Bimtek Capital's India Growth Fund: Investor Update Newsletter #25, Jan-2025

Dear Investors, Readers,

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New Year wishes!

Pause, Reflect and Strategize: 2025

It’s that time of the year ?where, besides the familial holiday mood- a sense of reflection lurks at the back of the mind. The time where (almost) all of us have been pencils down during the past fortnight or so of holidays with family, pausing, reflecting and more importantly strategizing for the times ahead. For what is in our control: to look back and learn from BOTH ours misses and wins! What worked, what didn’t and more so WHY.

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Most of us would have seen various research reports from investment banks come through with outlooks for 2025. Bimtek wouldn’t want to bother you with these again! For they are as useful as yesterday’s news (pun intended!) where most have and likely continue to miss the mark- at times on the downside and like in 2024: on the upside. Recall most research outfits were envisaging 2024 as a low to mid-single digit returns scenario. What played out may have humbled some.

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Bimtek wouldn’t crystal ball into the future but would rather opine on the various scenarios that may play out over the course of near term and be prepared to position ourselves and our portfolios accordingly ?as things pan out.

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Permabull or Cautiously Optimistic?

Bimtek is probably a Permabull on the India Growth Story if ‘Perma’ refers to the next few decades! For now- we would like to be positioned as ??Cautiously Optimistic??

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Looking back, 2024 was a year of two halves: with both the exuberance and much needed correction (price as well as recent sideways trading driven ‘time’ correction) both of which, despite hitting our portfolio returns, has put some of us at a slight ease versus where we were in headspace a quarter or so ago!

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The year ahead could be an interesting one- both geopolitically (obvious!) and more so from cherry picking opportunities or rebalancing opportunities to deliver superior risk adjusted returns across our portfolios. The economic landscape presents a mix of opportunities and challenges. The global economy has been striking a constructive balance between solid growth and easing inflation. At the same time, several geopolitical factors merit consideration, including globally rising government debt. In the United States, an election has concluded; markets are analysing the incoming government’s expected policy initiatives in the months ahead. Fair to assert that one could see increased volatility in fixed income markets in the near term.

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Going forward, the balance between tailwinds (continued global economic expansion, falling interest rates, healthy earnings growth) and headwinds (elevated valuations, especially in U.S. large-cap stocks, tight spreads in investment grade and high yield bonds, increased macroeconomic volatility and ongoing geopolitical risks) suggest that portfolio returns are likely to revert to trend-like rates!

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At home, with a fragile global economic environment and mixed macroeconomic factors, the market is expected to remain in consolidation mode in the near term. The year ahead could thus unfold as a tale of two halves: market consolidation in first, and a recovery likely in the second.

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Bimtek remain optimistic about the long-term trend, given the strength of corporate India’s balance sheets and the prospects for robust and structural profitable growth, and most importantly the underlying fundamentals of our India Growth Fund portfolio companies.

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Macro Backdrop: Looking Ahead: 2025E and beyond

Easing Global Policy

Given 2025 will likely be the year of the global easing cycle, falling policy rates will support trend-like economic growth in the United States and the Eurozone, but not boost demand so much that it reignites inflation. In China, policymakers seem set on ensuring that growth stabilizes, especially in response to the increased likelihood of higher U.S. tariff rates.

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Accelerating Capital Investments

Businesses and governments are primed to spend in the year ahead of capital investment. Read- margins are elevated, profits and executive confidence are on the rise, and policymakers are focused on supporting growth. Some of the global trends playing out require enormous investment: AI, power and energy, and security.

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International Investors Preferring U.S. & Japan over Emerging Markets & China

Amid global central bank easing, ideally, international investors would be tempted to increase their exposures to emerging markets. In past rate-cutting cycles, falling rates have supported emerging market assets through higher growth, increased capital flows and weaker currencies that boost exports.

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On the contrary, in discussions with some of our international investors and counterparts, Bimtek has had a view from investors arguing that even when EM companies do deliver strong revenue and profits, shareholder dilution means that GDP growth does not translate into earnings per share growth or market returns. Volatility in earnings and currency valuations also disrupts compounding. So they are more keen on the home story (US, Trump 2.0) than EM.

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No wonder India witnessed around $15Bn+ (INR 1.2Lac Crore) worth of FII capital outflows in CY 2024 (most in the last quarter) albeit domestic, retail capital kept the markets at bay and not whiplash per se.

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Albeit there is a fair assertion that despite the bet re. DM equities outperforming EM equities next year, countries such as India stand out both structurally as well as post recent corrections and likely volatile times ahead offering better entry points. Thus standing out as regions that could deliver solid returns to shareholders in both public and private markets!

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Simply put, In such an environment, stock picking will come to the fore. Read- The fancy “Investment Mangers” bragging crazy returns to investors would probably have to sweat it out and make ‘actual’ bottom-up decisions which would reflect in portfolio returns instead of simply riding the wave.

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Or as wise investors say:

When the tide turns, you find out who’s been swimming naked!

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Bimtek is looking forward to it. And hopes, so are you.?

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