D-Mart IPO and its promoter

I like reading profiles of successful individuals in Business field.  If that person is also successful in investing career, there is double bonus to read the profile.

Radhakrishan Damani (RK Damani) is the promoter of D-Mart (Avenue Supermarkets).  D-Mart is very popular is Mumbai and I have been to D-Mart couple of times when I visited Mumbai.  It is just like any other super market with 120 branches.  What sets is apart is their consistent profitability and growth.  I think it is partly due to its promoter, RK Damani, who is a very successful stock market investor before he ventured and started D-Mart.

RK Damani is one of the very respected names in Indian stock markets and he has successfully straddled different spheres of investing – from value investing to trading.  Now, his D-Mart IPO is coming up and the reclusive RK Damani now moves to the spotlight.

Recently MoneyControl has profiled him which I thought interesting.

Profile of RK Damani 

http://www.moneycontrol.com/news/ipo-upcoming-issues/profile-with-d-mart-ipo-reclusive-rk-damani-readies-for-big-league_8569221.html?curator=alphaideas&utm_source=alphaideas

 

Note on the market fall – February 2016

The Indian stock markets fell continuously for almost the whole of last week and there is now anxiety all around.  It is natural to feel little jittery on account of this fall as an investor.  There are number of reasons which were attributed to the fall and key among them are:

  • slowdown in the Chinese economy
  • threat of deflation in developed markets
  • falling crude oil prices
  • poor corporate results in India
  • high NPAs reported by Indian Banks and
  • the possibility of lower growth in the Indian economy

Let’s take this opportunity to do a check on how things have shaped up in the Indian context.

  1. Our macroeconomic parameters like Fiscal deficit, CAD are lower than what it was couple of years ago. The Government has retained majority of the gains on oil price fall in the form of higher taxes which will help to spend on infrastructure (positive)
  2. The oil prices have fallen massively which is largely beneficial for India. At the same time, it is creating troubles for oil dependent economies which will put more pressure on remittances and investments (neutral)
  3. The Govt is spending or budgeted to spend massive amounts in infrastructure growth. This is expected to trigger a wave of economic activity and provide the much needed push towards economic activity (positive)
  4. The bad assets problem in this Indian banking industry is being acknowledged and necessary actions are taken to rectify the system once for all.  There is also talk of banking reforms which will only lead to further strengthening the banking system (positive)
  5. The Govt is taking steps to bring in additional jobs through Make in India, Skill India and Ease of doing business, which can bring in higher foreign direct investment in to India (positive)

To put it simply, the Government is doing its mite to propel the economy. But the current sell off what we see is not due to domestic factors but more to do with the global situation.  Foreign Institutional Investors (FIIs) are selling to meet their redemption needs.  As long term investors, we should take advantage of this situation and start investing in Indian equities.

As long term investors, we all know that markets are slave to corporate earnings.  If the earnings grow, markets will continue to grow.  But the corporate earnings growth has slowed down at a broad level and it is getting reflected in the subdued sentiments in the stock markets.  We expect the earnings to pick up in the next couple of quarters, thanks to low base effect.

The logical question is when the correction in the Indian market will stop. The honest answer is not known to anybody. Only in hindsight, we may be able to tell that we hit the bottom on a particular day.   The markets may continue to remain volatile in the near term in tune with the latest global developments.

We are getting a good opportunity to buy for the long term.  After the fall, the NIFTY Price Earnings multiple has fallen below 19 times, making it attractive for the long term investors.  With the expected earning pick up in Quarter 3 and 4 of this calendar year.

  • As most of you are investors through the Monthly Systematic Investment Plans (SIPs), you should continue with your SIPs as you are getting the units at a good discount.
  • If you have surplus cash and which you don’t need for the next 5 years, then increase your allocation to equities in a systematic manner.
  • If not, just stay invested and you will not regret.

Please remember that you have adequate liquidity and maintain the asset allocation you are comfortable with.

I want to end with the famous quote of Warren Buffet, which is apt for this situation.

“Buy when others are fearful”.

Please feel free to reach out to me if you need more information.

