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Wednesday, May 11, 2016

GROWTH AND VALUE INVESTING

Value Investing and Growth Investing are two of the most popular ways of investment. Both these strategies have been used by several ace investors to build their wealth. In this article we will explore these two ways of investment in a detailed perspective:

Value Investing
Value investing has been one of the most favored strategies used by long term investors. The basic idea of value investing is to buy stocks at valuations less that the intrinsic value. This is in contrary to the belief that stocks priced in all the information that is available and also events that are likely to occur in future. The value investor looks for differences between the market price and the intrinsic value of the stock.
The earliest concept of value investing came from the investment strategies used by Ben Graham and David Dodd in 1928. Value investing generally takes into account various fundamental aspects of the company like earnings, dividends and cash flow. It looks for stocks that are undervalued in the current market situations and expect the stocks to get fairly priced in due course of time.

Some important points of value investing:
1. Studying the financial aspects- Important parameters like asset value, outstanding debt and financial liabilities which play a key role in the fundamentals of the company should be studied. The ‘intangible’ assets like intellectual property, patents and trademarks should also be considered in the analysis.
2. Reason behind low prices- Investors should not rely on historical prices to determine the point of bargain hunting. The current market price of the stock should be compared to the intrinsic value of the company in current market situations and not on historical values.
3. Fundamental parameters- Important fundamental parameters like P/E ratio should be studied to compare earnings of the company to the current stock price. Stocks with low P/E, or low P/B ratio is generally regarded as good buying opportunities.

Growth Investing
Growth investing strategy focuses on the long term growth potential of the company for appreciation in stock prices.  It also takes into account the fundamentals of the company while analyzing the stocks, but the difference with value investing is that in growth investing the focus is on buying good stocks at good valuations while in value investing the focus is on the future potential of the company without much regard to the current scenario.
Growth stocks are often the stocks of new companies which show opportunities for rapid progress. However, whether the tide will continue to bloom will decide the fate of the investor.

Some important points of growth investing:
1. Check the earnings history- The earnings per share (EPS) of the stock over the last few years can give a good idea of how the company has been doing. The growth in EPS can reflect the growth story of the underlying company.
2. Estimating forward earnings- Since the idea is to identify growth, the analysis of forward earnings is very important. The investor can use the research reports of various brokerage houses and then do a bit of research himself/herself for this. Generally small caps and midcaps show greater growth prospects than large caps though they carry more risk.
3. Competitive Advantage- When looking for growth specific stocks it often good to buy stocks which have a dominant presence in their area of operation. Companies which have patents over certain technologies or ideas often prove to have a high competitive advantage. Companies facing high competition often face high pricing pressures and in turn the growth outlook faces lack of clarity.
4. Good management- Efficiency of the company’s management is perhaps the most important factor when choosing growth stocks. Ultimately, it is the management which decides the policies of the company.
5. Government policies- It is extremely important to keep a track of how the government policies’ would impact the company of the underlying stock. Often the government looks to give certain sector incentives or tax benefits which in turn give a positive outlook to the companies which operate in the sector.

Growth investing v/s Value investing
Growth investing is a strategy in which investors select stocks of companies that are expected to have a high growth rate. They expected the stocks of the companies to outperform the market and in the process achieve capital gains.
Value investing, is a strategy in which investors select stocks of companies that are assumed to be trading a discount to the intrinsic value.  For this metric such as a company’s price-to-book ratio or price-to-earnings ratio is used in order to estimate a company’s worth.

Some great investors
Philip Fisher was one of the greatest investors in the world who followed the growth investing philosophy.   Fisher began his career on Wall Street in September 1929 one month before the beginning of the Great Depression. In 1931 he started his own investment firm, Fisher & Co. The firm followed a growth investing philosophy.
 As the American economy pulled out of the Depression, Fisher began investing heavily in companies that grew profits.  One of his largest investments was in Motorola, which he bought in 1955 when it was a young start-up held it until his death in 2004.  He said that if a company is managed well and it is able to grow, there’s no reason to sell it.  Benjamin Graham on the other has been a follower of Value Investing. He also launched his career during the Great Depression and found tremendous success with the philosophy of Value Investing.
However, Warren Buffett has said that his philosophy is “15 percent (Philip) Fisher and 85 percent Benjamin Graham” meaning that follows both Growth and Value Investing.
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Monday, April 18, 2016

