Opinion / Financial Markets
Bimtek Capital’s India Growth Fund: Investor Update Newsletter: Oct-2024
View on US, India Capital Markets as well as Cryptocurrency Cycle
Dear Investors, Readers,
Slight chill (jitters) down the spine writing this. Bimtek has had a lot of queries from people: some anxious, stressed and even desperate about the state of Indian capital markets. Some have been waiting patiently on the side-lines for quite a while now, with capital to deploy and some have given in to their FOMO (fear-of-missing-out) and got on the bandwagon of crazy advances in the markets. As Bimtek has maintained, we are not in the ‘crystal-ball gazing’ business so we wouldn’t be best suited to advise on ‘timing the market’. What Bimtek does, and has been able to do reasonably well over the past decade and a half is to map out the plausible scenarios and their likeliness and position ourselves for when they play out and stay the course.
Surprises are something we like to avoid at work!
Bimtek spoke at length (in our Sept-24 newsletter ) about the plausible scenarios and how we are positioned as they play out in this interest rate unwind cycle during the short to medium-term.
Macro Backdrop:
Chartering the International waters
In the US, to grasp the nuances of today’s market, it might be worthwhile to look back at the 1960s: a decade known for its market upheavals and speculative excesses. By exploring how the current environment possibly draws parallel with the earlier period, we could borrow insights that might be worthwhile for the path ahead.
For Mark Twain rightly said-
History might not repeat itself, but likely to rhyme!
One key finding for us after a deep-dive into this has been that after a climactic event like the 2021 peak exhausts speculative energy, the next phase isn’t likely another vigorous bull market but a more subdued one with less upside.
At home, in India, with the extremes at play and markets near all-time highs, people have started rationalising the extreme upswing (read- the age-old song we have all heard before- ‘it’s different this time’) and are taking a more longer-term view on India in terms of capital deployment. Whilst Bimtek is fully aligned with the long-term structural story, we wouldn’t want to rule out the bumps in the ride in the near term given the sharp run-up [Indexes up c.25–30% year-to-date in CY2024].
In all fairness, the narrative and a $10 trillion economy are well within the reach over the course of next 6–8 years (between 2030–32). Where does the incremental trillions get created and how is where calories are worth spending. Ideally, it has to be built like a pyramid.
- The base on which it stands obviously has to be robust enough to include strong economic foundations (for instance the areas where India needs to pick up the slack such as logistics/infrastructure: transport & connectivity, education, healthcare et al)
- The middle layer or the core, is about building digitally native companies, industry-wide, and helping them expand to other geographies to build scale.
- Finally, the topmost layer is to be defined by leadership in emerging tech to catalyze non-linear growth. The Indian government’s role is critical in this one. Policies will have to be ecosystem-friendly to propagate deep-tech like AI, Blockchain, Advanced Analytics and the likes- which seems the course of action during Modi 3.0
Crypto View
On popular demand (read- frequent queries by readers and investors alike)- Bimtek has started sharing thoughts on the crypto world every once in a while. Mindful that Bimtek Capital’s India Growth Fund has NO exposure to cryptocurrencies albeit Bimtek is personally LONG on the crypto/blockchain scope and may consider exposure in the future once our thesis is tested out basis our first-risk capital testing-the-waters right now.
Fundamentally, crypto markets have majorly been driven by the specific use cases, anonymity and non-regulation (not central banks driven), P2P transactions as well as other use cases such as that of ETH 2.0 layer based applications.
At the outset and with a pinch of salt, fundamentals matter much less in the crypto world than our regular securities markets and the market is more driven basis liquidity. An ever-so-simplistic way to put forward various narratives boils down to whether there’s belief in the broader adoption or others holding the coins.
The bull markets in 2017 and 2021 were driven by extreme buying and holding, fueled by Initial Coin Offerings (ICOs) in 2017 and decentralised-finance (DeFi) in 2021. On the demand side, the last wave of crypto growth during 2019–21 was when the asset class ‘institutionalised’ i.e., started coming on the radar of the institutional investors.
Bimtek believes the next wave of crypto growth should likely occur when nations drive growth and adoption. To Bimtek’s mind, value would essentially be driven by more widespread (global) adoption and general use, which for now is a countries-driven bottleneck. For e.g., the red-tape in China on one end, and a much more liberal view in the US (both the potential incoming Presidential candidates have positioned themselves as pro-crypto in their electoral campaigns in the lead up to the forthcoming elections). India somewhere in between.
Obvious risk factors to this playing out are illegal activities such as money laundering, stealing et al and scams that we see each passing day but essentially the adoption is increasing in a digital-first world basis Gen Z or the internet / Tech-savvy generation so to speak.
In terms of the crypto market cycle, we haven’t fully come out of the crypto winter or bear market in the past year or two despite some key catalysts playing out such as Bitcoin, Ethereum ETFs being launched, ETH Dencun update (designed to reduce costs for layer-2 transactions and enhance data availability on Ethereum) among others which haven’t necessarily lifted off the sentiment
Just like in markets- where the short-term movements are trading driven, so is the case in crypto albeit there is this limited clarity on the fundamentals side of crypto contrary to securities markets where fundamentals drive the long-term price movement. The key question is: “How are people making money in crypto today without just trading?” i.e., to drive the incremental buy-and-hold?
As stands, there’s limited tangible reason to incrementally buy and hold crypto beyond already priced in views of the past legs and speculative fractal patterns or strong belief in the broader crypto adoption vision. Staking yields in crypto are not appealing compared to the Fed funds rate. Without a new reason to buy and hold, crypto could likely disappoint in the near-term.
A potential blow-off top in equities or signs of significant fiscal stimulus may lead crypto to outperform in a meaningful way. A new narrative that excites investors with a profitable vision of the future could also spark an alt season. A shift in mining economics, like a drop in energy costs, could possibly change the dynamics as well.
To Bimtek’s mind, a tricky scenario would be a potential crypto rally in the coming months without the underlying incremental buy-and-hold sentiment to support it. Such a move is hard to envisage and usually ends in tears! But the seasoned “crypto-bros” across the world have seen it all [pain] in the previous cycles too.
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.
P.S. If this email was forwarded to you and should you be keen- here’s a link to sign up to our email newsletter subscription list:
Kind regards,
Team Bimtek Capital
