Here is an investment idea that gives 7-9% passive income as well as capital appreciation of 15% per annum

Inside Electronic city in Bangalore, where there are thousands of IT professionals working, there is a new facility that has just got inaugurated by a company called Uniworld (http://www.uniworldindia.com/).  It is a studio apartment complex with about 720 fully furnished studio apartments that comes  with additional facilities like a cafeteria, laundrette, gym, lounges, gaming zone, 2/3 home theatres, WiFi, 100% power back up etc. This complex is meant for working professionals. The room rent starts at Rs. 5500 (on twin occupancy basis) and it is truly premium in the way it is built, furnished and managed. I have known the person behind this venture (Mr. Kush Shah) for about 18 months and I have recommended this investment opportunity to my most of close friends last year and many have invested in the property.  Yesterday, I had visited the complex, for the first time after inauguration in mid April and I sure am impressed - you can see some of the photos shot by me here.

 

For an investment of appx. 10-11 lacs, you can own one apartment -this apartment will be managed by the company (Uniworld) and will be rented out to working professionals. 75% of the rentals are returned back to investors every quarter and this works out to appx 7-9%. This is pure passive income on an investment secured by immovable asset. The rental income is paid back on a sharing basis –hence, even if your specific apartment is not rented, you will surely get a rental income as long as other apartments are rented out.

The location is so good that there are lots of flats coming up in the same road and the property rates in the area will surely go up by about 15% per annum as there are lots of IT jobs in that area.

Hence as an investor you will get a 7-9% return as passive income and also a capital appreciation of around 15% per annum.

So these are all the reasons why one must invest here.

There is one key risk elements here that needs to be mentioned – the key risk element is mis-management of the complex that could result in the rentals dropping and also lowering the value of the property. Kush Shah, who is the man behind the complex, along with his family, owns about 200 of these studio apartments (out 720 apartments) and has a pretty high stake in the success of the venture. Plus I believe that he has the ability to manage such a venture (that is my opinion though).

Also this is legally  not a residential property and is, I think, classified as a “Hostel” – so you cannot get a home loan for this investment.

Despite these negatives, I believe it is a good investment option and I recommend it whole heartedly to all my readers. Many of my friends from across the globe already own apartments here. As the complex is almost ready, there are just about 10 studio apartments left for investors – so if anyone of my readers want to reach out – you can write to me  – or better still, you can reach out directly to Mr Kush Shah or Mr Deshpande at ir.uniworld@gmail.com.

One short term stock idea

Here is an act that I normally do not recommend - but I must confess that I am thinking about it.

 

To buy or not to buy India cements stock - the stock has gone down due to bad news from IPL. The stock has fallen from Rs. 87 to Rs. 71.5 in tha past 5 days -about 18%.

 

I believe that this price drop is reactive and I believe that there is an opportunity - a short term opportunity - over time I believe that the stock will stabilise at it's 200 day moving average of around Rs. 85 - but right now the stock is down.

 

The likely scenario that will play up is the Srinivasan will survive as the BCCI head -till his term ends. Plus India Cements as a company is doing steady even though the cement industry is not doing well overall. Plus this year's IPL is almost over and all the revenues and costs would be accounted for till the next year.

 

So is the market reaction justified?

Well take you call. I am just trying to seed a thought in your mind right now.

If you have any data /views on this issue - please do give me your comments in the area below

 

My book FB Page -http://bit.ly/10x56GB

Markets are at a 52 week high –so what should you do?

There is lots of low cost money floating around globally –searching for good investment opportunities.  US, EU, Japan, Australia, S Korea, and many more countries including India have reduced their interest rates or maintained low interest rates since Jan 2013. This low cost capital is an opportunity for companies to borrow at a low rate and invest in creating productive assets (read capacity expansion) –which will in turn create economic growth. It is happening to a small extent – but most of this excess cash is ending up in speculation and in high risk assets like stock markets.  A part of this cheap money is coming into Indian stock markets through the FII route and this is the reason for the highs that we saw yesterday.

