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Have you done your financial health check-up?

Have you done your financial health check-up?
15/03/2018

Most of us take our finances for granted. We assume that we will always be able to save and invest to build a corpus, and that we will be able to take care of any emergencies without emptying our emergency funds. But life is unpredictable, and situations can arise at any time that would require us to use savings. Hence, it is imperative to do a financial check-up to ensure that things are running efficiently. A financial check-up should be performed at least once a year, or with every significant life event, such as switching jobs, unemployment, marriage, having a kid, a death in the family, and so forth.

How to do a financial check-up?

It can take a while to perform a complete financial check-up. It depends on whether you want to complete it in one go or deal with one factor at a time. This is because financial health also depends on forces beyond our control. As physical fitness is a combination of behavior, genes, and access to proper medical care, financial health is the outcome of personal decisions, abilities, the economy, and access to good, honest financial services and advice.

Let us take into consideration the following points to begin with our financial check-up.

Identification of a financial goal

Have you ever set a financial goal? If so, have they transformed since the last time you set them? Assuring that you and your partner are on the same page when working on financial goals will make things easier. Hence, it is important to begin with this step as it will present a clear picture of your needs and desires and help you plan accordingly.

Examine your personal situation

Is there any major event taking place in your life or expected to happen shortly? If so, consider these events and modify your previous financial plan.

Evaluate your budget and spending

It is easier to use applications such as YNAB (You Need a Budget), Quicken, or similar finance management tools to track budget and spending. It is important to keep an eye on your cash flows. Have you been living paycheck to paycheck, or is there some cushion in the budget? Do you have new bills or EMIs from the last time you last examined your financial plan? Answering these questions will help you realize your present situation and prepare you to adapt and make appropriate changes to your financial plans.

Savings and debt

Do you have any outstanding liabilities? Are you trying to clear them off? Liabilities and debts, if unavoidable in the first place, should be cleared off as soon as possible. Debts owed to banks or other lenders charge interest rates. This would only increase the final amount you have to pay if not dealt with promptly. Also, it is prudent to keep a contingency fund or reserve funds in addition to your savings. This will ensure that you progress towards your savings goals without any hiccups.

Investment and retirement planning

Do you invest sufficiently to meet your retirement goals? Investing, either in mutual funds or stocks, is a great way to save for retirement. Moreover, some forms of investments also provide tax benefits. Therefore, it is important to study the pattern of your asset allocation. This lets you know if you are overspending, saving less, or have invested way too much in a particular business.

Asset protection

Significant assets like homes and vehicles should be insured. However, the most important asset is your life and this should be covered before anything. In case of unwanted incidents, having a mediclaim and a life insurance policy will ensure that people dependent on you are not left stranded for want of finance. If you already have these, ensure that your nominee details are correctly updated with the insurance provider.

Other factors

If you have any other financial inflows or outflows, you should review those as well. Mainly, if you have a business, have a property out on rent, any irregular income, medical issues, or any other factor that can, directly or indirectly, affect your finances.

Stay on track with retreat funds

How much you need will fluctuate with age and circumstances, but have you made the calculations and are setting aside cash regularly to get there. If one plans to buy a house, one should also save for it, and proper financial planning must be done accordingly.

With rising inflation, Rs1cr will not hold the same value 20 years from now. Therefore, you need to do a thorough health check-up, i.e. identify your incomes, expenses, savings, and investments, and ensure that everything is going according to your plan. By doing so, you will be able to be in control even if things stop going according to plan.

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Bandhan Bank Ltd-IPO Note

Bandhan Bank Ltd-IPO Note
by Nikita Bhoota 15/03/2018

Issue Opens: March 15, 2018
Issue Closes: March19, 2018
Face Value: Rs10
Price Band: Rs370-375
Issue Size: ~Rs4,473cr
Public Issue: 11.93crore shares
Bid Lot: 40 Equity shares       
Issue Type: 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

89.62

82.28

Public

10.38

17.72

Source: RHP

Company Background

Bandhan Bank started general banking operations on August 23, 2015. It has India’s largest microfinance lending portfolio with a total loan book size of ~Rs24,400cr as on 9MFY18. Its asset products for 9MFY18 comprise of retail loans including a substantial portfolio of micro loans (~88% of loan book, whereas small enterprise loans, SME loans and other retail loans account for 5%, 4% and 3% respectively of its advances). It has a distribution network of 2,633 DSCs (Door Service Centre) and 887 bank branches serving 21.3 lakh general banking customers. As of Q3FY18, 96.49% of its gross advances were in priority sector lending (PSL). Its distribution presence in India is particularly strong in East and Northeast, with West Bengal, Assam and Bihar together accounting for 56.37% and 57.58% of its branches and DSCs respectively (Q3FY18).

