How can an investor track his equity (stock) portfolio?
Investing in direct equities is about selecting fundamentally strong companies and giving them ample time to generate magnificent returns. Earlier investors generally used to follow the buy and hold strategy as most of the investors were unable to track the economic developments and changes in the company where they have invested due to lack of resources. So, if they have invested in good quality stocks then it would generate returns in the long run or vice versa.
However, the world has changed today, the internet surfing has made it easy to check out for recent developments in the economy as well as in the companies. Similarly, the companies approach to be interactive in the investment market and various authorised sources available on the internet has made it easy to track the equity investments.
To be a successful investor it is important to do portfolio analysis at regular intervals. But how exactly to track your stock portfolio? Is it only checking the stock price movement? Or is there much more to check? Let’s understand some of the points on how to track direct equity portfolio.
But, first let us understand what "Tracking Portfolio" means?
Generally, investors think tracking the portfolio means checking the stock price in the market and the profit numbers. Yes, this is a part of analysing the equity investments but there is much more to deal with. As a long-term investor one should check on fundamentals of the company like its financial performance, valuations and strength and weakness of the business. Today, any negative media post or scams can make or break a company. So the investor should keep himself constantly updated about the company, keep checking its credit ratings or keep an eye on any changes in the working of the company that can affect investor confidence.
Now, let’s discuss some of the points on how to track direct equity portfolio
Track the latest news about the company:
Many factors impact the performance of a company or the industry as a whole. These can be political, social, economic, or other macroeconomic events that can affect the performance of the company. Hence, it is important for the investors to stay updated about all the latest news and events at the macro and company level that can affect the company’s performance.
Study the quarterly performance of the company:
It is essential to go through the financial performance of the company. All companies release their quarterly performance. The listed companies publish their result on the stock exchange (like NSE, BSE). The results are also available on company’s website generally under the investor relations section. There can be profit or loss in a particular quarter but the investor should focus on the bigger picture and should look at the potential of the company. The investor should also consider the economic situation, if there is a downturn in the economy then it is likely it will also affect the company performance. But, if the company is consistently giving below-par results then the investor should find the reason for the low performance and then take a call on his investment.
Keep an eye on corporate announcements:
All companies are required to inform the stock exchange about any event that can influence the performance of the stock. The events could be launching a new manufacturing facility, mergers or acquisitions, change in the management, increase or decrease in promoters’ holdings, etc. The stock exchange updates all such announcements on its website. Investors need to be aware of all such corporate announcements to decide on whether to buy more stocks or sell the existing ones.
Check the trend of shareholding pattern (SHP):
Companies are required to update their shareholding pattern every quarter on the stock exchanges. It is essential to compare the shareholding pattern with the previous quarters. This will help to understand whether the promoters are increasing or decreasing their stake in the company. A decrease in promoter holding is an alarm and one needs to analyse the reason for the same.
Track the Stock Price:
Though this is not a recommended method of monitoring the stock portfolio, but due to lack of time to analyse the stocks regularly, one can keep a track of stock price movement on the stock exchanges. However, a sudden fall/ rise in stock price should not be the reason for buying/ selling the stock. To take a call on the investments one should then go through the fundamentals of the company.
Check the rating of the company:
Rating agencies such as CRISIL, ICRA, CARE, etc. review the financial condition of companies and generally rate them once a year. So, a company with poor credit rating implies that the management cannot manage its debts efficiently and that can adversely affect the future performance of the company.
Check the promoter’s pledge of shares:
Along with the shareholding pattern, companies also give details about the pledge of promoter’s shares every quarter. The investor must look at the pledge amount carefully as it is usually one of the first signs of financial trouble in the company. If the promoters cannot repay the loan then, the lenders will sell the shares in the market which will negatively impact the stock performance.
