This section offers content on things happening in the country. Any news update on India, its GDP, plans and levels globally will be included in this section.
It is said that money cannot buy happiness. While this statement may be true, it is equally correct to say that money can definitely buy things which can make us happy.
Rather than the money, the very belief itself that one has enough money to take care of his needs and goals is what makes one worry-free.
A crucial step towards developing this belief is knowing your net worth. In simple words, net worth is the sum of all the financial assets and non-financial owned by an individual or an organization minus any outstanding liabilities.
A high net worth implies good financial strength whereas as low net worth means weak financial strength.
Steps to calculate your net worth
Step 1: Make a note of all your assets
Your assets include your bank balances (savings/fixed/current), bonds, stocks, mutual funds, vehicles, jewellery, real estate, cash value of life insurance policies and other investments such as PPF/EPF etc.
Step 2: Make a note of all your liabilities
Your liabilities include all outstanding payments left in all loans like home loans, vehicle loans, personal loans, outstanding credit card dues etc.
Step 3: Deduct the total amount of liabilities from your assets
The difference you get after deducting your liabilities from your assets is your net worth.
Once you evaluate and understand your net worth, it is important to take some positive steps to increase it.
How to increase your net worth?
The below-mentioned steps can help you in increasing your net worth:
Eliminate your debts
Reducing or eliminating your debt completely is a great way to improve your net worth. When you have outstanding loan EMI’s to pay every month, it eats away a significant chunk of your monthly income, leaving you with less money in hand to invest and grow your money. Whenever possible, use your yearly bonus or pay hike to prepay part of your debt or foreclosing a loan.
Avoid unnecessary expenses
Evaluation of your expenses can help you keep a tab on your spending habits and eliminate unnecessary ones.
The easiest way to do to track your day to day expenses is by noting it down in a diary or using an expense manager app. This way at the month you can come to know exactly the amount you have spent on different things and do away with expenses which are unnecessary like excessive shopping, eating out etc.
Invest in instruments which can multiply your wealth at a faster pace
To increase your net worth, it is very important to invest in instruments which can grow your wealth at a faster pace. Traditional investments like bank fixed deposits, postal deposits, KVP, bonds traditional life insurance policies offer low returns in the range of 5-6.5%, which are inadequate to multiply your wealth.
To increase your net worth at a faster pace, it is very important to allocate a significant portion of your investments to equity. Equity has not only beaten all other asset classes hands down till date but is also the only investment which has the power to beat inflation.
An investment of Rs. 1,00,000 in a bank deposit at an interest rate of 6.5% would amount to Rs. 1,90,000 after 10 years.
However the same amount invested in good stocks can generate much higher returns. Assuming even a modest 15% rate of return the worth of your investment would be Rs. 4,36,000 at the end of 10 years.
A big difference of Rs. 2,46,000. That is the power of equity to grow your net worth at a faster pace. Now imagine the kind of gains you can expect if the rate of return is even higher at 25-25%.
If you are not sure about the process of choosing quality stocks for investment, it would be highly advisable to seek professional advice.
If you haven’t calculated your net worth till date, it is just the right time to do so. As in any journey, even in the journey of investing, it is important to know where you stand to take the appropriate steps to move in the right direction.
As rightly said by American actor and newspaper columnist, Will Rogers “Even if you’re on the right track, you’ll get run over if you just sit there”.
There’s no typo in our heading. Its just that the fall and then subsequent recovery has been so pronounced that we couldn’t help but replace the letter W with a V.
In this newsletter, we focus on:
V-shape recovery being seen in the second half of 2020 accompanied by significant parts of the economy doing well
Excessive focus on negative GDP data will do no good
Examples of how Indian corporates are using times of adversity to tighten their belts and prepare themselves for next leap of growth and
A select sectoral trends
V SHAPE RECOVERY
“When will your sales bounce back to pre-Covid-19 levels?” OR “How much is current sales run rate vs the pre-Covid-19 levels?” were the most common questions asked by analysts to the companies in the last two months and the replies from a majority of the companies surprised everyone as the recovery was +90%. The fact that operating margin expansion led by raw material price softening and fixed cost rationalization ensured profit growth year-onyear (YOY) was another positive surprise. The sharp recovery and then moving even higher from pre-Covid-19 levels was not only true for online companies (Amazon, Flipkart), electronics, cars, but also the equity market. As we end 2020, the experts (few though) which backed the letter ‘V’ won hands down while all others with guesstimates of L, U, W, Nike swoosh sign, etc. had to bite the dust. The prominent reasons backing the recovery were sharp recovery in earnings, change in sentiments, visibility of global availability of vaccine starting Dec ’20, rerating due to multi-decade low-interest rates and higher digital usage and lastly the heavy liquidity pumped in by all governments.
Besides the V shape recovery, which is there for all to see, what is also becoming clear is the letter ‘O’ which denotes circle.
What we mean is loop seems to be getting closed, or in other words, broadbased recovery is an encouraging sign.
INVESTOR CATEGORIES
So, while it was domestic institutional investors that were active buyers in Mar-Jun 2020 followed by retail and HNI (word ‘Robinhood investing’ coined during that time inspired by an explosion in new accounts by US based broker, Robinhood) from June 2020 onwards, the last two months have seen heavy buying from FIIs. They bought over $8bn of equities in India in Nov (highest ever) of which $4bn was just BFSI. Such was the tsunami of flows that November saw all sectoral indices including mid & small-cap indices returning positive growth, only the third time in 2020, the first two being in Apr 2020 (bounce back after sharp fall in March) and June 2020 (phase I of unlock). Key reasons attributed for heavy buying are global liquidity diverted to emerging economies like India especially in the phase of dollar weakening, MSCI weightage increase for India, China IPO fiascos, growth expectations getting revised upwards and vaccine positivity.
SECTOR ROTATION
Initial month post-pandemic saw sectors of pharma, auto, FMCG outperforming the Nifty followed by IT & Media in July-Aug and the last two months have clearly been in favour of Realty, Metals and BFSI.
MARKETCAP PREFERENCE
Midcaps and small-cap indices have made a smart comeback in the last few months. From the lows of 23rd March 2020, while Nifty is up 77%, the Nifty Midcap is up 87% and Nifty Small Cap up by 102%. Also, the midcap index is now at par with high made in Jan 2018 while the smallcap is still 30% lower than high made in Jan 2018 while the Nifty is up 20% since then.
GDP: RECESSION AND NIFTY EARNINGS UPGRADE AFTER 6 YEARS: TWO SIDES OF THE SAME COIN
With GDP contracting 8.6% in 2QFY21 and two successive quarters of GDP fall, means that India technically was seeing a recession for the first time in history. To add to it, some economists and experts have also used select start and end date to prove how India’s economic situation is deteriorating over the years.
While this only reveals one side of the coin, what is more, pronounced and starkly revealing is:
Nominal GDP gives a broad indicator of how corporate India revenues have fared in the quarter/year. However, besides growth in revenues, the earnings/EPS is also governed by the movement of gross margins, fixed costs rationalization, reduction in interest costs or tax rates. Some of these have played out in the last few quarters while others will play out in subsequent quarters. For example, in 2QFY21, Nifty sales declined by 7% YoY while EBITDA grew 8% YoY and PAT by 17% YoY. Thus growth in sales (read nominal GDP) is only one of the factors leading to overall growth in earnings of a company. The EPS growth for Nifty has been in single digits since FY12 and consistently below nominal GDP growth. This is expected to reverse in FY21, despite the pandemic.
2QFY21 has been one of the best earnings seasons across sectors in many years. After 6 years or 24 quarters of continuous downgrades, consensus estimates have been revised upwards for the second time, the first being after 1Q. The stock wise upgrade: Downgrade ratio is now at 4:1 meaning for every one company which has seen EPS estimate being revised down, there are four which have seen earnings being revised upwards.
INDIAINC SHEDDING ITS OLD SKIN WITH AIM TO LEAP FORWARD
Many companies are using 2020 or the pandemic to reposition or reorient itself in order to cut flab, put more focus on driving growth and optimum return on capital employed. Below is an illustration of some companies who are cognizant of not creating enough shareholder wealth and have taken steps to address it.
