India exported $38.5 billion worth of electronic goods in FY2025. Sounds impressive, right? Now consider this — we imported $36.8 billion worth of electronic components in just the first half of that same year. Nearly 40% of those component imports came from China.

We’ve been assembling electronics, not manufacturing them. That is now changing.

The Problem with Assembly

Think of it like this. If you run a restaurant but buy every ingredient — the spices, the oil, the flour, the vegetables — from one supplier, you don’t really control your kitchen. You’re just plating the food. One supply disruption and your restaurant shuts down.

That has been India’s electronics story so far. We became the world’s second-largest mobile phone manufacturer. But 80-85% of the components inside those phones — the chips, the PCBs, the camera modules, the displays — were imported. The value addition happening in India was a thin 15-18%. The rest of the money was flowing out.

The PLI scheme fixed the top of the pyramid — finished phones, laptops and IT hardware. Production went from ₹1.9 lakh crore in FY2015 to ₹11.3 lakh crore in FY2025 — a six-fold jump in a decade. But the base of the pyramid — the components — remained hollow.

Enter ECMS

The Electronics Components Manufacturing Scheme was launched in April 2025 to fix exactly this. And it’s moving fast.

The government just cleared 29 more proposals under ECMS, bringing fresh investment of ₹7,104 crore and projected production of ₹84,515 crore. These 29 proposals alone will create over 14,000 direct jobs.

Here’s how the overall ECMS numbers look now:

• Total approved applications: 75

• Total expected investment: ₹61,671 crore

• Total expected direct employment: 65,040 people

• Earlier 46 approvals: ₹54,567 crore investment

• Latest 29 approvals: ₹7,104 crore investment

The Union Budget 2026-27 enhanced the ECMS outlay to ₹40,000 crore. That’s a serious signal from the government that this isn’t a token scheme — they want scale.

What’s Actually Being Made

This is where it gets interesting for investors. The 29 new approvals cover 16 product segments — and these aren’t obscure items. They’re the building blocks of every electronic device you use:

• Display modules — Dixon Display Technologies, Wangda Technologies

• Connectors — Molex India, Amphenol FCI, SFO Technologies

• Li-ion cells — Munoth Lithium Battery

• Inductors — TDK India

• Flexible PCBs — Syrma Strategic Electronics

• Copper-clad laminates — Syrma Components, Ratnaveer Precision Engineering

• Metallised films — Dhruv Industries

• Rare earth permanent magnets — Lohum Cleantech

Three firsts stand out. India’s first SMD passive plant for tantalum-based capacitors. First flexible PCB plant. And the first rare earth permanent magnet facility manufacturing from rare earth oxides, with fully indigenous technology.

Why Rare Earths Matter

I want to spend a moment on the rare earth magnet approval because most people will gloss over it. Rare earth permanent magnets are critical for electric vehicle motors, wind turbines, defence electronics, and clean energy tech. Global supply is concentrated almost entirely in China. In a world where both the US and China are using export controls as weapons, having your own rare earth-to-magnet capability is not a luxury — it’s a strategic necessity.

Lohum Cleantech’s ₹700 crore project is expected to meet about 25% of India’s domestic demand. That’s a start. But the fact that we’re building this capability from oxide to finished magnet — not just processing imported semi-finished material — is significant.

The Bigger Strategic Shift

What I find most encouraging is the shift in how we are thinking about electronics manufacturing. Four priority areas have been outlined:

• In-house design capability (not just assembly)

• Domestic supply chain with buyer-seller linkages

• Six Sigma quality programs

• Workforce development — 4-5 training centres with 5,000 trainees each

This is moving from “let’s attract Apple to assemble iPhones here” to “let’s build the entire supply chain so that assembling here actually makes strategic sense.” The localisation targets tell the story — 50% of PCB demand to be met domestically, 61% of Li-ion battery demand, and 100% of relay demand with surplus for exports.

What This Means for Investors

I’ve been tracking the Indian electronics manufacturing space for a while now. The opportunity here is real, but you need to understand where the value creation will happen.

The companies getting ECMS approvals — Dixon, Syrma, Ratnaveer, Kaynes (from earlier rounds) — are building capacity that will take 2-3 years to come on stream. The revenue and margin impact will not show up in the next quarter’s results. This is a 3-5 year story.

But consider the tailwinds. India’s electronics production target is $500 billion by FY2031, up from $125 billion in FY2025. That’s a 4x jump in six years. Even if we hit 60-70% of that target, the component makers who are investing today will be the biggest beneficiaries.

