Saturday, December 29, 2012

My six predictions for 2013

Before going into India specific predictions, let me share the big picture for  2013:
US will continue with its policy of quantitative easing – the US economy will do better than the current 2% GDP growth (expected to be around 3%) - there will also be mild austerity measures to balance the budget over long term (a small cut in expenditures and a mild increase in taxes for the rich) –the US economy and the US dollar will emerge stronger over the year.
Europe will continue in its difficult process of economic and political re-integration – the overall EU GDP is expected to grow between 0% and 0.5% –the  European central bank will continue with its policy of monetary easing – the German elections in 2013 will not result in change in direction – Greece, Spain  and Italy will continue to be in recession.
Asian economies and Latin American economies will increasingly become more prominent – China and India will do better in 2013 than in 2012. Middle East will continue its transformation and Sub Saharan Africa will grow further into prominence.

So here are my six predictions for India for 2013:

  • Inflation will fall slightly and RBI will reduce interest rates in the first half of 2013 – this will result in rise in rise in Sensex between Jan and June 2013.  FII inflows would be good (at least till Q3 2013). In the last quarter of 2013, the govt will go into election mode and it would result in volatile and directionless markets towards the end of 2013.
  • USD/INR ratio will go from current Rs 55 range to Rs 57 range by end 2103 – the devaluation will not be more than 5-6% through the year.
  • Gold will give close to 10% returns in 2013 – it will beat inflation but will not be a great investment option.
  • Long term Debt will give 11-12% returns
  • Overall corporate performance would be better in 2013 due to more market friendly policies. Hence, it would be prudent to look at select stocks – it would be possible to get 25% returns by investing in quality stocks at the right price. Industries that I expect to outperform are FMCG, consumer durables and financial services.
  • Improving economic conditions in India would result in real estate doing better in 2013 than in 2012 – so cities like Bangalore, Kolkata, Mumbai, Surat and Bhopal where real estate did not perform in 2012, will perform in 2013. Hyderabad real estate depends on the resolution of Telangana issue. I would urge caution for real estate investments in Chennai, NCR, Jaipur and Pune as the real estate market is over heated in these cities.

In all this, there is one joker in the pack – the Iran issue. This would become a flash point during this year and that can impact the global markets and it is difficult to predict the scenarios.
Beyond that, I am investing in 2013 based on these predictions.

Wednesday, December 26, 2012

Looking back at my crystal ball - How accurate were my 2012 predictions?

The time between Christmas and New Years is a good time to look back and plan forward. The weather here in Bangalore is beautiful – most of my friends have gone to Goa /Srilanka /Coorg /Chickmangalur etc and my students are all over the country (but available on FB)  -  and I am in a contemplative mood today.

So I went back to my blog dated 30th December 2011 to see what I had predicted then – and this is what I found :
  • I had said "Indian economy will slow down a bit –reforms are the way out and our government will need to push through a few reforms if we need to be anywhere near an 8% growth"  - Indian economy did slow down to 5-6% and Govt did falter (thanks to Pranab Mukherjee) and then Chidambaram has tried hard to talk the markets up in the last few months -so here I was right
  • I had said "Europe problems are expected to dampen the markets for the first few months –I am optimistic that it will not result in a Lehman like crash – the Europeans will find a way out (even though a few countries like Greece and Italy will be bruised badly)"  - That is exactly what has happened over the year
  • I had said "The US economy will limp through a 1-2% growth in 2o12 (just like in 2011) – but in the absence of other alternatives, the US markets will be deemed as the safest place to be and US Dollar will be strong and the US Bond rates will be low".  The US economy is closer to 2% than 1% - they have done better than my estimate – the US bond rates are still low – the Dollar is still very strong and the US /INR rate has gone beyond what I had originally thought.
  • I had said "Chinese economy too will slow down in 2012 – and the challenge there would be growing their domestic consumption as currently 65% of Chinese GDP is export based". - That is exactly what has happened over the year
So based on these macro predictions, I had recommended the following on Dec 2011 :
Debt  - I had said "for anyone who has a one or two year investment timeframe – invest now in Long term debt funds which have portfolio of 2011 debt –you can expect about 12% returns on these" – In the past 12 months Gilt funds has given 10% -11% returns – RBI did not reduce the interest rates as predicted and hence the actual ROI was lower than prediction by 1%. Here my prediction was close

Equity - I had said  "for those who are ready to invest for three years, you will get a 20% plus return per year by investing in specific stocks" – The sensex has gone up by 21.7% over the year due to FII activity and so I was spot on in this area – my own stock portfolio has given me a 43.6% return in the past one year. I am happy to share that I have beaten the sensex by 22% in 2012.

