Economy

The beginning of CY2021 saw an unlikely contest between two non-equals in USA. A group of retail investors got together on a social media platform Reddit and took on hedge fund managers in stock of a struggling games and entertainment company called GameStop. All of this sounds rather ridiculous. How can puny retail investors take on mighty hedge fund managers and emerge victorious? Stock markets occasionally throw up such ridiculous contests and as always, this one too was driven by the most common market emotions – Greed and Fear.

GameStop, Who?

As per Wikipedia, GameStop is an American video game, consumer electronics and gaming merchandise retailer. It is supposedly the world’s largest video game retailer with more than 5,500 stores throughout the US, Canada, Australia, New Zealand, and Europe. Despite its size and reach, GameStop had been struggling for some time as people chose to purchase games online during the pandemic rather than walk into stores. GameStop’s share price had been languishing in single digit Dollar prices for the first nine months of CY2020 and in double digits below $20 since then. Even before the pandemic, GameStop’s revenues had slid for each of the year since CY2016. Profits too were on a declining trend and the company slipped into net losses in CY2019 and CY2020, as per data from website MarketWatch.

“The Game” begins

Till 12^th January, 2021, GameStop’s share price remained below the $20 per share mark. A bunch of Hedge Funds had been building heavy shorts in its stock as they felt that the company’s fundamentals did not merit the price it was trading at. They wanted to make a killing when the price declined further and come out richer.

However, some users (retail investors) of social media website “Reddit” were discussing this same stock on the discussion thread “WallStreetBets”. They felt that the stock was trading too low and its valuations were inexpensive. They also felt that induction of Ryan Cohen on GameStop’s board would change the fortunes of the company.

Ryan owns nearly 12% stake in GameStop and was the former CEO of Chewy Inc., an online pet-food company. Hence, they started building long positions in the stock leading prices higher and higher each day. GameStop’s share price rose from $76.79 on 25^th January, 2021 (when the big action started) to a mind-boggling $325 on 29^th January, 2021, return of 323% in four trading sessions. In fact, if you calculate the stock return in the current calendar year, it is a mind-numbing 1,784%!! That much money in 19 sessions flat!

As the price kept rising, hedge fund managers panicked and started unwinding their short positions, leading to further spike in GameStop share price. This is called as a short squeeze. Without getting too technical, a short squeeze is one where shorters cover their positions by buying the stock since it is rising. This has a domino effect and the stock rises even further due to due to buyers’ pressure. Other companies such as Blackberry, Nokia, AMC Entertainment also show such action, but the one in GameStop was most dramatic.

GameStop share price ($)

Source: Investing.com

Goliaths bled and Davids made merry!!

The fallout of the episode till now is that several hedge funds have incurred huge losses in their stock positions. Retail investors emerged victorious and richer. The press was filled with news articles about people amassing huge sums of money in a matter of few days. From a 10-year old boy making $3,200 on his $60 investment in the company to a top Indian fund manager’s son making a killing in the stock, GameStop had become the talk of the town.

Robinhood’s flip flops

The whole episode was hailed by some sections of the press as a victory of the tiny versus the mighty. After all, rarely have hedge funds been crushed by ordinary investors. This was a classic case of “Robinhooding” in the stock market – take money from the rich and give to the poor. Talking of Robinhood, there is a popular trading platform in the US by this name, set up by Indian American Bhanju Bhatt.

As GameStop share prices surged incessantly on US bourses, Robinhood stopped its clients from buying further shares of the company. It received a lot of flak from the general public and politicians for this decision. Some termed this as an end of “democratized” trading in the US. Others alleged that Robinhood succumbed to pressure from mighty fund managers who were suffering losses. It finally had to give in and trading in GameStop from the platform was restarted on Friday, 29^th January, 2021.

Play the investing “Game” and “Stop” the speculation

The entire episode has many dimensions to it – rise of retail investors, role of social media in creating a mountain out of a molehill, a trading platform switching sides dramatically and many celebrities and some sections of the press hailing the retail investor as a winner. In our opinion, it is difficult to proclaim a clear cut winner in this case. However, we know the biggest loser for sure. It was Fundamental Analysis. No one bothered to study the company, its financials or management strategy before taking positions in the stock. All that they cared about was who took bigger positions and whose “long” or “short” was bigger.

A company could have strong fundamentals or may be a compelling turnaround story. However, nothing ever can define a 1000% plus up-move in a few trading sessions. Incidents such as these are rare and making money from them is even rarer. It is speculative, filled with vengeance and certainly dangerous. Over the longer term, it is only fundamental analysis, studying a stock in detail that multiplies wealth sustainably and safely. For more excitement and action, you can always head to a casino.

To invest in a portfolio of 20-25 fundamentally sound stocks chosen after detailed research by our team of experts.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Indian markets made a mockery of the so-called ‘October Effect’ and delivered handsome monthly returns. Sensex and Nifty rose by 6.2% and 5.6% respectively. On an YTD basis, this turned out to be the best month for Sensex since March 2016.

Broadly, this was made possible on the backdrop of favorable macroeconomic data, big-ticket reforms announced by the government to revive the economy and to some extent, easing of geopolitical tensions.

The overall YTD returns rose to 26% and 25% for Nifty and Sensex respectively.

PSU Bank Recapitalization Program

The government announced INR 2.1 lac crore PSU Banks’ Recapitalization Program. The motive behind PSU Banks Showcase 2017 is unsurprisingly to stimulate the flow of credit and revive private investment cycle, which in turn can give some boost to the Indian economy.

The markets gave a big thumbs-up to the measure and most PSU bank stocks ended up gaining 20-49% the very next trading day!