Objective of the Offer

The issue comprises of a fresh issue (Rs3,662cr) and an offer for sale (Rs811cr). The existing shareholders IFC and IFC FIG would offer 1.4 cr and 75.65 lakh shares for sale through this issue. The object of the fresh issue is also to augment bank’s Tier-I capital base to meet its future capital requirements.

Financials

Rs Cr

FY16^

FY17

9MFY18#

NII

933

2,403

2,169

Total Income

1,731

4,320

3,955

PPOP

467

1,793

1,726

PAT

275

1,112

958

NIMs (%)

-

10.4

9.9

P/BV* (x)

-

9.2

7.6

RoE (%) (Annualised)

-

28.6

25.5

RoA (%) (Annualised)

-

4.5

4.1

 

Source: Company, 5 Paisa Research; *On non-diluted basis at upper band; ^FY16 nos. are only for ~7 months and FY17 is the first full year of banking operations; #9MFY18 nos. are not annualized.      **non-annualized numbers

Key Points

  1. Bandhan Bank, over the years, has consistently delivered sound financial performance. For 9MFY18, its RoA and RoE stood at 4.1% and 25.5% respectively on annualized basis. The gross advances of the bank have gone up by ~56% (from ~Rs15,578cr in FY16 to Rs24,364cr as of Q3FY18) owing to (a) robust capital adequacy ratio (CAR) and (b) extensive distribution network of branches and DSCs. The bank is adequately capitalized with CAR at 24.85% (Q3FY18). Moreover, much of its IPO funds will be used to improve its Tier I capital aiding the bank to improve advances going ahead.
  2. The bank’s strategy is to tap the lower cost retail deposits. Its ratio of retail deposits to total deposits has increased from 37.95% in FY16 to 85.07% in Q3FY18. The bank’s CASA ratio has improved from 21.55% to 33.22% over the same period. The growth in CASA ratio and retail deposits has led to reduction in cost of funding. The focus on lower cost liability profile with improving micro lending loans provides it competitive advantage over its peers (maintaining profitable spreads and improve market share)

Key Risk

  1. The bank faces concentration risk (81% of its total advances and substantial number of branches and DSCs are concentrated in East and Northeast India). Bandhan Bank’s financial performance could be adversely impacted if there is penetration of other banks in this area.
  2. The bank has replaced majority of its bank borrowings with deposits and enjoys lower funding cost. Any inability to generate sufficient funding to support its micro banking activities could result in higher cost of funding and consequently lower yields, impacting the business and financial condition of the bank.

Conclusion

At the upper price band, the stock, post dilution is available at 4.1x and 3.5x on FY19E and FY20E P/BV respectively. We recommend SUBSCRIBE from a long-term perspective.

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8 big mistakes to avoid in a falling stock market

8 big mistakes to avoid in a falling stock market
01/04/2018

Everyone prefers to invest in a bullish stock market. However, investing in a bearish market is seen as a challenge for investors.

Stock markets have been facing a lot of volatility these days, hence, investors should keep a check of what they do and don’t. Panic leads to hasty moves, as a result paying a hefty price. However, if one is cautious of the commonly made mistakes (listed below), it may help in reducing losses to a great extent.

1). Don’t fixate on a price: Investors tend to anchor on a price, at which they bought the stock. They should carefully analyze the reasons for the falling stock and plan their next move accordingly. They must realize that the price at which the stock is bought is not necessarily perceived as its fair value by the market.

2). Say ‘No’ to buying more to average: Even though this concept has its own benefits, keep reminding yourself that this works only if the fundamentals of the stock are strong. The method of averaging is one of the trusted techniques in stock trading.

3). Be well researched regarding the market updates: Do not ignore any significant development happening in the market based on over confidence. Be well informed and take decisions according to the market trends. Your judgement without information may not always be correct.

4). Don’t be a value picker: Buying stocks at their 52-week low may seem a good bargain, but it might turn out to be a value trap. Markets can be unreasonable for longer periods of time than one can think of.

5). Do not make leveraged bets:  Leverage requires that the investment should earn a return, which is at least equivalent to the interest paid on the borrowed capital (if you have borrowed). However, in case of market dips, it can accrue huge losses too.
There’s a high degree of uncertainty involved in the stock market, which can drive the trends either ways – it can bring panic if one is risking the money that they cannot afford to lose. Alternatively, it can force one to close their positions by limiting their options, if they are buying on margin.

6). Don’t alter your financial plans: It is a human tendency to panic and react frantically in the state of stress. Don’t change your investment decisions and existing portfolios based on the current market trends. Keep a clear sight of your asset allocation.

