Economy

But, over the past 2-3 months, markets have seen a decent amount of fall. Be it due to no big announcements in the Budget or liquidity concerns or FII outflows or just overall negativity in sentiments.

Let us share our analysis with you today. Ever since the Modi government came to power in 2014, it was clear that the government would be taking some serious measures to clean up a lot of systems, processes, laws, etc.

Over the past 3-4 years, it has been trying to do just that. With Demonetisation, implementing of GST, IBC, etc. the government has taken some really strong steps in order to achieve what it had set out to do.

We also believe that the government may have stretched it a little too far. But, saying this, it seems that the growth that we have been speaking off is surely not too far away.

Let me come to the positives we see. With the kind of majority the Modi 2.0 enjoys in the house and based on it the kind of decisions that it has taken over the past few years, the government has given more than enough indications that it is all set to achieve all that it had set out to do.

Just yesterday, the way the reorganization of Jammu & Kashmir took place and the scrapping of Article 370, the government has shown that it actually means business.

And based on this, there is very little doubt in our mind that if a government that believes in strong progressive steps would surely work towards their committed target of making India a $ 5 Trillion Economy in the next 4-5 years.

And in our memory, we surely haven’t seen a government that has taken steps with such audaciousness over the past many many years.

Let us share with you something else, a glance through the past and draw some parallels for you in the current times.

In the early 2000s, the markets were at their peak with Nifty just about touching the 1,700 point mark, but a lot of us also remember what happened when the tech bubble burst.

But September 2001, the Nifty had slipped to 890 levels. And then there was a flattish line until May 2003.

But then, a lot of you who had invested then or rather a lot of you who had missed out on investing then would remember what happened to the markets for the next 5 years.

In January 2008, the Nifty had peaked at around 6,274. Yes, that is a growth of over 6.5 times in a short span of less than 5 years and that is the only reason I said you would surely remember it if you had missed out on cashing in on the same by sitting out and staying invested in the traditional tools of investing.

Think of this – We have a strong government at the helm, showing all signs of achieving all that it has set out to do. We also have something in the history that tells us that the Mother Of All Bull Runs is just about the corner and this time, we surely cannot miss out on it.

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

India’s growth trajectory till now has been interesting with few speed-bumps and short-term hiccups. With the introduction of structural reforms such as GST, RERA and Bankruptcy Code, the Indian economy is booming with evident transformation in the economic landscape of India. The equity markets are experiencing increased participation from the domestic investors, which clearly implies that the Financialization trend is here to stay. Better-than-expected GDP numbers, a strong pickup in the corporate earnings recovery, increased car sales on a y-o-y basis and healthy credit growth augurs well for India’s growth trajectory. Owing to the growth across a multitude of sectors, one can safely conclude that the Indian economic growth is resilient in the long-term.

We would like to draw special attention to the sixth bi-monthly monetary policy statement, wherein RBI maintained a status quo by retaining a hold stance on the key policy rates. It remained sanguine on the Gross Value Added (GVA) and expected it to escalate from 6.6% to 7.4% for the new fiscal. With this, it also lowered the inflation forecast from the range of 5.1%-5.6% to 4.7%-5.1% for the first half of the new fiscal year 2018-19. This further augments our conviction in India’s growth story and clearly validates that the economy is witnessing green shoots with early signs of revival in an investment activity, easing inflation numbers, improving global demand and government’s unwavering focus to ameliorate the rural and infrastructure sector in India. This will further bolster the development at the grassroots level, and in turn, spur the aggregate demand and economic activity in our country.

The Long-Term Wealth Creation Journey Is Not Without Its Share Of Few Short-Term Pains

With the convergence of global and local challenges, the Indian stock market may continue to experience volatility in the near future.
On the global front, the trade spat between the US-Sino relations has recoiled the financial markets worldwide. If the tension continues to boil, it would have major repercussions on global growth and capital flow between the economies. However, if the U.S. is just playing it by ear and using it to haggle over the import costs, then it may turn out to be a noise between the two friends, who will later handshake and make up. Now, whether this labyrinth surrounding the crack in the U.S.-Sino relations is just a transient noise or a long-term trend would only be untangled in the coming months.

Alongside, we are witnessing a sudden upswing (~$70 per barrel) in the crude oil prices, which may drip the net external demand, thus affecting the industries bottom-line number on account of rising raw material costs. This may eventually shoot up the inflation levels and current account deficit in the near future. Any further fiscal slippage at the centre or state level can have a broad-based macro-financial implications by directly hitting the cost of borrowing.

With the pressure of soaring crude oil prices; domestic challenges such as the staggering impact of HRA revisions, upcoming state elections and the much-prophesied 2019 major election will play a major role in setting the tone for the markets ahead and would be closely monitored by the Indian investors.

The Markets Are Not Keeping Calm, But We Can!

With the unification of global and local challenges as mentioned above, the markets are moving sideways with a downward bias. With the ongoing stock market mood swings and changing market sentiments, many investors are left in a baffled state, especially when it comes to their stock market investment. Till now, the Indian stock market has corrected to the tune of ~7-8% since its 2018 high.

The S&P BSE Small Cap Index underwent a correction in double digits while the large-cap and mid-cap stocks dwindled in a range of ~6-7% and ~9-10% respectively from their 2018 highs.

Yes, the markets are not yet ready to keep calm, however, as a smart investor it pays off to remain calm and not succumb to the bizarre mood swings of the markets.

Risk mitigation strategies such as stock portfolio allocation, rebalancing, investing through SIP route to optimize rupee-cost averaging and systematic planning will set the tone of your wealth creation journey for the next 1-2 years.

Making money in  stock market is not a sprint. Rather, it is similar to prepping for a Marathon which requires patience, discipline and perseverance. The journey can sometimes get tedious, you may be allured by a quick fix solution and emotion-based decision making. However, an investor who is able to look beyond the short-term scenario, resist the distractions (tips, rumours, media hype) and hire a coach who can guide them in times of turbulence will emerge as the winner in the Investing Marathon.

