Daily Market Analysis – 14th May 2021 (Stocks)
Value Stocks vs Growth Stocks – US Markets
Value stocks have beaten the growth stocks by about 13% in the latest data as per the Russell 1000 Value Index vs Russell 1000 Growth Index. The reason for the outperformance could be the lower valuation and lower PE that the value stocks were trading at.
Alternatively, there exists a massive opportunity in the technology space and bluechip stocks of the US Markets, namely Apple, Netflix, Tesla as they have seen some correction and there seem to be better days ahead due to the strong market share and fundamentals they command.
Also read: RBI Monetary Policy – Fintoo Blog
Global Cues – USA , China and Australia
The USA markets over the past few days have seen some downturn mainly due to worse than expected inflation data (rise in consumer prices) and the possibility of withdrawing some Fed Policies which were initially introduced. The USA markets staged a late recovery yesterday and ended on a positive note.
China on the other hand could not meet their quarterly GDP forecasts which led to selling in their market
Australian markets have been volatile due to its tug of war with China and the sharp fall in iron ore price could prove to be an economic disaster for Australia as they are an exporter of Iron ore to China
GO AIR IPO
The Wadia group-owned Go Air has filed the Draft Red Herring Prospectus for its initial IPO. They would be raising Rs3600 Cr via fresh issue of shares
The airline had started its operations in 2005 and has just over 50 aircrafts in its fleet.
The aviation sector is facing some tough challenges and amidst this chaos , it is to be seen how this IPO fares.
Rise in Unemployment Rates
India’s unemployment rate has increased to 8% in April 2021 as compared to 6.5% in March 2021.
Restrictions that were imposed by various State Governments due to the second wave of Covid 19 and the inability of the economy to absorb the labor force has resulted in about 7.35 million job losses.
EPFO Update – Insurance Cover upto 7 Lakhs
The Employee Provident Fund Organisation has announced that if an active salaried individual dies of Covid19, their family members will be offered a sum of up to 7lakh rupees as insurance cover.
This cover is provided under the EDLI scheme and the ceiling is Rs. 15000 for the purpose of calculation.
RBI cancels license of United Co-operative Bank
RBI has canceled the license of United Co-operative Bank based in West Bengal. Through an order dated 10th May, the central bank has prohibited the co-operative lender from carrying out banking business.
The reason for canceling the license was that the Bank did not have adequate capital and earning prospects were slim. The bank also failed to comply with various regulatory requirements. In its present capacity as well, the bank would be unable to pay its depositors in full and its continuance would further prejudice the interest of the depositors.
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Daily Market Analysis – 13th May 2021
PLI scheme for promoting ACC battery manufacturing :
Govt approves Rs. 18100Cr in PLI scheme for manufacturing Advanced Chemistry Cell (ACC) battery with the objective of promoting Make in India initiative.
The proposal aims to achieve manufacturing of 50 gigawatts of battery storage, he said, adding, these incentives will be available to those companies having higher production and sales capability.
Advanced Chemistry Cell (ACC) are the new generation of advanced storage technologies that can store electric energy either as electrochemical or as chemical energy and convert it back to electric energy as and when required, an official statement said.
All the demand for the ACCs is currently being met through imports in India.
The National Programme on Advanced Chemistry Cell (ACC) Battery Storage will reduce import dependence and also support the Atmanirbhar Bharat initiative.
Related Article: PRODUCTION LINKED INCENTIVE SCHEME (PLI scheme)
CEO from Unilever Sudhir Sitapati hire by Godrej Consumer
On Wednesday Godrej’s consumer share price surged by 21.87%. Godrej has underperformed most of its peers in the past few years, which may change as the new leader brings in a new strategy that may entail some hard decisions,
Sitapati, who has spent nearly 22 years with the Indian unit of Anglo-Dutch giant Unilever, was instrumental in building the company’s foods and refreshments business as one of the largest in the country, which also included the merger and integration of GlaxoSmithKline Plc’s Indian consumer-health unit with Hindustan Unilever.
Subscription for Sovereign Gold Bond open from May 17
The first tranche of Sovereign Gold Bonds 2021-22 will be open for subscription for five days from Monday 17th and end on 21st May and bonds issued on 25th May.
The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The tenor of the bond will be for 8 years with an exit option after the 5th year to be exercised on the next interest payment dates.
Also read: Sovereign Gold Bonds – Should you invest? – Fintoo Blog
First user gain in 15 months lifts Voda stock
Rallied over 13 per cent in early trade on Wednesday in a weak market, as the telco reported monthly user gains for the first time in 15 months.
While that user gain held out a ray of hope for investors, analyst after analyst has downgraded the stock and cut price targets, as uncertainty loomed over its much-awaited fundraising plans.
Zydus Cadila Sell India Animal Business:
Cadila Healthcare’s (Zydus Cadila’s) wholly-owned material subsidiary Zydus Animal Health and Investments (ZAHL) is set to sell its animal healthcare business to a consortium led by Multiples Alternate Asset Management for nearly Rs 3,000 crore.
