VIVEK KARWA, CPFA., CFP^CM , Financial Chronicle 12/4/2012

source: http://www.mydigitalfc.com/personal-finance/hnis-can-look-startup-firms-good-investment-options-300

Income levels of individuals in our country have increased, and so has the risk-taking ability of the middle class. They have now started investing in riskier products like equities, knowing very well that the markets can deliver superior returns over a period of time.

A large part of the credit for this transformation goes to the financial planners. Financial planners now-a-days are seriously focusing towards self skill development and have started giving need-based advice. The focus on asset allocation also depends on the hierarchy of needs of an investor. These needs are adding up, particularly in the middle and top-end of the hierarchy who are ready to venture into other asset classes also.

The assets which you may find in the portfolios of a regular investor today may be as under:

>> Lower level: Endowment insurance plans, fixed deposits (FDs), gold.

>> Middle level: In addition to portfolio of lower level, they will have unit-linked insurance policies (Ulips), equity mutual funds systematic investment plans (SIPs), house property and equities.

>> Higher level: In addition to the above, they will surely be holding real estate, structured products, e-commodities and will be involved in equity derivatives and commodities markets.

Many equity market investors have one common doubt today, should they be involved in commodities market and the currency market. The answer is ‘yes’. But three caveat’s:

1) Unless you know how these markets work, don’t risk your money.

2) If you have no knowledge, then take advise from a qualified adviser.

3) Enter these markets with hedging in mind and not for making quick money.

Research has proved that equities, commodities and currencies have both positive correlation and negative correlation with each other. Hence, one can always hedge or may find a trading opportunity across market segments.

The biggest drawback of these markets is the lack of understanding and, hence, investors need to take the right step of going through financial planners. Since these markets are still largely unknown to the retail investors, they are often lured into schemes which promise to pay above normal returns. Clear understanding can provide a great opportunity towards better asset allocation. One cannot be sure which will be the next best performing asset in the next cycle and, thus, exposure to multiple market ensure we don’t miss out the cycle.

One such investment opportunity which not many people understand and the top-end high networth individuals (HNI) can look seriously at is investing in the startup companies. Companies like Facebook, Linkedin became big in no time, creating huge wealth for the investors. Also, we have success examples of Flipkart and Snapdeal in India.

Many entrepreneurs have ideas which can be huge success, but most of these startup are money-hungry to fuel up the growth process. These companies are initially started with promoters’ own funds.

India will be the largest consumer market in the world by the year 2025. It, at present, has around 120 million internet users and the number is rising rapidly. Most of the companies which have made big in short duration are in the field of technology and internet. Investors like Rakesh Jhunjhunwala have made big money in this way. A2Z maintenance is one of the examples.

Investing in startup is called the ‘angel funding’. These investors are termed as ‘angel investors’ since they act as the saviors when the company is requiring money. There are many angel investors (read HNI investors) who have come forward and formed groups like Mumbai angels and Chennai angels to source such opportunities where they can invest and make big money. The process is angel investors — venture capital — private equity — initial public offering (IPO). IPO is the final thing where everyone unlocks the real money if the company makes a huge success.

Right company and right valuations is the key. Many HNIs are investing in startups these days, but this requires expertise. There are advisers who have enough knowledge in this segment and can help you choose the right companies.

(The writer is a CFP^CM and wealth manager. The views expressed here are personal, and do not necessarily represent that of the organisation. FPSB India is the sole marks licensing authority for the CFP^CM marks in India)

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Tamilnadu Investors’ Association – Investors Digest

by Vivek Karwa, CPFA, CFP^CM ,Investment Strategist & Retirement Planner

120117: In the previous month write up it was mentioned that if the Sensex stays below 15600 for three days then we can expect to hit the next range 15200 – 14700. The market hit a low of 15136 just to test the mentioned range and has bounced back on sustained FII buying. Hope everyone remembers that we had mentioned that valuation in that range will start looking very ripe though some analysts are calling for a target of as low as 12500 on the index which can occur only on fierce panic selling in situations wherein a country actually defaults in the euro region.