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

Markets have been roughed up on account of depreciating rupee, rising oil prices and NPA crisis. But much has been said about this now, right? With the run-up to the 2019 national elections, investors in the markets are worried about the volatility revolving around it. With a dig in the history of our Indian indices, the data suggests that the investors have a reason to rejoice, regardless of whether power changed its hands.

Let’s look at how the markets fared before and after the elections tenure.

1. Pre-election buoyancy: If you take a closer look at the stock market before the elections as shown in table 1.1., you will notice that between October end and April end markets have always given positive results in the last 20 years. If you look at the uphill movement, markets have gone up in the range of 6% – 20% in just 6 months.
   
2. Almost 100% growth between the two elections: If you look at the below table 1.2, markets have almost doubled between the two elections. This growth has been in the range of 83%-95% in the last five years. If historical data is to go by, this indicates that there is enough room left for the markets to go up to the tune of 30%-40% in the next 6 months. (This is a historical pattern and we are not trying to predict the Nifty levels for April 2019).
   
3. Markets have been party-agnostic: The data suggests that we witnessed the robust growth irrespective of the change in power of political parties. In 2004 and 2009, UPA was the reigning power, while NDA was ruling in 1999 and 2014. So, it doesn’t really matter which political party came to prominence and markets experience almost double growth between the two elections.
   
4. Markets need more than a stable government: If you look at the above data, Indian Indices Nifty surged by only 55% during the 4.5 years of NDA power i.e. from April 2014 – Present. This clearly indicates that a stable government with the full majority is not enough for the markets to go up. While one cannot undermine the impact of political events on the stock market, however, interlink between the two needs to be interpreted carefully. As a long-term investor, it is not a good idea to take decisions by solely linking the correlation between the two and many other factors need to be studied before taking a call.
5. The role of quality businesses: As highlighted above, Nifty has surged by 55% in approximately 4.5 years. While Nifty surged by only 55%, many stocks such as Eicher Motors, TVS Motors, Bajaj FInserv, Sterlite Technologies have delivered 5 times during the same bout. On the flip side, many stocks such as ONGC, BHEL, Bank of India, Sun Pharma, delivered negative growth in the last 4.5 years. It is not the election results, but the quality of stocks that propelled the growth in their earnings, which in turn drives the stock price up. These earnings are dependent on the magnitude of factors such credibility of management, consistency in cash flows, health of financial statements, risk management procedures amongst many other qualitative and quantitative parameters which can be gauged only after careful study. If the quality of the stock is sound, it is bound to grow irrespective of which political party is in power.
6. State elections: With the line-up of elections in the states of Madhya Pradesh, Chhattisgarh, Mizoram and Rajasthan in late 2018, many investors are wondering about their impact on national elections and the stock market. However, as we mentioned above, markets are party-agnostic. State elections are altogether a different ball game, where the impact is more driven by the state-level issues and challenges rather than the health of the overall economy.

So what should you do as an investor?

In the current situation, rather than getting confused by media news, free research reports, brokers tip, market rumors, just focus on these 2 things:

1. We are witnessing improvement in corporate earnings and many companies are declaring positive results by absorbing rising input cost and interest cost on account of rising oil prices and weakening rupee.
2. With new reforms such as IBC and other stringent guidelines by RBI, Banks are reporting lower NPA provisioning and we are witnessing revival in NPA recovery.

As we shared in our video rising crude oil prices and depreciating rupee are more of temporary issues and get stabilize soon. The recent RBI policy indicating a neutral stance by keeping the rates unchanged reiterates the fact that India’s growth story remains resolute.

The key to investing in stock market success remains simple: If you own a quality business with a long term view, you do not need to worry about the peripheral events such as elections, weakening rupee and other transient headwinds.

Identifying such quality stocks that can sustain the transient hiccups and even flourish in future can be challenging. This is because, one needs to study various quantitative and qualitative parameters, which can be quite tedious. However, this journey becomes easy if you have a credible financial advisor to identify and track the growth of these companies to help you emerge as a winner in any market condition.

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

The minute someone initiates a conversation about the billionaire, names of Bill Gates, Jack Dorsey, Elon Musk, Warren Buffett, Jeff Bezos, Mark Zuckerberg, etc. snaps in our mind.

Every time we talk about them, there is one thought-provoking question: What makes them a billionaire? What is that secret sauce that led them to achieve the pinnacle of success and wealth creation?

As rightly put by Steve Siebold, “The only person who can teach you how to think like a millionaire is a millionaire”. And the same applies to billionaire as well.

It is quite startling to know that there are only 2043 billionaires in the world (Source: 2017 Forbes list of billionaires). And that is, just 0.000027% of the world population!

These ultra-successful people cultivated the right habits on a daily basis which resulted in matchless success and fame.

Habits that make a billionaire 

We have listed few qualities which are common amongst all the billionaires. They may not sound strenuous and impossible, however, the trial lies in being dedicated and consistent with these traits.

 

Doing Things Differently

The mere fact that just 2043 out of 7,600,000,000 people in this world are billionaires proves that they are doing something different.

As rightly said by Shiv Khera, “Winners don’t do different things, they do things differently.”

They are open to following a radically different path, breaking the norm, and doing things differently, efficiently, and most importantly, profitably. And if this means stepping out of their comfort zone and being an independent risk-taker, then so be it.

Highly Visionary

Look at the highly successful people around you. They have envisioned a goal that is ahead of its time. They are always scouting for ways to disrupt or innovate the segment in which they are operating. They are highly pro-active people who are just not ready to leave things to chance. The vision to think and plan long-term differentiates them from the rest.

Multiple Source Of Income

Perhaps the most underrated quality, yet the trait which creates a humongous impact on their wealth which makes them the billionaire in the first place. They are fearless and audacious because they have funds flowing in to their bank account via long term investments, part-time job, start-ups, etc. They believe in making money work for them. After all, the book ‘Rich Dad Poor Dad’ encircles around the same.

