My Thoughts

Arbitrage Funds – Good Bet in Volatile Markets

2015-12-11T14:55:00.002+05:30

The calendar year 2015 has been a year of consolidation. After seeing the 30K peak the markets have seen a phase of correction amidst the bout of volatility. These volatile conditions have been conducive for specialized theme of mutual funds, known as arbitrage funds.

Arbitrage is basically buying in one market and simultaneously selling of an asset in another to gain from the temporary price difference. It is considered as a riskless profit for an investor. Arbitrage funds use these price differences and execute the strategies in various segments such as cash-cash, cash-future etc.

Swing Patterns

Before we delve more in arbitrage funds, following is the analysis of daily swing patterns of Sensex. In CY 2015, Sensex has witnessed the highest 77 sessions of 200-300 points’ swings, 62 sessions in 300-400 points band. In CY 2014, Sensex saw the highest, 91 sessions of 100-200 points’ swings and 88 sessions in 200-300 points band.

Another striking difference in these 2 graphs is, 2015 observed more high range swing sessions (300 to 800 points) vis-à-vis CY 2014. It was a tough fight between 100-200 band and 200-300 band in 2014 but in 2015, 200-300 band gained prominence over others. These conditions are best suited for arbitrage funds and with use of algorithmic trading these index swings might grow leaps and bounds.

Arbitrage Funds – a hybrid option

Arbitrage funds are categorized as equity funds (with average exposure of more than 65% of equity) but are comparable to debt funds from the return perspective. They offer a near risk-free return along with tax advantage against debt funds i.e no long term capital gain tax if one holds it for more than 1 year. In case of short term capital gains too, arbitrage funds enjoy a tax advantage over debt funds with the indexation benefit factored-in.

The above image captures the performance of “Arbitrage Funds” operational in Indian MF scene. All the funds are yielding positive on YTD basis. The performance of these stocks have also never faltered on other timelines as well with “Reliance Arbitrage” being the consistent performer with returns of above 8%.

On the AUM front, Arbitrage funds basket has more than doubled from Rs 12000 crores of AUM in Jan 15 to around 30000 crores in Nov 15. JM funds leads the pack with Rs 5675 crores of corpus. Most of these funds have an exit load of 0.25% to 0.50% applicable for 90 days tenure.

In a nutshell, investors need to understand the concept of derivatives before investing in any arbitrage fund. It should not be treated as an equity fund aiming for capital appreciation. The returns of these funds are directly proportional to the volatility in equity markets: the more, the merrier.

Exposure to these funds should not be more than 5% to 10% of the overall portfolio. They can be a good investment candidate for short term or as a “parking fund” for long term equity investments as they offer a tax advantage over debt funds.

The article has been originally published on Finalaya

Are you still in love with Fixed Deposits?

2015-11-26T16:28:00.000+05:30

The interest rates have started their southward journey and are creating new nadirs with every passing day. The debt instruments strategies needs to be analysed and the key component of this basket is “Bank Fixed Deposit”. The best part of the Fixed Deposits are liquidity, safety and reinvestments which allures the investors towards them but the lower rates are a deterrence for investment.

The Bank FDs currently quotes in a range of 7.75% to 8% at their peak and one can add another 25 to 50 bps for senior citizens. The rates will further go down if one factors in the tax rate which is applicable as per the tax slab the investor falls in. If we further factor in the average inflation of 5% to 6%, we eventually get a negative return on our FD investments.

Liquidity, Reinvestment and Safety

Bank FDs are definitely liquid and can be broken as per your convenience but this comes as a cost of lower interests as a penalty because of pre-mature withdrawals. Reinvestments at a lower interest rate will impact your financial goals which depends on time horizon and risk profile. Shifting for few enhanced interest rates bps in another bank will not yield any rich dividends. The 1 Lakh Rs safety of savings are not that big impetus for choosing a bank for investment.

Alternate Investments

One cannot deny the safety of Fixed Deposits but the lower interest rates are big turnoffs and thus one should explore and evaluate other options which are relatively safe and outscore the FDs in terms or returns and provides a better tax advantage.

If the fixed deposits are arsenals of the long term financial plan: PPFs, Tax Free Bonds and Sukanya Sammradhi Yojna (for the girl child under the age of 10 years) are superior options with a phenomenal tax advantage. They fall in the Exempt-Exempt-Exempt (EEE) category with no tax applicability at investment, intermittent income streams and redemption stage.

For the short term perspective with a time horizon of 3 years and above, one can invest in ultra- short and short-term debt funds or FMPs. Arbitrage Funds can be ideal investment options for 1-2 year timeline. These investment paths are not popular because their returns are not guaranteed and are market linked, which is subject to volatility to a certain extent.

Risk Profile also matters

In addition to the time horizon, the investors risk profile is an important factor. If one can take moderate risks, Monthly Income Plans and Corporate FDs are also good investment candidates which yield better returns vis-à-vis the traditional low risk instruments. In corporate deposits, investors should focus on top rated deposits but with the higher rates bounty, premature withdrawal can be a tricky situation.

MIPs have an equity flavour in them along falling in a range to 10% to 25% along with debt instruments.

Systematic Withdrawal Plans in MIPs and debt funds are good bets for those who have periodical funds requirements. The investors get monthly or quarterly funds either on a fixed mode (fixed withdrawal) or on appreciated mode (only withdrawal of the appreciated funds)

To sum up, the investment pattern should change with the changing times. The inflationary scene will grow with times and thus one needs to amend the financial plan accordingly for a secure and prosperous financial feature. One should choose an investment option which optimises returns, ensures liquidity and minimises tax without compromising on safety.

Other than FDs which other investment options you will choose for higher returns and tax advantages?

The article has been originally published on Finalaya.com

How systematic are your SIPs?

2015-11-23T15:48:00.001+05:30

Mutual Funds and especially the Systematic Investment Plan (SIP) approach have emerged as the fad of investing in recent times. The SIPs are safe and convenient means of investing in a bid for wealth creation or a corpus creating. SIP also offers you immunity from the Market volatility owing to various global and domestic factors. MFs also outscores the traditional investment avenues such as FDs, PPF, Post Office Schemes etc. and also is a better financial weapon w.r.t conventional tools in your fight with inflation.

Identify Goals

All of the above statements are correct about MF and SIPs but when the SIP is aimed for corpus or wealth creation, the next question which comes to mind is purpose/goal for wealth creation. With so many advisory avenues such as TV Channels, Financial Magazines and Newspapers, people choose candidates for MF investments and on most occasions it is chosen without any predefined goal.

The SIP(s) needs to be backed with goals and these goal in turn could be a – short, medium or long term goal. The goals can have varieties ranging from car purchase, foreign holiday, child education to a retirement planning. One should be mindful of the fact that Equity MF SIP is not a universal solution for every goal. Equity SIPs are preferred for long term goals and exposure to equity is decided depending on the tenure of the goal and risk profile of an investor.

Don’t mix up Investments

The right candidates should be selected for different goals after a thorough analysis or after a consultation from the financial adviser. The SIP(s) should be demarcated clearly for each goal which facilitates easy tracking of the performance. A fund might be concurrently an investment candidate for more than one financial goal. The apt approach is to separately invest in the same fund as per their contribution to different goals. This will help in performance evaluation of the investments w.r.t a goal and rebalancing the same on a case to case basis.

