19 Nov

Week in a Nutshell (14th November – 18th November)

Technical talks

NIFTY opened the week on 14th November at 18,376 and closed at 18,308 on 18th November. The index lost 0.4% during the week. The index’s next support and resistance levels would be 18,298 and 18,325 respectively. The RSI (14) of 64 indicates the index is in the overbought zone.

Among the sectoral indices, PSU BANK (+2.4%), BANK (+0.7%), and PRIVATE BANK (+0.4%) were the gainers during the week while MEDIA (-5.4%), CONSUMER DURABLES (-3.1%) and AUTO (-2%) led the losers.

Weekly highlights

  • The S&P 500 and NASDAQ ended the week marginally lower and lost 0.8% and 0.5% respectively however Dow Jones Industrial Average closed the week marginally higher with a 0.3% gain. St Louis Fed Reserve President alluded the Fed’s key policy rate will need to be further increased which was a cause of concern for investors. Data showed fewer Americans filed new applications for unemployment benefits last week, suggesting tightness in the labor market. The economy has survived rate hikes, according to a report released on Wednesday that highlighted solid retail sales growth in the previous month.
  • Both Brent crude and West Texas Intermediate closed the week negatively at $87.7 and $80.1 per barrel respectively, brent crude and West Texas Intermediate lost 8% and 10% respectively during the week. On Monday, the Organization of the Petroleum Exporting Countries (OPEC) cut down its global oil demand growth forecast for 2022 for the 5th time and reduced the next year’s outlook due to economic challenges including high inflation and tightening of the monetary policies across the globe. Oil demand is expected to increase by 2.55mn barrels per day (bpd) or 2.6% in 2022 down by 0.1mn bpd from an earlier forecast.
  • India’s retail inflation measured by the Consumer Price Index (CPI) data for the month of October stood at 6.77% vs 7.41% in September-22 and fell to a three-month low, data released on Monday. Despite the easing down, inflation data remains above the RBI’s comfort level of 6% for the 10th consecutive month.
  • India’s Wholesale Price Index (WPI) inflation for the month of October 22 fell to 8.39% vs 10.7% in September 22 and fell to the lowest since March 21. The decline in the rate of WPI inflation was primarily driven by price declines across the commodities.
  • Inflow of inflation data continues during the week, UK and Japan also released their inflation data. UK’s inflation jumped to 11.1% and rose to a 41-year high in October 2022 vs 10.1% in September 2022. Japan’s inflation also hit a 40-year high in October 2022 and stood at 3.6% vs 3% in September 2022.
  • India’s industrial growth measured by the Index of Industrial Production (IIP), delivered a growth of 3.1% above consensus estimates in September 2022. Growth in IIP is led by the mining, manufacturing, and electricity sectors.
  • International Monetary Fund (IMF) said, the global economic outlook is even gloomier than projected last month due to the tightening monetary policy on account of persistently high inflation, weak growth momentum in China, and ongoing supply disruptions and food insecurity led by Russia-Ukraine war. It has cut the global growth forecast to 2.7% from 2.9% earlier for 2023.
  • Indian IT companies L&T Infotech (LTI) and Mindtree have received approval for a merger from National Company Law Tribunal (NCLT) and they will start operating as an LTIMindtree effective from 14th November 2022. The board of both companies has fixed 24th November as a record date for the allocation of shares of the merged entity to eligible shareholders. LTI-Mindtree announced the merger in May 2022, postmerger Mindtree shareholders will get 73 LTI shares for every 100 shares of Mindtree.
  • India’s foreign exchange reserves stood at USD 530bn for the week ended 12th November 2022, which declined by USD 1.087bn. in the previous reporting week, the reserves declined by USD 6.561bn. the reserves have been declining as the RBI defends the rupee amidst of global pressures.
  • During the week both Foreign and Domestic institutional investors were the net buyers, Foreign Institutional Investors (FIIs) net bought shares worth Rs 3,492mn, and Domestic Institutional Investors (DIIs) net bought shares worth Rs 22,750mn.