Planning & Prioritizing

Before going to bed, these people dedicate few minutes to make a plan of action for the next day. A hallmark of many of these billionaires is adherence to self-chosen, well-thought and prioritized routines. This helps them to distinguish the tasks which demand immediate action. Prioritizing helps you to stay on track so you don’t lose time on meaningless trivia. This is also one of the reason behind their high levels of productivity and focus.

They Chase Their Passion

There’s this popular quote by Napoleon Hill, in his bestseller, ‘Think and Grow Rich’ which says: “No man can succeed in a line of endeavor which he does not like.”

These billionaires have a reason to relentlessly give their best shot, as they absolutely love what they do. For them work is no longer a work, it’s a deep sense of satisfaction to pursue what they are passionate about.

Learning, Listening and Observing

Most people think that the learning stops when the school/college ends. But that’s not the case. There is always a room to learn and grow. And that’s what the billionaires do. But how they manage to do that? Firstly, they are by default inquisitive in nature and are ready to learn new things. They are avid readers, good listeners and strong observers. This helps them to become a pro in their field and stay up to date on what’s trending.

Early Risers

The old adage, “Early bird catches the worm” is apt here. They have a fixed routine which helps them to follow a disciplinary approach towards personal and professional life. Now when we say early, doesn’t mean 6.00 a.m. Most of these billionaires wake up as early as 5.00 a.m. and focus on important tasks when the ambiance is most serene. Now that’s the clandestine we revealed so you can get more done before 10 a.m. just like the billionaires.

Meditation

Along with the innumerable health benefits, meditation helps you to keep a check on your emotions. This helps us to take rational decisions backed by facts, logic, and common-sense. Many billionaires such as Jack Dorsey practice meditation on a daily basis.

The Act of Gratitude

There’s definitely some meaning behind when people say, “What you give, comes back to you.”

It’s no secret that Warren Buffet and Bill Gates are working hard toward philanthropic causes and are inviting others to positively impact society through their wealth.

They Are In A Company Of Smart People

It is said that we are the average of the five people we spend the most time with. Most billionaires understand this. In fact, even if you do a self-assessment, you will realize that you are the average of the five (or a similar small number) people you spend the most time with. Thinking alone and all by yourself can turn you into an echo chamber. You need a different perspective. For this, having smart people to talk to can work wonders as they will be both a critical eye and a sounding board for your ideas. They will also challenge you to look at things in new ways.

A Disclaimer

There is no doubt that the above-listed habits/traits have helped many people to become billionaires or ultra-successful. But does it mean that whosoever has all these habits will become a billionaire?

Of course not.

We need to understand that these habits help successful people realize their full potential and use their core skills to do what they are really good at.

The increased awareness about our strengths, weakness and impact of our decisions can help anybody to achieve their full potential. Instead of waiting for good things to happen to them, they take actionable steps every single day to move closer to the finish line.

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

The year 2017 was no doubt a great one for investors in general and good stock pickers in particular. With both Nifty and Sensex delivering close to 30%, it was one of the best years since 2009.

Here are two graphs that further highlight an interesting point:

The 1st graph shows the fresh YTD (Year-To-Date) highs that Nifty kept making throughout the year. The green line is the Rolling-Year-High figure while the blue line depicts the actual Nifty movement. The 2nd graph indicates the Nifty nosedive from these year high figures before recovering again. And if you note, the maximum drawdown from the rolling year high is less than 4.5%. This means that Nifty did not slump more than 4.5% from the highs it was making!

To sum this up, the Indian indices cruise in the year 2017 was sailing smooth and unabated.

The index of mid-and small-caps did even better with several cases of eye-popping returns generated by the individual stocks.

Such a performance has obviously set the bar high as far as expectations for 2018 are concerned. And many large brokerage houses are forecasting that the bull-run might just continue in 2018 as well on the back of a supportive global economy and recovery in the corporate earnings.

But we are able to spot few other indications that helps us to deduce that 2018 will be an eventful year for the Indian stock markets.

Union Budget – The upcoming Union Budget was the last full budget of the current NDA government before the next general elections. So the expectation among various sectors was high. Walking the precarious line between fiscal prudence and populism, FM Jaitley has deftly structured the Budget around ‘Consolidation’ of various reforms that have seen the light of the day, under the leadership of PM Modi. The budget, on a broader level, was along the expected lines. The emphasis was expected to be on agriculture, rural and boosting farm incomes and that, in fact, turned out to be the central theme.

Rationalization of tax structures across asset classes: India now joins other world markets in instituting a 10% long-term tax on equities, notably, the existing capital gains will be grandfathered, and the newly instituted long-term tax will be applied only on a going-forward basis starting 01-Feb-18. This move may have startled the stock markets for a short time, we strongly feel that the corrections the stock markets witnessed is only a knee-jerk reaction. Long-term investors would carefully deploy the funds and it will not abrade the inflows in the equities in a long run, given the fact the equity is still among the lowest taxed investment avenue in our country.

Crude Oil Prices – Crude oil has slowly faded away from the prominence it held in economic discussions till just a few years ago. Reason being its continued low price trend. But what is worth noting is that there has been a rally in the oil prices in 2017 and the prices have risen above $65 a barrel ($70+ now) for the first time since 2015. Indian economy is heavily dependent on crude oil imports. So any price spike could drastically impact government finances and put inflationary pressure on various sectors. But the oil threat is still manageable to an extent. The real problem would begin if prices cross $100. Also, any negative geopolitical event can send the prices up suddenly. This can be a key risk for the markets in 2018.

US Fed’s Stance – The US Federal Reserve has already begun tightening its monetary policy. And as per Fed commentary, this is expected to continue even in 2018. The practical assumption is that a tighter US monetary policy hurts portfolio inflows into emerging markets like India. Is this a reason to panic? Not so much like in past. But it can play some role no doubt. Also, there is almost zero probability of a sudden stop in this flow. There is another factor that sets off this risk to an extent – domestic liquidity support (discussed below).