Case: Fund A might be part of 3 goals X, Y and Z for the time horizon 5,7 and 9 years respectively. In a performance evaluation “A” might not be a good fit for goal “X” now but still continues to be an ideal candidate for goal Y and Z. Thus it makes sense that investment in “A” should be spread into three chunks as per the contribution in goals X, Y and Z so as to reshuffle “A” with a better fund.

Stay invested

Many investors stop or terminate their SIPs when the markets go down. On the contrary, the SIPs can be supplemented with additional investments in the bear market situation if the saving’s basket allows you to do so. The SIP and additional investment in a market slump will deliver good returns as it facilitates the investors to buy more units at a lower price. This will eventually help in meeting financial goals effectively with more unit purchases at a relatively lower NAV. The portfolio rebalancing approach still needs to be followed to identify any duds in the portfolio.

Step up a Yearly SIP

The SIPs facilitate investment of a fixed sum every month but the SIP amount should also increase as the one’s income rises which in turn increases your savings. Ideally, the SIP should also increase in the same proportion at which the income grows up. These step-up SIPs can play a tremendous impact in attain the financial goals especially the long term goals

Are you over diversifying?

To attain a financial goal, one should focus on 3-4 well diversified funds which will aid in reaching the desired financial milestone. If one is investing in too many funds, it may lead to a situation of over-diversification which defeats the purpose.

The over diversification can due to various factors and some of the symptoms of this disorder in the MF portfolio can be

Ø Investment in too many mutual funds with any single investment style category

Ø Owning a MF that is subsequently investing in too many stocks (Ideally a Mutual Fund invests in 20-25 stocks)

Ø Owning an exorbitant number of individual stock positions through different MFs

Ø Investing in different MFs across industries but they share the same characteristics such as defensives (Pharma, FMCG) which tend to perform weak in a booming market

Monitor and Track Progress

After all is said and done, the MFs engaged in targeting the financial goals should be analysed intermittently but definitely not on a daily basis. After all the trust and believing, these funds needs to be evaluated with it’s peers and the benchmarks indices. The investment style variations, fund manager changes, industry patterns also play an important role in driving the fund performance. Thus, they need to be evaluated on these parameters as well.

Overall, SIP is one of the best techniques to bear the fruits of both market downturn and uptrend. But SIPs should be targeted for specific goals and not vague goals such as wealth creation. If one invests a fixed amount every month it would not only reap benefits of a market crash but would also smartly reach the targeted financial milestones.

Originally Published on Finalaya.com

Axis Bank: Pathetic Customer Service Experience

2015-11-21T19:05:00.001+05:30

I experienced a dreadful customer service experience with one of the leading private sector banks.

It started on 3rd Nov 2015 when I walked into their Y.N.Road Branch at Indore with an intention of opening a SSY account in the name of my daughter. SSY stands for Sukanya Samradhi Scheme, a central government scheme for the girl child. I handed over the required documents and a 4k cheque on the same day.

Despite the repeated telephonic and mail follow ups, there was no response on updates about the account opening. On further inquiry, I got a response that the documents are fine and have been sent to Mumbai and they will assist in opening the account.

I escalated this on their customer service mail alias and social media channels as well but the response was "we will soon get back to you" and the "soon" was never quantified.2 weeks passed and they were still clueless on the SSY account status.

On 19th, I again followed up with a telephonic interraction and the response was Mumbai Branch wanted another signature and a zero balance account will be opened as well in my daughter's name. Another instance of moving documents back and forth from Mumbai to Indore and Indore to Mumbai. I declined this because as they said it will take another 7 business days.

The same SSY account which was an awful struggle of 2.5 weeks with Axis was opened today at the nearest Post Office within 5 mins

To sum it up, leading private sector bank has a lethargic approach towards govt schemes and are "misinformed" about the same. The branches have no co-ordination and have a "procrastination" attitude. I was continuously following up on various channels but there was no communication from their end despite the escalation.

Axis also tried to sell other similar nature schemes of their bank through mailers intermittently but they had a sombre stance about govt schemes.

The government should track and monitor performance of the private sector banks as well if it wants to address the challenges of "Financial Inclusion".

2015: IPO Rush Sans Retail Hysteria

2015-11-19T12:14:00.002+05:30

2015 has been a year of consolidation for Indian Equities. After surpassing key levels of 30K and 9K earlier in the year, Sensex and Nifty have been jittery all throughout amidst the global and domestic factors. However, when we switch our focus from secondary market to primary market in 2015, it has been a wonderful ride after a lull of almost 4 years.

The IPO voyage in 2015 has seen 18 companies boarding the IPO train and resulting in a fund raising of close to Rs. 10000 Crores. This has been a much improved performance since last 3 years. In the past years, 6 IPOs raised Rs. 1260 Crores funds in CY 2014, 3 IPOs mobilized Rs. 1284 Crores funds in CY 2013 and 11 IPOs collected Rs. 6770 Crores Funds in CY 2013.

IPO activity in first half of 2015 has been a dull affair with no big names hitting the bourses. In the second half, big names such as Coffee Day Enterprises, Interglobe Aviation and Syngene struck the Indian IPO scene with relatively big fund raising plans vis-à-vis smaller contributors.

Kindly read further @ http://ow.ly/UPpyO

Samvat 2072 starts positively on a bumpy road

2015-11-11T21:25:00.000+05:30

The 2015 Diwali Muhurat trading session ended on a greenish after the slew of Modi government FDI reforms in response to the Bihar Debacle.

The markets may witness a short term euphoria as a result of these FDI announcements but the dismal Q2 earnings and the Dec Fed Meet will keep a check on any run up in the markets.

The broader market situation has been completely gloomy in the last few quarters owing to both global and domestic factors. Even the recent announcements which includes the power reforms as well will take at least 2-3 years to be transformed into any deliverables.

The backbone of the economy, banking system, both private and public are in a complete disarray due to rising NPAs and are lacking the financial prowess.

Even the defensives like IT and Pharma, saviours of the market in tough situations are not performing their roles. The Autos, CDs, CGs and Telecoms of the world are also struggling to be dominant players of the consumption theme.

The overall markets are in a completely gloomy situation and stock specific themes are working. Most of these themes are in mid and small cap categories which are risky propositions when compared to the bellwether stocks.

D-Street is completely looking clueless at this point in time. The interest rates have eased and now is the time for the government to step on the gas pedal for big bang reforms like GST, LAB. They need to work with opposition parties and the state governments to induce the desired competitive federalism.

All in all, they need to work with all the stakeholders of the democracy via aiming "consensus politics" and not "vindictive politics"

Mid, Small Caps Rule D-Street in 2015

2015-11-05T17:49:00.000+05:30

2015 has been a year of consolidation for the Indian Equities after the euphoric ride in 2014. The Indian Markets in CY 2015 have witnessed lot of global events such as Greece Crisis, Brazil Junk Rating and Chinese Meltdown. Indian Markets are still eagerly waiting for the biggest event “Fed Rate Hike” which is scheduled in Dec 2015. Although analysts believe that wait on Fed decision will continue to linger on until early 2016 until the global economic turmoil settles down.