From being known as The Western Indian Palm Refined Oil company selling oils and soaps, Wipro transitioned into an IT behemoth over the years so much so that in the mid-90s it was similar to Infosys in terms of size and profitability. As of today, Infosys has twice the size by market cap. Rishad Premji, current Chairman realising the lost years wants to transition Wipro into ‘bolder, risk-taking, agile, obsessed with growth and think big’ by shedding the ‘introvert’ image. Mr Delaporte has been brought from Capgemini who has laid down the new path. Wipro will simplify its operating model by bringing down its 20-25 Profit & Loss units to just 4, with effect from Jan 2021 which is expected to drive significant savings of cost and resources besides a focusing on talent management, and accelerating existing portfolios of large clients by various customer-centric measures.
The leading SUV maker till a couple of years back (Bolero, Scorpio, XUV, KUV, Alturas), M&M has now been overtaken by Korean & Japanese models. It has now stated that it wants to focus on achieving 18% RoE in the near to midterm. This is planned to be achieved through prudent capital allocation, exiting loss-making subsidiaries including SsangYong (which is posting the most significant loss) and another attempt to revive UV volumes with the launch of Thar and W601 and possible positive surprise from LCVs. Robust tractor segment outlook and cost control measures should provide a cushion.
Motherson Sumi plans to more than triple revenues to $36bn by 2025. Of this, it targets 25% to come from non-auto segments, focus on vertical integration and efficiency gains to boost consolidated RoCE to 40%, spend diligently on capex, have dividend pay-out of at least 40% and no country, component or customer have more than 10% of sales. It has achieved success in 4 out of the last five such five year plans, primarily through acquisitions.
Tata Steel has decided to sell the Dutch unit of its company present in the Netherlands. The deal would further strengthen the company’s balance sheet and will help to achieve the target to reduce debt by $1 billion every year. The due diligence would be completed in two months following which the transaction value would be known.
SECTORAL TRENDS
A U T O B O U N C E B A C K , A N D R E S I L I E N C E C O N T I N U E S . . .
A more in-depth look into sales of personal mobility segments—twowheelers (Two Wheelers) and passenger vehicles (PVs) indicates that recovery is encouraging in PVs than in Two Wheelers. Downtrading trends are visible in PVs as the share of hatchbacks, and compact SUVs is rising. The percentage share of hatchback cars (mini + compact, sub 4metre length PVs) has increased to +80% of the market vs 73% in FY19 and 77.5% in FY20. Within hatchback, the compact SUV segment is now 41% of the market vs 36% in FY19. On the other hand, the share of MPVs has fallen by 4%, give its use for group travel.
Two Wheelers, in contrast, is showing more impact in the entry-level category. The share of lower-end bikes has reduced over 2% due to a significant price hike owing to BSVI and the pandemic impacting customers at the lower end of the economy. Rural India, which is less impacted, is also preferring mid to high-end Two Wheelers.
The buoyancy in monthly continued in November with most segments shining.
DIRECT INVESTING VS MF ROUTE: NO PRIZE FOR GUESSING WHO IS THE WINNER SO FAR
As equity markets surpassed all-time highs, the equity MFs saw outflows for the fifth month in a row- Rs. 129 bn (Inflow: Rs. 142 bnand redemptions: Rs. 271 bn); Redemptions in Nov ’20 was twice the average of FY20. SIPs also slipped to Rs. 73 bn vs the monthly run-rate of more than Rs. 78 bn.
The probable reasons are :
Less launch and thus contribution from New Fund Offer in November Profit booking by HNIs/retailers Redeployment of proceeds into other avenues including business Rising trend of direct participation by retail/HNIs, which typically happens in a rising market.
If there is one sector which has benefited disproportionately in 2020 with more legs to growth, has companies of repute in India and globally with a scale where investors can take an exposure, it is IT. It was common for corporates to reduce spend on advertising, travel etc. while increasing the IT budgets.
The demand is so much that the Singapore government has announced new Work Pass for foreign tech experts – called Tech.Pass to attract talent from e-commerce, Artificial Intelligence, and cybersecurity. And one key difference for Tech.Pass is that it is tied to the individual vs the Employment Pass that was in existence earlier, which has the sponsorship of the employer, thereby giving the individual the flexibility to explore growth opportunities in Singapore like locals. The government has announced this despite record job losses. Most techies are working overtime, including on weekends and more so in companies where onsite traffic or sales post-Covid-19 are 150-200% of pre-Covid-19. Bain & Co estimates $5-10 trillion to be invested by US companies in IT in “retooling the new normal” in coming decade.
Experts say that they could see this coming, but Covid-19 has just hastened it. From water and steam power in the first Revolution, we moved to electric power In the second, the third was based on semiconductors, which facilitated the data processing that automated production and spawned the digital age. We are currently in the 4th Revolution which is taking shape, where the internet will completely take over – IoT, sensors, robots, work from home gadgetry, Zoom, digital transformation, automation etc etc. More on the new-age tech in our next newsletter.
WORK FROM HOME MAY CONTINUE, IN SOME FORM OR OTHER; WHY NOT SPEND IN BUYING A HOME
Real estate has been a surprise winner in the last couple of months given lowest ever housing loan rates in distant memory, builders ability to drop prices further or launch projects at affordable ticket size and some states reducing stamp duties. Read on to know why.
US home sales are rising every month are now at the highest pace in 14 years. At the current pace of sales, the existing inventory will just last just 2.5 months, a multi-year low. And this is despite high unemployment (7%) and +2 Lakh Covid cases every day.
Mumbai where the stamp duty was cut to 2% (till Dec ’20) and 3% (till Mar ’21) vs 5% earlier saw 50% higher registrations in Nov ’20 vs the average monthly of 2019. The drop in interest rates by 200bps (8.9% last yr to 6.75% now), a fall/stagnation in property prices and rise in income levels have made homes 35% more affordable in top 10 cities, in the last 5 years. Since some part of discretionary (apparels, movies, entertainment) and most of the ultra discretionary spend (holidays, luxury car/watch) is curtailed and people spending more time at home, there is a desire to move into own apartments or larger/better ones. If you do a random survey in any office in a metro city in India, chances are there would be 10-20% employees who would have booked an apartment or are planning to do it very soon.
Readers may argue this sector has not been amongst long term compounders and doesn’t have too many large reputed players worth betting on. Our answer to that will be there are always ancillary sectors through which this theme or uptrend can be played like Housing Finance companies, building material or the paint/electrical companies.
WISHING YOU A MERRY CHRISTMAS & HAPPY NEW YEAR 2021!
We shifted our newsletter thoughts collection base from Starbucks in suburban Mumbai in early October to Hotel Radisson Blu in Karjat, a 3-hour drive from Mumbai in early November. A few facilities such as gym, pool were still closed. Irrespective of this, the hotel was buzzing with guests who seemed to be enjoying their freedom after being locked for a good 6-8 months. Our channel checks to hotels, malls, food courts, local markets and glance into headlines or commentaries made by corporates suggests resumption of onground activities is unbelievable. With local trains expected to resume in some parts of India, all parts of the economy should be up.
OCTOBER: LIVING UPTO ITS NAME
October is typically associated with days which are flush with falling leaves, chilling weather, and growing anticipation for the holiday season. In India and globally, people lived up to the spirit of the month as we could see the fear of Covid reducing (read: treating it as a part of life for some time), people moving out of the comfort/warmth of their homes towards the cooler environment and spending time on shopping, entertainment, vacation etc. We guess besides the weather, temperatures at home had been rising month on month seeing the same faces every day, juggling between work and home, family time, kitchen and surrounded by electronic gadgets throughout the day.
In the US and Europe, we saw more than a doubling of cases per day. However, India has seen a massive reduction from 98000 to <50000 cases per day.
The second wave globally, upcoming festival and winter make India vulnerable. However, India is better prepared considering business resumption, ramp up in testing rates and awareness campaigns. Testimony to this is recently concluded elections in Bihar.
Vaccine with 90% efficacy is now available, but there are hurdles like transporting and storing a vaccine at -70°C. Does the world have enough freezers, distribution/ logistics infrastructure, etc. or we wait for another vaccine?
MACROECONOMIC VARIABLES- OCTOBER
E-way bills rose 21% to 64.1 mn, highest ever since it was introduced.