The deal is to sell one of the two business undertakings of ZAHL on a slump-sale basis as a going concern, for Rs 2,921 crore on a cash-free and debt-free basis, subject to certain closing date adjustments and other conditions.
Elon Musk Sends Bitcoin Tumbling With Stunning U-Turn On Payments
Wednesday, Musk cited concerns about the “rapidly increasing use of fossil fuels for Bitcoin mining and transactions,” while signaling that Tesla might accept other cryptocurrencies if they are much less energy-intensive. He also said the company won’t be selling any of the Bitcoin it holds.
The largest cryptocurrency dropped as much as 15% in Asian trading, sliding below $50,000, before paring some of the drops. It was down about 8% to $50,190 as of 10:53 a.m. in Tokyo. There were reports of outages at digital-token exchanges as people rushed to sell.
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Daily Market Analysis – 10th May 2021
1. Dogecoin, Cryptocurrency
The cryptocurrency “meme coin” Dogecoin was created in 2013 as a joke poking fun at the surge in other digital coins. The latest surge has pushed Dogecoin’s market capitalization to $62 billion, which means it’s valued more highly than Ford and Twitter. In 2021, it has surged from less than half a penny to a record of nearly 75 cents.
The Dogecoin is the one being promoted by founder of Tesla and SpaceX Elon Musk.
The value of dogecoin dropped sharply in early U.S. hours on Sunday, after Tesla chief and cryptocurrency supporter Elon Musk called it a ‘hustle’ during his guest-host spot on the Saturday Night Live comedy sketch TV show.
Dogecoin was quoted as low as $0.47 on crypto exchange Binance, down 28% from levels around $0.65 before the show.
Should we Invest in Dogecoin?
Cryptocurrency has a “good chance” of becoming what he called “the future currency” of the Earth. But again at present, it is one of the riskiest assets to hold on to.
To boost the confidence in investors the company added that DOGE has proven to be a fast, reliable, and cryptographically secure digital currency that operates when traditional banks cannot and is sophisticated enough to finance a commercial Moon mission in full. It has been chosen as the unit of account for all lunar business between SpaceX and Geometric Energy Corporation and sets precedent for future missions to the Moon and Mars.
To read more about Cryptocurrency: Daily Market Analysis – 28th Apr 2021 – Fintoo Blog
2. Tyre Companies may have a speed breaker ahead
There has been a rising input price for the tyre companies which may result in underperforming of the shares of these companies. The prices of rubber and crude have risen sharply since October last year. Rubber has moved up 30% to from Rs.13,000 per 100 kg to Rs.17,000 per 100 kg. Similarly crude has risen 70% since October from $40 per barrel to $68 per barrel.
The tyre companies failed to meet the analyst expectations due to lower profit margin because of high raw material prices. The analysts have started cutting their target prices on most of the tyre stocks to factor in earning stress.
The tyre companies are mostly dependent on the automobile industry, as we are aware that the automobile industry is also not performing due to the COVID19 Pandemic. In April all major auto companies reported a month-on-month decline in sales.
What should we do ?
Long Term Perspective – With the changing government regulations of scrapping the old vehicles and the BS-VI models coming into the picture, there is a good potential of growth in the tyre manufacturing companies.
Short Term Perspective – There might be a small rise in the share prices of these companies in the coming quarter as monsoons may witness a demand for tyres.
3. Rise in Silver Price
Silver has risen nearly 15% since Thursday when posts began circulating on Reddit urging retail investors to buy silver mining stocks and iShares Silver Trust, an exchange-traded fund (ETF) backed by physical silver bars, in a GameStop-style squeeze.
Buying an ETF can boost silver prices by increasing the number of shares in the fund and making its operator buy more metal to back them
However, analysts have urged investors to be cautious. “In case of silver caution is advised as the recent rally has no fresh triggers and is completely driven by speculation
Silver is typically more volatile than its much more costly sister metal, gold, often posting sharp swings in prices. In addition to its role as a speculative asset and store of value, it has industrial uses, including solar panels. Meanwhile, Bloomberg reported that retail sites were overwhelmed with demand for silver bars and coins, suggesting the Reddit-inspired frenzy that roiled commodities markets last week is spilling over into physical assets.
Should we Invest in Silver ?
Silver prices on MCX had posted gains of 3.2% or ₹2,170 per kg on Friday. Despite the recent gains, silver prices are still down about ₹6,000 from their all-time highs of about ₹80,000 hit in August last year. Investments in silver-dependent greener technologies such as solar panels and electronics are rising around the world along with broad-based dollar weakening that is making silver cheaper for holders of other currencies.
Irrespective of the rise or fall in the precious metals’ prices, one should invest a small percentage of their investment portfolio in gold/silver as a diversification strategy.