The question I keep asking myself is — can we actually execute? The PLI scheme for mobiles proved we can. Smartphone import dependence dropped from 78% in 2014-15 to practically zero today. India overtook China to become the top smartphone exporter to the US in the September 2025 quarter.

If we did it for phones, we sure can do it for components.

The Bottom Line

ECMS is building India’s component backbone — from PCBs and passives to rare earth magnets and capital equipment. It’s the kind of boring, unglamorous, supply-chain-deepening work that doesn’t make front-page news but determines whether India’s electronics story has substance or is just a re-labelling exercise.

For investors, the listed companies in this space — Dixon Technologies, Syrma SGS, Kaynes Technology, etc. — deserve a place on your watchlist. The capex is happening now. The revenue will follow.

Keep your eyes on execution.

This article first appeared in The Economic Times.

https://economictimes.indiatimes.com/markets/stocks/news/from-assembly-to-ambition-how-india-is-building-its-electronics-backbone/articleshow/129966732.cms

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Research Analyst or his associates or his dependent family members may hold a financial interest or actual/ beneficial ownership in the financial products/ securities advised herein.

Investment in the securities market is subject to market risks. Read all the related documents carefully before investing.

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Please consult your financial advisor and do your own due diligence before investing.

By 2030, the industry is poised to reach $400–450B and $1 trillion by 2040.

This is India’s leap into global value chains. But there’s a gap. Despite growth, India’s share in global chemical consumption is just 3–3.5%.

In 2023, we ran a $31B trade deficit in chemicals.

Why?

• 95% of India’s propylene is converted to lower-value polypropylene (vs. 70% global)

• 75% of ethylene is converted to lower-value polyethylene (vs. 63% global)

This restricts diversification into high-value segments like MDI, fluorochemicals and battery chemicals.

Global supply chains are realigning post-COVID and amid US-China tensions. This is a once-in-a-generation opportunity. With China holding ~39% of global chemical capacity, even a 5–7% shift creates a $50–70B opportunity for India.

India has latent strengths in:

• Agrochemicals

• Pharma intermediates

• Textile dyes

Now is the moment to scale up.

NITI Aayog outlines 4 Strategic Pillars to drive India’s chemical transformation:

• Tap Export Markets: Focus on paints, dyes, agrochemicals

• Grow Sunrise Sectors: EV battery, electronic chemicals

• Solve Production Bottlenecks: Fix feedstock access for key inputs like styrene & phenol

• Unlock Tech Access: Acquire IP/tech for MDI, acetic acid, etc.

A roadmap for global competitiveness.

To enable this, infrastructure is key. NITI proposes two critical interventions:

• Develop World-Class Chemical Hubs inspired by Singapore’s Jurong Island ($40B investment, 4 MMTPA ethylene)

• Upgrade PCPIRs in Gujarat, Odisha and Andhra with large-scale crackers, common utilities by fixing Port Infrastructure and improving storage, handling & last-mile linkages

A new inter-ministerial body will modernize 8 key chemical clusters.

Boosting production & innovation will need fiscal and R&D support:

• Opex Subsidy Scheme for high-value products (e.g., pharma, agro intermediates)

• Goal: INR 3L Cr turnover in 5 years

• R&D Fund: $150–200M annually

India invests ~0.7% of chemical revenues in R&D vs 2.3% global avg. We require tech partnerships for advanced molecules (MDI, acetic acid, sustainable chemistries).

The regulatory & talent ecosystem also needs urgent fixes:

• Fast-track EC Approvals

  • Current avg: 196 days (often 2 years total)

  • Goal: 6-month EC by 2026, with parallel clearances, “construct-at-risk” provisions

• Rebalance FTAs

  • Protect sensitive sectors

  • Ensure duty-free access to critical raw materials

• Fix Talent Gaps:

  • Expand ITIs, update curricula and build industry–academia bridges in chemical disciplines.

Vision 2030 — A globally competitive, self-reliant Indian chemical industry:

• $220–280B in chemical output

• 5–6% global market share (from 3–3.5%)

• "Net Zero" trade deficit

• $35–40B in incremental exports

• 7–10 lakh new skilled jobs

• Anchored in sustainability, technology, and infrastructure.

This transformation calls for joint action from the Govt (policy, infra, R&D), Industry (investment & tech), Academia (skilling & innovation) and Investors (long-term capital).

India has the blueprint. The world is watching. Let’s lead the next global chemical wave.

DISCLAIMER

Research Report prepared by Prateek Dugar.

SEBI Registered Corporate Research Analyst. Registration: Cupressus Enterprises Pvt Ltd (owner of Intelsense.in) - INH000013828.

