Windmill Capital’s Rebalancing Explained: Market Trends, Investor FAQs & More | Sep 2024

Introduction

We have rebalanced our smallcases and we are back with another blog offering a comprehensive overview of the factors influencing Windmill Capital’s rebalancing decisions. We’ll dissect the market trends that have shaped the investment landscape in recent months, and analyse how these developments will likely impact your smallcases’ composition. To make well-informed decisions about your investment journey, it’s important to understand the reasoning behind the rebalancing process. If you’re new to investing or are investing with Windmill Capital newly, we recommend reading our blog. We explain the entire rebalancing process, including what it involves and why it’s important.

Examining Market Trends

• Equity indices Sensex and Nifty reached new all-time closing highs this week, driven by foreign fund inflows and a rally in the US markets. Hopes for a US rate cut and renewed foreign fund inflows are fueling the recent rally in domestic equities. From January to August 24, foreign institutional investors (FIIs) have invested ₹42,885.55 crore in the Indian markets.
• Nifty IT, digital, and pharma indices have been the best performers last month. PSU and realty indices have surged more than 100% over the past year.
• The HSBC India Composite PMI index, which provides a comprehensive view of economic activity in the country, has consistently remained above 60 since the beginning of 2024. A PMI reading above 50 indicates expansion in business activity, while a reading below 50 suggests contraction. The higher the PMI number above 50, the greater the expansion rate.
• India remains the fastest-growing major economy with GDP growth likely to reach 7% in FY25.
• The 2024 monsoon season in India has been generally favourable, with forecasts indicating above-normal rainfall for most parts of the country. The monsoon’s performance is crucial for India’s agriculture, especially in rain-fed regions, and it also plays a significant role in replenishing water reservoirs essential for drinking water and power generation.
• Probability of interest rate cuts in 2H25 (2nd half of 2025).

Rebalancing Windmill Capital’s smallcases

On September 3, 2024, we rebalanced our model smallcases and smart beta smallcases, and on September 13, 2024, we rebalanced our thematic and sector tracker smallcases.

• Model smallcases are based on various strategies, some global and some local. The global ones are adapted to Indian markets. Here’s a detailed blog on how we create model smallcases.

• Smart Beta strategies aim to increase the return potential of the investment without increasing risk. Such strategies take the same amount of risk as the benchmark indices but increase the return potential by using better screening or weighting criteria. You can read about it here.

• Windmill Capital selects Pure Plays for its thematic & Tracker smallcases. Intrigued about what Pure Play means? Read more about it here.

Common Investor Concerns

This time we are including this segment to address common questions or concerns investors have raised about the rebalancing process.

1. How often are smallcases rebalanced?
   • smallcases are rebalanced periodically. They have different rebalancing schedules such as weekly, monthly, quarterly, and yearly. Each smallcase will be rebalanced according to its schedule.
2. What triggers the rebalance?
   • Rebalancing is a well-managed process at Windmill Capital, conducted consistently for all the smallcases. Our stock selection processes and quality scores ensure that we do not have to rebalance ad hoc. However, the stock market is dynamic, and we carefully monitor all stocks in our smallcases’ universe. If necessary, we will rebalance a smallcase.
3. What happens if a user skips a rebalance?
   • This is a frequently asked and interesting question. We have created a blog to explain the consequences of skipping a rebalance. Visit the blog to understand the implications.
4. Should I consider waiting until the markets settle before I invest/exit?
   • This is another commonly asked question, even by seasoned investors. We have a blog that explains why time in the market is more important than timing it. You can read it here.

End note

Rebalancing is an essential tool to navigate market uncertainties. At Windmill Capital, we’re committed to crafting strategies that align with your financial goals. Your trust fuels our dedication to transparency and performance. Let’s build a prosperous investment journey together.

Until next time! ✌️

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The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy/sell any security or financial products.Users must make their own investment decisions based on their specific investment objective and financial position and using such independent advisors as they believe necessary.

Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.