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?

January 01, 2016

NIFTY PE at 21.5 - What lies ahead?

Nifty is trading at 7963 levels. The current P/E is 21.5 and the EPS is Rs 369.77 which is a 5.5% drop on a YOY basis. 2015 saw a drop in earnings and in this scenario a P/E of 21.5 is a very expensive valuation. The market is expecting a strong growth in EPS in the quarters to come. Some improvement has come in the earnings post Q2 FY 15-16 (September Quarter).


Lets take a look at the P/E chart of Nifty:

Nifty PE Chart

The red boxes show the time when the index was trading at a P/E of 20+ As it can be seen, once the market starts trading above 20 levels it doesn’t slip below 20 and keeps hovering above these levels. It shows that above a P/E of 20 the market’s expectations are very high from earnings growth and any dip near 20 is used for buying. However, when the market’s expectations of growth in earnings are not met, the P/E falls because of a crash in the markets. The market is trading above 20 levels since June 2014. The EPS has however remained near 365-369 zone since then. If we don’t see a pickup in earnings in the coming quarters we can see a major correction in the markets in the coming months.

Nifty EPS Chart

You can see from the above chart of the Nifty EPS that earnings have fallen through 2015 and this is a major cause of concern. Despite a fall in crude prices, interest rates and other factors earnings have not picked up.
At an EPS of 370 and P/E of 20, Nifty’s lower range for the short term works out to 7400. We don’t expect 7400 to break anytime soon. However, if earnings don’t pickup in January then the market can head lower and a 15% correction is possible.

Portfolio Allocation:

What does a fall in earnings and a high P/E mean for your portfolio? 
How much cash to hold in the portfolio? 
How much to invest in bonds? 
What type of stocks to invest in this market? 
Our market view report which we share with our clients twice a month answers these questions based on the interpretation of market valuations and earnings.

To know more about our investment advisory services click here.

December 27, 2015

Stocks To Make You Rich - 2016

The recent market correction has caused some really good companies which used to trade at premium valuations to come down to fair valuations. These are growth stocks which can give close to 15% to 18% returns in 2016. These are just ideas and we may or may not advice these under our Investment Advisory Services. Also reports are given only to our clients.

i) EICHER














The stock has corrected from 21,000+ levels to near 16,000 levels. The company is still showing explosive growth and we expect it to outperform the index.

Expected Returns: 30%

ii) HDFC Bank














One of the best banking stocks to have in a portfolio. Though it has not shown significant correction but still it is a low beta stock which offers some protection to your portfolio and it is seen that dips of 5% in this stock is usually used by institutions to buy more.

Expected Returns: 15%

iii) MRF













MRF is trading at a P/E of just 10.5 which shows good room for P/E expansion along with 15% growth in it's earnings. The recent correction has got the stock down from 46,000 levels to 39,500 levels.

Expected Returns: 20%

iv) PAGE Industries










The jockey maker is growing at 25% p.a and the Indian undergarment market is still wide open for explosive growth. This historic multibagger has corrected from 15,600 levels to 13,000 levels which gives an opportunity to buy for handsome returns.

Expected Returns: 25%

v) PC Jewller












Growing at 25% ++, P/E at 18, new generation prefers branded jewellery to unbranded ones. PCJ, which we had suggested at 110-120 levels has already become a multibagger but the upside is still left in the stock.

Expected Returns: 20%

vi) Vinati Organics











The stock has corrected from 600 levels to 400 levels due to a fall in growth but we believe that the stock is still capable of giving a 15% CAGR

Expected Returns: 15%

vii) WABCO













Zero debt, strong cash flows, good growth. The stock has corrected from it's high of 7450 to 6300 levels. We expect it to grow at 20% p.a. for the foreseeable future.

Expected Returns: 20%

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We may or may not suggest the above stocks to our paid subscribers. Research reports are not shared publicly. The above article is shared in good faith. We are not responsible for any losses from investments made based on the above stock ideas.