 

Things to watch out for next week

  • US markets have a truncated next week as markets will be closed on Thursday, 24th November on account of Thanksgiving Day. Inventors will closely watch the initial jobless claims data and FOMC meeting minutes on 23rd
  • In India investors will closely watch the weekly forex reserve data next week, how the RBI is defending the rupee amidst global pressures. The result season in India for the July-September quarter officially ended during the week of 14th-18th We expect stock-specific action as the results are out of the way.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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07 Nov

Week in a Nutshell (31st October – 4th November)

Technical talks

NIFTY opened the week on 31st October at 17,910 and closed on 4th November at 18,117. During the week, NIFTY gained 1.9%. It closed above 18,000 for the first time since early January this year. On the upside, the all time high of 18,600 can be the first target to achieve. On the downside, it can take support at the 50 week moving average of 17,100.

Among the sectoral indices, METAL (+7.5%), PHARMA (+2.9%), and OIL & GAS (+2.8%) were the top gainers during the week. There were no losers during the week.

Weekly highlights

  • The US market ended the week negatively with Dow Jones down 1.4% and S&P 500 down 3.3%.
  • On Wednesday, US Federal Reserve increased the repo rate by 75 basis points, taking the key repo rate to 4%, the highest since 2008. They also signalled that their aggressive campaign to curb inflation could be approaching its final stage.
  • On the next day, the Bank of England raised their repo rate by 75 basis points to 3%. This was the biggest hike since 1989.
  • In India, the government collected Rs 1.52 trillion as goods and services tax(GST) in October, a 16.6% rise year-on-year, driven by festival-related spending, higher tax rates, and better compliance. This was the second-highest monthly collection since the implementation of the indirect tax regime in July 2017. GST collection touched a record high of Rs 1.67 trillion in April. This is the eighth month in a row that monthly GST revenue has been more than Rs 1.4 trillion.
  • Electric two-wheeler registrations have hit an all-time high for 2022, touching close to 68,324 vehicles in the festival month of October this year, an increase of 29 per cent over the last month. However, ICE two-wheeler registration has grown even faster than electric vehicles. Overall two-wheelers have shot up by over 45% in October compared to September. With this latest figure, electric two-wheelers now account for around 4% of total two-wheeler registrations between January-October.
  • Electric passenger and motor vehicles(light, medium and heavy) which includes motor cars and buses have seen their registrations more than double in the calendar year 2022 till October 31 with another two months still to go. They have hit registrations of 31,281 vehicles compared to 13,884 for the full year of 2021 a growth of over 125% according to data from VAHAN.
  • Credit card issuers saw significant erosion of their card base during the July-September quarter as the Reserve Bank of India’s (RBI) norms mandated the deactivation of cards that have been inactive for a year. In April this year, the RBI came out with a master direction on credit and debit card issuance. It said if a credit card has not been used for more than one year, the process to close the card should be initiated after intimating the cardholder. The second quarter of the current financial year saw an outstanding cards-in-force decline by 2.55 million to 77.7 million. Meanwhile, credit card spending has continued to be on an upward trajectory. They topped the Rs 1 trillion mark for six consecutive months. Spends touched a record high of Rs 1.22 trillion, buoyed by higher discretionary spending during the festive season.
  • Credit to industries in September 2022 grew at the fastest pace it has grown in the last 100 months, aided primarily by a pick-up in working capital loans from corporates.
    According to the latest sectoral deployment data of the Reserve Bank of India, credit to industries, which accounts for 27.6% of non-food credit, was up 12.6% year on year to Rs 32.4 trillion. Month on month, it rose 1.4%, the highest in seven months. On a year-to-date basis, it was up 2.7%.
  • During the week, Foreign Institutional Investors (FIIs) net bought shares worth Rs 10.3 bn, however, Domestic Institutional Investors (DIIs) sold shares worth Rs 4.5 bn.