Railway freight volumes up 15% year-on-year (YoY).
Manufacturing PMI at 58.9, which is a 13-year high and up 16% YoY.
Services PMI at 54.1 (up 10% YoY) vs. 49.8 in September 2020. Reading above 50 indicates expansion, while a sub-50 print signals contraction.
GST collections up 10% YoY and month-on-month (MoM) to Rs. 105,155 crore. Core data de-growth was much lower at 0.8% driven by the rise in production of coal (21%), steel (0.9%), electricity (3.7%) and rest declining in single digits.
Passenger cars volume up 14% YoY and 2-wheelers by 17%.
For a detailed assessment on on auto industry check out our video here.
EMERGING TRENDS
1: 2 Q F Y 2 1 SO F A R : Y O Y Growth Surpassing Even The Optimistic Estimates
Unlock and resumption of normal activity at ground level in the 2nd quarter was much higher than estimated.
Impact from sectors hit the most (retail, entertainment, hotel, airline) was covered by sectors that benefited (pharma, IT, chemicals) and others didn’t get impacted as much as estimated (auto, metals, realty).
Fixed cost rationalization was very steep and some of it permanent, while many corporates have increased their IT/digital spend to prevent sales drop.
Lower-than-expected provisioning costs in BFSI.
B S E 5 0 0 : S a m p l e o f 1 3 5 c o m p a n i e s
2: Corporate Commentary
IT companies have been posting results ahead of consensus estimates and new transformational deals are getting signed. Outlook by management has been bullish like never before. Leading IT companies have been hiring big as seen in spike in headcount q-o-q in 2QFY21 besides announcing salary hikes, bonuses, promotions for its employees. So is it a 2-3 quarter phenomenon or will stay for longer; we believe it’s the latter.
Banking sector is out of the woods with diminishing fear of spike in NPAs, the resilience of NIM. Private banks led by Kotak, ICICI, and Axis have beaten expectations, with higher collection efficiency, uptick in loan growth, and healthy Provision Coverage Ratio leading to doubledigit earnings upgrades. Management commentaries indicated stress on asset quality due to the pandemic may not be as bad as initially feared, although banks continue to increase provisions for COVIDrelated stress. Next trigger to watch for will be the upward trajectory in credit growth at the system level, which so far is languishing at 5% for Year to Date (YTD) FY21.
Most retailers including Samsung, LG, Aditya Birla Fashion & Retail Ltd (ABFRL) are witnessing higher sales in smaller cities compared to large cities even in higher priced discretionary categories, with footfalls back to normal at the stores. Metros are still under the attack of higher Covid cases and reduction in salary/discretionary budgets. LG now gets half of its sales from Tier 2 and 3 towns compared to a third pre-Covid. Samsung’s sales in October vs. same month last year, in smaller cities grew 36% overall and 68% premium products, much higher than large cities. ABFRL and McDonalds also allude to the fact that their sales in small cities are at par or even higher than pre-Covid levels, unlike trend seen in metros or larger cities.
52% of customer visits on Flipkart were from Tier 3 towns and beyond. Amazon got orders from 98% of Indian pin codes within the first two days of the festival denoting some relief for MSMEs and kirana stores (tie-ups done) in the hinterland.
3: Unlock Behaviour
Reliance Digital, India’s biggest electronics retail chain, saw 30-40% YoY growth in Aug and Sep largely from smartphones, TVs, refrigerators, ACs, laptops given requirement from homeschooling/WFH, etc. Reliance’s fashion store chain Trends sales grew 2x YoY in 2QFY21 and company expects aggregate sales to recover to pre-Covid levels by 3QFY21.
Amazon, Flipkart and Myntra, in their annual festive sales saw massive success. Flipkart generated 110 orders/second and delivered over 1 crore shipments (10x YoY). Amazon saw the biggest opening day for Prime members ever with leading categories sales from mobiles, fashion, electronics, grocery, toys, books and home furnishings. This trend suggests an impressive ecosystem developing around these massive events with millions of square feet of warehousing, lakhs of jobs getting created, quality products being available pan India and demand for ancillary products like packaging material, involvement of local kiranas, consumer financing etc.
Recently, SBI announced a 20bps discount for properties costing > 75L (users of YONO app, to get another 5 bps discount). This brings SBI home loan rates to the lowest they have been in years (~6.9%), Kotak is @ 6.9% too, others will likely follow suit. With RBI lowering rates, and easing of risk weights on home loans, the current home loan rates are the lowest ever in last 2 decades.
Thanks to these mouthwatering rates and stamp duty cuts, we see green shoots in real estate. Maharashtra saw 2.4 lac property registrations in Sept 2020 (+26% YoY), According to Knight Frank – FICCI Real Estate Sentiment Index, future sentiment score has climbed to 52 in the last quarter (vs. 41 in quarter before). In the US also, existing-home sales rose to an annual rate of 6.54m in Sep20 (+21% vs. Sep19, +9% vs. Aug20). According to Freddie Mac, the average rate for a 30-year fixed rate mortgage is at 2.8%, a historic low.
Businesses across the world are adapting to remaining operational during current times, and one exciting transformation seems to be happening at traditional British Pubs. Many British pubs are transforming into a digital office to beat the slump in trade and are offering hot-desking packages to people working from home. The deals include a table to work on, a steady internet connection, as well as food and hot drinks. Under the package, people can pay £10-12 a day for unlimited Americano coffee or tea, internet connection, and a meal. It seems to be going strong so far, given monotony of being at home so far.
PARTY AT DALAL STREET CONTINUES IN NOVEMBER…
The unlock theme on Indian roads was reflected in October with Nifty rising 3.5% which continued in November till date with 9% rally fuelled mostly by the banking sector. Key events leading this were:
Decisive win for Joe Biden, the new US president and continuation of ruling NDA government in Bihar.
Announcement of 90% efficacy vaccine by Pfizer.
Banking Index covering up for the underperformance in FY22 till date by rising 20% backed by solid results/commentary from large private sector banks.
Government of India announcing PLI (Performance linked Incentive scheme)for 10 sectors totaling 2 lakh crore to be given over 5 years to incentivize manufacturing in India.
FII buying in November till date stands at approx. Rs. 31,000 crore, which is the highest monthly in 2020 and double that of the previous best month (October). And all this while, the DIIs have been net sellers.
Making a New High Before Diwali
Nifty crossed its previous high made in January and is now around 12700. It has surpassed even the most optimistic targets set by any expert. This seems unreal given it was only in the end of February that Covid had struck globally. The scorching rally or pullback initially was supported by liquidity & fiscal stimulus, but soon got support from other areas like earnings recovery or degrowth much lower than estimated, gradual unlocking of the economy, rerating basis confidence that lower oil price and interest rate are there to sustain longer than expected. The momentum and strength in the US indices in the previous months also played its role.
As per IMF report, government across the world had committed $12tn in fiscal stimulus. And there could be another $2tn coming in the US. This totals to a $14tn stimulus. The world economy as per IMF is expected to contract by 4.4% in 2020. So on a base of ~$88tn GDP, a 4.4% decline is equivalent to a $3.9tn hole. As against this, the stimulus is 3.5x of this. And this is probably what markets are taking confidence from as they look ahead. Further, to sweeten the deal, Fed has already announced to keep rates lower for longer, and ECB also has some ‘arsenal’ of stimulus if required.
Can the momentum continue into Christmas/Newyear & beyond?
Read below and decide for yourself:
Government stimulus direct or indirect doesn’t cease to be taking a halt.
Fear of virus seems to be at an all-time low since March 2020 with 90-100% normalcy in the economic activity.
Availability of vaccine and mass usage will happen sooner than later.
Many businesses have adapted (rationalized fixed costs) or capitalized on the opportunity in the last 9 months.
Earnings recovery in 1Q and 2Q has surprised the entire country.
While some sectors will take longer to recover, majority of them are in better shape as compared to pre-Covid or should be at par in the coming months.
Nifty at current levels is at 20x FY22 and 17x FY23 PE vs. the long term range of 18-22x. Current low interest rate environment makes a case for rerating to historical range.
Market cap to GDP currently at 85% on FY21e and 75% on FY22e vs. peak of 95% in FY08 and average of 75% in the last 15 years.
