Budget 2019 & industry view on it…..

Just back from a meeting with Manish Gunwani, CIO of Reliance Mutual Fund. His views about our markets are that we are at a sweet spot where India markets will perform well. Election outcome if the seats are in the range of 180 to 250 for BJP, markets will not react. Less than 220 seats, will see a new Prime Minister, likely candidate is Nitin Gadkari. It was a little out of the box to hear Modi is not a choice, challenges of a bigger democracy.

We have very less contributors on exports. IT contributes $100B and NRI remittances at $80B. Apart from these 2 there are no big contributors. Pharma was giving some support, now with a lot of regulations, it has gone down. While our imports from Oil which is $100B and Electronics at $40B, almost takes away all of our income.

Oil price should reduce which it eventually will over a few years, due to the advent of electric vehicles and solar panel usage. With #MakeInIndia, as we begin to consume more of electronics made from India, both the big shareholders of our Forex expenses will come down. This shows a very bright future for India.

In the immediate period, 2019, though fund houses and fund managers are saying that we will have 10-15% growth, I don’t see a potential, it might take another year to get a boost for our economy.

The budget shows too much dependence on PSU disinvestments. This year Rs.90K crores to come from PSU disinvestments. Every year if we keep selling what will be left. Already government ownership in many big PSU’s have come to 50-55% levels. As it is, they are poor performers, and would not fetch good price, hence finding buyers will be a challenge.

Among PSU’s some are called Nava-Ratna’s & Mini-Ratna’s or Gems. These Gems got their shine because of government business which was like a light shown on a plain glass. Once they come to the outside world and face competition, they are very poor performers. When the light goes off, it is only plain glass with no value.

Continuous selling is also bringing down prices. Example is Coal India, where the stock was offered for sale at one price, then 5% discount, again at 3% discount and it continues. As the sale keeps happening the stock price is not moving up, thereby not giving any growth for the investor.

Now again government want to sell some more shares, which might not be an achievable target. Due to this the planned deficit of 3.4% will not be achieved. There were talks that, for the last 10 years we have been trying to maintain deficit at 3% and not achieved.

Next big damage in this budget was the bringing of a permanent expense of Rs.75K crores in the form of payments to farmers. These kind of facilities cannot be rolled back, no government will want to bit that bullet of non-popularism.

2019 probably might not be a big winning year for the markets. One very good advantage of this condition is that, if there is 2 consecutive years of no or negative returns next subsequent year will be a super star year.

2019 will set the tone for the blast off in 2020.

5 Myths & facts of Mutual funds

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.

Here are some myths & facts about Mutual Funds which are useful, when investing in this asset class.

  1. Myth – Mutual Funds are meant for long term investors.

Fact – Mutual Funds can be a short term investment but, It is meant to be a long term asset, to receive  high returns. Mutual Fund when invested for period of 5 years may give a return of an average of 12 – 15%. ₹1 lakh invested for 5 years will be 1.75 lakhs in 5 years. At 15%, money will double in every 5 years.

  1. Myth – Funds will get locked and cannot be used.

Fact – There is no lock-in period for Mutual Fund Investments, apart from ELSS schemes which are done to save taxes. Even these schemes are one of the lowest lock-in available in the tax saving products universe. Other products like, PPF, Tax saving FD’s, ULIP’s etc are locked for more than 5 to 15 years.

All other mutual fund investments are available for redemption at time after the investment. Only that withdrawals made before 1 year from the date of investment will have 1% exit load and above 1 year, it is free to withdraw.

  1. Myth – Mutual Funds always give positive returns

Fact – Investments into mutual funds are market related and will go through the up’s and downs of the market. If invested for short durations, there is possibility of having negative returns on the other hand, if the investment horizon is more than 5 years chances of negative returns becomes zero.

  1. Myth – Mutual Funds is very risky

Fact – It becomes risk only when we do something without the knowledge of what we are doing and don’t know the outcome. In mutual funds, experienced fund managers manage the investments and they are well equipped with research teams to identify good investment opportunities.

  1. Myth – Big Funds will give big returns and small risk

Fact – Wealth creation is about time and not size. Just investing into a big fund will not give big returns, while staying with the fund for a longer period will for sure give big returns.

