The Sugar swing

Sugar stocks in the market are not always sweet as the product is to taste. Rarely do they gain momentum and play up to give good profits. The reason behind this pessimism is because most of the sugar mills are owned by politicians and almost all of them make use of the bureaucracy for their favour and not bring any benefit to the company.

Towards the end of 2015, Sugar stocks began to show strong upward movement in their price which was followed by their balance sheets showing good numbers. Many a time such number crunching happens and it fades away as it came, like a surprise. While this time it was different, strength in Sugar stocks followed with Paper gaining strength too, it showed that, Sugar rally was not false, there is something really brewing underneath.

Almost all the sugar stocks had similar pattern, the reason was a drought in Maharastra, which is a dominant sugar producer and supported by global prices moving up. Our mills had something more in store. They had finished their crushing season, where their cane procurement came at fairly lower prices. This meant that, mills are going to be the ultimate beneficiaries of all the price increase in Sugar. Sugar price in the retail markets went up from 35 to 57 per kilogram. And all the difference in price was profit to the companies, which was showing up on the balance sheet.

Sugar stocks gave close to 1000% return in the last 2 years. Portfolios that had sugar stocks in them made solid gain in this period. We were one among them; we had exposure all the high volume sugar stocks in our portfolio. We made above 300% gains on our investment in the 2 year period between all the sugar stocks we held with us.

As we do a system based approach to investing, we did not pick up at the bottom of the price stack and did not sell at the top. We entered after good confirmations on the performance, as this sector is prone to deceive investors. Then our exits too were a little late as the price of Sugar took a sudden slide due to various reasons that brought pressure.

End of 2017 was the exit for Sugar stocks and after that the slide in prices have been phenomenal as stock that began at 32 in September 2015, went up to 325 in November 2017, takes a dive to reach below 100 by April 2018. The correction was pretty sharp.

We took the cream of the cake in the price rally, now do not own any sugar stock in our portfolio. The reason for the fall is the high supply of the commodity in the international markets, mills have been forced to export 20% of their produce, so that, and there is lesser damage in the local markets due to high supplies. And up on this, the government has asked mills to give advance payment to farmers for their next crushing season procurement. To arrange for funds, they have to export at lower prices.

The beauty of being a stock investor, we participated in the price rise, made our profits, moved out at the right time and now hold investments in other sectors which are in the up move. No pain of demand supply crunch, no government intervention only profits all the way, while one needs to be smart to get in and out at the right time.

 

Mutual Funds load on ICICI Bank shares

Mutual funds have loaded up on ICICI Bank shares when the bank went through a slew of bad news with its CEO Chanda Kochar in the limelight on the Videocon loan default and kickbacks received by her husband Deepak Kochar in the form of loans which further got converted into Equity to his company Nu Power. Money got routed through Mauritius.

Funds have taken a technical bet, where there is an expectation of a bounce back from the bottom which will provide an opportunity for short term gains. In such a situation, there is not much that can come from ICICI Bank as there was an article in the ET stating that, ICICI Bank is one of the lowest performing banks among its private counterparts. Its NPA’s are seriously high, though not to the extent of their PSU counterparts.

Banking sector on the whole has gone into underperformance haunted by increasing NPA’s and managements which was so far the PSU’s, now even the private sector has shown poor governance. These developments have made the Banking Sector not a favourable investor’s choice. In such a scenario, taking exposure to a stock that is fundamentally weak is not a good sign. It feels to think that, even fund managers have begun to behave like immature investors.

There is a potential for short term gains as ICICI Bank’s asset quality is not so deteriorated like that of the PSU’s, which will help the stock to make a rebound. For those who take investments based on this development, need to be pretty clear on their exits. Once the stock begins to show weakness on its price, it is time to exit those funds.

Investing in a beaten down sector when it is about to turn around is a very good investment strategy, while that should be done in the right sector. For example in 2016 when metals turned around, those funds that had high exposure to metals sector were the biggest gainers in the 2016-17 rally. The next such opportunity is likely to come in the Pharma sector sometime in the near future. It is not going to be frontline Pharma companies that will lead the rally. At this time it is too early to spot the leaders, while when there is one, leaders will show up bright.

At that time take exposure to mutual fund schemes that have higher exposure to those strong leaders in Pharma and your investment will beat all the benchmarks and give your saving a bumper profit.

Is investing in Gold a Good Option for Akshaya Tritiya?

Akshaya Tritiya is almost here with the festival falling on 18th April this year. This festival is considered, a very auspicious one. The name itself suggests that it is the third lunar day (Tritiya) of the Hindu calendar, indicating unending prosperity (Akshaya). Tradition has it that this very auspicious day is for auspicious beginnings like marriages, housewarmings, and purchase of property or gold. In fact, the purchase of gold is what Akshaya Tritiya has become synonymous with over the last few years thanks to smart marketing by gold merchants and jewellery brands.

Indians, especially women, are traditionally attracted to gold and invest in it. It is actually not necessary to buy gold only on Akshaya Tritiya. You could choose to buy anything new as a good symbolic start. An interesting aspect though, is that while women seem to have the knack of putting money away when it comes to investment, they mostly, only think of picking up gold ornaments. This probably could be a mindset issue that has been handed down across generations.

