How can I invest in Indian stocks as an NRI?

How can I invest in Indian stocks as an NRI?
03/07/2018

With the rupee’s strength dwindling in comparison to major foreign currencies, non-resident Indians (NRIs) may look at investing in their home markets in order to reap high returns. If you are among these NRIs looking to capitalize on the falling rupee, all you need to do is follow the below steps:

Eligibility

First of all, you must find out whether you are eligible to invest as an NRI. By definition, an NRI is an Indian citizen who -

  • Has been in India for less than 182 days in a financial year
  • Has been in India for less than 365 days in the past 4 financial years

Once you have figured out your eligibility criteria, you can get down to the brass tacks.

Step 1: Opening an NRE (Non-resident Rupee)/NRO (Non-resident Ordinary Rupee) savings account

An NRI has to open either one of these accounts to be able to invest in the Indian markets. The major differences between the two accounts are as follows:

Parameters

NRE

NRO

Repatriation

All funds along with interest earned may be repatriated without paying
any tax on the interest amount

Only $1 million may be repatriated per year, including interest

Tax Treatment

It is tax-free

It is subject to Income tax, Wealth tax, and Gift Tax

Joint Holding

Only NRIs may jointly hold this account

Both resident Indians and NRIs may be joint account holders

 

Step 2: Get a PIS permission letter from the bank

PIS (Portfolio Investment Scheme) permission letters allow NRIs to purchase/sell shares and debentures under the Portfolio Investment Scheme. It stands as an approval from the Reserve Bank of India (RBI) to invest in the stock markets. The bank where you open your NRE/NRO savings account takes care of this process.

Step 3: Open a trading & demat account, connect it to the PIS

Finally, you will need to open a trading and a demat account to start investing. The following documents are a must for opening the accounts:

  • Copy of PIS permission letter
  • Copy of FEMA (Foreign Exchange Management Act) declaration
  • Copy of PAN card
  • Overseas address proof – (driving license/foreign passport/bank statement (not more than 2 months)/notarized copy of rent agreement)
  • Passport size photograph
  • Proof of bank account (cancelled cheque leaf of NRE or NRO savings bank account)
  • Declaration of P.O. Box in your residing country
  • FATCA (Foreign Account Tax Compliance Act) Declaration Form

Note: Copies of PAN card, passport, the power of attorney, and foreign address proof must be notarized by the Indian Embassy, the Consulate General, or through a public notary in the NRI’s country of residence.

Step 4: Trading

  • To begin trading, you must first allocate funds from the NRE/NRO bank account to the PIS
  • The bank notifies the brokerage firm about the allocated funds. These funds are then updated to the trading account
  • Upon purchasing a stock, the brokerage firm sends the buy contract note to the bank at the closure of business. The bank then debits the PIS account and credits the firm
  • Similarly, on selling a stock, the brokerage firm sends a sell contract note to the bank at the closure of business before crediting the PIS account with the proceeds.

Preferable avenues for investment

  1. Real estate: NRIs can only invest in commercial or residential properties. Proceeds from the sale of agricultural land, etc., must be deposited in an NRO account
  2. Direct equities: PIS account is mandatory for investment
  3. Term deposits & NCD: A safe and viable option for risk-averse NRIs
  4. NPS: Ideal for those retaining their Indian citizenship and planning to come back
  5. Mutual funds: These do not need a PIS account for investing, but FATCA rules impose certain restrictions on US and Canadian citizens

Do remember!

  • You cannot hold more than 10 % stock in any listed Indian company
  • For short-term capital gains (STCG), a taxation of 15% is made on any gains on stocks sold before 1 year
  • For long-term gains on stocks held for more than a year, profit on which is less than Rs1,00,000 the tax is exempted
  • To map both NRE/NRO accounts with the trading account, you need to get two client IDs from the broker
  • Profiting from the F&O segment is considered as business income according to the Income Tax department

Happy Investing!

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Secrets of successful trading

Secrets of successful trading
01/08/2018

People who are new to stock markets are often enthusiastic about trading and look for quick and easy ways to become rich. These factors usually restrict their understanding of the market, and they lose out on tactics of trading. Below are ten trading secrets for the newbie traders.

1. Limit the capital investment

Most of the beginners are eager to earn quick money. They have a perception that investing a lot of money during initial days can help them earn money. The most valuable tip for any beginner is that he should spend a limited amount of money as capital initially. It is better to set a percentage limit to the capital invested in one company or trade.

2. Do not expect early profits

The mindset of most of the beginners is to earn short term gains. It acts as a hindrance in rational decision making. Hence, beginners should make sure that they carry the right attitude for trading, not expecting quick profits.