 

FM’s thoughts on Oil & Loan Waiver

Jaitley’s talk at the ET awards, “Users should pay for oil… else fiscal deficit will rise and add to the current account deficit. It will push up inflation, weaken rupee. Tax on fuel prices should come down not by creating fiscal deficit, but through an increase in the non-oil tax to GDP ratio, which is on the rise since last few years. We must create a sense of maturity among people” Very nice thought, if we contribute by way of higher compliance, it will help in getting other benefits.

It felt like, we have only been asking without contributing. When we talk about this to people, they get agitated about paying taxes. It is because, for generations we have been on the receiving end.

Want farm loan waiver, how can that happen? Vice president Venkaiah Naidu said, “Loan waiver can happen only if there is a deposit waiver’. We did not want FRDI to come because we stated poor man’s money in the banks should not get used for the bank’s non-competence. All the deposit holders should be given highest safety on their investments. At the same time banks should waive off loans. This can happen only from the profits that banks make.

And unfortunately our banks don’t have that edge too, because of people running the banks who don’t have big vision.

Happened to hear a banker say that, “De-Mon was good and GST was good, while it was wrongly timed and not executed well. Government should have planned well to avoid the problems that it came across in implementing both these great reforms.”

We are the world’s biggest democracy having diversity of Africa to Europe in our mindset. When it comes to paying taxes we are like Africa, the most corrupt. There could not have been an opportunity to learn from some others mistake before bringing these two reforms. We should only learn from our own experiences. That is how it can be…..

There is an urgent need to move out of the comfort zone of protectionist mindset to accept reality & face the world as it is. It will strengthen us as a country and prepare us to have more luxuries.

 

April 2018 – Indian Stock Market bounces back

After the correction in the markets that set in post the budget session following Global trade war, Crude Oil price increase and stress on financial assets due to expected interest rate hikes, markets had a sharp bounce back in April. SENSEX recovered more than 5% in April almost getting back most of the losses in Feb & March. Our portfolio has managed a growth of 10.20%, which was possible due to our strong portfolio of stocks. Investments into Specialty Chemicals, Metals, Electrodes, Graphite & Carbon Black helped us have the enormous edge of giving almost double the returns given by SENSEX to its investors. Private banks facing challenges with their CEO’s, Election year volatility is likely to bring more volatility into the markets. Markets are likely to touch lows once again before turning bullish. The next visit of SENSEX to 32500 levels will be a good opportunity to invest into the markets as it will be a base and give immediate gains.

Which Investment Basket Is Right For You?

Investing money is not the same as saving it up. While savings help you build up cash reserves over time for various needs, investments help the money grow. Indeed, it is possible to make money grow at such a rate that it could become an alternative source of income!

In this article, we discuss the various investment options available, their pros and cons and in which scenario you need to be investing in each of them. Perhaps, you already have a Fixed Deposit or an insurance plan. What you need now is a way to judiciously invest money in order to make it grow. It is time to move from savings to investments.

Here are a few investment options available to you:

Liquid Assets

  1. Fixed Deposits: FDs, as they are better known, are used to store away large amounts of cash in a bank for extended time periods. They are a secure investment and offer guaranteed returns. However, the FRDI bill mandates that a bank’s liability on FDs is only up to INR 1 lakh. Any investments beyond this number could fall into trouble. Hence, it is important to do your research on the banks in which you wish to open an FD, especially in the current scenario of bank frauds and scams.
  2. Insurance: Insurance is a financial asset. Many people are tempted to opt for insurance policies that also have added benefits and assured returns. However, insurance has the lowest returns amongst all options. Hence, it is better to opt for term insurance and not go after policies that sound very lucrative.
  3. Corporate Bonds: When it comes to this investment category, research and prudence on the investor’s part is very important. Depending on your risk appetite, you may choose to go for bonds with a lower rating as they promise higher returns, but we recommend that you stay with AAA rated bonds as much as possible, as the potential risk of a lower rated corporate bond is much higher than the possible returns.
  4. Mutual Funds: MFs are very diverse as far as investments go. MFs can be debt, equity or tax-saving mutual funds. Both debt and tax-saving MFs give a nominal income that is 1-2 percentage points higher than an FD. An SIP can be compared to a recurring deposit, but unlike an RD, it gives on average 17% returns.