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Daily Market Analysis – 7th May 2021
Fincare Small Finance Bank is going to file for IPO this week. It is one of the 10 microfinance institutions to receive the RBI nod to convert into a small finance bank. RBI mandates SFBs to list within 3 years of reaching a net worth of Rs.500 crores. Accordingly, Fincare has till Sept 2021 to get itself listed. Ranging between Rs.1200-Rs.1400 crore, the issue will comprise of fresh issue and OFS by existing shareholders. Fincare will file the DRHP with SEBI this week.
- Since late last year, crypto-currencies started gaining steam with Bitcoin going from hovering around the US $10,000 mark to trading at above US $55,000 level presently. With the crypto-currency market opening up S&P Dow Jones Indices have launched the new crypto-currency indices namely, S&P Bitcoin Index, S&P Ethereum Index and the S&P Crypto Mega Cap Index. S&P Global announced the plans first in December 2020 to cover more than 550 crypto-coins in the indexes to allow for the creation of benchmarking tools on crypto-currencies. The indexes will use the data from the virtual currency company Lukka which is based out of New York.
- Angel broking announced its plans to enter the asset management business. The company is planning to open an AMC focusing on SIPs and low-cost passive funds. This will allow the AMC to minimize the distribution and management costs. On the back of this news, the Angel Broking stock soared to end at 20% higher on 6th May. In this pandemic, all the brokerage firms have focused on digitization to help increase their customer base. Angel Broking has added 3,93,500 new customers in March 2012 whereas, Zerodha has added 3,06,000 new customers in the same period.
- US government has approved the temporary waiver of patent protection rules on the Covid Vaccines. India and South Africa had approached WTO in October last year to get a waiver on the Trade-Related Aspects of Intellectual Property Rights (TRIPS) on Covid-19 vaccines. Approval on the waiver will mean that there can be a free flow of technology and medicines developed worldwide. This will significantly reduce the Vaccine cost. However, it will take time to reach a global consensus as many countries believe that this waiver will stifle innovation as it takes away the incentive of spending on R&D by the global pharmaceutical companies.
- Petrol and Diesel prices in India have been on the rise in the past week. With the 3rd rise in the prices in as many days, petrol prices are now at ₹99.99 per litre while diesel is being sold at ₹81.42 per litre in the national capital. The major reason for this price hike is the crude prices which had jumped over $69 per barrel on Wednesday.
- RBI has granted perpetual validity to Bajaj Finance for its entry into the digital wallet space. It will be included in Bajaj Pay which is a consolidated payments platform from Bajaj Finance. The company has announced a consolidated profit of Rs.1347 cr. in FY 21 against the Rs.948cr. profit clocked in FY 20.
- Russia has authorized the production of the single-shot Sputnik Light vaccine in India which has an 80% efficacy rate
- Worldwide semiconductor shortage in the markets have let the Auto companies produce vehicles leaving out the parts requiring the use of semiconductors; China set to build a self-sustaining supply chain of semiconductor products
- Zomato plans to invest $100 million in Grofers to expand into the grocery delivery market
Also read: RBI Monetary Policy – Fintoo Blog
- Some of the key points mentioned in the RBI Announcement on Wednesday are:
- RBI Governor announced Rs.50000 crore on-tap liquidity facility for the tenure of 3 years open till 31st March 2021, for the healthcare infrastructure and additional loan restructuring. This has led to Pharmaceutical companies doing well in the last week with Lupin rising almost 10-11% and Aarti drugs rising almost 13-14%
- Banks will be allowed to park surplus liquidity up to the size of the Covid loan book with RBI gaining 40 bps higher than the reverse repo rate
- 2nd Purchase of Rs35000 crore under G-SAP 1.0 will be conducted on 20th May 2021
- RBI Governor also announced targeted long term repo operations for small finance banks of up to Rs 10000 crores to be used for lending of up to Rs 10lakh per borrower, SME MSME borrowers have been given a chance to extend their payment schedules
- RBI has allowed a one-time restructuring of the loans to individuals and small businesses up to loan size of Rs 25 crore.
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Daily Market Analysis – 6th May 2021 (Global Economy)
Global economy to grow by 6% in 2021, up from its 5.5% forecast in January. Looking further ahead, global GDP for 2022 will be seen increasing by 4.4%, higher than an earlier estimate of 4.2%.
Some Key Points:
- Those who have managed to have a job during the pandemic will have excess saving hence investments will grow.
- Many countries like USA, UK will show market recovery
- Work from home will be adapted post-pandemic too hence software and technology sector will increase
- The number of startups (without the physical office) will increase leading to global employment
- Emotional spending can increase in sectors like clothing, hotel industry, and luxury products
- Despite fossil fuels being the dominant source of electricity generation, we continue to expect that solar PV (Solar Photovoltaics) capacity will grow at rapid rates on the back of growing capacity in the EU, India, and China. If current trends continue, solar PV capacity is on course to surpass natural gas in 2023 and coal in 2024 in the global electricity sector.
