose capital in markets. Past performance is not necessarily indicative of future results. This is not an offer document. This material is intended for educational purposes only and is not an offer to sell any services or products or a solicitation to buy any securities mentioned or otherwise. Any representation to the contrary is not permitted. This document does not constitute an offer of services in jurisdictions where the company does not have the necessary licenses.

Performance is based on the investments done in portfolios with proprietary money. The performance numbers are pre-expense and unaudited. Global portfolios are maintained by an independent global custodian and the performance is calculated based on the portfolio holdings. India portfolios are maintained by Orbis Financial Corporation ltd, an independent, SEBI registered custodian and fund accountant; performance is based on the NAV maintained by the fund accountant. All benchmark returns and global portfolio returns are price returns starting from May 1, 2020. Beta and Standard deviation are calculated based on daily returns since inception. Individual returns of Clients for a particular portfolio may vary significantly from the mentioned model portfolio performances and the performance of the other portfolios. No claims may be made or entertained for any variances between the performance depictions and individual portfolio performance. The data is provided as an illustration of the behavior of the strategy under different market conditions. Reader should not use it to form an opinion about the future returns from the strategy. No express or implied guarantees or warranties about the accuracy and/or completeness of the performance are being made and OmniScience Capital shall have no liability for any damages, claims, losses or expenses. Neither the investment adviser nor its Directors or Employees shall be in any way liable for any variations noticed in the returns of individual portfolios.

Our discussion may include assumptions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual outcomes to differ materially. We assume no obligation to revise or publicly release any revision to these forward-looking statements in light of new information or future events. No guarantee can be given about the accuracy and/or completeness of the data, Omniscience makes no warranties or representations, express or implied, on the products and services offered. It accepts no liability for any damages or losses, however caused, in connection with the use of, or on the reliance of its product or services. The information relating to any company or economic trends herein is derived from publicly available sources and no representation as to the accuracy or completeness of such information can be made. We may have recommended stocks, or stocks in the mentioned sectors to clients, including having personal exposure.

This communication is confidential and is intended solely for the addressee. This document and any communication within it are void 30-days from the date of this presentation. It is not to be forwarded to any other person or copied without the permission of the sender. Please notify the sender in the event you have received this communication in error.

 

 

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