What stocks do I have – well I have currently  Agro tech foods, Bajaj Atuo, BHEL, Colgate, Crisil, Dabur, Gruh finance, Havells, HDFC Bank, L&T, Maruti Suzuki, Noida Toll, Page Industries, Piramal Enterprises, Sriram transport finance, Swaraj Engines, TCS and TTK Prestige.
Gold - I had said "I believe Gold will not give more than 15% returns in 2012 in Indian rupees – It will beat Inflation in India – so it not unsafe – but there are better investment options in 2012" – Gold has given 10.1% ROI in 2012 – after a few good years when we got 20% plus appreciation in gold, this year gold just beat the inflation of 9-10% by giving an ROI of 10.1%.

Real estate - I had said "Investment in urban (not rural) areas is recommended – if you can buy a house or flat or urban land anywhere in– you will make 15-20% asset return per annum". Well this is a generic statement and cities like Chennai, Jaipur, NCR, Pune and Lucknow have gone up by 20% and there are cities like Hyderabad, Bangalore, Kolkata, Mumbai, Surat, Bhopal where real estate has not appreciated much – and one city Kochi where real estate has gone down in 2012.

So overall I am happy with my predictions made in Dec 2011. I think I was correct on most counts.

What are my predictions for 2013  -just wait for a few days – I will share it shortly.

Friday, December 21, 2012

Here is a true story

In April 2010, as I was leaving my corporate life, I toured my offices in Chennai, Hyderabad, Gurgaon and Noida for a farewell session with my colleagues. In each city, I also had a 2 hour session on wealth management to all those interested and quite a few employees came and met me one to one after these sessions for advice.

It is in one of these one to one meetings that I met this colleague (whose name I cannot reveal) – he had a total asset base of Rs 60 lacs (a house partially on loan and some cash at hand).He was fairly senior in our company – had a annual income of around Rs 25 lacs – had been working for more than 10 years – had clearly known how to earn a decent income – but had not learned how to invest his savings.

In those 10 minutes that we spent, I recall advising him to invest in real estate as Gurgaon real estate was really hot. We discussed the amount of loan that he should take and I shared my views about a good loan and a bad loan. I also shared with him why he should not look at stocks and Mutual funds and recommended to him an approach towards insurance. We also discussed the difference between investing in real estate in emerging locations and also the difference between pre launch offers and the post launch pricing of builders.

We obviously kept in touch on and off and last week he came home . He shared that his current assets is around 350 lacs and he has a housing loan of around 50 lacs – so his net worth has gone up from 60 lacs to 300 lacs in 30 months ( CAGR of 90%). His current salary has also gone up slightly. His investments are primarily in Real estate and he has now invested in 4 properties - most of which have appreciated very well – they are not yet yielding rental income – but once that happens - he will be financially free.

Let me share what he said to me  - in his words -
"2009 was deep recession and 2010 was when market started picking up. I took the risk of investing in couple of properties at a pre-launch price at that time, which gave me decent return. So, what I did right was:

 1. Identify the opportunity (Market had just started picking up)

2. Take some risk (I took the risk of investing in two properties). It has paid off.

Raja, no one knows the future. I listened to you couple of years back, got inspired by what you had done to manage your finances, understood your advice and took some courage to act on it. I never knew that it will pay me so much. Thanks a lot!"

Friday, December 14, 2012

The latest Fed announcement and how it affects us

Two days back, the US Fed reserve announced that it would keep interest rates low till the US unemployment rates come down to 6.5% (from the current 7.7%). Typically all central banks have two key policy goals – controlling inflation and keeping unemployment low. Linking their monetary policy so explicitly with a 6.5 % unemployment rate means that the “low global interest rate regime” is here to stay for some more time. This would mean that the there would be a constant supply of liquidity globally and this would be a continuing opportunity for emerging markets including India.

We can see the effects of this excess global liquidity here already. FII’s have pumped more than $ 20 Billion into the Indian markets since Jan 2012 – the second highest amount since 1993 (when India opened its doors to FII’s). Due to this, the sensex has gone up by 20% in the last 12 months.  Easy liquidity will also help India finance its external deficit at lower costs in 2013. It also means that Govt would find it easier to mop up money through privatisation of select PSU’s.

However, easy liquidity also carries the downside of increased commodity prices especially Crude oil and Gold (these are highest import items for India).

So these are the positives and negatives of the Fed decision with regards to us in India.
Will the India Stock markets go up in 2013?
Well you decide. I will share my views about Indian stock markets in 2013 in a post closer to New Year eve.

Wednesday, December 12, 2012

Should you buy Kingfisher airlines? –remember today is 12.12.2012

I know many of my readers, who invest in stock markets are trying to figure out the answer to this question.

Kingfisher stock had a high of around Rs 30.9 in Feb 2011 and since then it has been a downward journey – it touched Rs 8.40 in August 2012 and since then has been languishing around Rs 15. Now we have this news that Etihad airlines may take stake in the airlines. Both KF and Etihad have not commented on this news.  We also have the news that 5 of its 42 KF planes have been taken back by lenders.

