CANARA BANK
ICICI BANK
TAMILNAD MERCANTILE BANK
SBI
MAHARASHTRA STATE COOPERATIVE BANK LTD
GREATER BANK
PMC BANK
Tuesday, September 22, 2009
BANK FDS INTEREST RATES CURRENT SCENARIO
CANARA BANK
ICICI BANK
TAMILNAD MERCANTILE BANK
SBI
MAHARASHTRA STATE COOPERATIVE BANK LTD
GREATER BANK
PMC BANK
Hand-picking stocks
“I have a full year’s savings with me and equity investments look attractive at this stage. Tell me, what stocks to buy?” I was surprised when my friend shot this question at me. But my friend isn’t the only one eyeing the equity plunge.
With markets beginning to look up again, such enquiries are on the rise. So, how do you decide which stocks to buy, that too in a market that has already run up considerably?
Granted, picking stocks is not as easy as shopping for a pair of jeans. But then, certain basic aspects of making a choice hold good for both. For instance, the value-for-money proposition or the “would-it-fit-me” question still remains the same.
Broadly, there are two ways of selecting a stock — top-down approach and bottom-up approach. The top-down style involves identifying sectors first and then getting down to stock specifics — akin to getting the ‘big picture’ first.
The bottom-up approach, on the other hand, entails a stock-specific approach to investments, giving higher weightage to a thorough analysis of the company, while remaining relatively uninfluenced by macro-economic trends or concerns relating to that sector. Whichever of the two you opt for, note that there are some basic tests that the stock you eye should clear before it becomes a part of your portfolio.
Financial filters
Compounded growth
The compounded annual growth rate (CAGR) in sales and profits of a company would give you a picture of the historic performance of that company over a longer time frame.
This becomes more relevant as the CAGR also irons out the lumpiness in the growth numbers of a company during that time.
For instance, while the year-on-year sales or profit growth would tell you how the company has performed in that particular fiscal year, the yearly performance, however, may be prone to seasonality.
So, to that extent, it could be misleading. CAGR, on the other hand, may help give a perspective on the average sustainable growth rates.
For instance, take the case of Hindustan Unilever and Marico. While for the last fiscal year, Marico grew its sales by 25 per cent, HUL reported a sales growth of about 46 per cent.
This growth picture, however, would change considerably if we consider the compounded growth rates over the last five years. While HUL reported a sales growth of 14.11 per cent, Marico expand its sales by 21.87 per cent during the period.
Operating profit margin
Operating profit margin denotes the sales margin left with a company after meeting all its operating expenses. This is different from operating profit.
For example, Hero Honda posted an operating profit of Rs 692.60 crore for the quarter ended June 2009 while Bajaj Auto, for the same period, posted an operating profit of Rs 454.54 crore. While on the face of it, it may seem that Hero Honda made more money from its operations, the story changes if you consider operating margins for comparison. Despite a lower operating profit, Bajaj Auto has a higher OPM (21.12 per cent), while that of Hero Honda stood lower at 18.17 per cent.
Price earnings ratio
Price to earnings multiple of a company indicates the price the stock market is willing to pay for every rupee of earnings generated by a share of the company.
Typically, stocks with high PE ratios indicate that their stock price is at a premium to their earnings, whereas ones with lower multiples are believed to be a discount.
On the whole, the general perception is that stocks with low PE offer better growth potential. For example, between Maruti Suzuki and Mahindra and Mahindra, while Maruti Suzuki trades its trailing four quarters earnings at a PE ratio of 33 times its peer M&M trades lower at about 24 times.
But even as the general idea is to spot stocks that are trading at a discount to their intrinsic value, note that a lower PE doesn’t necessarily mean that the stock has a potential to appreciate. In some cases, the market accords a lower multiple to certain stocks in keeping with the overall business dynamics of those companies. On a similar line, a higher PE also doesn’t necessarily mean premium valuations.
More to go
While these filters will help you line up a list of suitable stock candidates, know that these tools by themselves aren’t enough to spot the right stock.
You may need to employ other filters and take a closer look at the company-specific financials, its balance sheet strength, cash flows and management bandwidth before making an investment.
With markets beginning to look up again, such enquiries are on the rise. So, how do you decide which stocks to buy, that too in a market that has already run up considerably?
Granted, picking stocks is not as easy as shopping for a pair of jeans. But then, certain basic aspects of making a choice hold good for both. For instance, the value-for-money proposition or the “would-it-fit-me” question still remains the same.
Broadly, there are two ways of selecting a stock — top-down approach and bottom-up approach. The top-down style involves identifying sectors first and then getting down to stock specifics — akin to getting the ‘big picture’ first.