- Disruption in the global supply chain also likely to recover with normalcy
- If large numbers of people continue to work remotely, that will reduce long-term demand for office space as well as demand for energy. That, in turn, will mean less investment in office buildings and oil wells. If people continue to shop remotely, then there will be less construction of shopping centers.
- Vaccinations continue to reduce the threat of the virus, thereby enabling more consumers to engage in the kinds of social interaction that boost spending.
China’s growth set to drive global economy in post-pandemic years:
The U.S. and India will be the second and third-biggest contributors to global growth in the period, according to the IMF, with Japan and Germany rounding out the top five.
Global GDP is expected to rise by more than $28 trillion to $122 trillion over that period, after falling $2.8 trillion last year because of the Great Depression.
One reason for the divergence is the faster-than-expected recovery in the U.S. It’s the only large economy where the IMF’s GDP forecast for 2022 is actually higher now than it was before the pandemic.
China will drive global economic growth in the coming years as the world recovers from a pandemic that killed 2.9 million people, the International Monetary Fund predicts.
Joe Biden announced a USD 1.9 Trillion COVID-19 stimulus plan to revive the US economy.
- The relief package was announced with a view to fight against the COVID-19 pandemic.
- This package provided support to small businesses and also provided direct support to american people.
- Due to this, there has been a significant reduction in small businesses failure in the US.
- It includes USD 1,400 in additional stimulus cheques to Americans, an extension for key unemployment programmes.
Also read: Benefits of investing in global markets – Fintoo Blog
Disruption in Supply Chain globally:
- There are a number of factors contributing to disruption, including increasing global demand for consumer goods, a shortage of container ships, and air freight capacity.
- Due to the disruption in the supply chain, the recovery of the manufacturing sector is hurting, although Germany is doing exceptionally well.
- The global chip shortage is worsening due to the rising global demand for consumer electronic goods, home appliances, and automobiles. Also, Chinese companies are concerned about the potential impact of future sanctions from the United States.
- The overall supply chain problem is likely to have a negative impact on the global supply of mobile telephones, automobiles, and home appliances, which can lead to an increase in prices. Already, some prices have started rising. Taiwan’s largest supplier of semiconductors says that the global shortage is not likely to be resolved until 2022. Meanwhile, several Taiwanese producers are massively investing to boost capacity.
Push for Green Infrastructure:
- Green Bonds – These bonds are used to finance environmental projects. Currently, their share is less than 5% of the global fixed income market.
- The estimates about green bond issuance are that they are going to increase by over 40% to top half a trillion US Dollars for the first time.
- Environmental, Social, and Governance (ESG) funds will have inflows and they will continue to increase and account for up to 57% of total European mutual funds by 2025.
- The analysis about electricity production from renewables continues to gather momentum, with solar photovoltaic (PV) capacity likely to grow at rapid rates on the back of growing capacity in the EU, India, and China. If current trends continue, solar PV capacity is going to surpass natural gas in 2023 and coal in 2024 in the global electricity sector.
Conclusion:
The global economic output seems uncertain. The global economy as a whole should revert to its pre-pandemic level of output by the end of 2021 and expand by around 5% in market exchange rates.
Invest in International Equity : Start Investing
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Daily Market Analysis – 5th May 2021 (Banking Sector)
OUTLOOK ON INDIAN BANKING SECTOR
The banking sector has been the backbone of the economy, where the impact on one reflects on the other as well. When the economy is in the progressive phase, lending and borrowing activities increase significantly and this in turn leads to healthy growth in banks. While the economy passes through a rough, the defaults rise and this leads to an increase in bad assets (bad loans). For the country to achieve the USD 5 trillion economy target within the next five years, while also considering the various challenges due to lockdowns and economic slowdown, credit from banks must grow close to 12% every year in order to at least aim for a USD 5 trillion economy figure by 2024. At the same time, the Indian banking segment has remained resilient enough, growing consistently through multiple economic cycles in order to capitalize on every opportunity.
The past few months have been eventful from a banking sector perspective as many important announcements and developments have taken place with the view of enabling a faster recovery in the sector. Key events include budgetary announcement of formation of bad bank in order to reduce NPA burden of large banks, formation of Development Financial Institution (DFI) to help infrastructural lending, privatisation of PSU banks and the Supreme Court’s order to subdue the asset classification norms, and seeking complete interest waiver and extension of moratorium.
Popular Article: Quick tips for financial planning in 2021
According to Fitch Ratings, the second wave of Covid-19 infections in India has increased the risk of its delicate economic recovery and its banking sector. A mediocre growth environment is already expected for the banking sector in India with the rise in Covid infections. It has been observed that 80% of the new infections are in the states which accounts for around 45% of banking sector loan, where anymore disruption in the economic activity can pose a threat for the banking sector. This situation arises amidst the times when there have been many questions regarding the asset quality of the banks, as the impact of the first lockdown on the financials of the banks is yet to be realized. Although it is expected that the second wave will have a lesser impact as compared to the initial wave on the assessment of the operating environment in the banking sector, with better preparedness this time with digital advancement in the banking functionalities, and higher provisioning factoring the rise in NPAs beforehand which though would impact the profitability.