Yesterday, after the news of Etihad broke out, 85 lacs KF shares have been traded in BSE and NSE. To get a feel of this number, the most actively traded share in BSE and NSE yesterday was SBI and 23 lac shares changed hands on this counter. The KF stock has gone up by 5% (it cannot go up more due to controls by the regulator).The current price is Rs 15.7 (as of 12.12.2012)

The stock’s book value is -66.83 as per money control – what it means is that in a normal transaction, the share holder must give you Rs 66.83 for buying the stock instead of you paying him Rs 15.7.

Now here is my take.

We all should have a core portfolio and a satellite portfolio. The core portfolio is for long term investments and the satellite portfolio is for short term opportunities. The split between core and satellite depends on your life stage (age) and your risk tolerance level. For someone like me, I have 90% core and 10% satellite. For my students, I would recommend 80% core and 20% satellite. If you lose the satellite amount – you should not lose your sleep. But if you lose your core amount – you should surely stop investing (and come to me).

So here is the opportunity for investing in KF with your satellite portfolio – I believe that the stock will go up for a few days – the final value will be a derivative of the valuation that Etihad and KF managements agree – but greed in the market will create opportunities for short term gains. Do not wait for exit at peak – you will not be able to judge it. Exit once you get a pre determined appreciation (may be 15%) .

Am I investing – No. But that is my personal decision.

 Should you invest – well decide for yourself. Remember today is 12.12.2012

Monday, November 12, 2012

The 4th and 5th session of wealth management –Investing through equities.

Let me start by wishing all my readers a Very Happy Diwali.

This blog was due for more than two weeks – but as the college had exams and then a 10 day break, this session on Investing through Equity was dealyed.

As we all know, different people have different views on investing through equities. And my guess is that everyone is sometimes right and sometimes wrong – there is no one right way to make money by investing in equities.   

Here, I share the methodology used by Warren Buffet –who I think has the most successful track record in this area.

With a view to share Warren Buffet’s approach to life and investing,  I showed the class a one hour documentary on the great man himself -  you too can see on YouTube. This documentary was  produced by BBC and is called “The biggest money maker, Warren Buffet”   (it is split into 6 parts in YouTube – each about 10 minutes long and here is the url of the first part   

The documentary tries to explain the reasons behind Buffet’s success –his early style of investing (called buying cigar butts) - his journey through the years and his views on life and on investing. As is evident in the video, he invests just the way he lives  –he is an independent thinker – has self awareness of “what works for him”  - and sticks to what works for him – he is long term in his approach – is willing to accept mistakes – sometimes break his own rules - is willing to take large risks once he is convinced about his approach  - is very honest in whatever he does - and, even though he is one of the richest men on earth, money is not important to him personally –he just “enjoys making money”.

After the documentary, we discussed his style of stock picking – the following are the key points that I would like to share:

  • Warren identifies "well managed consumer monopolies" and waits for market price of its shares to come down to a level where investing in it makes sense. He avoids companies that are in commodity businesses.
  • Once invested, he holds the investment for long term until the business loses its attractiveness or until a more attractive alternative investment becomes available.
  • Warren believes that any equity investor should view the company in the same way as any business person buying up the whole company –focussing on its cash generating potential in the future – overtime the company that has a superior cash generating potential would give a good value appreciation of the stock.
  • In this session, I describe 14 questions that one must ask before investing in any company. I also take the example of CRISIL to explain these questions – at the end of these 14 questions, we discuss two ways of forecasting the stock price  - and this would then give us the 10 year returns on this investment, if you invested in CRISIL at today's market price.
  • These 14 questions are given in the ppt – most of them are self explanatory. The last two questions are mathematical and anyone who can read a financial statement can (hopefully) understand the flow of logic – our forecast of the share price of CRISIL ten years into the future is given in the end and we take the more conservative of the two forecasts and we take the decision to invest or not to invest.     

As more detailed treatise on this subject is coming out in my forthcoming book – where there is more than 40 pages on just this area (hopefully it is easy to read and understand :-) ).

You can down load my ppt used here -

Saturday, October 6, 2012

What is next 12 month outlook – do we stay invested?

I have had quite some queries on the recent market conditions and what is my outlook.  So here are my views.

We all know that our government always knew what is required to be done – but they did not have the political courage to do it. The Congress is now in a do or die situation – if they do not act now, they will find it difficult to showcase their governance record in the 2014 Lok Sabha elections. And hence this recent burst of reformist measures – after all they too need a job after 2014.

The next 12 months, I expect the government to be keeping up this pro reform agenda –they will talk the markets up with one reform a week (something like –“an apple a day____).  India needs capital from abroad for growth and the world markets are flush with cheap liquidity. So the government in India will try its darn best to attract global capital to India.  And the opposition will try to stymie these efforts and that’s something we will need to live with – the Indian political theatre.

But overall the Indian markets should do well over the next 12-14 months.

But that is only half the story.