Attend the Annual General Meeting (AGM) or read the annual reports:
An investor can attend the annual general meeting which is organised by the company on yearly basis or can go through the annual reports. Reading such a huge document can be a tedious task so the investors can read some of the important parts in the annual report like management discussion analysis (MDA), speech from the chairman or CEO, performance highlights, shareholding pattern, financial results and auditors report.
Check the valuations:
The investors should check the valuations of the company and see how the valuation of the company fares as compared to existing companies in the same industry. Relative valuation techniques like Price to earnings ratio, price to book ratio, return on equity and return on capital employed can be used to conclude whether the company is trading at a discounted price or is expensive as compared to its competitor in the market.
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5 Stocks to benefit from Modi’s rural focus policies
The Modi Government is actively focusing on reviving the rural economy. The government has undertaken many initiatives in order to improve consumption, infrastructure and job opportunities in the rural parts of India. Various programs have been designed by the Government to fulfill the rural requirements. In order to double the farm income by 2022, the government has allocated Rs1.07 lakh crore for expenditure on rural development, out of which Rs.48,000cr is allocated to MNREGA for FY2017-18. At present, as per the media articles, India has ~4 crore un-electrified rural households and the Government targets to provide electricity to every village under its Deendayal Gram Jyoti Yojana. Moreover, the Pradhan Mantri Awaas Yojana (PMAY) plans to provide shelter to people in rural India.
We believe that with increasing rural income levels in the coming years, the rural consumption will get a boost, which in turnwould prove positive for the Indian business scenario. We have chosen some stocks that are likely to benefit from the pick-up in rural economy and are good investment bets from a long term perspective.
Mahindra & Mahindra Financial Services (MMFSL)
MMFSL is one of the leading non-banking finance companies in India, which focuses on the rural and semi-urban sectorsand is the largest Indian tractor financier.Its AUM mix comprised of auto/UV (28%), tractors (17%), cars (22%), CV (12%), pre-owned cars (9%) and SME (12%) as of September 2017. AUM is expected to grow at 17% CAGR over FY17-19E on account of pick-up in rural economy supported by average monsoon in the last two years.. NCDs are forecasted to be ~60% of funding mix in FY19E (vs. 47% in Q2FY18). This will lead to lower cost of funds and margin expansion by~130bps to 8.1% in FY19E. Better collection efficiency via rural cash flows would reduce GNPA to 8% in FY19E (vs. 9% in FY17). We see an upside of 16% from CMP of Rs.475 from one year point of view.
|Year||NII (Rscr)||Net profit (Rscr)||NIM (%)||P/BV (x)||ROE (%)|
Source: 5Paisa Research
Hero MotoCorp Limited (Hero), the largest manufacturer of Motorcycles in India, enjoys ~53% market share (Q2FY18 domestic sales volume data). It nearly derives half of its total revenue from rural India.The total volume growth in motorcycle was 13% yoy, and in two-wheeler (2W) was ~11%yoyin Q2FY18. Hero is planning new scooter launches to increase market share in that segment and has outlined Rs25bn capex plan over next 2 years. A satisfactory monsoon, Government’s push to double farm incomes and rising urban incomes are strong triggers that will aid volume growth for the company. Hence, we estimate consolidated revenue and PAT CAGR of 12% and 9% respectively over FY17-19E. Exports comprise only 2.3% of total volumes. Despite Hero being a late entrant into the export market, it plans to double the number of countries that it exports to(from 20 to 40) over next few years.We see an upside of 15% from CMP of Rs.3,804 from one year point of view.