The downside risks that could surface in the next quarters would be:
- The ratio of gross NPA could rise from 7.5% in Sept 2020, to 14.8% by Sept 2021 in a severe stress scenario, while even under the baseline scenario it may rise to 13.5%.
- The RBI fears that the data on fresh loan defaults reported by banks does not reflect the true state of the banks’ portfolios.
- Due to prolonged uncertainty with the second wave of Covid, current local lockdowns and supply chain issues might affect the vulnerable small banks, NBFCs and their vulnerable customers from small borrowers to small and medium businesses.
- Bank credit growth remains elusive and slowest in the last 4 years, where the credit to businesses and individual slowed to 4.9% in FY21 from 6.8% in FY20.
- The payment rejection rates are back to January levels and are further expected to rise this month, with a forecast that the collection ratios might get hit by 5-10% due to the increase in the covid-19 cases in the country.
But despite the downside risks prevailing, the banking sector should manage to stay afloat by minimizing the dent to the growth prospects with the latest developments in the banking system and regular monitoring of RBI and accommodative measures taken to tackle the situation. Most banks have steadily increased the number of provisions to counter any possible COVID shock and have ramped up their digital capabilities to reach out to the customers reducing the risk and uncertainty in the physical functionalities. Banks have also addressed the stress on the mid and large corporate book, at least a significant part of it, either by pushing them to NCLT or using the one-time restructuring facility announced by the RBI last year. While, the latest measures taken today by RBI in terms of allowing Covid Loan book, liquidity measures for the healthcare system and the public in general, MFIs loan restructuring, and further extension of one-time restructuring facility for small borrowers, including individuals and MSMEs are steps taken in the right direction to keep in check the downside risks for the financial sector.
Overall, the banking sector though facing hiccups in the next couple of quarters, are resilient enough to stay afloat in the prevailing environment of uncertainties, and well poised for progressive growth over a longer term.
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Daily Market Analysis – 4th May 2021 (Cyclical stocks)
Cyclical Sector
Cyclical sectors are directly affected by the economic cycle of a country. So when the economy goes up, prices for these cyclical stocks also tend to go up & when the economy turns down, their stocks prices tend to fall. Few examples of these sectors- cement, steel, automobile manufacture, financial services, hotel industry, airlines.
Current Economic outlook
- In its latest edition of World Economic Outlook, IMF said it expects India’s GDP to grow 12.5 per cent in FY22, the highest among emerging and advanced economies. India is the only country expected to register double-digit growth this fiscal.
- Positive FII inflows of Rs. 41,143 Cr (Jan21 to 4th May 2021)
Monsoon
- As per India Meteorological Department (IMD), the 2021 southwest monsoon starting in June is expected to be normal at 98 per cent of the Long Period Average (LPA).
- As per a private weather forecasting agency, Skymet had made a similar prediction that the southwest Monsoon would be normal at 103 per cent of the LPA. Rainfall between 96 and 104 per cent of the LPA is considered normal.
- Both IMD and Skymet predictions come with a model error of plus and minus 5 per cent.
- A good monsoon will mean another year of bumper farm production and cascading positive impact for the economy battling Covid-19 infections. If the forecast comes true, this will be the third consecutive year of normal or above-normal monsoon
Low Interest Rates
- After lowering the rates by 115 points since the virus hit, the RBI(Monetary Policy Committee) in its last meeting maintained a status quo. The current Repo Rate is 4%.
Mutual Fund witnessed high exposure of few industries in the cyclical sector-
- Mutual Fund companies have increased their hold on the cyclical sector recently. They have increased their exposure to the auto sector to 6%, NBFCs 8.8%, cement 3.3%, real estate 0.7%, chemicals 3%, & infrastructure 0.5% in FY 21.
When to Invest Money in Cyclical Stocks
When the government is undertaking a major capital spending thrust.
We have seen Budget’s Thrust for Capital Expenditure. Union budget has allocated The proposed capital expenditure in the budget is ₹5.54 lakh crore, which, as per the finance minister’s budget speech, is 34.5% higher than the capital expenditure proposed in the previous budget. The budget proposes to invest in national highways and roads, railways, urban infrastructure, port, shipping and waterways and petroleum and natural gas.
When the Metals, Infrastructure & Cements are seeing the start of a super cycle
Steel and cement, two capital-intensive sectors that are crucial for building hard infrastructure, are witnessing better sales since October. That could boost margins and growth outlook for the companies in these sectors, which are benefiting from a quicker-than-expected pickup in construction, rural consumption and a visible sales revival in the automotive industry. Analysts expect a 10-20% year-on-year rise in demand in the second half (H2) of FY21
Also read: Impact of having Domestic stock in your Portfolio
When there is any outrage
Due to the current COVID situation, People are concern regarding the safeguard of health and life insurance as seen in the past Quarter. Also in the recent budget, FDI is increased to 74% from 49%. The financial services sectors look positive.
