Initial Public Offerings (IPO): The Party is Over !!!

Indian stock markets repeated their 2018 feat by bringing long awaited 8 IPOs in Sep.2020 despite the COVID-19 scary market sentiments. With liquidity no problem, all these IPO’s were oversuscribed multiple times. Barring a few, all performed well and the fortunate investors made profits on the first day of listing.

In September 2020, Happiest Minds Technologies witnessed subscription of 151 times, Chemcon Speciality Chemicals 149.3 times, Mazagon Dock Shipbuilders 157.4 times, Route Mobile 73.3 times, CAMS 47 times, Likhitha Infrastructure 8.4 times, Angel Broking 3.94 times and UTI AMC 2.3 times.

However overdose of IPO’s had its effect on the stock prices of all these companies declining from their listing price and UTI asset Management performed miserably on its debut with the stock closing at Rs.476/- (15% lower than its issuing price). If this can happen to India’s number 2 Mutual Fund Company having very strong financials and just right valuation then who knows the fate of other companies?

With no visible respite from COVID-19 globally and Corona Vaccine not happening in visible near future, normalisation of economic activities looks a distant dream. However the performance of global markets including India has found a new stream of retail investors who are flushed with liquidity and enough spare time to try their hands in the stock market.

Nifty is almost returning to 12000 and SENSEX touching 40000 levels, we may see continued interest by the retail investors to keep trying their hands on the future IPO’s too. The long awaited amongst them are Burger Kings India Ltd, Studds Accessories Ltd and Stove Craft Ltd. All these comapnies have strong brand value, market presence and bright future prospectus. These IPO’s lined up for October or November 2020 may generate enthusism and we will see multiple times oversubscription again

Party may not be over yet!!!

Economic Slowdown -A Perspective

We understand that Economic Slowdown or Recession, a universal phenomenon has bitten all the businesses/countries at one time or the other. Slowdown virus symptoms start appearing when we find cut down in production/increasing unemployment/GDP figures / inflationary impact making the prices of daily use products piercing through the roof. The impact of deepening consumption slowdown is felt beyond discretionary purchases such as vehicles and durables with fast moving consumer goods like biscuits, soaps, fast food and other daily essentials reporting steady downfall in consumer sentiments

IMF has come up with latest figures of Global GDP @3% which may provide solace to a few countries on finding their GDP growth in the proximity of 3% or above but the figures are not encouraging from growth perspective. Although,3% growth of more than 81 trillion value of Global GDP doesn’t look bad either but small economies growing at this rate is a matter of concern.  Is it not an indication of unemployment figures moving north? What will happen if we fail to engage the young minds in constructive activities. Are they not going to deviate from the right path and look for easy money alternatives which may lead them to the darker destinations and become liability for the society.

The Federal establishments try, first to deny the slowdown by playing with the data and then reluctantly accept by trying to boost the economy through short term measures like reducing interest rates or dolling out a few concessions here and there. The slowing down of production, reduction in sales, shrinking of margins give way to the inevitable like a Jaundice patient who keeps ignoring the fatigue and yellowish tinge in his eyes and under garments before getting diagnosed. Be it a rich or poor, underdeveloped or developed country, this transitional phase has tested inherent strength, political will and visionary outlook of the masters and like jaundice, it takes its own time to recover. The only solution lies in right diagnosis and proper treatment

  The dot com bubble stretched its effects from twentieth to twenty first century (1997 to 2001) but the worst trend of this century started with Sub Prime Mortgage dilemma in US in 2007-2008 which not only slowed down the economy but also reported negative growth in 2009. Further this period  also witnessed a global crisis with big economies like China, Hongkong, Japan and India were impacted adversely. Many top banks went bankrupt rendering thousands of Americans unemployed.

 However, the USA bounced back in style and the economic curve going up with Dow jones scaling new heights every day and the latest figures of 3.5% for un employment has added something to cheer about by the US Govt and GDP of USA represents 33.06 of the world economy!

India seems to be joining the club of slowdown economies this year along with Hongkong, Italy, UK, Germany, China, Turkey, Argentina, Iran, Mexico and Brazil besides Russia, Greece, Japan already struggling with fall in manufacturing activities, increased unemployment. The outlook looks gloomy from the unemployment data, reduction in production and piling up of inventories coupled with temporary shutdown of units by a few leading production houses.