CONTRARIAN INVESTING

Contrarian investing is a way of investing based on the psychology of going against the crowd. An investor looks for points of maximum exuberance or despair and feels a greater disconnect between the sentiment and the fundamentals in reality.  The investor finds the point where the majority is overreacting to the situation and believes the ground reality is very much different.
Contrarian investing can work in both bull and bear markets. In a bull market the investor can look for shorting opportunities in stocks which are being priced in a bubble valuation. The extreme optimism can be used here as a shorting opportunity. In a bear market the investor can look to buy good stocks at discounted price. When the tides returns the crowd turns and prices, turnaround very rapidly and give greater returns.
For example, due to some general economic factor an industry is facing a crisis and the stocks of all the companies in the industry are facing hammering. However, amongst these a particular company looks good and its stock is outperforming. Thus the investor buys a good stock at a discounted price.
Contrarian investing is by means a easy way. It needs good analysis of the underlying sentiment and careful research of the investment horizons in which the investor is finding opportunities. Analysis of the rational behind opportunity and the risk-reward ratio needs to be done carefully. Instinct should not become a basis for opportunity.

Some contrarian Investment Strategies:
1. High Dividend Stocks
Another example of a simple contrarian strategy is purchasing stocks having a high dividend yield. This involves buying stocks that have high dividend yields. This may not be due to hike in dividends but rather due to fall in share prices due to reasons like difficulties in company or there is a low point in their business cycle.
2. Shorting Overvalued Stocks
Another contrarian investing strategy, although more dangerous, is shorting overvalued stocks. It has been seen that overvalued stocks sometimes continue to see run-ups due to over-optimism. Short sellers tend to go long in these kinds of stocks on the belief that these stocks would eventually crash.

Contrarian vs. Value Investing
Contrarian investment strategy relates to value stock investing in that the contrarian is also looking for undervalued investments and buying those that appear to be undervalued by the market. The distinction between both investment strategies is that a value stock is identified by parameters like book value or P/E ratio. A contrarian investor also looks at factors like sentiment in addition to fundamental factors. Contrarian investment is basically going against the crowd on the assumption that the crowd is having excessive optimism or pessimism about a stock. 
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Monday, April 4, 2016

STOCKS AND MUTUAL FUNDS

Investors are often in a dilemma of whether to buy stocks directly from the markets by using the route of mutual funds. In this article some basic differences between investing in mutual funds and investing in stock will be discussed.
In case of Mutual funds the investment is carried out by professional fund managers who work on behalf of the investors who buy into the fund. The investors rely on decision making ability of the fund manager to carry out their investment. Here not much of knowledge is required for the investor’s side except for the fact that he needs to choose a good mutual fund. In case of investment in equity the investor has to rely on his own research and decision making abilities to take make decisions on the investments. The investor needs to analyze and choose the stocks to invest in. He needs to have the knowledge of stock picking in order to make wise investment decisions.
Investment through Mutual funds allow investors to take have a more diversified portfolio than self-investment with small investments of money. This is because in case of mutual funds the investor does not buy units of stocks buy units of the fund. These units carry certain weightage of the many stocks in which the fund is invested. For example with an investment of Rs.5000 the investor can only buy 1 share of A valued at Rs.1000 and 1 share of Rs.2000 and one share of C valued at Rs.2000. On the other hand the investor can buy a unit of a mutual fund with Rs.5000 which carries a weightage of 10% in share A, 20% in B, 20% in C in addition to other shares and have a more diversified investment. In the latter case only Rs.500 was allocated to stock A which was not possible in the case of directly buying stocks. The concept of unit helps to get more diversity. Diversified portfolios carry the advantage of offering protection against the depending on the fortunes of any particular stock. If the particular stock sees rapid downside the investor faces great misfortune. In case of diversified portfolio the effect is spread across several stocks and the dependency on a single stock is not there. Mutual funds offer this diversity through smaller investments which buying of stocks always does not. This is a great advantage for small investors who usually don’t have enough funds to buy a variety of stocks. Mutual funds besides stocks invest in a wide range of investments from bonds to money market instruments. This makes the investment have a wider horizon and the diversity factor is even more enhanced.
Investments in Mutual funds have certain disadvantages too. The investor has to pay a certain amount of charges for the carrying out his investments. Besides the charges for carrying the investment other charges others charges which are a part of mutual fund investments. In case of investment through equity these charges are less as the task of portfolio maintenance is done by the investor himself.
In case of mutual funds the investor does not have much to say in the decision making matters of the investment. He does not carry the flexibility of quickly charging his investment pattern, but has to depend on the fund manager to make the decisions. However, when investing through equity the investor can sell and buy on markets hours at any moment he chooses to. When he finds opportunity in a stock he can quickly make it a part of his portfolio. Likewise, when a stock looks weak the investor can quickly exit the stock. This kind of flexibility is not there in case of mutual funds.

