Bimtek Capital's India Growth Fund: Investor Update Newsletter #24, Dec-2024

Dear Investors, Readers,

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Around the second quarter end of this year, when panic was in the air, we stayed bullish and outlined some technical levels to watch for signs of a potential major peak. Those levels have now all been reached. Does Trump’s sweeping victory change everything? Or is it merely hastening the bull market’s final chapter?

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In the year-end edition of our newsletter, as we head towards the mid-decade (2025), Bimtek wishes to share a 35,000 feet view on the path, positioning for the rest of the decade: both from India and International markets perspective. We briefly spoke about our asset allocation view (beyond equities and into other asset classes as well as positioning hereto in our Nov-24 newsletter) and would also briefly touch upon, purely on a no-name basis: a case synopsis of one of our portfolio companies.

Macro Backdrop: Looking Ahead 2025E and beyond.

Since the start of the 2020s, global equity markets are up by around 50%, US nominal GDP has increased by over 30%, and US corporate profits are up nearly 70%. All that in spite of unprecedented global lockdowns, the outbreak of wars in Eastern Europe and the Middle East, and the largest spike in interest rates and inflation in decades. The market and economic developments have led some to term the decade so far as the “Roaring 20s,” marked by high economic growth, strong market returns, and improving productivity.

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As we approach the midpoint of the decade, and the implications of the US election result are a focal point-

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A key question is whether US political change might extend or end the Roaring 20s?

The upside scenario would see lower taxes, deregulation, and trade deals adding to a positive market narrative built on solid growth and continued investment in artificial intelligence. The risk scenario is that trade tariffs, excessive fiscal deficits, and geopolitical strife will contribute to higher inflation, weaker growth, and market volatility.

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As we consider a wider range of market outcomes ahead, the unpredictability of this decade so far should remind us of the importance of humility and market diversification. But it should also remind us of the adaptability of the economy, the power of innovation, and the potential for long-term market growth.

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For Bimtek, Idea is to take a refresh our longer term call on the investment opportunities and strategies to manage risks as the decade enters its next stage.

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What does this mean for Bimtek’s India Growth Fund Investors?

At the risk of being repetitive (since we’ve spoken about this a bunch of times in the previous newsletters) as well- India offers a compelling domestic growth story and Bimtek’s primary allocation of time and resources shall be across India names. Although Bimtek continues to evaluate opportunities across the regions and asset classes and public / private markets.

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In our base case, Bimtek believes that central banks are poised to cut interest rates further in the year ahead and that returns on cash will fall. As such, investors should position for lower rates by putting cash to work and equity income strategies to sustain portfolio income.

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Bimtek believes there is more to go in equities. With markets powered by falling interest rates, solid economic growth, and transformational innovations, ??the research divisions of Investment banks (read- GS, MS and the likes) have outlined the S&P 500 to reach 6500-6600 levels by the end of 2025—around a 10% price return from current levels. While tariffs and geopolitical uncertainty are a concern and likely to contribute to volatility, they should not completely overshadow the opportunities outside the US. ?Globally, contrary to popular opinion, we are positive on China’s internet stocks, which could benefit from potential stimulus measures.

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Bimtek’s India Growth Fund Case Study

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A FinTech Major: ‘Investors Darling’ to ‘Fallen Angel’ to ‘Sleeping Beauty & Rising Giant’ (again!)

As Bimtek Capital’s India Growth Fund investors are aware, Bimtek is long on some of the India Internet and Fintech businesses. Among this sub-portfolio of India Internet and Fintech businesses, the story of this particular portfolio company has been one of a kind or a tale of two halves.

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Yes, over the past decade, this company has had a rollercoaster ride: from being the talk of the town and one of the major winners, beneficiaries (“riding the right wave at the right time” of India’s switch to a cashless economy) during and post the demonetization era to the point that it brought Mr. Buffett to Investing in India. The business has dominated the payments landscape in India for the past 6-8 years albeit the past 12-18 months have been such that some regulatory lapses and increased scrutiny brought the ‘over-reaction’ of? markets questioning the sustenance or ‘business-as-a-going-concern’ was brought to question especially with the misinformation around the the business being shut down. A wild ride so to speak!

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Investor sentiment works in extremes, wherein when Euphoria strikes, businesses are taken “to the moon” and when a lapse of judgement occurs then punitive actions can bring the stocks to the dogs!

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As a wise investor said:

“The pendulum of investment psychology is constantly fluctuating between optimism and pessimism, between greed and fear, between credulousness and scepticism, between risk tolerance and risk aversion”

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In the case of this particular stock, the hammers hit the business to almost 85% down versus IPO price (from just a couple of years ago) or when no-one wanted to touch the business despite having almost $billion+ cash sitting on balance sheet of an EBITDA positive high-growth business and trading at half the valuation of the nearest competitor despite twice the size and market share!

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But as it always does, the market finally started appreciating the business and its fundamentals over the past 6-9 months and the result? The stock has risen almost 2.5X during this time. Talk about extremities (ouch!).

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As you, readers and investors, are very well aware by now- Bimtek is a steady learner. We like our days slow, filled with readings on businesses and sectors, segments we understand and wait to pounce on the right opportunities when the market presents them. And it (almost) always does!

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Bimtek had been eyeing this business for some time albeit hadn’t had the work done to grasp a hold on the valuation when the markets were busy taking the stock “to the moon” although over the course of post-IPO period to the recent 12 months tenure, Bimtek had taken its sweet time to understand the business and be ready to enter the stock at mouth-watering valuations (prices down the drain) when no one wanted to touch this business as this fiasco unfolded.

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Most of our investors have seen the rebound, ride up to normalisation transform to healthy returns in their respective investment portfolios and should expect a healthy run ahead as the business recoups lost ground and or potentially its rightful market leading position in the years ahead.

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A granular investment memo with detailed investment thesis and financial analysis on the business is accessible through your respective investment portal accounts on our website: here.

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For now- we’ll go back to our “boring” routine of readings and going deeper into understanding of the businesses we own, the sectors and segments we understand and the one’s we want to go long on.

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Heading into the new year holiday season in a few weeks, and as we reach the mid-point of this dynamic and transformative decade, we extend our best wishes for a prosperous and successful year ahead! And hopefully some time to reflect on the decisions made and strategize for the path ahead, besides family time in holidays.

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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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P.S. If this email was forwarded to you and should you be keen- here’s a link to sign up to this newsletter’s email subscription list: https://eepurl.com/ijwQt9

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Kind regards,

Team Bimtek Capital