Tag: Investment

05 Jun 2020
Investor Updates - Hum Fauji Initiatives

Investor Updates from Hum Fauji Initiatives Bulletin Team

Targeted long term repo operations: RBI is said to be taking steps to make the TLTRO more effective and infuse liquidity in the economy, RBI told banks to borrow and invest at least half of money in money market instruments issued by small and medium sized NBFC and MFIs, in response to liquidity crises occured by covid 19 pandemic RBI announced TLTRO of 1 lakh crore to economy to restore and balance liquidity. LTRO is basically a tool to provide funds to banks. The funds can be obtained for tenure between 1-3 years at existing repo rate against mortgaging(collateral) the government securities. Usually repo rate is lower and bank can avail loan at cheaper rate, banks then are supposed to invest the borrowed amount in fresh acquisition of securities from primary and secondary market. RBI has directed banks that atleast 50% of the funds so borrowed should be invested in corporate bonds, commercial papers and debentures in the secondary market.


Swiggy is setting up a technology centre in Chennai in order to evolve beyond food to deliver groceries and other daily essentials to its customers. The reason why Swiggy wants to evolve is-

  1. With its core food delivery orders seeing a more than 40% drop and no signs of recovery in the coming months, Swiggy needs an alternate business avenue to remain relevant.
  2. This is a three-way marketplace where there are consumers, drivers as also on-demand-workers and restaurant partners. In order to fulfill the consumer demand, there is a need to maintain a balance in this demand and supply equation. There is a huge demand from consumer perspective but a huge challenge from driver and restaurant partner perspective to maintain a balance in this demand-supply equation across the three entities.

 

Swiggy sees this as a constant dynamic three-way engineering challenge.


The government is seeking to sell its entire stake in FMCG ITC and Axis Bank, the government held the stake via SUUTI (Specified Undertaking Unit Trust of India) of about 7.94% in ITC and 4.69% in Axis Bank. Disinvestment aims at reducing the financial burden, to finance India’s increasing fiscal deficit, financing large scale infrastructure projects, conclusively to meet the expenditure and consumption need of the nation. As per the recent and current scenario, return on capital employed by PSU is far lower than the borrowing/interest rate, which is also the reason for this action. Due to current revenue expenditure such as interest payments, wages and salaries of government employees, government is hardly left with any surplus for other projects and schemes. Disinvestment is a tool that can help in improving and increasing economic efficiency.


April month has passed off better for the Indian economy after a drastic March. Both Nifty & Sensex bounced back by around 30% in the month of April 2020. The pandemic has affected the domestic and global economy – so why is the Indian economy projected to have a good time?

It is all due to the expectations of the market, as the market is just a sentiment of millions and billions of investors. Fresh cases of pandemic are increasing at a declining rate now – the rate of increase of fresh positive cases all over the world is around 5.5-5.6% compared to the earlier 10-12%. The Indian government too has taken many measures to fight against this critical scenario. RBI has cut down the interest rates severely in order to maintain stability in money flow of the economy and provided Rs.50,000 crore of liquidity lines to MFs to manage panic redemptions. On the Fiscal Policy side as well, the government has announced a package of $1.7 billion to support weaker sections.

But after all this, it does not mean that all is going to be alright. The Indian economy will struggle to show any positive growth this year. The way ahead for equity market is full of volatility. In this phase of alternate bouts of optimism and pessimism, it would not be easy for one to manage own investment portfolio. So the investor should, instead of focusing on these short term movements, look only at long term and must invest systematically in this phase to make the best of the expected near-term volatility.


Likely issue of Tax Free Bonds by Govt. of India

The government is seeking to raise funds by issue of tax free bonds, to bridge the fiscal gap which has worsened after OVID-19 disruption. As the name suggests, the most attractive feature is that interest income is fully exempt from tax as per section 10. These bonds are issued for a specific time period and lock-in, are for long tenures, and default risk is negligible, and would suit a lot of people in the current risk-averse environment. Tax free bonds are very suitable for investors in higher tax slabs as the returns are not only higher than bank FDs but also do not attract any tax, investor can lock in at the given interest rates and do not have to worry about reinvestment risk or tax changes.