Financialization of Savings – This has come as a big surprise for many. Thanks to the dedicated flow of money into mutual funds each month (via SIPs), the continued support received by the market from domestic entities has been very strong. To be fair, this has been a game changer for last one and a half years. Fortunately for markets, this trend is expected to continue not just in 2018 but in future too. Going forward, $10-20 billion per annum of incremental flows into equity markets from domestic retail investors (via MFs) will become a norm. The numbers might seem large but that’s because of the abysmally low savings historically flowing into equity from retail investors. The unprecedented retail money coming into the market is seemingly creating a floor for the market.

Earnings Recovery – Markets have been waiting patiently for the real earnings recovery. This fact combined with a run-up in prices has pushed stock market much above long-term average valuations. So naturally, a large number of market participants are concerned about valuations. More so in mid and small cap space. In words of Mr. Uday Kotak, “organized savings are chasing a limited supply of stocks” now and that has been a big reason for the surge in valuations. So the corporate earnings growth will be a crucial thing to watch out for in 2018 and may define market’s trajectory.

State Elections – Financial markets are quite sensitive to the electoral cycle. In a run-up to the general elections, 2018 will see a string of state elections in Nagaland, Tripura, Meghalaya, Karnataka, Chhattisgarh, Madhya Pradesh, Rajasthan and Mizoram. How the BJP-led NDA fares in these states will influence market’s mood as it inches closer to the 2019 general elections.

As you might have guessed by now, it does seem that 2018 may not be a non-volatile year like 2017. Though overall investor’s sentiment is positive and is expected to remain so, risks are also not ignorable.

There is another thing – we need to remember that in hindsight, every year in the past has been an eventful year for one reason or the other. Sometimes due to domestic reasons and at other times due to global ones. And this will continue to happen in future too.

But despite all these past ‘eventful’ years, the markets have chugged along on an upward growth trajectory and have done exceedingly well in the long term. And there have been hundreds of companies which have grown multi-fold in last few years.

The role of macro factors on the stock markets cannot be underplayed, however the truth remains that they are beyond our control. We continue to believe that one should choose (and invest) in fundamentally strong businesses having strong growth prospects and run by ethical and capable management.

We recommend investors to remain invested and maintain a disciplined investing strategy with long-term pursuit of wealth creation and not be dejected by a meagre 10% LTCG. And once chosen, one should remain invested in them for the long term until the fundamental thesis is broken. This is the real “Wealth Creation” secret which is known almost to everyone but unfortunately, very few follow.

The month of December as well as the year 2016 turned out to be weak ones. As for the monthly returns, Nifty and Sensex both ended up in red with -0.47% and -0.10% returns respectively.

For the year 2016, both indices somehow managed to drag themselves into the green territory – with Nifty gaining 3.0% and Sensex doing 1.95%.

It would be wrong to pinpoint one single event for markets’ poor showing.But there were several that had a part to play – demonetization, failure of private sector’s investments, surprise election of Donald Trump as the new US President, NPA mess of banks, US Fed’s signalling rate hike, Brexit, over-valuation across Indian market (which made a valuation-based fall imminent), etc.

In fact, with so many negative triggers, it is an achievement in itself that Indian markets ended up in profits this year. This is a clear indicator of the robustness of India’s fundamental growth and long term potential.

PM’s New Year Announcement targets ‘Bharat’

On last day of 2016, country came to a standstill to listen to Prime Minister’s New Year message. After the announcement on 8th November (about demonetization), there were a lot of speculations about what could possibly be in store for Indians in 2017.

But as it turned out, the speech had announcements targeting the poor, lower middle class, senior citizens and small businessmen.

Key ones were that from 2017 onwards, housing loans of up to Rs 9 lac and Rs 12 lac will get interest subsidy of 4% and 3% respectively from the central government. In order to help senior citizens maintain their interest income in falling interest rate scenario, savings of up to Rs 7.5 lac will now have guaranteed 8% interest for 10 years. Apart from these, few more rural and small businesses centric schemes and subsidies were announced.

India Post Demonetization

As the country crossed the 30th December deadline for demonetization (for deposition of old notes), everybody is now waiting for government’s next step against black money.

The government has made it clear that demonetization is the first and not the last step against black money. Next in line will be Benami properties. This in our view will have a bigger impact on the parallel economy than demonetization. But having said that, the government will need to focus more on its implementation given the complexity of the idea.

Most analysts are of view that Demonetization is a temporary speed breaker for the economy and recovery will take just a quarter or two.

But this is easier said than done. We feel that even though demonetization is a big positive for the economy in long run, recovery of quite a few businesses will take longer than just a couple of quarters.

But on the bright side, there will be many businesses, which will eventually benefit from demonetization, as a major chunk of the business in their industry will move from unorganized sector to them. As investors, key will be identifying such businesses. And market’s overreaction in hammering down the share prices of such good businesses provides us with good entry point to invest for long term.

So as long term investors, we are quite thankful to demonetization for allowing us to find good investment opportunities that will create significant wealth in years to come.

Note – A lot of developments in first half of December have already been covered in our previous newsletter (as it was published in 3rd week of the month to incorporate major economic and market developments).

R&R View on Economy

It is still very early to gauge the full impact of demonetization on the economy. But no doubt, several sectors like real estate, MFIs, etc. will continue to face temporary pains, if not permanent ones.

Need of the hour is to closely monitor the economy for signs of recovery. And at this point of time, it’s difficult to say when exactly the recovery will start.

To counter the demonetization-triggered negativity in the economy, there is hope that Union Budget will try to give a much-needed boost to the economy. But it will be interesting to see how the government maintains a balance between fiscal prudence and growth revival.

R&R View on Markets

We continue to remain cautiously optimistic about markets in general. Since we believe in bottom up stock picking, it interests us more to focus on companies rather than just broad macros.

Another thing that we believe in is that India is a long-term multi-decade growth story. And fortunately, these small corrections provide opportunities to long term investors like us to buy fundamentally sound businesses at bargain prices.