Banks and Mutual Funds has stopped funding to the NBFC sector due to surfacing of wrong doings in IL&FS who defaulted in repayment obligations causing anxiety about the functioning of this entire sector. IL&FS has made other NBFC’s to suffer as the lending institutions are more circumspect in funding this sector now. Normally the NBFC’s engaged in financing to small and retail borrowers get their Loan portfolio refinanced by the Banks. Auto Industry is facing a big slump with high level of inventories

From the other perspective, BSE Index and SENSEX have scaled new heights recently providing mixed sentiments about the actual state of Indian economy. Intentions of the Indian Govt look transparent as all the measures taken post the annual budget has tried to address the various issues being faced by the industrial and service sectors.

Starting from RBI transferring 1.76 lakh crore from its reserves in August 2019 followed by weekly meetings and coming up with solution to the suffering Industry, we have seen the FM attempting to provide a new direction to the economy but the economists and opposition political parties has raised their voice citing apprehensions about health of the economy due to wrong direction adopted by the Govt. Dilution of Govt holdings in a few and selling outright some of PSU has also created flutter and opposition parties are doubting the intentions of this Govt

The Indians may be missing acumen ship and visionary outlook of the former PM for providing the economy a clear and safe direction but PM Modi despite his handicaps has the girth and will power to sail through the rough weather. His call for a 5 trillion$ economy by 2024 looks real and achievable milestone for the Indian economy but the per capita GDP will remain very low for India due to the obvious reasons. Yes!! you are right. The denominator is population which keeps ticking to neutralise the effect of numerator i.e Total Value of GDP. 

Mutual Funds for All

Having explained the significance of Mutual Funds in creation of wealth by securing your money in the last post, we will see how your money grows constantly by taking care of “timing the market” risk. Though its not possible to avoid 100% risk in business and no investor or professional can claim to time or tame the market perfectly.

Stack of coins and growth sprout plant with hand watering as business finance or grow investment concept.

However there are ways to minimise the risks by following certain well researched and proven practices. Yes:Mutual Funds cover the risk broadly by spreading their exposure in diverse activities of fund management but investment in mutual funds through SIP almost nullifes the “timing of market” risk as small investments averages the price range which keep fluctuating through the entire time horizon of your investments.

A Systematic Investment Plan (SIP) is a vehicle offered by Mutual Funds to help investors invest regularly in a disciplined manner, through small and periodic installments.  The funds with portfolio of 100% equity stocks look risk oriented product in the basket of all the AMC’s but these funds have outsmarted index in the past by getting return of as high as 16%.

You need to work out your risk appetite and periodical financial goals fixed for achieving a relaxed retirement life. If you have started early and the first financial goal is expected any time after ten years then putting 15 to 20% of your income will create an ideal platform by investing into equity funds. The balance could be allocated to a low earning safer mode like Debt Funds. The number of Investors under SIP mode are increasing globally for the reason:

1. REGULAR SMALL SAVINGS
2. TIMING OF MARKET RISK COVERAGE
3. HIGHER RETURNS SOMETIMES BEATING THE INDEX
4. DUE TO AUTOMATED PAYMENT OF MONTHLY THERE IS VIRTUALLY NO CHANCE OF ANY PAYMENT PENALTY DUE TO ANY LATE INSTALLMENT

The AUM(Assets under management) has grown exponentiolly as the figures suggest: ₹ 6.28 trillion as on 30th September, 2009 to ₹ 24.6 trillion as on 30th September, 2019, about 4 fold increase in a span of 10 years and the total number of investors have grown to more than 2900000 in number. Like any other business this portfolio has also tasted rough weather due to volatality in the market which saw outflow of 1.6 lakh crores against inflow of 66990 cr only in 2019. The downside came as income and debt oriented schemes including close-ended and interval schemes saw net outflows of Rs 1.74 lakh crore in June as against net inflows of Rs 67,930 crore in the previous month.

AMFI regulates the funds in India and its very easy to start investing through SIP. You need to submit your KYC which get verified online as the process has been made very simple through AADHAR card also.

