Next big opportunity to invest in Stocks –

Stock markets go through cycles with up & down phases on regular periods, those who are able to identify them early and take advantage end up getting the best returns from the markets. Like the cycles we have in commodity prices. Crude or steel goes up in price when there is demand and comes down when supply increases.

As there are cycles for the whole market, there are similar ones for sectors too. Like for example metals sector went through a down phase when there was huge supply from China and when China stopped production, demand took the prices up and now the metals index is up 200 plus percent from the bottom it hit in early 2016.

Identifying and investing into sectors when they are at the bottom and about to turn up gives immense opportunity to grow wealth. Such opportunities come up often and 2 such conditions are available at present.

One among them is the Pharma sector, it went through a tough time since mid 2015 due to USFDA
clearance issues which forced many companies lose access to lucrative markets and thereby report losses. Now the condition has changed, most of the manufacturers have now adopted to the required standards, generics market has brought good opportunities and after a bottom or base formation any small growth will show up big and that will bring added value to the stocks.

This valuation gap will get filled with prices of stocks going up. Pharma stocks have already began their upward journey many stocks like GLAXO, ASTRA Zeneca etc are on the upward spiral. It is good time to pick up investments into a good Pharma specific mutual fund to ride this rally, which should last for more than 2 years and give some very big gains. 

Another opportunity waiting to happen is in the PSU Banking sector. All of us know of the challenges that our PSU Banks have gone through in the recent past due to their bad loans. Cleaning their balance sheets brought immense decrease in valuations and big loss in their stock valuations.

Now the cleaning activity is almost coming to an end, in another quarter or two most of the balance sheets should get cleared of all their NPA’s and even if the banks do not show robust performance on their numbers, just their regular profit reporting will give a big strength to their balance sheets which will attract valuations.

Again a very good opportunity to make more than 100% gains in the next 2 years by investing into this sector. The best way to capitalize on the rally that this sector will have is to identify mutual fund schemes that have more exposure to PSB’s and invest in them. One other alternative will be to invest into PSU Banking ETF’s.

These are pure sector calls which will go through high volatility and requires timing to enter and exit.
Getting in late into the rally or overstaying will give results that are opposite to what one expects from the investment. Have lesser allocation so that your investment does not go through volatility as well as help capture the gains of the next big opportunities available in the market.

Your investment advisors should be of help in choosing the right schemes along with timing entries
& exits.

Multi-Baggers in Pharma & PSBs

Turkish currency collapse and India staying strong brings confidence that India will continue its rally. When Large caps are giving new high’s, midcaps yet to catch up, which are trailing by 10% from their peak.

Midcap at the bottom of correction gives a bonus to current investors and the advantage that Mid caps have with average 3% additional returns against large caps, which when compounded bring more big gains.

SENSEX expected to reach 90K by 2027, where 1 lakh invested into SENSEX will be 2.25 lakhs & the same in Mid Cap will be 3 lakhs. For those who are investing now that is a bonus of 25K. Mid cap will give 225% growth for the next 9 years.

Pharma & Pub Sector Banking sector are likely multibaggers for the next 2 to 3 years. Investing in sector specific Mutual Funds with exposure to Pharma & PSB’s will help in taking advantage of the same.

Sector based investments can be volatile, take only small exposure to avoid any shocks int he interim.

A Fund Manager’s View On Market Trends

Meeting with Mr. Jayesh Gandhi, Senior Fund Manager, ABSL.

Recently, I had the opportunity to meet Mr. Jayesh Gandhi and talk about our favourite topic, “THE MARKETS”. Mr. Gandhi manages the Mid & Small-Cap funds of Aditya Birla Sunlife Mutual Fund, schemes of which have been consistent performers in the recent past.

This meeting gave me an opportunity to understand the fund manager’s view of the markets when there is a divergence between mid-cap and large-cap stocks. He follows the growth stock investing approach using a template which finds stocks that are growing in both their sales and profits.

Straight out I asked him about the underperformance of the mid-cap stocks in the recent past against the broad markets. His reasoning was that growth stocks tend to underperform when value picks give larger moves. Growth investing creates higher alpha when the markets get into a broad-based up move. When there is a correction they tend to also correct as much as the indices. The advantage here is that when staying invested in such schemes, over a period, the growth tends to out beat the benchmarks to a larger extent.