On that note, we end this newsletter and wish you a very happy 2017.

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

Regards,

Team Equentis (Research & Ranking)

Read more: About Research and Ranking.

Last week while I was having a lunch with my colleague, I found him perturbed and chagrined. On my cajoling, he revealed that the financial blunder he committed last afternoon was the reason behind his restlessness. He owned shares of XYZ Company which he sold off and the stock appreciated by over 20% that day morning. “I took a wrong decision. And now, all I feel is guilt and anger,” he said. As he recalled that incident to me, I realized that he is still not aware of his emotion i.e. ‘Greed.’

Can he alone be blamed for experiencing greed, anger, and guilt while making financial decisions? These are the emotions we all may have faced at some point in our lives. Sometimes, we succumb to the societal pressure of buying things which we actually cannot afford. Post nasty breakup, we indulge in ‘make me feel good’ shopping which gobbles our monthly savings. We experience guilt while making investment mistakes. And, we envy when our ex-classmate comes up with a snazzy outfit and a fancy car. Knowingly or unknowingly, we all have been a victim of the vicious circle of ‘Financial Fear’.

Over the years, our brain has been fortunately or unfortunately coached to take decisions based on the emotions such as anger, shame, greed, fear, hate, etc. This holds true even while handling our finances. Psychologists term these emotions as ‘money scripts.’ These money scripts can have a positive or negative impact on wealth creation. The point is that they do impact both our short-term and long-term investments. We unconsciously let these emotions transcend the rationality and most often, land up with decisions that don\’t seem too fruitful.

Take Control of your consistent emotions and begin to consciously and deliberately reshape your daily experience of life.
– Tony Robbins

Where and how do we develop these \’Money Scripts?\’

The beliefs and values about the money stem up in our mind right from childhood. The emotions are imprinted by the way our parents talk about finances, how they treat money and how we have been taught to deal with money. Few parents are entangled in debt, while few focus on imparting their financial acumen to the next generation. The striking difference in their money habits is beautifully captured in the book ‘Rich Dad, Poor Dad’ by Robert Kiyosaki.

Even our education, our peers, and friends also play a significant role in shaping our emotions about money. It’s imperative to keep a tab on these emotions to understand how they impact our financial behaviour.

Turning a blind eye to these emotions?

Maintaining a healthy relationship with your finances is crucial. It is a conscious practice to be rational-savvy and not emotional-savvy while handling finances. Have you ever observed a person who suddenly wins a lottery? Money can sometimes have a negative impact also. In the lottery case, it can make the person feel elated and powerful due to the unexpected inflows of money. Sudden loss of money can also turn a happy person into gloomy and miserable. Money structures people’s persona, behaviour, and their attitude.

How can you deal with emotions?

Don’t run from them, embrace them: The first step is to acknowledge these emotions before we explore and control them. If you experience strong reactions to the below-mentioned situations, then you can consider scheduling a meeting with the financial / stock advisor.

The conversation with the expert should revolve around thinking, approaching and managing money in the right way. Remember, financial awareness is the first step in this process.

Energies do come back to you: Here we would like to underpin the importance of your thoughts and their impact. Few people hold the assumption that money is the root cause of every problem. It is important to clean the blockages and allow positive thoughts rein your mind.

The age-old method never goes wrong: We give a lot of substance to the role of saving and investing in stocks. You can start with a small amount and then you can top it up with additional money. Plan your retirement when you are young.

The comparison game may not always work: It is an easy task to compare our stuff with others and switch to a self-pity mode. Jealousy leads to self-empathy which leads to frustration and the down run in the emotional cycle doesn’t seem to have a full stop. Instead, spend your time on focussing on what you have and getting the most out of it.

Take a pause to ‘Appreciate’, ‘Forgive’ and ‘Forget’: It is a good habit to display gratitude for what you have. We do commit financial mistakes. However we should also accept it, learn from it and move on rather than clinging to it.

How Research and Ranking can help you?

Mastering the emotions is indeed not everyone’s cuppa tea. Once you achieve the milestone of self-control in your life, you are on a roll. And this is especially true in the situations where money matters. Many researchers believe that people who have made sound financial decisions tend to take balanced and optimistic approach en route to wealth creation. At Research and Ranking, we assist and motivate our clients to take rational decision while advising them on long-term wealth creation. Our highly qualified researchers are committed to advising on best wealth creation strategies for long-term investments.

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

Event update: In an unprecedented move, the Indian government announced that the existing currency notes of Rs.500 and Rs. 1,000 denominations will cease to be a legal tender from 8th November mid-night. The RBI will issue new notes of Rs. 2,000 and Rs.500 denominations, which will be placed in circulation from 10th November 2016.

Regulation Details of Currency Demonetization

• Currency notes of Rs500 and Rs1,000 denomination would not be a legal tender from November 8, 2016 midnight.

• The public will have 50 days between November 10, 2016 and December 30, 2016 to deposit old notes of Rs.500 and Rs1,000 after showing a proof of identity. Besides depositing money in bank accounts, the Rs500 and Rs1,000 notes can also be exchanged with lower denomination currency notes at designated banks and post offices.

• The exchange of old notes, however, will be limited to Rs2,000 between November10 and November 24 and it will be increased up to Rs4,000 between November 25 and December 30.

• Those unable to deposit Rs500 and Rs1,000 notes by December 30 for some reason, can change them until March 31, 2017 by furnishing ID proof.

• All coins/notes in lower denomination of Re1, Rs2, Rs5, Rs10, Rs20, Rs50 and Rs100 will continue to be valid.

• The government will replace the old notes with new ones. The new notes of Rs500 and Rs2,000 would come in circulation mostly from March 31, 2017.

• The government has also implemented a daily limit of Rs2,000 on ATM withdrawals, which will be increased to Rs4,000 at a later stage.

• There are no changes in online, card, cheque or any other plastic money transactions.

