Have Patience its not a time to loose confidence...........

Few weeks back there was a strong buzz and positivism about Indian Markets. Everybody said that we are in a bull run which is going to last and it makes sense to invest with the current valuations........For year 2014 Indian Markets appreciated by around 30%, Indian bond yields fell from 8.5 levels to 7.7% thus giving Income Funds a strong MTM double digit gains.

All was fine till volatility peaked up in the markets last couple of weeks. Indian Markets witnessed a bloodbath of over 1000 points.  In year 2015 Indian markets have fallen by around 9%, bond yields have appreciated to 8% levels. This has just dented the confidence of investors.

Huge FII Sell off was the primary reason with some factors behind it as listed below:

-  Implementation of reforms at ground level by government is not adequate leading to dwindling of confidence of FII's..
-  Improvement in US job claims data might just lead Fed to raise rates.
- IPO's in China worth 377 bn USD is attracting FII's sell off from India to China.
-  Rising crude price from $40 to $68 per barrel is worrisome given the fact that India imports 2/3 of its crude requirements.
-  MAT issue with Government over retrospective Taxation..
- Benign Global economy..........
-  Expectation of a weak monsoon and poor agricultural produce.

Well these factors listed above are not comprehensive. Some more points could have been missed. However my point is that if we look from a Trading and Short Term perspective these factors may hold some relevance. FII's looking for a quick buck from Indian market may not be the immediate beneficiaries.

I however believe an Investor with a long term view shall however not miss the bus....let us look at some positive sides of Investment in India.........

- The Existing Government has passed three crucial bills (Coal, Mining and Insurance) in its tenure of last 1 year. I am a politically neutral person but let us understand that Government is not God. In a politically diversified system like India it takes time to implement things in place. The Government has made huge promises and raised the expectation levels of India Inc and the general public as well. Our respected PM Sh Modi has traveled across the globe wherein several announcements for FDI investments were made. Thus implementation at ground level is extremely critical for reforms to happen and the FDI Money to come in. Given the economic and political scenario I believe the Government will deliver over the time to come.                                                                                                                                                                                                                                                            - The last FY budget was applauded across the sectors as it focused more on improving the structural deficiencies rather than announcing the big things. Rail Budget was the biggest case in point.

- Focus on Infrastructure by Government is huge with a huge outlay lined up for Infrastructural development. Substantial funds have been lined up for Roads (14000 cr), Railways (10000 crore), Capex Enhancement of PSU by another 80000 crore.

- Work on GST up and running and is things go well it shall be implemented thus giving a good fillip to improving and rationalizing the uneven Taxation structure across states.

- Inflation has gone down in the last one year with WPI touching the 0 mark. Of course this has been a sticky issue for the Government as well as the RBI. Though RBI has eased the rates this year twice with the expectation of lower inflation, it still remains to be watched out. RBI till now has done a commendable task of taming inflation on the monetary front by using various monetary tools. Despite all pressures it didn't ease the rates till the inflation came down within its comfort zone.

- Global situation although volatile is not on a collapse stage the way it was in 2008. Europe and US have started showing signs on improvement. This may certainly lead to flow of some money in developed markets however India I believe will remain a key portfolio favourite for Foreign investors as the arbitrage between the interest rate and growth differentials will remain for the time to come.

- Indian economic growth had bottomed out in the last few FY's moving down to as low as 4.5%. The scope and expectations of improvement is ample with positive sentiments and projections across the board. India Inc earnings were not very encouraging, Loan growth and capex for companies was muted. This makes a strong case in point for the Government to deliver on the reforms and keep India shining on the International radar.  Indian Markets are currently trading at a PE of 18 times and growth in earnings will translate in a lower PE this improving the valuations.

- Though rising crude and fleeing FII's hit the rupee when it appreciated to $64 mark. We should not ignore the fact the Forex kitty of India has grown to an all time high of $377 bn. Since crude went to an all time low of $48 / barrel due to global factors a correction will certainly stabilize the flow of money in the longer run. A rise and correction in crude will also help counter inflation in India over the longer run as India imports 2/3 of its crude which directly affects the inflation and currency.

With some of the above reasons in place I believe long term investors in Indian market will find value. I am a believer of the fact that some bad news cannot spoil the long term party.

On the Equity side anybody with a 4 - 5 year or longer horizon should see good returns.  For Retail investors SIP remains the best as it averages out the cost. The patience and horizon of investment needs to be there. Panic just makes things worse.