Presently the SENSEX and NIFTY have been reaching new highs while the mid and small cap space has lost considerable value. Investors are questioning the underperformance in their portfolios since they see that the Sensex is climbing higher. This divergence is due to a few stocks in the large-cap space garnering higher demand during the recent scheme re-categorization. Fund managers were forced to liquidate quality mid-cap stocks and had to add large-cap stocks to reduce exposure and meet SEBI norms.

In the large-cap space, there are no high-quality stocks which are an equal match to the mid-caps that are fundamentally strong with higher sales and profit growth. Yet, fund managers were forced to add the large-caps, creating demand for a small group of good picks, pushing these stocks further up.  A few mutual fund schemes that already held these large-caps in their portfolio are now outperforming the universe that made big gains in the 2017 rally. But, this divergence is only to stay for a short period.

Mr. Jayesh’s view on profit growth is that in our country the mid and small cap space is likely to be rise by 20 to 30% in the next 3 years. The PE multiples, presently at 25-26 levels,  will reach 14 and below 10 for the small-cap companies, thereby giving very high wealth creation possibility in the coming 3 years.

We had a good rally in the 2014-17 period and are likely to have a similar one for the next 3 years. We are going into an election year. By December we will have more clarity on the outcome of the elections and if it is positive, we should see a 40% growth in 2019-20 alone. And to be a part of this massive wealth creation and reap the benefits in full a person has to be invested now. All portfolio realignment as per SEBI categories is now over, and it will follow now to the next phase of aligning stocks that are the new leaders.

Most of the mutual fund schemes are holding a good amount of cash in their portfolios and these funds will be deployed in the next 2 to 3 months, in preparation for the next rally post elections. Next, we pondered – what if election results are not favourable?

Mr. Gandhi’s thought was that going into the election itself markets will rally about 10-15%. So if there is a correction due to unfavourable results, those already invested will only come back to present levels and not lose much. those who are in now will not lose much if there is an unfavourable condition as the correction if there is one, All the corrections that mid-caps should see is almost over and now the whole market will get aligned. There will be volatility but due to the whole market facing the same condition. Bigger as well as smaller stocks will have the same levels of downside. Whereas on the upside, there is a high potential for the smaller stocks to give higher returns. One is because they are at lows now and the other reason is that they will see higher levels of profit growth.

Oil is expected to touch $85 and probably from there it will see a fall. Exports will increase and with  support from corporate earnings from FY19 everything looks favourable.

For the investors, it is going to be a few more months of ups and downs and then launching off to the next big growth phase. Even our portfolio is doing the same, we have been adding more new stocks, reducing cash exposure and will be ready for the next rally before elections.

Mid Caps Melts…

There is a saying, “Sell in May & go away”. Markets proved it right this year. It gave back gains made in April. Mid & Small caps lead the fall. They lost 6.5 to 7%, rising concern among conservative investors to move away from the markets.

While not all portfolios melt the way the indices did. The leaders of the current market are in Chemicals, Electrodes and Construction sectors. Stock holdings in these sectors, preferably the leaders in them stood out strong.

Right stocks at the right time are the need of the day. As Crude oil is reaching for highs, currency depleting & bond yields on the rise, the major concerns that shook the markets. Stocks that had gone up beyond fundamentals took the larger beating.

Adding fuel to the fire was the Karnataka election results which brought more confusion and lots of challenges for the next year’s general elections. Media started giving their share of bad news that, opinion polls show only 47% of our population now willing to give BJP the next term.

Yet there were gems still available in the hay stack. Newspapers reported that, stocks like HEG, Graphite grew strong on their fundamentals. These stocks stood the test of selling pressure.

Stocks that the experts were bullish on like Ashok Leyland, M&M Finance & Escorts – all of them showed more strength on the upside. We have all these in our portfolio which has helped us lose only half of what the markets lost. In April we had 11% gains, double the gains made by the broader indices like the SENSEX.

When markets corrected, we are holding strong with lesser loses. Our portfolio has given back about 3%. Such small and consistent strength over the years have helped us make 200% gains in the last 5 years.

Consistence in holding the top positions for every time periods is an even bigger challenge that fund managers face. This is because of some committed stock not behaving the way it has to or the fund manager holding a view that largely differs from the market.

In this space, we held strong. We were not emotional on our positions. We are not judgemental when entering or exiting a position. Just followed the system and we have consistently outperformed all the other funds in the diversified category.

Last year financial sector had bigger exposure in our portfolio, now we are shedding weight in there. We have been adding a slew of stocks in the consumption and construction sector. With such kind of elite stock picking and commitment to follow the system rules with the highest discipline, we are confident that the outperformance will continue.