3. Keep a trading journal

Staying updated with recent events and news is essential in the stock market. Trade journals are the best source for gaining knowledge. A trader should get into the habit of reading these journals and relate them to their daily trading.

4. Risk analysis

Risk analysis is critical to evaluate which stocks or securities should an investor invest in. Beginners tend to give less importance to risk analysis. Hence, they are not aware of the impact of loss in trading. It is imperative for traders to understand risk management right from the very beginning so that they can hedge losses.

5. Invest time to understand different techniques

People who start to learn trading are familiar with limited techniques. They become complacent with this procedure and fail to learn new methodologies. To be a successful trader, it is a must to evolve different skills and techniques.

6. Avoid penny stocks

Penny stocks are traded on the stock exchanges and provide high return along with high risk. These stocks have a small market capitalization and lack liquidity. New traders should be cautious of these stocks as they can easily get tempted to buy these stocks in order to earn high returns.

7. Control over emotions

It is very common for beginners to get carried away by emotions. It restricts their rational thinking and they lose focus on their trades. One needs to be in control of emotions irrespective of profits or losses.

8. earn the basics first

A lot of people start trading without actually knowing the basics of the stock market. They are not aware about how the market functions. Lack of knowledge narrows the focus of trader to a single strategy which he is aware of.

9. Avoid leverage

It is always advisable to not use the leveraged money (borrowed) while investing. It increases the price of trading and limits the understanding of the trader.

10. Diversification

Diversification is the process of investing in different instruments in order to minimize risk. It is useful for beginners who lack knowledge about specific sectors. It is always wise to diversify your investments across different sectors and industries. 

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How long should long-term be in investing?

How long should long-term be in investing?
02/08/2018

You would have often come across advertisements suggesting that lazy vacations or travel abroad is possible through long-term investments. They might be a lucrative option for many, but most people would still be confused by what constitutes a long-term investment? Investing in order to take care of the expenses of a marriage may take 5 years, while investing for a house may take 15 years and children’s college fees can possibly take nearly 20 years. All these are examples of long-term investments of varying lengths.

The textbook definition

For taxation purposes, investments in listed stocks and equity mutual funds are considered to be long-term if the holding period is more than one year. The holding period is defined as the period from one day after the investment has been made to one day after the investment has been encashed.

The ground reality

Going by the book, any investment above one year is a long-term investment. However, this definition could be quite inadequate for practical purposes. Most investors would look at a long-term investment as a way to even out losses and maximise gains. In fact, long-term investments are preferred because they help us to ride out the investment cycles and achieve parity, if not profit.

The bottom-line

Most analysts would agree that a better definition of a long-term investment would be “An investment that has a higher probability of maximising returns over a 10-year period as compared to alternatives.

To support this, you can draw upon some hard-hitting research on the basis of BSE data. Using this, you can also find a median which you can use a benchmark.

Before you begin, let’s take a couple of parameters into consideration-

  • Growth isn’t permanent. Disruptive companies continue to create ripples until bold becomes the new normal.

  • When things get worse, they usually don’t stop until they hit rock bottom. Rebounds are rare.

  • All data considered are for capital aggregation investments. Income generation schemes such as bonds, debentures, etc are not as influenced by time, as by interest rates.

  • FDs and other fixed return investments are not dependent on time as well, and so are ignored.

  • Let us first define some popular investment return targets. Let us choose the figures for 8%, 10%, 12%, 15%, and 16.2%-the last one being average market return for last 33 years.

  • The data taken into consideration uses month-end values for Sensex from April 1979 to October 2012. 

The probability of achieving these returns within a time period comes to something like this:

Year

Probability of achieving 8% returns

Probability of achieving 10% returns

Probability of achieving 12% returns

Probability of achieving 15% returns

Probability of achieving 16.2% returns

3

36%

58%

53%

50%

48%

4

31%

64%

59%

53%

52%

5

29%

68%

63%

56%

53%

6

23%

72%

66%

61%

59%

7

21%

76%

74%

66%

62%

8

20%

78%

74%

67%

61%

9

19%

78%

76%

68%

64%


The six-series’ mentioned in the graph are in order of the six rates of investments that have been set as targets.

This takes into consideration some high-performing and a low-performing stock. And as can be seen from our initial premise, the investments top out around the 10-year period.

Statistically speaking, a period of more than 10 years may be considered only for academic interest as a decade is really as far as you can see.

From analysis, you can notice the following facts-

  • The high-performing stocks started to peak after the 5-year mark.