On the debt side the FII sell off has impacted the bonds with yields rising from 7.7 levels to around 8 thus triggering a concern. I expect the volatility to continue before yields move down to provide a good MTM gain. Income Funds especially Dynamic Bond Funds still remain good bet for investors seeking to take debt exposures with a horizon of 2 -3 years. 

The Insensitivity of Bankers.......

Till now I have been writing posts purely on Investment and Financial services. This post although concerned with the Financial services industry is a little different in nature. However with the incidents I have been witnessing on a regular basis since the last 9 years, just prompted express my views through this post.

I have been selling Mutual Funds and Insurance from the last almost 9 years and Banks have been a prominent channel for my dealings. It is a well known fact that Banks are one of the strongest distribution networks for sales of Financial Products. Their reach and advisory capability is well admired and therefore a big chunk of sales for Mutual Funds and Insurance happens through Banks. 

The only sad part of this entire process I feel is the insensitivity of Bankers towards the Team members of Insurance and Mutual Fund companies. I agree to the fact that being a big channel generating huge sale Bank's have all the right to demand best of the services for their customers. And MF & Insurance companies take utmost care to provide their best services to the Bankers and their customers. Being manufacturers (Mutual Funds and Insurers) of products they need to ensure that their distribution channels and customer are well taken care off. But often I come across incidents where I see Team members of the manufacturers often belittled by the Bankers. At times it just looks like somebody in the bank is always waiting to belittle a team member from the manufacturer side. 

It would be trivial to detail the reasons and go into the micro aspects. However it looks very sad when I see a banker shouting, belittling, misbehaving with a person employed with a Mutual Fund or Insurer. Reason could be trivial enough to be conveniently ignored still at times they are blown to the hilt. Mails are sent from Branches to National Heads and CEO's of the manufacturer side just to show the unnecessary importance and muscle. In this whole process many a times the junior and middle management team members are taken to the task and many times without their mistake. 

A lot of times I have seen that instead of finding a solution a blame game starts without a reason. "Your services are poor", "We sell for you and you just enjoy the ready made stuff", "You are good for nothing", "Give me your CEO's mail ID and number", "We at Bank can do this .....that and you cant accommodate such a small request", "Your team doesn't work, change the people at our branch", "Your team member didn't come for the last one week", "Your person didn't come when I called him, what a slow service", "Go sit on the front desk and try convincing customers on your own...", "Don't expect any support from my side.....", "Don't try to teach me ....." ........................................The list of reasons is endless. 

My view is simple on this. Bank's, MF's and Insurance are organizations. Bank's are huge as they play the role of Manufacturers and distributors whereas MF's and Insurers are purely manufacturers. Issues are bound to exist in organizations as all of us are humans, at times we tend to make mistakes and at times we may have difference of opinions or at times we may have various commitments wherein we may not be able to keep everybody happy. 

Given these facts not every person employed in a Bank is rude, harsh and belittles the people from MF's and Insurance. But whosoever does it needs to understand that the person on the other side is also a human being just doing his job and also carries a self respect. Many a times he / she may not be able to retort or reply to the banker for the sheer fact that bank sells his product. He/she can also make mistakes. Agreed that it is not always the Banker who is wrong. The other side may also be wrong. But adopting a rude harsh behavior or belittling somebody just doesn't solve the purpose. The best approach lies in solving the problem rather than making an issue out of it. 

My objective of writing this post is not to blame the Bankers. I have several good friends working in Banks and in my small career I have seen many good and excellent people working in Banks. Many of them have always stood by me and my team and supported us in a big manner to complete the sales targets and resolve issues. With many of them my relationship goes beyond the professional gamut and they are very good friends. I again repeat not all bankers are rude and insensitive. But a chunk of people I have seen in Banks are like that. Through this article I do not intend to show myself as a super human or a saint or a preacher. I am just a human being and through this  post I intend to express my views for those insensitive people in Banks that please look at finding solutions rather than playing blame games and belittling and insulting people employed with MF's and Insurers. As a human being you will feel happier by adopting a soft and solution oriented approach. This is essential to take business and relationship to the next level. 

Positive confidence within India.......