Though finer details are yet to emerge through PSU Banks Showcase 2017, broadly INR 1.35 lac crore is expected to come from the sale of Recapitalization Bonds. The remaining INR 76,000 crore will be through budgetary allocation and fundraising from the markets.

This capital infusion into the sector is a welcome step and will go a long way in boosting the confidence and strength of the domestic banking system. And as per an SBI Report, even though the numbers seem huge, the fact is that “the cost is very negligible, given the current context and the huge multiplier impact”. This may be the case as this does give banks the firepower to start lending, which in turn can reignite economic growth.

But having said that, we believe that infusion alone is not enough. The lending will not pick up overnight. Banks first need to materially strengthen their balance sheets, which includes cleaning up of billions of dollars’ worth of ‘real’ stressed assets. Once that happens, the demand also needs to revive for credit growth to pick up.

We are also of the view that government should not try to be politically correct in the distribution of capital and use discretion. Not all banks deserve to be saved. Only the efficient ones that can survive in the long run are the suitable candidates for the infusion. So the government should ensure that the banks that work harder to deal with their own mess should be the ones getting priority in this program.

This also strengthens the case for consolidation in PSB space and also, for euthanasia of those banks which fail to do banking as it should be done!

GST Recalibration

In arguably the biggest GST-related announcement after the July 1st, 2017 rollout of the new tax regime, the government slashed rates across the board, relaxed penalties and tweaked rules to lower the impact of taxes and make it easier for businesses, especially small ones to comply.

We feel that this package is rightly timed and will boost demand and more importantly, help lower the discontent against the compliance overhead faced by the small businesses. This in turn will give a fresh push to the tax reform.

It was always expected that a major reform like GST impact on economy in long term will not be easy and will definitely require regular tweaking before things finally settled down. And to be fair, it isn’t practically possible to design a foolproof GST system which will take care of all the aspects from day 1. GST, at least initially will undergo continuous evolution and witness more recalibrations based on feedback received and need of the hour.

We feel that despite the gargantuan scale, small initial setbacks and discomfort felt by many, GST impact on economy in long term will be nothing less than affirmative. And as things progress, the system will eventually move towards a far neater and even simpler structure than it currently is.

R&R View on Economy& Markets

The last few weeks saw government making many announcements which have huge economic implications and one eye on the 2019 elections. Be it the PSB Recapitalization program, ambitious push to road infrastructure spending or continuous evolution of GST, all are expected to give a boost to the economy eventually if not immediately.

In near term, the outcome of elections in Gujarat will be important for the government to stress test its popularity and ability to take future reformative steps.

As for the Indian markets, they no doubt seem to be expensive by historical standards. But if we consider several other factors including but not limited to low interest rates, distinct possibility of earnings revival, Market cap to GDP, etc., there still seems to be some merit in the bull case scenario especially for long term investments.

Having said that, in case earnings recovery is delayed for any reason whatsoever, the markets may take a dip in near term or remain sideways for extended periods. But we expect that any fall will not be deep or long lasting as the increased inflow of savings from Indian households will continue to support the market.

There is absolutely no doubt that the Indian economy is undergoing several transitions which are fundamental in nature and which might seem like speed breakers. But these are more like surgeries that will eventually make the economy stronger and more agile. So it will pay to be patient in the near term.

As always, we continue to remain bullish on the Indian economy in long-term and that reflects in our focused portfolio for long term investments too.

On that note, we end this newsletter and as always, appreciate you for taking time to read this message. Do share your views/comments by email/comment section below.

Regards
Team Equentis

Read more:  How Long-term investing helps create life-changing wealth – TOI.

September turned out to be another month of slightly negative returns for broader Indian markets. Nifty and Sensex delivered -1.3% and -1.4% on a monthly basis.

Though it is unnecessary to justify small movements of few percentage points in either direction, it seems that two consecutive months of negative returns are due to the combined effects of jittery geopolitical situations, perceived overvaluation at broader market levels, concerns about GST-related issues and lack of any specific positive triggers.

But given a good rally in the first half of the year, the overall YTD returns continue to remain good at 20% and 17% for Nifty and Sensex respectively.

FII were net sellers in September and sold about $1.6 billion worth of equity. But this was adequately countered by the purchase of $3.2 billion by DIIs. On a YTD basis, FII have purchased stocks worth USD $ 5.5 billion.

Interest Rate Pause

In its latest policy meet, RBI has kept the policy rates unchanged.

The monetary policy stance continues to remain neutral as RBI has made it clear that the rate cuts will restart only if there is an unexpected drop in the economic growth. This in itself, makes any cut in the December policy uncertain.

RBI also shared its concerns about GST implementation, which along with demonetization and PSU bank’s NPA burden, may further delay the revival in investments in the economy.

IPO Frenzy Continues

On back of the current bull run and great returns in last few quarters, the IPO market is in a frenzy.

Companies are coming out with IPOs which at times have sky-high and unjustified valuations. Even then, the issues are getting hugely oversubscribed. Unsurprisingly, companies with mediocre business models too are taking advantage of the appetite for new issues and coming out with IPOs having super-rich valuations

Since the start of 2017, more than about Rs 38,000 crore has already been raised in the primary markets. And interestingly, most of these IPOs are being driven by offers for sale (OFS) rather than fresh issue of capital. So basically, these IPOs are turning out to be good exit option for existing shareholders due to the sharp run up in Indian equities. And the money is not going to add much value to the business as such.

This in itself speaks volumes about this ongoing IPO party.

Even the SME space is witnessing the same trend with 58 SMEs doing their IPOs since April this year.

Jittery Geo-Politics

The stand-off between the US and North Korea continued for another month with no sign of relenting from either side.