The bottom-up approach, on the other hand, entails a stock-specific approach to investments, giving higher weightage to a thorough analysis of the company, while remaining relatively uninfluenced by macro-economic trends or concerns relating to that sector. Whichever of the two you opt for, note that there are some basic tests that the stock you eye should clear before it becomes a part of your portfolio.
Financial filters
Compounded growth
The compounded annual growth rate (CAGR) in sales and profits of a company would give you a picture of the historic performance of that company over a longer time frame.
This becomes more relevant as the CAGR also irons out the lumpiness in the growth numbers of a company during that time.
For instance, while the year-on-year sales or profit growth would tell you how the company has performed in that particular fiscal year, the yearly performance, however, may be prone to seasonality.
So, to that extent, it could be misleading. CAGR, on the other hand, may help give a perspective on the average sustainable growth rates.
For instance, take the case of Hindustan Unilever and Marico. While for the last fiscal year, Marico grew its sales by 25 per cent, HUL reported a sales growth of about 46 per cent.
This growth picture, however, would change considerably if we consider the compounded growth rates over the last five years. While HUL reported a sales growth of 14.11 per cent, Marico expand its sales by 21.87 per cent during the period.
Operating profit margin
Operating profit margin denotes the sales margin left with a company after meeting all its operating expenses. This is different from operating profit.
For example, Hero Honda posted an operating profit of Rs 692.60 crore for the quarter ended June 2009 while Bajaj Auto, for the same period, posted an operating profit of Rs 454.54 crore. While on the face of it, it may seem that Hero Honda made more money from its operations, the story changes if you consider operating margins for comparison. Despite a lower operating profit, Bajaj Auto has a higher OPM (21.12 per cent), while that of Hero Honda stood lower at 18.17 per cent.
Price earnings ratio
Price to earnings multiple of a company indicates the price the stock market is willing to pay for every rupee of earnings generated by a share of the company.
Typically, stocks with high PE ratios indicate that their stock price is at a premium to their earnings, whereas ones with lower multiples are believed to be a discount.
On the whole, the general perception is that stocks with low PE offer better growth potential. For example, between Maruti Suzuki and Mahindra and Mahindra, while Maruti Suzuki trades its trailing four quarters earnings at a PE ratio of 33 times its peer M&M trades lower at about 24 times.
But even as the general idea is to spot stocks that are trading at a discount to their intrinsic value, note that a lower PE doesn’t necessarily mean that the stock has a potential to appreciate. In some cases, the market accords a lower multiple to certain stocks in keeping with the overall business dynamics of those companies. On a similar line, a higher PE also doesn’t necessarily mean premium valuations.
More to go
While these filters will help you line up a list of suitable stock candidates, know that these tools by themselves aren’t enough to spot the right stock.
You may need to employ other filters and take a closer look at the company-specific financials, its balance sheet strength, cash flows and management bandwidth before making an investment.
REAL ESTATE DELHI FOCUS ON 3C COMPANY PROJECTS
3C Company’s new project
3C Company, focusing on green development in Delhi-NCR, has announced the launch of ‘Lotus Boulevard Espacia’, a part of one of the largest green residential estates, in Noida. Spread over 10 acres, ‘Espacia’ will offer 3-BHK and 4-BHK apartments ranging between 1,950 sq.ft and 2,550 sq.ft.
Lotus Boulevard Espacia is the result of the healthy market response to the 30-acre ‘Lotus Boulevard’, according to a press release.
Lotus Boulevard Espacia will provide an ergonomic environment to its residents. The project will have multi-functional full-fledged “Club Platino” for fitness, games and shopping. A spa, swimming pool and gym will provide total fitness solutions to the residents. For sports leisure, the club will have a squash court, a tennis court, opti-golf and a putting green. A shopping option in the club will be built to take care of the daily needs of the occupants.
For entertainment and enrichment activities, Planet Lotier, that sprawls over an area of 1.25 lakh sq.ft, will have a cricket academy by Madan Lal, fitness centre by Elemention, dance school by Ashley Lobo, medical facilities by Max Healthcare, pre-nursery school by Lotus Valley International School, multi-utility sports hall for badminton, volleyball, basketball and with a rock climbing wall too.
It will also have an indoor heated pool, outdoor pool, kids pool and wave pool with skating rink, open amphitheatre, exhibition centre, multi-speciality restaurant, convenient shopping, and multi-cuisine food court.
Located in Sector 100 of Noida, right off the Greater-Noida expressway, Lotus Boulevard Espacia is close to DND Toll Bridge and the upcoming DMRC station providing connectivity to key locations in Noida. The project will be ready for possession in 36 months.
Recently, the company was awarded the prestigious LEED Platinum rating in shell and core category by US Green Building Council for its eco-friendly project ‘Green Boulevard’, in Noida. With this, 3C Company is the only one in Asia to have to its credit three Platinum rated LEED certified green buildings, according to the press release.