• Cash deposits above Rs.2.5 lakh threshold under the 50-day window could attract tax plus a 200% penalty in case of income mismatch

Key take away:

• Ease of doing business- The move shows clear intent and determination of the Government to curb black money and promote a shift towards cashless economy. We view the measure as a big positive and a step forward in the reform process. It will be a significant image booster for India as reduction in corruption translates in ease of doing business.

• Transitory pain in the offing – Abrupt slowdown in money circulation is expected to temporarily slow down the broader economic growth. Demand from industries and small self-owned businesses with heavy reliance on cash transactions is expected to take a hit.

• Short term stress on rural economy likely- Transaction difficulties are expected to be more pronounced in the rural geographies due to poor access to banking services. Nearly 30% of rural household debt and 33% of rural credit is from the unorganized lending sources.

• A huge structural positive in the long-term- GDP is expected to accelerate due to more inclusive growth,increased efficiency, higher tax collection and increase in public investments. Estimated USD 500-550 billion shadow economy can potentially get subsumed in the formal system, with almost USD 100 billion additional tax collection.

Key macroeconomic implications: We view the measure to be structurally positive for the Indian economy leading to a more inclusive growth. We believe that this move is likely to bring down corruption in the economy, increase tax collection, broaden tax compliance substantially, provide a boost to economic growth by amalgamating shadow economy with the formal economy and lead to a marked shift towards organized players.

a) Higher GDP growth as black economy is subsumed in the formal economy- The World Bank in July, 2010 estimated the size of the shadow economy for India at 23.2% in 2007. Various studies now point this number to be higher at 25% (i.e. USD 500-550 billion). A parallel shadow economy generates inflation and reduces revenue inflows for the Government, which could have been otherwise used for welfare and developmental activities. This clampdown on black money would lead to integration of these unaccounted for transactions in the mainstream economy leading to higher reported GDP number.

b) Higher tax-to-GDP ratio from proper reporting of income: Income tax collection is expected to see an uptick as funds earlier unaccounted for enter the banking system and eventually get taxed. On a USD 2 trillion economic base, total unaccounted tax is estimated to be USD90-100billion as against the actual tax collection of USD225-250billion in FY16.

c) Higher household savings in financial assets: Household sector saves either in the form of a) financial assets (40% of total household savings) including currency, net deposits with banks, investment in shares and debentures, life insurance funds, provident and pension funds or b) physical savings (60% of total household savings) including real estate, gold, etc. Historically, savings in physical assets has been higher compared to financial assets. However, with the attractiveness of other asset classes diminishing due to expected fall in asset prices, skew in savings mix is likely to correct favouring financial products.

Also, a huge upside can also be expected from the shift in unorganized money lending and informal investment schemes, such as Chit funds, to the formal system, thereby creating a robust demand for financial assets. We further believe that a higher proportion of savings in financial assets would get channelized through equity markets, including direct equity and mutual funds products, due to relatively higher return profile compared to other financial products.

Summary of macroeconomic impact

Macroeconomic Indicator	Short term Impact (H2FY17)	Long term impact (12 month and beyond)
GDP	Negative – Consumption and investment demand to suffer due to cash crunch	Positive – Rise in consumption due to efficient price discovery and higher investment in economy supported by the rise in tax collection to have a long term positive impact
Fiscal deficit/ tax collection	Neutral – Higher tax collection may come with a lag	Positive – Better tax compliance and tax collection on nearly 25% of the unaccounted for funds to help improve fisc position
Investments	Negative – Short term working capital constraints and refinement of upcoming tendering process may cause some delays	Positive – Higher tax collection to provide flexibility for increasing investments in creating infrastructure
Inflation	Positive – To lower as downward pressure on prices persist due to lower demand	Neutral – Unlikely to impact the long-term trend
Digital payment	Positive – Higher incentive to use digital payment platforms	Positive – Larger population base to be brought on board the digital ecosystem

Sectoral implications: Sudden tightening of liquidity is likely to impact demand across many sectors in the near term. With 86% of the currency in circulation becoming unusable for commercial transactions we believe that the sectors with a higher incidence of cash transactions will suffer the most, including real estate, luxury items, jewelry, retailing, logistics, consumer durables, SME/rural lending, etc.

Thus, the widely anticipated demand upturn in the second half of FY17 on the back of good monsoon, pay bonanza for government employees and festive-season buying may see some disruption. Despite near term glitches in specific sectors, we expect significant long-term benefits to emanate from this move. We believe that across sectors a structural shift would be visible due to

a) Rising adoption of high end technology creating a robust digital financial ecosystem- we expect private sector banks to be the key beneficiary of this trend leading to higher fee based income and increase in savings deposits

b) Clear incentivization to shift from the unorganized to the organized platforms – Consumption oriented sectors like building materials, consumer durables and retailing would be the biggest beneficiary of the shift

c) Improvement in transparency leading to better governance standards. – this will have a far-reaching effect across all the sectors in the form of efficient price discovery, higher transactions through the formal system, etc.

Impact of this move on the performance of specific sectors and companies is analyzed below.