It is still unclear how this issue will progress but given recurring provocations by the Korean regime, the risk of US aggression cannot be ruled out in near term.This is one big risk that is being faced by the markets world over.

R&R View on Economy & Markets

There has been a lot of uncertainty surrounding government’s recent reformative steps and how they may impact the economy and the stock market.

Many are of view that low oil prices combined with so-called economic speed-breakers of GST and demonetization are missed opportunities to return the economy to a sustainable path of more rapid growth.

All this might be true to some extent. But we believe that best time to carry out big reforms is when economy is relatively healthy (which is the case today). You cannot do a big surgery on a person who has a very poor health. And same is the case with the Indian economy too.

So in our view, it’s still too early to write off these reforms as unnecessary. It’s true that events like as demonetization and GST have slowed down GDP growth considerably. But this is the obvious side effect of such steps. Few quarters of slow growth do not change the overall growth trajectory. We continue to remain bullish on the Indian economy in long-term.

On that note, we end this newsletter and as always, appreciate you for taking time to read this message. Do share your views/comments by email/comment section below.

Regards
Team Equentis

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

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Note – The delay in publishing this monthly commentary was intentional as many major events were lined up for the first two weeks of December. So to give a complete analysis of all inter-related events, we are publishing the November newsletter today.

November turned out to be a weak month for the Indian markets and all major indices ended up in the red. Infact, had it not been for the recovery in last week of the month, both Nifty and Sensex would have closed the month with cuts in excess of 8-10%.

But at the end, Nifty50 and Sensex gave closed the month with negative returns of –4.65% and -4.57% respectively.

There are many reasons for this weakness. Major being concerns about slowdown due to demonetization. Then there were also worries about how foreign funds will behave as US Fed restarts it rate-increase program.

Demonetization Haunts the Economy!

There is no doubt that demonetization has caught everyone by surprise. More so, those who held a lot of unaccounted wealth and towards whom, the entire exercise of demonetization was aimed at first place.

Though it is very difficult to predict the exact trajectory of economy’s growth after demonetization, there is no question that the economy will witness temporary disruptions at multiple levels. Discretionary spending, etc. are expected to see a fall in near term. This in turn will have negative impact on companies servicing those discretionary demands.

Some agencies are of the view that economy will regain its momentum in a quarter or a little more. But as new data and statistics emerge from various sources, it is increasingly becoming clear that recovery will take longer than just one quarter.

For investors, demonetization is a short-term negative but a good move to strengthen the economy in the long term. In fact, the price correction caused by this event actually offers a good entry point for long-term investors.

Also, the government has made it clear that demonetization is not the last step against black money. There will be more measures taken in future against ‘Benami’ properties and those purchased using black money – the core of parallel economy. So there is a growing consensus that property prices will start moving down in due course of time.

Policy Rates in India

RBI surprised everyone by keeping the key policy rates unchanged in its bi-monthly meet in December.

Though there was a strong expectation of a rate cut, RBI has decided to further assess the impact of demonetization before taking a call. Another reason for the reluctance to cut rates would be eminent US Fed rate hike, which would trigger an outflow of dollars from India and weaken the Rupee further.

But in order to absorb the excess liquidity generated (due to deposition of notes with banks), it had introduced a temporary measure. The banks had to transfer 100% of their cash under the RBI’s cash reserve ratio from deposits generated between 16 September and 11 November. This temporary measure is expected to be withdrawn soon as things normalize.

As for the rate cut that everyone is waiting for, the probability is high that RBI will go for a 0.25% cut at in its February 2017 review. This is to give a boost to the slowing growth and also because the inflation is under control.

US Fed Rate Hike

As expected, the US Federal Reserve raised interest rates by 0.25%. More importantly, it has indicated that the pace of rate hikes will accelerate in coming quarters.

As the new President-elect Donald Trump is expected to announce tax cuts and increase spending on infrastructure, the US Fed now has more freedom to hike rates going forward. The long-term expectation is for the rates to reach their long-term average of 2-3% in next few years.

There is an increasing fear in emerging markets like India that the era of easy and (almost) zero-cost money is over. This is true to an extent. If Fed does increase rates as planned, then India will have to make peace with the fact that fund coming from foreign shores will reduce with time. This doesn’t mean that new money will not come to India and go elsewhere. It only means that the momentum provided to Indian markets by global fund flows will reduce in coming years.

Power Struggle continues in Tata Group

The struggle for power in Tata Group continued last month too. The Tata’s side has moved swiftly to oust Mr. Cyrus Mistry from the board of various group companies.

Though this is a temporary problem for the group stocks, fact is that it is bringing out the dirty side of both parties in open. This doesn’t auger well either for the group’s respectable image or for India’s corporate governance in general.

Research & Ranking Sidenote

Given the big-ticket events taking place last month, the volatility in markets is expected to increase in near term. But for long-term investors, there is not much to worry about. Short-term concerns remain, as they always will.

But Demonetization and GST rollout are a big positive for the Indian economy in the long run. Though the benefits of these two big developments will take time to become visible, there is absolutely no doubt that these will relaunch the economy in a bigger and stronger way.

We appreciate you for taking time to read this message. Do share your views/comments by email/comment section below.

Warm Regards,

Research & Ranking

Read more:  How Long-term investing helps create life-changing wealth – TOI.

October was a tepid month for the Indian markets. The benchmark indices remained almost flat during the month. Nifty50 and Sensex gave monthly returns of 0.17% and 0.23%respectively.

The indecisiveness of the markets can be attributed to slow buildup of concerns about the outcome of US presidential elections, its impact on global and more specifically Indian economy, impact of finalization of GST rates, etc.