Hiranandani Upscale’s Chennai project
Hiranandani Upscale, which is developing 110 acres of premium residential and commercial space, has announced more residential offering in the second phase of the project coming up on the IT corridor in Chennai.
The second phase, the Oceanic, has been launched with spacious 3,500 sq.ft, 5-BHK apartments. This has now been followed up with the launch of ‘Edina’, an exclusive hi-rise tower offering 3-BHK apartments of 1,790 sq.ft and 1,950 sq.ft. More developments are envisaged at a later date with different configurations. The project will be developed in phases, with each being a self-sufficient community. The first phase, planned for completion 2-3 years from date, offers six multi-storeyed towers, comprising two-level basement + stilt + 28 upper floors, with areas ranging from 1,295 sq.ft to 2,752 sq.ft for 2-BHK, 3-BHK and 4-BHK.
Festive offers from Amrapali Group
With the onset of the festive season, the Delhi-based Amrapali Group has unveiled a range of schemes for its customers. The real-estate developer hopes to use the auspicious occasion of Navratras, Eid, Dusshera, Durgapuja and Diwali, the peak time to make festive bonanza offers, according to a press release.
These include freebies with the purchase of residential flats with the customers getting assured gifts such as televisions, refrigerators and washing machines. Apart from these, on Dhanteras, with the booking of a residential flat, the customers pay 1 per cent less on the total cost of the flat.
For investors, it has designed an exclusive offer, that is, on the purchase of ten residential flats, a 50 per cent cut from the original cost on the purchase of the eleventh flat. A lucky draw will get the winner a fully furnished, luxurious house.
A press release quoting Mr Anil Sharma, Chairman, Amrapali Group, says that “festive season is the best time to introduce offers for your customers and Amrapali has set new visions to fully satisfy its customers with a bag of surprises at the purchase of every flat during this auspicious period.”
3C Company, focusing on green development in Delhi-NCR, has announced the launch of ‘Lotus Boulevard Espacia’, a part of one of the largest green residential estates, in Noida. Spread over 10 acres, ‘Espacia’ will offer 3-BHK and 4-BHK apartments ranging between 1,950 sq.ft and 2,550 sq.ft.
Lotus Boulevard Espacia is the result of the healthy market response to the 30-acre ‘Lotus Boulevard’, according to a press release.
Lotus Boulevard Espacia will provide an ergonomic environment to its residents. The project will have multi-functional full-fledged “Club Platino” for fitness, games and shopping. A spa, swimming pool and gym will provide total fitness solutions to the residents. For sports leisure, the club will have a squash court, a tennis court, opti-golf and a putting green. A shopping option in the club will be built to take care of the daily needs of the occupants.
For entertainment and enrichment activities, Planet Lotier, that sprawls over an area of 1.25 lakh sq.ft, will have a cricket academy by Madan Lal, fitness centre by Elemention, dance school by Ashley Lobo, medical facilities by Max Healthcare, pre-nursery school by Lotus Valley International School, multi-utility sports hall for badminton, volleyball, basketball and with a rock climbing wall too.
It will also have an indoor heated pool, outdoor pool, kids pool and wave pool with skating rink, open amphitheatre, exhibition centre, multi-speciality restaurant, convenient shopping, and multi-cuisine food court.
Located in Sector 100 of Noida, right off the Greater-Noida expressway, Lotus Boulevard Espacia is close to DND Toll Bridge and the upcoming DMRC station providing connectivity to key locations in Noida. The project will be ready for possession in 36 months.
Recently, the company was awarded the prestigious LEED Platinum rating in shell and core category by US Green Building Council for its eco-friendly project ‘Green Boulevard’, in Noida. With this, 3C Company is the only one in Asia to have to its credit three Platinum rated LEED certified green buildings, according to the press release.
Hiranandani Upscale’s Chennai project
Hiranandani Upscale, which is developing 110 acres of premium residential and commercial space, has announced more residential offering in the second phase of the project coming up on the IT corridor in Chennai.
The second phase, the Oceanic, has been launched with spacious 3,500 sq.ft, 5-BHK apartments. This has now been followed up with the launch of ‘Edina’, an exclusive hi-rise tower offering 3-BHK apartments of 1,790 sq.ft and 1,950 sq.ft. More developments are envisaged at a later date with different configurations. The project will be developed in phases, with each being a self-sufficient community. The first phase, planned for completion 2-3 years from date, offers six multi-storeyed towers, comprising two-level basement + stilt + 28 upper floors, with areas ranging from 1,295 sq.ft to 2,752 sq.ft for 2-BHK, 3-BHK and 4-BHK.
