How to navigate your way through volatile markets | Google Vs Microsoft: Let the AI Wars Begin! | Explained: The Systemic Fall of Credit Suisse
Investors in the Indian equities market have been facing a tough time as the market experiences the third consecutive month of negative returns. Unfortunately, March has been no different, with the Nifty ending two out of three weeks in the red.
As an investor, it’s natural to feel worried about your portfolio in times of market turbulence. However, it’s important to take a step back and look at the bigger picture.
Even, we have received numerous emails from worried investors expressing similar concerns, prompting us to address these largely exaggerated fears.
We have delved deep into reassuring investors not to worry about market downturns (and upswings, for that matter) by analyzing market data over the past two decades. Through our research, we aimed to understand the frequency of such market fluctuations. Our findings are presented in the chart below, providing valuable insights into the trends and cycles of the Indian equities market.
Over the previous ~1,211 weeks, the Indian markets have experienced several crises and disruptions – both global and domestic – such as the Dot-com bubble, SARS, the Global financial crash, Demonetization, GST, Covid-19, and the Russia-Ukraine crisis, to name a few. Despite these challenges, the markets have seen many more positive weeks than negative.
By broadening the scope of our study, we have found that some of the most intense negative weeks in the market have provided a great opportunity for investors who are willing to take a chance. This is because, during times of fear and uncertainty, the market often becomes oversold and undervalued, creating a ripe opportunity for savvy investors.
As investors, we have all experienced the ups and downs of the market. It’s easy to get caught up in the panic and uncertainty that comes with negative weeks, but what if we told you that these tumultuous times could be a blessing in disguise?
To illustrate this point, we have compiled a table below that highlights the returns realized by market participants who capitalized on the breaking of markets by investing fresh monies on said days. As you can see, these investors were able to take advantage of the market’s oversold conditions and were rewarded with significant returns over various tenures.
The below table showcases the steepest weekly falls for your reference:
The table above brings forth two key observations:
Don’t Forget…
Investing is a timeless activity that offers investors pockets of return amplifiers, which are often disguised as the market falls. As Mr Charlie Munger has said, success in investing comes to those who are very patient most of the time, and aggressive when the right opportunities arise. By staying invested and patient during market downturns, investors can position themselves to take advantage of the eventual recovery and create wealth in the long run.
It is important to remember that investing is a long-term game, and short-term market fluctuations should not be the sole determinant of investment decisions. By focusing on a well-diversified portfolio, with a long-term investment horizon, investors can weather the ups and downs of the market and potentially achieve their financial goals.
How can you mitigate volatility?
Maximizing Your Investments: The Benefits of Asset Rotation and Diversification
Asset allocation is a critical component of any successful investment strategy. By diversifying your assets across different classes and proactively taking advantage of market volatility, you can build a balanced portfolio that maximizes returns and minimizes risk. With the right strategies in place, investors can navigate the unpredictable investment landscape of 2023 and beyond.
Up your finance quotient: What else needs your attention?
1) Microsoft Vs Google: How Generative AI Sparked an Ultimate War?
The AI battle of the titans is heating up as Microsoft, Google, and Meta go head-to-head in the race to develop generative AI.?
With billions of dollars in funding, each company is vying for the top spot with AI-driven solutions such as IBM's Watson, Google's DeepMind, and Meta's transformative AI system, it is Microsoft's ChatGPT that has caused the biggest stir.
Microsoft's billion-dollar investment in OpenAI in 2019, followed by an undisclosed amount in 2021, and another hefty sum of $10 billion earlier this year, is nothing but a testament to how the tech giants are throwing everything they’ve got to AI.?
Last week Microsoft incorporated ChatGPT-4 into its search engine, Bing, giving Google a run for its money. Bing's far-reaching market share, bolstered by Microsoft's Windows-powered devices that encompass 1.5 billion products globally, increases ChatGPT-4's exposure. Here’s something you might not know: every time you’re gonna ask Alexa a question, she’s gonna use Bing to pull up the answers.??
So, who will come out on top? Watch this video to dive deep into the emerging tech war.
2) Everything you need to know about Tax Harvesting to maximise tax savings
Taxes are a hard pill to swallow, but did you know that there's a way to reap tax benefits from a depreciating asset in your investment portfolio??
Enter tax-loss harvesting. Essentially, this method involves strategically selling off loss-making securities to offset taxes on gains or income. By taking advantage of these opportunities to increase post-tax returns, you can make the most out of your investments.?
This blog further dives into the world of tax harvesting and how it can help increase your savings! Tax harvesting is especially beneficial when you’re staring at a further downward trend in the markets as it helps investors reduce losses. But, there are nuances and intricacies to consider when implementing this strategy.?
For example, one needs to be mindful of the short-term vs. long-term capital gains tax implications. By leveraging tax loss harvesting, investors can effectively take advantage of market volatility and potentially save thousands of rupees in taxes.?
So why pay more taxes than you need to? Head to this blog to understand tax harvesting in detail.?