US Presidential Elections

As per the latest update (on 9thNov), Donald Trump has been elected as the 45th President of United States. This came as a surprise (and rude shock) for many. There have been concerns about Trump’s anti-trade and anti-globalization policies. And his unpredictable behaviour is also well known to all.

As it increasingly became clear that Trump victory was imminent, Indian markets reacted with a crash and Sensex dropped* whopping 1600+ points at opening. It later ended the day with much moderate 300 point cut.

*The fall was also due to another huge announcement made by Indian PM the previous night (discussed in next section).

Inspite of the unexpectedness of the event, fact of the matter is that Mr. Trump is now the President and all countries (including India) will have to deal with it. As expected, there was a sharp selloff in stocks as people sold first and asked questions later.

The near term pain is expected to last longer as people world over come to terms with new order in the US. But given the importance of India as a trading and political partner for the US, one should not expect too many negatives for India in the long term.

De-notification of Rs 500 and Rs 1000 Currency Notes

This was a huge announcement made by PM Modi on 8th November.

Rs 500 and Rs 1000 currency notes have been banned with (almost) immediate effect. Though people can get these notes exchanged with those of other valid denominations like Rs 100, Rs 50 and newly launched Rs 2000.

As per RBI, the biggest reason for the ban is the unexpected rise in fake notes of higher denomination. But its almost an open secret that this move is to address the menace of black money in the system.

As for the impact, real estate companies will take the biggest hit. The reason is that most property deals involve a large amount of unaccounted cash transaction.

With this move, the cash component of the transaction is expected to come down drastically and also lead to a slowdown in land deals. There is also an expectation that this move will result in correction of property prices.

GST Rate Finalizations

The GST Council has come up with a 4-tier GST tax structure of 5%, 12%, 18% and 28%.

The lowest rates will be for essential items and the highest ones will be for luxury and de-merits goods (which will also attract additional cess).

The tiered structure is expected to keep inflation under check as all essential items like food, etc. will be taxed at lower rates.

Policy Rates

Newly elected RBI governor surprised markets in October with a 25 basis points cut to the key rates.

The new rate cut has once again fueled the debate about passage of policy rate cuts through lending rate cuts to final borrowers. If lenders do decide to pass on these rate cuts, it will further help boost consumption at retail level and nudge corporates to start borrowing for their investments needs.

Indo-Pak Border Tension

One of the biggest fears of last month was border tension with Pakistan and possibility of escalation to a full-fledged war.Though regular skirmishes at the border have increased in recent past, there is still no clear indication about how India will be reacting at an aggregate level.

But still if the issue does escalate in near future, there will be a valid reason for markets to correct and cool off valuations, which have been hovering at higher-than-historical-averages for quite sometime now.

Shakeup at Tata Group

India’s largest and most respected corporate house witnessed some unexpected power struggle. The Tata Group fired its Chairman Mr. Cyrus Mistry dramatically & unceremoniously.

There have been allegations and counter-allegations from both sides and the group has again brought in erstwhile Mr. Ratan Tata to find a new chairman over the next few months.

Though publically, Tata group has been claiming that Mr. Mistry was not working in line with group’s ethos and values, it seems that there is something else that is still unknown to public at large.

The group stocks have naturally reacted negatively and underperformed the sector and markets as a whole.

Research & Ranking Side Note

Unexpected new (+ unpredictable) president of a powerful country, Indian government going after black money hoarders big time, escalation in border tensions with neighbouring nations, power struggle in largest corporate of the country – all these do point to a near-term gloomy picture.

But fact is that if these events lead to near-to-medium term correction in stock markets, it can infact be a big opportunity for investors who were sitting on the sidelines till now.

These events might seem to be happening for the first time. But stock markets are decades old and have witnessed such events numerous times in past. They always come out of such events and make huge profits for those who are bold enough to invest in bad times (read more about Crisis Investing to better understand click here).

R&R Portfolio

Last month, we had launched our unique Gift Share program for new and renewing subscribers.And the response we received has been overwhelming. It clearly shows that our family of subscribers clearly believes in the real potential of long term investing.

Under the program, we give shares as gifts to our new subscribers. To know more about the Gift Share Program,

Portfolio’s sectoral allocation remains same

We appreciate you for taking the time to read this message. Do share your views/comments by email/comment section below.

Regards Team Research & Ranking

Read more:  How Long-term investing helps create life-changing wealth – TOI.

To:

Shri Narendra Modi
Honourable Prime Minister’s Office
South Block, Raisina Hill
New Delhi – 110011

Dear Prime Minister Narendra Modi,

Let me start with congratulating you on behalf of the entire R&R Family for achieving the historic mandate on 23^rd May 2019.

It is the overall optimism surrounding your persona is something we believe is the main reason behind this historic mandate.

Today, the main reason I write to you is that I have a few suggestions I would like to make for the current government to become one of the most successful governments in the illustrious history of India.

1. Employment:  Indians have through the mandate given a visible indication that we are not a society that is looking for free lunches or goodies or subsidies. Indians have traditionally been hard working people. The Mudra Yojana has been one great example of the same. Yes, over 18 Crore people of our country have shown that they want to work for their own and in a way, contribute towards the country’s growth. But sir, let this be just a start. We need to promote an entrepreneurial spirit that will generate employment besides focusing on direct job creation.Schemes that have promised free food, food for work, free income, etc. have always been an additional cost to the country – and it has seldom added to the India Growth Story. But, if we can generate adequate employment opportunities in the country by using that money, it would not only solve the problem faced by Indians but also directly contribute to the economic status of the country.

It is beyond any doubt that Indians have the best entrepreneurial brains when compared to anyone else across the globe. It is evident when we see Indians leading top-notch companies like Google, Microsoft, and MasterCard amongst many others. If given the opportunity, Indians have and will strive to achieve a higher mark for themselves and in turn, contribute towards the overall growth of India.