 

Things to watch out for next week

  • Next week is a four-day work week as NSE and BSE will be closed for trading on Tuesday 8th, on account of Gurunanak Jayanti.
  • The biggest economy, the US will report its inflation number for October this week. The second biggest economy, China will report its balance of trade data for the month of October. Political disputes kept aside, our dependence on that country for the import of raw materials cannot be ignored. Hence, this is an important datapoint to keep track of.
  • The result season for July-September quarter is coming to an end with biggies like Godrej Consumer, Tata motors, M&M, amongst others reporting their results. We expect stock specific action.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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29 Oct

This Week in a nutshell (Oct 24th to Oct 28th)

Technical talks

This week was a truncated one on account of Diwali. NIFTY opened the week on 25th October at 17,794 and closed on 28th October at 17,786. The 50WMA of 17,061 may act as a key support level, while the recent weekly high of 17,838 may act as key resistance for the index.

Among the sectoral indices, PSU Bank (+5%), Auto (+4%) and PSE (+3.5%) were the top gainers while FMCG (-0.7%), Media (-0.4%) were the losers in the week.

Weekly highlights

  • The Monetary Policy Committee will meet again on November 3rd, according to the central bank. According to an RBI statement, the meeting would be held in accordance with RBI Act Section 45ZN, which describes the actions the central bank may take if it fails to achieve the inflation target.
  • California-based company, Apple Inc’s revenue and profit both topped analysts’ estimates despite sales of iPhones and services being softer than expected last quarter. High levels of inflation and a slowdown in consumer spending are expected to impact the growth prospects of the company in the near term.
  • Following a meeting with King Charles III, Rishi Sunak, the leader of the Conservative Party, was sworn in as prime minister of the United Kingdom on Tuesday, according to a statement sent by Downing Street late on Monday.
  • Oil’s weekly gain was curtailed as investors stayed away from risky investments due to the deteriorating outlook for China and the global economy as a whole. As a risk-off mood extended over larger markets on Friday, West Texas Intermediate fell to about $88 per barrel. Investors’ expectations that Beijing will prolong its time to abandon Covid Zero are dimming China’s economic development prospects, while the economies of France and Spain shrank in Europe.
  • The US markets bounced back after a series of bear market lows as tech shares rallied followed by Apple’s earnings release that topped analysts’ estimates. US’s economic data also contributed to positive investor sentiments as it revealed that the Federal Reserve’s fight against inflation is making some headway. The fourth consecutive rate increase of 75 basis points by the Fed is still anticipated by economists to take place next week.
  • FII (Foreign Institutional Investors) turned net buyers this week, selling shares worth Rs 39,860 mn. DII (Domestic Institutional Investors) were net sellers, buying shares worth Rs 12,400 mn.

Things to watch out for next week

  • We expect markets to continue volatile as a result of investor reactions to earnings releases and macroeconomic news such as supply-related constraints, interest rate hikes, and rising inflation.
  • The monthly auto volume data from companies like Bajaj Auto, Maruti Suzuki, and Tata Motors will be watched. Commentaries about festive demand, export business from auto companies are expected to give some idea about the domestic and international economic recovery.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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19 Oct

Basic checklist for an equity investment

When you decided to start investing, you end up with many options such as Gold, Real estate, bonds, Equity, Bank FDs, and many more. An equity investment attracts more to all types of investors whether an investor is risk averse, risk neutral or risk taker. The vision of every investor is to generate wealth while making an investment with or without having risk.

When you invest in equity you are not only buying a particular stock, you are buying a piece of business that generates value for you. Many people find difficulties while making equity investment decisions, but here are some basic checklists for equity investments that will help you to start your investment journey.

