Equity Markets Are 'Borrowing' From Future Returns, Says Buoyant's Jigar Mistry

Buoyant Capital Pvt. has been slow in deploying cash in the last six months as the ongoing rally means that the equity markets may be "borrowing the returns of the future", according to the co-founder of the alternative asset manager.

The accounts from the past three months have a higher cash proportion, as compared with the accounts existing from the past two years, Jigar Mistry told NDTV Profit in The Portfolio Manager show.

“We have informed most of our investors in the last six months that it will take time to deploy the capital and thus it’s a slow and steady buildout," he said. "This is what is skewing the numbers at the overall portfolio level.”

Equity markets generated substantial returns in the last two months of 2023, which has happened only twice after the 2008 financial crisis, Mistry said.

India's benchmark indices have been scaling new records as the BJP's win in the Hindi heartland states raised expectations of a majority government returning after the next Lok Sabha polls. The US Federal Reserve's signal to pivot to rate cuts this year further fuelled the rally.

Mistry, however, does not see a reason for the market to rally so much on account of these two reasons.

The Fed's balance sheet has expanded by $1 trillion in the last three months, setting the stage for rates to stay higher for longer, according to Mistry.

Also, a lot of money is flowing into sectors where it is "really difficult to make sense", he said citing utilities as an example where largely state-controlled distribution is losing about Rs 1 lakh crore a year. Similarly, he said it US cutting rates, if at all it comes true, is not the reason go an buy IT, he said.

And rising inflows are also leading to "astronomical valuations" in some sectors, according to Mistry.

"The unintended consequences of the super rally that we have seen in the last two months or so is that we are borrowing the returns from the future," Mistry said. "We will end 2024 or longer paying for that even as fundamentals look great," he said, adding that the market may enter an extended period of no returns.

Buoyant Capital follows the strategy of investing in cycles, rather than buy and hold.

Many Indian asset managers hunt for good companies and invest in them across time frames and price points "assuming that a great company is equivalent to great investment", Mistry said.

Buoyant Capital, however, invests through different cycles and has three fund managers. One person is not able to understand more than three or four sectors, according to Mistry. "Therefore, if you put that person in charge of running the fund, familiarity bias also sets in."

"A fund that does well in a consumption cycle will do poorly in a commodity cycle and so on," he said. "By having three individual people who cover different sectors, our hope is that we'll be able to operate through those different sectors and market cap cycles a lot better."