On the domestic front, Indian markets also paused their ecstatic ride because of the hefty valuations and subdued financials results in the last few quarters. The Dalal Street was also anticipating a favour from the Mint Street which was finally delivered on 29^th Sep as a 50 bps repo rate cut. Markets are also expecting a boost from the government in terms of reforms push and phasing out deadlock around the key bills in Upper House of the Parliament. Bihar election verdict on 8^th Nov will also guide the direction of the market in the short term.

Please read further @ http://ow.ly/Uhilj

Happy 20th birthday Nifty: Stock of the Nation

2015-11-03T18:06:00.000+05:30

Nifty celebrates its 20^th birthday today after its inception on 03^rd November 1995. The following visuals captures the growth and de-growth trajectory over the years.

Nifty Journey over the years

Nifty % yields over the timeline

Over the years, Nifty has yielded a CAGR of 12.23% till 3-Nov-2015

SH Kelkar IPO: Social Media Compendium

2015-10-28T13:24:00.002+05:30

The Indian primary market is back in action with big names lining up for public offers. CCD IPO just managed to cross the line via institutional investors, the retail and HNI category were in a cautious mood. Indigo IPO which opened on 27th Oct has already created a lot of furore with its hefty dividends to promoters, negative net worth and high pricing. S H Kelkar, largest domestic producer of fragrance is another name in the IPO bandwagon which opens for subscription on 28th to 30th Oct 2015.

The Rs 500 Crore SH Kelkar IPO has been priced in the range of Rs 173-180 and includes a fresh issue of shares worth Rs 210 crores which will flow into the company. The rest of the portion is an offer for sale by Private Equity Firm Blackstone Group and the promoters. The company is operational since 1922 as a manufacturer of Industrial Perfumes in British India and enjoys a 20% market share in the fragrance industry, according to a market research study.

Pros and Cons

The company has a well-diversified portfolio in the fragrance industry with its “Keva” and “Cobra” Brands. The client base is equally diversified with no client contributing 5% of its revenues. The company has been a big name in the Rs 4000 Crore fragrance industry and has been focusing on expansion in terms of client base (MNCs), geographical and technology strengthening.

On the contrary, company has a huge dependency in the FMCG Sector which is a cyclical industry. The company has a loan book of 180 crores and most part of this IPO will be deployed to retire the debt of the company and subsidiaries. The company is operating at an optimum capacity utilization and is unlikely to go for capex in the next few years. S H Kelkar also has no direct competitors in the Indian capital markets and thus has no benchmarks to gauge the valuations.

Social Media Outlook

I used various social media listening and analysis tools in an effort to capture social media vibes and overall sentiments around this IPO. The timeline chosen for the analysis was from 21st-Oct-15 to 27th-Oct-15.

Click here to read further: http://ow.ly/TVU48

How Social Media perceives Indigo IPO?

2015-10-27T13:07:00.003+05:30

The long awaited airline IPO or Interglobe Aviation which operates Indigo is set to hit the primary markets, from 27th to 29th October 2015. The company is coming out with Rs 1272.2 crore issue at a price band of Rs 700-765, offering 1.66 Crore Equity Shares. Besides this, company also planned to offer up to 26,112,000 additional chunk of shares via OFS aggregating the share sale up to Rs 3268 Crores. However, on the first day of their IPO roadshow (19th Oct) few of the promoters decided to offload less shares as part of OFS, thus IPO size came down by 250 cores to Rs 3018 Crores at the highest band.

Turn-ons vs Turn-offs

Indigo, despite being a component of a very volatile airline industry has seen exponential growth in the last few years. The company has been profitable in 7 out of 9 years of its existence and has focused only on the Low Cost Carrier (LCC) approach for its survival. The LCC operations means sticking to single aircraft type, low fares, no-frills approach and concentrating on “point to point operations”. The company has the highest market share of 37.4% in domestic operations as on 30-Aug-2015.The company also has the highest 11.4 hours per day of aircraft utilization and average age of 3.12 years (youngest fleet) amongst the domestic carriers.

On the flip side, negative net worth and whopping dividend outflow to the promoters have been the most concerning pointers. The RONW was very good since last years but suddenly tanked into red as on Q1 of the ongoing fiscal. The whopping dividend to the promoters just before the IPO has raised eyebrows but company justified it that they have been always investor friendly and will continue this practice even when the company goes public. The negative net worth was also attributed to the dividend outflow to the promoters.

On a thorough analysis, the company paid 80% of the profits as dividends in FY14 and 83% of the profits as dividend in FY15. Analysts have also questioned Indigo’s approach of paying hefty dividends and not building reserves or lowering debt which tantamount to mammoth Rs 3912 Crores as on Jun 30, 2015. The industry and subsequently company also enjoys a huge advantage of lower oil prices and there is no guarantee that crude will continue to be at this bottom or trough over the long run.

Amidst all these favourable and unfavourable pointers, the IPO price band of 700-765 has been also questioned by the analysts. The analysts and brokerage house feel IPO pricing is on the higher side and company is quoting a huge premium for the all advantages it relishes in the airline industry.

Social Media Outlook

In an effort to capture social media vibes and overall sentiments around the Indigo IPO. I used “Talkwalker”, a Social Media Listening and Analysis tool. The timeline chosen for the analysis was from 20th-Oct-15 to 26th-Oct-15.

Please read further @ http://ow.ly/TSTMk

Coffee Day Enterprises IPO: Social Media Analysis

2015-10-20T12:59:00.004+05:30

Coffee Day Enterprises Limited (CDEL) Rs. 1150 Cr IPO closed on 16th Oct with an over-subscription of 1.81 times. It was the biggest IPO in three years since Bharti Infratel in Dec 2012. Also, huge expectations were set on this one, hoping that this will be the initiator of much awaited revival in the primary market. On the contrary, a muted response was witnessed from all categories of investors in their subscription figures (QIB: 4.39, NII: 0.54, Retail: 0.90 and Employees: 0.86).

On preliminary analysis CDEL which owns a big brand CCD has lots of positives: It acts as a holding company for diversified business such as ITES (Mindtree), Logistics (Sical Logistics) and Financial Services (Way2Wealth Securities Ltd.). The promoter, VG Sidhartha has a good reputation in the Industry and CCD is a well-known brand having presence in almost all major Indian cities. On the flip side, the major negative for CDEL is its dreadful financial performance which continues to sink into hefty losses year after year.

Amidst all the hype of a big bang IPO, CDEL just managed to sail through on the last day as the investors analyzed all the positive and negative aspects about this IPO. The negative sentiments outnumbered the positives which is reflected in the dismal subscription numbers.

I analyzed the CDEL IPO from the Social Media perspective to gauge the overall sentiment around the same.

Please continue to read further @ http://ow.ly/TC2Ip

A foggy dreary December

2012-12-28T18:14:00.000+05:30

Dalal Street ended November on a promising note with two back to back triple ton sessions for Sensex. The euphoria in the Indian Markets was primarily because of more support to the government’s reform process from its allies and positive global cues.

December started on pleasing note in terms of events, the UPA secured victory in their battle of Retail FDI in both houses of parliament. The IIP numbers for the month of October 2012 painted a rosy picture as it stood at 8.2%, a 16 month high. WPI Inflation eased to 7.24% in November as against 7.45% for Oct 2012. CPI inflation climbed to a three month high at 9.90% but still quoted below 10%.

Markets were not at all impressed with the series of these events and failed to maintain the zeal and enthusiasm as was visible in November end. The key benchmarks struggle to find any direction and continue to face headwinds in the upside amidst weak global cues.