Compliance Officer: Soumyadip Roy. Email: equity@intelsense.in

Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This report is issued by Intelsense.in, which is regulated by the SEBI.

References to "Cupressus Enterprises Pvt Ltd" or “Intelsense.in” in this report shall mean Cupressus Enterprises Pvt Ltd unless otherwise stated. This report is prepared and distributed for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by Intelsense.in to be valid when published. The report also contains information provided by third parties. The source of such information will usually be disclosed in the report. Whilst Intelsense.in has taken all reasonable steps to ensure that this information is correct, it does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and Intelsense.in does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which Intelsense.in believe is reliable. Intelsense.in, Cupressus Enterprises Pvt Ltd or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Today, I will delve into the learnings from Larry Tentarelli. He is the Chief Technical Strategist and Founder, Blue Chip Daily Trend Report and a technical prop reader himself.

• Larry Tentarelli's Background and Trading Evolution:

  • Larry started trading in 1998, growing up fascinated by the stock brokerage business due to family involvement.

  • Initially focused on fundamental analysis (e.g., Warren Buffett, Peter Lynch) but transitioned to technical analysis, particularly after reading Jack Schwager's Market Wizards book.

  • Struggled for the first 10 years, noting it was a "developmental phase" due to a "conglomeration of different types of styles and time frames".

  • Discovered trend following after reading Jesse Livermore's "Reminiscences of a Stock Operator," which taught him to focus on catching "the key move" rather than every single market fluctuation, and Michael Covel's "Trend Following," which introduced him to systematic trading without fundamental analysis or prediction.

  • Began with a simple 20/120 moving average crossover system in 2007, but found it "lagging on the exit" and later stopped using it.

• Trading Style and Systems:

  • Larry uses reactive technical analysis, waiting for price action rather than predicting.

  • His trades are generally longer term, often holding winning positions for a year or two.

  • He does not use fundamental analysis or traditional technical analysis (e.g., chart formations, Elliott Wave).

  • He employs three distinct trading programs/systems, each managed in a separate account to ensure independence and avoid micromanaging positions:

    1. Daily Close Over 200-Day Moving Average: A basic entry for longer-term trades, requiring only price above the 200-day MA.

    2. Breakout to a New 52-Week High: Another simple entry that is easy to scan for.

    3. Momentum-Based Pullback Strategy: Shorter term (60-90 days for him), involving an oversold pullback into a rising key long-term moving average (50, 100, or 200-day) with a full stochastic momentum filter.

  • He filters stocks by market cap (over $2 billion) and average daily volume (over 1 million shares) to focus on more liquid institutional names. He also filters for higher beta industries.

• The Four Legs of Trading:

  • Larry views trading as having four essential components: entries, exits, position sizing, and proper psychology.

  • He states that if any one "leg" is removed, the "table still isn't going to work".

• Emphasis on Entries (and what's more important):

  • While entries are important (he assigns them 25% of the overall equation), Larry stresses that traders put "way too much emphasis on only the entries".

  • He learned that the entry signal is maybe 10% of the equation and not the key to riches; experiments (like Tom Basso's random entry) showed profitability with correct position sizing and money management make more of a difference.

  • Instead, success comes from a program conducive to one's personality, efficient execution, learning to undertrade, proper position sizing, and effective risk controls.

• Exit Strategies and Management of Winners:

  • People struggle most with overtrading and managing their winners properly.

  • Larry's approach is predetermined: entries, exits, position sizing, and risk are all established beforehand to avoid emotional decisions "in the heat of the moment".

  • Exits are primarily based on moving averages, mirroring the entry signal. For instance, if an entry is a daily close over the 200-day MA, the exit signal would be a close below it.

  • He uses a two-step exit system (e.g., taking half the profit when a stock breaks below the 50-day moving average), which has helped reduce portfolio volatility.

  • He emphasises the importance of getting comfortable with letting winners run, even amidst volatility, by observing how much profit was lost by exiting too early.

  • He does not micromanage trades or frequently add to positions, finding that the "first trade is the best trade".

  • For parabolic moves, if the Average True Range (ATR) doubles within a short period (e.g., 30 days), he cuts the position size in half to manage increased risk.

• Position Sizing and Risk Control:

  • Larry is meticulous and conservative with position sizing, risking 25 to 50 basis points (0.25% to 0.50%) per stock position.

  • Smaller position sizing helps him remain detached from the outcome of any single trade.

  • He uses a 2 ATR stop for his core 200-day moving average program.