Post Election scenario in India has been Euphoric. Markets have sizzled new highs, FII's are pouring money in India with great optimism, Mutual Fund Industry for the first time has crossed 10 lac crore mark and have been net buyers for the quarter, Rating Agencies which downgraded India's rating sometime back again upgraded India's ratings. NDA swept the National elections riding on the Modi wave and India has pinned huge hopes from NDA especially our respected PM Shri Narendra Modi. The development story of Gujrat is evident which made Indians in other parts lay their trust on Narendra Modi, The trust factor was well evident globally also.

Since the election results Brokerages have been fairly optimistic on the Indian Markets and giving new Projection highs along with time frame. Word in the Air is that we are in a Bull Market which shall sustain consistently over the next few years. Sensex Predictions by some Market players have gone up to bizzare levels. 

Indian Markets are already at all time highs and the projection that we are in a Bull market which shall continue are based on certain premises: 

1.)  Government is stable for the next 5 years and should impart smooth functioning. 

2.)  Prime Minister Modi and his Team have announced a slew of reforms soon after assuming the chair....Insurance Bill, Infrastructure Development, FDI in Railway, FDI in Defence, Developing of 100 Smart cities, Cleaning of Ganga, Single window approvals for setting up businesses etc etc etc.....This has raised the confidence of people across the board Nationally and Internationally. 

3.) The GDP growth of Indian Economy had bottomed out wherein it grew at 4.7% last FY. It is expected that Corporate earnings will go up thus contributing to the growth.  

4.) Inflation has been coming down over the last few months making it a case for Rate cut by RBI in the coming months. If not in 2014 then certainly in Q1 of 2015 if the downtrend in Inflation sustains. A  Rate cut will certainly add to the profitability of corporates. Also Govt has been pushing RBI for a Rate cut to boost the action on Corporate front. RBI however has gone slow on rate cut this maintaining the wait and watch situation. 

5.) US economy is steady and has grown at 3.5% in Q3 2014. QE has been tapered by Fed as a resuly of economic steadiness and Fed has decided not to increase the rates for the time being. At the same time Japan and Europe have gone ahead with tapering to maintain the liquidity. This should keep the money flowing in Indian Markets especially India. 

6.) China has slowed and no unfortunate event looks likely in the west. 

7.) Current PE of the market is 19 and 1 year Forward PE of the market is close to 15 which is still below the dangerous benchmark of 22. 

8.) Down slide in crude prices and the cut in Petrol and Diesel has added to the overall positive sentiments and lowering of inflation.

All this positivity is good and instills confidence in the Indian Market. Nobody can predict the markets however amidst all this positivity lies some caution....

1.)  A lot in future will depend upon the implementation of Government Policies. What has moved the makets are the announcements. The implementation is yet to come in from the governments side.  Although it is too small a time that the government has assumed power I feel the implementation of announcements shall make the key difference in movement of markets henceforth. 

2.)  Indian Markets have been dominated by FII's and this time too it is the same. Beyond the India Inc Performance markets will follow the global cues and depend on the same. Flight of capital from the FII side for any reason in future will lead to corrections.   

3.) Corporate Earnings, Inflation shall influence the Markets going forward.

4.) Crude prices should remain stable or go down from current levels of $80.  

So what should be the investment advise in the current scenario: 

Many of the stocks are at an all time high along with the Sensex and Nifty and many are trailing hence it is more of a stock pickers market. Retail investors may not be able to go the right way through direct equity hence Mutual Funds look the best. 

Markets even though in a bull phase as expected shall witness range bound volatility and hence Equity exposure Via SIP mode through Mutual Funds is the best as it shall average out the costing in case of any corrections. 

Investors with surpluses and high risk profile may opt for Lumpsum Investments in Equity MF's however the same shall add to the risk. Horizon in this case should be min of 5 years. 

On the Debt side sooner or later the rate cut looks to be in the pipeline if Inflation moves down or remains stable at current levels giving RBI the comfort. Decrease in crude prices had added to the comfort level. 10 year Gsec has moved down to 8.19-8.22 levels. Exposure to Income / Duration Funds with a horizon of 18-24 months looks good as rate cuts will lead to rally in Bonds and thereby enhancing the value of Debt Funds. 

Profit Booking in Mutual Funds

We have heard Financial Experts often reiterating the fact that Mutual Fund Investment Portfolio's need to be reviewed regularly. It is critical to regularly review the portfolio and shift from non performing schemes to performing ones.