With a view to provide adequate liquidity in the system as well as to the banks, SBI, the largest public sector bank, has cut its Marginal Cost of fund Lending Rate (MCLR) by 15 bps (1% is 100 bps) in all loan tenures (will come into force from May10, 2020) and also reduced interest rates on retail Term Deposits by 20 bps in tenures up to 3 years (will come into force by May 12,2020).

The one-year MCLR will come down to 7.25 % from 7.40 %. The EMI on home loans (accounts linked with MCLR) will get cheaper by Rs 255 per Lakh and the home loan for 30 year of Rs 25 Lakhs. This is the 25th consecutive reduction in bank’s MCLR.

This reduction in the interest rates of term deposits will hurt Senior Citizens and those who depend on interest income for their livelihood. In order to provide safeguard to the Senior Citizens, SBI has introduced a new retail Term Deposit Scheme. Under this scheme, called the “SBI We Care Deposit”, it will provide an additional 30 bps premium on deposits of 5yrs and above. This Scheme would be in effect until September 30,2020. Thus, the effective Rate of Interest for this Term deposit for 5 year and below tenure will be 50 bps higher than the rate applicable for general public and that for 5 years and above tenure it will be 80 bps higher than the rate applicable for general public.


India is developing a land pool nearly double the size of land in Luxembourg to attract businesses moving out of China as it is the best opportunity for India to welcome businesses moving out of China after the coronavirus outbreak. At present, Land has been one of the biggest impediments for companies looking to invest in India. Providing Land, Water, power and road access may help to attract the investments for Indian economy that was slowing even before the coronavirus hit.

As per the news, a total area of 4,61,589 hectares has been identified across the country for the purpose. Luxembourg is spread across 2,43,000 hectares, according to the World Bank. The Government has handpicked 10 Sectors – Electrical, Pharmaceuticals, Medical Devices, Electronics, Heavy engineering, Solar Equipment, Food Processing, Chemicals and textiles – as focus areas to promoting manufacturing. The embassies abroad have been asked to identify companies searching for options. The government investment agencies have received inquiries mainly from Japan, US, South Korea and China, expressing interest in relocating to Asia’s third–largest economy. States have been separately urged to evolve their own programmes for bringing in foreign investments. Andhra Pradesh is in touch with Japan, South Korea and US, and Uttar Pradesh is also developing an online system for land allotment for the foreign investors. If these foreign investors actually come to India for manufacturing, it will be a great thing for Indian economy.


The Asian Infrastructure Investment Bank (AIIB) has approved $500 million loan to India for support in COVID-19 operations. The fund will enable the government to scale up efforts to limit the transmission of cases, strengthen the health system, prepare and expand its operations for returning back to normal routine, and managing future outbreaks. Apart from these, it will also support pandemic research in Indian Council of Medical Research. This will help the country to better its screening, improving and expanding laboratory diagnosis, procure personal protection equipment and set up new isolation wards. Hence, it can shorten the time to recovery, create growth, support small and medium enterprise and help the poor. In short, this amount is likely to strengthen the nation’s ability to support and respond better to COVID-19 pandemic.


RIL’s massive rights issue of Rs.53,125 crores opens today, The issue, which closed on 3 June, is the largest share sale the country has seen.

Investors wanting to subscribe to the share sale can make payments in three installments.

Asia’s richest man Mukesh Ambani’s Reliance Industries Ltd (RIL), which is on a fund-raising spree amid the COVID-19 pandemic, is set to open its massive Rs.53,125-crore rights issue. The rights issue, which closed for subscription on 3 June, will be the largest share sale India has seen—more than double the 2019 record held by Bharti Airtel Ltd and Vodafone Idea Ltd of around Rs.25,000 crores each. Reliance has hired a syndicate, comprising 14 investment banks, including Morgan Stanley, Citi, Bank of America, and Axis Capital, to manage it.

Ahead of the rights issue, Reliance sold a 14% stake in Jio Platforms to multiple investors, including Facebook Inc., across deals worth Rs.67,194.75 crore. The initiatives are aimed at helping RIL reach its ambitious goal of becoming a zero net-debt company by March 2021. RIL’s net debt stood at Rs.1.53 trillion on 31 December.

The company has set a price of Rs.1,257 per share for subscribing to the rights offering. Investors keen on subscribing to the share sale can make the payments in three instalments—25% of the amount at the time of subscription, another 25% in May 2021 and the remaining 50% in November 2021.