 

Stay the course – ignore volatility

Happy New Year 2016!!
Its been a shaky start to the new year following a year where the broad NIFTY/Sensex gave the investors a negative return.  The markets returned -4.1% and -5% respectively in CY 2015.
Over the past few weeks, the selling pressure has got increased in equity markets across different countries and India in no exception to that.  The corrections like what we are seeing is very normal in a market and its important to stay focused on your goals.  You have been investing with a specific goal in mind which is many years away. Stay focused on your goals and don’t get perturbed by volatile movements.
The idea of this post is to understand what is causing this pain and what the future looks like?
What happened in 2015?
Indian equity markets struggled in 2015 on account of four significant headwinds.
1.  Indian equity markets were impacted because of the withdrawals from Emerging Markets by Foreign Institutional Investors (FIIs).
2.  Government faced challenges in passing reform legislation and continuous efforts were still on.  Key legislation like GST is not able to see the light for the last 6 months or so had a telling effect on the economy and sentiments.
3.  With the significant debt accumulated on their books as part of the previous growth cycle, corporates were not able to invest more in capacity creation now.  Few of the big corporate groups are also now facing problems in debt servicing.  This is causing lot of strain on the Bank’s balance sheet in the form of increased provisions for bad debts.
4.  Finally and most significantly, the ongoing economic recovery has been weaker than expected so far and consequently demand has not picked up sufficiently. This has led to disappointments in topline growth across sectors leading to earning downgrades.
What fundamental changes we are seeing?
As we deliberate on what didn’t go well, there are some important developments which needs to be looked in to:
1. The fall in commodity prices (especially crude oil) has helped bring down input costs.  The annual saving expected for India is Rs5 lakh crores, a huge sum of money.
2.  The fall in commodity prices is also supporting the process of disinflation in the economy. This fall in inflation is creating the headroom for lower interest rates which should further bring down finance costs for companies.
3.   The Government which has cornered most of the benefits of falling crude prices, which is using that resources to kick start the economic recovery.  Already it has initiated new mega projects in Road sector, significant investments in Railway infrastructure which will propel the economy forward.
4.  As the economic growth picks up, a meaningful demand revival (especially urban demand) is expected during 2016. Current low capacity utilization levels will allow companies to take advantage of any demand revival through existing capacity, thus providing high marginal profitability of incremental demand.
Whats in store for 2016?
1.  We expect continued steady improvement in the growth environment which should start flowing through into better corporate earnings.
2.  Helping earning growth in 2016 is lower inflation and commodity prices, transmission of 125 bps of rate cuts done by RBI in 2015.
3.  Improvement in urban discretionary demand, follow-on effects of government spending on capex as also one-off factors such as award of the pay commission.
4.  Stability of Oil prices in the medium term will also stop indiscriminate selling in Emerging Markets by Sovereign Wealth Funds etc., As the oil prices increases, the equity markets may also raise in consonance.
The Bottom line
Overall, its important to remain invested in Equities as part of the overall asset allocation.  Always remember in every bull market, we will see many cases of corrections ranging from 10% to 20%.  What we are seeing now is one of them.
Remember that wealth creation as a process requires patience, more than anything else.  Its not the time to panic and exit Equity positions.  Its the time to accumulate, as fundamentals of Indian economy are much improved over the last 2 years.
We strongly urge you to stay the course through your SIPs and reap the benefits.   If you are waiting in the sidelines, its a moment to capitalize on.
Source: Inputs from Axis MF notes.

Gold Monetization Schemes launched by the Scheme

Yesterday, the Government of India launched three gold related investment schemes.  They are:
 