The remaining half is the global market outlook itself – here, the situation is not that rosy. The economies of US, EU and Japan are struggling to stay afloat –the central banks in these countries are giving large doses of liquidity (it is akin to keeping a patient alive on drips) – without these doses of liquidity, these economies would get into recessionary mode.  The stock markets, the real estate markets and the consumer sentiment in these countries is being propped up by the low interest rates ( cheap money) – this has been going on since 2008 and the economies are not doing any better  - but they are managing to stave off recession.  

Will the situation change in the next 1-2 years?

I do not think so.

These countries will continue to drip feed their economies by keeping interest rates low and infusing liquidity into the economies as and when required. Some of this money will trickle into Indian economy due to our “reformist government” and will keep our stock markets in good cheer.

 So till here everything looks fine – both the global markets and Indian markets will do well in the next 12-14 months even though the global markets are being propped up by low interest rates.

But there is one event next year that could be a game changer - the Iran problem.

With the conclusion of US Presidential elections, focus will be back on Iran. There will be pressure on Iran to give up its nuclear programme and I expect Iran not to surrender meekly. I expect increase in tensions and somewhere in Q2 2012, there could be some kind of flash point. Many scenarios are being talked about – about how it could unfold. It could happen through Iran mining of the Strait of Hormuz, or may happen through the current strife in Syria where Iran, Turkey and Israel get involved as the country dissolves into chaos, or it could be through Lebanon, where Iran could activate the Shiite militia to attack Northern Israel or it could happen pure and simple by Israel delivering a surprise attack on Iran’s nuclear installations.

 Whatever the scenario, there is a likely hood of a prolonged regional disturbance – it could result in oil prices going up, stock markets going volatile and one cannot predict to what extent the global economy will be impacted. This can present opportunities as well as threats and one needs to be careful.

So this is the situation - the India story looks good (12-14 months) – the global story, without Iran problem, looks OK - but the Iran issue is like the looming dark cloud in the horizon.

I would recommend that you stay invested in the Indian stock markets – surely till Q1 2013.

This is a period when gold and stocks will rise at the same time. Gold will rise in USD terms more as there is increase in liquidity globally – and depending on the short term fluctuation in the USD/INR rate, gold is expected to give inflation plus 3-5% at least in India ( i.e. about 13-15% ROI per annum).

Stocks surely could do better than that.

So my advice is to stay invested in stocks and gold and keep a close eye on the developments in Iran.

Saturday, September 29, 2012

The 3rd wealth management session – A discussion on Mutual funds

A discussion on Mutual funds – the types of MF’s and how to select the MF for investing

Mutual  funds are a very good way to start your investment journey and I recommend it to everyone who is looking at becoming rich. This session was aimed at sharing with my MBA students the logic used behind selecting the right MF -  many of my students will become Wealth managers next year  and this would be useful learning for them in their jobs (last year appx. 200 students from my institute joined the WM industry and this year I believe it will be similar numbers).

As a primer to this session, I had requested my students to read the document on MF available at

In the class, they went through a 90 min quiz on MF’s  - here we discussed the basic concepts through the quiz format.  My ppt for this session is mostly these quiz questions – may be you must look at it to figure out your basics on Mutual funds as well.  You can download it at

Post the quiz, we logged on to and studied the various types of MF’s available in the Indian market – we saw the details of a few mutual funds – we looked at where they have invested currently, what is their relative performance, who is the fund manager etc and discussed how to evaluate the mutual fund and which fund to invest in.

So the class was one half quiz and one half browsing the internet portal on MF’s .

I would recommend that you too browse and look through the various types of mutual funds available and drill down into a few funds to look at detailed data on their performance and the portfolio that they hold.

The key question in your mind would be “how do I select that particular mutual fund where I can invest  and get good returns”. My session ppt does not have much content on that as it was a freewheeling discussion.  However, my forthcoming book has a lot of content on the various types of MF’s available in the Indian market and how does one select that particular MF where you can invest in.

It obviously depends on your investment objective and broadly the objectives could be described in the following scenarios:

         Growth objective “I want to invest Rs 10,000 today and after five years take back Rs 25,000 and I want this to be tax free”. The funds that try to meet these objectives invest in equities – hence they are called Equity funds

         Income objective “I am retiring next year and would get a gratuity of Rs 30 lacs - I want to invest it such that my gratuity is preserved and I get a monthly income better than a post office deposit interest”. The funds that try to meet these objectives typically invest in debt instruments issued by government, banks, corporate and financial institutions - hence they are called Fixed income funds or debt funds.

         A combination of growth and fixed income “I have received my annual bonus of Rs 10 lacs just now – I want to invest it such that in 5 years it becomes 15-18 lacs plus I get a payoff of Rs. 60,000 per annum for my vacation out of this fund”. The funds that try to meet these objectives typically invest in both equities and debt instruments – these funds are called Balanced funds.

         Short term investments “I have Rs 100,000 with me for the next three months – it is meant for my child’s school admission in May and I need to park it somewhere till then – I would like to have a better return than a savings bank account”.The funds that try to meet these objectives typically invest in short term debt instruments like interbank money markets – hence these are called Money market funds.

