Greetings from Team Carnelian!!
Times have been tough, as expected; we highlighted the same in our communication to investors at the onset of 2025 (2025 – Year of keeping low expectations and staying disciplined). This month, global uncertainties sparked off a significant correction in the markets - Nifty 50 is down ~15-16% from peak and mid & small-cap indices ~25-26%. Some stocks saw an even sharper decline, falling by ~30-50%.
Let’s discuss market view and our thoughts on one more big achievement of India – The Maha Kumbh at Prayagraj.
First half of the last year, markets were doing exceptionally well but the momentum slowed down in the economy and corporate earnings growth primarily due to three reasons:
RBI took an aggressive stance to support the INR, thereby creating a liquidity deficit of ~INR 3,50,000 crores for a long period of time.
Worried about the rising growth in unsecured & microfinance loans, the RBI tightened noose which led to a further squeeze in liquidity in the system.
Due to general elections in 2024, Government spending and payment releases both slowed down, stressing the liquidity further.
Slowdown in the earnings growth, coupled with high valuation & global uncertainty led to a sharp correction in the market. Subsequently two big policy pivots happened which the markets have ignored.
A. RBI policy pivot
RBI has moved decisively from a hawkish stance to a dovish stance with more focus on growth. Some of the measures initiated in the short span of time include
Injecting liquidity in the system through OMO, letting the INR depreciate and other measures
Reduction in interest rate by 25 bps
Reduction of risk weight towards NBFCs and micro finance companies
Inflation target moved from 4% to a range of 4%- 6%, indicating RBI prioritizing growth over strictly maintaining inflation
B. Government's policy shifts:
Significant tax relief for individuals has made fixed income investment attractive. This will lead to a growth in deposits, which in turn is positive for the economy
The government has started spending and releasing payments
Earnings and valuations: The Q3 earnings season has been lackluster, but aligned with expectations, stabilizing forward earnings projections. The Nifty50 (ex-energy) is projected to grow at a CAGR of ~14.9% over FY25-27E. Current market valuations have normalized with the Nifty50 trading at ~19x 1-year forward PE, close to 10 year average historical valuations. Euphoria seems to be settling down.
Looking ahead: We believe the current environment is reminiscent of first half of 2022 when the market corrected after a stellar performance in 2020/2021. Nifty corrected from 18,500 to 15,500 (April 2022 to June 2022) in initial phase of Russia-Ukraine war. Geopolitics and inflation were the prime global concerns. We wrote a letter in June 2022 to build this vintage as a contra call. We think the current environment offers a similar risk reward with Nifty correcting from 26,500 to ~22,000. Some pockets of froth are still around but interesting risk reward opportunities are appearing on the horizon. This vintage of next few months will be highly rewarding.
Risk in our view, is ofcourse something at a global scale. Six Sigma events are happening, which will always remain unpredictable. These risks have to be managed by investing in good quality companies and management.
Let’s move to the second item of our letter we spoke about earlier. Maha Kumbh.
We have always believed that India is a structural growth story in its golden era. In our earlier letter, we talked about how India is set to become a developed nation (Viksit Bharat) during Amritkaal. Big mindset shifts we talked about are propelling India in that direction. One of the big mindset shifts, we talked about, India is moving from an incremental mindset to an exponential mindset.
A prime example of exponential mindset and delivery at scale was the recently concluded Maha Kumbh at Prayagraj, a ‘once in a decade’ event. Let’s explore…
What is Maha Kumbh? It is a gathering of devotees (saints, women, children, youth, senior citizens) from all walks of life, coming together. The idea of Kumbh is not only a ritual dip for prāyaścitta (atonement) but also a celebration of community commerce with numerous fairs, education, religious discourses by saints, mass gatherings of monks, and entertainment.
It happens periodically every 6 to 12 years. But Maha Kumbh takes place once in 144 years which makes it very special. India celebrated this Maha Kumbh like never before. Let’s revisit some of the specialities.
630 mn people visited Prayagraj in 45 days – world’s largest human gathering unprecedented in the human history. It sums up to the combined population of North America and Europe; one may argue for the correctness of numbers, but the fact is this is unparalleled!
Planned in 4,000 hectares as a temporary city
Only 50,000 security personnel managed the entire show with the help of modern surveillance system
Created 12 Kms of bathing ghats, sanitary infrastructure including temporary sewage treatment plants, medical facilities including free eye camps etc.
Free food for all
In terms of an economic impact, early estimates had suggested 400mn people would visit this once in a lifetime spectacle generating INR 2 lakh crore (~USD 23bn) in revenue. However, as things stand, these estimates were blown out of air with nearly 630mn devotees attending (~40% of India’s population!) and estimated revenue generation of INR 3 lakh crore, 50% higher than previous estimates! This single event will contribute ~0.5% -1% to the GDP.
The world watched in wonder how crores of people (scale delivery) thronged at Prayagraj to experience the confluence of the three rivers. People had no formal invitations, no prior plan/communication on logistics, on ground arrangements…. yet hordes of people just packed and left towards the Maha Kumbh on their own accord and experienced the bliss of dipping in sacred waters.
If we go behind the scenes, what transpired this – Exponential Mindset?
Before the Government planned for such a large gathering, I am sure they must have worried about the organisational nightmare of executing a gathering of this scale ever in history on mankind! One doesn’t need any smartness to figure out the enormity and seriousness of the task, most importantly the security aspect. This would be best target for any enemy state or anti-establishment organisations. One can imagine the requirement of resources both financial and non-financial to create and manage a temporary city of this scale.
For any leader/government to take risk to go ahead with idea of organizing something of this scale requires a huge mindset shift. Imagine the risk of something going wrong on security/any other front leading to a let-down at international level and risk of loss of face & power for the government. Blood hounds wait for such opportunities. Even a private sector organisation would think twice to plan something like this given any amount of commercial benefit.
The Government could have very well restricted participation and organised the same in a limited manner. On the contrary, government used this opportunity to extend scale and test India’s capacity and capability and show case to the country & the World its own exponential potential.
When the same country, the same bureaucracy, the same resources deliver unparalleled, unprecedented feat like this, it does something to the subtle and deep mindset of the country. It makes every citizen, every entrepreneur, every organisation realise the potential and ignite thinking of self-belief, self-potential to think big and think scale.
What India delivered & ignited with Maha Kumbh, is an unprecedented historic event - an example of exponential India and unconstrained India. This mindset change has a huge economic impact. When the country at large starts believing, acting and executing unconstrained and exponentially, the effects are far more long lasting than a few years. Of course, it takes a lot to build this mindset.
It is this constant change & upgrade of India’s collective mindset which makes us believe that India has a very high chance of becoming a developed nation during Amritkaal and staying on course in these volatile times is the most important part of this journey.
We conclude by saying that if we look all around, we will see many more examples of tectonic shifts in India which will propel structural growth. India remains structurally strong, and one should embrace the current volatility and continue to stay put. These are the times when one should capitalise by investing in every fall and build vintage like we did in a similar situation during 2022.
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