Is Auto Sector Reviving? Stocks to bet on

Is Auto Sector Reviving? Stocks to bet on
by Nikita Bhoota 14/08/2020

The nationwide lockdown was a challenging period for the auto sector in India. As per the media articles, the domestic sales of all manufacturers dipped nearly 80%-90% in May 2020. However, the auto sector is now seeing a recovery as the Government is easing the lockdown restrictions in a phased manner. Secondly, the new realities of social distancing and the fear of contracting the virus is driving more and more individuals to buy their own vehicles who were earlier dependent upon public transport. However urban areas have been adversely impacted by Covid-19 and the lockdown, industry players say that rural India is seeing a faster recovery.

graph
Source: Ace Equity

Nifty 50 have rallied 36% between the period March 25, 2020 – August 12, 2020. Whereas, Nifty auto index has jumped 57% in the same period.

We are bullish on the prospects of the Indian auto industry over the next 2-3 years. We expect multi-fold earnings growth in the recovery period. Hence, we have identified some of the stocks which are significantly cheaper than peers, have better growth prospects and hence can give superior returns in the coming years. We believe Hero, Ashok, Exide and Apollo Tyres can rerate from current levels, if they deliver on a few parameters.

Hero Motocorp:

Hero has held on to the 51-52% motorcycle market-share over the past 5-6 years. Its overall share came off due to loss in scooters, especially as scooters were gaining share in the overall 2W industry. Scooters now account for only 6% of its domestic volumes. We believe scooter share has bottomed out, and may not be a drag any more. High growth in rural markets would support motorcycles more than scooters; this would favour Hero. Further, success of new models can bring confidence in Hero’s R&D and be a re-rating catalyst.

Ashok Leyland (AL):

AL has low volume/earnings visibility at this point. If & when Covid-19 recedes and the economy becomes fully functional, we expect demand for trucks to pick-up quite sharply. Improvement in truck volumes should drive a re-rating. FY21 MHCV sales would be below FY09 levels (GFC) and, hence, may see a sharp rebound in FY22.  Further, AL plans to launch the new LCV platform ‘Phoenix’ within the next three months. Management expects it to double the addressable market and further reinforce AL’s growing traction in the LCV market. These products can be configured for both right- and left hand drive, which augurs well for expanding into export markets.

Exide Industries:

Replacement demand for batteries should bounce back fairly quickly, as it is less discretionary in nature (difficult to postpone). The OE segment should also normalise soon, going by sales volumes being reported by OEMs. Other segments are picking up gradually. We expect Ebitda margin to normalise in upcoming quarters, as volumes revert to pre-Covid levels and production ramps up in sync with sales. The other potential catalyst for Exide would be an exit from the Life Insurance business, which has needed periodic cash infusion from the core batteries business. The market seems to be assigning zero value to the insurance business at this point.

Apollo Tyres:

Apollo generated negative FCFF for four straight years (high capex phase). However, the capex phase is largely behind; we expect Apollo to be FCFF-positive over FY21-24. Revival in CV tyre demand (both OE and replacement) would drive up earnings from current cyclical lows. Sharp cost cuts in the European business (headcount cuts in the Netherlands) would push up EU margins, from high single-digit to mid-teens; this would be a big earnings driver starting FY22.

Nifty Auto Index Stock Performance:

Company Name

25-Mar

12-Aug

Gain/ Loss

Mahindra & Mahindra Ltd.

277.9

635.0

128.5%

Motherson Sumi Systems Ltd.

60.6

116.8

92.7%

Amara Raja Batteries Ltd.

409.2

743.5

81.7%

Tata Motors Ltd.

70.3

125.4

78.4%

Bharat Forge Ltd.

253.7

434.8

71.4%

Hero MotoCorp Ltd.

1,667.7

2,774.0

66.3%

Balkrishna Industries Ltd.

852.0

1,378.3

61.8%

Ashok Leyland Ltd.

34.5

54.0

56.6%

Bosch Ltd.

9,212.1

14,327.5

55.5%

Bajaj Auto Ltd.

1,946.8

3,023.0

55.3%

Eicher Motors Ltd.

14,516.6

22,116.7

52.4%

Maruti Suzuki India Ltd.

5,006.0

6,730.3

34.4%

Exide Industries Ltd.

132.2

167.9

27.0%

TVS Motor Company Ltd.

332.5

417.7

25.6%

MRF Ltd.

56,579.3

61,634.8

8.9%

Source: Ace Equity

The stocks in the auto segment have given magnificent returns in the past 5 months. Mahindra & Mahindra Ltd and Motherson Sumi Systems Ltd have rallied 128.5% and 92.7% respectively. MRF jumped the least 8.9% in the same period.

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5 Stocks to BUY in 2020

5 Stocks to BUY in 2020
01/09/2020

The Indian stock market continued to rally and gave a positive return for the straight fourth year in the CY2019. For year 2019, Nifty and Sensex climbed 11.5% and 13.8% respectively. The indices touched the historic closing high of 12271.80 (Nifty) and 41681.54 (Sensex) despite the slowdown in the economy. Slashing of corporate tax, the six years high FII flows of Rs1 lakh crore in 2019, significant progress on bankruptcy resolutions, and Govt.’s efforts to address liquidity issues of Real Estate and Infrastructure sector guided the market performance in 2019. On the international front, easing trade war tensions also acted as positive for the Indian markets.

Going forward, market performance will be driven by benefits of low corporate tax, macro- economic tailwinds, implementation of Government policies, interest rate scenario and good monsoon. Hence, based on historical performance, management outlook and earnings growth, we have picked the below mentioned stocks that are likely to offer decent returns in 2020.