Analysts tracking RIL said its power to beat disruptions and its own value-unlocking abilities amid the pandemic make its rights issue attractive for retail investors.

“The pricing of the rights issues at Rs.1,257 per share is very confident pricing as the promoters will be subscribing to almost half of the issue and raise Rs.26,000 crore for the company. While the promoters and institution holders are long-term holders and will subscribe to the issue as the company’s prospects appear brighter than ever, this is also a critical stage for individual investors,” said Axis Securities.

The brokerage added that as RIL’s business-to-consumer (B2C) businesses offer high growth potential, the discounted price of the rights issue provides a good opportunity to participate in high growth businesses.

On Tuesday, RIL’s shares closed at Rs.1,408.15 apiece on the BSE.

The biggest rights issue in India will also be a litmus test for stock markets, which have been grappling with liquidity concerns. After a 32% rally in April, the stock has weakened this month. Currently, Reliance has 25 buy ratings, three hold and sell ratings by analysts on Bloomberg.

“If an investor one is looking at maintaining or increasing his equity exposure, then this issue can be subscribed. At the current juncture, there are very few companies that show the strength to withstand disruptions and have value unlocking triggers. Also the facility of making part payments is beneficial for shareholders in terms of parting liquidity,” said Deepak Jasani, research head, HDFC Securities.


The government is pushing public sector banks to provide additional working capital to small businesses at 7.5% interest and asking to ensure that senior citizens earn higher returns on their fixed deposits.

Currently small businesses are borrowing at 11-12% from state run lenders, with businesses of turnover up to Rs 100 crore and outstanding loans of Rs25 crore such businesses will get additional 20% working capital through a government guarantee with interest rate capped at 9.25%. The main motive is obvious here – that lenders should pass the benefit of rate cuts to the borrowers too.


Uber India fires 600 employees, a quarter of its workforce in the country. The job cuts come from across the segments, including customer and driver support, business development, legal, finance, policy, and marketing verticals. Uber has announced that affected employees will be provided with a 10-week pay out and medical insurance coverage for the next six months.


In this era of credit risks, redemptions, right offs and poor return in other debt funds, the combination of attractive returns and zero credit risk in gilt funds seems unbeatable. In the last one year, gilt funds have delivered returns in double digits. The average one year returns for gilt funds have been above 10% since June 2019. The returns of gilt funds come from capital appreciation which occurs due to cuts in interest rates or market expectations of cut in the future. The gilt instruments are the most liquid among debt instruments – that’s the reason the impact of rate changes is more in these funds. Returns in gilt funds normalizes with the period. Longer the period, lower the risk of losses. So, holding a gilt fund for at least 5-7 years will give the benefit of no credit risk plus reasonable returns. However, please remember that the market rates (NAV) of Gilt Funds could be very volatile, in line with interest rate movement and monetary and fiscal scenarios.


Foreign Funds have slashed their holdings in Indian government bonds to lowest in three years just as when nation embarked on huge borrowing plan. The amount of sovereign securities held by global investors slumped to Rs 76,700 Crore from this year peak in February. While the dollar cost of funding has come down for foreign investors, the cost of hedging foreign currency risk has stayed stubbornly high. The government has taken steps to ramp up the foreign investment with Rs 22 crore central and state government debt.


Credit risk scheme has seen continuous outflows, and there is consistent increase in Banking & PSU debt funds. The global recession (COVID 19 situation) has weekend the balance sheets and redemption pressure from investors have contributed to this shift. The interest rate cuts will increase the attractiveness of banking and PSU funds as their returns will improve, because of rate cuts by RBI. The fund is backed by sovereign guarantee and act as a cushion in prevailing uncertainty in the market.


On Wednesday evening (May 27,2020), the Government of India has announced that “7.75% Savings Bonds, also known as RBI 7.75% Bonds, 2018 shall cease for subscription with effect from the close of banking business on Thursday, the 28th May, 2020”. The bonds were an attractive instrument for retired investors who invested their money in these funds with a lock-in of 4-6 years according to the age of the investor. It is clear that it is not easy for the government to provide this high returns to the investors in the current interest rate scenario when 10-year G-sec is trading around 6% level, small savings rates have come down to 7.1% and the Bank FDs are providing 5-6% interest rates. This step was already expected though not so soon.