Investments in stock are advisable for people who have the skills required to choose the right stocks and can monitor the investments on a regular basis. For others the mutual funds provide an easy and safer way of investment.
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Monday, March 28, 2016

PORTFOLIO MANAGEMENT

The word portfolio is very common in the financial markets. We hear investors talking about portfolio and its constituents all the time. Let us have an understanding of what a portfolio is and how to have a stunning portfolio.
Going by terminology, a portfolio is essentially an aggregation of the financial assets that is owned by an individual. It may have stocks, bonds, commodities and any other kind of financial instruments.
A portfolio may also be owned by financial institutions.
Here we will only look at a portfolio which contains stocks. The discussion will be about to have a stock portfolio that outperforms the benchmark indices from time to time.
Just like the performance of a cricket team depends on the team performance rather than on individual performance, a booming portfolio cannot be achieved by having a few quality names.
Building a portfolio is much like building a team. Having the best of players does not make a great team, but the balance of the team which decides its performance.  The role of each player should be according to the need of the team. Likewise a portfolio should be made of stocks which give a good balance to the portfolio, which can performance under all conditions.

Here are some features of a quality portfolio:
1. A portfolio should have a time horizon
Many investors do not have a clear understanding of investing or trading. An investment portfolio aims at getting medium to long term benefits while the trading portfolio aims to give returns in spans of days or weeks. It is a good idea to a have 2 separate portfolios - one for investment and one for trading. Using two different trading accounts can help a lot in achieving this objective.
2. A good strategy
A portfolio must be built according to a strategy. The stocks in the portfolio should fit into the strategy. For example, when building a long term portfolio, the long terms prospects of the portfolio should be analysed. A portfolio can be built as per a theme. It may focus only on the stocks of a particular sector which which would see good prospects in the future. From time to time, the portfolio should be analyzed to see that the stocks are playing as per the strategy.  If not, then the stocks should be shuffled.
3. Cut down losers and add runners
It has been seen that investors have a general tendency of holding on loss making stocks and booking out on profitable stocks with minor profits. As such loses keep mounting while profits get locked down. It is advisable to cut down the loss making stocks as they are seen as weak investments. On the other hand, the weight age of profit making stock should be kept on increasing. The use of trailing stop loss can help in making this working out this strategy as it would eliminate keep positions. Averaging profits can help to increase positions on profit making stocks.
4. Have Diversity
Investors should be distributed across a wide range of stocks to have variation. This would allow over dependency on a single stock which may lead to huge losses in case the stock faces huge declines. Such shocks can be averted by having a wide range of stocks across sectors and companies which add balance to the portfolio. On the other hand, too much of diversification creates confusion. The investor ends up in buying too many stocks and is not able to track them properly.
5. Cash- Carrying strategy
 Cash should also be considered as a form of asset. Investor should choose to stay in case when situation are unfavourable. Cash helps the investor to avoid losing money in poor market conditions. Staying in cash is better than losing money by taking wrong trades which can result in losses. An investor should switch his investment in equity and cash, according to the market scenario. In risky situation there should be more of allocation in cash than stocks while in rewarding situation the allocation in stock should be high.
6. Regular investing
The best way to build a portfolio, especially long term portfolio is to follow a systemic investment plan where there is regular investment. Rather than investing the entire sum of investment in one go the investor can keep adding the stocks at regular intervals. In this investment pattern the investor is able to buy a stock in a wide range of prices. Here again, one should add to the profit making position and not engage in averaging out losses. The investor thus buys good stocks and does not keep building positions in weaker counters.
7. Monitor performance
Just like the performance of mutual funds is measured by comparing their performance relative to the benchmark indices, the performance of a portfolio can also be measured so as to evaluate its is performing well. The returns of the portfolio should be compared to the performance of the benchmark indices over a particular time frame to get a good measure of how the portfolio is doing.
8. No profit booking on Time