  • He embraces volatility in stocks, believing traders need it to make money, but manages the associated higher risk through position sizing.

  • He does not use margin.

• Trading Psychology – The Most Important Ingredient:

  • Larry believes psychology is the most important aspect of trading.

  • He learned from Jesse Livermore that "markets don't beat traders but traders beat themselves," and from Alexander Elder that "the weakest link in any trading system is always the trader".

  • A key insight is to "turn their brains off" and stop trying to predict the markets or rely on news, earnings, or fundamental analysis. He states, "nobody can consistently call the markets and can consistently predict the future".

  • The biggest lesson learned is to be introspective and accountable, realising that "it's all you" and not to blame the market or external factors.

  Handling Drawdowns:

  • During prolonged drawdowns, he naturally trades smaller due to his position sizing being based on equity.

  • His two-step exit system also helps reduce volatility during these periods.

• Recommended Books:

  • "Reminiscences of a Stock Operator" by Jesse Livermore.

  • "Trend Following" by Michael Covel.

  • "Trade Your Way to Financial Freedom" by Van Tharp.

  • "The Market Wizards" by Jack Schwager.

DISCLAIMER

Research Report prepared by Prateek Dugar. SEBI Registered Corporate Research Analyst. Registration: Cupressus Enterprises Pvt Ltd (owner of Intelsense.in) - INH000013828.

Compliance Officer: Soumyadip Roy. Email: equity@intelsense.in

Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This report is issued by Intelsense.in, which is regulated by the SEBI.

References to "Cupressus Enterprises Pvt Ltd" or “Intelsense.in” in this report shall mean Cupressus Enterprises Pvt Ltd unless otherwise stated. This report is prepared and distributed for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by Intelsense.in to be valid when published. The report also contains information provided by third parties. The source of such information will usually be disclosed in the report. Whilst Intelsense.in has taken all reasonable steps to ensure that this information is correct, it does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and Intelsense.in does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which Intelsense.in believe is reliable. Intelsense.in, Cupressus Enterprises Pvt Ltd or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

A story on how there will always be frauds in a new and emerging industry, trying to make quick money.

Builder.ai, once a promising UK-based startup, aimed to revolutionise app development using AI. Backed by major investors like Microsoft and Qatar's sovereign wealth fund, the company reached a valuation of $1.5 billion.

The company's pitch was compelling: democratize software creation by making it as easy as ordering a pizza. Their AI, named "Natasha," was marketed as a tool that could build apps without human intervention.

However, investigations revealed a different story. Instead of AI-driven development, it relied on over 700 engineers in India to manually create applications, effectively masquerading human labour as AI.

Financial discrepancies further marred the company's reputation. In 2024, it reported revenues of \$220 million, but audits uncovered actual revenues of only \$50 million. Techniques like "round-tripping" with partners such as VerSe Innovation were allegedly used to inflate financial statements.

The fallout was swift. In May 2025, Builder.ai filed for Chapter 7 bankruptcy in Delaware, revealing debts to over 200 creditors and liabilities up to \$100 million against less than \$10 million in assets. Notably, unpaid bills included those to private intelligence agencies and legal firms.

Leadership turmoil added to the chaos. Founder Sachin Dev Duggal stepped down as CEO in early 2025, retaining the title of "Chief Wizard." His departure came amid legal challenges, including investigations by the U.S. Attorney’s Office into the company's financial practices.

Employee accounts painted a grim picture of the internal culture. Reports highlighted issues like delayed payments, lack of transparency, and a toxic work environment. Some employees claimed that projects were often left incomplete, and customers were misled about the capabilities of the platform.

The Builder.ai saga underscores the risks of overhyping technological capabilities and the importance of transparency. As the AI industry continues to grow, stakeholders must exercise due diligence to distinguish genuine innovation from mere marketing.

For investors and entrepreneurs, Builder.ai serves as a stark reminder: in the race to capitalise on emerging technologies, integrity and accountability should never be compromised.

Stay informed and sceptical. Not all that glitters in the world is gold.

Disclaimer:

This content is for educational purposes only and should not be construed as investment advice. The analysis is based on publicly available information and our internal research. We are not recommending any action (buy, sell, or hold) on any stock. Please consult your financial advisor before making any investment decisions. We may or may not have a position in the stocks discussed.

Richard Zeckhauser, born in 1940, is a prominent American economist known for his extensive work in decision theory, risk management, and behavioural economics.

Intelsense

Business, Finance, Investing, Learning, Life. Abhishek shares his learnings and thoughts on all these topics that he holds close to his heart. Come share in his journey for lifelong learning.

