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Cycas Investor Letters
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Our Quaterly News Letters
2025 Q1
In our first quarterly letter of FY2025, we discuss the ongoing bull market in Indian equities, driven by retail investments and influenced by US interest rates and inflation trends. Despite the absence of foreign investors, both primary and secondary Indian markets are booming.
The market has seen unprecedented absorption of new equity, particularly by mutual funds, which have launched numerous schemes. However, these new offerings often underperform due to peak market valuations. Equity returns have been robust this quarter, especially in US markets, which have shown stable growth despite tech sector concentration concerns. We also provide a cautious perspective on the current AI hype, emphasizing the high costs and uncertain benefits.
As we navigate these dynamic times, we remain focused on prudent investment strategies, mindful of the disparities in India’s economy and the potential risks ahead.
2025 Q2
In the latest quarterly update, we highlight the remarkable performance of the Indian capital markets, with the Nifty index rising 15% this financial year, significantly outpacing historical averages. This bull market has generated substantial wealth for investors, reminiscent of previous market frenzies. Despite this optimism, we advise caution, as current valuations appear inflated, particularly in small-cap stocks driven by retail investor enthusiasm. Additionally, we are revisiting gold as a viable investment option due to its hedging properties against inflation and increasing central bank demand. The ongoing equity dilution and the need for consistent investor inflows pose risks to sustained market growth. As we navigate these turbulent waters, we emphasize the importance of prudent asset allocation and long-term planning to prepare for potential market corrections.
2025 Q3
In Q3 FY2025, Indian equity markets saw a sharp shift from euphoria to caution. Strong earnings and high valuations initially drove optimism, but slowing corporate growth, inflationary pressures, and stagnating wages led to reduced consumer spending. The temporary pause in government spending during elections further exposed economic vulnerabilities. Foreign investors, already cautious, accelerated their exit post-Trump’s re-election, favoring US equities amid expectations of tax cuts, deregulation, and reindustrialization. While Trump’s policies may boost US growth, uncertainties remain around fiscal deficit management and inflation control. In India, markets corrected sharply, with the Nifty down 8.3%, but mid and small-cap stocks showed resilience due to strong domestic investor participation. Cycas’ portfolios, designed for risk management and diversification, have performed relatively well, limiting downside exposure. With ample liquidity, our strategy remains focused on systematically deploying capital as markets correct further, ensuring long-term value creation for clients.
2024 Q1
In this investor letter we discuss the recent resurgence in Indian equities, driven by foreign and retail investor interest, alongside improving macroeconomic indicators. We also note the erratic behavior of the market and the dominance of small-cap stocks in the current bull market cycle. The letter also evaluates portfolio performance, noting challenges posed by changes in debt mutual fund taxation and expensive equity markets. It discusses the impact of government expenditure on private sector investment and addresses concerns regarding weak consumer demand. Additionally, it points out disparities in India’s GDP measurement methods and concludes by emphasizing the importance of a balanced, risk-aware investment strategy and advises against succumbing to market euphoria.
2024 Q2
This investor letter discusses the current investment landscape, highlighting resilience in economic growth for both the US and India. We observe significant government-driven capital expenditure in India and how top-down capital allocation seems to be the new investor paradigm. Market movements are expected to be influenced by narratives and policy guidance. Changes in Cycas portfolios include reinvesting in arbitrage funds due to tax changes and adding an active mutual fund to Indian equities. The letter discusses bond performance and the bias towards large-cap stocks in India. It also examines the impact of domestic capital flows on market volatility. Concluding, we note the bullish sentiment in Indian equities and cautioning against speculative action. It would be prudent to tilt portfolios towards larger, less speculative stocks.
2024 Q3
The quarter saw strong performance in client portfolios despite geopolitical tensions and disruptions in shipping. Market sentiment remains positive, supported by monetary policy and US tech developments. Uncertainty persists regarding interest rates and inflation, contributing to market volatility. The letter underscores the need to manage volatility and risk, highlighting the rise of Indian retail investing and its impact on equity markets. It concludes with advice on disciplined investing amid market fluctuations, urging optimism while acknowledging risks.
2024 Q4
The recent investment update highlights the market’s reliance on narratives over factual data, driving fluctuations in both US and Indian markets throughout the past year. Despite initial fears of a US recession, followed by narratives of tech resurgence and capital expenditure growth, markets performed admirably, particularly with the US S&P500 and India’s Nifty demonstrating strong returns. Looking ahead to 2024, potential risks loom, including global elections, sustained high interest rates, and geopolitical tensions. However, amidst these challenges, opportunities arise from government-led industrialization efforts and India’s expanding economic influence. The update emphasizes the importance of remaining cautious in the face of elevated market valuations and anticipates heightened volatility testing investor resolve.
Furthermore, the update underscores the value of strategic portfolio management, emphasizing the need for prudent fund selection and tactical asset allocation. While alternative investments have become popular, careful evaluation is essential to ensure they offer superior risk-adjusted returns and diversification benefits. Cash remains a cornerstone of portfolio strategy, providing flexibility during market downturns and serving as a hedge against unforeseen risks.