Just like life, there has to be a satisfaction level in stock markets. When stock prices go up, investors should not get carried away by the more greed and hesitate to book profits. Profit booking or at least partial profit booking on opportunities is extremely important. As situations change in markets, there may be a sudden change of fortunes due to some news regarding the company and profits may get wiped out. However, here again one should have a logical and clear thinking about when to book out of stocks.
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Monday, March 14, 2016

ADVANTAGES OF MUTUAL FUNDS

The objective of investors is to get maximum returns on investments. When it comes to returns nothing can beat equity, but to manage stocks one needs to continuously study the stock markets and keep track of them.  There is also the need of knowledge to decide what and when to buy and sell. Mutual funds offer an effective way of investing in equity and other assets. Here are some of the advantages that mutual funds offer:

Professional management.
Mutual Funds are managed by qualified professionals. There are research teams that continuously analyses the performance and prospects of companies. The managers track crucial market information and are able to execute trades on the large and cost-effective scale. They select suitable financial investments to achieve the defined objectives of the scheme. They are skilled and have the required expertise to add value to the investments. Fund managers are in a better position to manage your investments and get higher returns.

Higher Return Potential
Based on medium or long-term investment, mutual funds have the potential to generate a higher return compared to other investment options. Mutual Funds help investors generate good returns, without spending a lot of time and energy on it. Investments in bank deposit schemes fetch are too less returns and inflation may nibbles away its value in the long run. Mutual Funds because of their investment in high return assets provide an ideal investment option to get more returns.

Diversification.
Mutual Funds provide diversification in the investments. Diversification lowers the risk of loss by spreading money across various industries and sectors. It is very rare when all stocks decline at the same time. Mutual funds invest in a broad range of securities. This reduces the risk of a possible decline in any one security.

Low Cost
Mutual Funds off a low cost of investment, as compared to direct investment directly in capital markets. Investments in stock markets require significant capital, affording which may not be possible for young investors. Mutual funds, on the other hand, are relatively less expensive. The investment amount can be as low as Rs. 500.

Tax benefits.
Mutual funds also offer tax benefits. ELSS is a type of mutual fund scheme that allows investors to save tax. This scheme provides an opportunity for long term capital appreciation.

Liquidity.
With open-end funds, all or part of the investment can be redeemed any time and the current value of the shares can be liquidated.  Mutual funds are more liquid than investments in shares, deposits and bonds.

Rupee-cost averaging.
With rupee-cost averaging, one can invest a specific rupee amount at regular intervals regardless of the investment's unit price. As a result, the investment money buys more units when the price is low and fewer units when the price is high. Rupee-cost averaging gives a disciplined approach to investment by investing every month or quarter rather than making sporadic investments.

Safety and Transparency
All mutual funds in India are registered with the SEBI (Securities Exchange Board of India). As such, they are highly regulated to protect investor interests. Operations of mutual funds are also regularly monitored by the SEBI. The performance reports of the mutual funds like the current value of the investment are available so that investors get a clear picture of how the investments are doing. This makes mutual funds highly secure and transparent form of investment.

Convenience
Mutual funds offer a investment option which provides a lot of convenience and time saving opportunity.  Investors get the option to to buy or sell them on any business day. There are also a multitude of choices based on an individual's goal and investment need. Investors are free to pursue their course of life while their investments keep earning. 
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Monday, February 8, 2016

FII EFFECT ON INDIAN MARKETS

There is a lot of interest in retail investors with regard to how FIIs are anticipating the markets. Many investors tend to make their investment decisions purely on the basis of the FIIs buying and selling figures in the markets. This article is aimed at exploring the behavioural impact of FIIs on the Indian Equities.

FII means Foreign Institutional Investors. Foreign Institutional Investors are investors who are from or registered outside the country. The floodgates for the FIIs into the Indian Stock Markets were opened by the 1991 Economic Liberalization. This was further encouraged by the relaxation of cap on foreign investments in 2005. With the launch of these reforms, Foreign Institutional Investors were allowed to invest in the Indian Stock Market.

