2021 - A year of Highs !

2021 has been unique, we have made so many highs that it is tough to keep count. Nevertheless here is a snapshot:-

• Covid impacted 20 crore people worldwide.
• Vaccinations were 20x of Covid cases. The globe set a record of vaccinating with ~450 crore people getting vaccinated atleast once.
• Bitcoin ended the year at $47k gaining ~59%.
• Multiple Base Metals & Agri Commodities made new highs.
• Dow made a new high, clocking 18.7% for the year.
•  Sensex crossed 50K & 60K this year gaining ~22% this year.
• 63 IPOs which have raised ~1.2 Lakh crores.   

Amidst so many highs, Laurel had a great year too.

• Our 1 year return stood at 110%.
• In comparison Sensex was up 22%, Mid Cap Index was up 46% & Small Cap index was up 55% in 2021.
• Our 3 year CAGR is 51% & 5 year CAGR is 30%

These returns are extraordinary & we do not expect to replicate the annual performance in 2022. However we continue to see significant mispricing & strongly feel that market sentiments are still not as buoyant as some economic indicators we track.

• GST collections have crossed 1.3 Lakh crores for 3 months straight despite Autos being in the slow lane.
• Merchandise exports have grown by 37% to $37 Bn. Manufacturing is reviving.
• Corporate debt level is at a 20 year low with D/E Ratio of 0.3. This despite interest rates being at the lowest one has seen in the last 20 years.
• Net profit Margins in Q2FY22 for all listed companies stood at 10.35%, levels last seen in September 2010.
• Profit to GDP ratio hit an all-time high of 3.99%. This ratio in USA is 10-12%.

Topline for listed companies in Q2FY22 crossed 22 Lakh Crore, a new high. It was 10 Lakh crore in December 2010 thus growing only at 7% CAGR. Last decade, India silently went through a massive banking crisis with NPAs for PSU banks touching almost 20% of advances. Credit growth plummeted & this repair cum recapitalization took a good 8 years and is now complete. We will see a capex & spending cycle kick in for the next decade which will surprise most forecasters.

In 2021, Laurel focused on businesses that were beneficiaries of the disruption created by Covid. We identified long term themes that the market was ignoring – Music Streaming, Online Brokerages & Depositories, Energy Exchanges, Ticketing Portals created a massive alpha. While some juice & long term story across these spaces is still intact but we do not expect them to match the returns made in 2021.

In 2022, our portfolios have begun factoring in ‘Revival & Normalization’. Our portfolio comprises of businesses where present earnings are deceptively low cause of :-

• Demand suppression due to Covid
• Long gestation capex coming on stream this year
•  Business turnaround beginning to be visible 

These businesses have low institutional ownership & are seeing a churn in shareholding. They have low floats thus this phase of churn could demand patience but once complete the rally tends to be strong & sharp.  

Many participants are in the ‘mean reverting mode’, hoping for a correction post a big rally. However we are not in that camp & still see massive polarity with pockets of the market available at distress valuations despite doing everything right. We focus on these pockets for new additions/ portfolios. 

Wishing you a Happy & Prosperous 2022 !