Globally - most stock markets are at a high right now. What is happening in India is a global phenomenon and we are just bystanders – we can see it, but we are not the real players.

 In India, the retail investors (people like you and me) are wary and not investing in stock markets right now. In fact even the Indian Mutual funds, are selling stocks over the past 3-4 months.

So what should you do? Do nothing – just watch.

The markets will be choppy this year. I expect the Indian markets go higher than ever before in 2013. Currently, our market PE is around 17.5 - our PE was around 21 in 2008-09 before the crash. So we are not too over priced yet. There is scope for the Indian markets to go higher and with the cheap money sloshing around, I expect the markets to go further up in the coming months.

We should be wary of entering stock markets now  – do not invest when the markets are high. If you want to exit and encash your profits – do it, but not today.  Wait for some more time. Even though we cannot “time” the exit – I believe the market is destined for higher levels.  You can exit then.

I do not plan to exit though.

Keeping a 3 year time frame, I am wary of investing in stocks currently. I intend to keep most of my liquid capital in debt funds (long term debt funds where we need to have a 12 month lock in). I will surely keep some cash at hand – you never know – life is full of opportunities and something always turns up round the corner.

Where am I investing now?

Searching for good equities at the right price is a waiting game – one has to wait patiently.

Over the past few months, there is news of more quantitative easing from Japan and Korea, the US stock markets are at an all time high, the US real estate market looks postive, the jobs data in US is starting to look OK, there is a seeming calm in the EU but the Indian political scene is unstable and does not give much confidence in the short term – with such good and bad news coming in,  the Indian stock markets have to be volatile. 

In the past 2/3 months, I have invested in Gruh Finance, Jubilant Food works and Nesco. All these companies are good companies, but their current valuations are high.  I still went ahead and invested as I believe that over the next few years, the valuations will stay high due to the low interest rate regimes globally and India growth story.

Having said that, this time I am investing through two sectoral mutual funds.  These are in sectors that are fairly ever green – these sectors are here to grow as the Indian  GDP per capita grows. As Indians grow richer over time (or less poor over time), the FMCG and the Pharma sectors will do well.  Riding this wave are a few mutual funds that have given very good returns in the past few years.

In the FMCG sector, there are two funds of which  the ICICI Prudential FMCG fund is the bigger one – it still has a fairly small asset base  of Rs. 214 crores. As the sector is doing well,  this fund has given an ROI of 17% compounded per annum for the past 5 years and 25% compounded per annum for the past 3 years. The fund manager manages about Rs 2500 crores worth of funds, of which this is his best performing fund. I have decided to invest in this fund with a 3 year plus time frame

There are three pharma sector funds - of which the Reliance Pharma fund is the largest with an asset base of Rs 675 crores.  This fund has given 23% per annum compounded over the past 5 years and 12.5% per annum compounded over the past 3 years.  The fund manager manages about Rs 5000 crores worth of funds, of which this is his best performing fund. I am investing in this fund also with a 3 year time frame.

Amongst the two funds, I am betting more on the FMCG fund – that story to me is a more positive story.  Having said that, I do believe that the pharma story is also a good story to place your bets on.   I normally aim at 15% plus tax free returns in whatever I do – and I am hopeful that these funds will meet my expectations.

Should you invest in gold now?

I know this is late by two weeks –I was travelling for book sessions to Pune and Delhi for the past two weeks and hence I could not blog. In all my book sessions, this topic came up – should we invest in gold or not?

So here is my take –

If you follow my blogs or have read the chapters in my book on Gold– you would know that:

Indian price of gold = “Global price of gold” X “USD / INR conversion ratio”.

The current drop of gold price is directly attributable to the global price of gold.

Around the 15^th of April, gold price dropped by about 10% - from around $ 1550 -1600 per ounce to around $1350 per ounce. It is now around $1450 per ounce.
This had a corresponding fall in Indian markets - from Rs 2725 per gm to Rs 2400 per gm – now it is around 2475 per gm.