1. POA(Proof of residence)
2. Identity Proof (Voter Card, Passport,Bank Statement)
3. PAN Card
4. Aadhar Card

Once you are KYC compliant, you can start investing directly. DEMAT account is not manadatory as the customer can invest directly with the Funds distributors/Mutual Fund Companies, therby saving on the fees. You can provide mandate for automated instalment from your Bank and the instalment will start on a fixed date as agreed to by you at the time of starting the investment. You can start on 1st of every month or from the date of your salary or any other day which is convenient for you.

The redemption of mutual funds can be made any time in part or full and the proceeds get credited into your bank account within three business days. Normally the bank account for getting redemption amount remains the same from which the investments have been made. There is a lock in period for the funds enjoying tax deductions from their income like ELSS schemes, where the whole amount is invested in the equity market by the fund managers. May be this is one way to encourage the stock markets to prosper. Whereas the indian residents can start investments as and when they like but the NRI need to follow certain specific guidelines to comply before starting SIP. The undernoted funds accept investments from the NRIs irrespective of the countries they are living in.

• Birla Sun Life Mutual Fund
• SBI Mutual Fund
• UTI Mutual Fund
• ICICI Prudential Mutual Fund
• DHFL Pramerica Mutual Fund
• L&T Mutual Fund
• PPFAS Mutual Fund
• Sundaram Mutual Fund
• However,ICICI Prudential AMC, Birla Sun Life Mutual Fund and SBI Mutual Fund allow investments only through an offline transaction with an additional declaration signed by the client. Similarly, L&T Mutual Fund doesn’t allow USA and Canada based clients to invest in close-ended funds.

The best option available with the NRI investors is to appoint a POA(Power of AttorneY) for completing all their formalities back home before starting any investments through Mutual Funds SIP Scheme. They need to provide these documents through POA for updation of KYC with CAMS, KARVY or AMC branch offices. Once the KYC is complete, they are open to investments at any point of time in future as its a one time exercise. If you are staying outside India, then you can approach authorized officials of overseas branches of Scheduled Commercial Banks registered in India, notary public, Court Magistrate, Judge, Indian Embassy/Consulate General in the country where you reside. Such individuals are permitted to do IPV along with verification of originals.

1. Copy of Passport is compulsory
2. Copy of Overseas Address Proof (in English)
3. Copy of Indian PAN card
4. Two passport size photos
5. The fully Filled KYC form
6. Power of Attorney(POA)

It must be noted that any redemption of mutual fund units shall be credited to the same account only. If the investment is coming from NRO account then the redeemed amount will get credited in the NRO account and investments made through NRE account will find the redeemed amount credited in the NRE accounts. Sometimes the defintion of NRI is not understood properly by the beneficiaries and for the sake of clarity and brevity, the same is briefed herein below for the benefit of all concerned:

“A Non-Resident Indian (NRI) is a person residing outside India. This person may be an Indian citizen or of Indian origin. One is deemed to be a “person of Indian origin”(PIO) if he or she is a citizen of any country other than Bangladesh or Pakistan and if:

• He or she has At any time held an Indian passport
• The person or either of his or her parent or grandparent was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57of 1955);
• The person is a spouse of an Indian citizen or a spouse of the person referred to in the above points.

I hope the progress on our effort to make you wealthy and a satisfied person has been going on as contemplated but your feedback matters a lot for getting this process more interesting.. Stay blessed stay connected

Closeup of businessman inserting coin in transparent piggy bank on wooden table

Let’s Create Wealth-1

Hi Friends, Thanks for your continued support and let’s start where we left of yesterday in our effort to employ our idle money lying in the bank’s savings or current account for generation of passive income. All of us understand that the balances lying in our savings accounts don’t get sufficient returns to beat inflation part which eats out the real value of money regularly. We are talking from the beginners point of view who are being initiated into investments through stock markets.