  • They continued an appreciable rate of growth till they crossed the 7-year threshold.

  • After the 7-year threshold, they flattened out to a plateau.

  • The low-performing stock, on the other hand, continued to drop steadily.

  • The dip became more and more pronounced after the 7-8-year time period.

  • Thus, you can take an optimum measure of the 6-7-year period as the best median in which to invest for the “long-term”.

In general, a 10-year cycle would help us to reach a plateau after which our stocks’ value would either fall or remain constant. Within this phase, it’s better to cash out in the 6-7-year period and invest in the next big thing.

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Apollo Micro Systems Ltd-IPO Note

Apollo Micro Systems Ltd-IPO Note
IPO
by Nikita Bhoota 01/09/2018

Issue Opens: January 10, 2018
Issue Closes: January 12, 2018
Face Value: Rs.10
Price Band: Rs.270-275
Issue Size: ~Rs.156 cr
Public Issue: 57.64 lakh shares (at upper price band)
Bid Lot: 50 Equity shares       
Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 88.5 63.9
Public 11.5 36.1

Source: RHP

Company Background

Apollo Micro Systems (AMS) designs, manufactures and supplies electronic and electro-mechanical solutions. It caters to defence, space, transport and home land security for Ministry of Defence, Govt. controlled Public Sector Undertakings (PSUs) and private sector. It has participated in several indigenous missile programmes, underwater electronic warfare and underwater missiles amongst others. The defence system supplies are classified into On-Board Systems (on Weapon or Vehicle) and Ground support (associated or communicates with On-Board) equipment. AMS key products include defence avionic systems, defence naval systems, defence aerospace systems and satellite space systems.

Objective of the Offer

The offer consists of Fresh Issue of 5.8mn shares (aggregating up to ~Rs156cr) at the upper end of the price band. A discount of Rs.12 is offered for eligible employees (20,000 shares reservation) and retail investors. The proceeds will be used for working capital (WC) requirements (~`119cr) and general corporate purposes (~Rs.37cr).

Financials

Standalone `cr. FY14 FY15 FY16 FY17 1HFY18
Revenue 73 108 159 211 109
EBITDA Margin % 13.9 16.7 15.9 19.2 17.7
Adj. PAT 5 7 10 18 7
EPS (`)* 2.6 3.6 4.8 8.5 3.4
P/E* 107.1 76.7 57.1 32.2 --
P/BV* 20.8 16.4 12.7 9 --
EV/EBITDA* 59.6 34.6 25.2 16 --
RONW (%)* 24.8 23.9 25.1 32.8 --

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Investment Rationale

The company’s participation in several defence, ships and space programmes and proven track record of order execution have given it a competitive edge. The company enjoys strong brand equity on account of its longstanding presence and continuous improvement and adoption of technologies. The company has been able to do so via continuous investments in product research and development. We believe that its association with Ministry of Defence and other Govt. PSU programmes should enable it to garner larger repeat orders.

In BTP business, the customer provides work instructions, assembly drawings, etc., which is used in building its parts along with the specification of component’s functional requirements. Apollo has established BTP business vertical with existing infrastructure and skills sets. This vertical has helped in generating incremental revenue and profits with low working capital cycle. Thus, the company expects BTP to be a strong revenue driver in the defence electronics space.

 Key Risk

The company has significant dependence on various PSUs and Government entities for projects. Change in Government’s stance on defence policies could adversely affect its financials.

Conclusion

At the upper price band, the company commands PE multiple of 32.2x on FY17E EPS (post dilution). This is, in-line with other defence sector companies i.e. – BEL and Astra Microwave. Considering the high traction expected in the defense sector for AMS, we recommend SUBSCRIBE on the issue.

Research Disclaimer

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The Art of Trading

The Art of Trading
01/09/2018

Trading in the share market can be complicated and unpredictable. You must have heard people talk about making and losing money in the share market.

Trading in the share market requires fundamental knowledge of all the factors that influence the demand and supply in the market. Given below are some trading tips that can help you cut your losses by investing in a more efficient way.

  1. Stop loss
  2. Stop loss is a trading tool that allows you to cut your losses while trading in the market. When you put a stop loss at a certain price of your stock, it is automatically sold when the price falls below the stop loss price level. For example, if you have bought shares of a company at Rs100 and you have put a stop loss order at Rs90. If the price falls to Rs90, your shares will be sold automatically, thereby reducing your loss to just Rs10.