On to some numbers – as of now, only about 2% of Indians fall under TDS. By promoting an entrepreneurial spirit amongst young India, it will not just be a direct cause of the rise in employment, but also add to the overall income for the government.

2. Agricultural Development:  India has traditionally been an agricultural economy. Almost 60% of our population is still dependant on agriculture as a source of livelihood. Definitely, your efforts to improve overall rural livelihood by working on the electrification of villages, soil health cards, neem coated urea, soil health cards, etc. are very much perceptible.Like for employment, our farmers always have and continue to work hard to earn their livelihood. They will not be looking for loan waivers, or subsidies if they can earn in a fair manner. Farmers have seen years of loan waivers, and they probably realise that such measures are not going to get them too far. You have spoken about doubling farmers’ income in the past – it is time we ensure that 60% of Indians are in for a pleasant surprise at the end of these five years.

3. Banking Sector:  Over the past five years of your tenure, we have seen the NPA crisis that was looming over the banking sector come into check. With new reforms such as NCLT, IBC, and other stringent guidelines by RBI, banks are reporting lower NPA provisioning, and we are witnessing a revival in NPA recovery. PSBs over the past fiscal have been able to recover Rs. 1.2 lakh crore from stressed assets. And this has almost doubled from Rs. 75,000 lakh crore recovered in 2017-18.Banks will always continue to play an influential role for the development of growth in a country –I request you to continue these measures that do not allow derailing of the banking system in the future. In some senses, we all know the reasons that have caused a crisis like this to snap up, and hence there is need to work on specific measures that encourages banks to enjoy a certain level of autonomy and also make them accountable. The NPAs kind of crisis should be a thing of past, and we do not come across them again.

4. PSUs:  Be it the Banking or the Non-Banking PSUs, we have never been able to make the best use of them. I agree, and I am sure you do as well with the famous saying – the government has no business to be in business. But, we recognize that privatisation isn’t a small activity and would take its own time.Saying this, we also know that there have been significant gaps in running them, resulting in losses and hence having an indirect impact on the exchequer. It is also an open secret on what has been causing these losses. If you can iron them out – you can turn those businesses around. If this happens, I am sure you know it would have a direct impact on their privatisation as well. During your tenure as the chief minister of Gujarat, you had successfully managed to transform several state PSUs by giving them more authority and autonomy. Sir, how about repeating this feat with all other PSU’s across India and turning them into profitable world-class companies?

5. Sanitisation, Healthcare & Education:  It was a pleasure to see the number of efforts you put in for these over the first five years as a PM. Open Defecation Free Villages and construction of household toilets under the Swachh Bharat Yojana has been a big boon for many Indians – especially women & children. A scheme like Ayushman Bharat is undoubtedly something a lot of Indians have been looking out for a long time. We look forward to more and more people getting covered by such initiatives.In the field of education as well, you have taken up some useful initiatives. I am a firm believer of the saying – ‘Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for a lifetime.’ Your steps in the direction to empowering young India towards education, towards skill development, etc. have seen a decent success over your first tenure. We would prompt you to spur education for more and more Indians as it would help them not just generate jobs for themselves, but also create an economically stronger India.

6. One Man Army:  You did mention this in one of your speeches recently, but I would want to highlight the same once again. It happened to some extent in 2014 but was much more evident in the current elections held recently. It may have worked this time around and help you win the elections – but for India to move at a pace faster than what it is running now, we do not need a one-man army when you already have the support of over 350 other MPs.I would like you to ensure all of them to be working and delivering the various government schemes to not just their constituencies but as far and wide as they can. We need all of them to be more accountable, and hence the developmental work gets spread far and wide because turning around a big country as India can pick up speed if there are many hands at work instead of just one or two.

7. Living in a corruption-free society:  By giving you this historic mandate, the people of India have expressed their gratitude towards your previous government that we haven’t come across any significant scams across your first tenure. But sir, we now aspire to live in a cleaner society.We do not want to stay scared if we have to deal with any governmental departments, we do not want to be worried to start a new business, we do not want to be concerned to file a complaint with the police, or we do not want to think multiple times before we approach the court of law to get justice. We Indians have longed to stay in a cleaner environment. Hence I would request you to focus some of your attention towards making our lives easier at the grass root levels as well.

8. Religion, Faith & Belief:  India has always been a country spread across many faiths. Religious diversity has always been a jewel in India’s history. But, after independence, it is unfortunate that there have been many attempts to divide India based on religion or faith or beliefs. As an Indian, it is essential for me to be able to practice my religion, my faith, but, it is even more critical for me to stay closer to the society and not take me away from it.Living in Mumbai has always taught me to live and work along with people from diverse religions and cultures. It has been something that I have treasured all along. I would want you to promote this feeling across the country where people enjoy being a part of this fantastic society. As much as I request you to work on this, I would urge you to deal with this with a lot of sensitivity.

India, as a whole, has suffered a lot over the past decades. And we know what the root causes of riots/clashes are. Emotions of citizens are being misused again and again for petty political gains. As much as I request you to deal with this problem with a lot of sensitivity, I would urge you to try and put an end to such riots. They are not just spoiling the environment but also causing a great deal of financial stress to the government as well as to citizens and also bringing a lot of disrepute to the country.

9. Reservations:  As I mentioned above, we Indians are no longer looking out for free lunches. By voting for you, Indians are indicating that they have come over the plank of getting reservations. Like for religious beliefs & faiths, please deal with this as well with a lot of sensitivity. Indians are looking out for opportunities instead of getting caught up into the same trap that we have been stuck over the past decades. And not just based on the poll mandate, Indians have given enough evidence of no longer wanting free lunches by participating well for the schemes such as Mudra Yojana and Skill India.