3) Passion Investing: Rare Whiskey is the most profitable investment
Investors have kept their passion alive even as rising interest rates continue to affect investment decisions worldwide! According to the recent Knight Frank Luxury Investment Index (KFLII), the value of 10 passion investment assets rose by a solid 16% in 2022, outperforming mainstream investment classes.
What is Passion Investing??
It is basically investing in non-traditional assets that generally allow you to enjoy the ownership of the asset while holding it in your portfolio.?
These are usually vintage art pieces, wines, rare whisky, luxury handbags & watches, etc.?
India's Ultra High Net Worth Individuals (UHNIs) are not far behind in this trend of passion investing. 29% of HNIs in India are predicted to invest in wine, while 12% are expected to invest in rare whiskey in 2023. Globally, this trend will continue with 39% of HNIs investing in wine and 18% of HNIs investing in rare whiskey in 2023.?
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Week Ahead for Markets: What to expect?
4. Oil Prices: Oil prices fell sharply last week due to the banking sector crisis. This is good news for countries that import oil, like India. However, experts are monitoring the situation to see if the decline will continue and if supply constraints will still drive up prices. The international oil benchmark, Brent crude futures, closed at its lowest since December 2021, while US oil prices also dropped significantly.
5. Domestic Economic Data:?
Question in Focus
Explained: The Systemic Fall of a “Global Systemically Important Bank"
“Why is UBS buying Credit Suisse? What led to the Credit Suisse Crisis? How did it collapse?”?
UBS Group AG, a rival financial institution, will buy Swiss-based Credit Suisse for $3.2 billion, despite the latter’s Chairman denying any intention to merge or sell the bank. This led to a 61.95% slump in Credit Suisse’s share price in premarket trade in Zurich on Monday.
This hasty takeover follows regulators investigating Credit Suisse, and adds to the global banking industry crisis, alongside the recent crashes of Silicon Valley Bank and Signature Bank in the US.?
Credit Suisse, which is among the 30 globally systemically important banks, has faced several scandals throughout its 167-year-old history, resulting in damage to its reputation and significant financial losses.
Let’s understand these scandals step-by-step:
1997
Back in 1997, Credit Suisse got caught helping its rich clients dodge taxes in the US. They apparently opened up secret offshore accounts in places like the Cayman Islands and other tax havens.?
This allowed their clients to stash their money and skip out on paying taxes. Credit Suisse had to pay the US government $100 million to settle the case and they had to own up to doing something illegal.
2008
In 2008, Credit Suisse was among the big banks caught in the subprime mortgage crisis. Credit Suisse got in trouble because they put a lot of money into risky, subprime mortgage investments. These investments ended up causing them to lose a lot of money and hurt their reputation.?
Even though many other banks needed help during the global financial crisis that year, Credit Suisse didn't accept any bailout money. At that time, UBS was struggling, but now the tables have turned.
2014
Credit Suisse had helped some US citizens avoid paying taxes by using hidden bank accounts and fake companies. This was against the law, and they got caught. As a result, they lost people's trust and had to pay a big fine of $2.6 billion to the US government in 2014.
2016
Credit Suisse was involved in a case related to its collaboration with Mozambique. They were blamed for supporting the Mozambican government in borrowing more than $2 billion that was later found out to be used for doubtful projects like a fishing fleet and a shipyard.?
These projects were deemed to be priced too high and not useful, causing a big loss of public funds. Credit Suisse received a penalty of $47 million from Swiss authorities and an inquiry into their way of doing business was conducted.
2018
In 2018, Credit Suisse got in trouble for fraud and corruption in Malaysia. The bank had embezzled billions of dollars from the 1MDB (1Malaysia Development Berhad) sovereign wealth fund. This involved several high profile people like the former Prime Minister of Malaysia, Najib Razak, and an executive from Goldman Sachs Tim Leissner. The bank had to pay a fine of $47 million to Swiss authorities for this.?
2020
In 2020, Credit Suisse got in trouble again due to Greensill Capital. This financial firm went bankrupt and was blamed for indulging in fraudulent activities. Credit Suisse incurred a $1.72 billion loss as a result of the collapse of $10 billion in supply chain finance funds linked to Greensill. This was not all. Credit Suisse also lost nearly $5.5 billion from the implosion of investment fund Archegos.?
What led to the current absolute breakdown?
Credit Suisse earns revenues from four businesses: wealth management, commercial banking, asset management and investment banking.?
The group lost money in 2021 and continued to lose money in 2022. Cut to 2023 on March 15, when the bank released a report that said they lost CHF 3.2 billion (CHF is Swiss Franc) before taxes and CHF 7.2 billion after taxes. Their total assets went down by 30% and they had a negative return on equity. The report also said the bank will incur a significant loss in 2023 too.?
The bank blamed the bad results on a difficult economic and political environment.
Will India be impacted?
As of now, the Indian government believes that the brewing bank crisis will not directly hit our macro stability. Ajay Seth, economic affairs secretary stated, “India’s macroeconomic fundamentals remain strong and the country is on a sound footing to absorb any such external shock.”?
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