  3. Background research
  4. You must thoroughly research the company in which you want to invest in order to make a successful investment decision. Background research involves checking the balance sheet, income statement, cash flow statement, short-term and long-term earnings, and the company's past performance. It will allow you to determine the future growth potential of the company and whether you will be able to get a regular dividend if you choose to invest your money in the company.

  5. Regularly monitoring investments
  6. One of the best trading tips to be successful in the share market is to monitor your investments on a regular basis. Regular monitoring of investments helps you sell your shares immediately if you think they are going to fall below a particular price. Apart from this, you can also earn huge amount of profits by selling your shares at the time when they are at their highest price.

  7. Patience
  8. Investors lose out on great opportunities when they sell their stocks too early. If the price goes slightly higher, they sell the stocks and book whatever profits they get even when they could have made so much more had they waited a little longer. You must be patient and wait for the perfect time before making an investment decision. You should sell your stocks only after analyzing the market trend. If you are sure that the market will not rise any higher, then only you should go ahead with your decision to sell.

  9. Don't follow the herd

One of the most gruesome mistakes you can commit in the share market is to invest just because everyone else is investing. You have to understand that your financial position is in no way similar to any other person. What they might think is a perfect investment for them can turn out to be the worst investment for you. You should make your own decisions after carefully analyzing your financial condition and determining what you stand to gain and lose.

If you are passionate enough about investing in the share market, you should consider following these trading tips as it will help you to build wealth without losing much money. 

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5 stocks to buy post Union Budget 2018

5 stocks to buy post Union Budget 2018
by Nikita Bhoota 02/09/2018
Untitled Document

The last full Union Budget 2018 of the Modi Government declared on February 1 have disappointed a few classes, leaving investors to reconsider their investment decisions. The Government has imposed Long Term Capital Gain Tax (LTCG) tax on equity gains above Rs1lakh at the rate of 10%, without indexation benefit. In addition, the government has proposed to implement Dividend Distribution Tax (DDT) of 10% on Equity Mutual Funds. These announcements in the budget was not at par with the market expectations. This adversely impacted the index performance. However, the declaration of LTCG and DDT is likely to be a short term negative for D-Street.

Post correction phase, the attention will be back on earnings outcome. Further, the budget largely focused on development of infrastructure, healthcare and rural economy. Stocks from agri, auto ancillary, healthcare and infrastructure are likely to be next big triggers. Based on the fundamentals, unique product portfolio and management outlook, following are the stocks that offer a promising return.

Godrej Agrovet

Godrej Agrovet (GAL) is a diversified agri-business company having presence in segments like animal feed (~53% revenue contribution in FY17), vegetable oil (~10%), crop protection (~16%) and dairy products (~21%). It enjoys advantage over its peers through established brand image. We expect revenue CAGR of 14% over FY17-20E backed by increase in market share of organized sector in animal feed and vegetable oil segment. Besides GAL focus on export market for expanding its crop protection segment by launch of new generic chemicals backed by Astec Life Sciences (~57% stake) will also aid revenues. Improving consumption of dairy and rising share of organized market in dairy business also augurs well for the company. We see EBITDA margin to expand by ~157bps over FY17-20E backed by utilization level of ~47% (FY17) which provides operating leverage. We expect PAT CAGR of 20% over FY17-20E. We see an upside of 30% from CMP of Rs563 over a period of 1 year.

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY17

4,911

8.9

266

14.4

-

FY18E

5,652

9.6

311

16.8

33.5

FY19E

6,356

9.9

373

20.1

28.0

FY20E

7,293

10.5

464

25.0

22.5

Source: 5paisa Research

Tejas Network

Tejas Networks Ltd (TNL) is the second largest company in the Indian optical equipment market. It sells products to internet service providers and telecom, defence companies and Government entities. TNL would be a beneficiary of increased data traffic for telecom operators, thus requiring continuous optical capex in a bid to remain competitive in an increasing competition environment. It also stands to benefit from being the only Indian optical network equipment company. Government’s capex under initiatives like BharatNet Project should aid its revenues as project SPV, Bharat Broadband Network Ltd, is a key contributor to TNL’s revenues. Allocated spends of Rs 10,000cr on the project in this Budget would also support revenue growth. TNL has advantages vs. global companies owing to low cost manufacturing. Higher revenue growth and resultant operating leverage should aid EBITDA margins. Overall, we estimate revenue CAGR of 19.8%, EBITDA margin expanding by ~411bps and PAT growing at 33.5% CAGR over FY17-20E. We estimate an upside of 32% from CMP of Rs368 over a period of 1 year.