The entry of the FIIs into the Indian Stock Markets was seen as a major breakthrough in the path to making India an economic giant. Development in the infrastructure facilities such as Roads, Railways, seaports, warehouses banking services and insurance services required huge deal of investment. Such investments cannot be provided by the Government or the domestic funds. To meet these financial needs foreign capital is highly required.

FIIs also have another impact on the economy, but we will focus on how they impact the stock markets. Studies show that FIIs can start off a market rally. As they start a rally flows come from all classes of investors, which drive the markets. Once the markets enter this kind of a phrase FIIs do not have much of an impact. However the selling or profit booking activities of FII can hold a rally, but cannot reverse the trend at one go.

FIIs have a significant influence on the movement of Midcap & Small cap Indices. It has been seen that there an upward trend in FII flows generally lead to a rise in the Midcap & Small cap Indices and vice-versa.

There has been a wide variety of opinions regarding the impact of FIIs on Indian Stock Markets. In the year 2002 Stanley Morgan said that FIIs do influence the short-term market moves. This is more dominant in bear markets than in bull markets. In 2003, in another research report by two individuals Agarwal and Chakrabarti, it was said that equity returns have a direct correlation to the FII activity. They said that as the FIIs are investors of high volumes they tend to a play a major role of market makers. In falling markets FII buying helps in jacking up the stock prices, whereas in a rising market FII can dither the rise in stock markets. As such the impacts of FII have a lot to do with the equity returns. In 2008, P. Krishna Prasanna did a research on the factors on the basis of which FIIs picks their stocks. He found out that FII have more interest in companies in which there is more public holding rather than in those where the promoter holding is more. The fundamental indicators of a company’s prospects like share returns and earnings per share play a significant role. In 2009, Anand Bansal and J.S.Pasricha did an analysis of the behavior of India stocks before and after the entry of the FIIs.  The analysis revealed that even though volatility has gone down there has been no significant change as far as returns are concerned.

Many experts consider FIIs come in bulk when there is money to be made and leave abruptly at the first sign of impending trouble in the host country. As such, they induce undesirable risk and uncertainty in markets. FIIs bring in severe price fluctuations resulting in increasing volatility as they are always on the lookout for profits. As such FIIs bring in a lot of volatility in the markets. Volatility is often viewed as a negative in that it represents uncertainty and risk.

It is quite evident that FIIS do a key role in the stock markets. However, India continues to emerge an economic power it needs to reduce the dependency on FIIs. With savings to the tune of roughly 35% of GDP, India's need to increase the exposure of domestic funds like Pension Funds, Provident Funds & other Large Corpus Funds to the equity markets. There should be policies that keep a check on the volatility factor which arise from the Foreign Institutional Investments by encouraging long term funds. Sustained long term foreign investments help in curbing volatility, maintaining currency stability and creating an environment for inclusive economic development which contribute to the country’s growth. 
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Sunday, January 10, 2016

ABOUT PPF

Most of the people think of Public Provident Fund (PPF) as a good tax saving instrument more than anything else. However, having a PPF account adds more values to financial planning than just taxing saving.
It is a good option for investors who want to invest money for a long period and get tax free and risk free returns. The returns can be reinvested in the PPF account to get more returns. Currently the rate of return on PPF is 8.6 % per year, which is compounded annually. The interest is calculated on the lowest balance in the account between the close of the fifth day and the last day of every month. Contributions to the account can vary from a minimum of Rs 500 to a maximum of Rs 100,000 on a yearly basis. A PPF account holder who becomes an NRI during the tenure of maturity period also has the option to continue to subscribe to the fund till its maturity.
The tenure of the PPF account is 15 years, which can be extended in blocks of 5 years for any number of blocks. The extension can be with or without contribution. When one continues with such fresh subscription, he/she can withdraw up to 60% of the balance to his credit before the commencement of the extended period.

