From Co-founder's Desk

I hope everyone is safe and everything is well at your end. One of the most striking messages I read today about the current pandemic is that workers worldwide lost $3.7 trillion, while billionaires around the world gained $3.9 trillion. It’s the biggest single-year wealth transfer in the history. If we talk about the USA or any other country where free paychecks are huge, people have received them from the government. (which will be recouped from the tax paid by the billionaires). But in a country like India, this is not happening on such a massive scale. In such cases, the promoters and billionaires have been the biggest beneficiaries. In general, when a billionaire makes money, he reinvests that money in business, which ultimately leads to job creation so money eventually can be received by workers. But the sad part about the current world is that billionaires have made money out of automation, tech start-ups & efficiency gains, so we don’t expect it to create as much job creation as it could have done a couple of decades back. If we look at USA & China, they have created $24 trillion & $ 4 trillion of market cap respectively, since the pandemic started. Even from the pre-pandemic level, the USA & China created a $ 15 trillion market cap, most of which came from the Internet, Tech, & start-up ecosystem. India also added $ 500 billion of market cap from pre-pandemic levels. This enormous wealth creation is fueled by massive fiscal & monetary stimulus by most countries to support their economies.

One of the most worrying parts is that although the world is not fully vaccinated, commodity prices are on the roof just due to expectation of revival, China demand & massive liquidity pump in those markets by traders and investors and not an actual demand. US inflation print is getting scary with the economy opening up demand will outpace supply, leading to very high inflation. The US 10 years is still trading at the pre-pandemic level. On a global debt of $300 trillion, 100 bps rate reduction during pandemic also gave an escalation of $ 3 trillion in addition to fiscal stimulus, any reversal in rates further & inflation can create a huge amount of negative impact in bond yields, in turn, liquidity and impact on emerging markets.

But that’s the future; right now, let's make hay while the sun is shining. Coming to one more frenzy valuation area. Last week, I had dived deep into the Paytm IPO note: expected market cap 2-2.2 lac crore, sales of 3200 crore, and loss of 1700 crore in times when payment banks & gateway centers are experiencing crazy competition. On the other hand, our old tech leader, HCL tech, with a market cap of 2.5 lac crore, is near Paytm with revenue over 75000 crore and PAT of 11000 crore. (it is so logical to choose between cash flow and expected future growth). As a matter of disclosure, our absolute return fund has appx 7% exposure in HCL Tech will further explore demand & inflation in the next note. Until then, stay healthy & stay safe. With a sharp eye on risk and focus on following the mandate of generating absolute returns during this financial year as well.

Stay safe !