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY17

878

19.8

88

9.8

37.4

FY18E

1,099

22.3

128

14.3

25.7

FY19E

1,298

23.2

172

19.2

19.2

FY20E

1,510

23.9

209

23.3

15.8

Source: 5paisa Research

JK Tyre & Industries

JKTIL is leading Indian Truck and Bus Radial (TBR) and LCV tyres manufacturer with 31% market share and capacity of 32mn tyres/annum (tpa). It derives 56% revenue from replacement segment, 34% from OEMs (standalone plus Cavendish) and 10% from exports (Tornel, Mexico, capacity 7.9mn tpa). After reporting operating losses in H1FY18, JKTIL is expected to perform better in H2FY18 due to stable rubber prices and cost control initiatives. Rubber (RSS-4) prices peaked at Rs150/kg in March 2017 and have stabilized in the range of Rs130-135. We expect company to post positive EBITDA in FY18, however, rising crude prices are a concern.  The budget announcement of raising customs duty on TBR from 10% to 15% will make imports costlier, boosting volumes for JKTIL. Imposition of anti-dumping duty on Chinese TBR tyres, Government’s thrust on infrastructure and better consumer financing will result in strong CV sales, propelling JKTIL’s volumes. Hence, we expect revenue growth of 12% yoy in FY19E vs. 6% in FY18. After spending Rs3,700cr on capex (past 3 years), only maintenance capex of Rs100cr/year would be incurred over next 2-3 years. This will reduce D/E ratio from 3x in FY17 to 1.6x in FY20E. We see an upside of 40% from CMP of Rs167 over a period of 1 year.

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr) (before EO)

EPS (Rs)

PE (x)

FY17

7,689

14.7

306

13.5

13.0

FY18E

8,151

8.8

94

4.1

42.2

FY19E

9,129

13.7

440

19.4

9.0

FY20E

10,224

15.4

684

30.2

5.8

Source: 5paisa Research

Larsen & Toubro (L&T)

L&T is India’s largest engineering and construction company with no real peers when compared to its breadth and depth of offerings. The company’s business mix spans a large spectrum—from complex engineering, procurement and construction (EPC) contracts in the hydrocarbon, process, metals and cement sectors to development of infrastructure projects in sectors like ports, roads, metro rail and airports. Infrastructure formed 65%, Hydrocarbon 15%, Heavy engineering 7%, Power electrical & Auto 7% and Others 6% as of Q2FY18. L&T is well placed to benefit from the uptick in the investment cycle. Capital expenditure is expected to pick-up in India led by resolution of bad debt, pick-up in capacity utilization and recovery in demand. L&T’s order book as of 2QFY18 stood at Rs2,575bn. The order inflow is likely to increase from H2FY18 led by recovery in economy.  We estimate revenue CAGR of 12% over FY17-20E. We believe that L&T’s focus on improving profitability will lead to PAT CAGR of 15% over FY17-20E.  We project an upside of 15% from CMP of Rs1,354 over a period of 1 year.

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY17

109,311

10.1

6,041

43.2

31.4

FY18E

121,729

11.0

7364

52.6

25.7

FY19E

135,891

10.8

7825

55.9

24.2

FY20E

152,477

11.1

9260

66.2

20.5

Source:5paisa Research

Apollo Hospital

Apollo is one of the leading private sector healthcare services provider. Apollo has two businesses i.e. hospitals and pharmacies. As of September 30, 2017, it had 70 hospitals with total bed capacity of 9,957 and 2,742 pharmacies. In Q2FY18, hospital business contributed 55% of its business, while pharmacies contributed 45%. The outlook on Apollo’s business is positive owing to its favorable demographics, rising insurance penetration, strong brand and pan-India presence. We estimate CAGR of 13% and 28% in revenue and PAT over FY17-20E. Company has improved ARPOB/day (average revenue per operating bed) from Rs21,724 in FY13 to Rs32,474 in H1FY18. The pharmacy business too has seen improvement in EBITDA margins from 2.7% in FY13 to 4.3% in H1FY18. Company is expected to reap benefits of the capacity expansion that it completed over FY14-16. Company has expanded its capacity by 30% (addition of ~2,500 beds) over FY14-17. Its 11 new hospitals are yet to breakeven, while existing hospitals have a ROCE of 19.3% and they continue to show higher efficiency. The faster breakeven at the Navi Mumbai hospital is positive for the company. We expect ~190bps EBITDA margin expansion during the forecast period. We forecast an upside of 17% from CMP of Rs1125 over a period of 1 year.

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY17

7,254

10.0

221

15.9

70.8

FY18E

8,241

10.11