Some aspects of PPF
Investors need to look at PPF as a long term investment as it has the Power of Compounding. This means the returns just keep getting better with the number of years for which the investment is made. One is the best ways to invest in PPF is to invest a monthly basis.  An investor can invest in a PPF account through monthly ECS in a SIP basis.  This reduces the overhead expenses for the investor to visit the bank in order to deposit the funds into your PPF account and also bring in a disciplined approach to the investment.
PPF account gives interest on minimum balance in the PPF account between 5th of the month and the end of the month. So it is recommended that the investor makes the payment into PPF account before the 5th of the month.
As PPF is a 15 year product, most of the people feel that it is cannot be liquidated in case of emergency. However, there is an option to take the money out after completion of 7 years. One can take out 50 percent of the balance outstanding at the end of 4 years. There is also a provision to take loans on the amount that is invested in the PPF account.
If the PPF account-holder fails to maintain the minimum deposit of Rs 500 in a financial year, the account is considered as discontinued. However, the interest will continue to accrue and be paid at the end of the term. The account can be revived by the payment of a fee of Rs 50 for each year of default. The arrears of subscription of Rs 500 for each such year also has to paid.

Differences between PF (Provident Fund) and PPF (Public Provident Fund)
EPF (Employee Provident Fund) /PF is a retirement benefit scheme that is available to salaried employee.  PPF (Public Provident Fund) is not a retirement scheme.
The amount of investment that can be made into PF (Provident Fund) is decided by the government. Currently it is 12% of an employee’s basic salary. An employee does have the option to invest more than the stipulated amount. On the other hand PPF (Public Provident Fund) is more of an investment scheme which can be opened in any nationalized bank and selected post offices. The minimum amount to be deposited in a PPF account is Rs 500 per year. The maximum amount can be deposited every year is Rs 70,000.
Investments in PF and PPF are eligible for deduction under the Rs 1, 00,000 limit of Section 80C. In PF withdrawal before completion of five years is taxed whereas in PPF there is no such taxation on maturity.
Both in EPF and PPF there is Premature Withdrawal and Loan Facilities available. In EPF, Premature Withdrawal is allowed only for the Daughter’s Wedding or for Buying a Home. For PPF, loan can be taken from the third year of opening the account onwards up to the sixth year.
How to transfer PPF account to another post office or bank

An investor can easily transfer his account from the post office or bank where it is held to another post office or other branches of the same bank or other authorized banks. A written application for the transfer needs to submit an application to the bank or post office where the investor currently has his PPF account. This has to be accompanied with the transfer form (SB10-b) after filling it in. This application has details of the account, the names and addresses of the post office or bank where the PPF account is currently held and the location to which the PPF account is to be transferred. After this the signature of the account holder is verified and the old bank or post office closes the PPF account.
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Monday, November 16, 2015

RAKESH JHUNJHUNWALA PORTFOLIO ANALYSIS

Rakesh Jhunjhunwala’s portfolio has always been a subject of interest for investors across the world. With a huge number of stocks comprising of both large-caps and mid-caps, the portfolio has a lot of variety. Some of the stocks are well-known household names, while others are relatively unknown. Some of stocks are present in large quantities while others in small quantities. However, there must be in the portfolio that makes it one of the best in the world. In this article we will try to decode some aspects of it.

 (1) Concentrated portfolio against diversified portfolio.
The most interesting thing that the portfolio reveals is the concentration in specific stocks.  As of November, 2015 the net worth of the portfolio was Rs. 4336 crores.  Out of these the net value of 4 stocks stood at Rs. 3,309 crores, which is nearly 76% of the net worth of the portfolio. These stocks are Titan Ind(Rs. 1799 crores), CRISIL(Rs.444 crores), Lupin(Rs.737 crores) and Rallis India(Rs. 349 crores).
Jhunjhunwala approach is however in line with Warren Buffett usually takes big bets on the stocks he identifies for his portfolio. Warren Buffett refers to over-diversification as a "low-hazard; low return" situation.

(2) Buying in small and adding later
It is seen has Rakesh Jhunjhunwala has an approach of buying stock in small quantities and increasing the holding according to the performance of the stock. This can be also seen as buying a stock and putting it into a ‘probation period’ to track the performance. If the stock proves to be a good investment then the investment in the stock is increased. It the stock fails to perform then the position is not increased. As he keeps doing this for years, the investments in good stocks increase and ultimately there they become part of the core portfolio. As a result the portfolio gets concentrated in 5-6 stocks which have been performing well over the years. The portfolio as such becomes with diversification and slowly keeps getting concentrated with 5-6 good stocks. This is very much contrary to way common investor trade. They tend to book out on profit making stocks and holding on to loss making stocks.  Rakesh Jhunjhunwala however does the opposite adding on to good stocks and reducing the loss making stocks.