The crux is that cyclical stocks are largely dependent on economic growth. When the combination of investment and growth is in their favour, these cyclical stocks can give humongous returns in a very short period of time. That is what makes these cyclical stocks very critical from a portfolio point of view.
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Daily Market Analysis – 3rd May 2021
Positive Start of Financial Market for FY-22
- The FY 2021-22 came up with a ray of hope and positivity as the Financial Markets regained Momentum and the Indian Economy witnessed Traction in the Manufacturing & Other Economic Activity, despite the rising cases of COVID amidst the splurge of Second-wave in the Country.
- The IMF (International Monetary Fund) projected the GDP Growth of India to be 12.5% for the coming Fiscal Year, which is the highest amongst the Emerging Economies.
- The DII’s were the Drivers in the First month of FY- 2021-22 as they Invested Approx. 9,900 Cr. In the Indian Markets, whereas amidst the Rising tensions amidst the second wave of COVID and negative sentiments, the FPIs pulled out their money from the markets after a brief period of nearly 6 months.
- Fearing the second wave, the Promoters of many companies look to file an Asset Protection Trust that would provide a cushion against investigations, in case of defaults & bankruptcy.
- View- This move will enable the Lenders to cushion their Contingency Reserves & allow them to tackle adverse situations arising out of Defaults, once they come out of the ‘Moratorium Mode’.
Outlook on Sectors to be affected
- The Hospitality Industry which includes Restaurants, Aviation, Travel & Transport will yet again be affected due to the Local Restrictions from the State Governments in order to curb the Second wave of Covid.
- Aviation Industry is likely to be affected worse even than the first wave, as the DGCA has Extended the Ban on International Travel till 31st May’21. The Airlines have declared that the Bookings have declined by nearly 50% which will also result in further decline in the Passenger flying & Air traffic.
- As India produces over 70% of the Global Vaccines for COVID, the recent spike of second wave & shortages in Vaccination would lead to a lowering of Exports of Pharmaceutical Products which will hamper the economic activities in the Short term at least.
Also read: Financial Planning for Beginners – Fintoo Blog
Growth Drivers for the Indian Economy in coming Quarters
- Despite the Rising infections, the Rapid pace of Vaccination has helped lower the Death rate amongst the affected once, and as we proceed further with Providing vaccination to the Youth of the country, the Economic activities are likely to normalize steadily.
- The Manufacturing industry revived at a Good pace led by the key sectors like Cement, Metal & Mining & Automobiles who were coping with the Pent-up demand. It is expected that as the supply chains have lesser restrictions in certain regions, this will help in the growth of economic activity further.
- As per the Analysts, Private Investments in the Markets will increase in the coming 2 Years as the Manufacturing activities will be incentivized by the government which will add as a boost for the sector and further lead to Higher Valuations for the companies.
- The Government is also likely to carry the Divestment process for reducing the Fiscal Deficit in the coming years, as it will also be a Major Contributor in providing aids to the affected industries.
- India will remain to be the Hot Market for Investors globally as they look at China + 1 Alternative for various activities, the Broader Outlook for the next 3 Years looks Attractive & Positive.
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Daily Market Analysis – 30th Apr 2021
20% salary of mutual fund managers to come by way of scheme units: SEBI
- A minimum of 20% of a fund manager’s salary shall be paid in the form of units of mutual fund schemes that they manage. Aside from fund managers, all other “key employees” of the fund house will also be covered, such as the chief executive officer, chief investment officer, and other employees that the fund house identifies as key employees.
- In the case of a fund manager managing only one scheme, he has the option to receive half of the compensation in the units of the scheme he manages. The other half would come by way of other schemes whose risk profile (as defined by SEBI’s risk-meter guidelines) are the same or higher.
- Index funds, exchange-traded funds, overnight funds and existing close-ended schemes will be excluded from unit allocation.
- View- Though this is expected to increase the transparency and may boost the confidence of the investors as the key employees will have ‘skin in the game’ – aligned interest, the norm is expected to hit the fund house employees hard.
Mutual Fund – Low-interest rates. Where should you invest?
IRDA sets a time limit to approve cashless claims in COVID-19 cases
- All insurance companies have to convey a decision on approving all cashless claims against COVID19 hospitalisation within an hour.
- View- This move has been implemented to keep a check on delays in discharging patients. It will help to make hospital beds available to new patients at a time when the second wave of coronavirus has crippled the healthcare system across the country.
- Bad bank to get Rs 2 lakh crore of defaulting companies’ loans
- The Indian Banks’ Association has asked members to identify large loans where they are lead bankers and get approval from co-lenders so that these loans can be sold to a bad bank (NARC). Approval from 75% of the lenders by value is required to transfer the loans to an ARC.
- The association has identified 102 corporate bad loans of Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore.
