Happy Diwali 2024! Succumbing to the folly of predictions

A Happy and Prosperous Diwali 2024 to you from all of us at Capitalmind! Wish you all, your friends, families, colleagues and loved ones a prosperous year ahead.

I started writing this Diwali letter in 2007. And that year, I made a few predictions that came out right, and since then I've gotten nearly every prediction wrong, but traditions are traditions, so there's a letter every year for you to laugh about.

Capitalmind, as a company, started 10 years back. In 2014, and we celebrated the 10th anniversary in August this year. 10 years ago, I had no idea we'd get this far. And it seems like we're only just begun. The idea started, of course, as the blog I was writing - called Capitalmind then - was simply too attractive to just be a blog, and it was itching to become a business. I had to try at least once, even though my three earlier attempts at startups - I've been a founder since 1998 - didn't do well. The itch never goes away, it turns out.

We've now served between 15,000 and 20,000 investors directly, and probably a lot more indirectly, through our content, research, education, and of course, portfolio management. The idea was to simply write honest, down-to-earth, unscripted from the heart sort of commentary, with some insights that would help build better portfolios. Keep it simple, structured and unbiased, as much as possible. Turns out there is a little demand for that sort of thing, and I'd like to personally thank all of you reading this for being a part of this journey. Read a lot more about our journey in our turning-10 post at Capitalmind.

The past year has been incredibly good for markets. So will we continue next year?

It's time for the "predictions". Once a year, we predict for the next year. By "we", I mean I, but it just feels better to somehow be collectively responsible. It's painful to predict but we also do one thing: we look at last year's predictions and laugh about silly they were.

We like to respond, not predict. But it's Diwali! So, here's where we are.

The Scorecard from last time

We wrote, last year, about our predictions. How did we do?

The mid and small caps will surprise us with their tenacity. Some will fall, and possibly the whole lot, just to keep things exciting. But the biggest earnings growth will come from the expensive mid and small caps of today.

The Mid and Small Caps did do really well last year, with significantly higher returns than the Nifty:

Some of the mid and small caps have ridiculous earnings growth, as they've taken advantage of the push to manufacturing and so on. And the prices fell recently too. So I'll give myself a 10/10 on this.

The “India” theme will continue: more local manufacturing, energy independence and import substitution. Stock prices of these players will do well.

How do you test this? Well, we tested it using Surge India portfolio where we actually buy stocks like this. And that portfolio has returned over 53% in a year:

What kind of stocks? We bought into the manufacturers and those that serve them, like M&M, Elecon, Kaynes and so on. Even an ABB PowerIndia, which I tweeted about in almost incredulous admiration, has done ludicrously well. To highlight one company:

So to this prediction, and to the fact that we actually took part in it in our portfolios, I'll just say 10/10.

The rural economy will revive with the election spending and possibly give the agri/rural/2 wheeler auto firms a big push.

The rural economy seems to slowly be reviving, probably after election spending. We have seen some fertilizer companies make money, and prices of vegetable are off the roof, and November's finally seeing some sales growth in 2W, as TVS and Hero show 13%/18% growth over last year respectively. However, Tata motors and Maruti Suzuki announced sales being flat compared to last year, and only Mahindra did well (25% growth) in passenger vehicles.

So it is a better rural demand/economy for the most part. We'll just take this as a win: 10/10

Global central banks will continue to keep rates elevated, until a crisis happens. I cannot predict crisis timeframes anymore. I’m guessing a major crisis will NOT happen in the next year – that is therefore my prediction.

So this has indeed happened, that central banks kept rates elevated:

Bank of Japan actually increased rates from negative 0.1% to +0.25%.
Bank of England held rates up till August 2024 until they cut a little
The ECB, though, cut in June, September and October, currently at 3.25% down from 4%.
The US Fed cut once, harshly, with a 50 bps cut.

Inflation in all the countries has cooled. No major crisis happened. Because of the ECB, I'll lower my score to 8/10.

Geopolitical risk will become more apparent, as more countries create room for defence and self-dependence; meaning, India will likely keep high import duties and try to discourage imports from rogue countries. This will benefit local firms, even in stock prices.

India kept import duties high in almost everything except one thing: gold. That's good, because gold is a capital import. India has been using duties to discourage imports and promoted local manufacturing. The Chinese EV giant, BYD, wasn't allowed to set up manufacturing in India. Thus local players have seen some benefits - a local two wheeler EV maker, Ola Energy, even listed in the market and got a lot of inflows even though there aren't any profits.

Geopolitical risk is now far more apparent, with the Israel Iran war coming into focus, Russia - Ukraine continuing and the rest of the world continuing to wonder what's next to fall. I'll give myself a 10/10 on that.

Overall my score is: Very good this year. I will however say that this comes after a terrible losing streak for the last few years.

Predictions make sense one day of the year, but not more. We should be happier in probabilities - like there's a 30% chance of something happening. But since we measure the accuracy of something by the binary fact that a) did it happen? You were right or b) did it not happen? What's the point of your prediction? - we like the certainty of someone predicting crazy things.

Predictions for next year

It's probably going to be Trump. I think I want it to be, so that we can be entertained. Also hopefully there's a bigger attempt at not having another big war.
Indian politics will turn nasty in the next year, possibly changing our geopolitical stances too. Politicians turning 75 is an age for them to leave power, apparently, but not many actually want to.
The markets will correct, worldwide, finally, and I mean a 20% correction at least, in the US. This is going to be driven by geopolitics, and India will also suffer. But it will be really quick, simply because news flows are so fast and strong.
Interest rates in India will fall after Feb 2025. Markets will fall after the rate cuts but recover towards the second half of the year.
Finally, we will see RCB win the IPL. (Gotta throw this one in)

Have a brilliant year ahead, folks!

What’s happening at Capitalmind?

It's been a decent year for Capitalmind, with the PMS growing to about 2,200 cr. in assets. We launched the AIF, in a soft sort of way, and have less than 100 cr. there. In the last year, the performance has been decent - with over 40% return in the flagship portfolios, Adaptive Momentum and Surge India. Even five year CAGR is now at 25%+ in both of the above portfolios.

We have an in-principle approval for a mutual fund license! This is what's on top of our mind, to offer our portfolios and our simplified, effective thought process through them for a much wider audience. This is the biggest thing we've ever done! Please wish us luck.

We will continue the discipline of the process, and the idea that our customers deserve transparency, honesty and our clarity of thought. We will do a lot more with content, with our podcasts, our insights, or mad twitter threads and more. We will have to sadly sunset the premium offering, but we have great plans to grow the community which has gone beyond investing and in many ways, Capitalmind itself! Every year looks better than the last.

I’ll leave you with quick highlights of 2024:

At Capitalmind podcast, we engage in conversations that help you become a better investor. Our 5 most downloaded episodes:
We published a bunch of articles about investing, market events and stocks. Our 5 most loved ones:

Little wins that made me smile

Capitalmind Podcast went live on Youtube with video as well!
Surge India finally turned to outperformance from inception. The first year was a challenging one, riddled with mistakes that were entirely mine.
We now have four floors in the office, out of which one is being built out for the mutual fund.
Turned 10! Onwards and Upwards!

Happy Diwali 2024! Succumbing to the folly of predictionsHappy Diwali 2024! Succumbing to the folly of predictions

The Scorecard from last time

Predictions for next year

What’s happening at Capitalmind?

Earlier Diwali Posts:

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