We have been seeing a total policy paralysis on the government’s side along with high inflation and high interest rates which has made the fears of slow down real and we are now talking about missing all the targets on the GDP. The positive side is we are still among the fastest growing economies and little pro active steps from the government can make push us to number one spot since the recent growth numbers in China shows that they are loosing steam which we have been expecting since long time.

The worst pain in last one quarter has been the Rupee devaluation against the dollar. Even the large company like TCS has lost around Rs.300/- crs in the quarter. Though most of the IT companies hedge their forex business such fast movement in the currency is not anticipated much by the people. In case the Rupee remains in this range IT companies will benefit but the over all Indian economy will get hurt. Rupee is showing signs of recovering back.

The devaluation has been mainly due to the rising fiscal deficit and the lack of government ability to attract FDI due to total inaction. The FDI will start coming only when investor friendly measures are taken up. Action just on the infrastructure front can bring in lot of attention from the foreign investors.

One of the major reasons why the Rupee is appreciating is the FII inflows in the cash market and the major reason why FII and the NRE money is coming into India is the Rupee level itself. Banks have started offering 9% to 9.5% tax free interest bonds to NRE. Assume the money is coming in at Rs.53 a dollar and when repatriating the same if the Rupee value against the Dollar is say at its usual level of Rs.45 a Dollar then even if the market or the FD does not give any returns the investors still ends up making Rs.8 (53-45) as profit on their investments which is equal to 18% without any efforts! Hence it makes sense for investors to bring in dollars in the present situation.

In the previous month it was mentioned that Direct Tax Code will mostly not be implemented from the coming financial year which is almost true now and that itself is one more example of the slow working of the system, but the good news is that we have moved one more step forward when it comes to implementation of GST. Most probably DTC will come from 2013-2014 and GST after the 2014 parliamentary elections. Thus the wait is still not over, but the present government will try hard to bring it before the elections.

The Banking Sector, Automobiles, Metals may rally if the interest rates are cut on the Jan/24 meeting of the RBI. The chances 50:50 and hence if not now March could be seen as the time when the rates are actually cut. The Gold, Silver have finally corrected though they are investors favourite. Silver can turn out to be a good bet if it trades in the range of 48000 – 50000 a Kg. But the Best Returns will be made in the equity markets over next 2-3 yrs if selection of stocks is done really sensibly. One should sell out the non performing stocks and convert them without any emotional thoughts.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

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Tamilnadu Investors’ Association – Investors Digest

by Vivek Karwa, CPFA, CFP^CM ,Investment Strategist & Retirement Planner

111216: The most awaited RBI credit policy announcement has again spooked the sentiments of the markets. The central bank has decided to keep all critical ratios i.e. Repo, Reverse Repo and CRR unchanged at 8.5% , 7.5% and 6% respectively, shifting the focus to the January policy. The expectations in the markets looking at the economic condition was that RBI would cut the rates atleast by 25 bps and signal a clear end to the rising interest rates scenario.

This increased the volatility in the market and Sensex hit an intraday high of 16068 and then tumbled sharply to a low of 15425, leading to an intraday volatility of almost 650 pts, finally to close at 15491. This kind of volatility is likely to continue until the government emits strong signals that it is willing to pull up its socks in the run up to the budget.

We as a company have been mentioning since last few months that Sensex should find support at 15600 – 16000 and the fact is that the index has taken support at the mentioned level four times in the past, but now with a close at 15491 the same has been broken. These are Technical Levels and hence breaking of the support would be considered, if it stays below 15600 atleast for three days in our view. If we remain below this level we can expect to hit the next range 15200 – 14700.

We feel that 14700 is where the market should finally find a good bottom if Europe remains stable and no country defaults. Fundamentally considering Sensex EPS of Rs.1300/- for the FY 2012 – 2013 the market would be trading at an forward PE of under 12 which is very reasonable for an economy which may continue growing at 6.5% GDP on its own, without much administrable support. As we mentioned in our previous months article the Indian administration is missing the golden chance of showing how India can perform during the global turmoil.