A stock which is being considered for investment is subjected to strict scrutiny through various yard sticks by the investors/Financial Experts before considering any buy or sell call in a particular trading session. However to keeep the things simple, I will take up a few financial ratios which are easily available on website of the company or the Regulator’s platform as a public document. Let’s consider an example of XYZ Ltd Company to elaborate further:

1. Book Value: We need to know about this value as a yardstick to know the real value of share of the company on a particular day. This is the amount available for the share holder after adjustment of all liabilities in the event of closure of operations by the company. This is what you are left with in the grimmest and rarest of circumstances. Book Value of Company XYZ Ltd stock as on date is 21.29$ and we will compare with the market price later on
2. Market Price/Price: This the value of the stock which you will be paying for buying a particular stock. Market Price of XYZ Ltd stock is 243.05$
3. EPS(Earning Per Share): Net Profit/Total number of shares This ratio gives clear picture of operations and profitibility of the company. Comparison over the past few years will confirm that the company is doing well in business and may bring passive income for the shareholders through dividends/bonus shares. This is one of the most important parameters for selectin g any stock for investment. EPS of XYZ Ltd stock is $12.01 which is commendable
4. P/B (Price to Book Value): Market Price/Book Value. This Price to Book ratio is a financial ratio used to compare a company’s current market price with its book value. The PB Ratio less than 1 will make the company suspicious about its operations and may not be a good choice to invest. However this parameter is not the only yardstick but it should be co related with other financial ratios before taking a call. P/B of XYZ Ltd share should be 243.05/21.29=11 which is very healthy and acceptable due to valuation of the company but we will try to analyse further before putting in our hard earned money into this stock
5. PE Ratio: This is one of the most relevant information which defines the relation between market price of a share and EPS to understnad as to how much discount or premium is being charged by the market. In simple words how much money any investor is ready to pay for the stock to earn 1$ out of it. This ratio is used for valuing companies and to know whether the company is undervalued or overvalued. Let’s consider a live case of XYZ Ltd share which is trading at $ 243 in the Stock Exchange today. EPS of the share is $12.01. PE Ratio will be 243/12.01=20 app This means the stock is commanding a premium in the market and for every one dollar you will have to pay 20$ to buy one share of XYZ Ltd . You can compare this value with the average industry PE to know whether it is in line with the Industry levels
6. Debt Equity Ratio: This ratio shows total indebtednes of the company and its comfort level in debt servicing . Total debt/ Equity figures available on the Balance Sheet can be used for calculation of this financial ratio easily Any thing less than 1 is a very good sign and shows health of the company. However in no case you should venture into buying a share of the company whose debt equity ratio is more than 2. Debt Equity Ratio of XYZ Ltd stock as on date is 0.88 which is acceptable and conducive to its growth in future
7. ROE or ROCE: Return on Capital employed. This shows efficiency of a company in managing its equity to optimum level for running its business. Higher the better!! ROCE of XYZ Ltd is 52.13 which is very high and doing justice to the confidence of its share holders/Investors.
8. Performance of the company for the last three years: This information will provide you insider view of the operations of the company Any constant growth in the sales/profits/dividends will impact the value of share positively but the zig zag movement of figures in the balance sheet will indicate something wrong going on with the company as the sustained growth is not coming which may be due to unhealthy practices of the managemnt or some operational problems like unrest in the workforce/marketability of the products etc
9. Financials of XYZ Ltd for the last three years lifted from a public domain are as under and you can see how all the important parameters have been showing constant growth. You can easily find such informaion for any company which you are interested to invest through shares

Item	2018	2017	2016
Revenue	265595	229234	215639
Cost of goods sold	163756	141048	131376
Gross Profit	101839	88186	84263
Operating Income	70898	61344	60024
Net Income	59531	48351	46687
EBITDA	81801	71501	70529
EPS	12.01	9.27	8.35

I have taken an example of one of the best managed and result oriented company so that you can understand the concept of investment easily by taking holistic view of the information. Hope you will now feel comfortable to take your first step in building wealth and target to achieve your coveted goals easily. Nothing is impossible in this world: you have to keep learning with patience without ever shying of taking calculated risks on your march to creating wealth.. Have a relaxed day

Let’s Create Wealth

We have seen a large number of investors accumulating huge wealth by investing wisely in the stock markets irrespective of the fact that these markets are the most volatile centres in nature. Fortunes favour the brave!! and who doesn’t know the king of stock market Warren Buffet, a billionaire and rated as one of the ten richest people across the globe. And that’s because he shares the belief that, over the time, the world will improve, will grow and will be a better and more efficient place to live than it was before. George Soros, ICahn, Ray Dalio,James Simons,Steve Cohan,David Tepper, besides Rakesh Jhunjhunwala from India are the great rich people who have earned their fortunes through the stock markets The money has not come overnight but it’s the result of consistent efforts, timing the market, investing in valued shares and taking the calculated risks.

