Bimtek Capital's India Growth Fund: Investor Update Newsletter #23, Nov-2024

Dear Investors, Readers,

Happy Diwali

All is well!

Well, that’s what the “3 Idiots” Bollywood movie (starring Aamir Khan and depicting the lives of students studying at the prestigious Indian Institute of Technology after clearing the most competitive entrance exam in the world) taught us. To tell our minds and hearts: “All is well” during tricky times. With around 8-10% healthy correction in the domestic markets basis a confluence of multiple factors not limited to impeding US elections next week and International / Institutional investors preferring cash, a bit of a stretch in the mid+small cap space in India, significant relative valuation gap v/s China: a story which Foreign Institutional Investors have been ‘buying’ into most recently after President Xi’s stimulating efforts and the almost geopolitical ‘war’ narrative across regions (P.S. Jamie Dimon called out that we might already be in World War 3), Ouch!.? On ground, there’s been a more prominent correction in individual names in the domestic markets: anywhere b/w 20-40%. It has been an interesting month to say the least!

At Bimtek, we can’t complain, since we weren’t necessarily surprised by such an outcome panning out and have been positioning ourselves to pounce on such “volatile and opportune” times, as called out in our (Oct-24 newsletter: Surprises are something we like to avoid at work!) most recently and also earlier this calendar year. As a result, you would have seen us lap up more on some of our portfolio names in each of your respective investment portfolios wherever we have identified pockets of healthy price v/s value mismatch. We shall continue to do so should this unfold further.

Macro Backdrop: Currency debasement = a scramble for finite assets.

In 2024, the world has seen more than seventy elections where none of the parties with access to power even bothered to present a realistic plan to cut debt. Governments and politicians understand that they can make any promises using someone else’s money, and many voters will readily accept the fallacy of taxing the wealthy. To Bimtek’s mind, this smells like currency debasement!

When speaking of and addressing current equity valuations relative to history and the various valuation metrics, Bimtek believes there is one aspect of market valuation that is being overlooked right now. The equity market understands that currency debasement will be the likely (only?) way out of the current debt situation. Bimtek also thinks that the markets are discounting this prospect. Since equities can be used as a currency debasement and inflation hedge to some degree, the market is discounting future equity prices because of the likelihood of currency debasement. Historically speaking, current valuations may be stretched, but looking forward, they may be fairly priced given the probable currency debasement and inflation outlook.

Gold’s performance right now is telling!

It is clear the US debt and fiscal position is beyond the tipping point. Rising rate? Bullish hard assets. Falling rates? Bullish hard assets. Either way, the way out seems like monetary expansion and inflation.

To put things in perspective, above ground gold’s market cap is around $18.3 trillion now. Bitcoin’s market cap is just $1.3 trillion – both are a lot more finite than the $140 trillion bond market!

On the dark side of the moon: Central banks

The line in the sand was the financial crisis of 2008/09. The world’s central banks entered the markets to save the financial system. They learnt what they could do, and as a result of this, they have never left. What they learnt is that they could control the markets, and utilise their “crown of creation” cash, which is what they have been doing ever since.

The central banks have gone from being “a force” in the markets to “The Force” in the markets, and it is a position they are not going to give up because they can’t give it up. Saying it out loud- these are the only people in the world who wouldn’t go to jail for creating (printing) money. In fact, it is part of their job to create money. Consequently, no institution in the world can compete with them, as no one can create money. All anyone can do is follow along, and try to front-run what they plan to do next.

An unprecedented monetary destruction is coming?

There is no escape from debt!

Global money supply has soared by c$28Trillion since 2019. Global M2 Supply as of 1H2025: $106Trillion; $28Trillion printed in the last 5 years! Additionally, global debt is stacking upwards and onwards (c$316Trillion now). Around 55% of the rise came from developed economies: US, France, and Germany. Unfunded liabilities amount to c$72Trillion in the US: almost 3X the GDP. This looks high! Wait until you look at Spain: 500% of GDP, France 400% of GDP and Germany 350% of GDP.

Wits aside, paying for government’s fictitious promises in paper money will result in constantly depreciating currency, thereby empowerishing those who earn a wage or have savings. Inflation is the hidden tax, and it is very convenient for governments because they always blame shops and businesses and present themselves as the solution by printing even more money. Governments want more inflation to reduce the impact of enormous debt and unfunded liabilities in real terms. ?China’s now stimulating! Billions and hundreds of billions of spend with a debt-to-GDP ratio already above 300% If you thought the monetary destruction we have witnessed in recent years was excessive- wait for the likely suffering we might endure in the future.

If this is the state of play: Bimtek wouldn’t want to be near bonds/government bonds! Besides the proxy-cash holding to pounce on short-term market volatility in fundamentally strong names.

What would Bimtek definitely want? Exposure to finite assets. Bonds can be printed into infinity. NOT Gold or Digital Gold (BTC et al).

Technically speaking- if rates don’t fall enough, a lot of people can go bust. Low interest rates are a feature, not a bug. We cannot survive without them. One can see this structural issue when you look at the US government debt due this year and the next. Interest rates MUST come down... and FAST! Everything changed in 2008. Quantitative Easing will not allow that wipeout to happen again (nor 2001). It simply can’t because when they print, asset prices rise, the value of collateral rises, and the system becomes solvent. So few people understand this, but it is EVERYTHING. ?Bimtek and some others try again and again to explain it to people, but they can’t get their heads around currency debasement or the key secular trends!

In light of the above secular trend [or the bet on further currency debasement]-

Bird’s eye view on Asset Allocation

·?????? Fixed Income / Bonds – An obvious opportunity for capital gains if rates decline but given the amount of issuance on the horizon and prevailing inflation, arguably very little desire to incrementally invest in this space

·?????? Equities – A straight yes, and focused on quality names delivering sustainable compounding growth plus our home story (i.e., India’s long-term structural story!)

·?????? Precious metals / Digital assets / Real Assets (including Real Estate)– despite not being a personal favourite in asset allocation, Bimtek wouldn’t mind some allocation to gold, at least for those without exposure to Real Estate. Bimtek is personally long on digital gold (BTC) and the other blockchain-based / ETH and layer-two solutions and is third-generation on real estate (Bimtek’s Real Estate family office arm being owner-operator-developer in India). As Bimtek discussed in some of our previous newsletters too (refer newsletter here), with global liquidity rising and the liquidity-driven crypto universe expanding, Bimtek would like to “HODL” (hold).

·?????? Commodities: Personally, Bimtek has been long on specific commodities since 2022 with commodity ‘super-cycle’ playing out; EV and Energy transition feeding in; longer‐term copper supply/demand looks attractive; Bimtek shall talk more on this in subsequent newsletters!

·?????? Cash: Tactical allocation to cash, as always, to pounce on price value mismatch opportunities in the capital markets space (a fundamental facet of Bimtek’s investment philosophy) and probably since Bimtek prefers sleeping at peace at night! Has always.

As a wise investor said:

“The end object of investment is serenity, and serenity can only be achieved by the avoidance of anxiety, and to avoid anxiety you have to know who you are and what you’re doing”

As always- if you’re interested in discussing investments in general or would want to evaluate investing with us through Bimtek Capital’s India Growth Fund- we’d love to talk. ?

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Kind regards,

Team Bimtek Capital