By Abhishek Basumallick

The book has several maxims that are very useful in the decision-making process. Here they are:

1. Thinking Straight

   • Maxim 1: When you are having trouble getting your thinking straight, go to an extreme case.

   • Maxim 2: When you are having trouble getting your thinking straight, go to a simple case.

   • Maxim 3: Don’t take refuge in complexity.

   • Maxim 4: When trying to understand a complex real-world situation, think of an everyday analogue.

2. Tackling Uncertainty

   • Maxim 5: The world is much more uncertain than you think.

   • Maxim 6: Think probabilistically about the world.

   • Maxim 7: Uncertainty is the friend of the status quo.

3. Making Decisions

   • Maxim 8: Good decisions sometimes have poor outcomes.

   • Maxim 9: Some decisions have a high probability of a bad outcome.

   • Maxim 10: Errors of commission should be weighted the same as errors of omission.

   • Maxim 11: Don’t be limited by the options you have in front of you.

   • Maxim 12: Information is only valuable if it can change your decision.

4. Understanding Policy

   • Maxim 13: Long division is the most important tool for policy analysis.

   • Maxim 14: Elasticities are a powerful tool for understanding many important things in life.

   • Maxim 15: Heterogeneity in the population explains many phenomena.

   • Maxim 16: Capitalize on complementarities.

5. Living Fully

   • Maxim 17: Strive hard not to be envious – see your friend’s success as your gain.

   • Maxim 18: Eliminate regret.

   • Maxim 19: Make pleasure-enhancing decisions long in advance, to increase the utility of anticipation.

In 2019, I finally decided to call it quits on my nearly two-decade-long IT career and take up investing full-time. Having spent the entire duration also as an amateur investor, I had long passed the point where working for the month-end salary made sense for me. The lure of owning my own time was the biggest attraction.

But life as a full-time investor is pretty difficult, especially for long term investors. There is nothing to do on a daily basis. In fact, sometimes the urge to do something, anything, drives one to mistakes.

Two things drove me to start intelsense.in.

Firstly, I have a multitude of interests, which if you are a regular reader of my blog, you would already be aware of. I was afraid if I did not create a regimen of work for myself, I would get derailed and fill up my time reading the whole day.

Secondly, by my association with ValuePickr and having spoken at multiple conferences and colleges over the years I had the opportunity to interact with tens of thousands of investors. I always felt that if some help could be provided to investors who are beginning their equity journey today then it would be truly rewarding. Donald Francis, the founder of ValuePickr, actually over the years had drilled the idea of giving back to the investor community into my head.

The Beginning

I started intesense.in on 15th April 2019. The day happened to be Poila Baisakh, the Bengali New Year’s Day. Even if there were 50 subscribers, I would consider my venture successful. I think it crossed that mark in the first couple of days. I was, and to date, continue to remain amazed.

Strategy Diversification

I started with only the long-term strategy because that is what I was good at. Next came Quantamental and Hitpicks. This was a result of delving into the world of technical analysis and quantitative methods and also the understanding that markets work beyond a single factor (value/growth/momentum etc). A mix of strategies tends to work better over time than any single strategy. A mix of strategies will not yield the best result of all strategies but will have a better equity curve.

The last change, till now, I made in my investing journey is to start concentrating. Quiver, the smallcase, was a result of an experiment using all that I know - fundamental, technical and quant with a concentrated portfolio.

PMS

The next leg came when many subscribers started requesting me to start a PMS. I was always wary of doing something which required a lot of operational overhead. This took shape when I decided to join hands with Shree Rama Managers. In the PMS, I have only two funds, Shree Lakshmi and Shree Vriddhi, loosely modelled on long term and quant-based strategies.

Biggest Learnings

The main learnings over the last few years:

• Multi-strategy is better than single-strategy.

• Stop getting over-influenced by overseas market gurus. They performed in a different economic and market context. What may have worked then may not work here and now.

• Quant overlay on both fundamental analysis is better from a performance and risk-reward perspective

• Managing drawdowns well can help investors persist with a strategy better through its ups and downs.

• Investors look for higher returns when the going is good and lower drawdowns when the market is falling. One cannot have the cake and eat it too!!

• Most investors are clueless about their investing goals. When asked they say things like, “Maximise wealth creation”, “Retirement needs” etc. Most have never worked on the numbers and have a vague notion of their needs.

• Psychology beats everything else

• Everyone is learning and making mistakes. Don't follow anyone blindly. Do what makes sense to you.

• Test all your assumptions. Don't take opinions at face value. If you don't have data, try to read as much as possible on the topic and across divergent opinions. Form your own conclusions.