Apart from these, I highly appreciate your initiatives under Digital India campaign to ensure that all government services are available to citizens electronically, thereby cutting the red tape that has been a curse for several decades.

Over the five years, Indians had stood right by your side when you took the tough but necessary decisions such as Demonetisation and GST. We have inevitably faced difficulties while they were getting implemented, but, we have stood by your side only because we understand your view around them and positive results for India over the long run, and hence reinforced our faith in your leadership. I want to highlight that your government is probably the first government in global history to get re-elected after the implementation of GST.

People have rejected promises to get free lunches, reservations, etc. because they know these small and fringe initiatives will only push them backward and in turn slow down the growth rate of the Indian economy. We need to work towards increasing the per capita income from the near $ 2,000 to $ 10,000 levels, and this can surely not be achieved by offering citizens free lunches.

People are now looking forward to reaping the rewards in the coming five years of the strict steps that were taken over the past five years. Saying this, if the dreams of a common man are now fulfilled this time, an opportunity like this for India to grow will not present itself again for a long time to come.

As I write to you today, I want to highlight very strongly that I do not have any doubt whatsoever on your intent, but now we need a lot more to be done so that India and Indians are able to live in an India we all have dreamt off.

If you feel we can be of any help to you, we would be more than happy to stand by you and help India become a $ 5 Trillion or a $ 10 Trillion economy that is aspiring to become.

We at Research & Ranking would request you to allow us to carry out the required research, do a systematic dive down into numbers and more to be able to present a white paper to you on the following aspects:

1. Employment – Identify the areas that can generate employment and invest accordingly
2. Banking Sectors – How to avoid resurfacing of NPA crisis
3. Steps to ensure the profitability of PSUs

I am sure that if given an opportunity, we can work closely with your team and give you few suggestions that can help India achieve its goal a bit faster.

Regards,

Read more:  How Long-term investing helps create life-changing wealth – TOI.

Year 2017 has been generous to investors, and probably would be remembered as one of the most investor-friendly year going forward. With most investors walking away with handsome returns, creating wealth was nothing but an effortless victory in the stock market.

But come 2018, there has been a turnaround in the market sentiments and economic outlook. Since the dawn of 2018, the Indian stock market has been on the hem on account of a myriad of factors. Starting with the fuss over LTCG, the markets confronted other hostile trials such as banking scams, US Fed rate hike, global trade war, soaring bond yields and rising political mercury over the upcoming elections. Obviously, it’s a no-brainer task for anyone to conclude that 2018 would not be an easy ride for Indian investors.

This poses an investing trilemma for any Indian investor:

Will FY2018-2019 be a year of wealth creation or is another speed-bumper in an offing?
What should be the right modus operandi while building a portfolio in 2018?
And, with the unfolding of scams, how can we safeguard ourselves from getting into another Nirav Modi fallout?

Starting with the way ahead for the market this year, one can definitely not discount the impact of global and local challenges on the Indian stock market. However, we think equity market is more of a function of fundamentals of an economy such as corporate earnings and GDP growth. With the favourable fundamentals and as positive implications of GST and demonetization have started to play out, we can expect an amiable year as far as wealth creation is concerned. But, as they say, good things are not so easy and take time to come. 2018 will test the resilience and discipline of Indian investors.

So how you can achieve the optimal solution for portfolio allocation?

1. 1. D-I-Y Method: Identify the right stocks, monitor them, book profits at the right time and remove the underperformers at the right time. This demands check-out for management reputation and balance-sheet. If you have the skills and time, go ahead.Hire an expert: The second option is to hire a partner who can be the captain of your financial cruise and save you from the storms. A good advisor will not promise you the sky. He will help you develop realistic expectations about the risks and rewards of each investment option. Most importantly, he will help you avoid the common pitfalls that are the cause of big losses for investors who enter markets on their own:

• • The temptation to believe that you can time the market successfully every time.

• • The fear-driven urge to sell at a loss when stock prices are falling.

• • The greed-driven desire to buy when stock prices are going up without any change in fundamentals.

Given the two options, which one would you choose? No prizes for identifying the best, safe, time-effective and convenient way of creating wealth in the year 2018.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Once upon a time, there was a tiny island which was secluded from the rest of the world. It was serene and people lived in harmony, until one day, danger knocked their door without prior intimation. A big monster had seized the place and people were in fear and trepidation. They unanimously came up with a solution, which they thought would defeat the monster. They went to their captain Athelo and suggested the plan to attack the monster. The captain calmly replied, “Let’s prepare to defeat the monster, but now is not the time to declare a war!”

This led to many citizens of the island thinking that he was a coward. He lost the trust and his supremacy amongst his people, but that did not last long. After few months, while it was snowing heavily, Athelo called for an emergency assembly. He said to his people, “Let’s attack as per our plan.” Though clueless, the group followed his advice and with a frozen foot marched towards the monster’s cave. As they reached, they were startled to see the monster trembling in the snow. Hence, it became very easy for the people of that island to defeat the weak giant and restore the peace and harmony which they have been craving for long.”

Everyone wanted to hear the reason behind the sudden attack. Athelo replied, “The monster was very strong to defeat on usual days. I was waiting for the snow as I knew he didn’t have a strong fire neither he could survive for long in this strong cold. He becomes very weak in the cold and he hasn’t planned enough to shield him against these snowy days. He became overconfident about his powers and thought we would never attack him in fear.”

Finally, he gained his hegemony and since then, he was fondly remembered as a wise and patient leader.

How the story is related to the ongoing market scenario?

