May stands for Mayhem?

Rewind back to May’2013. One would find a striking similarity to what we witness now – ferocious fall in small and midcaps triggered by vicious fall in currency, sharp rise in ten year yield, incessant FII selling, rising fears on twin deficits (current account deficit and fiscal deficit). Underlying cause for the mayhem in both May(s) can’t be more similar. Back then, it was taper tantrum i.e. the term used for unwinding of bond buying program from Fed (withdrawal from quantitative easing). Fast forward to now, it is the expected acceleration in Fed rate hikes coupled with some unexpected jitters from crude that have caused the slump in small and midcaps.

But the interesting aspect of 2013 was, within few months, that is, well into taper tantrum, markets recovered with Rupee recouping much of its losses on return of FII buying. It was not so much of “taper” (unwinding) that caused the trouble, but the sheer prospect of such “taper” coming did more damage. In hindsight, going by the sharp rebound in the markets in six to eight months, taper tantrum was a terrific opportunity for anyone who cared to ignore the macro noise and focused on stock picking and portfolio building. Needless to say, current Fed induced fear, is a fantastic opportunity for seasoned stock pickers who have the wisdom not to time the bottom and have the stomach & nerve to digest the notional mark-to-market losses in the interim.

“It is time to invest, not to time the bottom. When it is raining gold (in the context of small and midcaps), it is time to reach for the buckets”

But unfortunately, few learn from history. Even those few who learn, most take comfort in the breathless commentary in business channels that focuses on the short-term gyrations than to switch-off from those endless chatter and take the most important action, that is, portfolio building on the ground. Those exceptional few who brave the volatility to build portfolio, needless to say, will reap rich dividends not too far in the future.

Happy Value Investing!!