April 19, 2016

Nifty View: Coming Sessions

Nifty Daily Chart

7975 levels on the daily chart is a crucial price action level. As shown in the chart by the highlighted circles, 4 times the market has seen a trend reversal from near this zone.

Furthermore, the index has formed a hanging man pattern on the daily chart which again signals a reversal after a strong rally. A pattern should not be judged individually.

Applying the principals of technical analysis, a reversal pattern near a strong resistance means that the chances of a reversal are high. In the coming sessions we can see the index drift towards 7700 levels if 7985 doesn't break.

Watch out bulls.

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April 18, 2016

Nifty Valuations: Over Valued or Fair?

For starters, the market in no way is undervalued. Some stocks might be but the market as such is definitely not. What remains to be answered is wether the market is fairly valued or over valued?

Last time we had written a similar article in January 2016, the index was close to 7963 levels and the EPS was 369. The P/E was 21.5 which showed a 5.5% drop on YoY basis. The current scenario, Nifty is trading at a P/E of 21.56, EPS of 364.12 and P/B.V of 3.32 and Dividend Yield of 1.42%.

Let's take a look at the PE Chart:

PE Chart

The last 5 years PE Chart shows that we are again near an unsustainable territory as per PE valuations. The earnings are not picking up to justify this valuation. The market is high on expectations and the results are really not showing improvements. This does not mean that a crash is coming tomorrow itself, the market can trade at high PE levels for months consistently with no real correction. The average PE is around 18.5 and this is considered a fair valuation level. It is tough to define fair valuations when there is no earnings growth itself. For a PE of 20+ there should be a 15% growth atleast in earnings. This trend is however negative.

Going ahead, one day the institutions will wake up to a harsh reality of realization that earnings growth is not coming in. They'll start shifting their money to other asset classes and thus we'll see a significant downside (If earnings growth doesn't improve). This is our view in the current scenario. What does it mean for your portfolio?

Let's see how PE valuations has affected returns over a period of time:

PE Returns Table
The above table clearly shows investing at a lower PE ratio increases your returns. The 3 year and 5 year returns are CAGR. In the current market scenario, you can expect to earn close to 9% to 10% p.a. The best time to invest is at a PE below 18 wherein you can expect double digit compounding per annum, tax free! At current levels you have to evaluate between debt instruments and equities. At a PE of 21.5, debt instruments are giving better returns in a 1 year time frame, but over 3 years or 5 years, equities still out perform. Above a PE of 22, it is better to invest in debt as equities don't give much returns then. In short, it is better to invest in debt instruments in the following scenarios:

1. When NIFTY P/E is above 24 and you want to invest for 1, 3 or 5 years,
2. When NIFTY P/E is between 22-24 years and you have a time frame of up to 3 years,
3. When NIFTY P/E is between 20-22 and you have a 1 year view.

The above table just gives a general view. A well balanced portfolio will consist of both equities and debt. Nifty might be overvalued but there are good midcaps which might be growing at 20% p.a. and clean balance sheets but trading at P/E of 10. Isn't it worth investing? Portfolio allocation and stock selection should change as per market valuations.

We employ this belief in our Investment Advisory Services and this will definitely reap benefits over the long term. No portfolio is recession proof, but what does the C.A.G.R show over years is important. At present, our clients have majority funds deployed in debt funds.

Buy right, sit tight. This saying comes with lots of terms and conditions, PE Valuations are surely one of them.

To know more about our services, please click here.

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April 14, 2016

Financial Suicide: Are you doing it?

Mr. Young's Mother-In-Law has gifted Daamadji Rs. 1,00,000 on his birthday. Excited with the windfall he decides to buy the latest smartphone and invest whatever is left. So he is spending Rs. 50,000 and saving Rs. 50,000.

How he buys the smart phone?

He goes to many e-commerce sites, reads customer reviews, then visits gadget review sites and reads expert views and then visits the local mobile store and enquires the rates, enquires with friends which phone to buy, checks his requirements and shortlists the phones and compares them diligently. Spends 2-3 days occupied with this question, brain storming. Tiring!