|Year||Net Sales (Rscr)||OPM (%)||Net Profit (Rscr)||EPS (Rs)||PE (x)||P/BV (x)|
Source: 5Paisa Research
Dabur is one of the largest FMCG companies in India. Dabur’s business is divided into four areas i.e. consumer care, foods, retail and international business. It is a likely beneficiary of rural expansion and new product launches. We expect revenue growth to be driven by increasing rural reach and market share gains in juices and toothpaste categories. Dabur plans to penetrate ~60,000 villages (particularly in South India) in near term to capitalize on revival in rural consumption (~45% of revenue). Further, new product launches in hair care, fruit drink and ayurvedic segments are likely to support volume growth.It expects GST to be positive for its portfolio, except for Ayurvedic products where tax levied has risen by 5%. Its recent acquisitions in African market in personal and hair care segments and strengthening online presence with large e-retailers (Amazon) would boost profit. Thus, we expect FY17-19E sales and PAT CAGR of 6.0% and 8.2% respectively.We project an upside of 16% from CMP of Rs.355 from one year point of view.
|Year||Net Sales (Rscr)||OPM (%)||Net Profit (Rscr)||EPS (Rs)||PE (x)||P/BV (x)|
Source: 5Paisa Research
Rallis India, a member of Tata group and a manufacturer of pesticides, fertilizers and fine chemicals, stands to benefit from the launch of ‘Rallis Samrudh Krishi’ by improving the quality and yield of the crops. This is a digital initiative, which will help the company to provide end-to-end Agri Solutions to Indian farmers. The company aims to increase market share of Non-Pesticides portfolio (NPP) going forward. Rallis plans to launch new products in cotton, rice, wheat and hybrid cotton segments. Rallis India also aims to increase its focus on plant growth nutrients to support sustainability of crop yields. The management is optimistic on NPP and expects it to contribute 40% to revenue (currently 31%) over next few years. Also, the company is targeting ~20% yoy increase in sales from Metahelix (subsidiary company) backed by adequate seed supplies. Thereby, we see revenue CAGR of 9.3% over FY17-19E. It is virtually a debt free company, which lends financial stability. We see an upside of 17% from CMP of Rs.274 over a period of one year.
|Year||Net Sales (Rscr)||OPM (%)||Adj Net Profit (Rscr)||EPS (Rs)||PE (x)||P/BV (x)|
Source: 5Paisa Research
Jyothy Laboratories Ltd
Jyothy Laboratories Ltd (JLL), present in soaps and detergents for homecare segment, is expected to rebound post demonetisation and GST. JLL has transitioned from a south based player to a pan India company and has multiple drivers that would enable it to grow its market share in respective categories. JLL’s portfolio of six power brands – Ujala (fabric whitener), Exo (dish bar), Maxo (household insecticides), Henko (fabric detergent), Margo (soaps) and Pril (dish wash) contributed 87% to revenue in FY17. Ujala enjoys ~77% share in niche fabric whitener segment. We believe, owing to JLL’s power brands, newer products (toilet cleaner) and passing of GST benefits, volume growth would get a boost. We expect the company to post revenue CAGR of 7.3% over FY17-19E. We project an upside of 20% from CMP of Rs.388 over a period of one year.
|Year||Net Sales (Rscr)||OPM (%)||Net Profit (Rscr)||EPS (Rs)||PE (x)||P/BV (x)|
Source: 5Paisa Research
This Festive Season Should I invest in Gold?
With the pandemic hitting the world economy, the precious metal started inching closer to its record high and then making a dip and rebounding has confused investors if this festive season is the time to invest in Gold. Historically, gold was always considered to be one of the safest options to invest in as this is one such commodity that has given returns even during the crises. And now in the current situation where the world economy is grappling to survive, the yellow metal has again out performed with a spike of around 28% in 2020. The out-performance of this commodity in this year, when even crude-oil witnessed its lowest, is only reaffirming the fact that it is one of the most reliable investment options. And obviously, those who have missed the opportunity, would now be considering increasing the allocation to this asset class. So let's try to analyse if it is really wise to do so.
What factors were driving the Gold rally?