1.  Gold Monetisation Scheme (GMS)
2.  Sovereign Gold Bond Scheme
3.  Gold Coin/Bullion Scheme
 
Gold Monetisation Scheme (GMS)
– The scheme replaces the existing Gold Deposit Scheme, 1999.
 – Outstanding deposits will be allowed to run till maturity or premature withdrawal.
 – Resident Indians (individuals, HUF, Trusts including Mutual Funds/Exchange Traded Funds) can make deposits.
 – Minimum deposit at any one time shall be raw gold (bars, coins, jewellery excluding stones and other metals) equivalent to 30 grams of gold.
 – No maximum limit for deposit under the scheme.
 – The gold will be accepted at the Collection and Purity Testing Centres (CPTC) certified by Bureau of Indian Standards (BIS).
 – The deposit certificates will be issued by banks in equivalent of 995 fineness of gold.
 – The designated banks will accept gold deposits under the Short Term (1-3 years) Bank Deposit (STBD) as well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit Schemes (MLTGD).
– There will be provision for premature withdrawal subject to a minimum lock-in period and penalty to be determined by individual banks for the STBD. The interest rate in the STBD will be determined by the banks.
– The interest rate in the medium term bonds has been fixed at 2.25 percent and for the long term bonds is 2.5 percent for the bonds issued in 2015-16.
– Interest will accrue from the date of conversion of gold deposited in to tradable gold bars or 30 days after the receipt of gold at the CPTC or the designated bank branch.
– Know-your-customer (KYC) norms apply for opening gold deposit accounts.
– The designated banks may sell or lend the gold accepted under STBD to MMTC for minting India Gold Coins (IGC) and to jewellers, or sell it to other designated banks participating in GMS.
– The gold deposited under MLTGD will be auctioned by MMTC or any other agency authorised by the central government.
– Designated banks should put in place a suitable risk management mechanism.
– Complaints against designated banks regarding any discrepancy will be handled first by the bank’s grievance redress process and then by the Reserve Bank’s Banking Ombudsman.
2.  Sovereign Gold Bond Scheme
– Price of gold per gram Rs2,684.
– Applications of issue of bonds will be accepted between 5-20th November. Gold bond issue will be on 26th November through banks, notified post offices.
– The gold bond will be issued by Reserve Bank of India (RBI) on behalf of the government.
– The gold bonds will be denominated in multiples of gram(s) of gold with a basic unit of one gram while the minimum investment limit is two grams.
– The maximum subscription is 500 grams per person per fiscal (April-March) and for joint holders, the limit will be applied on the first holder.
– Only resident Indian entities including individuals, Hindu undivided families, trusts, universities and charitable institutions can buy the bonds.
– The issue and redemption price will be in Indian rupees fixed on the basis of the previous week’s (Monday-Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd.
– The bond tenure will be eight years with exit option beginning the fifth year onwards. The bonds will also be tradable in the bourses.
– The rate of interest will be 2.75% per annum payable semi-annually on the initial value of investment.
– Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
– Interest on gold bonds will be taxable as per the provision of Income Tax Act, 1961
– The capital gains tax shall also remain same as in the case of physical gold.
– Commission for distribution shall be paid at the rate of one percent of the subscription amount.
3.Gold Coin/Bullion Scheme
– First ever national gold coin minted in India.
– The coin will have the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other side.
– Coin weight 5 and 10 grams.
– A 20 gram bullion will also be available.
– The gold coin and bullion will carry advanced anti-counterfeit features and tamper proof packaging and hallmarked by Bureau of Indian Standards.
– The gold coin and bullion will be of 24 carat purity and 999 fineness.
– Initially to be vended through designated and recognised MMTC outlets and later through specified bank branches and post offices.
Source:  Moneylife.com

Stay Calm, Stay Invested

India is attractively placed compared to many other markets

Indian Equity markets falls more than 3%
Today morning whoever has been following the stock markets would have got a shocker with the Indian markets falling more than 3%.  In absolute terms, the Sensex is down 1000 points and Nifty is down 300 points as I write this.
What is causing this fall?
Chinese Currency Devaluation over the last and Chinese growth worries are the main culprit.  Chinese Yuan has seen an devaluation of more than 3% in the last 1 week.  Chinese economy has been in deeper trouble than what the world was thinking about it.  The growth momentum has tapered off and Chinese government has been doing all kinds of things like devaluing the currency, artificially propping up the Chinese stock markets, placing exit restrictions for investors, massive infrastructure spending etc.,  Naturally, Chinese stock markets have been going through roller-coaster rides for the last couple of months.
So, as a reaction to the “cold” China has contracted, the world markets are “sneezing” today.  
As investors, what we need to understand is, these kind of reactions in stock markets are a common phenomenon.  There has been more than 55 instances where the Indian markets have corrected more than 4% in a single day since 2000.  So, this is not the first time the Indian markets have fallen and neither its going to be the last time.
As we invest in Indian markets and stocks, we need to understand how India is placed compared to different countries.  I would bet my money on India than anything other country at this stage, due to the following reasons:
1.  Falling commodity prices are good for India.  We are net importer of commodities (particularly crude oil, coal etc.,) and falling prices will help us to reduce the import bill and there by improve the fiscal condition.  Crude oil is quoting below USD50 a barrel now.
2.  Thanks to competitive devaluation of Indian rupee against Chinese Yuan, we are around 66.48 against a dollar as I write now.  This devaluation would help the Indian exporters.  This would help India IT, Pharma and other export oriented sectors like Textiles, Leather, Tea etc., to gain bigger global market share.  This market share gain can help in improving employment opportunities internally and also for the growth in GDP
3.  We are one of the very few countries in the world where we are seeing inflationary situation.  Most of the countries across the world are in a deflationary environment.  We continue to grow and remain an oasis among the world markets.  The current interest rates in India provides opportunities for rate cuts which can also help the economy.