Sector	Impact	Factors	Impact on companies under coverage
Real estate	Negative	Negatives   Project execution delays: Black component in real estate transaction would reduce impacting working capital availability with the builders   Lowering of demand: Micro markets with high investment demand to suffer the most in the medium term.   Price correction: Reduction in land cost and lowering of demand to put pressure on prices. Positives Shift towards organized players: Curb on cash transactions will impact unorganized players, creating a shift towards the organized segment   Efficient price discovery: Transparency in the system will lead to efficient price discovery for genuine buyers	Long term positive for organized players like Godrej Properties
Banks	Positive	Negatives   LAP portfolios to suffer: LTVs on LAP loans to rise making these assets riskier   Retail portfolio slowdown in short-term: Banks may have to relook underwriting processes for retail and rural financing for the next few months implying potential slowdown   Asset quality dip:a) Cash based EMI collection to be impacted leading to higher NPLsb) Rising risk on the LAP portfolio due to asset value contraction leading to high LTVc) Small business owners (SMEs/MSME) will find difficult to make payments on time Positives Liability profile to improve- CASA improvement as unaccounted cash finds way in the mainstream banking system   Higher fee income: Higher e-transactions, rising demand for credit and debit cards to result in higher fee income for the banks equipped with latest technology	Long term positive for IndusInd Bank and Axis Bank due to expected push on CASA and expected increase in fee-based income.
NBFCs	Negative	Negatives   Pressure on LAP portfolio: May slow down due to rising risks   Rural lending slowdown:  Lending to rural markets would be impacted as collection is mostly in cash   Asset quality dip: a) Cash based EMI collection to be impacted leading to higher NPLsb) LTVs on LAP loans to rise making these assets riskierc) Small business owners (SMEs/MSME) will find difficult to make payments on time Positives Demand pick up in CD financing: Cashless transaction will spur demand for CD financing options	Pressure expected in H2FY17 on the LAP, SME and rural portfolios of Capital First, Bajaj Finance, Edelweiss and L&T Finance but over 12-15 months this trend is expected to even out.
Housing Finance	Negative	Negatives   Loan growth to slow down: Anticipated project delays and overall price correction to impact loan book growth in the medium term. However, in the long term it is a positive for the HFCs due to rising eligibility limits and no cash component in transactions. Positive Current Portfolio: May not be impacted as most lending is to genuine home buyers	Negative for the loan book growth in the medium term for Repco and DHFL, asset quality however may remain intact.
Cement	Negative	Negatives   Indirect impact on demand: – 60-65% of consumption is by the real estate sector, therefore demand may be impacted due to expected slowdown in the real estate sector   Pricing pressure – Cement companies may cut down prices to tackle low demand, a rising cost scenario does not bode well for profitability of the sector.	Neutral impact on Ultratech as we expect demand contraction from housing to be compensated by the rise in infrastructure demand. Also, despite pricing pressure co. is expected to report better profitability supported by improving efficiency.
Building material	Negative	Negatives   Demand slowdown: Demand for building materials such as tiles, sanitary ware, plywood, laminates, etc. would see an indirect impact due to lower demand from the real estate segment.   Pressure on receivables: Companies focused on tier-2 and 3 cities/towns, where a large part of the transaction is on cash basis, may face cash crunch in the short-term Positives Move towards organized segment: Sector to benefit from the shift towards organized players	Long term positive for building products players due to increasing shift in trade towards organized players including Cera Sanitayerware and Greenply.
Retailing	Short term negative	Negatives   Gold and jewelry- Demand for gold and jewelry is expected to drop as traditionally large unaccounted cash transactions are a common occurrence in this segment   Consumer Durables- Most consumption is B2C and ticket size is small prompting cash transactions (70-75% of current sales), temporary dip in volumes expected Positives Discretionary items– Demand for high-value luxury items may not be impacted as PAN disclosure is mandatory for Rs 2 lakh plus transactions, even currently.   Non-discretionary goods– Demand is sticky, therefore no long-lasting impact anticipated on these products   Move towards organized segment in jewelry – Curb on cash transactions will be a huge positive for the organized players.	Neutral for the luxury watch retailer, KDDL as plus Rs.2 lakh transactions already have a mandatory PAN disclosure requirement.   Long-term positives for the Consumer Durable plays, like Havells and Crompton Greaves Consumer electrical due to increasing shift towards organized segment.

We would like to conclude by saying that we highly commend the steps taken by the current Government to curb illegal trades and bring black money in the formal system. This move will strengthen India’s position as the most favored investment destination globally. Specifically, we expect equities as an asset class to benefit the most. Until now equities have competed with assets like real estate, gold and even chit funds, on an informal platform. Despite obvious benefits and consistent outperformance vis-à-vis other asset classes, equities till now has not found its rightful place as an investment product. We believe that the current move for demonetization has strengthened the case for equity investments.

1) Price correction in gold and real estate imminent – Value of gold and real estate is likely to correct as excess black money is sucked out and true price discovery on actual demand-supply basis emerges. This we believe will pull down the returns from these assets in the medium term.

2) Corporate performance to get a boost – Benefits of inclusive growth, efficiency gains, higher infrastructure spend, lower cost of capital, etc. is likely to provide additional growth triggers for corporate performance going forward, which should eventually get reflected in stock price appreciation as well.

3) Tax-advantage of investments in equities – Increased transparency in the system and disclosure norms will dissuade genuine investors from dabbling into other assets to save taxes, instead they would be incentivized to invest in equities that offers much higher tax free returns. (long term capital gains tax on equities is nil, whereas all other financial – PF, FD, Pension, etc.- as well as physical assets – real-estate, gold, etc.- are taxed on capital gains or on withdrawal)

In conclusion, we believe that markets are set for a strong recovery and hence recommend all our clients to readjust their portfolio weights in favour of equities. Choose quality names and invest for the long-term.

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July was a good month for Indian markets. Shrugging off the global concerns of last month, markets continued to show resilience and registered respectable gains in July too. The Benchmark Nifty50 gave monthly returns of 4.23% and has been consistently making new 52-week highs.

All major indices also traced upward sloping curves and ended at their respective monthly highs.Nifty Next50 and Nifty 500, did even better and ended with 9.37% and 5.0% returns respectively.

On-the-mend fundamentals, increase in near-term global liquidity, hope of this earnings season being better than the previous one and better than expected monsoon, have all contributed towards this up move.

FIIs too are adding fuel to the rally and have pumped in $1.3 billion in Indian equities in July alone (Source: Livemint). Also, the sustained rise in markets in last few months has resulted in many companies coming out with their share sales (mostly IPOs). Infact, till now 47 IPOs have raised close to $1.5 billion in 2016 alone. This amount is twice that of what was raised in entire 2015.

But it is worth noting that this rise in share prices across the market has put India further up in the valuation matrix. So the risks due to high valuations have increased. And in spite of most analysts being bullish, it would not be surprising if volatility increases in the near term.