Generally, its been observed that the investors tend to turn towards Gold when the market crashes, but now even when the markets are rallying, gold continues to inch higher. Various factors such as the fear of politicians’ decision to push through unprecedented stimulus packages, speculations about further government-ordered lockdowns, global central banks' plans to print money faster to increase the spending, and US Dollor's sudden decline against Euro and YEN, have resulted in a rare combination of raising inflation and sluggish growth. In such an uncertain scenario, the investors are looking for safe havens which would not lose value.
Though we did witness the stagnation in the Gold price for around 2-3 years, it made up for the losses in the last 6-12 months. With prices scaling up by over 40%, the investors are reassured that this is one of the most reliable options when they are looking at diversifying their portfolio.
Is it a good time to invest in Gold?
According to market experts, there is no good or bad time to buy gold as it is mainly a long term investment option. Further, here are speculations that gold might hit its another high in a few months to come so it might prove to be a great time to invest. Also, the global uncertainty is a more reliable asset class. Let’s not forget that in the previous two quarters during the uncertainties and fluctuations, gold has helped maintain the stability in the portfolio. Furthermore, one can consider reducing the allocation to the asset class after the end of this period where we are making a leap in the dark. But returns from this yellow metal will be influenced by demand for the commodity, exchange rate between USD and INR, and prices per ounce in USD. So one needs to keep a close eye on all the three factors while making a decisions.
What should be the ideal share of Gold in a portfolio?
While the ideal share of gold in your portfolio should be minimum in between 1%-5%, it could shift higher to around 5% - 15% depending on the nature of your requirements, financial goals and risk appetite. Also, looking at the current scenario, even the minor increase in the proportion of gold in your portfolio can have a great bearing.
How do I go about with Gold Investment?
There are multiple ways in which you can invest in the Gold. A buyer can choose how he would want to go ahead with the investment by contemplating on the nature of every form to identify which is most comfortable to him. The options to buy gold include:
Digital Gold: This is the most modern and potentially the safest and low-cost way to accumulate gold. Digital gold provides you the flexibility to get the gold converted into a physical form at any given point once you have accumulated at least 0.5 gram gold. The best part about this option is the flexibility in terms of the amount of investment. You can start with as low as Rs50 in this option. You can invest in digital gold though reliable platforms like 5paisa App.
Physical Gold: This is the most traditional way of holding this commodity. It offers you maximum liquidity. However, it also calls for the cost of storage and insurance. This way you can directly invest in coins, jewellery or any such gold accumulation schemes offered by your jeweler to buy a gold product of your choice.
Paper Gold: This is another cost effective substitute to the physical gold that includes options like Gold exchange traded funds (ETF) and Sovereign Gold Bonds (SGB). While ETF provides you flexibility of buying and selling it at any point it time through exchanges, you can also start investment in it through SIP. However, in this option you need to buy a minimum of 1 gram gold. On the other hand SGB is issued by the government and does not allow you as much flexibility as the buying window is opened by government for a specified period.
Continued global uncertainty that has fueled the surge is expected to continue for quite some time. So if at all you are considering diversifying your portfolio to this investment option, this could prove to be a great opportunity to do so. Furthermore, we do not recommend looking at short term returns while buying this commodity. Also, exceeding the recommended limits for the allocation being lured by the unprecedented rally might defeat the purpose. So the key would be to bifurcate your portfolio but allocation to this asset class should ideally not exceed 15% as of now.
Confused? How to choose stocks from same sector for investment?
There are many stocks in a sector but an investor prefers to choose one or two stocks for investment. The ultimate goal of the long-term investor is to earn superior returns. But how to choose the best stock for investment is a challenge? The best method for stock selection is to study the fundamental aspects of the company. The fundamental analysis helps the investor to understand the growth potential of the business and make an informed investment decision. Although, fundamental analysis is a time-consuming method but this will help the investor to take right investment decision.
The general understanding about the fundamental analysis is to have a look at different ratios like Price-to-Earnings or P/E ratio, Earnings Per Share or EPS, Debt-to-Equity or D/E ratio, Return on Equity or ROE, Return on Capital Employed or ROCE etc. These ratios help to understand the performance of the company, but will not help to conclude whether the company is the best investment in the sector unless it is compared with peer companies.