Moody’s has raised its India GDP forecast for calendar 2021 to 8.6% from 8.1% earlier.
We remain bullish on India’s growth story and advice our readers to capitalize on every market correction, adopt a staggered buying approach while investing in equities and most importantly follow the 3Ps of investing – Patience, Perseverance and Power of Compounding.
Wish you a very Happy Diwali & Prosperous New Year
LIC is a brand which needs no introduction. One of the oldest and largest insurance company in India, almost every family in the country irrespective of middle-class or wealthy has at least one LIC policy.
In her budget speech for 2020, Finance Minister Nirmala Sitharaman first made public the government’s intention to sell a partial stake in the Life Insurance Corporation through an initial public offer (IPO).
“Listing of companies on stock exchanges (instils) discipline (into) a company and provides access to financial markets and unlocks its value. It also allows retail investors to participate in the wealth so created,” the Finance Minister said in her Budget speech.
While earlier reports indicated that the stake sale would be restricted to just 10%, the latest reports suggest that that the stake offloaded by the government would go up to 25%.
Why is the government coming out with an LIC IPO?
The primary reason for stake sale in LIC through an IPO is to fund the fiscal deficit. In the Union Budget for 2020, the government had set a high divestment target of Rs 2.1 lakh crore for FY 2020-21 out of which over Rs 90,000 crore was expected to be generated by selling a stake in public sector banks and financial institutions.
When is the LIC IPO expected?
The much-awaited LIC IPO was expected to hit the market towards the end of FY21. However, the unexpected Covid pandemic put a speed breaker in the government’s move, and now we can expect the LIC IPO to come out only in the next financial year.
Government has appointed Deloitte Touche Tohmatsu India Ltd. and SBI Capital Markets Ltd as advisors to help LIC prepare for the IPO by evaluating the capital structure of LIC as well as other listing requirements.
At present, LIC is also in the process of appointing an actuarial firm to arrive at the valuation measure used by life insurers to calculate the current value of earnings that will be generated in the future from policies that have already been sold. Apart from this, the government has also proposed some amendments in the LIC Act, which is likely to be considered by the parliament in the upcoming winter session.
Why LIC IPO will be the mother of all IPO’s?
Given the fact that LIC is a massive financial giant in terms of assets under management (AUM) when listed, LIC is likely to become the country’s biggest company by market capitalisation beating even the likes of TCS & RIL. LIC’s listing on exchanges is also expected to provide a positive trigger to the market.
According to a media report quoting a former top bureaucrat, even a 10 percent stake sale in LIC could help raise Rs. 80,000-90,000 crore. At 25% stake sale, the amount raised would be significantly higher.
LIC’s premium valuation can be attributed to its undisputed leadership position in the market despite intense competition from 23 private insurance companies and robust asset quality. LIC’s total life fund and assets as on March 2020 stood at 3114496.05 and 3196214.81 respectively.
Key strengths of LIC which makes LIC IPO one of the most awaited IPO
LIC has a widespread presence across the length and breadth of India with eight zonal offices, 113 divisional offices, 2,048 branch offices, and a strong field force of over 12 lakhs+ advisors. LIC also has a wide global presence through its joint venture companies wholly-owned subsidiaries in countries including places like Fiji, Kenya, Sri Lanka, Nepal, Singapore, Bangladesh, Fiji, Kuwait, Mauritius, Oman, Qatar, UAE, Bahrain and UK.
LIC offers a healthy product mix for all age groups, from children to senior citizens. For the financial year 2019-20, LIC’s market share stood at 75.90 in terms of policies sold.
LIC is a profit-making state-owned organisation with immense brand recall value and trust among Indians. The sovereign guarantee applicable on all traditional policies of LIC makes it a preferred choice among traditional investment products for many first-time investors.
In the Union Budget Speech for 2021, the Finance Minister Nirmala Sitharaman has reaffirmed that the much awaited LIC IPO would take place in the upcoming financial year.
Around 10% of the IPO would be reserved for LIC’s policyholders.
“Up to 10% of the LIC IPO issue size would be reserved for policyholders” stated Anurag Thakur, Minister of State for Finance.
In a recently published interview the Managing Director of LIC,Vipin Anand stated that the LIC IPO process has begun and all structures have been put in place.
Overall, the proposed LIC IPO looks like a win-win for both government and investors. No wonder the LIC IPO is being touted as the mother of all IPO’s akin to Saudi’s massive Aramco IPO.
To know about the best investment opportunities currently available in the market click here.
Even as we give finishing touches to this newsletter on a Saturday evening while relishing a cappuccino at Starbucks, it is the feeling of life going back to normal post-Unlock 5.0, which excites us the most. Hoping this improvement continues and very soon all of us can go back into watching movies, visit a religious place, work out in gym or take a dip in the pool. Just as we pay our bill, we get the news that Maharashtra government is planning to lift entire lockdown by end November.
India finally sees some good news, 7 months into the pandemic and over 70 lakh Covid cases. The reproduction rate or the R value of Covid looks to be under control. For the last two weeks, R value has stayed below 1, which means that a single virus carrier is infecting less than one person on an average. This simply means that 100 infected people further infected 90-95 people, thus putting a speed breaker to the virus’ exponential growth.
While most states have situation in control now, it’s the southern states which seem to not show material deceleration and Kerala latest resurgence has taken away some sheen off the good work it did in controlling the spread in April & May.
With most parts of Europe including UK discussing putting vertical lockdown selectively given the incidence of second wave, what is also clear is that people globally have come to terms with the fact that economy cannot come to a standstill and we need to continue living our daily lives with utmost precaution till the end of 2020 at least.
SEPTEMBER: MORE POSITIVES THAN NEGATIVES
INDUSTRY SPECIFIC EXAMPLES
LIFE INSURANCE- POSITIVE
Industry premium for the current month grew by 26% YoY led by both individual (30% YoY) and group (24% YoY) segments.
PHARMA: IPM REPORTS 4.5% GROWTH IN SEP-20- NEUTRAL
Sep-20: Growth returned to positive territory and volume decline slowed down. While volume still showed a negative 4%, price remained steady showing 4.6% YoY growth and new product launches rebounded showing 3.8% YoY growth. We also note that the growth is from a ‘high base’ as Sept’19 had reported 11.9% YoY growth. Sep qtr: IPM growth of 1% YoY with volumes -6.5%, price +4.6% and NI: +2.9%
MULTIPLEXES
Government in end September permitted theatres/multiplexes to open with 50% of capacity, along with SOP from Ministry of Information & Broadcasting. This is the final piece of retail to open. This is positive for other retailers also as Box Office is a key driver for footfalls in malls. Key Hindi movies in November, December to watch out will be Sooryavanshi and 83. The state of Maharashtra (+20% of box office collections) which is very important for Box Office collection, will most likely open in November.
Currently malls are seeing footfalls between 30 to 60 percent of Pre Covid, lower in big cities and higher in smaller cities. Box office performance in Country like USA has been weak (US has very high daily Covid cases) , while Box Office has seen better performance on relative basis in South Korea and Sri Lanka where Covid cases are very limited.
RETAIL SPEND SUP 12% IN SEPT MOM
India’s September retail spending rose 12% vs August levels with revival strongest in rural areas, as per data collated by CMS Info Systems, which handles cash movement and ATMs across the country. India’s September retail spending rose 12% vs August levels with revival strongest in rural areas, as per data collated by CMS Info Systems, which handles cash movement and ATMs across the country. The biggest increase was seen in spending related to ecommerce, fast-moving consumer goods (FMCG), consumer durables, insurance, utility payments, healthcare, logistics and transportation, which surpassed January levels.
COMPANY SPECIFIC EXAMPLES – INDICATOR OF INDUSTRY TRENDS
REAL ESTATE – SOBHA (STRONG)
Sales of 0.89 msf in Q2FY21 valued at Rs. 6.9 bn, its share of sales stood at Rs. 5.3 bn, down ~5% YoY but up 35% QoQ. Volume was down 14% YoY but was up 37% QoQ. Considering the lockdown in Bengaluru during July and no new launches during the quarter, this is a reasonable performance.
