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