Therefore, comparing the companies in the same sector is the best way to select the stock for investment. Now let us understand how it can be done.
Follow Relative valuation method:
The first step for comparing the companies in the same sector is comparing the relative valuation of one company with its competitors in the market. The following steps should be followed to compare relative valuations.
Pick any of the financial ratios like PE PB, ROE, ROCE, EV/EBITDA etc.
Make a list of companies who are the competitor to the company the investor has selected to invest in
Calculate the ratio for all the companies including the company the investor is keen to invest in. The investor can follow a table format this makes it easy to compare the valuations.
Let’s take an example to understand the concept
Suppose the investor decides to invest in an FMCG company HUL. Now the investor has to calculate and compare the ratios of HUL with all the companies with whom HUL competes in the market.
Before comparing the ratios, it is important to understand these ratios
P/E ratio – A high P/E ratio means the stock is possibly overvalued as its price is high as compared to its earnings. On the contrary, a low P/E ratio means that the stock is undervalued and can be a great investment opportunity.
P/B ratio- PB ratio that's greater than one means that the stock price is trading at a premium to the company's book value whereas, P/B ratio less than one means the stock is trading at an attractive valuation and offers an investment opportunity.
ROE- ROE indicates how effectively a company's management uses investors' money. Increasing ROE over time can mean a company is good at generating shareholder value. On the contrary declining ROE can mean that management is making poor decisions on reinvesting capital in unproductive assets.
These ratios can also be compared to the industry average to get a clearer picture. The investor can include more ratios based on his requirements. Another important aspect the investor should consider is future earnings growth. However, calculating projected numbers is a tedious task and requires detailed research. Therefore, we recommend investors to read research reports of 4-5 research analysts who have expertise in calculating the projections. The investor can refer to the broking companies’ websites where the research analyst of the respective broking company generally publishes the research reports of the companies under their coverage list. It is essential to understand the future prospects of the company where the investor is currently planning to invest to earn huge returns in the long-run.
As of now, we have focussed on quantitative aspects, now let’s turn our attention to the qualitative aspects for a complete analysis of the stock.
There can be times when two or more companies in a sector have similar financial statements making it difficult to differentiate between them. This is when you need to start looking at the qualitative aspects of the company.
Study the management of the company:
The investor should look at the management of all companies under comparison. Choose for companies that have a stable management team without frequent additions or deletions. Check on how long the managers have worked there and what type of compensation they get as well as factors like stock buybacks to see how well management is doing. It is also important to understand the quality and skill of a company's management for estimating future success and profitability of the company.
Understand companies core business
The investor should study the business model, revenue generation model, future prospect of the products of the company, how it got started? How long they are in the market, what is the revenue and profit margin they have been maintaining as of now and historically? Answer to this question will help to make an informed investment decision.
For example, film entertainment companies like PVR and Inox generally earn revenue from sales of movie tickets, sale of food and beverages, advertising income etc.
It is essential to understand how competitive is the product of the company in the market. This is because the success of any business depends on how the company manages its competition. Analyze this aspect by looking at factors like the threat of new entry, the threat of substitution, bargaining power of suppliers, bargaining power of buyers and Competitive landscape. This theory of analyzing the competition is popularly known as the porter five forces model.
Customers and Geographic exposure:
The investor has to find out about the customers of the company. Does the company have a few big customers or many small customers? Do they focus on niche market, or do they cover all segments of customers? To understand a company, getting answers to the above questions is essential. Because then you will understand where the company stands in mind of the customers. Additionally, the investor also has to find out the geographical exposure of the company. Does the company only operate in certain territories? If yes, why? Do the company cover only urban or rural areas? What is their sales-break-down as per each territory? Where they sell more, and why? Asking yourself these questions and searching for answers will help you know the company well and make wiser choices at the end of the day.