         Tax saving “I want to reduce my tax out go and is there some place I can invest beyond PPF and Post office schemes?”. The funds that offer tax rebates are called Equity linked saving schemes (ELSS), - these funds invest in equities and typically have a three year lock-in period.

So you have to start with your investment objectives  and then select that particular mutual fund where you can invest and reach your objectives? 

There is a whole industry out there that makes selecting and recommending Mutual funds look very difficult and complex – but that is not really true. One can easily select which MF to invest.

My forthcoming book has more than enough content on “how to select the right MF”it is really not that difficult and anyone can do it.

Wednesday, September 19, 2012

The 2nd wealth management session

A discussion on risks that we face and how does the wealth management industry quantify the risk taking ability of a customer?

Prior to this session, the students had prepared and sent me a 20 year cash flow plan for an MBA couple - this was done in groups. I had picked a few of these cash flow plans – and specific groups got a chance to present their plans and as a class we critiqued the work. I am sharing one of the better plans in this blog –with permission from the students who made this.  Here is the link

The key message that I wanted to convey was that anyone of my MBA students can become rich in the next 10-15 years - with smart investing; they can reach a stage where they “do not have to work for money”.  This is a mindset change – it does not come easily as most of us are from middle class back grounds and this 20 year financial plan proves to the students that they can also become rich – all they need to know is how to invest smartly.

This template can be used by my other readers as well – anyone can and should make a 20 year financial plan for himself/ herself –as I had said in my first session, “Failing to plan is planning to fail.”

Here is a small paragraph from my upcoming book (which is with my publishers right now) that explains this better -“As you plan for the next 20 years, you will get more clarity in your mind on your way forward – this financial planning exercise compels you to find a strategy to achieve your dreams – you will figure out the factors that are under your control that will help you achieve your dreams. You will meet and befriend people who will help you get closer to what you want. You will eventually reach your dreams earlier than your plans – the world will call it luck – but you will know that it is not just luck – subconsciously, you have been working on achieving your dreams and you have succeeded. Planning for long term and achieving will become a habit - a lifelong quest - and you will surely succeed in whatever you do.”

The second half of the session (90 mins) was used to talk about Risk as a concept.  We addressed two issues here –

  • What are the types of risks and how does one mitigate these risks - Here we discussed the kind of risks that we face as individuals –  theft of our valuables, an accident, a heart attack, sudden death, unplanned hospitalisation, a customer suing a doctor for a mistaken surgery etc etc. We classified these risks, and discussed approaches to mitigating them. The message was that each one of us needs to be aware of the risks we face and that we must figure out ways of mitigating them.
  • What is your risk taking ability and how do I link it to your asset allocation?  -Each one of us has a psychological risk tolerance level – some of us are Ok with higher risks and some of us are not. Plus the risk taking capacity is also defined by how much financial assets you have amassed – someone with 100 lacs assets can afford to risk Rs 10,000 in King fisher airlines stock right now – but someone with Rs 10,000 assets, should not think of taking that kind of risk with that stock. Needless to say, the kind of investments we should make should be in sync with both these factors –the psychological tolerance to risk and the financial capability to take risks – I shared with the class, how the wealth management industry does this –

The ppt for the session can be downloaded from here:

Wednesday, September 12, 2012

The 1st wealth management session – The importance of defining the term “Rich”:

In any journey, if we do not define our destination, we will find it difficult to reach it.  

Similiarly, in the wealth journey, we all need to define the term “rich” – otherwise we will not reach it. The reason why many people do not reach the “rich” stage is that their definition of rich is not a very clear cut definition.  

The class discussed a few common definitions of the term “rich” (two of which are in the ppt) – obviously everyone has a different take of this term - we then agreed that any goal needs to be Specific, Measurable, Achievable, Realistic and Time bound (SMART goal) – and so the definition of “rich” also needed to be SMART.

 I then introduced them to the definition by Robert Kiyosaki in his book “Rich Dad Poor Dad”. We went one level deeper and discussed the quantification of this term “rich” based on this definition. In order to quantify this definition, we discussed the case of an MBA couple (that my students can relate to) and tried to make a 20 year financial plan for them – this 20 year financial plan is not finalised yet as the students are supposed to work on it over the week and so I will share one or two of the finalised plans in my next week’s notes.

This was the key issue we discussed for 2 hours of the three hour session.

The last hour was devoted to an over view of the wealth management industry in India. Here we discussed the market estimates, the key players, the kind of business models and the current challenges that the wealth managers face today.

Monday, September 10, 2012

Knowledge has value only if it is shared

As a faculty, I have learnt to take life trimester by trimester. This is my eighth trimester as a faculty and just like the prior seven trimesters, I am looking forward to the starting of the new session. This trimester is also special as I am teaching Wealth Management. This subject is close to my heart.  I learnt it by actually doing it. It comes to me naturally.  I know that I am good at it and I know that my students too like these sessions.