  1. What is your goal and time horizon? – the first step to choosing investments is to determine your goal, time horizon, and most importantly your risk appetite. No doubt everyone’s goal is to make money but some investors focused on generating additional income during retirement, and some investors focus on the capital appreciation and building wealth. While making an investment you also need to determine the time horizon because it plays an important role. Your time horizon could be based on your financial goals.
  2. Nature and perspective about business – “Never invest in a business you don’t understand,” the quote comes from Mr Warren buffet. One of the easy ways to burn capital is to invest in a business that you do not understand. Understand the type of business, current environment of the business, and outlook about the business along with the past financial track record of the company while investing.
  3. Uniqueness in business – A unique business model differentiates the company from its industry peers. Uniqueness in the business model indicates the company’s ability to maintain its competitive advantage over its peers. This translates into adequate margins, consistent cash flow generation, and increasing the company’s value over time.
  4. Quality of management – Do not only analyze the numbers but analyze the people behind the numbers. The quality of the management of the company plays an important role when making an investment decision. Father of growth investing, Mr Philip A Fisher says, investors should pick such companies for investments that have managements that show a strong sense of trusteeship and moral responsibility to their shareholders.
  5. Financial ratios are critical – Balance sheet, Profit and loss statements, and cash flow statement are the three main documents released by the company. With the help of these, you can evaluate a variety of financial ratios, performance, historical growth, and financial strength. Understanding the financial ratios will lead you to move in the right direction. You can evaluate this ratio between different years and between its industry peers. Many basic ratios are critical for analysis such as Return on Equity (ROE), Return on Capital Employed (ROCE), Debt to Equity, inventory, and asset turnover ratio, profitability margins, and many more.
  6. Be aware of value traps – Some companies look undervalued relative to their industry peers. There is always a risk that the company looks undervalued and might it suffering from financial distress and low future growth potential. Many new investors fall into this value trap. To avoid that trap always evaluate the company’s financial numbers, quality of management, competitive advantages, and nature of business.
  7. Avoid rumours – Another easy way of losing capital is to chase rumours and speculative news. Do not hurry and buy stock on such news without checking new developments. It is all right to not buy the stock which looks attractive based on the rumours and speculations.

At the end of your research process, you might end up with a list of limited numbers of companies. It is fine. Your research process helped you to eliminate companies which not suitable for your financial goal, and your risk appetite.

Happy Investing!

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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15 Oct

This Week in a nutshell (Oct 10th to Oct 14th)

This Week in a nutshell (Oct 10th to Oct 14th)

Technical talks

NIFTY opened the week on 10th October at 17,094 and closed on 14th October at 17,186. During the week, NIFTY was up 0.5%. The index can revisit 17,050 on the downside. On the other hand, the near-term resistance is at 17,350.

Among the sectoral indices, IT (+0.8%), Private Bank (+0.5%) and Bank (+.3%) were the top gainers during the week.  Realty (-4.2%), Media (-3.6%) and Metal (-2.8%) were the top losers in during the week.