Though the risk of increasing inflation due to monsoon has receded, those due to increase in international commodity prices and implementation of the 7th pay commission recommendations still exist. So RBI has maintained status quo in its monetary policy meeting in August. There are no changes to the key rates.

Expected* passage of the GST Bill in Upper House of Parliament remains one of the big developments for the economy. (*Update – GST bill was passed in Rajya Sabha on 3rd August 2016.)

GST is expected to be a game changer for the Indian economy. A study commissioned by the 13th Finance Commission to assess the long term boost to GDP due to GST, put the figure at 0.9% to 1.7% of GDP. As of now, multiple layers of taxes under both central and state governments have made it difficult for companies to conduct business.

The GST Rollout is expected to simplify the tax structure, encourage compliance, lower costs, and broaden the tax base.

As of now though, the precise GST framework is still not clear. Earlier, a GST panel led by Chief Economic Advisor had recommended a revenue neutral rate of 15.0-15.5% (excluding petroleum, real estate, alcohol and electricity). But another view was to have a 3-tier structure where a) lower 12% rate would be applied on essential goods; b) 40% on luxury items and c) 17%-18% on remaining goods (including services).

Till very recently, the opposition parties had been against the GST bill in its current form. But at the time of writing of this update, most issues have been ironed out and the Rajya Sabha has passed the bill. Post passage of the GST bill, a council will then formalize finer details by end of this year. The implementation will take almost an year though government is targeting a rollout by 1st April 2017.

It is possible that initially, the government might adopt a multi-tier, diluted version of the GST. This is to give time to all stakeholders to come up to speed with the GST regime. But in medium term, a switch to single rate is most likely so as to create a real single-rate system. But whatever be the structure eventually, its clear that it will be much preferable to the current VAT based multi-tier structure.

Coming to our portfolio, we remain convinced about the long-term India story inspite of the increase in valuations. Apart from the expected passage of GST bill, we believe that a lot of investments and economic/policy decisions taken in last 2 years have set the stage for the next upmove.

Our portfolio remains adequately diversified across sectors and themes. The month of July saw no change in our holdings and sector allocation remains the same.

We understand that your time is valuable and we thank you for taking time to read this message.

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

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After all, who would say no to free (or very low cost) money?

But that doesn’t mean that a global liquidity crisis will have no impact on India.

This continued for years and situation today is such that entire world looks like a huge pile of debt. Just about all economic activities involve the flow of credit, in some form or the other. Also, it seems that the only way to have more economic growth is to introduce even more debt into the system!

This (almost) zero-rate regime in advanced economies has helped lift asset prices across emerging countries like India.

How?

The money (borrowed at low-rates) had to find a place where it could earn better returns. So money started flowing into countries with higher growth potential, i.e. emerging nations. India too became a large beneficiary of this money-flow, which played a significant role in pushing Indian markets to new highs in 2015.

But governments are increasingly becoming aware of the risks of continued debt binge. In words of an expert, it is like riding a tiger not knowing how to get down without being eaten. Hence as a first step towards debt-prudence, governments are now looking to reduce the supply of low-cost credit.

The US Federal Reserve (Fed) has already started the process of rate tightening and in December 2015, increased the rates after several years. And as per Fed’s commentary, it will continue increasing rates further if economic factors permit.

But this would be easier said than done. The US is not growing as fast as expected. So increasing rates now will mean trying to accelerate with one foot on the brake.

The fear of a rate-hike stalling economic recovery was evident in the last Fed meet too in April this year, when the officials decided not to raise the rates for time being.

Whether the US actually does increase rates further or not, is debatable.

But one thing is clear that going forward, liquidity will not be like it has been in last 7-8 years (since 2008). The money which found its way into emerging markets till now, will slowly start moving back to developed economies like US. This is because of the reducing interest rates (or expected returns) differential.

But when it comes to inter-country flow of money, things are not that simple.

In spite of the last 0.25% rate hike in the US (in Dec-2015), cost of funds is still not very high. So even if some of the funds were to move out of India, chances of a major chunk moving out at the same time are pretty remote.

Rather, the fear is more about reduction in the new inflows.

But again, money needs to find better avenues for growth. And in a world economy that is slowing, India is one of the very few countries having real potential of long-term sustainable growth. This is something that all foreign investors have known for years.

Just have a look at what FIIs have been doing since start of 2000:

It can be safely said that in last 15+ years, they have been net buyers of Indian stocks, barring two years. This is despite all domestic and global problems that have occurred since 2000.

The point to understand here is that foreign investors need avenues to invest money and earn returns higher than risk-free rates.

And since Indian growth story is still strong, foreign investors don’t have much of a choice. On a long term basis, they need to remain invested in India. Of course, they might reduce/increase their exposure in short-term (which will cause volatility).

But net-net, the foreign investors understand the benefit of staying invested here. With very few similar investment opportunities available, the risk-to-reward ratio of staying invested in India is tilted in favor of reward.

Globalization has ensured that the Indian economy cannot remain insulated from rest of the world.

But if liquidity crisis does take place, it’s safe to assume that the collaborative intervention by central banks of developed countries will inject liquidity. This in turn will reduce the unwinding of Indian investments held by foreign entities. Also, the Indian administration is not sitting idly. RBI is on track to reduce policy rates further to boost liquidity. If there is a need to inject more liquidity, it will not hesitate to do that via CRR/SLR cuts.

So the whole point here is that the fear of decreasing global liquidity is not entirely wrong. But it’s also true that India is in a very good position to manage the situation. India will continue to see FII interest – due to unavailability of suitable alternative investment opportunities elsewhere.

In short-term, stock markets might turn volatile and stocks with having high FII-ownership and foreign borrowings witnessing steep cuts. But this will offer a good opportunity for long term investors to buy shares of good business in times of temporary crisis (https://www.researchandranking.com/crisis-investing/). This has worked in past for successful investors and this is what will work in future too. The sooner smart investors realize this; better prepared they can be take advantage of such opportunities.

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