(3) Diversify between sectors:
Another interesting feature of the portfolio is the diversification across sectors. There is almost 40% investment in the retail sector with stocks like Titan Industries, VIP Industries and Provogue. With stock like Lupin and Bilcare Pharma has a weight age of 20%. The financial stocks make up 20% with CRISIL and Karur Vyasa remaining the top picks. The rest of the holding are in sectors like Oil & Gas(4%) , Engineering / Construction(7%), Chemicals(2%), Information Technology           (3%), Autos(1%) , Hotels(1%), Media(1%) and Services(5%).  We can see that he has a huge holding in the Retail Sector which is based on his likings about “the great India-consumption" story. The diversification in sector is quite contrary to concentration in stocks. This is another remarkable feature of the portfolio. Another thing to note here is that each of the six dominant stocks in the portfolio is from a different sector.

(4) Buying stocks with scalable opportunity:
Rakesh Jhunjhunwala in one of his interviews advised investor not to look for companies that would give profits but understand factors that help in creating profits. He said, “Profits are created due to various stages of circumstances. I always look at how large is the opportunity for that business in the sector.”

If we look at his current portfolio we find that Titan has a high weightage. It is another of his buys which is based on scalability. Time and again Rakesh Jhunjhunwala says that the retail story in India is expected to see huge boom in future. As such he has bought Titan Industries which is a well known name in the sector.  Stocks like CRISIL and Rallis too have a similar story and as such they have been brought into the portfolio. 
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Saturday, October 24, 2015

HOW TO GET MORE BENEFITS FROM YOUR SAVING BANK ACCOUNT

Opening a saving bank account is very easy.  These days, there is no such thing as minimum balance as the Reserve Bank of India has advised all banks to open saving accounts with “NIL” balance. This is called a Basic Savings Bank Deposit Account. One just needs to fill up the account opening form with a latest photograph and submitting documents to comply the “know your customer” (KYC) norms, i.e., proof of our identity and residence. The account can also be opened on the basis of the Aadhar Card. Some of the other features are that banks will not charge fees for deposit of money any number of times.  Banks will also not charge for four withdrawals during a month. The account holder also gets a passbook and an ATM/smart card without any fee.

The latest benefit of saving account has been the deregulation of interest rates on Saving Accounts by the RBI. Till 24/10/2011, the interest on saving accounts was regulated by RBI and it was 4.00% per year on the daily balance basis. Since 25th October, 2011, RBI has deregulated the interest rates on Saving Accounts and banks have been given the freedom to decide the interest rates within certain conditions imposed by RBI. With this announcement of this policy a competition has begun between the banks to draw more deposits by offering higher interests on savings accounts. To avail full benefits of this facility one needs to choose the bank that offers the best interest rates.

Here are two ways to more benefits out of the saving bank account:
1. Sweep in Facility
Sweep in facility is a special feature of the savings bank account that not many are familiar with. Here, the account holder sets a threshold limit for the saving account. Any amount deposited in the savings bank account above the threshold automatically moves to a fixed deposit and earns a higher rate of interest prevailing on the fixed deposits for the tenure that it remains with the bank.
Another advantage of this facility is that in case your savings account balance is too low, this facility allows that to be taken care of by your fixed deposits. Let us say a person has set a threshold limit of Rs. 10,000 in your savings bank account and deposited Rs. 50,000 in the account. Now Rs. 10,000 will remain in your savings bank account, while Rs. 40,000 flows to the fixed deposit account which earns a higher rate of interest of about 8-9% p.a. After this, if the person issues a cheque of  Rs. 15,000 and the savings bank account has just Rs. 10,000, then the deficit of Rs. 5,000 will be recovered from the  fixed deposit.
Going by this example, one is able to earn an interest of 4% on Rs. 10,000 in the saving account and interest of 8-9% returns on Rs. 40,000, where there is an additional interest rate of about 4-5%. The deposit in the fixed deposit account also allows the person to meet liquidity requirement for any emergency situation.