- Once the lenders decide on selling the loan, the NARC will make them an offer based on the scope of recovery. With the NARC’s offer on hand, the lenders will hold a ‘Swiss Challenge’, where rivals are allowed to better the offer made by a chosen bidder.
Zomato files for Rs 8250 crore IPO
- Food aggregator business Zomato filed its much-awaited draft red herring prospectus (DRHP) with SEBI for INR 8,250 Cr IPO this year. The offer consists of fresh issue amounting to INR 7,500 Cr and a secondary component of INR 750 Cr, which will come from the company’s largest stakeholder Info Edge.
- Zomato has reported a revenue of INR 1,367 Cr in the first three quarters of the financial year 2021. The company’s expenses were at INR 1,724 Cr in the same period, leading to a loss of INR 684 Cr. The company’s overall revenue for FY21 is bound to increase as the company witnessed more stability in the last quarter due to a decrease in covid cases.
- View- Zomato is obviously one of the two main food delivery service companies in India. It is a duopoly structure as of now and that goes in its favour. Clearly, they are meeting a need that exists currently and there is a lot of excitement in this sector. This kind of business has a potential high operating lever. So, as the business scales up, costs do not go up in line and as a result, one cannot look at the profitability in the coming years.
Related Article: Upcoming IPO in India 2021
Tata gets nod by CCI for the proposed acquisition of BigBasket
- The CCI approves acquisition by Tata Digital Ltd of up to 64.3% of the total share capital of Supermarket Grocery Supplies Private Ltd and SGS’ sole control over Innovative Retail Concepts Pvt Ltd. The proposed combination will result in the acquisition by Tata Digital of the majority stake of and control over SGS.
- While SGS is engaged in online business-to-business sales through business.bigbasket.com, IRC is engaged in online business-to-consumer sales and operates the BigBasket website.
- Tata Group is into diversified businesses; including steel, software, retail, tea and FMCG. It plans to launch a super app to bring all the Tata consumer-facing brands and products on one platform. The acquisition of Bigbasket is a part of these plans.
- View- The Tata Super app might take on Reliance Industries’ JioMart and the e-commerce giants like Amazon and Walmart-owned Flipkart with robust business strategy.
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Portfolio Management Services in India
PMS Products & their strategies in the Indian Market
Portfolio Management Services (PMS), is investment management services offered by the Portfolio Manager. The investment portfolio can be diversified into stocks, fixed income, and other structured products. These services can potentially be structured and tailored to meet specific investment objectives based on the risks, rewards, and investor goals as reflected in the Investment Policy Statement. PMS offers customized equity options, but you should have a large sum of money to invest to avail service of a Portfolio manager. A portfolio manager has a thorough understanding of the businesses and uses it to improve investor’s gains. The PMS provides you with experts who are well-versed with the market happenings and they can better guide you on important investment decisions. They track the market and invest your money keeping your requirements in their mind. They advise you on whatever you are going to do in the share market.
Features of PMS
- You get higher returns with the help of a well-knowledgeable portfolio manager.
- You can transfer the headache of monitoring your shares and taking decisions on those shares to the experts.
- The primary job of the portfolio manager is reducing the risk of the investor’s investment by selecting the right stocks according to the analysis and thereby increasing the returns or the earning on the investment.
- CA has to certify the minimum specified net worth of portfolio managers of Rs 5 crores.
- A maximum exit load of 3 percent can be charged in the first year, 2 percent in the second year, and 1 percent in the third year. No exit load applicable after three years.
- PMS investment suits only those who have a large affording power or who is a wealthy person as the minimum ticket size is 50 Lakhs as per SEBI norms. The PMS charges a large percentage of money from its users which are not within the capacity of a normal or average class investor.
- The service providers have different models portfolios for the investors which the investors can choose as per their financial goals and requirements. They can even customize them if they want some additional or want little adjustment.
- You get a piece of expert advice across instruments from debt to equity to gold and mutual funds.
PMS Charges in India
There are different types of fees charged by these service providers out of your total invested part.
- Entry Load– Whenever you take an entry into the PMS, you are charged an entry fee which is generally termed as the Entry Load. It is 3% or it may vary.
- Management Charges– This is a service charge for managing your portfolio. It may vary from 1-3%, depending upon the service provider. It is charged on a quarterly basis.
- Profit Sharing Fees– If a PMS has profit-sharing agreements between the client and provider, in addition to other fixed fees, then this charge is based on such terms of an agreement. It is charged above as hurdle rate is the minimum amount of profit that a PMS needs to earn before it can charge a profit-sharing fee.
- Apart from the charges mentioned above, the PMS also charges some other fees like Custodian Fee, Demat Account opening charges, Audit charges, Transaction brokerage etc.
The experts do not follow or cram the usual investing activities like what people usually do as they invest when the market is rising or vice versa. This is not so with the PMS experts. They take wise decisions and they deeply understand or analyze the market phenomenon. They keep your requirements in their minds and accordingly invest in the segment preferred.