Illiquid Assets 

  1. Real Estate: Real estate is not yet an investment asset in India and is meant more for your consumption as a commodity. That said, land often appreciates in value over time so it may be prudent to include some land assets in your investments. Ideally, you need to ‘buy and forget’ for a few years until the land value appreciates. Also, be sure to have all documentation in place for ready reference if the need arises.
  2. Gold: Gold falls somewhere in between being a liquid asset and an illiquid one. For the purpose of this article, we have put it under the illiquid asset class. Gold is both an ornament and an investment. Women are traditionally in favour of gold investments. However, most jewelers do charge several fees over the base price of ornamental gold which in turn may depreciate its value as an investment. If you are investing in gold, know that it takes time to see good returns.

Other Investment Options

 Apart from these options, you can also invest in commodities, currency, futures markets, etc. if you are serious investor who follows the market on a very regular basis and understand when to invest, when to stay put and when to exit.

Cryptocurrency is another investment avenue that is gaining popularity due to the skyrocketing returns it seems to promise. However, the cryptocurrency market needs to be regularized, and it needs to stabilize, before it can go from speculation to an actual investment.

You can also consider being an angel investor. As an angel investor, you invest your money in a growing company for a fixed stake. As the company grows, so does your wealth. Most angel investors choose to invest in a domain they are proficient in, and some investors often involve themselves in the operations of the company the invest in.

Spill-over effect of US trade war on China, to India

Trump administration has become fearful about their growth and have gone into protectionist mode. They seem to have lost confidence in their ability to create jobs and grow the economy, instead they have now taken the route of controlling imports and give opportunity for their local businesses to grow.

Anti-dumping duty on Steel & Aluminium imported to the US. Additional duties on Shrimp imports have added to the pressure that the global markets are facing due to rising bond yields & crude oil price surge. Though India is a small contributor to the US’s steel market, we have businesses which supply inputs in steel manufacturing to countries which are selling steel to the US.

Those steel related businesses have taken an impact due to the trade wars. Also there are doubts that the US administration will bring further more controls in many product segments, which will impact global markets across various industry segments.

US does not have facilities to cater to the immediate demand if imports are stopped, while in the time the facilities are set up, government will make good money from the duties which can even fund the new facilities. This being one side of forced growth, the history is that, whatever we fear, we attract it in our life.

In this manner, US fearing about other countries growing and not them, will only force the target countries like China and India become more stronger. Though these export dependent economies will have to go through some pain due to competition, soon they will also equip themselves on how not to be dependent of US for their business. Along with this the economies that will now learn a lesson on the US dominance, will shy away from importing any products from the US.

So, the down fall of the US is about to begin and supremacy of China & India is going to shine better. And this means more business growth for India. Be invested and be a part of the journey.

Rs.10 lakhs to Rs.4.40 crores in 20 years

In the last 5 years, the dynamics of the Indian stock markets changed rapidly. Generally, we have one great year in a 5 year rolling period along with one big fall and the other 3 years have around average returns. When we consider the 5 year returns, it stays mostly positive with about 16 plus percentage growth.

A well-managed portfolio has had only one negative year in the last 5 years, and that too was a marginal loser, 2 below average return years and 2 super star years. This stellar performance moved the average return to above 25%. For the next couple of decades, India is likely to have this kind of high growth potential.

Being invested in such high return assets will help the investors have a very large corpus of funds, which will help them have a high standard lifestyle throughout their life. Knowing that there is a potential, mind will immediately get curious to know how much can be the corpus if he or she invests X amount now.

If someone invests 10 lakhs into the market and stays invested for 20 years and the market grows at 20% plus, his final corpus will be 4.40 Crores. Investing the same corpus to generate monthly returns, even if we draw 1% of the capital, your monthly income will be 4.40 lakhs. Think of the lifestyle you can live, throughout your living period on this planet.

IMF Forecast taking SENSEX to 36000

MF forecast on India’s GDP growth for 2018 and 2019 which took the SENSEX and NIFTY to their new high of 36000 and 11000 respectively. A new high and how it is beneficial to the investor. India’s visibility in the Davos, World Economic Forum meeting where our Prime Minister Mr.Narendra Modi opened the meet with his keynote speech. India’s development in the last 20 years.