PRIVATE BANKS: HDFC BANK (STRONG)
Deposit growth of 20% yoy in 2QFY21 and 24% in 1QFY21, and advances growth of 16% in 2QFY21 and 21% in 1QFY21
NBFC- HOUSING FINANCE: HDFC LTD (STRONG)
Individual loan disbursements in 2QFY21 were at 95% of the 2QFY20 levels – indicating that company have been able to reach near pre COVID levels in disbursements; Sept 2020 vs Sept 2019 have seen one of the strongest recovery in value in terms of Receipts / Approvals / disbursements up by 21% / 31%/ 11% YoY
2QFY21- Recovery rate of ~98% (excluding sale of raw gold), compared to the revenue of the corresponding quarter in the last year; Jewelry sales in September month have been decent, despite the inauspicious period of ‘Shradh’; Even their watch and wearables were back at 55-57%. The walk-ins have picked up.
The pandemic has triggered a faster-than-expected adoption of digital and cloud.
Higher growth is not from one-off deals, but structural ones. The start of the first phase of a multi-year technology transformation cycle is underway.
Enterprises are building a cloud-based foundation, which would serve as a resilient, secure and a scalable digital core.
RETAIL: TITAN (STRONG)
2QFY21- Recovery rate of ~98% (excluding sale of raw gold), compared to the revenue of the corresponding quarter in the last year; Jewelry sales in September month have been decent, despite the inauspicious period of ‘Shradh’; Even their watch and wearables were back at 55-57%. The walk-ins have picked up.
IT: TCS (STRONG)
The pandemic has triggered a faster-than-expected adoption of digital and cloud. Higher growth is not from one-off deals, but structural ones. The start of the first phase of a multi-year technology transformation cycle is underway. Enterprises are building a cloud-based foundation, which would serve as a resilient, secure and a scalable digital core.
M A C R O E C O N O M I C V A R I A B L E S – S E P T E M B E R
Eway bills rose 10% to 57.4mn, highest monthly in last 2 years.
1941 cr national e-toll collection, up 5% vs Feb 2020 levels.
Railway freight volumes up 15% yoy.
Manufacturing PMI at 56.8, 8-year high & up 11% yoy; Services PMI at 49.8 vs 41.8 in Aug; Reading above 50 indicates expansion, while sub-50 print signals contraction.
Exports up 5% yoy to $27.4 bn.
GST collections up 4% yoy and 10% mom to Rs.95480 cr.
Core data degrowth continues in Augustat 8.5% mainly on account of a decline in production of steel, refinery products and cement and IIP degrowth at 8%.
Passenger cars volume up 31%, highest in 26 months.
For a detailed assessment on auto industry data, click here.
SEBI directive to Multicaps funds, brings mid/small caps into limelight. As per the proposed rules, any multi-cap scheme will mandatorily need to hold:
Atleast 75% of the scheme’s investments (AUM) in equity & equity related investments
Atleast 25% in AMFI-classified Large-caps
Atleast 25% in AMFI-classified Mid-caps
Atleast 25% in AMFI-classified Small-caps
Timeline: SEBI has stated that the schemes need to comply within one month of the publishing of the next list of stocks by AMFI in January 2021.
This led to some buying in mid & small caps stocks and also MF industry making a representation to SEBI how this is difficult to implement and how they propose to address it.
Even as the Robinhood investors continued their activity despite some market correction, the IPO market has seen a big bounce back. Smallcap companies going public getting subscription of 50-100x or more is become a norm now. CAMS in the MF registrar biz, Chemcon and Rossari, in the chemical segment, Happiest Minds in IT, Route in telecom were the stars. Angel and UTI AMC have been the only disappointments so far.
EARLY TRENDS IN OCTOBER
RBI MEASURES
Growth:
Some of the recent high frequency indicators suggest easing contraction and some growth impulses are visible. Focus must now shift towards revival. Rural economy remains resilient. Expect growth to turn positive from Q4FY21. It expects real GDP to contract by 9.6% in FY21 with risks tilted to downside.
Liquidity measures:
On tap TLTRO upto 3 years for investing in corporate bonds, Eased HTM limits for banks, Decided to conduct OMOs in State bonds, Revised regulatory limits for banks to 7.5 crore (from 5 crore), Rationalize risk weights for housing loan and link them to LTV only.
Growing Fatigue With Work From Home
As per a recent survey done by Knight Frank (India) across 1,600 technology professionals in India, 30% reported deterioration in productivity and work performance while working from home.
The recent Mint-Bain India CEO survey, in which 105 CEOs were polled on the economy and business scenarios, underlined the temporary nature of remote working. Less than one-third of the CEOs saw over 25% their workforce continue to work from home, post covid-19. In short, remote work is the present, not the future. The long-term outlook is work from office or a blended model where a minority works out of home.
Even Infosys Ltd which has over 95% of its workers working remotely currently, alludes to the view that social capital is compromised when working from home over a long period and that employees are keen to rejoin offices.
Pratik Kumar, CEO of Wipro Infra said that he always viewed WFH as an alternative. “People were a little hasty in saying WFH is the new defined way of working.”
One such is a study released in July by JLL, a professional services firm, which stated that 82% of office employees in India have missed working from office and cited a lack of personal interaction as the primary factor.
There is also increasing recognition that prolonged work from home is leading to stress. Senior professionals, the more experienced, have greater anxiety issues and would much rather be in office than their younger colleagues.
In fact, where ever covid has come under control, like in China or South Korea, 90-95% of employees have come back to office. It appears that WFH is a necessity during Covid and is not going to be a permanent feature in India basis results from global and local surveys. But who can say, that 2021 will be less unpredictable given our experiences in 2020.
BEST PRACTICES FOR WEALTH CREATION
Staggered buying approach: Use every dip as opportunity to buy
Stock specific approach: Identify a few solid businesses that you would like to own; start accumulating them
Long-term approach: Keep a horizon of 3-5 years while investing in these businesses
Stay focused: Avoid getting distracted from information overload/distraction/rumors via forwards on WhatsApp/Twitter/news channel.
Trust time in the market: Don’t try to time by selling portfolio now and reentering at lower levels later.
This story talks about how investors can create sustainable wealth from equity by embracing a blend of Prudent Stock Selection and Patience.
‘Views’ in my view (pun intended), is quite an interesting term. For me, it implies two things:
One is how you view things or interpret data and,
Second is, how you view others views. Basically, how you let news, information, data influence you.
The second one is pretty interesting. Let me tell you why. For that, let’s take a look at the forecasts in April/May 2020 and forecasts now for earnings and GDP growth.
-5 to -10% (on account of resilience shown by corporates in Q1FY21 in cutting fixed costs and market factoring the worst in April and May).
Less than 5% degrowth for FY21 (based on global agencies like IMF). Expect GDP to rise by 8% for FY22.
Why I am talking about this? Two reasons why this mattters for creating wealth from equity:
News and data would flow in continuously. While obviously, I am trying to imply recovery in the Indian economy, the fundamentals of a company and a country should never be overlooked while reading such data.
Many investors got scared with these views, without understanding much about the historical patterns of crisis situations. Every crisis or market correction presented exceptional opportunity to investors to create wealth. I will talk more about the opportunities during crisis in the later section of the story.
But before that, let’s look at the months gone by. If you look at the uncertain months of March and April especially, the downs got many investors run away from the markets, while many investors latched on this opportunity to buy quality stocks at attractive valuations. For those who did not jump in the bandwagon, later regretted for having missed the golden opportunity. And why not, Sensex climbed approx. 45% (as on 31st July 2020) since the lows in March.
But as they say opportunities come time and again. And as a value investor, the focus should not be on the past, but rather on the future and the opportunities during the times of crisis. For this, let’s take a quick look at the facts, which indicate that such times should not be missed. Rather, one should invest during such times.
Interesting positives to look at:
Reduced volatility and positive momentum: Post kneejerk reaction in March’20, where volatility was at its peak at 82, India VIX settled to 23-25 in just approx. 4 months.
Fall in debt-GDP ratio: As per the report by Motilal Oswal, despite a fall in GDP growth rate, the debt-to-GDP ratio fell to 80.6% in FY20, from 83.1% in FY19. This is again a positive sign as many companies that have deleveraged themselves, will again borrow more, spur credit growth and revive economy.