I met a couple of top fund managers, whose are now foreseeing a flat year for India. The expectation is that, it will take about 12 to 18 months before bullishness returns to our market. Checking with the patterns in the market now to find if we have to retreat from equities and move to debt or reduce equity exposure. I found that, though there is not much upside from here for the markets. It is not showing weakness as what is perceived by the managers.

It can have another small rally, which can break the 36K on the SENSEX where it will go weak. For this to happen Crude has to retreat, Currency has to get strong. As of this writing both have done that, while it is not over yet. They will rise again, breach the high and then turn down. That is where the markets will manage to reach for a new high.

There is going to be a lull, while before getting there, lets accumulate the gains provided so that, we have a better edge when the tide turns against us.

We are planning to move out of equity exposures in Mutual funds and move capital to Equity savings till the 2019 election fever is over and hop in, into the next leaders at that time. So, markets are going to be tricky and strong players will take the advantage to maximise their gains.

Why Mutual Funds May Trump Real Estate as An Investment Option?

We Indians are believers in creating assets and leaving it behind for the next generations. Saving up and funding assets is a must, for most Indian families. So, what kind of assets do we look at investing in? In a typical Indian family, it will mostly be gold, real estate (either a plot or a house), and in a rapidly growing crop of people, mutual funds and SIPs as well. So, what prompts our choices and how do we make our asset allocation decisions?

We recently shared our views on the pros and cons of gold as an investment option. So, left with the possibilities of real estate and mutual funds, let’s look at which one to choose and what are the pros and cons.

Initial investment

Many people usually save up for years to purchase a real estate asset as it is never cheap. The initial investment in real estate is always high, and at most times, apart from their entire savings, most buyers also end up taking huge loans. These loans can become a liability in the long run, if not planned for properly. Also, life is full of uncertainties – ill health, loss of job for an earning member, new family commitments, etc. can change the equation overnight.

In contrast, investment in mutual funds can start with as little as even INR 500 or 1000. You could choose to begin a Systematic Investment Plan(SIP) with a small amount per month and slowly build it up into a growing investment. In fact, many people have invested in mutual funds quite early on, from the time they have started earning and made enough profits, to invest in real estate. So, while you may not be able to purchase real estate unless you have lots of money to spare, mutual fund investments can start at an early age, and you need not wait to accumulate your savings.

The Process

Investing in real estate is not an easy process; one has to find the right property, at the right price, at the right time, at the right place. At times, you may have to involve brokers or other such third parties and pay out commissions as well. The property papers must be legally verified, and the due process of registration needs to be completed, which is again a bit cumbersome. In short, it is tedious, fraught with painful procedures.

For investing in mutual funds, however, there are no such hassles. Once you decide the amount you wish to invest, you can quickly start an investment account with your bank and transact online. Your relationship manager at the bank or a trusted financial advisor will help you maximise your returns by growing your money while reducing the risks as much as possible.

The Liquidity Factor

Any investment is made with the intention of growing one’s money and also providing a safety net in tough times. Real estate prices do rise slowly and even accounting for market slumps typically your property value would have gone up. The pain point is liquidity.  If you need money immediately to fund an emergency or new goal, selling your property for the right price promptly is difficult. Here again, the process is long- you need to find genuine buyers, and it takes time for the money to come in hand. In contrast, selling mutual funds is more comfortable, and at most times, the money is back in your account within three working days’ time.

While we all seek the safety and security of owning the roof over our head, do consider first building a growing mutual fund portfolio and then using the earnings to build a dream home.

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.

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!

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.

SFIO summon & 2 Lakh Crores wealth erosion

SFIO summons bank bosses and markets lose ground to continue with their fall. Banking stocks took a big hit. Mutual Funds did not have much of impact as very few fund houses have exposure to banking sector. Just on the same day, newspapers carried articles about MF’s having lesser exposure to PSU banks, which also confirmed the same.

As markets tanked, there were widespread news that, 2 lakh crores of investor wealth is lost in one day. BSE market cap goes to Rs.144 lakh crores from Rs.146 lakh crores. Only those investors who bought at high levels were actual losers, even for them, only if they sell and move out, there is a loss. Else it is only notional loss and over a period markets will recover.

With the kind of bad assets that banks have been building, some prominent fund managers are of the belief that the banking system will collapse and that will be the biggest disruption of this decade like the financial crisis that happened in the last decade.

Portfolios that are secure from such sectors that will vanish for the next generation are the ones people have to be invested in, to ride the biggest wave of financial growth that the world will witness in the coming decade.