There are three types of Portfolios in PMS:
Discretionary PMS– Discretionary Portfolio provides the service provider a right to make decisions on behalf of the client, whether he wants to sell or buy the shares.
Non-Discretionary PMS- This is the just reverse of the above. Here, the service provider consults with his clients on investment decisions or buying and selling of shares before transacting any event. The decision making power lies in the hands of the client only.
Advisory: Only advice is given to the client. No execution on behalf of the client is done by the portfolio manager.
As per the current market scenario, There are a variety of PMS in the market which focus on different sectors & further are customised according to investor’s needs.There are many PMS available according to individuals needs. We have listed two PMS for analysis purpose:
Marcellus PMS
The Marcellus PMS company is one of the highly renowned broking companies available in India. The portfolio is actively managed by Mr Saurabh Mukherjee. He is also the Founder & Chief Investment Officer of Marcellus Investments. The company is registered under the Securities Exchange Board of India and its headquarters are in Mumbai, Maharashtra.
The portfolio management service model is the leading model of the broking company.The filters followed by the company to choose a stock are very stringent which makes the process tough for a stock to be in their portfolio.
They follow coffee-can investing which states the company buys and forgets the stock as they take high bet on fundamentals of a stock. The promotion and marketing is also on the aggressive side.
The portfolio is agnostic to parameters like market cap, sectors etc. Their core investment strategy is to invest in a concentrated portfolio of heavily moated companies that can drive healthy earnings compounding over long periods with very little volatility. Companies which are chosen for investment are taken into account on grounds of corporate governance and capital allocation track record.
The three tenets for selecting stocks Consistent Compounders strategy:
1. Clean accounting and good corporate governance
2. Historical evidence of prudent capital allocation
3. A major filter for stock to be in a portfolio is those chosen industries which have high barriers to entry. Which helps companies generate returns which is higher than the cost of capital.
The upper hand of investment goes to companies with strong sustainable competitive advantage, on account of brand built, business verticals and strategic assets.Marcellus’ Consistent Compounders portfolio has five stocks enjoying a cumulative 48.80% weightage – Asian Paints, HDFC Bank, Bajaj Finance, Page Industries and Pidilite. Their highly flexible commission models, as well as investment plans, provide good convenience and satisfaction to all of its clients. –
Stallion Asset
This Portfolio Management Services follows growth investing as its core philosophy. They started with beginnings as a Research Analyst company and have become a portfolio management company due to consistent performance on their research analyst services which helps their clients successfully & consistently beat the Market. They are specialists in buying high quality midcap companies that are often ignored by the analyst community. Their unique investment philosophy of catching the trend and managing the risk has been back tested and they are aiming to create 25% plus CAGR returns for their clients.
Also read: What is ELSS? Is ELSS Different from Mutual Funds? – Fintoo Blog
Investment Objective:
The objective of this service is to provide the client with a structure that can achieve preservation and growth of its capital, the portfolio manager shall endeavour to apply its professional expertise in order to help clients to achieve goals as per the PMS scheme opted.
Risk Management: If given a choice between High risk, High return ans Low risk decent returns stallion prefers to choose low risk decent returns. The Core Stocks in their Portfolio gives them a lot of time to exit if there is a change in the expected growth rate of stocks. They focus on Incremental Return of Capital Employed,Competitive Advantage Period and Cost of Capital.
Part A: Core Stocks – In core stocks focus is on Market Leadership, Management, Market Opportunity, Margin of Safety.
Part B: Trends – They believe There is no bull market without earnings growth and they always buy sectors with high expected sustainable growth of more than 20% for next 3-5 years.
Part C: Special Situation Growth Rate, Business Quality & Management Quality play the role here.
This above photo shows Stallion Assets core fund performance over the years.
While a core only portfolio will work well in a Bear market but typically underperforms in a Bull Market. A special situation only Portfolio might have opportunities in sometime & be on cash in others. Their Portfolio of Core, Trend and Special Situation will not only lower the Portfolio Volatility but will deliver decent returns. Focused Sectors: Stallion Asset focuses on 4 major sectors i.e. Consumer, Financials, Consumer Tech and Pharma. Their Financials & Consumer Tech Part of the Portfolio should Ideally create alpha in a Bull Market whereas our Consumer & Pharma basket will protect us during the bear Market.
Recommendation
Market regulator SEBI has made it mandatory for portfolio managers to provide investors with regular performance reports. The reports are not verified or authenticated by SEBI. When you compare PMS expenses with different avenues, then PMS expenses are really heavy. For an investor with limited time and knowledge and high capital base, PMS is a suitable option given the investment management institution is reputed and offers transparency of operations. PMS also helps in better realization of diversification benefits than aimlessly investing in any number of securities. The performance of the portfolio is solely dependent on the manager’s ability to outperform the market. The portfolio manager’s returns and performance are highly dependant on the accuracy of the security analysis done by the portfolio manager and hence are highly dependant on the competency of the fund manager and the investment management company.
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