In the U.S, the economy is apprehensive of the “Fiscal Cliff” problem. Fiscal Cliff is a challenge that the U.S. government will face at the midnight of 31 December, 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

As per the article in about.com, “the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, a rollback of the "Bush tax cuts" from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect”.

This problem in U.S did not emerge in a day, it was open for discussion since more than a year but no breakthrough has been achieved till date. Republicans prefer a cut in spending instead of raising taxes while Democrats want a balancing act of spending cuts and increase in taxes as well.

Global Markets are keenly eyeing the developments on the Fiscal cliff story and the possible breakthrough, if and when it happens. The structure of the possible solution will govern how it impacts the U.S economy as a whole and the world markets as well.

Indian markets have performed reasonably in 2012 despite the fact India Inc. was suffering from policy paralysis and political logjam for the major portion of the year. Mint Street has eased the interest rates earlier in the year but the key rates are still close to their peaks. The inflation numbers are still looking scary.

On the flip side, when we closely look at the impressive performance in 2012, all this has come from a lower base and good economic fundamentals. The condition of Indian economy is far weaker now than what it was a year ago. The weakness is reflected in the GDP numbers, manufacturing stats which continue to suffer and last but not the least, inflation which has still not reached in the safe territory.

December has been generally a progressive month for the markets if we look at the historical numbers. Out of 12 occasions, benchmarks faltered on only 3 instances in the Christmas month.

December 2012, has been a sedate month till date. Overlooking all the positive events and worried over the global cues specifically the Fiscal Cliff, the markets have been clueless on finding the right direction.

Markets pundits forecasted as darling December but it has turned to be a dreary December till date. With just one more trading day in this month, any miraculous movement in the markets either way will solely depend on a solution or no solution to the Fiscal Cliff puzzle.

Indices Pack: Performance Review

2012-12-02T15:39:00.000+05:30

Indian Markets have shown a remarkable strength in the last week and ended November on a promising note. The euphoria in the Indian Markets was primarily because of more support to the government’s reform process from it’s allies and positive global cues.

All this positive sentiments aided to a 4.5% upsurge in the benchmarks in a shortened week. Both the Sensex and Nifty created a new 2012 high and are currently quoting at 19 month highs. These positives overpowered the market so much that it completely neglected a setback on GDP front, which continued it’s negative trend in the eighth consecutive quarter. This up move in the market resulted in a net gain of 2, 50,000 Crore Market Cap on a week on week basis.

Following is the analysis of returns of all NSE and BSE indices including the benchmarks on a Year-to-date basis (As on 30-Nov-12). Additionally, the list conveys the closeness of all indices w.r.t their respective 52 week highs and lows.

Key Observations:

 Sensex and Nifty have posted 25.14% and 27.15% returns on a year to date basis.

 36 Indices have managed to generate returns greater than Sensex. The leader in the pack is Consumer Durables with 53% returns followed by Bank Nifty which managed to generate 52.5%.

 15 Indices underperformed Sensex and out of which, 10 managed to end up in double digit gains.

 The worst performer on YTD basis was IT which managed to gain only 2 %, followed by Teck which was superior to IT with 4% gains.

 All the indices have ended up with positive gains on a YTD basis and 25 indices touched their respective 52 week highs on 30 Nov 12.

Closeness to 52 Week Highs/Lows

46 indices are currently quoting in the range of 10% with respect to their 52 week highs. 5 of them quoting in 10 to 20% range and only 1 of them, CNX Metal in the range of greater than 20%.

11 indices are currently quoting in the range of 20% with respect to their 52 week lows. 30 indices are quoting in a 20 to 40% range and another 11 of them quoting in a range of 40 to 60%.

Muhurat and Samwat Performances: Key Benchmarks

2012-11-14T17:06:00.001+05:30

Muhurat Trading Performances of Sensex, Nifty, BSE 100, BSE 200 and BSE 500 since 2000

Pointers:

In last 13 Muhurat Trading sessions, Sensex along with BSE 100 and BSE 200 have ended in green on 11 occasions.
BSE 500 ended up in green for 10 instances and Nifty ended up with 4 red sessions.
2008 Muhurat Trading generated blockbuster returns for the above mentioned indices to the tune of almost 6%.
On an average basis, BSE 100 generated the highest returns of 1.02% in the pack and Nifty generated the least to the tune of 0.74%.

Samwat Performances of Sensex, Nifty, BSE 100, BSE 200 and BSE 500 since 2000

Key Stats:

In last 12 Samwat’s, Sensex and Nifty posted negative returns on 4 occasions while the other three generated negative returns on three instances.
In Samwat 2065, all the benchmarks posted greater than 100% returns and BSE 200 emerged as the winner with 112% returns.
On an average basis, BSE 500 generated the highest returns of 24.42% in the pack and Nifty underperformed all other indices with returns of 21.75%.

Monsoon vs. Sensex: The story so far

2012-08-23T11:17:00.003+05:30

The Indian Monsoon story for 2012 has been pretty much volatile so far. It started off late in June vis-à-vis it’s schedule and faced a rough patch in most of the July with alarming fears of another drought year in a span of just three years.

In the last week of July, things improved substantially with the some relieving showers which engulfed major part of the country. As a result of this bounty, the rainfall deficit contracted to just 15% which reached to an humungous level of almost 30% at one point of time.

India inflation story is also looking merrier now as the July Inflation (WPI) has eased to 6.87%, which happens to be a 32 month low. This may ease off more as the rainfall deficit has started it’s southward journey as a result of some blessings from the rain gods.

Read full article @ http://www.finalaya.com/1_636_article_Monsoon_vs_Sensex_The_story_.aspx?pno=1

FD Investments: It’s decision time

2012-07-23T12:34:00.000+05:30

My previous post revolved around the Auto Sweep functionality which deals with creation of FDs which can be easily converted into cash to cater your liquidity requirements and concurrently earns you higher interest in the process.

I have continued to stick with the FD theme in this post and focused on exploring the conventional form of Fixed Deposits, which we are more familiar with.

Full Article @ http://www.finalaya.com/1_632_article_FD_Investments_Its_decision_.aspx?pno=1

Auto Sweep: Make more money with your money

2012-07-11T21:11:00.003+05:30

Auto Sweep, a feature offered by lot of banks to automatically move money from one’s savings account to a fixed deposit if the balance exceeds a certain threshold limit. This is popularly known as the auto sweep facility. Banks have different nomenclatures assigned to this facility.

Modus-Operandi

Banks define a “base limit”, and money up to that limit resides in the form of cash in one’s savings account. Any amount exceeding the base limit will be converted into a Fixed Deposit. The amount upto the base limit will earn normal interest rate applicable for savings account. The amount exceeding the base limit will earn FD returns on that part of the money.

In case money is needed, the money residing in the Fixed Deposits is transferred back into the savings account and one can withdraw the amount accordingly.

Full article @

http://www.finalaya.com/1_629_article_Auto_Sweep_Make_more_money_w.aspx?pno=1

International Diversification: Another facet of Investing

2012-07-07T22:35:00.000+05:30

Mutual Fund investors based on domestic equities have faced topsy-turvy times in the last year or so. The Indian benchmarks have been in a range bound journey and are clueless amidst the economic slowdown and carnage happening on INR arena.