Weekly highlights

  • Wall Street continued bleeding this week. The week started low as investors were concerned about Fed’s monetary tightening trajectory and its impact on the corporate earnings along with ongoing geopolitical tensions.
  • The downfall continued after minutes from the last Federal Reserve meeting showed policymakers agreed they needed to maintain a more restrictive policy stance. Bank of England indicated that it would support the country’s bond market for just three more days.
  • Thursday’s hot CPI data which sparked an initial selloff in all three major U.S. indices dominated the week. Investors also digested higher-than-expected producer price inflation, a more-than-expected rise in jobless claims, slightly improved consumer sentiment data which also came with a surprise rise in one-year inflation expectations, flat retail sales for September, and a bigger-than-anticipated fall in import prices.
  • US prices rose 0.4 percent MoM in September, twice the 0.2 percent projected by analysts, with price increases for food, shelter and medical care weighing on consumers, according to data from the Bureau of Labor Statistics.
  • The annual rate of inflation slowed slightly to 8.2 percent from 8.3 percent, according to the report. It indicated that pricing pressures have become more intractable despite aggressive central bank action.
  • The week also saw the earnings season kick off with major U.S. banks reporting their results.
  • Back home, Indian market’s direction was set by the IT companies quarterly results during the week.
  • The week started in red but bounced back due to impressive quarterly results announced by Infosys, TCS, strong micro and stable oil price.
  • The International Monetary Fund (IMF) announced another cut to its gross domestic product (GDP) growth forecast for India for FY23E by 60 bps to 6.8 percent. The report stated weaker-than-expected outturn in the second quarter and more subdued external demand.
  • India’s industrial growth, as per the Index of Industrial Production (IIP), slid to an 18-month low of (0.8) percent in August from 2.2 percent in July, data released by the Ministry of Statistics and Programme Implementation.
  • Headline retail inflation measured by the Consumer Price Index (CPI) rose to 7.41 percent in Sept-22 from 7.00 percent in Aug-22.
  • During the week, the rupee fell further and touched a fresh record low of 82.7. However, domestic currency ended marginally lower at 82.4 per dollar on 14th Oct-22 against its 7th Oct-22 closing of 82.3.
  • The foreign institutional investors (FIIs) remained net seller for the week as they offloaded equities worth Rs 99,417 mn. However, domestic institutional investors (DIIs) purchased equities worth of Rs 70,310 mn during the week gone by.

 

Things to watch out for next week

  • Us Equity market: In the week ahead, the result season will kick off in earnest, with major names like Tesla Inc., Netflix, and Johnson & Johnson, among others reporting numbers.
  • As the earnings season picks up, Indian markets will look out for HDFC Bank’s numbers on Monday. The bond market of US and India will give an idea of the level of inflation and the market’s reaction to it will keep the market volatile.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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11 Oct

All you need to know about Index Funds

When one talks of investing in the equity markets, one aspires to be as successful as Warren Buffett. While many consider him to be their investing ‘Guru,’ he calls investing a simple game that advisors have convinced the public is harder than it is. He has recommended investing in low-cost index funds. So what are these index funds?

An index fund is a type of mutual fund or exchange-traded fund (ETF) that purchases all (or a representative sample) of securities in a particular index. The goal is to match the fund performance as closely as the benchmark it tracks. Some of the most common indices are S&P 500, NASDAQ-100, and Russell 2000. Closer home, we have the Nifty 50 index, S&P BSE Sensex, and Nifty-Next 50.

How do index funds work? Consider an index fund that follows the Nifty Index. There will be 50 equities in this fund’s portfolio, all of which will be distributed similarly. Bonds and equity-related products may both be included in an index. The index fund makes sure to invest in each security that the index tracks.

A passively managed index fund attempts to replicate the returns provided by the underlying index, whereas an actively managed mutual fund strives to surpass its underlying benchmark. A passively managed index fund manager may have to reduce the tracking error as much as possible.

Portfolios of index funds only change significantly when their benchmark indices change. The management of a fund that tracks a weighted index may occasionally adjust the percentage of various securities to reflect the weight of those stocks’ participation in the benchmark. A technique called weighting equalizes the impact of each asset in an index or portfolio.

Why would you invest in an index fund?

The primary advantage of investing in an index fund is the lower management expense ratio compared to their actively managed counterparts. (A fund’s expense ratio includes all the operating expenses such as payment to advisors and managers, transaction fees, and accounting fees).

As index fund managers are focused on replicating the benchmark performance, they do not need to hire research analysts to assist in the stock selection process. As trading is also less frequent, the transaction fees and commission expenses are also lower.

Are there any risks to investing in an index fund?

Yes, like any investment, index funds are also subject to certain risks. First, the index fund will be subject to the same risks as the securities in the index it tracks. Second, there is less flexibility to react to price declines in the securities in the index vis-à-vis a non-index fund.

If the fund does not exactly follow the index, there can also be a tracking error. The performance of an index fund, for example, may not perform as well as the index if it only holds a portion of the securities in the market index.

So, who should consider investing in an index fund?