Festive offers from Amrapali Group
With the onset of the festive season, the Delhi-based Amrapali Group has unveiled a range of schemes for its customers. The real-estate developer hopes to use the auspicious occasion of Navratras, Eid, Dusshera, Durgapuja and Diwali, the peak time to make festive bonanza offers, according to a press release.
These include freebies with the purchase of residential flats with the customers getting assured gifts such as televisions, refrigerators and washing machines. Apart from these, on Dhanteras, with the booking of a residential flat, the customers pay 1 per cent less on the total cost of the flat.
For investors, it has designed an exclusive offer, that is, on the purchase of ten residential flats, a 50 per cent cut from the original cost on the purchase of the eleventh flat. A lucky draw will get the winner a fully furnished, luxurious house.
A press release quoting Mr Anil Sharma, Chairman, Amrapali Group, says that “festive season is the best time to introduce offers for your customers and Amrapali has set new visions to fully satisfy its customers with a bag of surprises at the purchase of every flat during this auspicious period.”
Self-constructing an optimal education portfolio
The market is filled with child education plans offered by insurance companies and mutual funds. Should investors buy such plans or can they construct their own education portfolio?
This article discusses the features of the products offered by insurance companies and mutual funds. It explains why a self-constructed portfolio within the core-satellite framework may be more optimal than the child plans on offer.
Education plans
Some insurance companies offer child education plans as unit-linked insurance plans. ICICI Prudential Smartkid New Unit-linked Regular Premium, for instance. The in-built insurance contract ensures that the sum-assured is paid if the parent (payer) dies. Others such as Tata AIG Life offer endowment policy.
This column dated August 2, 2009, discussed why it is optimal to separate investment and insurance decisions. One reason is that ULIPs typically carry front-load charges that can take away the advantages of compounding during the early years of investment. A separate term insurance policy and appropriate mutual fund investments are more optimal.
The second reason is that ULIPs do not offer the investment flexibility that investors require. That is, ULIPs often carry a diversified portfolio, which goes against the basic tenet of separating alpha (excess returns) and beta (market) exposure.
This is also the reason why child plans offered by mutual funds may not be optimal; for such plans invest in the same universe of stocks as diversified funds do. A self-constructed education portfolio may, hence, be worthwhile for the discerning investors.
Stock tilts
The objective of the portfolio is to fund the child’s college education. The portfolio will have to be liquidated when the child turns either 18 (to fund undergraduate programmes) or 21 (to fund graduate programmes). The investor should remember to cover the expected education cost through a term insurance policy. This ensures the child is guaranteed education despite the untimely demise of the parent.
The asset allocation policy is very important for such a portfolio. Suppose an investor constructs this portfolio when her child is 5 years old. The asset allocation policy will have stock tilt for two reasons.
One, education expenses rise with inflation. Traditional bonds are not inflation-protected, which makes stocks a better choice to hedge inflation. And two, higher returns in the earlier years would lead to higher compounding factor, translating into higher portfolio value at the horizon. This makes stocks a natural choice, as it could generate higher returns than bonds.
Typical asset allocation would be 75 per cent equity and 25 per cent bonds. The asset location policy would have bonds within the tax-advantaged sleeve and equity inside the taxable sleeve.
The portfolio has to be rebalanced, say, every 5 years to adjust for the risk vis-À-vis the investment horizon. The portfolio will typically carry bond tilts as the child reaches 18 or 21 years. This means that the rebalancing will essentially reduce stock exposure every 5 years. This shift in asset allocation is called the glide path.
A professional approach to asset allocation would require understanding of downside volatility (refer this column dated August 16, 2009) and the investor’s risk tolerance levels.
Suppose the initial investment is Rs one lakh constituting Rs 75,000 equity and Rs 25,000 public provident fund. The investor may have 70 per cent in core and 30 per cent in satellite portfolios. So, Rs 45,000 will be invested in index funds, which along with Rs 25,000 of PPF will form part of the passive core. The balance Rs 30,000 will be the satellite portfolio, constituting mid-cap/small-cap funds and style-specific funds to generate higher-than-benchmark returns.
Conclusion
Discerning investors can construct their own child education portfolio along with a term insurance policy to hedge mortality risk. Such a self-constructed portfolio can also strive to duration-match bonds with the education liability. An appropriate custom-tailored portfolio could be rewarding at the horizon.
This article discusses the features of the products offered by insurance companies and mutual funds. It explains why a self-constructed portfolio within the core-satellite framework may be more optimal than the child plans on offer.
Education plans
Some insurance companies offer child education plans as unit-linked insurance plans. ICICI Prudential Smartkid New Unit-linked Regular Premium, for instance. The in-built insurance contract ensures that the sum-assured is paid if the parent (payer) dies. Others such as Tata AIG Life offer endowment policy.