7). Do not stop your Systematic Investment Plans: One should not stop their SIPs during a bear market. The primary purpose of SIP is to encourage buying more units at lower prices and reaping benefits when the market rebounds. Stopping SIPs at that point interrupts the compounding benefit of equities and affect the long term goals.

8). Do not over diversify your portfolio – One should not over diversify his portfolio that too in multiple companies of the same sector. Though this might help one to limit their downside to an extent, but won’t be of much help in the long run. Diversification beyond a point leads to greater risks, and it becomes difficult to monitor the stocks.

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The ‘right’ way to exit a losing trade

Exit a losing trade
13/04/2018

Every trader has his share of bad trades in his portfolio and you do not need all your stocks to be multi-baggers to be successful in the share market. While gains from a stock have no upper limit, the loss from a stock is limited to the value invested in it. Exiting a losing stock is not only a financial loss for a trader, but also an emotional or psychological loss. It is human tendency not to accept losses readily. We have a few recommendations that will help you exit a declining trade.

Let’s take a look

Use stops to restrict your financial losses

Stops are calculated, pre-determined price levels at which the investor chooses to go short or sell his stocks to limit losses. When the stock price hits the stop loss price, a sell order is executed and the stock is automatically sold at that price. Stop loss orders work well as they define the losses beforehand and the loss amount is in the control of the investor. Have a personalized stop loss strategy and use it effectively to limit your losses while investing in stocks.

Keep a check on the stock even after exiting to find a re-entry point

Once you exit a position, keep an eye on it to identify any bullish indication of reversal, which can be a potential re-entry point. Using stops, you might sometimes exit your position because of price volatility. In no time, you may find the prices rising again. However, using proper stops is proven to be effective as it limits your losses in most cases. Analyze the charts, study the candlestick patterns, and re-enter, only, if it coincides with your research and not in hope or revenge. If there is no valid reason to re-enter the trade after the initial exit, walk away and search for new opportunities.

Do not emotionally connect with your stock picks

You should accept your wrong picks and move on rather than lingering onto the stock in the hope of a rebound. You need to monitor and notice the developments around your shares continuously, and if stocks are taking the wrong direction, you will sometimes need to book losses and accept your wrong stock picks. Don’t fall in love with your shares, sell them if the fundamentals do not appear correct and restrict your losses. Booking losses or hedging them at an early stage can help minimize losses.

Accept responsibility and analyze your mistakes and find out where your investment plan can be improved

This will help reduce the chances of the same happening again. Handling trading losses well is a leading characteristic of successful investors. Treat a failure as an opportunity to learn and improve it in your next move. Many opportunities are waiting out there in the market for you to find and grab hold of.

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Top 5 ELSS for 2018

Top 5 ELSS for 2018
by Jitender Singh 01/05/2018

Equity Linked Savings Scheme (ELSS) is a type of equity mutual fund in which investments up to Rs1.5 lakh per financial year are tax deductible under section 80C. In other words, investors don’t have to pay tax on investment up to Rs.1.5 lakh in ELSS. By investing in ELSS, an investor in the 30% tax bracket can save Rs.46,350 as tax.

Below table exhibits the amount of tax one can save by investing Rs.1.5 lakh in ELSS for different tax slabs.

Tax Bracket 5% 20% 30%
Tax Saving Rs.7,725 Rs.30,900 Rs.46,350

*Includes 3% cess also

Besides tax benefits, ELSS investments also offer other benefits discussed below.

  1. Wealth creation with tax-saving – Historically, it has been seen that ELSS schemes have given significantly higher returns than other tax saving schemes like PPF, 5-year FD, EPF, etc.
  2. Shortest lock-in period – ELSS has a lock-in period of 3 years, which is the shortest among all tax-saving instruments.
  3. Tax free capital gains: The long-term capital gains from investment are tax-free.
  4. Dividends are tax-free: Dividends received are tax-free in the hands of the investor right from the year of investment.
  5. Low investment amount: Investors can start investing with Rs500 in lump sum or via SIP in ELSS. Since it is difficult to invest a lump sum amount in one go, SIP helps a person to invest small amounts at regular intervals. SIP payment is auto-debited from your bank account every month.

ELSS is the best way to save tax and create wealth in the long term. Below are the top 5 recommended ELSS funds.

