Equity markets in India in the month of September showed increased levels of volatility quite different from global markets. This can be largely attributed to the renewed growth scare that might or might not have political incentives behind it. No doubt the Indian economy registered a low 5.7% GDP growth the last quarter but it can hardly be said that the reported figure created a volatile environment. It was rather the heightened political clamoring that the country has witnessed of late. Mr. Modi, who seems to have largely avoided media facetime ever since he took office is being bombarded with questions from both members of his own party and that of the primary opposition as to whether his demonetization drive and the recent implementation of the Goods and Services Tax (GST) have broken the economic machinery of the country.
Many argue, with some validity, that the country which was on the verge of recovery after 2010- 2013 slowdown, really needed the PSU bank's NPA mess to be sorted out to revive credit growth which has been abysmally low. Instead, what the country got was probably a failed demonetization effort (all cash returned back to the system) and a GST, which according to my recent understanding, is a huge practical operational hindrance to doing business.
No one doubts the government's intentions in both drives but recent media coverage on the issue seems to show that there were some failings in implementation (as I had noted in one of my earlier updates). Mr. Modi's media absence has added to the rhetoric that the leader has turned more and more authoritarian in nature.
On the portfolio front, there was one change to the portfolio in that one of the oldest holdings, which was held since inception (close to 4 years), City Union Bank, has been exited on account of higher relative valuations compared to its earnings growth. There were no new additions to the portfolio as the exited funds were put back into existing names.
Hedges wise, I had taken off the Index hedges mid-month as even though historically, earnings multiples are higher than average, I might have failed to account for the low level of interest rates that exist today. I am at a point of indecision and given such a state, I plan to err on the long side. Agreeably, I had again fallen prey to the cute little edges of my smartass mind which kind of drifts into thinking time and again that it can predict the future.