Even though the course is designed to prepare students for a career in Wealth management, I am also teaching them “how to become rich”. After all as MBA students, they are all a privileged lot - the top 1% of the population in their age group in India. They will have many opportunities post their MBA and I surely think each one should become a High Net worth Individual (HNI) over the next 10 years. That is what I am aiming to teach – “How to become rich”.  

This trimester I intend to put my content on my blog with every session – most probably every Thursday. The blog will carry the key points discussed and there will be a link to the ppt that I used in the session. This is for those who are not in the campus and still want to follow the sessions.

For those who are in the campus but are not part of my class, you are welcome to join us. I have sessions in Kengeri campus on Tuesdays and Thursdays from 10 till 1 pm and in the city campus on Wednesdays from (I think) 8.30 am till 11.30 am.

I hope that this works for you and that you will be a co traveller with me in the wealth journey.
I am interested to find out your feedback on the content – whether you agree with what I am saying or not -  So please do pen your comments on my blog or you can send me a message through FB or gmail. Also request that you register your mail id on my blog –it is on the right hand side  -a box called "follow by email" -  that way my updates will reach you automatically every week.

Friday, July 13, 2012

Midyear review 2012 and where to invest now?

July first week is a good time to look back at the annual predictions made in Dec end / Jan and course correct if required. So here I am, looking back and seeing what course corrections are required.
My 2012 predictions included the following:

  • Indian economy will slow down a bit – well it has slowed down “quite a bit” and I am not too optimistic of the current government’s ability to kick start the spluttering economy. It is not that those in power do not know what is required to be done. The problem is that those in power do not have the political will to push the reforms and the unfortunate part is that the next elections is in mid 2014 – a full 2 years away.
  • Europe will dampen the markets – but there will be no crash like the Lehman brothers crash in 2008 – this has held on till now – they have been limping from one problem to another – and they have avoided a crash – but the problem is still there and there are no easy solutions to Greece and Italy’s problems – they will have to improve their productivity and become world class in some industry – easy to write in a blog – but very difficult to do.
  • US will limp through at 1-2% growth – well the US has done better than predicted and the economy is holding out  – they are growing at around 2% and the US Dollar is in demand as a safe haven.
  • Chinese economy will slow down too – well all the emerging economies have slowed down – China, Brazil and Russia are dependent on their exports and the slowing down in EU and US is resulting in slowing down in these emerging economies.

I had predicted that in 2012, the interest rates in India will go down  and that would present an opportunity for investments in Long term debt funds – well the interest rates have not gone down to the extent that I had thought – RBI is more cautious and they are right – having said that, those who had invested in long term debt funds in Jan  have got appx 5% returns in six months – but that is below my predictions of 12% annualised.

Equity markets have also been volatile and range bound in the past six months – this was expected. I am currently more pessimistic than in Dec / Jan 2012 (actually post the Budget fiasco). But as a long term investor, I see opportunities and I am still investing with a 3-5 year timeframe. My equity portfolio in the last six months has given me a 14.25% returns where as the sensex has done 7.88% (at current sensex of 17296).

Gold has done better than my predictions and has given a return of 24% since Jan 15th – this has been primarily due to the depreciation of Indian Rupee and I believe that this will not continue for the remaining year and in 2012 the overall returns may not go beyond 30%.

Real estate is a very localised call and one cannot take a generic prediction. In Bangalore, there is a general sense of optimism and there are property launches and property expo’s as usual – the sale is happening at every segment – premium to mid level segments – the prices are going up slowly but surely. I cannot say the same about other places though, as my knowledge is limited.

So my views on the markets have not changed much in the past six months

For investors with 1-2  year  horizon – I do not have much to recommend beyond debt – you can look at FMP’s as FMP’s are more tax efficient than normal debt investments.

For investors with 3 years plus horizon – I recommend Equities and Real estate even though over the last six months, I am tending to go more towards real estate than equities. If you cannot analyse stocks, then go for equity based MF’s  – I recommend HDFC’s family of MF’s as they have the best long term track record amongst the various MF’s – depending on your age and ability to take risk, you can look at mid cap ( HDFC Midcap opportunities fund)  or at large cap ( HDFC top 200 fund).

Friday, June 29, 2012

How the rich got rich

A recent research on how the top 400 rich people in US made their money makes interesting reading. The data spanning a period of 1992-2007 showed that the richest 400 in the US made their money though:

  • Wages and salaries: 8.6%
  • Interest: 6.6%
  • Dividends: 13%
  • Partnerships and corporations: 19.9%
  • Capital gains: 45.8%

So what does it mean – I believe it means that:

  1. Working for a salary won’t make you rich –this is true as much in India as it is in the US –Most of us look at salary to become rich and that is the first wrong assumption. We all need to create multiple passive incomes.
  2. Making “Safe” investments in debt based instruments won’t make you rich either –inflation and taxes eat up whatever you may make out of debt instruments like fixed deposits. So interest income will not make you rich -but one should have a part of their portfolio in these instruments just so that there is some safe capital.
  3. Investing only in large companies also won’t make you rich – we in India mostly invest in large companies through the equity route. In the US, the investors search for the next multi-bagger – a small company today that will grow into a large company in the future.
  4. In the US owning a business or businesses (fully on in part) seems to help people get rich as 2/3rd of their money came from this route. Remember that US is full of small businesses.