December 23, 2015

Cash - Good for portfolio?

When in a bull market, the returns are coming in so fast that investors hate idle cash the most. They see cash as a loss of returns, an opportunity cost. So much for not wanting cash in portfolio, they even start leveraging! That is borrow and invest. The euphoria of a bull market usually means extreme and absurd valuations. These valuations are usually justified in the name of growth, PEG, economy boom, etc. There hardly is any scope left for long term investments! Even coal sells at the price of a diamond with the justification that it is a future diamond.

When in a bear market, it is dull, the investors have run away after the crash, every share is hammered and beaten down. Even the diamonds sell at the price of coal, without any justification. Investors are out of cash since the crash has evaporated their portfolio and leverage has made them pay out of their pockets!

So, is cash important?

Mr. Cool and Mr. Furious are 2 individuals who work in a private bank. Both started to invest in equities in 2003 with Rs. 2 Lakhs. By July, 2007 their portfolio had grown to Rs. 6 Lakhs, thanks to the bull run.

Mr. Cool and Mr. Furious catch up for coffee and reflect upon their portfolio. Both are happy!

Cool - It has been a great year buddy, the markets have soared to record highs.

Furious - I agree. But you know what, this is just the start! My broker says Nifty will double from here too!

Cool - Looks tough, it is already at a P/E of 25.. We must reduce our equity exposure and start parking funds in bonds.

Furious - Are you mad? What do bonds give? 6% p.a? I will get that every week. I am infact planning to borrow another Rs. 4 Lakhs and invest to double money fast.

Cool - Hey look, the bull markets are always followed by a crash and you can invest in good stocks when valuations fall. The valuations are not at all justified now.

But Mr. Furious has other plans. He borrows Rs. 4 Lakhs and thus now has an exposure of Rs. 10 Lakhs in equities. 3 months later, the markets have soared by 25%. The friends meet again.

Furious - Whats up brother! My portfolio has touched Rs. 15 Lakhs, I am loving this! How is your portfolio performing?

Cool - Well, I have just sold out my entire portfolio and have parked the funds in bonds. These valuations won't sustain.

6 months later, the markets have crashed by 50%. Mr Furious is upset as his over-leveraged portfolio has fared worse than the market. He has lost 80% of his money in stocks. His portfolio is worth Rs. 3 Lakhs now and he has to repay a loan of Rs. 4 Lakhs + Interest. The friends meet again.

Cool - Well, I didn't expect it to be so fast! Hows it gone for you?

Furious - My portfolio is worth Rs. 3 Lakhs and I have to repay a loan of Rs. 4 Lakhs plus interest of 15%, planning to sell off my holdings. I am done with the stock markets, it is purely insider news run with the operators. It's not for small investors like us.

Cool - Well, I don't think so. Infact I am planning to start shopping now. There are stocks like Page, Eicher, Mayur which seem good and are at cheap valuations.

Furious - Even if I want to invest now, I have no money. And they say that the markets will crash even more. Better stay away from stocks!

Cool - There might be blood on the street for now but these valuations will never come back again.

See the difference between the situations of both of them! At this point everyone wants to be "Cool" but noone would have the guts back then to take this decision. 10 years later, lets see what has happened.

Furious - Nice house friend, where did you get the funds from?

Cool - My stocks have become huge multibaggers! An investment of Rs. 6.5 Lakhs back then in 3-4 good stocks has given me Rs. 2 Crores now!

Furious - Wow. All I am now getting is 5% p.a. on my FD's. Wish I too had shifted to cash at that time.

This story, though imaginary reflects the truth about stock markets. At the peak of a bull market greed blinds all rationalism and the bottom of a bear market fear grips the minds. 1 secret to make a fortune out of investing is to be ready when opportunities strike. Having cash in hand at the right time is necessary for this. For example, Nifty is at a P/E of 21 now, how much cash should you be holding? The answer would differ from person to person. In our investment advisory service we give a lot of importance to cash. It is a crucial, yet ignored part of a portfolio.

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