The earnings in the Indian stock market have dwindled by ~9% from its all-time high of 2018, owing to the ghastly effect of scam-infected PSB’s, cosmetic-hype over the LTCG, hike in Fed interest rates and the global trade war. This led to the state of panic and sell-offs on the bourses which further contributed to the market slippage. On the other hand, there is an on-ground recovery in the fundamentals of an economy, hinting further headroom for growth in the coming years.

The negative sentiments coupled with the bullish view on an economy has made these markets an unsolvable maze. We have various irrefutable evidence behind us to suggest that equities have always outperformed other asset classes. Irrespective of the global and domestic crisis in the history as well, Sensex has burgeoned from 400 to 39,000, while the GDP has swelled from 29,000 crores USD to 2.26 lakh crores USD in the last 30 years. There’s no way that the India’s growth saga is going to stop this time as well!

Now here comes the difficult choice: Do we wish to be citizens on that island who are impatient and fearful, and surrender to the immediate relief without thinking much about the long-term implications? Or do we wish to be Athelo, a rational, calm and wise leader, who is thinking long-term to accomplish the goals?

Here’s what you can learn from Athelo in times of market correction

1. Don’t get carried away by the rumours and tips: While everyone on an island agreed on a war, Athelo stood strong against it. He knew they would never be able to defeat the humongous monster. The key to becoming a successful investor is rational and logical thinking in days of panic and chaos with a systematic plan in place. There would be many distractions including media news, tips, hearsays, surrounding sentiments, etc. But don’t focus on them, focus on the stocks you hold.
2. Strike while the iron is hot: Even though it was snowy, which soared challenges for his troupe as well, he knew it was the time to defeat the monster. The markets are experiencing bloodbath and at the same time improved economic data. This is a great opportunity to enter the markets, given the exponential growth opportunities available at the current low levels.
3. Rapid profits dwindle away rapidly: If Athelo would have agreed to a war earlier, his people would have considered him a fighter. But ultimately, what would have happened? The entire island would have been destroyed. He had to take a step back to win a bigger game. Similarly, stock market trading may seem a right option to quickly earn that extra bucks. However, to create wealth, you need to resist emotional decisions and instead, buy rock-solid businesses which you can sit on for 5 years even during the times of market correction.
4. Trust the expert: Investors get into frenzied selling or buying as per the ongoing sentiments. However, experts/financial mentors think logically to help them achieve their goals via methodical wealth creation plans. The citizens were not so comfortable with Athelo’s decision at the start. However, paying heed to his advice turned out to be the best decision for an entire island. Similarly, advisors think long-term and may advise few stock recommendations /stock market investment steps which you may not be able to digest currently, however, they would definitely help you to win a bigger game in your wealth creation journey over a long-term.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

Sensex surged by more than 6.2% since the start of this year and crossed the range of 36,000, the highest in the history. Given the impact of the budget on the stock markets, it is that time of the year when every citizen of the country has fastened their seat belts for the much-awaited Union Budget which will be presented on February 1, 2018. This will be the last full budget before the 2019 Lok Sabha Elections and if we believe the grapevine buzzing around, it will be Finance Minister Arun Jaitley’s most ‘populist’ one till now.

It is noteworthy to point over here that this budget session follows the two revolutionary reforms initiated by the BJP-led government in the previous year i.e. Demonetisation and GST.

This year, we are expecting positive measures for various sectors including Health, Infrastructure, Mining and Manufacturing, etc., here we list few expectations from this year’s budget which are expected to give tremendous relief to the retail investors in India.

1. Hike in the personal income tax exemption: As per the current tax brackets, income up to INR 2.5 lacs is completely exempted. There is a strong anticipation in the market that the Finance Minister can lower taxes by hiking this ceiling from INR 2.5 lacs to anywhere in the range of INR 3 to 5 lacs. If you consider the tax collections for the year 2015-2016, out of the total individuals who filed returns, only 20.5% declared income above INR 5 lacs. If this turns into reality, it will increase the disposable income in the hands of the consumers which will boost consumption and investments.
2. Governments spending towards infrastructure sector: Investments towards sectors like infrastructure and construction have multiplier effects on our economy. Initiatives towards revival of stalled projects across roads, highways, ports, airports, power, railways, waterways and mining will increase the job opportunities which in turn will aid the income levels and consumption in the economy, thus stimulating the growth of the economy.
3. Tax relief to equity investors: ELSS are the most sought after investments as they are tax friendly to the tune of INR 1.5 lacs under Section 80C, provided there is a lock-in period of 3 years. Since there are many categories such as provident funds, tuition fees, fixed deposits, etc., the deduction of INR 1.5 lacs is not sufficient for many retail investors. Many expect that this range would climb to INR 2 lacs, thus navigating more savings towards the stock markets.
4. Measures towards fiscal consolidation: Given the overvalued markets, buoyed sentiments and acknowledgement of Modi’s reforms across the globe, the stock markets are resilient when it comes to the moderate fiscal deficit for the short-term. Given the current fiscal and trade deficit levels, it is implied that measures for curbing the same would be one of the highlights of the budget. However, it will be interesting to see how our Finance Minister is able to balance the market expectations and fiscal deficit.
5. Fast-pace the growth of the rural sector: In this budget, we can watch out for measures which will remove the bottlenecks responsible for the slowdown of the rural economy. Since the rural population constitutes 70% of the Indian population (Source: Census 2011), it will be worth waiting to watch governments expenditure allocation towards the rural hinterland as well as the focus towards jobs creation and boosting the growth rate of purchasing power of the rural population.
6. Stimulus to agricultural sector: Farm-focussed measures towards improving irrigation, agricultural credit, crop insurance would be one of the primary consideration for the government.
7. Along with the above-mentioned reforms, we expect the government to give a further boost to the manufacturing sector.