In India, I believe, for getting into the top 400 richest - one has to follow a similar path with one small additional option

  • invest in yourself,
  • grow your knowledge and experience,
  • take risks in equity ( large and mid cap) and in real estate (this is the additional option in India); and
  • build a financial windfall through investing in companies that would be future stars (the venture capital route).

If you do not want to be in the top 400 richest in India – but still want to be reasonably rich, then you can

1.       invest in yourself,

2.       grow your knowledge and experience and

3.       take risks in equity and in real estate.

Thursday, June 14, 2012

How will the Greek exit from Euro impact us?

There have been many recent news items saying that if Greece left the Euro zone, it will have devastating effect on the global economy and we are not insulated enough - that set me thinking as to what would happen to India and my view is that nothing much will happen to us – we are reasonably safe.

First let us see what will happen to Greece, and then we will see what will happen to us in India.

As we all know, elections are scheduled in Greece this week and there is a 50% plus chance that the Greek will vote for the party opposed to the austerity measures imposed through agreements with IMF and ECB. If the new government goes back on its austerity agreements, the Greek government will not be supported by further infusions of credit from IMF and ECB – this will result in the Greek government running out of funds in a month or two –but before that there will be a run on the banks –Greek citizens would like to take their cash out of banks and that will trigger a banking crisis.  In order to avoid that, the Greek government will need to launch its own currency immediately and leave the Euro zone. In order to be globally competitive, the new currency will need to be pegged at an estimated 30% lower than the current Euro. This will create inflationary conditions in Greece –the interest rates will go up, cost of doing business will go up and Greek economy will be in a recessionary state for a few years – they will need to pull themselves out of this mess over time by improving their competitiveness and productivity.

Now what will happen to the rest of the world and especially to India - If Greece exits the Euro zone, there will be flight of capital away from other “high risk” countries like Spain and Italy. The cost of borrowing in these countries will go up. Investors would move to safe haven currencies and currently US is the preferred safe haven. The Dollar would strengthen against the Euro.  That would mean that the Indian Rupee would be under pressure on account of the strengthening US Dollar –Indian Rupee would depreciate a bit further – this would put further pressure on Inflation in India as imports will become costlier. It will surely put pressure on the Indian economy – but as we know, the Indian Rupee has already lost about 20% of its value in the past 12 months –so we will live to see this further slide due to Greek exit and we will survive.

India’s trade with Greece is negligible and devaluation of Greek currency will not leave us poorer. India’s trade with Europe will survive as the movement of Rupee vs the Euro will not be impacted much.

So the exit of Greece from the Euro will at best devalue our Rupee a bit more –beyond that, I do not expect much to happen in the short term.

In the long term, if this exit opens up the doors for the exit of other countries like Spain and Italy (which is highly unlikely), then it could have some impact – otherwise we are insulated reasonably well from this event.

Friday, June 8, 2012

Current directions on where to invest

After a one month break, I am back. Not that I was not watching the markets or the economic news –our smart phones ensure that we are always connected.  But I was not actively investing as I was busy elsewhere.

Warren Buffet had famously said – “Be fearful when others are greedy. Be greedy when others are fearful.”

This is the time when everyone is fearful –there is more than normal amount of bad news –my prediction in December for 2012 was a tad optimistic – I did not predict that the Indian GDP growth would fall so much so soon – I also did not predict that the EU problems will go beyond Greece and Italy – now it is at Spain’s doorstep. There is more bad news than what I predicted.

And that is good news

I believe this is the time to look at investment opportunities.

Let me quote Warren Buffet again:

“Buy a business, don’t rent stocks.”

“Buy companies with strong histories of profitability and with a dominant business franchise”

“If a business does well, the stock eventually follows”

Some may say that these sayings of Warren Buffet are more suitable for the US markets where the market is very broad and deep (there are very large number of stocks and many investors). Our stock markets are very shallow - the FII mood dictates whether our markets will go up or down.

Well Yes –there is some truth in this argument – But, when you look at long term of 3-5 years, I believe that  the basic principles given by Warren Buffet will apply for Indian stock markets as well.

So I am happy I bought the stocks in second half of 2011 (when the markets were down).  The companies that I have invested (and most of them are listed in my blogs) have high profitability and good profit growth and have been bought at a fair value. I will invest again in these companies in the next few months as opportunities arise.