This column dated August 2, 2009, discussed why it is optimal to separate investment and insurance decisions. One reason is that ULIPs typically carry front-load charges that can take away the advantages of compounding during the early years of investment. A separate term insurance policy and appropriate mutual fund investments are more optimal.
The second reason is that ULIPs do not offer the investment flexibility that investors require. That is, ULIPs often carry a diversified portfolio, which goes against the basic tenet of separating alpha (excess returns) and beta (market) exposure.
This is also the reason why child plans offered by mutual funds may not be optimal; for such plans invest in the same universe of stocks as diversified funds do. A self-constructed education portfolio may, hence, be worthwhile for the discerning investors.
Stock tilts
The objective of the portfolio is to fund the child’s college education. The portfolio will have to be liquidated when the child turns either 18 (to fund undergraduate programmes) or 21 (to fund graduate programmes). The investor should remember to cover the expected education cost through a term insurance policy. This ensures the child is guaranteed education despite the untimely demise of the parent.
The asset allocation policy is very important for such a portfolio. Suppose an investor constructs this portfolio when her child is 5 years old. The asset allocation policy will have stock tilt for two reasons.
One, education expenses rise with inflation. Traditional bonds are not inflation-protected, which makes stocks a better choice to hedge inflation. And two, higher returns in the earlier years would lead to higher compounding factor, translating into higher portfolio value at the horizon. This makes stocks a natural choice, as it could generate higher returns than bonds.
Typical asset allocation would be 75 per cent equity and 25 per cent bonds. The asset location policy would have bonds within the tax-advantaged sleeve and equity inside the taxable sleeve.
The portfolio has to be rebalanced, say, every 5 years to adjust for the risk vis-À-vis the investment horizon. The portfolio will typically carry bond tilts as the child reaches 18 or 21 years. This means that the rebalancing will essentially reduce stock exposure every 5 years. This shift in asset allocation is called the glide path.
A professional approach to asset allocation would require understanding of downside volatility (refer this column dated August 16, 2009) and the investor’s risk tolerance levels.
Suppose the initial investment is Rs one lakh constituting Rs 75,000 equity and Rs 25,000 public provident fund. The investor may have 70 per cent in core and 30 per cent in satellite portfolios. So, Rs 45,000 will be invested in index funds, which along with Rs 25,000 of PPF will form part of the passive core. The balance Rs 30,000 will be the satellite portfolio, constituting mid-cap/small-cap funds and style-specific funds to generate higher-than-benchmark returns.
Conclusion
Discerning investors can construct their own child education portfolio along with a term insurance policy to hedge mortality risk. Such a self-constructed portfolio can also strive to duration-match bonds with the education liability. An appropriate custom-tailored portfolio could be rewarding at the horizon.
SBI MUTUAL FUND PERFORMANCE DIPS
Mr Jayesh Shroff , Fund Manager with SBI Mutual Fund, answered a few questions on the performance of funds from the SBI Mutual Fund stable.
Excerpts from the interaction:
Why has there been a dip in the performance of Magnum Taxgain over one- and three-year periods? Is it because of a high asset base or was it the sector preferences?
Our endeavour is to generate consistent returns over the long term which is reflected in the superior performance over longer periods. The fund turned defensive last year considering the state of the global economy and that helped it weather the storm, particularly after the Lehman crisis. However, we must admit that we were surprised by the sudden and swift rally in the market in the initial phase — that’s when the performance dipped. However, we are confident that the portfolio is now rightly positioned and is likely to generate alpha over the long period.
SBI One India Fund is nearly three years old, but its NAV is still quoting below par. Why is this so?
The market turned pretty volatile after the launch of the fund and some of the mid-caps in the portfolio didn’t perform to our expectations. The portfolio initially had a very large number of stocks to achieve geographic diversification in line with the scheme objective, and four fund managers were jointly responsible for the fund. The fund has increased exposure to ‘high-conviction ideas’ and has reduced the number of stocks in the portfolio. The performance has improved over the last one-year.
Is the zone-wise concept in selecting stocks letting you down in the SBI One India Fund?
With the benefit of hindsight, the strategy resulted in a larger number of stocks and meaningful exposure was not taken to some of the top picks. But that has been corrected and it is now showing the expected results.
Magnum Multiplier Plus 93 has taken a higher exposure to consumer goods and lower exposure to top performing sectors such as construction. Is that a strategic call?
Magnum Multiplier Plus 93 has a high exposure to the infrastructure space, including capital goods and construction. In fact, we are significantly overweight in both the sectors. However, we are now increasing exposure to the consumer space as we are extremely bullish on the domestic consumption story. And as it is an aggressive multi-cap fund, we plan to take relatively higher exposure to any stock or sector in which we have high conviction. This, definitely, is a strategic call.