Let’s start with the fact that there is no time to enter the markets, albeit you buy growth opportunities with a vision of 2-3 years or longer. Here, we list down few reasons behind why we stick our neck out to investing now and not wait for the budget results to unfold.

1. Timing the market will always remain a BIG No: Irrespective of repeated educational stories on the ill-effects of timing the market, many investors prefer to ‘wait and watch’ or try to ‘time the market.’ Ahead of the Union Budget, we take this opportunity to accentuate the importance of ‘time in the market’ approach while investing in the equity markets.
2. Stock-specific investment methodology: We like to stick to our investment philosophy of investing in quality mid-cap stocks. After the prolonged run, markets witnessed mild corrections in the mid-cap stocks, thus opening new avenues of investments in high-growth potential stocks.
3. Buying quality businesses: Once my mentor told me, invest in stocks like you purchase groceries and not the way you buy branded cologne. The message hidden behind this message is that we do not compromise on the quality of the grocery which goes into the cooking of our day-to-day meals. The reason: We all are little finicky about our health. The same connotes to buying stocks as there is not only a monetary investment involved, but also intangible investments in the form of time, financial hopes and efforts.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

Indian stock market indices have record highs over the last few weeks despite the challenges posed by the Covid 19 pandemic.

Recently I came across a discussion on an online forum of a popular finance website, about the best banking stock for investment in current times.

While many were of the view that India’s largest public sector bank, SBI is the best bet, the majority favoured a leading private bank.

When someone asked for a reason, the common replies were “Because it has outperformed continuously in the past”.

Indeed, the stock of leading private bank being referred to in the forum has outperformed the market several times in the past by generating phenomenal returns for long term investors. However, past performance alone should never be a reason to invest in a stock.

This reminds me of a wonderful story that I am sure most of us may relate to.

Once there was a cap seller who used to travel to different cities to sell caps. In his journey across different villages occasionally he had to pass through forests.

I am sure you must have heard this story numerous times in your childhood.

But wait, there is a twist to it.

One hot summer day while passing through a forest, the cap seller got tired and decided to get some rest by sleeping under the shade of a banyan tree. While he lay asleep, few monkeys living on the tree happened to see the caps and climbed down the tree. They climbed up the tree and put the caps on their head.

When the cap seller woke up after some time, he found that his caps were missing. When he looked up, he noticed the monkeys wearing his caps. He tried all he could do to get his caps back but failed.

Suddenly an idea struck his mind. He removed his cap and threw it on the ground. Being known to imitate others, monkeys did the same, and the cap seller collected all his caps and went away happily.

Fast forward to many years later.

The cap seller’s grandson, a young man who was also engaged in the same business of selling caps, was passing through the same forest on a bright sunny day. He too felt tired and decided to rest under the same colossal banyan tree where his grandfather had rested years ago.

After he fell asleep, some monkeys living on the tree climbed down and took away the caps. After climbing the tree, the monkeys put the caps on their heads.

A while later, when the man woke up, he found his caps missing.  When he looked up, he saw the monkeys wearing the cap.  He remembered his grandfather’s story and threw his own cap on the ground with the hope that the monkeys would do the same.

To his surprise, monkeys did not throw away their caps. Instead, a young monkey climbed down the tree, slapped the man and went away with his cap.

There are two morals in this story.

Moral 1: On a humorous note, the monkeys also had a grandfather who may have passed on the story to his grandkids.

Moral 2: What has worked in the past may not necessarily work again in future.

From a stock market perspective, the second moral of the story is very highly relevant.

Indian stock market indices are at record highs; but many investors are surprised to see that their portfolios have underperformed.

One of the biggest reasons for this is wrong stock selection. Many investors tend to associate a stock’s past performance with its future performance while investing.

As a result, they often end up holding losing stocks and selling winning stocks.

A classic example of this is Yes Bank’s stock, once considered the best banking stocks to invest in India. But a gradual decline in the Yes Bank’s fundamentals such as falling profits, rising NPA’s, misappropriation of accounts and key promoters dumping the stock, resulting in a steady fall in its share prices. Unaware of these facts, retail investors kept buying the stock hoping that it will soon regain its past glory. From a high of Rs. 393.20 in August 2018, the price of Yes Bank stock is currently languishing at around Rs. 15-20 levels.

The stock of Yes Bank is not a one-off case.  There have been many such instances where investors have lapped up stocks of companies with depleting fundamentals at low prices with the hope of selling once the price goes back to its earlier highs.

Sadly, some investors learn the hard way like the cap seller’s grandson in the above story.

While investing in a company, the past performance of its stock should be one of the last things to look at. Instead, one should look at the company’s key financial ratios to find out its financial health and its management quality and the overall outlook for the industry where it operates.

Key financial ratios include ratios such as Price-to-earnings(P/E) ratio, Price-to-book value (P/BV) ratio, Debt-to-Equity ratio, Enterprise Value (EV) by EBITDA, Price/Earnings Growth Ratio, Return on Equity, Current Ratio, Asset Turnover Ratio and Dividend Yield Ratio.

If these terms look like Greek and Latin to you or you do not have the time to undertake detailed research, we have prepared a portfolio of stocks after detailed analysis with the potential to generate 4-5 times returns in next 5-6 years.

Our in-house research team with analysts having several decades of experience have carefully chosen these 20-25 stocks after thorough evaluation and stringent checks. For optimum diversification, these stocks are spread across diverse sectors which well-poised to outperform over the next 5-6 years.

For hassle-free wealth creation by investing in quality stocks.

Read more:  How Long-term investing helps create life-changing wealth – TOI.