In response to all this, the market pundits are re-emphasizing on the diversification term. Diversification aims to invest in different variants of assets such as real estate, gold, debt, equity to reduce the overall risk of one’s portfolio. This is on a premise that when one type of asset is doing poorly, another will make up for it.

Another variant of this diversification theme is “International diversification”. It aims to invest in a number of countries around the world. Different countries have their inherent risks. If one has investments across different countries then the exposure to such country-specific risks is then considerably lower.

The Indian investor has a way out to achieve this diversification by investing in foreign assets through domestic mutual funds. A lot of international equity funds are available through Indian AMCs with varied geographical biases. The recent offering on this line was ICICI Prudential U.S Bluechip Equity Fund for which the subscription closed on 2nd July 2012.

Full article @ http://www.finalaya.com/1_628_article_International_Diversificatio.aspx?pno=1

Indian Markets – Pattern Analysis

2012-06-29T17:56:00.000+05:30

Equity investors on the Indian bourses have had a fluctuating ride in the last decade or so. The turbulence in the domestic markets continues due to global cues and intrinsic issues. WTC Incident, Iraq War and Sub-prime crisis were the major global events which affected us. Currently the markets are also facing headwinds amidst the Eurozone crisis.

On the domestic front, we were in somber mood because of political logjam in 2004 elections, double taxation avoidance agreement (DTAA) worries in 2006 and proposed regulatory actions in 2007 and 2008 by SEBI to curb P-Notes. It was not always a rough ride, the key Indian markets also passed through a euphoric phase in the second half of 2007 which eventually ended in 2008 until the markets again recovered in 2009.

Amidst the volatile markets, stock picking is always a tough task and lot of stress is on a tendency of entering at low levels and exiting at high levels. This strategy is aimed for winning but on umpteenth occasions it often results in pains because of the simple reason that it is next impossible to time the markets.

Yes, it’s hard to time the market and also they are governed by various factors originating from domestic or global arena. But if we analyze the patterns of the past 10 years or more, since the start of year 2000, the experience of this timeline can provide some cues about the market behavior in different time-frames of the year. These revelations can help in drawing conclusions on the various market patterns and possibilities on a preliminary basis.

Following is the data for returns generated by BSE Sensex and S&P CNX Nifty from Jan-2000 to June-2012 on a month-on-month basis. The returns calculated on last trading session of each month and calculations initiated from values of 31-Dec-99.

BSE Sensex:

S&P CNX Nifty:

G/L: Gains vs. Losses in a respective month over different years.

Avg.: Average returns of a month across different years.

Revelations:

1) June has the most occurrences in favor of gains vs. losses (10/3) followed by December (9/3) for both Sensex and Nifty.

2) Occurrences of losses overpowering gains were the most in March and May respectively.

3) 8 out of 12 months have positive average returns for both indices. The highest average returns generated in December and the lowest average returns generated in March.

4) Out of 150 months, Sensex has generated positive returns on 80 instances and ended with negative bias on 70 instances. Nifty generated positive returns for 82 months and ended up in red on 68 instances.

5) The benchmarks ended in green for 11 months in 2006 and generated negative returns on just one occasion. In 2011, these indices faced red on 9 months and just managed the green shade on 3 occasions.

Annual Patterns:

The indices have performed well in the second half of the year in comparison to the first half of the year. Sensex and Nifty generated average returns of .27% and .22% in first half of the calendar year. In the second half, average returns scaled up to 2.05% for Sensex and 2.15% for Nifty.

If we further prune down the analysis of average returns on a quarterly basis, the results are as mentioned above. The 4th quarter has shown the most impressive returns on an average basis and the 1st quarter has shown the worst performance.

On analyzing the pattern, the cautious approach in the first half of the calendar year can be primarily attributed due to uncertainties originating from budget event (in Feb) and worries on the monsoon front, a major dependency for our agrarian economy.

The investor was more interested in markets in the second half as it revolves around lot of festivities which starts from August and lasts up to December. The consumer demand soars in these times and it gives a boost to revenue figures of the companies. This is also reflected in the higher returns in the market in the second half and especially in the last quarter (Oct-Dec).

The market mood also depends on the investment patterns adopted by FIIs, hedge funds and domestic mutual funds and insurance companies. The respective views of these large players drive the investment behavior of retail investors.

The year-wise story so far:

Since 2000, only on 4 instances the benchmarks slipped into the red. 2008 was the year when the benchmarks were in a firm bear grip, courtesy the sub-prime crisis. 2009 was the year when both the indices rebounded sharply owing to UPA’s stronger-than-foreseen poll victory in their second term and expectations of robust measures to boost economic growth.

The last row in the above stats deals with difference of Sensex and Nifty returns on a year-wise basis. On some occasions the difference is miniscule but on others the difference was large as 7%. Nifty generated 54% returns in 2007 but Sensex managed only 47% in 2007. However in 2009, Sensex outscored Nifty in yearly returns by 5%.

If an amount of 10000 was invested in Sensex and Nifty on closing basis of December 31,1999 then the current valuation of the same, as on date is 34819 for Sensex and 35657 for Nifty. The highest valuation on the same criteria (closing basis of month) was reached in Dec 2010 for Sensex (40970) and in Dec 2007 for Nifty (41464). It reached very close for Nifty in Dec 2010 (41436) but was not able to surpass the previous high it attained in Dec 2007.

Caveat Emptor:

All in all, this is just a preliminary analysis of patterns since year 2000 to have some cues about the market behavior in different time-zones of a year. This pattern emerged out in the selected time-frame and by no means is conveying that this pattern will be continued in the years to come. This is primarily because of lots of domestic and global factors drive the markets performance on a broader basis in different time-frames of the year.

These findings should not be solely used to initiate any investment behavior and investment decisions in equities. Thorough research needs to be undertaken by the investor for stock screening and Equity MF screening activities.

Diversified Equity Funds vs. Contra Funds – Review

2012-06-26T10:13:00.002+05:30

The table below lists out equity diversified funds from the large cap and large to mid-cap bias along with their returns across similar timelines. In addition to this, contra funds returns are also listed for comparison purpose.

Fund Returns: (Equity Diversified Pack)

Fund Returns: (Contra Funds Pack)

Green: Outperformance of fund w.r.t both Sensex and Nifty.

Red: Underperformance of fund w.r.t both Sensex and Nifty.
YTD: Year-To-Date Returns

Highlights: (Equity Diversified Pack)

i) Canara Robeco has consistently outperformed the benchmark on all timelines.

ii) SBI Magnum Equity has been able to outperform both the key indices in the last 4 iterations.

iii) 2009 and 2011 was the best year for this fund basket as all the funds have outperformed Sensex and Nifty.

iv) On an average basis, diversified equity funds have been able to outscore the benchmarks on all occasions.

v) In comparison to the contra funds, lot of green is available in the table above, conveying more outperformance vis-à-vis underperformance.

Highlights: (Contra Pack)

i) L&T contra has been a consistent underperformer on all timelines except the YTD returns.

ii) Tata contra has been able to outperform both the key indices in the last 4 iterations.

iii) 2010 was the worst year for contra funds and only exception was Tata contra which managed to outperform Sensex and Nifty.

iv) It has been a decent year so far for the contra funds; with 5 out of 6 funds have outperformed the benchmarks, although not by a huge magnitude.

v) On an average basis, contra funds have been able to outscore benchmarks on just 2 occasions, namely, 2009 and on YTD basis this year.

