This quarter marks three years since the Covid pandemic hit India. At the end of March 2020 and beginning of April that year, the levels of uncertainty about the future were at their highest and so the levels of the NIFTY were at their lowest. The NIFTY fell by more than 30% in a matter of weeks, and many portfolios fell even further.

The natural human tendency in such a situation is to sell stocks in panic. In times of high perceived risk, equity assets face the brunt during sell-offs because they are the most junior security in the capital structure of a company. Professional money managers, due to their inability to stay on cash, reacted to the shock by churning their portfolios, in part to try and anticipate the effects of the disaster and partly to signal to clients that some important action was being taken to mitigate the blow to their portfolio.

What is usually lost in the mayhem is that not doing anything is also a valid course of action. Not doing anything in a situation like this is very difficult to do as an active investor because the source of the courage to hold their ground is their conviction in the companies and the portfolio that they hold. This conviction is rooted in the investor’s prior research and analysis, and their well-informed assessment that the disaster has not caused irreparable harm to their portfolio companies.

At Shepherd’s Hill, we focus on the process and framework of investing and while, like everyone, we were fearful three years ago, we remained rational and did not sell or churn our portfolio. The outcome has been one of the best annualised returns of an Indian asset manager over the three years since the Covid pandemic began.