• Keep an open mind. Be ready to change your opinions when the data changes.

• Capital is sacred. Don't lose it. Making less money than the index or your friend is okay. Losing your capital is not.

DISCLAIMER:

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

SEBI Registered Research Analyst - Cupressus Enterprises Pvt Ltd - INH000013828.

Registration granted by SEBI and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

Cornelius Vanderbilt, known to his contemporaries as the Commodore, was once the richest man in the world. He started his life at the bottom and worked his way up. His business empire started with one passenger boat and he went on to own a large steamboat business. Later he diversified into the railroad business and owned the New York Central Railroad by 1867. He passed away in 1877, leaving more than $100 million, which was more than the money that was held by the US Treasury at that time). His last words to his family were, ''Keep the money together.''  Even today, there is the Grand Central Terminal, a Vanderbilt building still standing in New York City that carries the legacy of the great businessman.

Interestingly, within a period of 50 years, one of the direct descendants died bankrupt. The history of the Vanderbilt family is extremely instructive at many levels.

Other than the obvious reasons for prudence in managing costs and expenses and living within one's means, you also learn that no amount of wealth can be perpetuated forever if the custodians do not value money. When you know that no new money is going to come in then you need to value what you have much more. It does not matter how much money you have to start with. Unless you save more than what you earn, wealth will erode.

The most logical action to take for enduring wealth is to invest in businesses which earn high returns on capital and do not blow up doing so. Wealth creation and wealth preservation are not mutually exclusive. The best way to preserve wealth is to create it in the first place. Owning a business is the best and most efficient way of doing so.

As an investor, one useful way of thinking that I have used is to think of myself as a person with a small bag of money who is going around allocating that to different people to get a reasonable return. I visualize that I am getting into a partnership with the promoter of the company for some time and get a return from the business. If the business stops doing well after some time, I take my money back and then get into a partnership with another promoter. 

This line of thought forces me to think about the quality of the promoter whom I am partnering with, the long-term dynamics of the business, the strategy the business is following and also ensure I am tracking the progress of the business. It also helps in preventing too many knee-jerk reactions to purely market-related events.

This means that even if I am invested in a very good company, I still need to continuously monitor it to ensure that it is doing exactly what it had promised and planned to do. If there are deviations, I need to understand why and what actions are being taken to course-correct. Investing is not a passive game. We have to be constantly vigilant and keep an eye out for what is happening.

P.S. If you want to read more about the Vanderbilt family, you can pick the fascinating book, "Fortune's Children: The Fall of the House of Vanderbilt" written by Arthur T. Vanderbilt.

Most of us, when we start investing, it is with a very small corpus, unless we are lucky to have an inherited portfolio. The lure of making a lot of money in the stock market beckons. Reading the exploits of legends like Buffett or Jim Simons or our very own Rakesh Jhunjhunwala, we dream big. The problem we try to solve is wealth creation.

On the other hand, there is another class of investor, who has a completely different challenge. They have made their money, mostly from their businesses, and have either sold out or taken out a substantial portion to create a sizeable portfolio. And now they wish to invest it. This takes many forms – family offices, family trusts, family portfolios etc.

In the last few years, I have been associated with a few large family offices and have gathered a fair understanding of the psychology of this type of investment. The most important aspect of this form of investing is not wealth creation but wealth preservation. Here, the objective is not to look for the next multibagger but to ensure that the family retains buying power at the same level in the next generation.

Capital Preservation: play defence before offense

When I was first asked to help guide the investment of one such family a few years back, in the midst of Covid, it gave me a great sense of responsibility. Here the capital is all that the family had. It was irreplaceable. If it was lost, it can never be replaced. It represented a lifetime of effort, earnings and savings of the family. Now that the business was sold, there was going to be no more capital coming in. So, capital preservation had to be the most important factor.

The question is how to preserve capital. I use multiple ways to manage risk.

Risk Management: modes of survival

First and foremost, my focus is to buy high-quality businesses. The longevity and endurance of a business becomes one of the most important criteria for stock selection. This ensures a very low probability of permanent capital loss.

Secondly, I use a stop loss. This sounds sacrilegious to many value investors, but I am strongly of the belief that no investor can know all that is to know about any investment. I mean, even promoters don’t know everything. We deal with the future when we invest. And the future is always uncertain. So, I use a stop loss. It is my insurance against catastrophic loss. This provides a floor to the loss I can take at any time and provides a fair deal of comfort to me and the investor family as well.