2. Flexi -Deposit Sweep in Facility
To avail the flexi deposit facility one needs to have a savings bank account and a fixed deposit with a bank. The fixed deposit will be linked to the savings bank account. In case there is insufficient fund to clear a cheque from the saving bank account the deficit amount will automatically get transferred from your fixed deposit to the savings bank account.
For example, let us say a person has Rs. 10,000 in the savings bank account a fixed deposit with the bank of Rs. 1 lakh. In case of an insufficient balance in your savings bank account, the fund from this fixed deposit will be used. If the person draws a cheque of Rs. 25,000 and the savings bank account has just Rs. 10,000 then the deficit of additional Rs. 15,000 will be taken the linked fixed deposit.
In the above example, the person will earn savings bank account interest of 4% on Rs. 10,000 and 8-9% returns on Rs. 1,00,000 fixed deposit instead of earning 4-5% on the entire amount.

Saving Bank Account also provides some other benefits:
1.Promotional Offers
There are some some banks that offer discounts at restaurants or shopping places that are associated with them.
2. Insurance
Some banks provides over-the-counter insurance products like accident cover or life insurance with accident cover. Some banks also insure debit cards in case they are stolen or misused. In such a case that also provide a purchase protection clause which ensures that there is some reimbursement up to a certain limit in case the stolen or misplaced debit card is used for shopping.
3. International debit cards
Some banks provide International debit cards, which can be used for shopping and withdrawing cash from ATMs abroad at free of cost.
4. Locker discount
Some banks provides special discount on locker fee depending on the minimum average quarterly balance and the account type chosen.
5. Family schemes
Some banks offer special facilities to family members who have an account with them like clubbing of all family members' deposits. 
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Monday, September 28, 2015

MARKET CYCLE

The life cycle of a stock or even the benchmark indices can be divided into several phases. In every phrase it is the effect of the bulls and bears that influence the stock price movements. In phrases where the bulls dominate the stock prices move up and in phrases the bears dominate the prices see down side. The behavior of bulls and bears on stock markets is influenced by several factors like the economic condition of the country. In terms of stock specific activities the performance of the underlying company may influence the behavior of bulls and bears and thereby influence the stock prices.

The influence of the bulls and bears can also be explained in terms of greed and fear. When the markets look attractive, there is greed in the markets and the investors go into buying mood for more returns. This is explained as the markets becoming more bullish. A market is said to be in a bear phrase when there is fear in the investors and they go into selling mode.

This can be explained in a chain. Suppose a stock called is seeing some price appreciation in the back of some positive news. The bulls get greedy and there is fear in the bears. As such more buying activity emerges and selling activity weakens. As such the stocks keep getting more bullish and the prices are driven into higher levels. This is termed as a bullish phrase in the stock’s lifecycle. It is always a combined effect of greed and fear which makes a phrase in the stocks lifecycle.

There are basically four phases that kept repeating in the life cycle of a stock. The bench market indices also seem to have a similar lifestyle.


1.    Accumulation: This phrase generally takes place when a stock is oversold after the heavy bear carnage. There is a lack of buyers in the market for the stock. At this point the wise and smart long term investors enter the stock with the correct perception that the stock has discounted all the bad news. These investors keep accumulating the stock while the general investors keep dumping their stocks in the fear of facing further losses. Thus the buying activity of the smart investors and the selling activity of the general public keeps stock price stable. On the charts this is shown by a base formation at the bottom levels after a huge decline.

2.  Mark Up: In this phrase the stock begins to show price appreciation. The stock enters into an uptrend after breaking out from the accumulation levels.  The mood of the general investors also turns bullish and buying takes place with huge participation.

3. Distribution: In this phrase the smart and wise investors who entered the stock at accumulation levels start exiting the markets with the correct perception that the stock is now getting overpriced. The general investor is not, however convinced of that view and they keep buying. The selling activity of the smart investors and the selling activity of the general public keeps stock price stable.

4. Mark Down: In this phrase the general investors suddenly realize that the stock is indeed overbought and overvalued at the current levels. There is fear in them that the ongoing bubble may burst and as such they begin selling the stock. There is a breakdown in the price levels and it keeps taking the stock prices lower.

After the mark down phrase the stock again enters the accumulation period and the cycle continues. Here we have discussed the market cycle in terms of a bull rally. The reverse situation occurs in case of bear rallies. 
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