Now that we know what index funds are, and the pros and cons of investing in index funds, we wonder if index fund investing is right for us.

As index funds track a market index, the returns are approximately like those offered by the index. Hence, investors who prefer predictable returns and want to invest in the equity markets without taking a lot of risks prefer index funds.

The Taxation Aspect

Being equity funds, index funds are subject to dividend distribution tax and capital gains tax. Redemption of index fund units may lead to taxable capital gains. The capital gains earned in the case of a holding period of less than one year is short-term capital gain (STCG) which is taxed at 15%. In case of a holding period of more than one year, an investor would be liable to pay long-term capital gain tax (LTCG). LTCG up to Rs 1 lakh is not taxable, and the amount above that is taxed at the rate of 10% without indexation benefits.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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10 Oct

This week in a nutshell (03rd October – 07th October)

 

 

 

 

Technical talks

NIFTY opened the week on 3rd October at 17,102 in the red and ended in the green at 17,315 on 7th  October, after high volatility during the week. The index closed marginally in the green during the week. The next support and resistance levels for the index would be 17,262 and 17,412 respectively. The RSI (14) of 50 indicates the index is showing signs of recovery.

Among the sectoral indices, MEDIA (+5.5%), REALTY (+3.8%), IT (+4%), and BANK (+2.7%) were the gainers during the week while METAL (-1.2%), OIL AND GAS (-1.0%) and HEALTHCARE (-0.9%) led the losers.

Weekly highlights

  • US major indices closed the week in red after the US Employment data erased the gains made during the week, the S&P 500, Nasdaq, and Dow Jones closed the week with losses of 1%, 2%, and 1% respectively.
  • Oil prices settled higher on Friday as OPEC has maintained its policy of cutting down production in the wake of an impending demand slowdown, the Brent crude and WTI crude ended the week with a gain of 10% and 9% respectively.
  • India’s tax collection from the sale of goods and services soared 26 per cent to Rs 1.47 trillion in September, on account of rising demand, higher rates, and greater tax compliance. The Goods and Services Tax (GST) collection remained above the Rs 1.4 trillion mark for the seventh straight month during the month up 27% YoY.
  • S&P Global India Manufacturing PMI in September was 55.1, as against August’s 56.2. Despite cooling down from August, despite India’s manufacturing activity losing a bit of momentum the rates of expansion remained historically high. The S&P report stated that manufacturing PMI was in expansion for the 15th month in a row.
  • Indian automakers witnessed strong sales growth in September as an improved supply of vehicles and pre-festive season inventory build-up at dealerships boosted dispatches. Carmakers either reported the highest-ever monthly sales or touched peak dispatches in many months. For two-wheeler companies, exports were weak with motorcycle sales also disappointing in the domestic market. The sales volumes in the commercial vehicles and tractors segment were also robust, suggesting an even stronger festival season for companies.
  • The World Bank on Thursday projected a growth rate of 6.5 per cent for the Indian economy for FY23, a drop of one per cent from its previous June 2022 projections. India is expected to be the outperforming economy in FY23 despite multiple headwinds.
  • OPEC+ agreed on its deepest cuts to oil production since the COVID-19 pandemic on Wednesday by 2 million barrels per day. The cut could spur a recovery in oil prices that have dropped to about $90 from $120 three months ago on fears of a global economic recession, rising US interest rates and a stronger dollar.
  • The foreign institutional investors (FII) continued to be sellers and sold equities worth Rs 360 mn while Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 9,640mn during the week.

Things to watch out for next week

  • This week will be very crucial for Indian Equity markets as the investors will closely watch Q2 Earnings releases from IT companies, and commentary about demand headwinds and deal pipelines would be on the radar.
  • Various Macroeconomic statistics such as IIP, CPI, WPI, Balance of Trade and the RBI MPC Policy Meet Minutes will be out in the upcoming week which may lead to increased volatility during the week.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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07 Oct

Investing in times of pessimism

“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The Intelligent Investor is a realist who sells to optimists and buys from pessimists.”: Jason Zweig, The Intelligent Investor.