Thirdly, I diversify. Depending on the size of the portfolio, the diversification varies. Usually, I prefer having 10-20 stocks in my portfolio. But for large portfolios, I sometimes would have more stocks.

Asset Allocation: spread it out

Another aspect is to have multiple asset classes in the portfolio. Equity, bonds, gold, silver and real estate are the ones that are good options. As I am personally only focused on equities, I suggest they consult with specialists in each area. Moreover, a broad per cent allocation needs to be agreed upon and an annual check is needed to adhere to the allocation.

Even within equities diversification across sectors is important. No sector should become too large to hurt the portfolio.

Defensive factors to the fore

In factor investing parlance, while constructing a defensive portfolio, the preference should be towards selecting stocks which correspond to factors such as dividend, value, large size etc. Sometimes a combination of such factors could be a good starting point. For example, stocks which are large-cap with a good dividend yield could be a good choice. Or stocks which are cheap and offer good dividend yield.

Market timing: tactical market timing

Market timing, another topic which is anathema to the investing pundits, is something which everyone wishes to do but admits not to try!! As a student of the craft of investing, I always try to get better at the craft. And that includes market timing. In fact, observing markets and participants over the years has taught me that timing is one of the most critical aspects of investing. If you are too early to enter you will get sub-par results. If you are too late to exit a stock, again you will get a sub-par result.

Market timing can be attempted in many ways, and none are foolproof. You can use technical or quantitative analysis. You can use absolute or relative valuation-based methods.

Active quant-aided: custom indexing can help

When you start playing defence you may be drawn towards a broad index like Nifty and invest passively. Although it is a perfectly good course of action, a much better approach is to build a custom index based on your preferences.

I have used simple quantitative methods to create a customised index which improves upon the vanilla Nifty index by changing the methodology of stock selection, sector weightage and entry and exit criteria.

With large portfolios, more fundamental oriented long-duration quant models are required to be implemented.

Playing offense

Some amount of playing offense is needed to enhance portfolio returns. When we look at building a portfolio from a factor investing model, offense would mean adding growth and momentum as major factors in the portfolio. Although commonly momentum is synonymous with short-term trading, it need not be so. Longer-term momentum strategies are also extremely effective and can be used in portfolios of large size.

Summary

Over time and with increased portfolio size, the objectives of an investor can change. Kahneman & Tversky introduced the prospect theory, for which Kahneman later received the Nobel Prize. At a very high level. The theory says that investors value gains and losses differently, placing more weight on profits versus losses. That is people are more averse to making losses than gaining. It is said that for every rupee lost, an investor feels double the pain than for a rupee gained. This is more the case when the capital is irreplaceable.

History is replete with families who were once mega-rich but over generations have not been able to compound their wealth. A strong mix of strategies with defined risk management can help protect and generate wealth over very long periods of time.

This post first appeared on Moneycontrol.

My letter to our investors in the two active funds - Shree Lakshmi and Shree Vriddhi from our PMS Shree Rama Managers stable that I had shared a few days earlier.

We have come to the end of the year. Here is the overview of the performance of the two funds this year as well as the first nine months of the financial year.

Disclaimer:

Please remember that past performance is not a guarantee of the future. It is best to assume that outperformance is unlikely to persist.

As you can see, both the funds have performed well. One of the main reasons for the performance has been that the markets have been kind.

Time to be cautious

In such euphoric times, we would do well to remind ourselves of what the legendary Benjamin Graham once said and what I have personally noticed multiple times, “Observations over many years has taught us that the chief losses to investors come from the purchase of low quality securities at the time of good business conditions.”

When markets are euphoric, and everyone around us is bullish, it makes sense to remain on high alert. Years of observing the market has taught me that everyone cannot and does not become rich in the markets. So, when the pendulum of consensus swings to one extreme, it tends to autocorrect. The time to be most vigilant is when there are no dark clouds on the horizon. More because everyone around us has thrown caution to the winds.

My first instinct is to protect capital. Always. I want to ensure that the hard-earned money that we invest is not lost permanently. And the easiest way to lose capital is to chase poor companies in cyclical industries by paying very high valuations.

Market buoyancy led by liquidity

Today it is not easy to find very good businesses with some amount of earnings growth and visibility at cheap valuations.

The main reason is the deluge of both foreign and domestic liquidity. Indian investors have become a force to reckon with and in 2023 pumped in Rs 1.85 lakh crs compared to Rs 1.45 lakh crs by FIIs.