Simulation of 2002-03: While many relate this situation to the Global Financial Crisis of 2008, the economic numbers say otherwise. The GDP growth rate, market cap to GDP ratio, interest rates pattern and overall sentiments during FY2002-03 mirrors to that of FY2019-20. And, we all know the bull run that lasted from 2003-2007. Let’s look at a few of the similarities:
Lowest interest rates, around 4%
Subdued bank credit growth, hovering around 5.8%
Market cap to GDP ratio, hovering around 65-75%
Corporate profitability to GDP hovering around 2.8
The power of solid fundamentals: If you look at the Nifty 500 index, 114 stocks have generated returns from 10% to 150% from YTD, while Nifty 500 is down by 7.8% since 1st Jan’20. This clearly shows that quality businesses, even if they correct, they are the first ones to rebound and deliver impressive returns for their investors.
Revival in auto sales: Sales of Maruti Suzuki India Ltd. and Hero MotoCorp Ltd. in July 2020 returned to levels seen a year ago. Maruti registers a sale of over a lakh in July, which is 88.2% rise over June. This encouraging number is coupled with strong demand from the rural areas, suggesting revival in auto sector may come much before than expected.
Recovery in PMI Manufacturing Index: India manufacturing PMI up from 27.4 in April to 47.2 in June and 46 in July, growth of 68% in just 3 months.
Opportunities during every fall: In the past three decades, there have been atleast 4 cases where Indian indices dropped by more than 15% in 6 months. All the downturns were followed by periods of decent returns.
Savings for India: India imports 80-85% of crude If you look, the prices of brent crude oil have dropped from $61.30 in Dec 2019 to $44 a barrel in August 2020. This is a massive saving for India, as low prices would mean reduced pressure on fiscal balance. Every dollar per barrel drop in brent crude reduces India’s import bill by $1.5 bn p.a. or Rs. 105-115 bn (at the current exchange rate of 75). Thus, a drop from approx. $60-62 to $42-44 now will lead to savings of over $16 – $24 bn. This amounts to 0.8+% of FY2020 GDP.
Rising retail participation: Even during the difficult situation like pandemic, the retail investors pumped in more money in the stock market. As per CNBC report, the retail participation in the cash market stood at Rs. 18,936 crores during Q1FY20. Now, this number has surged to Rs. 33,731 crores in Q1FY21, a jump of over 78% since Q1FY20.
FII buying resuming: FIIs, net buyers in May, June and July after heavy selling in March and April. In May and June 2020 combine, FII net purchase in cash segment was approx. Rs. 22,000 crores compared to negative Rs. 71,000 crores in March and April 2020.
Revival in GST collections: While many were expecting revival in GST by Oct-Dec, the recovery came much earlier than expected. July GST at Rs. 87,422 crore, June GST at Rs. 90,917 cr vs avg. of Rs. 100,000 cr per month pre-Covid. This reflects revival in GST collections as compared to Rs. 32,294 cr in Apr and Rs. 62,009 cr in May.
New demat account openings: As per the data released by Economic Times, about 12 lakh new investors opened demat accounts with the Central Depository Services (CSDL) in March and April alone. The reasons for this spurt can be attributed to ease of digital account opening and attractive valuations post market crash.
Strong preference for direct equities. While the number of new demat accounts recorded a strong growth, the SIPs in mutual funds increased marginally. This indicates that retail investors prefer direct equities as compared to managed funds while investing in equity markets.
Everyone is grappling with the contradicting news and numbers. Considering the hiccup in momentum, this makes many investors think about the next steps ahead. Our advice would be, take every correction as an opportunity to buy good stocks in a staggered approach.
Way ahead
Let’s take a look at EPS growth – Large company wise for Q1FY21
Q1 results from large companies (as in the table below) declared so far suggests fewer companies disappointing while a majority of them are either inline or have surprised on the positive.
EPS growth – Sector wise for Q1FY21*
+10 to +30%
-10% to +10%
-10% to -30%
-30% to -50%#
Pharma
Bank
NBFC
Retail
FMCG
Insurance
Cement
Infra
Telecom
IT
Alcohol
Metals
Chemicals
Paints
Auto
Electricals
*Trend of one-off quarter which was most impacted due to lockdown and not indicative of whole of FY21.
#Segment presents most opportunities as many stocks still beaten down while long term fundamentals are intact
Sectors which contribute a lion’s share of Nifty and Nifty 500 are IT, energy, FMCG, IT/telecom, BFSI. These sectors have either seen earnings decline of less than 10% or have rather grown in Q1.
Research & Ranking Outlook:
Always remember that the markets are forward-looking, since they discount earnings 1-2 years forward. This makes them the best barometer of the health of an economy. Let’s take the case of Sensex, which hit the lows of 25,981 in March 2020, when the outbreak was under control. Considering today, the cases in India has gone up manifold. However, if you look now, Sensex is up by almost 45% (as on 4th Aug) since the bottom.
Markets always factor in the future. Hence, by Sept 2020, stock market will start discounting FY22 earnings, on which we will have far more focus and clarity for the way ahead.
Talking about the earnings, we believe the earnings jump in FY22 should be anywhere between 25-30% which is possible given the low base of FY20 & FY21, again propelled by the various stimulus programs that are expected to be initiated by the government.
Thus, we believe that even if there is a correction, every crisis or correction should be considered as a buying opportunity to create sustainable wealth for the future.
Important things to keep in mind for any investor who desires to create wealth from equity
Yes, the number of daily cases has increased. The pandemic is expected to continue for some more time. However, while you were waiting for other negative data to flow in, these are the developments that took place between March 2020 to July 2020. These developments can be negative or positive, depending on how you view it.
Apple market cap grew from $1.3 tn to $1.9 tn in less than 6 months, an increase of $600 bn (INR 40 lakh crore) in a matter of less than 6 months. Talking about India, Reliance grew from a market cap of Rs. 7 lakh crore to 14 lakh crore.
Crude bounced back from $10 to $40 in less than 4 months and Gold prices moved up from 46,000 to 53,000 in the last 3 months.
Most of big economies pumped in trillions of dollars into their economy to support demand and the local businesses.
46 start-ups in India got funding between $2,00,000 (INR 1.5 crore) to $10,00,00,000 (INR 750 crore).
Indian market cap grew by 45% and most countries showed a similar performance in their indices.
Interest rates turned zero / turned more favorable in many countries prompting investors to do more spending and investing.
There are many, many, many more positives that I can keep adding and I am sure going by various other news reports etc. there are many, many, many negatives that can be added to the above list, and this entire debate of whether we have more of positives or more of negatives in the last 4 to 6 months will become endless.
But one thing I can say with certainty: In my 15 years of career, I have come across many investors who showed confidence in the economy, bought quality businesses, hold on to their investments during the time of correction and crisis, and created wealth eventually. However, I haven’t come across investors who tracked all the negatives in the markets economy, waited for the markets go down, invested exactly at the time when it made a low, and encased just before it was about to get into a correction phase and still managed to wealth create via long term investing. Do you know any such investor?
Indian economy is like the celestial bird Phoenix. Just like the fabled bird Phoenix which rises back bigger and better every time from the ashes, our economy too has bounced back bigger and better after every crisis in the past.
There is no reason why India\’s recovery post-Covid-19 should be any different.
Prime Minister Narendra Modi in one of his speeches asserted that ‘green shoots’ had started to emerge in the economy. He also called for the need to focus on both lives and livelihood while ensuring that economic activity gathered pace, with the lifting of various lockdown-related curbs over the past two weeks.
Well, in case you missed the speech, here’s what the Prime Minister said: “Green shoots have begun to emerge in the economy, power consumption has begun to go up, fertiliser sale in May has been double that of May last year; Kharif crop, two-wheeler production, digital payments too showing positive signs.”
Yes, things are indeed getting back to normal. Let me share a personal experience here: Yesterday afternoon, I went out for a walk with all the safety measures in place.
In my 60-minute journey, I covered a lot of places on foot and on the way, I noticed that in most places, shops had opened up including beauty salons, restaurants, stationery shops and toy stores. I also came across one or two construction sites where work was going on in full swing. On the way back, I also passed through a noisy industrial area which indicated that work has indeed resumed.
Of course, the numbers of both workers and customers at all these places were a tad less. Nevertheless, things are back on track.