That’s exactly what happened in India for software services between pre-Y2K and 2001; Realty, power & infra stocks in 2008 and 2020, amidst the covid fear, the hospitality and leisure sectors.

It is proven time and again that such extreme corrections provide the best investing opportunities. Most stocks that get beaten down for no fault of theirs have value in them. However, falling from their peaks is neither a necessary nor a sufficient condition for having value. To recognize value, we have to rationally distinguish between transitionary and permanent events.

Usually, we underestimate the risk when the market is going up and miss out on opportunities when the market is going down. Optimism vs pessimism is characterized by fear of missing out in a bull run vs fear of crashing out in a bear phase.

Buying when the carnage is happening requires separating emotions from rational thinking.

Investors can use the following framework to identify the right stocks during times of pessimism:

  • When no one is talking about a sector/company, when it is totally out of favour, it generally trades at a historically low valuation.
  • Survivability test – can the company survive the current downturn? That will largely depend on the company’s business model, the amount of debt it has, and its cash-flow-generating ability.
  • Are the insiders i.e., the founders or the management increasing their stake in times of pessimism? If yes, that’s a very positive sign. It shows their belief in the company.
  • The cost-saving initiatives have the potential to permanently improve a company’s profitability.
  • If a company is facing temporary demand disruption, operating at lower capacity utilization is not always a negative point. This means with the rise in demand the company can improve output without any significant requirement for capacity expansion.
  • Even if the company stands true to all such parameters, if it is facing a corporate governance issue, it should be avoided. There are always better alternatives.

 

Conclusion: It is rewarding to be optimistic during pessimism however, one should be extremely disciplined and patient in order to reap the results. Also, sticking with the framework, setting up milestones and avoiding companies with governance issues proves very helpful.

 

With excerpts from: www.cfasocietyindia.org

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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01 Oct

This week in a nutshell (26th September- 30th September)

Technical talks

NIFTY opened the week on 26th September at 17,165 and closed on 30th September at 17,094 after declining to 16,750. The 50WMA of 17,100 may act as a key support level, while the recent weekly high of 18,320 may act as key resistance for the index.

Among the sectoral indices, Pharma (+2.9%) and IT (+1.5%) were the top gainers while Energy (-3.5%), Auto (-3%), and Realty (-3.0%) were the losers in the week.

Weekly highlights

  • On 30th September, in its ongoing attempts to control inflation in the economy, India’s Monetary Policy Committee increased the benchmark repo rate by 50 basis points to 5.9%, marking its fourth straight increase. The Monetary Policy Committee maintained its stance of focusing on removing accommodative measures in order to keep inflation within target while fostering growth in the upcoming years. At an unanticipated meeting in May, the committee raised rates for the first time by 40 basis points. Then, by 50 basis points in June and 50 basis points in August
  • The majority of the drop in India’s foreign exchange reserves is due to the shift in valuation as the dollar rose. India’s foreign exchange reserves stood at $537.5 billion, Das said in his monetary policy speech on Friday. About 67% of the decline in forex reserves in FY23 was due to valuation changes resulting from dollar appreciation, he said.
  • The year’s best market for car sales is still India. Sales have been consistent thus far in 2022, and with the festive season commencing at the end of September, we anticipate a higher fourth quarter, according to a note written by Moody’s Investor Service. India will beat its regional and international competitors thanks to a more improved macroeconomic climate, the reduction of semiconductor shortages, and dealer restocking, it added.
  • According to the Swedish news agency, a fourth leak on the Nord Stream pipeline has been discovered off the coast of southern Sweden. All four leaks that have been found are in international seas; two are close to Sweden and two to Denmark. Since Russian President Vladimir Putin invaded Ukraine seven months ago, Europe and, by extension, the rest of the world, have been dealing with an energy crisis.  The pipeline leaks have added to Europe’s existing economic woes.
  • Concerns about historically high inflation and future monetary tightening by central banks, particularly the Federal Reserve, would probably temper any sustained rally. BOE’s sudden intervention to buy an unlimited amount of long-dated bonds sparked record gains for gilts. Last Friday’s announcement of significant tax cuts by UK Chancellor of the Exchequer Kwasi Kwarteng led to a run on British assets due to worries about the government’s ability to pay for the change and its potential to further accelerate inflation.
  • US markets plummeted repeatedly by the Federal Reserve’s resolve to keep raising interest rates until inflation eases. Wall Street indices were volatile during the week with Nasdaq and S&P ending 1.7% and 1.5% lower respectively on Friday.
  • As concerns about restricted oil supplies were overshadowed by growing worries about a global recession and a rising dollar, oil is anticipated to post its first quarterly loss in more than two years. West Texas Intermediate prices, which have fallen by almost 24% this quarter, were trading close to $80 a barrel on Friday. The dollar’s recent record-high rise has rattled crude as aggressive central bank rate hikes cloud the outlook for global growth.
  • FII (Foreign Institutional Investors) turned net sellers this week, selling shares worth Rs 1,59,900 mn. DII (Domestic Institutional Investors) were net buyers, buying shares worth Rs 1,37,440 mn.