At the same time it is also essential to book profits wherever possible. Profit booking I believe does not lead to speculation rather it is an essential element of making money through investments.
Agreed that every investment is goal oriented and has a timeline attached to it. Also for every investment to match its goal a certain rate of return is taken into consideration basis the past performance and current economic scenario.

In between the investment horizon during portfolio review in case the ongoing returns on the investments are exceeding the planned rate of returns I advise that a profit booking may be done and reinvested into a safer scheme.

E.g. 
1.) During sudden fall on interest rates returns through income funds jack up and provide a good opportunity for investors to book profits.
2.) For investors having investments in Equity Funds bull phases leading to so called peaks (although nobody can determine the real peaks and bottoms of markets) provide an ideal opportunity for profit booking.
Investors having SIP's during such scenarios may continue their SIP's after booking profits.

Only caution is that profit booking also involves some reinvestment risk :
E.g.
1.) If interest rates fall further after booking profits from Income Funds.
2.) If Market rises further after booking profits from Equity Funds.

However given the nature of Investment in MF's I believe this should not be considered as some volatility is bound to be present which nobody can predict accurately.

Please Note
1.) To avoid misinterpretation of my views let me tell you that Profit booking should not be a daily or monthly phenomenon.
2.) Also the idea of profit booking is not to temper with the goals. Money earned through profit booking may be reinvested for the same goal in an appropriate scheme.
3.) It may be considered during portfolio reviews once or twice a year or during specific market levels in the prevailing economic scenario. Savvy Investors might gauge it but for others Financial Advisors may do the needful on advisory and execution.

(Views are Personal)

NFO Investment!! How right is it??

I have heard and read  many times Investment experts advising clients to stay away from Mutual Fund NFO's (New Fund Offer). Mostly the reason given to stay away is "performance of a fund cannot be ascertained during NFO". Well I feel this doesn't do down well with me. My points of contention as stated below:

1.) Past performance is not an indicator of future performance. If this is the line we talk about it holds for all schemes of all Mutual Funds including the existing open ended ones. Then Why only NFO's. If nobody can guarantee the performance of existing open ended funds then why should NFO's face the question of performance. There are instances where performing Funds have faltered and mediocre funds or NFO's have excelled.

2.) Look at the attributes of the Fund, risk Profile and Fund Manager: If these points are to be considered and all of them fall in line with the requirements of clients then why should NFO's be avoided. If Fund Manager is the key then why target NFO's just because they are new. With the same Fund manager even performance of existing well performing schemes can't be guaranteed. So if the objective of NFO matches that of client requirements and the Fund manager is good I see no reason why to avoid the NFO's.

3.) Growth Hampered:  It is said that competition brings choice for customers and enhances the industry standards. Spreading negative words about NFO's just doesn't support the Industry Growth. NFO's are one major way especially for the new entrants to mobilize some good chunk of money and enhance their product portfolio. Moreover we should not forget that even the existing performing schemes of established AMC's were launched through NFO's way back. Success of NFO's add's up to industry AUM and who know's if there is a star performer fund coming in the form of another NFO.

Agreed at times Fund Objective / Fundamental attributes of an NFO might not prove a good bet with existing economic situations. But then all NFO's cannot be bad. And since performance cannot be predicted for any scheme NFO investments should not be discouraged altogether.

To conclude I would like to say that certainly Fund objectives should be analyzed within the existing scenario and if they fit well and the Fund matches the client requirement, risk profile and horizon NFO investment shouldn't be discouraged. This shall benefit the Fund houses (big / small) and the industry.

Concept of Right Coverage

Life Insurance Penetration in India is Hardly 3.4%. Firstly the Penetration figure is extremely low and to top it we may find a very small percentage of the Insured people having the right amount of cover.

Yes it is true. I ask a lot of people if they are Insured and the coverage amount. In rare cases I find people having the right coverage. Imagine somebody earning 75000 per month and having a Life cover of Rs. 10 lacs or anybody earning 40-50000 a month having a 5 lacs cover. God Forbids if he dies is the cover sufficient to cover his family needs. Answer is no. The money finishes in some months  / years. So while taking Insurance along with Premium it is the cover that really matters. Else I would say that the person is not covered.

Insurers widely advocate the concept of Human Life Value. Almost all Insurer website will have a Human Life Value (HLV) calculator. This is even a part of Insurance Tutorials. However while advising a client it is seldom used.