Some of the companies that are in the buying range right now are:

Agrotech Foods (invest at around 450), Bharti Airtel (invest at current levels of 300), BHEL (invest at current levels  till Rs. 270), Gruh Finance (invest at around 660), LMW (invest at around 1650), Shriram Transport Finance (invest at current levels till Rs 540). 
In case you are looking fore investing in these companies, I would recommend that you wait for another 3-4 weeks - the markets may go down further and that will give you still better entry price.

Some of the companies that I am watching and am close to investing are - 3M India (will invest at Rs. 3250), Bosch ( will invest at around 7000), Exide (will invest at around 100), Hawkins (will invest at around 1130), Nestle (will invest at around 4200). I hope to get these prices sometime in the next two months and I will invest in these companies if that happens.

I am confident that over a long term of 3-5 years, these stocks will return a 20% ROI for me. The current atmosphere of fear and pessimism will open up opportunities. And I am waiting patiently.

Tuesday, May 1, 2012

Predicting the Rupee / Dollar conversion rate

This blog is in answer to a question from one of my school classmates (of 1979-80 vintage) who is based in the US and wanted to know where the Rupee /USD rate is headed.

Let me try to explain the mechanics in simple terms. This logic can be used to predict the long term movement of the conversion rate as well.

Two years back, in Q1 2010, the conversion rate was around Rs 44-45 to a dollar. Today, in Q2 2012, it is hovering around Rs 52 -53 to a dollar. The rupee has lost between 15 and 20% of value with respect to US dollar in the period.

In the last two years, India has had an inflation of around 10% per annum – which means over the last two years, the rupee has lost 20% of its purchasing power.

In the same period, the inflation in the US has been around 2% per annum – which means that the US dollar has lost 4% of its purchasing power in the same period.

What it means is that during the period Q1 2010 to Q1 2012, the US dollar has lost 4% of its value where as the Indian rupee has lost 20% of its value. Thus over this period, the Indian rupee has got devalued by about 16% when compared to the US dollar.

That explains the devaluation of the Indian rupee during this period.

Now my investment banker friends and students of economics may not like this simple explanation – but I believe that this logic is good enough to predict the conversion rate in the long term.
So here is the simplified formula:
The annual rupee devaluation vis a vis US dollar = (Indian inflation rate) - (US inflation rate).
This formula can be used for long term predictions (one year and above) and not for short term predictions.

I predict that the INR/ USD conversion rate should be around Rs. 55.5 to a dollar in December 2012.

Friday, April 27, 2012

Stocks that I recommend now:

Based on requests from friends who follow my stock advice, I have decided to share my stock trades as and when I do it.  I currently have invested in 37 companies since last November. On 1st Nov 2011, the sensex was 17480 and today it is around 17200 – the sensex has not moved much but I have an overall absolute return of 10% plus on my investments.

As most of you know, I watch the market closely and have a list of appx. 150 good companies that I want to enter when their stock price is low. I have been able to find an entry price for 37 of these companies and I believe that these companies will do well when the Indian markets start going up in the next 2/3 years.

My expectations from these investments is 15% per annum plus (as it is tax free if you hold it for more than 1 year) - but I do not enter the stock till I see a 20% per annum potential - I also know that not all recommendations will make the 15% grade - overall I want to be ahead of the sensex by 3-4% annually. So if sensex is -10% and if I am -6%, I am fine.  After all when it rains, everyone gets wet – I aim at getting wet a little less.

I normally get an investment opportunity once or twice a month. As I invest, I will share it through my blog. If you want to follow me, you can just mirror my portfolio and buy the stocks in the same price range. 

I normally recommend companies that are large caps - in these companies, I invest 50K or more. Sometimes, I recommend mid caps (which are higher risk profile) - here I put only 10-20K. So you too need to pre decide some investment levels based on your ability to invest – but surely invest more in large caps and less in mid caps.

Here are some stocks that I have invested recently that are still hovering at a BUY range:

·   Infosys - the current price range of 2360 is a good price to enter. I entered at 2400 some 10 days back. They are going through a rough patch due to weak management and will hopefully resolve itself in a few quarters with Mr. Kamath, their new chairman, becoming more visible and taking more control.

·  Gruh Finance - this is a HDFC kind of story of home financing in rural areas - has Deepak Parekh on the board and is a good future story as India's rural areas are slowly getting lesser poorer and the company is well poised to benefit from this - I bought it at Rs. 680 two months back -it is currently at 670 - you can buy it at the current price. This surely is a long term solid investment opportunity.

·  Another mid cap that I recommend is LMW  -the company is a cash generator - supplies to the textile industry in India and has an export market as well - it's stock is down right now - I bought it last fortnight at 1673 - it is quoting now at 1642 - highly recommended - but invest 10-20K as it is a mid cap.

·   my last recommendation is Cox and Kings - I am investing in it right now – this company is growing and is cash rich as they have not yet utilised all the money that they generated through an IPO few years back. Currently the price is below 150 and it will grow well over the next few quarters.

So here were my current recommendations.
If you want, please write to me and I will share my calculations (one on one) for projecting the share price of the stock, based on the last 10 year financial data.
Happy Investing.