The global price of gold was expected to be subdued in 2013 as the US stock market has risen since 2012 – globally, money is moving away from gold and moving into equities. Also, gold has gone up in USD terms for 12 straight years and so a small correction in the price was expected sometime soon.

In the coming two years, the US stock markets are further expected to do well – that single factor will keep global gold prices subdued in 2013 and 2014

Will it be in the current range of $ 1450 per ounce?  

Most analysts believe that this would be the case. I too believe that global price of gold will not go up in the coming 2 years.

The second factor -the USD/INR ratio will surely help Indian gold investors a bit as the long term trend of the USD /INR ratio is one of devaluation.  I believe that INR will devalue by about 6% to around Rs 57 to a USD  this year and that will give the gold investors in India a 6% appreciation in gold prices. I expect similar scenario next year even though it is hard to predict next year as it is an election year.

When you combine these two factors, with a 2 year time frame – you can see that, gold in India will not give great returns – it would be close to 6-10% returns per annum at best.

So should you invest in gold?

Surely not with a two year perspective. 

Those who bought gold in the current dip - well you will make a few % points more as your entry price was low – but that is not a good enough reason to buy gold with a two year horizon.

 

Those who hold gold in their portfolio - be aware that you will get only 6-10% returns on this part of your portfolio and then decide whether you want to keep it or sell it.

Love at first sight

I am almost 50 and I have fallen in love again.

I did not even know this company till a few days back. My ex -student, expert stock picker and advisor, Jatin introduced me to this company three days back. My first impression was that it is too small and too cash rich. It sure was an unusual company – its website did not even list the services that it offers  -and  I wondered what the marketing department was doing?

Jatin persisted – sent me a few reports and as I read the reports – I fell in love slowly. I spent almost the whole day yesterday doing research on this company – slept over it last night and today I am happy to announce that I am investing in this company.

The company is NESCO  – they own 70 acres of land in Mumbai  - of this they have used 25 acres and the remaining is still to be utilised.  They own the Bombay Exhibition centre where most of the large exhibitions in Mumbai are held – the centre is booked all through the year and earns them INR  80 cr per annum. They also have commercial spaces rented out to IT companies, from where they earn INR 25 cr plus per annum. Both these are very high margin businesses.

They are  adding additional commercial space and exhibition space in the next 3-4 years. The management is conservative and uses cash generated internally for these expansions and they are very cash rich (appx 240 cr in their books).

My analysis shows that it will give a good 20% plus return every year at the current price of 790-795 per share.

I  would suggest that you also do your analysis before investing in this stock.

 

Here is a small note for my readers -

I have stopped  sharing my equity calls through this blog. But in case you want to know my equity calls, please do write to me at rajasekharan.sg@gmail.com or in the comment column below -I have a private mailing list where I share my equity calls. Remember, when you decide to follow my calls, the rewards are your's but the risks are your's too.

 

For the 2013 MBA batch

Here are some thoughts for my outgoing MBA students who are transitioning from college to corporate career this weekend

· Once you leave your college and get into the job, no one would really care how much you scored in your college.

· It is good to be having “potential” in college days – but beyond that, you will need to be “doing” something.

· Seek out grass root experience – collar soiling, shoe wearing work – experience the true nature of work and the dignity of labour early in career -  before you aim for the cabin

· Hard work does not equate to success and growth –“getting results” equates to success and growth – so focus on getting results and not the effort that you put in.

· Deserve before you desire – responsibilities, postings, promotions will all come to you – but remember – deserve before you desire

· In most companies, it is pretty easy to stand out from the crowd – most people in every company are focussed on “what is in it for them” – all you need to do is to focus on “what you are contributing to the company” and you will be standing out

· Play to win – but with fairness.

· If you are clear what you want out of life – it is not all that difficult to get it – the key is “knowing what you want out of life”.

· If something truly matters to you – you will find a way to get it

· Remember there is always more than one way to accomplish something – actually, there are many ways.

· You do not have to live your life the way the world wants you to – you can live on your own terms