Many analysts have been mentioning 12500 level on Sensex as the target where market should bottom out. This is pure technical level since there is a gap in the chart which needs to be filled in. This gap was created when the present government had resumed office and the expectations built up were high, reaching 12500 is like doing away all that we have seen in the previous three years. Fundamentally 12500 looks little stretched since the situation there will be more or less equal to 8000 levels like what we saw in the year 2008, but you never know what a fierce panic selling can bring about! Hence be prepared but keep in mind the best of money is made by the investors who buy into the worst of markets.

Inflation may be moderating and that is one of the reasons why RBI decided to halt the rising rates policy it has been adopting till now. The major reason is the slowing growth and the depreciating Rupee against the dollar. We have been mentioning here many times that a high inflation due to costlier dollar and rising petrol prices as its side effect cannot be made a burden for the common man who has actually not started consuming food more.

The finance minister in a recent statement had mentioned that the Direct Tax Code will come into effect from April’12. We discount the words by atleast 50% since the way things are moving it looks difficult for the parliament to discuss this major bill and pass it as a law. Goof ups like the FDI, Insurance Bill, UID, Banking Bill, Food Security Bill, which are being rejected by the government committees itself and not by parliament are sending wrong signals to the world.

The reforms have clearly taken a back stage and thus expecting large foreign inflows would be day dreaming. One can look at the Banking sector as a contrarian bet.

Wish you all a very happy and profitable New Year.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

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Tamilnadu Investors’ Association – Investors Digest

by Vivek Karwa, CPFA, CFP^CM ,Investment Strategist & Portfolio Manager

111117: People are now largely fed up with the rising interest rates scenario and many have also started questioning the rate hikes, which are mainly intended to tackle the inflation, but till now the so called medicine of interest rate hikes has not solved the problem but has had many side effects. The results declared by the companies prove this with the falling profitability scenario, mostly due to higher cost of capital.

It is high time the government takes note of it and does not let the rates go out of control. India is still dependent largely on the crude oil imports and with the Rupee trading above the $50 mark the upward pressure on the inflation will continue. The administration is not able to control the Rupee though we have really huge foreign reserves and even gold reserves, but if the inflation remains high due to these reasons, the common man may be again punished by way of interest rate hikes.

The policy decisions have to be taken on war footing now. Even the finest of corporate leaders have started feeling the heat now and also have started voicing the anguish against the policy paralysis. In the process, India, the onetime favourite FDI destination has now been totally neglected and the money infact is flowing reverse now.

US is still on bed rest and struggling to recover, Europe still on life support and the overheated China is finally showing the signs of slowdown. India is still growing almost at 8% without any support from the policymakers, the growth is automatic due to the young population we have and the entrepreneurial skills of Indian businessmen. This is the time India should take the lead in the global economics and can easily build consensus on various issues by exerting bare minimum diplomatic pressure on other countries.

No country, particularly the developed ones ignore India since lot of dependence is on Indian markets by their companies. It is the right time that India sees this opportunity and also seizes it, but we are losing this golden chance and trying to find out solutions for our internal problems by just sitting on them and not taking any firm actions.

Be it mining issues where SC has already banned mining in various places, Environmental clearances for various projects, High turnaround time in approving FDI proposals, Rupee mismanagement, Low investments in Infra projects due to higher capital costs due to very high interest rates and many issues require steps on war footing without which it would be very difficult for our country command the price let alone the premium!

These factors will not let markets move up but will keep on putting pressure since “stuck” investors will look out for exits everytime Sensex shows green. We are trading in a range and every time it moves up and corrects the already battered mid and small cap stocks get beaten up further. There are many extremely well managed and honest promoter led companies which are trading at 20-30% of what they used to trade at.

Bank savings account interest rates have been deregulated but not much impact is likely tp be seen on the numbers front since the customers are not expected to move to other banks just because they are paying higher rate of interest on savings balances. Expecting that RBI will take note of the falling growth rates and will halt the rate hike trend one may still look at strongly managed banks with a long term perspective.

Sensex should remain in the range of 15600 and 18000 for some more time to come and may find good support as usual at 15600 – 16000 levels.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

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