Things to watch out for next week

  • Auto companies are expected to release their September volumes of sales. The early festive season this year, which started on 26 September versus 7 October last year, is expected to brighten the outlook for the passenger vehicle (PV) segment. However, the two-wheeler (2W) segment is expected to be muted given the weak rural demand.
  • Quarterly updates by FMCG companies like Marico and banks are expected to drive the markets in the coming week.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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27 Sep

Common Characteristics of Successful Private Investors

Many successful investors around the world follow different strategies to generate meaningful returns from their investments. But there are few similarities in things that they do.

Here, we speak of such characteristics commonly seen among private investors that turn them into successful individuals. Following are these habits:

  • Future time perspective: We tend to see our experiences through a past, present, or future time perspective. Eg- People with a present-time perspective may want to earn a big salary now and spend it. Whereas, successful investors start investing early. They seek uncertain future gains from the compound interest on their capital. They take a calculated risk today for earning gains in the future. They inculcate the habit of viewing opportunities through a future time perspective.
  • Investing for Freedom: Most successful investors can show off their money if they want to. But they instead choose to live a not-so-flashy life. Many investors start small and they earn money the slow way. They patiently build wealth by spending less and investing it over a long duration. They know that having more money than they need will result in freedom. Having more money frees up their time to use it for activities that they want to do.
  • Avoid borrowing to invest: Using debt in volatile markets works until the market turns down. It may erase all the gains and the capital with it. One can lose more than one started if one uses borrowed money to invest. Successful investors invest their own money after conducting research and then wait patiently. They know that once invested; they should let the compound interest work for them. This is how they generate meaningful returns on their investments without borrowing money.
  • Not team players: Investing requires one to not be part of the herd. Most successful investors are not team players when it comes to investing. They may take help from other people for research or may work with a team for a few activities. But when it comes to taking an investment decision, they understand that it’s to be done individually. There are many variables within investing which differ from person to person. Investment goal, time horizon, sector preferences, etc. This makes it a job to be done on one’s own.
  • They enjoy investing: Successful investors can put the money in passive portfolios and use their time for doing something else. But they choose to be active in markets. Some do it because they believe that they can generate good returns using their skills. Some do it because they enjoy it. Many actively traded portfolio investors keep on working despite having more money than they will need.

Some of these characteristics are simply natural to an investor. But other characteristics can be learned over years. Even a novice investor with few months of experience in the market can read, observe and learn to benefit by inculcating these characteristics in oneself.

 

Source: https://monevator.com/habits-of-successful-private-investors/

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their research and analysis and should consult their investment advisors to determine the merit, risks, and suitability of the information provided.”

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