A lot of advisers & distributors (to be read as advisors henceforth) combine Insurance and Investment for the sake of revenue associated. Of course some products have whopping high revenues. I personally feel it is not justified in the interest of client. Insurance by concept has been a risk cover and not investment. However Insurance products of late are structured with an Investment component. Well nothing wrong technically but this takes away a major chunk of coverage from the Product. At the same time it also incurs heavy charges thus leaving very little benefit for investors. Of course a major portion of this charge also goes to the advisor in the form of commission. But then that is the way the industry works!!!

Life Insurance is a complex product and not everybody understands it. At the same time it is also the bread and butter for many Agents especially LIC which has a very deep presence in Rural areas. Still I feel there are very few Life Insurance  products which are of immense benefit to the consumers. If I have to rate anything I feel Online Term Insurance the recent offering by most insurers is the best. Low cost and High coverage. Very few understand the calculations of benefits associated with Online term cover and at the same time being restricted to online its reach remains limited even in big cities.

Insurance has been a distribution oriented Industry and is the bread and butter for a lot of Agents. It is also a source of good revenue for Banks and other Distribution channels.  Online products cannot replace Agents and other Distribution channels. Insurance is a must have product for anybody and everybody and an integral part of Financial Planning. I believe there is a need for structuring products which are heavy on coverage for the consumers. How it happens is yet to be seen and involves considerable brainstorming. Structuring of Life Insurance Products heavy on coverage might have a dent on the advisor commissions but in the longer run will be beneficial for consumers and in turn for the advisors. With client Insured adequately the Advisors will have a free hand in Planning the investments. But if I have to talk about the consumer interest I feel a lot of existing products do not justify the concept of right coverage. Supporters of these products on the other side will have multiple reasons to prove me wrong. But if we look at the broader picture they hardly satisfy the consumer interest of being "Insured".  Waiting to watch the change happen.... To close it on a positive node I believe it may take some time but it surely will happen.

                                                                                 (Views are personal)

Quick Investment Tips...Current Economic Scenario

1.) Take Exposure into Income Funds: The Current scenario makes it a good time to take some exposure into Income Funds. With G-Secs hovering above 9% mark allocation into Income Funds might prove a decent bet for a horizon of 18 to 24 months.

Rationale:
RBI has been determined to fight inflation and the huge volatility in the currency. First it squeezed the liquidity by raising the MSF. Then it has been on a rate hike spree from the last two times. Even though the differential between the MSF and Repo was brought down to 100 basis points liquidity in the market has been an issue. Inflation has been moving northwards, Oct CPI was above 10% mark and WPI above 7% making it difficult for RBI to bring down the rates.  Moreover FII's have been net sellers of Indian Government Securities. This has led to a steep rise in Bond Yields since June 2013 with yields crossing the 9% mark.  It needs to be seen on how RBI comes out with its policy in Dec 2013.

Over the next 12 - 18 months I see the rates coming down as slow growth of Indian Economy is a key concern. High Interest scenario shall not be favourable to push the growth and sooner of later RBI will have to bring down the rates to regain the growth momentum.
This downward scenario of rates shall be extremely favourable for investors with exposure to Bonds / Income funds as they stand to benefit the most. (Remember Bond Prices are inversely proportional to Interest rates.)  Hence with G-Secs hovering above 9%+ mark  it becomes a lucrative option to take some exposure in Income Funds.

2.) Equity Exposure SIP and Lumpsum: For Risk averse Investors SIP remains the best mode irrespective of time. For those who are willing to take risk upto a certain level Lumpsum investments can be done in Small and Mid Cap Funds.

Rationale: 
SIP investments can be done anytime as they average out your costs. But for Lumpsum Investments are Markets at 21000 a good investment bet. Well equity has been a favourite for Investors in India during rising markets. Many would happily invest assuming that Markets will go up further.
At 21000 the belief is widespread that there is a lot of value in Indian Markets. The sudden upwards movement of Indian Equity market is primarily driven by handful of Bluechips which have witnesses significant buying from FII's. At these high's still 90% of stocks are trading far below their book values (Especially Small and Mid Caps) suggesting a strong underlying value in Markets.  Hence some Lumpsum Investment into Small and Mid Cap Funds can prove to be a good bet. Suggested Horizon: Min 5 years. Warning: Be prepared to withstand the volatility and donot panic as the NAV might fluctuate significantly during bearish phases.