Dear Investor,

The past few weeks have been a turbulent time for all market participants. Indian market indices have lost significant ground in July with Nifty down ~5.5% and Small-cap Index down ~11%. Reasons for this sell-off are numerous and varied. These range from higher taxes on the super-rich, higher tax on Foreign Portfolio Investors (FPI), absence of any initiatives to accelerate economic growth, lack of reaction from the government regarding the industries’ pleas etc. The government has dampened sentiment and subdued ‘animal spirits’ further but we believe this is not permanent.

As we have highlighted earlier and strongly believe, markets and economies will do well despite the government and not because of the government. While growth may have and has indeed slowed down, we believe it has not disappeared. As much as we dislike making macro predictions and forecasts, we would go out on a limb and say that given India’s demographic profile, growth for the next five to ten years is certain – however the cyclicality of growth will most definitely remain.

India was and continues to remain a supply constrained economy. Hence, over the past decades, industrialists and investors have taken demand for granted – and rightly so. What we are currently seeing in the economy is a cyclical slowdown in this growth which is resulting in investors questioning the long-term demand potential of the economy. This same question is also causing the aggressive sell off in the markets as fear has taken over and sentiment has gone from overly bullish (in 2017) to bearish. These type of market conditions, where sentiment has taken a hit and participants are selling stocks indiscriminately are solid hunting grounds for long term market beating returns.

At QRC, our efforts of finding and investing in quality companies is ongoing. We re-iterate again that it is only during bad times that one comes to appreciate the quality of a business as its resilience becomes more easily apparent. These businesses will bounce back faster and harder when the environment turns favourable. We continue to evaluate various ideas and will be adding them to the portfolio as and when risk-reward is favourable. Likewise, where we believe the investee companies are not meeting our expectations, they will be churned out. We are not at all dismayed with this market correction. The sell-off is providing an opportunity to make long term investments in strong businesses with solid earnings power at far better valuations.

Warren Buffett once said that as an investor, it is wise to be “Fearful when others are greedy and greedy when others are fearful.” We sense that fear is fast spreading and it is time for us to start feeling greedy. Don’t let the recent market correction and the gloomy Mumbai weather get you down.

Please do not hesitate to reach out to us if you have any questions or need any clarifications.

Sincerely,

Team QRC