Investments in stock markets are the highest yielding avenues available for investors who maintain their calm during the turbulent times as the markets keep testing your nerves with high level of volatility. Regular study of the industry reports coupled with periodical performance analysed through various parameters keeps your portfolio insulated against sudden losses as the investments are like a child who needs proper pampering/caring/feeding/education and regular check ups to grow into a healthy and well informed young man.

It’s very easy to start investing in stock market as mere opening of investment/brokerage/Demat account provides you minimum requirement for gaining entry for buying/selling of stocks of your choice. Yes the first part is as sample as ABC and most of the investors may find the going a bit tough in selection/study of the individual share initially. There have been instances of huge loss occurring to the investors where the money has been spent in buying only on getting tips from the so called market experts or TV Channels. The use of digital information and expert’s recommendations bear implications as this could have come through a marketing efforts by a group of vested promoters. A thorough independent study takes only a few minutes before plunging into this very volatile world but it can help you in becoming financial literate to save your hard earned money.

Recently I came across hundreds of recommendations on various TV Channels/You Tube Channels who were recommending shares of their choice citing various reasons for a bumper rewards on a particular trading session known as Muhurat Trading on the auspicious festival of Diwali in India. The markets are opened for one hour on this day which otherwise turned out to be a HOLIDAY. This is the hype created by motivated people/professionals who try to lure your greedy instincts by forcing you to buy a particular stock through induced marketing skills. You need to be aware of such practices in vogue across all the global markets irrespective of the country you are living in. You need to take care of following important observations before committing yourself to buying mode in the stock market:

1. Start with a small amount as this will provide you an opportunity to test the waters before taking a plunge in the river. Have patience and don’t react on movements of the market on daily basis as you are entering this market as an investor to grow your wealth and not as a trader who plays on speculation only. This is not a gambling like casino where number appears purely on your luck. The stock market is a business which has certain basic perinciples to show preservance consistently. The right decision taken after proper analysis before investment will certainly bring good fortunes unlike casinos.
2. Allocate a fix part of your savings to this portfolio depending on your risk appetite but never put entire money in stock market as there could be other avenues available where your investment is safe with low yield
3. Invest initially in Large Cap companies who have track record of continuous growth over the past few years. This may not give you big returns but will keep your money safe initially. Study their financial information of at least for the last five years and see various parameters of sales/profit/debts/other features which doesn’t require any technical skill. Compare to see if these figures are increasing or decreasing. Try to learn about the group or promoters whether the company is paying regular dividends or involved in some litigation which may hamper their business in future. You will find consistency in the working of these big companies and learn the basic information which will help you in analysing smaller companies too.
4. Nobody has learnt anything FREE as nothing comes free in this world. Even the so called free use of Social platforms come by sacrificing your personal infomation and privacy!! Every success comes with sustained efforts after tasting setback/losses/fall and wrong decisions. Don’t get upset with your failures as these are the stepping stones for your smiling future. Just try to learn from your failures and be careful while riding the cycle again.
5. Don’t depend blindly on the recommendations of experts without seeing any logical evidence. Try to analyse the information by co relating exhaustive data available on various platforms and using your own due diligence and normal prudence before investing in the stock.
6. Don’t put all eggs in one basket. Invest wisely in diverse industries. In the ever changing vibrant economies, the priorities of Governments and promoters keep changing. Any particular industry or a stock which remained rising continuously over the years may just relax providing you an opportunity to enter the stock on lower valuations. Dont reshuffle your portfolio frequently as such practice will only enrich the brokers

Invest when others are exiting from the market. During the Dot com bubble 2000, Sub Prime Fiasco 2008 or Harshad Mehta Scam 1992, when most of the investors were scared away due to the crash in stock markets, the great players were busy accumulating the quality shares at throw away prices. Never in the industry, any slump in the stock markets has remained in vogue for more than 15 months. When the stock markets returned to senses, the heart burns were visible as the small investors had dumped all their holdings by selling the shares at unbelievable discounted prices and you can imagine the fortunes of those who had acted wisely by grabbing the opportunity in a big way. The COVID-19 has also seen see-saw movements of global markets during the current financial year and crash in shares of non essential items have seen prominent stocks losing their values to the extent of 80%.

