Are we getting into a recession?

AIF & PMS Chatbot

Hello there!

Welcome to AIF & PMS Experts India Pvt. Ltd.

Kanika Agarrwal – CFA Co-Founder Upside AI – CA (All India Rank 18) – CFA and B.Com, Mumbai University

1. Are we getting into a recession?

I don’t know. In general, large macro events are extremely difficult to predict with any accuracy and experts have a horrible track record of getting it right. This is because variables are too many and their relationships are too complex.

As an example, economists polled for likelihood of recession over the next 12-18 months give it a 33% chance in Q1 of this year, 52% in Q2, 65% in Q3. In 6 months, “experts” have dramatically changed their answer! The same is the case with GDP estimates – “experts” revise their numbers nearly every month.

Even the US Fed has gotten its own inflation numbers wrong with access to the most information in the world. Therefore, I think trying to predict a recession is an exercise in guesswork.

What we can clearly see is, there is a lot of uncertainty and therefore lot of volatility in the markets which you should expect in the short term. The India story stays intact and while we don’t know if NIFTY will go to 15,000 in the short term, I am confident in the long term we will hit 100,000 on the NIFTY.

2. What are your effective capital allocation and risk management techniques?

Given the above, asset allocation and risk management are the only ways to ensure you can navigate these waters safely. The primary reason both of these things are important is that if your risk is controlled, you are more likely to stay invested for longer, which means you have a higher chance of your portfolio doing well.

Our product, the Upside Navigator is focused on reading macro signals to decide asset allocation between equity, debt and gold. Currently, it actually has taken a more aggressive stance on its equity allocation than previous quarters.

On risk management, we are always reasonably well diversified – in our equity portfolios, we do not allocate more than 10% to a stock or more than 35% to a sector.

 3. How did you get the idea for your Fintech Investing platform?

Our philosophy is that over the long term, humans are average investors. This is because there is a lot of emotion and bias in decision making. We have seen this play out in the Indian markets over many years where experts are unable to beat benchmark.

This is why as markets mature, there is a move away from humans into more “rules based investing”. If you look at the US as an example of a mature market, you will see that most money is being run by rules. Passives/ ETFs now have more AUM than MFs. Similarly, the top 5 hedge funds in the world are quant funds.

We saw that this shift will come to India as well and we are just one of the first in that journey towards systems.

 4. What are your exclusive tools for a successful investment?

At Upside, our product philosophy rests on 3 pillars –

(1) Rules based investing to remove biases and emotions

(2) Dynamic rules that can change and adapt to different market conditions. To adapt to changing markets, we use machine learning algorithms

(3) Fundamentals approach – where we only look at company or macro fundamentals to make a decision. This is because we believe that long term value is created through fundamental investing and not trading.


This philosophy guides us in making all of our products and investing decisions.

 5. Define your Allocation Across a Selection of Securities

Our product, Upside Navigator starts top down by reading macro signals like GDP growth, interest rates, volatility, inflation, etc. to understand what assets make sense in the current environment.

It does that by going back in time to look at how different assets behaved as macro conditions changed. The idea behind the Navigator is to generate NIFTY level returns of 12-13% but significantly reduce volatility in the portfolio.

Our product has been very successful in doing just that – this year, when the worst NIFTY drawdown was about 15%, the Navigator was down 2%.

 6. How do you determine the Indication Tenure of the Investment Horizon?

Our average tenure ranges from 1 quarter to 1 year+. It is dictated purely by two things (1) the machine looks at if our current holding is still a good buy at this price; and (2) is there a better opportunity than what we hold to do slightly better.

Tenure is solved almost like a math problem. Making a decision to rebalance involves costs like brokerage, STT, etc. The decision then is can the new portfolio generate sufficient additional returns to pay for the costs of the rebalance.

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