The Initial Public Offerings remained range bound even after several relaxations by SEBI. Last month, SEBI gave a six months’ breather to IPOs whose validity expires between 1 March and 30 September. Investors will be sceptical about investing in companies with limited public information. One needs to see more fund raising in secondary market space to gauge actual investor interest. However, well reputed companies with good track records will be able to tap the markets with rights issue, private placements and other sources.

 

Hope you enjoyed reading the news bytes of investor updates from the month of May, 2020. Keep Faith and Stay relevant to the present times and we will be back with more updates shortly.

29 Jun 2017
Kitna Mileage deti hai- Financial Planning, humfauji.in

Kitna Mileage deti hai?

Sir, I’ve told him that he has a 80% Debt and 20% Equity portfolio where safety has been given more importance as this is his retirement corpus, but he insists that he won’t accept anything less than 15% annualized returns since the markets are now booming!” -I could make out my hapless young financial planner was at her wits end.

“Sanjeev, what is this yaar? My overall portfolio returns are 25% CAGR (Compounded Annualized Growth Rate) but this one stupid fund is stuck at 17% and my planner is just doing nothing about it!”, ranted one of our aggressive customer.

One of our bigger investor has moved almost 50% of his life’s savings to a well-known Portfolio Management Service (PMS) because his initial ‘test-drive’with their 100% equity portfolio produced great results in these rising markets.

We routinely get calls from prospective clients who ‘haggle’ with us on ‘returns’ – if they invest with us, will we surely get them 15-20-25% returns? If not, then why not? During such conversations, sometimes we feel as if we’re in the business of manufacturing returns rather than managing portfolios, helping meet customers’ future financial goals and keeping them away from harm’s way!

So, what am I trying to bring out here by these examples? ‘Safety’ and ‘Returns’ are two ends of the investment scale. The twain shall never meet!! Your own personal investment slider has to be placed on that scale in such a manner that it meets your risk comfort level, takes you solidly towards meeting your future requirements (‘financial goals’) comfortably and of course, takes care of the market conditions – now and in anticipated future. If you want more safety, you have to move away from returns expectations while desire for more returns will always compromise safety. This is a universal rule and never gets flouted.

The way we do not buy a car just because it gives high mileage disregarding all other factors, we do not need to only look at best returns all the time disregarding its suitability to us, risks taken by it and whether it enables us to get the money when we actually need it.

Most of us know this but we still keep hoping to hit upon that magic formula, that magic investment avenue, which will get us the ‘highest returns with highest safety’. Many unscrupulous elements, sensing this innate human desire, have made their fast bucks on it – the Hofflands, Sterling Tree Magnums, Ponzis and sms-stock-tipping schemes know this weakness and routinely surface to earn their millions and billions. We all hear and read about them, sympathize with the conned ones, bless ourselves that we’ve not fallen for such schemes and then go about looking for such quick returns schemes ourselves! Somewhere we assume that ‘high risk, high returns’ actually implies that if you take high returns, you get assured high returns!!

Herein comes a very basic question – What is the actual aim of investing? Is it to get highest possible returns at any cost and risk, Or is it to make our money grow so that we can meet our future requirements of life, give our children the best education, give our families a great standard of living, and have the money available in the right quantity when we need it? We can already sense you nodding to the latter. If that actually were so, why not make that as the start and end point of our investment process? Why not plan out how much we need for our future big-ticket expenses, what are the best investment avenues to accomplish each one of those ‘financial goals’, how to go about it so that we reach that end point without much risks and how to remain tax-efficient during the whole journey? Believe us, the investment journey will be more pleasurable, more sure-footed, and lead to far less sleepless nights if you change your focus from ‘Kitna Mileage Deti Hai’ to ‘Meeting my financial goals in life’.

And that’s where the concept of financial planning comes in – but then that’s a separate topic by itself, of which a large amount of knowledge is available on our Blog humfauji.in.

And for heaven’s sake, do not fall for those predictions of Sensex or stock levels – such predictions keep coming all the time and they sometimes even turn out to be true. But then, even a dead clock shows correct time twice a day!

For more information, feel free to reach us on, contactus@humfauji.in or call + 011 – 4240 2032, 40545977, 49036836 or

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