Increase in on-ground activity seen in June 2020
Data from our channel checks and on-ground readings suggest that the on-ground activity seems to be normalising in June faster than expected.
Category/company
Vs pre-Covid levels *
2-Wheeler- Rural/Urban
75%/65%
4-Wheeler/ Tractors
50%/100%
FMCG- Rural/Urban
85%/70%
Innerwear
80%-90%
Organised Jewellery
50%-60%
Banking credit
95%-100%
Insurance (Life & General) and Mutual Fund Inv.
70%-75%
Paints
70%-80%
Consumer Durables
60%-70%
Cement/ Steel
85%/75%
Fall in the unemployment rate
According to data released by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate after touching 23.5 per cent in April 2020, dropped to 11.6% in the second week of June. The data also suggest that in rural India, labour participation has recovered to 95.4% of its pre-lockdown-week (March 22) level while in urban India, labour participation has improved to 93.2%.
Increase in retail spending
According to data from ShopperTrak\’s index, based on inputs from collection devices in the retail marketplace and shopper visits, the number of consumers visiting retail stores surged in June from the previous month as retailers started resuming their stores.
Increase in consumption of petroleum products
After a 46 and 23 per cent fall in consumption of petroleum products during April and May 2020 respectively, the consumption crossed 16 million tonnes in June 2020 with an increase in demand from both rural and urban regions.
Increase in electricity consumption
As per data revealed by the finance ministry, electricity consumption which contracted 24% in April, 15.2% in May and 12.5% in the first three weeks of June. By the third week of June, the contraction was down to 6.2%, driven by the increased power consumption in industrial western states.
Bottom line
These real activity indicators like inter and intra-state movement of goods, electricity and fuel consumption and retail financial transactions indicate just one thing. Things are back on track. With timely monsoon, the agricultural sector considered as the backbone of the Indian economy will aid in faster recovery.
Yes, it will take some more time for a full recovery. Just like recovering from Covid-19 illness, requires some time, the economy too may take a few months to recover sufficiently to pre-Covid-19 levels.
It is only a matter of time before we see a full-blown recovery in the economy. Stock markets have already noticed this and that is why markets have recovered to a great extent from significant lows hit in the month of March. To ensure that you don\’t miss out on the upcoming bull run, you can invest in these fundamentally strong stocks which have the potential to outperform over the next 4-5 years.
It has been just a few months since most of us would have gone out on social visits, yet it seems like ages.
So yesterday I decided to pay a visit to a cousin of mine who stays just a few blocks away.
He was happy to see me because believe it or not, in the last 110 odd days he hadn’t seen a single new face apart from his family members. And that is because he never went out even to buy things during the lockdown. He would order things online or on the phone from the local retailer who would leave the items he ordered at his doorstep.
When I asked him the reason for this extreme level of caution, he said he was very much worried about contracting Covid-19.
Is this irrational or excessive fear only limited to the pandemic? Well, the world of stock market investing is no different. When the stock market hit their lowest point on 23rd March 2020 from highs in Jan 2020, many scared investors dumped their stocks for huge losses anticipating a further fall in the market. As if the world is going to end, very soon. As if there is no tomorrow.
The level of fear among such investors was so high that the majority of them never re-entered the market.
On the other hand, there were others who once the markets came down from the 12,000 levels to the 7,600 levels, held on to their investments very close to their hearts saying things like “I will sell off my investments once I recover the losses.” What’s the rationale I often ask. The answer I most often get is: “I don’t like to sell my investments at a loss.”
So, what we can see is that whether it is a reaction to Covid-19 or investing in stock markets, different people behave differently, unfortunately at either extremes. I’m trying to draw an analogy of the reactions of people towards the Covid-19 crisis and reactions of investors towards the stock market, which can be briefly classified into five categories.
Five common categories of reactions of people towards Covid-19 crisis and stock market investing
Category #1: The fearful one
People who belong to this category actually go overboard by exercising extreme caution by avoiding coming in contact with others, not going out and sanitizing anything and everything they buy. Even in the case of coronavirus threat getting toned down, people in this category are likely to remain extra cautious for the next one or two years.
Now in the world of stock market, investors who fall in this category have more often than not, burnt their fingers in the stock market at least a couple of times by investing in bad stocks or exiting their investments for a loss during a market correction. Like the scared category of people who go overboard with their fear of Covid-19, this category of investors having bitten once, stay from stock market investments by going with the safer traditional investments like bank FDs.
Category #2: The happy-go-lucky
People belonging to this category understand that Covid-19 is a moderate threat and follow necessary safety measures like frequent use of sanitizers and the use of face masks and face shields. However, they do not feel that it is essential to avoid unnecessary travel or follow other safety measures like social distancing. People in this category are the ones who are open to travel, eating out or go to public places like theatres and gyms as and when the facilities open up.
Drawing parallel to the stock market, this category of investors invests in the right type of stocks but exit when they see minor gains or losses. As a result, they are unable to create wealth from the stock market. Like the people who consider Covid-19 as a moderate threat, rather than a severe threat, this category of investors looks at their stock market investments to make some quick money instead of sustainable wealth creation.
Category #3: The ignorant
People in this category believe that Covid-19 is just like a typical cold and flu, which does not require any serious attention. They lead a careless life, devoid of safety measures such as face masks, frequent sanitization or social distancing, thereby putting themselves and their family members at risk. They believe that they are immune to the virus and can never catch it. It is this category of people who are responsible for mass-spread of the virus. Sounds dangerous?
Even in the stock market, many investors indulge in reckless trading based on stock tips or rumours. Like the category of ignorant people who are careless about Covid-19, this category of investors ends up losing their hard-earned money and blame their luck or the stock market for their losses.
Category #4: The ones busy with news
This category of people is always glued to their television sets in an attempt to catch the latest updates. And when they are not in front of their television, they will be hooked to the internet to find the latest news on the virus. In the stock market as well, some investors are obsessed with stock market-related news and updates from business news channels, business newspapers, internet and social media groups which result in analysis paralysis. Analysis paralysis can be described as the state of over-analysing a situation so that a decision or action is challenging to make. As a result, they end up doing nothing.
Category #5: The well-informed
People who fall in this category, fully understand the dangers posed by Covid-19, embrace the risks associated with it and do everything possible to avoid getting infected. Measures undertaken by this category of people include staying at home by avoiding unnecessary travel, frequent use of sanitizers and using face masks and shields. People in this category are at least risk, as they follow the best possible safe practices.
And when it comes to the stock market, we have the well-informed ones, who have a detailed understanding of stock markets and undertake in-depth research before investing in any particular business. These investors understand the risks associated with stock market investing and invest only in fundamentally sound stocks for the long term.
Best Practices For Wealth Creation
Different people are indeed entitled to different opinions. As aptly said by Leonardo Da Vinci “The greatest deception men suffer is from their own opinions”.
Irrespective of whether it is dealing with Covid-19 or stock market investing, the only category of people who will emerge victoriously are the well-informed ones.
In a nutshell, the well-informed accept the new norm of living with COVID19 and rather than waiting on the sidelines, they start accumulating good stocks in a staggered manner with a long-term perspective.
Besides, they invest only that portion of corpus that is not needed in the immediate term. They have an investment horizon of 3-5 years while investing in businesses.
They avoid getting distracted from information overload from news and social media.
To battle the pandemic you need a adopt a systematic approach and take all measures to mitigate the risks, the same is the case in investing. These are uncertain times. These are volatile times. We are dealing with a global health crisis.
But such uncertain times (crisis), present to us great wealth creation opportunities. Obviously, you need to follow best practices of wealth creation as mentioned above.
Think of the Global Financial Crisis in 2008-09, markets had crashed by 50-60%. Imagine the state of these 4 investors:
Investors who exited at any level below the level of Sensex being at 14,000-15,000 levels and invested all their remaining money in FDs ever since.
Investors who were still buying at Nov-Dec of 2007 thinking the mega bull run has just started.
Investors who started buying when after the fall, the markets were a bit stable in Dec 2008 to Jan 2009.
Investors who held on to the stocks that were classified as diamonds in every portfolio – I am talking of stocks like DLF & Suzlon and are still hoping for them to recover.
Investing during such times in an extremely dynamic process. One needs to keep a continuous eye on not just the markets – but on each and every stock one owns.