The long term valuation of the stock continues increasing not only by appreciating in the value/price of the stock but also from the regular dividends/bonuses/rights issues offered to the holder from time to time. Reinvestment of all these incomes keep the value multiplying to higher levels for diversion into passive income investments later on . We will discuss investments for passive income and also look at the various parameters for identifying a stock for its valuation in our next post. Till then: Have a relaxed day

Personal Finance-1

As discussed earlier, Personal Finance is an exercise to plan your Finance so that you have enough money for your immediate Financial needs, savings for higher education of your children and planning for retirement. All Financial planners recommend for early action on your planning but I think this planning can be started at any stage of your life but sooner the better as the insurance premiums keep increasing with age and the gap between your current and retirement age keeps decreasing making it difficult for your money to grow enough .However you need to have resources to generate income to fulfill all these goals. It could be through your salary,business or any other regular stream of income. The art of managing your income, expenses and savings comes from within by becoming finacially literate which does’nt cost you much. A rough calculation on a small piece of paper willl be enough every month to provide you the much needed expertise in personal finance. Lets start from the first step:

1. Minimum Emergency Fund: You need to create this fund to overcome the unforeseen circumstances. You may be contemplating to leave the job and looking for better job options or there could be a slump in your business due to sudden defaults by the debtors/unfavourable market conditions. In such circumstances you can’t afford to stop living your life style, maintaining the social status, pursue education of your children and other routine expenses. To maintain a buffer, you need to have a minimum bank balance equivalent to 4 to 6 months of salary/income in your Bank account. This will provide you comfort level to search for the new job or to tide over the adverse market conditons. If you are drawing a monthly salary of 10000$, you need to maintain an emergency fund in your bank account to the tune of 40000$ to 60000$. You will agree that this cushion will not let you down when you are not getting regular salary/income
2. Insurance: Most of the planners rank this item at number four in priorty but I would prioritise to suggest obtaining of Life Insurance or Term Life Insurance Cover for the earning member of the family to safeguard against any future risk to life or permanent disability. There is no need to get LIC for all the members of your family. The total quantum of Life Insurance Cover should normally be 8 to 10 times of annual salary/income. For example if your salary is 100000$ per year then the total cover should be 800,000$ to 100,0000$. Fortunately the amount of insurance premium for a Term Life Insurance Cover is very small and it keeps increasing with the age. This amount is sufficient to ensure that your family does’nt feel the financial issues when you are not around and continuity of education of your children is guaranteed. Besides a Medical Insurance/Health Insurance cover needs to be taken for all the family members as the ever increasing medical/hospital bills can cause turbulance in the entire budget of the family and whole financial planning could be paralysed. I will prefer for a Medical Insurance coverage of 500000$ under a family floater scheme which does’nt cost you much and every member of the family is covered by a single policy.
3. Savings: Having covered the uncertain part of your life upfront, I will prefer you to save a minimum 25% of your Net income and keep aside to invest for creation of wealth. This investment will start earning for you and take care of all your sustenance expenses when you are not working after retirement. You can invest these funds in high yield Securities, Stocks, Real Estate, Mutual Funds as per your interest and opportunities available
4. Monthly Household and Life Style Expenses : This takes away the major piece of your cake as your Bills, School Fees,Grocery,Utilities, Car maintenance, Hotel Bills and Club Memberships consume maximum part of your budget. You can allocate 60% of total income under this expenditure. Though Credit cards make a second line of defence to meet the unexpected unplanned expenditure for buying a computer/Bike for the children but effort should be made to pay off the bills regularly and in no case the part payment ever be made for the credit card bill as the balance will attract a huge rate of interest. The Credit Card companies will keep coxing you for the minimum amount for obvious reasons Under all circumstances, the allocation of 60% should be used for payment of all bills including credit card bills

Hope to come back again tomorrow with further inputs but I will wait for your feedback and suggestions to make this exercise more interesting and simple.

Have a great day!!