Why has your IT fund underperformed over one- and three-year periods? What is the outlook for this sector?
Our IT Fund had a large exposure to mid-cap stocks, which faced quite a challenging period, particularly in the second half of last year and first quarter of this year. However, some of the same stocks and couple of new ideas have performed well recently and, in fact, the fund is best in class over the last six months. We expect it to do well going forward.
Excerpts from the interaction:
Why has there been a dip in the performance of Magnum Taxgain over one- and three-year periods? Is it because of a high asset base or was it the sector preferences?
Our endeavour is to generate consistent returns over the long term which is reflected in the superior performance over longer periods. The fund turned defensive last year considering the state of the global economy and that helped it weather the storm, particularly after the Lehman crisis. However, we must admit that we were surprised by the sudden and swift rally in the market in the initial phase — that’s when the performance dipped. However, we are confident that the portfolio is now rightly positioned and is likely to generate alpha over the long period.
SBI One India Fund is nearly three years old, but its NAV is still quoting below par. Why is this so?
The market turned pretty volatile after the launch of the fund and some of the mid-caps in the portfolio didn’t perform to our expectations. The portfolio initially had a very large number of stocks to achieve geographic diversification in line with the scheme objective, and four fund managers were jointly responsible for the fund. The fund has increased exposure to ‘high-conviction ideas’ and has reduced the number of stocks in the portfolio. The performance has improved over the last one-year.
Is the zone-wise concept in selecting stocks letting you down in the SBI One India Fund?
With the benefit of hindsight, the strategy resulted in a larger number of stocks and meaningful exposure was not taken to some of the top picks. But that has been corrected and it is now showing the expected results.
Magnum Multiplier Plus 93 has taken a higher exposure to consumer goods and lower exposure to top performing sectors such as construction. Is that a strategic call?
Magnum Multiplier Plus 93 has a high exposure to the infrastructure space, including capital goods and construction. In fact, we are significantly overweight in both the sectors. However, we are now increasing exposure to the consumer space as we are extremely bullish on the domestic consumption story. And as it is an aggressive multi-cap fund, we plan to take relatively higher exposure to any stock or sector in which we have high conviction. This, definitely, is a strategic call.
Why has your IT fund underperformed over one- and three-year periods? What is the outlook for this sector?
Our IT Fund had a large exposure to mid-cap stocks, which faced quite a challenging period, particularly in the second half of last year and first quarter of this year. However, some of the same stocks and couple of new ideas have performed well recently and, in fact, the fund is best in class over the last six months. We expect it to do well going forward.
REAL ESTATE Visakhapatnam
Major housing projects in and around Visakhapatnam have got stalled during the past two years due to the economic slowdown and the lull in the realty sector. Companies from Hyderabad and Mumbai that purchased sites in auctions conducted by the Visakhapatnam Urban Development Authority (VUDA) have not started work on the projects.
One major housing project proposed in the boom was the one to be undertaken by the VUDA and Jurong India Infrastructure (India) Ltd at Madhurawada within the Greater Visakha Municipal Corporation limits. There was much hype over the project but it too got delayed due to the unfavourable conditions in the market.
Progress reviewed
At last, however, there has been some action. Earlier this week, Mr V. N. Vishnu, Vice-Chairman of VUDA, reviewed the progress of the project and fixed the guideline and norms to be followed in its implementation.
He said in an interview that, earlier only high income group (HIG) units and middle income group (MIG) units were included in the project, but now low income group (LIG) units too are in. “We have felt that due to the impact of the recession it is necessary to include LIG units also. Jurong will design the project,” he said.
Directions had been given to VUDA officials as well as the representatives of Jurong to complete the procedures by the end of September so that the project can be taken up as soon as possible. The national building code would be complied with in construction and the price of the units would be finalised in accordance with the Andhra Pradesh Standard Schedule of Rates, he said.
Number of units
The project will have 710 units in different categories on 20 acres in the first phase. Of the total, there would be 100 HIG units, 160 MIG-1A, 120 MIG-1B, 210 MIG-2 and 120 LIG.
The price of the units would have to be finalised, he said, and the total cost of the project had also not been calculated yet. “However, affordability is the key factor. The units will be affordable to the middle class as well as the lower class,” he said.
Common facilities such as a community centre, hospital and local shopping malls would be developed and the most advanced reticulated cooking gas supply system put in place. “We are attaching a lot of importance to this major housing project. We hope it will revive activity in the vicinity of Madhurawada again,” he said.
One major housing project proposed in the boom was the one to be undertaken by the VUDA and Jurong India Infrastructure (India) Ltd at Madhurawada within the Greater Visakha Municipal Corporation limits. There was much hype over the project but it too got delayed due to the unfavourable conditions in the market.