Top 3 Industry Concentrations: May-31-2012 (Equity Diversified)

Top 3 Industry Concentrations: May-31-2012 (Contra)

The above stats about the top 3 industry concentration reveals that “Financial” as an industry is the top pick for all the 5 equity diversified funds and contra funds as well. Energy or Tech is the second most favorite industry for this pack. The third slot is again occupied by FMCG, Energy or Tech industry, interchangeably.

Top 5 Holdings: May-31-2012 (Equity Diversified)

Top 5 Holdings: May-31-2012 (Contra)

On analyzing the top 5 holdings data from equity diversified pack, the stocks chosen are mostly blue-chips or stalwarts as per their asset allocation bias.

If we analyze top 5 holdings data from the contra pack, the stocks chosen are again mostly blue-chips or stalwarts that have become out of favor due to reasons either intrinsic to them or on a broader note, to the industry itself.

Apart from the blue-chips, the other contra bets such as GSFC and Sadbhav Engg. (Not so famous names) but they are far and few in between.

Conclusion:

After a thorough evaluation, it is now a revelation that almost all the contra funds are also employing a value investing approach. The top picks and top industries are in line to the diversified equity fund following a large-cap bias or a value based style.

The equity diversified pack has shown a decent performance almost on all historical timelines. On the flip side, in contra pack, the returns have faltered on historical timelines but on an YTD measure the returns they have been on a positive side.

This positive aspect is also a reflection on the change in the investment style where the focus in the contra pack has also shifted to blue-chips/heavyweights, thus proving that contrarian approach is not anymore an inherent feature of these contra funds.

Additionally, expense ratio of contra funds is also on a higher side vis-à-vis equity diversified pack because contrarians have a short-term approach and thus involves a lot of churning in the portfolio which also contributes to the higher expense ratios.

Contra Funds - Review

2012-06-21T12:06:00.002+05:30

The turbulence in the domestic markets continues due to global cues and intrinsic issues. Any turbulence in the markets leads to shift the focus towards Contra Funds (Mutual Funds) vis-à-vis regular diversified equity mutual funds. Amidst volatility, the patrons of the Contra funds have once again started advising them to the investor community. They were the star performers in 2008-09 crisis primarily because of their ability to contain downside and decent magnitude of upsurge.

What is a Contra Fund?

Contra, short form of contrarian, focuses on stocks or sectors which are beaten down owing to intrinsic reasons. However, there is nothing wrong with the industry and they have a potential to bounce back in the future. Contra Funds invest in these out of favor stocks for their intrinsic growth potential which the current price may not reflect. The aim of these funds is to gain form the price advantage by investing in these stocks.

Indian Contra Funds

As of now, 6 AMCs have launched the contra funds in their funds basket. Almost all the major fund houses like SBI, Tata, Kotak and UTI have contra funds offerings. SBI launched the first contra funds in India, way back in July 1999. Following table lists out the contra funds currently operational in India with their respective “Expense Ratios”.

As can be seen from the above list, the expense ratios of these funds are on the higher side and barring two, rest 4 are hovering around 2.50%. The best bet in terms of expense ratio is UTI contra with 1.64%. The question which comes to my mind after seeing these whopping expense charges is that if these funds are outperforming key benchmarks and by what magnitude.

Although another school of thought is that contrarian investing is not an instinctive reaction in volatile markets. The purchases are made during widespread carnage, contrarian investing relies on in-depth research to source out greatly mispriced stocks and the foresight to look beyond the short-term volatility.

Performance Review

The next research is on analyzing the returns of these funds for the last 5 calendar years with respect to the key benchmark indices, Sensex and Nifty. The following table highlights the performance of the 6 funds on various timelines.

Green: Outperformance of fund w.r.t both Sensex and Nifty.

Red: Underperformance of fund w.r.t both Sensex and Nifty.

YTD: Year-to-Date

Highlights:

i) L&T contra has been a consistent underperformer on all timelines except the YTD returns.
ii) Tata contra has been able to outperform both the key indices in the last 4 iterations.

iii) 2010 was the worst year for contra funds and only exception was Tata contra which managed to outperform Sensex and Nifty.
iv) It has been a decent year so far for the contra funds; with 5 out of 6 funds have outperformed the benchmarks, although not by a huge magnitude.

v) On an average basis, contra funds have been able to outscore benchmarks on just 2 occasions, namely, 2009 and on YTD basis this year.

AAUM’s in Crores: (as on 31-March-12)

On “Average Assets under Management” terms, the oldest contra fund SBI contra has the corpus of 2702 crores which account for almost 88% of the contra funds basket. L&T is a minnow in the asset race with just 8 crores in its kitty and it has to work hard to compete with even second last player in this category. The total AUM of the contra funds basket stands at 3082 Crs. as on 31-Mar-12and it constitutes just 1.69% of the total equity funds AUM (182076 Crs.) as on 31-Mar-12.

Top 3 Industry Concentrations: May-31-2012

The above stats about the top 3 industry concentration reveals that “Financial” as an industry is the top pick for all the 6 contra funds. Energy is the second most favorite industry for 5 out of 6 contra funds. The third slot is being occupied by FMCG, Energy or Tech industry.

Before reaching to any conclusion on industry picks, let us analyze the top 5 company picks for all the 6 funds.

Top 5 Holdings: May-31-2012

On analyzing the top 5 holdings data, the stocks chosen are mostly blue-chips or stalwarts that have become out of favor due to reasons either intrinsic to them or on a broader note, to the industry itself.

The banks on the whole have been on the receiving side due to the central banks anti-inflationary stance. Moreover as an industry, it is not really out of favor because of the immense potential offered by it and also because of the robust banking system prevailing in India.

The energy industry again offers tremendous potential in the country as most of the Indian states are reeling under acute power shortage. This industry is also facing the music of so called policy paralysis affecting the industry as whole.

The stock picking strategy reveals that fund managers are not staunchly following a contra style of investing, but it also has an element of value investing in it. This is purely because the top 5 highlighted here are not sufferers by any means and on the contrary they are market favorites and are frequently found in any large-cap diversified equity fund.

Apart from the blue-chips, the other contra bets such as GSFC and Sadbhav Engg. (Not so famous names) but they are far and few in between.

Conclusion:

After a thorough evaluation, it is now a revelation that almost all the contra funds are employing a value investing approach. The top picks are in line to the diversified equity fund following a large-cap bias or a value based style.

The high expense ratio for such a value picking strategy is not justified and as it is the returns are also not outperforming the major benchmarks by any means.

The contra fund name is just a fancy to allure the investor and any diversified equity funds with a large or large to mid-cap bias with a good track record and from an acclaimed AMC sounds a much better alternative.

Dogs of the Sensex

2012-06-14T19:18:00.000+05:30

India Inc. continues to suffer from rising interest rates, high costs and policy paralysis and this is now also reflected in the dividend payouts of 2011-12 fiscal which declined w.r.t 2010-11 fiscal. The dividend payout numbers for all the Sensex constituents are out and reflects the somber mood prevailing in the Indian economy. The following table highlights the dividend payout data for 2010-11 and 2011-12 fiscal.