The financialisation of savings is well underway with SIPs in mutual funds becoming a major investment and savings tool for the common person. This is a long-term trend in India and the SIPs are only going to increase as more and more see the benefit of regular savings in equities. I see this as a similar phenomenon as the 401(k) plan in the US in the 1980s which led to huge participation of common Americans in the US markets leading to a two-decade rally. Given Indian demographics, economic development and progress, it would not surprise me to see a similar run in the Indian markets.

That does not mean it will be a straight line up. There will be a lot of ups and downs over the years but our job is to stay invested and keep the faith.

Approach for Shree Lakshmi and Shree Vriddhi

As Shree Lakshmi is a more long-term oriented fund the approach is to protect the capital and move the portfolio to high quality businesses.

In Shree Vriddhi, our approach is to continue in stocks which are in momentum and also have balance in the portfolio by having a few stocks where we expect a mean reversion by playing turnarounds.

You can continue with or start a SIP account in either or both of the funds to keep investing regularly.

Thank you for being part of our investing family.

As always, feel free to reach out to me at equity@shreerama.co.in for any questions or feedback.

Every bull market hides within it the seeds of a bear market. The market, as a whole, is mean reverting. So, a bulk of what goes up tends to come down, if not fully but to a large extent, wiping out all the temporary gains made in the process. And in between this going up and coming down investors make their reputation and fortunes.

By virtue of running intelsense.in, I get an opportunity to speak to a large cross-section of investors. On Monday, I was speaking to one such person. He was extremely concerned about investing at “such all-time high market levels”. He said that it had taken him many years to get to where he is today financially and he did not want to risk a large part of his networth should there be a large market crash. What was left unsaid was that he was also loath to let go of the opportunity in case the market kept going up. So, here is a classical dilemma.

This conversation got me thinking in multiple directions – the role of asset allocation, the need for a robust investment philosophy suited to oneself and of course where one is in one’s financial journey. All of this led to “financial resilience”.

Covid has taught us that resilience is crucial – whether in one’s physical or mental health or finances. So, how does one build financial resilience? As my guru Charlie Munger says, “Invert, always invert”. So, inverting the question and asking myself, how do we make our finances more fragile?

Here are some ways. None of this is rocket science. It’s mostly common sense but if you get it right it helps tremendously in building your financial resilience and will help you in facing a market downturn whenever it comes. These are as true for individuals as for families and also companies.

No savings

If you have been working for some time and haven’t built up an emergency fund or some cash reserves that can cover expenses for a few months, then your financial life is fragile. The first thing to do is to build up some cash reserves for the rainy day.

Inadequate insurance cover

The biggest unplanned expense tends to be a medical emergency. You need to have adequate medical insurance for yourself and your family to cover the costs. Having to pay for expensive medical treatment could derail, and at times completely ruin, your financial plans. The worst is if it happens during a time when you are otherwise financially weak.

Large debts

100 per cent of all bankruptcies happen due to the inability to service a debt. Basically, if your income (P&L) does not support your debt (balance sheet), then you are in trouble.

If you are taking a loan to create an asset like a home, it is still understandable. But you should have sufficient cash savings and medical cover before you take a home loan.

Taking a loan for consumption should be a strict no-no unless you have a reasonable amount of savings to cover the loan repayment. The problem is people who need loans for consumption are the ones who should not take it and those who can afford to take loans don’t because they already have the cash.

Similarly, in a market crash, the stories you hear of people going bankrupt are those who are leveraged. You can at most lose a large part of your capital in stocks but in derivatives, if you don’t know what you are doing, you can get wiped out.

Single source of income

If you are dependent on a single source of income you are fragile. If your job or business is your sole source of income then you are financially fragile. Try to diversify your income stream. One reason I started investing was to be able to have another source of income over time. This is true for nearly all part-time investors who have a steady job or business. If you keep adding to your portfolio, over time it builds up into a nice source of income through dividends and interest payments.

Inadequate diversification

A lot of people have all, or large parts, of their net worth in one single asset class or asset. Indians primarily have a house which dominates their net worth. Others may have gold or fixed deposits or equities. In an extreme case, having investments in only one company like that of a promoter of a business is also a cause of fragility. Adequate diversification into multiple asset classes, especially ones which are not correlated, and assets may reduce your returns sometimes, but has the definite benefit of enhancing resilience.

In summary

The challenge with personal finance is that it is personal. It cannot be generalized. You have to take a hard look at your financial situation and decide what you want. And then work out a plan to solve it. What you want will also change over time as you age and life situations and priorities change. That is the way it is.

The important thing to remember is that you need to stay in the game for the long term. Resilience is key. Plan on every plan not going according to plan.

This article first appeared on CNBCTV18.