Progress reviewed
At last, however, there has been some action. Earlier this week, Mr V. N. Vishnu, Vice-Chairman of VUDA, reviewed the progress of the project and fixed the guideline and norms to be followed in its implementation.
He said in an interview that, earlier only high income group (HIG) units and middle income group (MIG) units were included in the project, but now low income group (LIG) units too are in. “We have felt that due to the impact of the recession it is necessary to include LIG units also. Jurong will design the project,” he said.
Directions had been given to VUDA officials as well as the representatives of Jurong to complete the procedures by the end of September so that the project can be taken up as soon as possible. The national building code would be complied with in construction and the price of the units would be finalised in accordance with the Andhra Pradesh Standard Schedule of Rates, he said.
Number of units
The project will have 710 units in different categories on 20 acres in the first phase. Of the total, there would be 100 HIG units, 160 MIG-1A, 120 MIG-1B, 210 MIG-2 and 120 LIG.
The price of the units would have to be finalised, he said, and the total cost of the project had also not been calculated yet. “However, affordability is the key factor. The units will be affordable to the middle class as well as the lower class,” he said.
Common facilities such as a community centre, hospital and local shopping malls would be developed and the most advanced reticulated cooking gas supply system put in place. “We are attaching a lot of importance to this major housing project. We hope it will revive activity in the vicinity of Madhurawada again,” he said.
Sunday, September 13, 2009
Equity investing: More a science than a gamble
Are stock market investments risky? You bet they are, but perhaps not as much as Mr Sanjay Deshpande, a seasoned life insurance agent, fears. “Investing in stock markets is like gambling; it’s way too risky! You never know if your money will ever come back,” he declared, when asked about the quantum of risk he associated with equity investments.
But quiz any trader or investor who has made money in the markets, and he or she would vouch that it is this very same “risk” that, adds to the thrills and spills of investing. After all, isn’t the stock market the only place where one can double or even treble money in no time, they said.
So, what exactly is risk? Are equity investments really ridden with high risks? Are returns in the stock markets only a game of chance? Thankfully it is neither. It is, instead, a developed science involving various checks and filters that investors can and do use before committing funds to a particular stock or company. A look at some myths on markets, risk and returns.
More than a mere gamble
Though from investment to speculation it is only a short step, it still would be grossly wrong to categorise investments as a mere gamble. That’s because, in gambling while the players leave the result entirely to chance, equity investing, on the other hand, involves taking calculated risks, well-backed by an analysis of the company’s fundamentals, industry dynamics and valuations.
“But if it is not gambling, how do you explain the losses my friends suffered on the investments they had made in January 2008?” quipped Mr Chatterjee, a retired school headmaster. Well for one, note that investing in equities is always a trade-off between the risks you take vis-À-vis the returns you expect to make over the course of time. Remember that January 2008 coincided with the market trough and so the investments made then, at the peak, certainly would have shrivelled with the subsequent correction.
This brings to fore the risk of getting the timing right too. Investors may, therefore, also need to budget for this.In that too, if Mr Chatterjee’s friends had put money in stocks that enjoyed a promising business outlook, sooner than later, with the markets trending upwards now, their complaints would die down; provided, of course, that they remained invested in the stocks.
This certainly would never be the case with gambling, where returns depend solely on whose side lady luck plays.
Volatility kills returns
It is in this context that the importance of maintaining a long-term perspective cannot be overemphasised. For instance, while volatility in returns over the short-term is almost congenital as far as stock market investments are concerned, it does become a rewarding experience for those who stay put for the long term (assuming investment choices are made diligently).
Besides, aren’t investments per se supposed to be made with a long-term perspective!
For instance, investors who had ill-timed their entry with the market peak in January 2008 would now be witnessing a reversal in losses.
And for the ones that had invested in select stocks from the automobile and FMCG sectors, the current rally may even have given profit booking opportunities; some FMCG and auto stocks have treaded well beyond their January-08 highs. So, while it is foolhardy to expect your portfolio to be in the money all the time, note that over time it does tend to move towards greener pastures.
high Risk= high return?
Agreed, risk and return are intertwined but a high risk doesn’t really guarantee a high return. Risk, which indicates the likelihood of loss or less-than-expected returns, isn’t really as great a peril (as it is made out to be), provided investors diligently investigate the prospects of the company they are planning to invest in.
Continuous monitoring of developments thereafter is also a must so long as they remain invested in it. Though equity investments are high in the pecking order in terms of risk profiling (when compared with other avenues such as debt and bank FDs), there have been instances when their returns have paled in comparison.