Highlights:

a) The net dividend payout (interim and final) for 21 companies has increased from 2011 to 2012.

b) For 5 companies, the net dividend payouts for both the fiscals have been status-quo.

c) The dividend payout shrinks from 2011 to 2012 fiscal for 4 companies.

d) The negative shock came from Hero MotoCorp for which the dividend plummeted from 5250% in 10-11 fiscal to 2250% in 11-12 fiscal.

e) The positive surprise originated from TCS for which dividend increased from 1400% in 10-11 fiscal to 2500% in 11-12 fiscal.

f) The average dividend payout for 2010-11 fiscal stood at 432% and it decreased to 401% in 2011-12.

Assumption:

Current set of Sensex constituents is assumed for both the fiscals for smooth comparison.

Sensex – Dividend Yield:

The list below displays the top 10 dividend yields of Sensex as on EOD values of 13-Jun-12.

As can be seen from the above list, top 3 ranks in the list are occupied by PSUs and 4 PSUs make it to top 10. 2 Auto companies also make it to the top 10.

In an effort to find a stock screening system, I came across a mechanical strategy that sounds easy as well as convenient. This strategy requires just an effort of two-three hours in a year. The name of the strategy is “Dogs of the Sensex”.

Dogs of the Sensex “Strategy”

Dogs of the Sensex is a replication of a very simplest “Dogs of the Dow” or “Dow 10” strategy introduced by Michael O'Higgins and John Downes in early 1990s. The strategy is aimed at investing in 10 highest dividend yields. Dividend Yield is a measure of dividing the latest annual dividends by the current stock price. A high dividend yield implies stocks whose prices have fallen and are available at favored prices for the investors.

The investments are done in top 10 dividend yields of Sensex for a period of one year. The portfolio is rebalanced after one year as per the latest dividend yields. It is a pure mechanical strategy which gets rid of all the research, patterns and subjective inputs involved in the stock screening activities.

A low dividend yield indicates an over-priced stock and a high dividend yield indicates an underpriced or beaten down stock. The beaten down stocks are the best candidates for upsurge in prices.

The strategy is pretty much in line with the fact that one would like to have a portfolio of companies with impressive dividends and beaten down prices (Sensex Sufferers). It is also supplemented with the combinations of stocks a.k.a blue-chips which has an impressive track record in the past and thus also are making it to the Sensex.

The companies listed out for fiscal 11-12 also coincidentally creates a diversified portfolio in the process with presence felt from all the major industries contributing to India Inc. story.

Performance of Dogs of the Sensex (Fiscal 10-11)

The top 10 dividend yield picks for fiscal 10-11 along with their respective Y-o-Y returns as on 13-Jun-2012 are as follows:

Highlights:

 FMCG duo HUL and ITC secured the first and the second position for highest returns category.
 BHEL secured the top position for negative returns.
 60% of stocks ended up in advancing and 40% in declining categories.
 On comparison of lists of both the fiscals (10-11) and (11-12), there have been 3 new entries:
i) Coal India , ii) TCS and iii) ICICI Bank

The average returns of the pack were 2.20% on a year-on-year basis and it outperformed the benchmark (Sensex) by far which generated -7.59% returns in a similar time frame.

Assumptions for the strategy:

i) Hold and Sell of stocks after a day more than a year as it is considered as long-term capital gain (LTCG) and LTCG are not taxed at all. Any gains that you make by buying and selling stock(s) within a year’s time-frame is considered as short term capital gains and it is taxed at 10 per cent.

ii) This strategy also is not taking into account the transactional costs while the portfolio rebalancing exercise is carried out.

iii) A high dividend yield can also be either because of the stock is tremendously beaten down or it may have substantially increased dividends due to one-off reason (Asset sale, Capital Gain, Special Dividends)

Gold ETFs – Increasing Market Penetration

2011-11-14T13:54:00.000+05:30

Investing in stock markets is turning out to be a risky affair, as it is always surrounded by global uncertainties. Hence, the yellow metal’s shine is only becoming more attractive and a perfect hedge against rising inflation. Investment in gold can either be through purchase of physical gold or through Gold ETFs, which are special types of ETFs which invest in gold and gold related securities.

What is ETF?

ETF or Exchange Traded Fund is an investment fund traded on stock exchanges, just like stocks. ETFs can be based on any of the assets like stocks, bonds, commodities like Gold etc and is supposed to trade close to its asset value. ETFs are interesting for investors as the brokerage/maintenance costs are low and has higher liquidity compared to traditional assets especially in case of Gold. Also, they are easily tradable and have stock like features.

What exactly is Gold ETF?

Gold ETF or Gold Exchange Traded Fund is an investment fund based on Gold as an asset. The price of Gold ETF would be close to its asset value.

Presence in India

With global uncertainties and fall in the domestic price of the yellow metal, month-end assets under management (AUM) of Gold ETFs witnessed a sharp rise. With 44 mutual fund companies in India, only 11 of them have come up with Gold ETFs - Benchmark Mutual Fund (now Goldman Sachs Mutual Fund) was the first to start a Gold ETF in March 2007. The scheme name was Benchmark Gold BeES (now known as GS Gold BeES.

Performance Review

Average Assets under Management (AAUM):

AMFI which was declaring the AUM numbers on monthly basis till Sep-10 is now declaring the AAUM (Average Assets under Management) numbers on quarterly basis after Sep-10 onwards.

On comparing of AAUM numbers, the total AUMs (Corpus) in Gold ETFs category which was 2732.44 Crs. in Sep-2010 has increased to 3765.28 in Mar-2011 (AAUM basis), which further increased to 7053.13 Crs (AAUM basis) in Sep-2011. This is an increase of 37.80% in first 6 months and 87.32% in next 6 months. On Y-o-Y basis, the increase is of 158%.

Market Share (As on Sep-10-2011):

Goldman Sachs BeES has the highest market share of 36.26%, followed by Reliance which has 27.25% of market share. Kotak Gold is the third amongst the 11 having a market share of 10.94%.

Introspection:

 ICICI Gold ETF which witnessed a highest increase of 51% in AAUM in the first 6 months has seen a decline of whopping 26% when all others have gained to their respective AAUM numbers.
 Reliance which gained 36% in the first half, gained a humongous 342% in the second half which amounts to an addition of 1487.51 Crs in it’s AAUM kitty in the second half.

 Kotak Gold ETF’s AAUM increased a huge 200% in the second half in comparison to a meager 12% in the second half.

 HDFC which lost it’s footing by 2% in the first half, gained 11.5% in the second half.

 Religare Gold ETF was the laggard among the gainers in the first half (10%) and the second half (7.59%) respectively.

Expense Ratio:

Source: Value Research Online

ICICI Prudential Gold ETF has the highest Expense Ratio amongst all followed by Birla Sun Life Gold ETF.

Year-On-Year Returns

Yearly Returns (in %) terms - (As on 09-11-2011)

All The ETFs have gained in the range of 38.03% to 39.04%.Reliance Gold ETF has gained the most (39.04%) in the category and ICICI Prudential Gold ETF has gained the least (38.03%) amongst all.

Outlook:

ETFs have outperformed all other mutual fund categories under various time horizons. This can also be viewed from the fact that 75-80% of the ETF turnover under the National Stock Exchange (NSE) is governed by the Gold ETFs. Thus the various benefits mentioned above, coupled with satisfying the need of small and medium investors to invest and accumulate gold units through SIPs has made Gold ETFs more and more attractive. ETFs have also outperformed the benchmark index, BSE Sensex and S&P Nifty, which represents the overall market.