If the corporate governance of a business is not in order, the whole business will suffer sooner or later. So, checking out the corporate governance of a company is of utmost importance. The investors need to find answers to the questions such as are the rules of the company in line with the company’s mission and vision? are they legally compliant with the government’s policies? Are the company serving every stakeholder of the company? If the answer to the above questions is “YES” then usually, the company is pretty good at corporate governance.
Conclusion:While researching a stock, it is important to get as many details about the company. While the financial statements are a quick way to look into the financial position of the company, ensure that the qualitative and quantitative aspects are not ignored. If the company is not compared with its competitors, the investor will not get the true picture and will find it difficult to take a final call on investment.
Do You Know sectors to Benefit from Joe Biden’s win?
The markets have turned volatile in advance of the United States (U.S) election and continue to remain volatile post-election. The waves were felt not only in India but across the globe in the equity markets. Joe Biden is to be the 46th President of the U.S and it would certainly lift hopes of certain sectors back in India.
Certain industries that might get affected more than others with Biden’s victory. Biden plans to spend roughly US $3.2 trillion over the next decade. His plan includes a spending budget of US $750 billion to improve healthcare and the US $750 billion to revamp education as per the media reports. The win of Joe Biden might not make any material difference in the long run, but in the near term.
We have gathered a list of sectors that are likely to benefit from Joe Biden victory as the U.S President.
Metal Stocks and Pharma stocks:
We expect metal stocks to benefit from Biden’s infrastructural push. Metal stocks could gain on the expectation of higher steel export to the U.S for additional infrastructure spending of ~$700-800 bn in the next 10 years.
The Indian Pharma sector is expected to benefit from the Biden win on the back of increased push for generic prescriptions and push to affordable health insurance. Biden plans to protect and strengthen The Affordable Care Act, which ensures a reduction in healthcare costs and access to health insurance for the U.S citizens. This implies more reliance on generic drugs and biosimilars, that would be positive news for Indian Pharma companies. As per the media reports, the U.S imports ~$7 billion worth of formulations from India annually. An increased scope for access to affordable health insurance would also boost the demand for generic drugs.
Electric Vehicle companies:
Biden in his campaign had made it clear that his administration’s focus will be on green energy. As per the media reports, Biden has promised $400 billion in public investment to transition to clean energy, including advanced battery technology and electric vehicles. Therefore, Shares of EV companies and the battery and the solar sectors would benefit from Biden’s win. Biden could also ease concerns about the trade war with China leading to a positive impact on global trade.
Real Estate, Financial Institutions:
A Biden win would mean a larger stimulus followed by additional means to improve healthcare access and other social welfare programs. Sectors that are likely to get impacted include real estate, financial institutions, student loans, etc.
Chemicals, Cement and IT sector
The Chemical sector which competes with China might have a positive impact as the U.S can take a tough stand against China. Similarly, the infrastructure push by Biden will benefit the cement industry.
The market experts have an opinion that visa restrictions for software engineers sent by Indian IT companies could ease. Trump has tightened norms for H-1B visas, mostly used by software services providers to send engineers for on-site work. That prompted IT companies to ramp up hiring local talent in the past three years, increasing costs in the market that contributes 50-65% of the revenue for India’s five largest IT firms. A Biden presidency is, however, seen to be less hostile to immigrants.
U.S elections are likely to lead to short-term market swings that will be insignificant over the longer run. Therefore, we recommend the investors to stick to their long-term strategy and stay focused on individual stocks.
10 key parameters for analysing your trades
As the share market is highly volatile, investors rely on some variables which can help them trade successfully. These variables are flexible as they change according to the condition of the share market and adapt themselves accordingly.
Every investor must consider using the given below variables when logging their trades as these can help them to avoid losses and better analyze their mistakes to make successful share market strategies.