4. Among the Emerging Markets, India is one of the strongest economies and thereby India would garner more flows and allocations to the Emerging Markets. Our foreign exchange reserves are at an all time high thereby providing much needed comfort.

5.  There is a wave of domestic money waiting to enter Indian stock markets.  Employees Provident Fund Organisation has recently started investing in Indian equities, which goes on to validate that equities are the asset class to be in for the long term wealth creation.  Other than EPFO, there is a huge amount of domestic investor money coming in through Insurance and Mutual Funds.  These fresh buying would provide the support for the Indian equities in the weeks to come.

The current market fall has more to do with the global developments like China slowdown and the expectation of slowdown of commodity exporting countries (like Saudi Arabia, Indonesia, Brazil, Russia etc.,) owing to fall in commodity prices.  India stands to benefit in this scenario and we should use this as an opportunity to increase our equity exposure.  

Always remember, we are not investing to make quick returns from equities but to build wealth over the long term and to meet our various financial goals.  Therefore, there is nothing to panic and and this sell off in the markets is a good opportunity to buy towards building long term wealth.

If you are doing monthly SIPs, there is absolutely nothing to panic and these lower prices would help you to get better entry prices for this month’s instalment!

If you are waiting on the wings for a better entry opportunity, I think this is one for you!

Stay calm, Stay Invested!

Cost of Delay in Investments

Almost all of us want to invest towards our long term goals like retirement, house purchase etc., But only few of us manage to start the investments and getting with it. Many postpone the investment waiting for a more convenient or appropriate time, based on their own cash flows or market valuations.

The downside of that is the huge difference it creates at the end of the investment term. Take for example, Guy1 starts investing Rs10,000 per month from the age of 25 and continues till the date of his retirement, that is, 60 years. Guy 2 starts at the age of 30, and continues till the age of his retirement, 60 years.

Total amount invested by Person 1 = 12*35years*Rs10,000 = Rs42,00,000

Total amount invested by Person 2 = 12*30years*Rs10,000 = Rs36,00,000

The difference in amount invested is Rs6,00,000, which is not very big you would assume. But look at the corpus each one of them ends with at the age of 60.

Power of Compounding
Starting at
25 years
Starting at
30 years
Monthly Savings
Rs10,000
Monthly Savings
Rs10,000
Rate of Return
12%
Rate of Return
12%
Value at Maturity (60 years)
Rs5.45 crores
Value at Maturity (60 years)
Rs3.05 crores

Person 1 = Rs5.45 crores
Person 2 = Rs3.05 crores

The difference is almost Rs2.4 crores or 40% of Guy 1 corpus.

Person 1 does better due to the “Power of Compounding”. Guy 1 gets extra 5 years for his investments to grow and it results in a 40% additional corpus at the time of retirement. You know what is the cost of delaying the investments.

Therefore, it is very important to start the investments as soon as possible. For young people, in their first job, you start within the first 6 months of joining the workforce. You can start with a small amount as low as Rs1000 and keep increasing as your salary increases.

For people who are employed for a longer time, don’t wait for an appropriate time. Just go ahead and start it today.

Why we need to invest in Equity?