Scheme Name Fund Manager Corpus (cr) 1 Y (%) 3 Y (%) 5 Y (%)
Aditya Birla SL Tax Relief '96(G) Ajay Garg Rs.4,349 41.6 16.3 21.6
Axis LT Equity Fund(G) Jinesh Gopani Rs.15,408 35.7 12.2 22.4
DSPBR Tax Saver Fund-Reg(G) Rohit Singhania Rs.3,571 34.4 15.6 20.1
IDFC Tax Advt(ELSS) Fund-Reg(G) Daylynn Pinto Rs.798 52.2 17.4 21.6
Reliance Tax Saver (ELSS) Fund(G) Ashwani Kumar Rs.10,157 44.2 13.3 22.4

1 year returns are absolute; 3 year and 5 year returns are CAGR.
AUM as of November 2017, Returns are as on January 02, 2018

Aditya Birla SL Tax Relief ‘96 Fund

  • Aditya Birla SL Tax Relief ‘96 Fund does tactical allocation between large cap and mid-= cap stocks to ensure optimal risk reward.
  • As of November 2017, the fund has invested ~37% of its AUM in large cap stocks, ~55% in mid cap stocks and ~7% in small cap stocks to generate higher returns.

Axis Long Term Equity Fund

  • Axis Long Term Equity mutual fund  invests in companies with sustainable profit growth to generate wealth over 3-4 years.
  • Besides, the fund manager follows bottom-up approach to select the companies.
  • As of November 2017, the fund has invested ~66% of its AUM in large cap stocks while ~30% in mid cap stocks to generate alpha.

DSPBR Tax Saver Fund

  • DSPBR Tax Saver Fund primarily invests in large cap stocks with some tactical allocation to midcap and small cap stocks to generate higher returns.
  • The fund manager follows buy-and-hold strategy for majority of the portfolio. He also takes active and tactical calls to exploit the market opportunities.
  • As of November 2017, the fund has invested ~71% of its AUM in large cap stocks and ~22% in mid cap stocks to generate higher returns.

IDFC Tax Advantage (ELSS) Fund

  • IDFC Tax Advantage (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate higher returns.
  • As of November 2017, the fund has invested ~46% of its AUM in large cap stocks, 29% in mid cap stocks and 20% in small cap stocks in order to generate higher returns.

Reliance Tax Saver (ELSS) Fund

  • Reliance Tax Saver (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate high returns.
  • The fund invests in potential leaders with high growth prospects.
  • Generally, the fund takes 2-3 sector call at a time and invests in high conviction mid cap stocks.
  • As of November 2017, the fund has invested ~60% of its AUM in large cap stocks, 25% in mid cap stocks and 15% in small cap stocks in order to generate higher returns.

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5 Stocks for next week 8th Jan-12th Jan 2018

5 Stocks for next week 8th Jan-12th Jan 2018
by Gautam Upadhyaya 01/05/2018

AJANTA PHARMA - BUY

Stock AJANTA PHARMA
Recommendation The stock has managed to give a breakout from its sideways consolidation on the daily chart. The stock has also shown good strength on the daily and weekly MACD Histogram.
Buy/Sell Range Target Stop Loss
Buy(cash) 1518-1525 1590 1474
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 Day M.A
AJANTPHARM 13385 1870/1106 1418

JUST DIAL - BUY

Stock JUST DIAL
Recommendation The stock has given a flag pattern breakout and has also breached the declining trend line backed by a surge in volumes on the daily chart. The stock has taken support along the 10-day EMA on the weekly chart. 
Buy/Sell Range Target Stop Loss
Buy(cash 548-552 584 527
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 Day M.A
JUSTDIAL 3697 619/326 459

NIIT TECH - Buy

Stock NIIT TECH
Recommendation The stock has given a breakout from its sideways consolidation on the daily chart backed by a surge in volumes; the stock has also taken support along the rising trend line on the daily chart.
Buy/Sell Range Target Stop Loss
Buy(cash) 666-671 698 648
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
NIITTECH 4085 696/401 558

INDUSIND BANK - BUY

Stock INDUSIND BANK
Recommendation The stock has managed to give a breakout above the declining trend line on the daily chart and has managed to give a breakout from its sideways consolidation on the weekly chart. The stock has also witnessed bullish crossover on the daily MACD indicator which affirms our positive view on the stock.
Buy/Sell Range Target Stop Loss
Buy (cash) 1690-1700 1758 1657
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
INDUSINDBK 101955 1818/1137 1562

INDIAN OIL CORPORATION - SELL

Stock INDAIN OIL CORPORATION
Recommendation The stock is in a lower top lower bottom chart structure on the daily chart and has given a close below its support levels. The weakness shown on the MACD histogram accentuates our negative view on the stock.
Buy/Sell Range Target Stop Loss
SELL-Jan Futures 385-387 374 393.2
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
IOC 186369 462/341 393

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