How he invests?

Chilling with friends: Yaar koi acha share bata, paisa lagana hai.
Friend who knows there is something called equities tells: BUY Dynamite. Upcoming sector, vast potential. Without even doing any research or analysis about the company, Mr. Young invests his hard earned (Mother-In-Law Gift) money and prays to God for double or triple gains.

Now consider:

Will you randomly give any expert or even your friend your money and tell him to buy whichever phone is good for you? Or will you do your own research?

The value of the phone falls by 50% once you step out of the store after purchasing it. It is a depreciating asset. So when you were ready to do all research for a depreciating asset, why not do some research for your investments? 20 years down the line what will matter? Which smartphone you used 20 years back or where you invested money back then?

Sadly, this is how most people invest. Iske Uske kehne par! No research, no knowledge, etc. but hard earned money gambled away. When your friend says bet on India in todays match, you cross question him: Australia is stronger right? But when the same friend says Tata Steel is good to invest, why don't you ask: But steel sector is depressed right?

This is nothing but financial suicide. We go to the best doctors, best lawyers, best counsellors for everything. But when it comes to financial matters we rely on friend, chacha, broker and have no clue where our money is going! Why?

Get professional advice on your portfolio, latest investment picks and monthly market views by availing our Investment Advisory Services (Click here)

Plan, or regret later.



January 05, 2016

Earn 6% on Demat Account Cash

Did you know? You can earn approximately 6% p.a on the idle cash lying in your demat account! Well it's not a multibagger return but the interest from this can pay off your brokerage charges or "chai-paani ka kharcha". And it's as simple as a click of your mouse. How?

LIQUID BEES.


  • Liquid-Bees is an exchange traded fund which means that you can BUY and SELL it just like any other share during market hours. It's value (NAV) is maintained at Rs. 1000.
  • The fund is run by Goldman Sachs and the funds are invested in call money, short term government securities and money market instruments to maintain safety and liquidity
To BUY or SELL Liquid-Bees you can add the script in your marketwatch and transact. It is settled like any other share on a T+2 basis.

A snapshot of the LiquidBees market depth

Why LiquidBees?

There are times when we are not at all trading and the cash is lying in our portfolio idle. Sometimes we are waiting for investment opportunities and the cash is lying idle. Why let the 6% p.a. go when it's just a click away?

Another scenario: You have just sold some shares today, buy LiquidBees immediately. You will earn interest on the 2 day difference (T+2 settlement).

Some brokers even allow you to pledge LiquidBees and trade based on the same. It provides you a fantastic way to earn 6% p.a. Check with your broker for this facility.


LiquidBees is a low risk fund


Drawbacks:

There are few drawbacks which you must be aware of:

There are many better liquid funds, in terms of returns, available in the market but LiquidBees is the only ETF, for the other funds you need to go via a mutual fund company and that is not convenient for traders.

There is a risk, though extremely low, that value of NAV goes below 1000. This risk is negligible but you must still be aware of the same.

Settlement:

You get daily dividends in LiquidBees which is credited to your account once a month in form of units.
Example: You invest Rs. 1,00,000 in Liquid Bees at the beginning of the year. You get 100 units at Rs. 1000. At the end of the year, when you check your account you will have 106 units at the price of Rs. 1000. Thus, the appreciation in your investment is in the form of units.

Since most of us traders and investors won't hold our entire portfolio in LiquidBees for so long, most probably a few weeks, we will get fractional units. Once the fractional units cross 1 we can redeem it.

In our Investment Advisory Services we advice our clients once a month, how much cash to keep in Liquid Bees, how much to keep in debt funds and how much to invest and in which stocks depending on the Nifty valuations. Just like in the previous article Nifty PE at 21.5, What Lies Ahead? we had mentioned that we are seeing a high PE and a falling EPS which means a low exposure to equity overall.

So, what do you think about LiquidBees? Have you ever used this ETF?

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