Gold As An Investment
While investment in gold is seen as a good bet by many, it is not so. Unless the gold is purchased for occasions like marriage, it is an unproductive asset. The gold is for consumption and not investment. Yes, there is the possibility that in times of crisis, you could turn to your gold assets. But, this is true with Mutual Funds (MF) too, which many people do not know. The money invested in gold is unproductive as it does not really help in any economic growth, unlike equity shares or Mutual Fundss. The purpose of gold in the Indian context is as a safety measure, a social necessity and for personal use.

If you invest a certain amount in gold, the gold remains the same, even after many years. Yes, the gold value may appreciate quite a bit, but it does not multiply like money can; especially if you make some informed, wise investments. A real investment should be one that generates wealth and aids in economic activity and keeps creating more wealth. So, in effect, if people are willing to give it serious thought, there indeed are better options to invest in, than gold. No doubt, there are social occasions when you need to purchase gold, and those are exempted.

What Are Your Options
So, this Akshaya Tritiya, what are the options available to make an auspicious start that generates wealth for a few years to come? Look at investments in MFs, for one. It is quite possible to build a carefully chosen investment portfolio with the help of a trusted and reliable investment advisor. When people who have an in-depth understanding of the whole ecosystem use their insight to help you figure out which MFs to invest in, you can succeed in generating wealth.

It is not always necessary to start big in Mutual Fundss, you could always choose to go with small amounts per month, known as systematic investment plans (SIP). Across a period, you may find that you are getting good returns and there is no fear of lock-in. A few may even provide good short-term returns. Most mutual funds can also be liquidated quickly.

So, perhaps, this Akshaya Tritiya is the right time to ring in the change and think beyond gold!

Think Mutual Funds!

Market Direction of FY 2018-2019

Post correction recovery in the markets after LTCG, bond yield rise, Crude oil price rise, Banking Scams and Election Uncertainties. Next direction following one more correction which will form the base. The advantage position we have after markets have corrected close to 10%.

Crude price brings shocks to OMC’s

Government asks OMC’s to take up burden of crude oil price increase by Re. 1/- per litre. This is not a good decision, when crude prices dropped, they brought in duties to take advantage of the gains and filled the government kitty. That was a good decision because small difference in price which the consumers were used to spending will not help them save big & rather make them spend that gain in unwanted luxuries. The same amount if saved by the government will help them get some big projects done, which will benefit the whole population. It actually helped the government to clear off the bonds that it had given OMC’s to make good of the losses when crude was its peak as they were selling at lower prices to ensure that our economy does not suffer.

Now when crude prices moved up, government still wants to have the same revenue and pass the burden to the OMC’s just because they were used to it, is a bad decision. It shows that, Government is not worried about businesses going under loss, while it wants its share to be intact.

OMC stocks which gained strength on their own weight which was not so far since their existence now is again going back in the losing spiral. Stocks have started to bleed heavily post this decision from the government.

How investing in SIPs can make you a crorepati

Everybody wants a reward while nobody would like the risk on working towards it. This is also the main reason for the popularity of systematic investment plans, or SIPs, which give investors the option of gaining from market while reducing the risk of volatility that is inherent in all financial markets.

Why to start an SIP?
Equities are growth assets and have the potential of delivering far superior returns than any other asset class if one remains invested for long-term. Sensex has delivered an annualised return of 16 per cent over the period of 39 years. Compared to it, gold has delivered an annualised return of just 6 per cent. While a bank fixed deposit is currently giving around 6-7 per cent for a 5 year fixed deposit.

Apart from this the biggest advantage with equity is taxation. Gains upto 2 year are taxed at 15% & after 1 year is taxed at 10%, the lowest among any other asset class. While in case of debt investments like fixed deposits, the interest is added to the income of the investor and taxed as per the slab. So, a person falling in highest tax bracket (30%) will effectively get less than 5% in a FD.

In case of gold, gains before 3 years are added to the income of the individual just like FDs while gains after 3 years are taxed at the rate of 20% post indexation (helps to reduce the tax burden by adjusting the gains against price rise).

How to become a crorepati?
The key to reaching this goal is to start early provided equities deliver the expected rate of return. So, start your SIP today. The early you start the more you benefit.

If you are 20 years old and you want to accumulate Rs 1 crore by the time you become 60, you just have to invest Rs.322 per month to accumulate this amount. We have assumed a rate of return of 15% per annum.

Yes, the number may look surprising but this is the power of compounding where if you stay invested you earn returns over your gains which help you accumulate faster.

If you can increase the amount to Rs 5,000, you can become a crorepati by the time you reach 42 years of age, given 15% rate of interest. If you continue investing Rs 5,000 per month till you retire, you will be able to accumulate Rs 15.50 crore when you reach 60 years of age. Therefore, your accumulation will also depend on the time you stay invested.

However, if you have lesser time in your hand, you will have to contribute more towards the goal. If you start at the age of 30, you will have to increase your investments to Rs 1444 per month to accumulate Rs 1 crore by the time you retire, given all other conditions remain same.

If you start investing at 40 years of age, you will only have 20 years in your hand, therefore you will have to invest 6679 per month to accumulate Rs 1 crore.

So start today and continue investing in a disciplined manner.

Fund houses offer a wide variety of mutual funds, take the help of your advisor to help you choose the right fund that matches your risk and return profile.

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.