Every now and then there is a question which I get asked.  Why should somebody invest in Indian Equity at all?  Can’t they happy investing in Fixed Deposits, Real Estate, Gold and others.  There are number of people who haven’t considered Equity as an asset class and this article is precisely for them.  I want to impress upon people the need to be invested in Equity through my blogpost.
The fundamental premise for investing in equity is to take advantage of the  famed India growth story.  As a country, we continue to grow and develop.  We are moving from an under-developed to a developing nation and finally towards a developed economy when we are able to provide basic amenities and a certain standard of living to our teeming millions.  In this process, various Indian companies which participate in this process will ultimately stand to benefit due to rising demand for goods and services.  If we can be part owners of these growing businesses through participation in their equity, we also stand to gain as investors.   No country in the world today offers a better investment rationale than India.
How to participate in this wealth creation journey through equities?
For sophisticated investors buying the stocks of the companies is the first choice.  Direct equity participation calls for more active investment management in the form of identifying companies which are fit for investment, ability to visualize how the industry in which a company operates would progress over long periods of time, closely following up on their performance on a quarter on quarter basis, understanding when to exit to maximize returns etc., Sounds too cumbersome and demands a professional fund manager who can do it for you, right?
That’s exactly, Equity investing through mutual funds is all about.  It offers a wonderful opportunity to participate in this wealth creation opportunity.  Mutual Fund offers professional investment management with proven delivery of results over the last 20 odd years.  It is a very passive activity and requires minimum or no major effort from you, the investor.
Historical Returns of various asset classes: 
We have recorded history of last 35 years of Indian stock markets.  The BSE Sensex was created in 1979 with a base of 100.  Today, after 35 years, we are at 28,000.  That is, the money has multiplied 280 times in the last 35 years.  The annualised return on the sensex is 17%.
Compare that other asset categories over the last 35 years:
Fixed Deposit – 8.41% – the money has multiplied 16 times
Gold – 9% – the money has multiplied 20 times
Sensex – 17% – the money has multiplied 280 times
You should also note few important points on the above returns.
1.  The returns on FD and Gold are pre-tax and after taxes it would be even lower.
2.  The equity investments attract no tax in India and therefore the equity returns remain at the same level.
3.  Equity returns from Sensex is 17% and the returns on actively managed mutual funds have managed to return anywhere between 20% to 22% over the last 20 years period (since private mutual funds are introduced in India).
4.  The inflation during the period 1979-2014 is 7.57.  Post inflation returns are very low for FD and Real Estate over long periods of time
Price Volatility:
The unique thing about equity investments is that the price is very transparent and it is made available on a daily basis.  Naturally, when a particular commodity is traded day-in and day-out, there are bound to be price volatility due to various reasons like macro economic factors, political developments, global economic developments etc., The price volatility is part and parcel of equity investing and you should not be worried by it.
Remember, the returns of 17% or 280 times multiplication of Sensex happened over the last 35 years in spite of various economic and political developments both in India and abroad.  To name a few, the key negative developments which we witnessed during the last 35 years include:
  • Harshad Mehta Scam in 1992
  • NBFC Fiasco in 1995
  • Asian Financial Crisis in 1997
  • Dotcom bust in 2000
  • 9/11 terrorist attacks in 2001
  • Failure of BJP Government to get re-elected in 2004
  • Sub-prime mortgage crisis 2007
  • Lehman failure 2008
  • Quantitative easing 2009
Couple of them are directly related to the Indian stock markets.  The volatility is bound to be around in the future as well but the ability of equity to produce inflation beating returns of equities can’t be ignored over long periods of time. In the short term, there are possibilities of making negative returns but if you hold for longer periods (10 years and above), there is a very low possibility of making any negative returns.
Conclusion:
The real wealth creation happens when your investments produce inflation beating returns over long periods of time.  One of the asset classes which can help you build wealth is equities.  From the point of view of diversification also, it is important that you invest in all asset classes like FDs, Real Estate and also equities.
For a long term goal like your retirement corpus creation, equity would be an excellent investment avenue for you.
It is safe (in the long run), transparent, highly liquid, provides tax breaks on your income (like ELSS) and finally tax free! What more do you require to choose an investment!!