With this, also comes the role of an active portfolio manager. As Jaspreet Singh Arora, Chief Investment Officer, mentioned in a recent webinar- It is essential to build a concentrated portfolio of 20-22 stocks, and for now, I am going with large caps contribution around 67% and mid-caps of 33%.
“We recommend higher allocation to large caps during such times because these companies have witnessed many such down cycles in the past and have come out of it unscathed. We will increase exposure to mid-caps & small caps when we believe the risk-on mode is back but will remain below 50%.”
Before I end, I have a small message for you – this may be the right time to take a plunge in the stock markets – but one must understand the risks involved. If you’re finding the task of understanding the right portfolio that suits you and your risk profile, it is always a good idea to hire an expert who can guide you in your journey. With the experienced and credible expert at your side, the chances of making wrong decisions reduce drastically. Get professional support in equity investing by clicking here now.
Time and again, we have heard the call to boycott Chinese goods. However, in reality, till date, nothing effective has happened.
Just visit any toy store anywhere in India, and you can see that 90% of the toys will be Chinese. Same is the case with shops selling electronic items such as household appliances and smartphones.
Chinese smartphone brands such as Realme, Xiaomi, Vivo and Oppo feature among the four bestselling smartphone brands in India with over 60% market share. 30% of India’s automobile components are also sourced from China.
But that’s not all. The range of goods flooding our markets from China includes industrial goods, heavy machinery, auto parts, solar cells, fertilizers, optical instruments and pharmaceutical products including Active Pharmaceutical Ingredients (API) used in the manufacture of medicines including antibiotics.
You would be surprised to know that India imports almost five times more from China than it exports to it, resulting in a massive trade deficit with China.
The Chinese have also invested heavily in India’s start-ups. Check out the below table which shows Chinese investments in some of India’s start-ups.
With rising border tensions between India and China, amid Chinese intrusions in Ladakh, anti-china sentiments are at an all-time high. People have taken to streets in many places in India in protest burning Chinese goods.
In one of our previous articles, we had written about how the two-wheeler segment in India has beaten China. You can check out the article here.
This brings us to million-dollar question- Can we boycott Chinese?
The government on 29th June, issued a blanket ban on 52 Chinese apps, citing a threat to national security and user data. While a ban on apps may not affect Indians using these apps in any way given the availability of many alternatives, the same cannot be said about all Chinese products.
An abrupt boycott of Chinese products may affect supply chains of some industries like auto and pharma, like what was witnessed in during the lockdown in China to combat the Covid 19 pandemic, early this year.
A step by step approach is the best way to go forward
Some importers are bringing in cheap Chinese goods in bulk which are quite easy to sell, such as toys, batteries, household plastic products and electronic goods. Such products are readily available everywhere for sale, including at departmental stores owned by big retail chains in India.
These products can from China can be easily replaced by Indian products. I am pretty sure most of us wouldn\’t mind paying a few extra bucks to buy Indian products in these categories. But to ensure this happens on a ground level, the government should strictly enforce regulations restricting the entry of such basic goods in India from China.
History can repeat itself
Post India’s independence in 1947, India’s pharmaceutical market was dominated by Western MNCs with over 75 percent of drugs being imported. All pharmaceutical products under patent in India were held by MNCs and as a result, and domestic Indian drug prices were costliest in the world.
To facilitate self-reliance in the sector, the government founded five state-owned pharmaceutical companies in the 60s and took a series of steps such as the abolition of product patents on food, chemicals, and drugs; the institution of process patents; the limitation of multinational equity share in India pharmaceutical companies, and the imposition of price controls on specific formulations and bulk drugs. As a result, by 1990, India was self-sufficient in the production of formulations and bulk drugs.
Today India\’s pharma sector is heavily dependent on China for raw materials. There is no reason why India\’s pharma sector cannot reverse this by repeating its history.
Scale-up India’s R&D expenditure
India should also scale up its expenditure on research & development as World Bank data for the year 2018 shows that India’s research and development expenditure as a percentage of GDP stood at a dismal 0.65% compared to China’s 2.19%, Japan’s 3.26% and USA’s 2.84%.
Bottom line
History reveals that consumer-based attempts to boycott goods from certain countries had failed in the past like when there was strong anti-American sentiment after the USA\’s sanctions on India after the Pokhran nuclear test in 1998. Consumer attempts to boycott American products like Coca-Cola and Pepsi were short-lived.
It is practically impossible to boycott everything that’s made in China. In today\’s globalized world, no matter what we do there will be somethings which cannot be produced in India or produced at a lower rate. For example, heavy machinery or rare earth minerals used in electronics. But yes, India can avoid unwanted Chinese products which are already being produced in India or can be produced in India. Proper infrastructure support to manufacturers, liberalized FDI and loans at cheap rates can help India compete with China. A robust government will and strict regulations are the need of the hour.
It is said that wealth creates wealth. But there is something which is even more important. And that is a wealthy mindset.
But unfortunately, most people fail to pay attention to it.
According to a quote by Bill Gates, the founder of Microsoft and world\’s second-richest man “If you are born poor, it is not your mistake, but if you die poor, it is your mistake”.
This is so true. Most people dream about being wealthy but hardly do anything or set their mind to fulfil that goal.
Here are a few simple steps which anyone can follow to change their mindset and develop the right one for becoming wealthy:
Develop a wealthy mindset
Your mindset is a collection of your thoughts and beliefs that shape your thoughts and habits.
A wealthy mindset means spending wisely, creating multiple source of income and choosing the right investments which can grow your wealth, and looking for ways to improve your overall financial position while avoiding unnecessary risks.
Do you know that Robert Kiyosaki, the author of Rich Dad Poor Dad book, once found himself completely penniless and in deep debt of over $1 million?
Even under those circumstances, he proclaimed he was a rich man. He knew he had the option to give up building wealth again. But he didn’t.
“I am a rich man — and rich men don’t do that!” he declared to his wife with baffling confidence.
Despite nothing in his bank account, his mindset of wealth remained stronger than ever. He has since gone on to create a huge fortune through his Rich Dad Poor Dad curriculum.
So, you see, building massive wealth only happens when you have a firm belief that you can do it. Developing a wealthy mindset will help you stick to your financial goals and find ways to increase your earning potential.
Stop wasting your money and instead start investing
Today in our country, if you look around, you will see many people driving around in the latest BMW\’s, Audi\’s and Mercedes. While many of those people driving these cars would probably be ultra-rich, many are those who buy these cars simply to act rich with an intention to show off that they are wealthy.
This is a huge mistake which many non-wealthy people make in an attempt to imitate the lifestyle of ultra-rich people. In the process, they end up spending their money, which could have been invested for a better future.
So, instead of wasting your money on buying things just to act rich, spend your money wisely on things which make you happy and invest the rest with a long-term perspective.
Invest your money in the right instruments
Wealthy people don’t invest in fixed deposits, property, gold or bonds. Instead they invest in businesses because they know that it is one of the best and the quickest ways to multiply their wealth.
But you actually don’t need to start a new business to create wealth. You can just buy a portion of an existing business which is doing well by investing in its equity.
Among the thousands of companies listed on Indian stock markets, how do you select the right business to invest in?
That is why we are here to make things easier for you. As an independent research advisory with an in-house research team, Research & Ranking can help you in wealth creation through long-term equity investing.
Be patient with your investments
It is no secret that building great wealth requires a lot of patience and time. Every rupee that you invest wisely has the ability to grow each year.
Most self-made wealthy people around the world have multiplied their wealth by harnessing the power of compound interest, which Albert Einstein described as “The greatest power in the universe.”
Majority of people who become wealthy, over a long period of time, have also attributed the phenomenal growth in their wealth to the art of remaining patient.
Bottom line
Developing a wealthy mindset is the key to becoming wealthy. Studies in neuroscience have proved that human brains continue to develop and change even as adults. So, it’s never too late to start developing a new mindset.
Cultivating a wealthy mindset could be the single most important thing you can ever do for achieving your goal of becoming wealthy.
Get answers to the most pertinent questions on your mind now.
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An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.
Why choose a SEBI Registered Investment Advisor?
An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.
What is the Role of an Investment/Stock Market Advisory Firm in India?
An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.
Is investment advisory the same as wealth management?
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