Investor interest in ETFs is also attributed to low cost, transparency and ease of transaction. If the trend continues, ETFs corpus will continue to grow and this might lead to more ETF variants being launched in the near future and a more matured ETF market.

In US, there are already different types of Gold ETFs available for trading.

Gold ETFs investing in physical Gold: They are the ones which we have in most countries. As mentioned earlier, they are backed by physical Gold. Some of the Gold ETFs in this category: SPDR Gold Trust (GLD), iShares COMEX Gold Trust (IAU) etc.

Gold ETFs investing in Gold futures: They are the ones which invest in Gold bullion futures rather than directly investing in physical gold. Investors interested in high leverage trade in such ETFs as the leveraged Gold ETFs allow traders to gain multiples of their investment through leverage. One of the Gold ETF in this category: PowerShares DB Gold (DGL).

Short Gold ETFs: These ETFs are inverse in nature i.e. when gold prices move northwards, the price of gold ETF comes down. One of the Gold ETF in this category: Ultra Short Gold ProShares (GLL).

Gold Miner ETFs: These ETFs invest in the shares of gold mining companies. Some of the Gold ETFs in this category: Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ), PowerShares Global Gold & Prec Metals (PSAU).

Top 10 Costliest Indian Stocks

2011-11-08T12:13:00.000+05:30

For some people the stock price is not important. But for many investors, stock prices are very important in their lives. If their stock price becomes expensive they will become rich.

Following is a list of 10 costliest Indian Stocks as on 7-Nov-11. This is also supplemented by their key financial indicators in the last two fiscal years. Besides this, the latest key Shareholding stats, Market Cap and Free-Float Market-Cap (FF M-Cap) are also mentioned in the specific stock details.

1) Orissa Minerals Development Company Ltd. - 48750.10 `

2) Dalal Streets Investment Ltd. - 22182.90 `

Last Traded Date: 17-Oct-11

3) Bombay Oxygen Corp. Ltd. - 7400.00 `

4) BOSCH Ltd. - 7001.55 `

5) Tide Water Oil (India) Ltd. - 6917.00 `

6) MRF Ltd. - 6732.45 `

7) Ravalgaon Sugar Farms Ltd. - 5750.00 `

8) Nestle (India) Ltd. - 4498.65 `

9) 3M India Ltd. - 4434.25 `

10) Kaycee Industries Ltd. - 3903.10 `

Investment vs. Inflation

2011-09-13T13:06:00.000+05:30

Inflation is a menace that almost silently erodes your wealth. Inflation which represents a rise in prices, results in a decline in your purchasing power. One of the goals of your investing plan should be to beat inflation.

This post analyses how bank deposits compare vis-à-vis inflation. Additionally, comparison is also on the basis of Inflation vis-à-vis Sensex (equities).

The above table showcases the data for 22 years timeframe on following attributes:

a) 1 Year Bank Deposit Rates (%): Deposit Rates for “1-3 years”, higher end of the range picked.

Source: http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12765

b) CPI Inflation (%): Consumer Price Index – Annual Average for “Urban Non-Manual Employees”.

Source: http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12731

Data for 2010-11 assumed to be similar to 2009-10.

c) Sensex Returns (Y-o-Y basis): Calendar Year, 2010-11 Returns (Year-to-Date): Until “9-Sep-2011”.

The average “deposit rates” for the mentioned year comes out to be 9.16%. The average yearly CPI inflation comes out to be 7.89%. The deposit outscores the inflation on an average basis by 1.27%.

For “Sensex”, the average yearly returns are 20.85% vis-à-vis the yearly CPI of 7.89%. The Sensex on an average basis leads banks deposits by 11.7%.

The inflation as can be seen from the table is in the higher band in the later year’s vis-à-vis the previous years. So, while the real return on both the asset classes remains in positive terrain, the margin varies significantly. In bank deposits, there is a margin of just 1% while with Sensex it stretches up to 13%. This means that in bank deposits there is very little scope to accommodate any shocks and one shock of course is that inflation may go northwards.

However, there are few more which are apparently visible:

1) Tax

Every year, the income that you earn on investments becomes liable to tax, depending on your tax bracket. As on date, long term capital gains tax is exempt but it’s not confirmed that things will remain as it is, going forward.

Let’s assume that if one falls in 10% bracket and analyze whether tax has any impact on one’s effective returns. Post tax, bank deposits fetches 8.24% returns and the real return from deposits comes out to be 0.35%. If the tax bracket is increased further, the real return from deposits slips into negative territory.

If we do some back of the envelope calculations for Sensex, tax eats up almost 2% of Sensex returns (10% tax bracket). Post tax, Sensex fetches 18.77% returns and the real return from Sensex comes out to be 10.88% vis-à-vis 12.96% (when tax is not considered).

2) Increased Expenses

Even if your bank deposits did break even, your retirement corpus would need to be able to provide for expenses that will increase post retirement, health care being significant.

Why Equities?

Equities stock prices are inflation adjusted because underlying companies posts results, which are inflation adjusted. Profits are inflation adjusted because if inflation goes up and costs increase, companies will increase their prices too in order to generate profits. However this stands true for good companies which are headed by able managements. They have the competence to deploy sound strategies to maintain margins, either by managing costs or increasing sales.

Equities are risky proposition, aren’t they?

Yes, but only in the short term, equities are risky. In the short term, prices of equity shares are driven by traders and speculators. They look for short term gains and bet on scrips on the basis of tips and information which may or may not turn into reality. However over a long term, all these short term volatilities get evened out and reflect the realistic growth of company.

This typically suggests that equities are good investments to for long term goals, that is, any goal ranging from 7 to 10 years or more. For medium term goals, which range from 3 to 7 years, a decent mix of debt and equity should be ideal. This also involves asset rebalancing when you reach close to goal attainment.

For short term goals, say less than 3 years, one should stick to debt instruments. One thing can easily transform into reality that inflation outdoes debt returns in the short term and you end up failing to attain the short term goals. To counter this, one might have to set aside a little more in that case. As the time period is short, impact cost may not be very high (as it is compounder over a short period).

Let’s assume, buying a car is the respective goal. The bank FD gives you 8% and inflation is 9%, the excess you might have to shell out to buy the car. This excess will be directly proportional to tenure one has set for the attainment of the goal. The more short-term the goal is the more provisioning one has to do for the excess money.

In no case whatsoever, equities can be short-cuts for meeting the excess. One might look for quick-profits from equities on the basis of a stock tips or a recommendations. But the envisaged quick-profits may transform into quick losses and the dreams aligned with the goal may shatter at that very moment.

On the contrary, one might have any provisioning for the excess money, so the solution for this is to defer the goal and set aside a reasonable time to meet that goal with proper planning. The compromise may not sound so good, but its much better w.r.t to a situation where “the short-cuts leads to long term miseries”.

Equities are indeed volatile in the short-term. Also remember, all your other goals can be postponed or pared down but not your retirement which is definitely a long-term goal.

This reiterates the fact that equities as an asset class, work best as a long-term instrument. As it assimilates all the short-term volatilities and reaps long-term benefits.

The trick is simple, to stay put for the long-term.