Equity investments in 2008, though tagged ‘high risk,’ returned negatively whereas the low-risk avenues such as FDs and bonds yielded better (in the range of 6 per cent to as high as 12 per cent in some cases).
Within the stock universe too, the risk element associated with a particular sector, market capitalisation category or even the management bandwidth would differ. For instance while in the peak of the bull run, companies with aggressive expansions were perceived to be of average risk, their risk profiling was suddenly upped when the liquidity scenario turned on its head a year later, driven by the recessionary trends in the global and domestic economies. Real-estate companies are a classic example in this context.
While 2007 saw investors swarm these stocks, enamoured by their huge land banks and undying demand, a year and these stocks faced the one of the worst desertions ever with some losing as much as 90 per cent from their peak. On the contrary, lower-risk defensives from the consumer goods, pharma and auto sectors scored relatively better.
So, even as high risk doesn’t really promise high returns, the corollary is also true — low risk doesn’t always yield low returns.
But quiz any trader or investor who has made money in the markets, and he or she would vouch that it is this very same “risk” that, adds to the thrills and spills of investing. After all, isn’t the stock market the only place where one can double or even treble money in no time, they said.
So, what exactly is risk? Are equity investments really ridden with high risks? Are returns in the stock markets only a game of chance? Thankfully it is neither. It is, instead, a developed science involving various checks and filters that investors can and do use before committing funds to a particular stock or company. A look at some myths on markets, risk and returns.
More than a mere gamble
Though from investment to speculation it is only a short step, it still would be grossly wrong to categorise investments as a mere gamble. That’s because, in gambling while the players leave the result entirely to chance, equity investing, on the other hand, involves taking calculated risks, well-backed by an analysis of the company’s fundamentals, industry dynamics and valuations.
“But if it is not gambling, how do you explain the losses my friends suffered on the investments they had made in January 2008?” quipped Mr Chatterjee, a retired school headmaster. Well for one, note that investing in equities is always a trade-off between the risks you take vis-À-vis the returns you expect to make over the course of time. Remember that January 2008 coincided with the market trough and so the investments made then, at the peak, certainly would have shrivelled with the subsequent correction.
This brings to fore the risk of getting the timing right too. Investors may, therefore, also need to budget for this.In that too, if Mr Chatterjee’s friends had put money in stocks that enjoyed a promising business outlook, sooner than later, with the markets trending upwards now, their complaints would die down; provided, of course, that they remained invested in the stocks.
This certainly would never be the case with gambling, where returns depend solely on whose side lady luck plays.
Volatility kills returns
It is in this context that the importance of maintaining a long-term perspective cannot be overemphasised. For instance, while volatility in returns over the short-term is almost congenital as far as stock market investments are concerned, it does become a rewarding experience for those who stay put for the long term (assuming investment choices are made diligently).
Besides, aren’t investments per se supposed to be made with a long-term perspective!
For instance, investors who had ill-timed their entry with the market peak in January 2008 would now be witnessing a reversal in losses.
And for the ones that had invested in select stocks from the automobile and FMCG sectors, the current rally may even have given profit booking opportunities; some FMCG and auto stocks have treaded well beyond their January-08 highs. So, while it is foolhardy to expect your portfolio to be in the money all the time, note that over time it does tend to move towards greener pastures.
high Risk= high return?
Agreed, risk and return are intertwined but a high risk doesn’t really guarantee a high return. Risk, which indicates the likelihood of loss or less-than-expected returns, isn’t really as great a peril (as it is made out to be), provided investors diligently investigate the prospects of the company they are planning to invest in.
Continuous monitoring of developments thereafter is also a must so long as they remain invested in it. Though equity investments are high in the pecking order in terms of risk profiling (when compared with other avenues such as debt and bank FDs), there have been instances when their returns have paled in comparison.
Equity investments in 2008, though tagged ‘high risk,’ returned negatively whereas the low-risk avenues such as FDs and bonds yielded better (in the range of 6 per cent to as high as 12 per cent in some cases).
Within the stock universe too, the risk element associated with a particular sector, market capitalisation category or even the management bandwidth would differ. For instance while in the peak of the bull run, companies with aggressive expansions were perceived to be of average risk, their risk profiling was suddenly upped when the liquidity scenario turned on its head a year later, driven by the recessionary trends in the global and domestic economies. Real-estate companies are a classic example in this context.
While 2007 saw investors swarm these stocks, enamoured by their huge land banks and undying demand, a year and these stocks faced the one of the worst desertions ever with some losing as much as 90 per cent from their peak. On the contrary, lower-risk defensives from the consumer goods, pharma and auto sectors scored relatively better.
So, even as high risk doesn’t really promise high returns, the corollary is also true — low risk doesn’t always yield low returns.
Subscribe to:
Posts (Atom)
