Mad dash to the finishing line

Cricket is lot like investing. Take the example of the recently concluded T20 world cup. The best team on that day won. Regrettably it wasn’t India. But our team did leave us with some memorable moments and meaningful insights during the tournament.

Victory against Pakistan and Australia was amazing. But it is the win against Bangladesh, which would continue to attract the attention long after the memory of this world cup has faded. The match was a perfect example of ‘It’s not finished until it’s finished’.

Bangladesh dominated the match for good 39.3 overs. They bowled and fielded well and constricted Indian run scoring. They batted well for nearly 19.3 overs. Bangladesh had almost won the match that they lost. If we put it in numbers, Bangladesh was winning more than 95 per cent of the total match time. However, it lost the game in the remaining 4-5 per cent timeline. The game was won at the last ball. Not first.

Many equity investors expect the game be won at the first ball. They want the equity investments to be a long, undisturbed, one-way bull run. Therefore, many retail investors refuse to play out the game at the first sign of volatility.

Point being even in an almost lost game, where the probability of win was reduced to a single digit, the Indian captain Mahendra Singh Dhoni did not pack his game (physically and mentally). So why do we do it, especially when the long-term game is stacked in our favour.

In the history of Sensex, an investor with a 20-year horizon, would have made a return of minimum 7 per cent per annum (tax free). Maximum returns a 20-year investor may have made is around 21 per cent per annum, tax-free. And still we hesitate as investors.

Like the Indian cricket team, which didn’t give up till the last ball, it is important for the investors to stay invested till the last ball. Time in the market makes money for you rather than timing the market.

The behaviour of scurrying at the first hint of volatility is also visible amongst fixed income market participants. For example, just before the run-up to the Budget, even with the RBI having given a 125 bps repo cut, the yield curve had hardened up, especially in the 17-30 years segment. This was regardless of the facts that: • Finance minister on various occasion had expressed his comfort and commitment to maintain the fiscal deficit ratio • RBI had used OMO to manage liquidity in the system • CPI inflation was trending below expectations • Many market operators sold on long duration curve and were overweight on near duration segment

Kotak AMC remained invested and was overweight in the 17 years and 30 years segment. We believed that the spreads between 30-10-year gilt had widened sizeably and would average out sooner. Which it did. We were of the opinion that finance ministry would stick to its fiscal deficit commitment for FY17. Which also has happened. We believe that RBI has a rate cut appetite of 25-50 bps, that will come by December 2016. The 25 bps has come, and another 25 bps cut may come sooner than expected.

Thus, we must stay on right course if the data and reasoning gives us that conviction. Doesn’t matter if rest think otherwise.

olmdesk@outlookindia.com