Hero Motocorp (Hero)

CMP: Rs2,349
Target Price: Rs3100 (1-year)
Upside: 32%

Hero is the largest 2W company in India. The company currently has ~52% share in the Indian domestic motorcycle market and ~37% share in the domestic 2W market (including scooters). We expect revenue CAGR of over FY19-21E as retail demand has started improving across rural and urban markets from second half of September 19. We expect recovery in rural demand to continue following a good monsoon and expectations of a strong Rabi crop output. Additionally, the recent launches of Xtreme and XPulse are gaining good market share and are expected to do well hereon too. We expect margins to remain under pressure over FY19-21E due to higher promotional expenses related with BS IV inventory. With volume growth in FY21E expected, margins may see an up move on better operating leverage. We expect PAT CAGR of over FY19-21E. The stock trades at 13.3x FY21E EPS

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY19

33,650

0.0%

3,384

169.5

13.9

FY20E

31,540

0.0%

3,232

161.8

14.5

FY21E

37,023

0.0%

3,514

176.0

13.3

Source: 5paisa research

ICICI Bank

CMP: Rs525
Target Price: Rs 570 (1-year)
Upside: 8%

ICICI Bank is India’s second-largest private bank with a loan book size of Rs5.9tn in FY19. It enjoyed a ~6.0% market share in system loans as of FY18. ICICI Bank is looking to tap the growth opportunity, through market-share gains across products, fast credit delivery to retail and SME customers by using data analytics and rule-based engines for pre-approved loan offerings, relentless focus on cross-sell to affluent/own customers, partnership with Fintechs to add innovative products, adoption of an eco-system based approach with targeted product offerings, and making relationship managers responsible for cross-selling liabilities and fees. Strong growth opportunity, potential reduction in credit costs and improving profitability would keep stock performance robust, in our view. The stock trades at 2.5x P/BV FY21E.

Year

Net Sales (Rs Cr)

Net Profit (Rs Cr)

EPS (Rs)

PBV (x)

FY19

27,010

3,360

5.2

3.1

FY20E

33,030

9,890

15.3

2.9

FY21E

37,980

18,570

28.8

2.5

Source: 5Paisa Research

Larsen & Toubro (L&T)

CMP: Rs1,291 
Target Price: Rs1,778 (1-year)
Upside:38%

L&T is India’s largest engineering and construction company and is well placed to leverage the uptick in the investment cycle. We believe that the government’s push on infrastructure and widening base of mid-size orders will aid faster execution. L&T's strong order book of Rs303,222cr (2.8x TTM sales) at Q2FY20-end provides healthy revenue visibility for the next 2 years. Further, monetisation of non-core assets will help release capital and improve return ratios. We estimate the company to report revenue CAGR of 19% over FY19-21E with a flat EBITDA margin. PAT CAGR is estimated at 17% over the same period. ROE has been continuously improving from 9.9% in FY16 to 15.8% in H1FY20. Management is confident of achieving ROE target of 18% by FY21E. The stock trades at 14.2x FY21E EPS

Year

Net Sales (Rs cr)

OPM (%)

PAT (Rs cr)

EPS (Rs)

PE (x)

FY19

50,569

19.9%

8779

63.2

20.3

FY20E

56,815

20.2%

9,773

70.3

17.6

FY21E

61,894

20.4%

10723

77.1

14.2

Source: 5Paisa Research

SBI Life Insurance (SBI Life)

CMP: Rs984
Target Price: Rs1180 (1-year)
Upside: 20%

SBI Life is India’s largest private life insurer, with an overall market share of 12.2% on a retail APE basis. The company has a product mix of participating, non-participating and linked policies, with the mix skewed towards linked products. Unlike peers, for which growth is largely driven by one or two product segments, SBI Life has delivered industry leading growth across protection, non-par annuity and guaranteed return products as well as ULIPs, defying the weak sentiment in the capital markets. We believe that it could continue to surprise the street positively via resilient growth in uncertain times driven by a strong distribution franchise and mass customer base. We expect 17.3%/25% EV/VNB CAGR over FY19-21E. The stock trades at 3.2x FY21E P/EV.

Year

New Premuim Income

VNB

VNB margin (%)

PAT

P/EV

FY19

32,890

1,720

17.7%

1,326

4.4

FY20E

43,076

2,169

19.0%

1,659

3.8

FY21E

52,550

2,695

20.0%

2,102

3.2

Source: 5Paisa Research

Quess Corp

CMP: Rs512
Target Price: Rs740 (1-year)
Upside: 44%

Quess Corp is one of India’s leading integrated providers of business services. Quess’ service and product offerings are currently grouped under five operating segments i.e. People and Services, Technology, Facility Management, Industrials and Internet. We expect revenue CAGR of 21.1% over FY19-21E on account of strong outlook in staffing business, consistent client additions and entrance into new service platforms. The company enjoys huge advantage of scale in general staffing in India (largest in India with 240,000 associates & ~41% of group sales). Further, the blend of recently acquired Allsec and Conneqt will make Quess a challenging play in BPM platforms. We expect margins to improve by 110bps over the same period on account of presence in specialized staffing and focus on ramping up high growth sector viz. Facility Management. Expansion of Allsec in newer geographies will also support the margin growth.  We project PAT CAGR of 23.7% over FY19-21E. The stock is currently trading at 19.1x FY21EPS.

Year

Revenue (Rs cr)

OPM (%)

Net Profit (Rs cr)

EPS (Rs)

PE (x)

FY19

8,527

5.4

256

17.5

29.2

FY20E

10,706

6.4

287

19.7

26.0

FY21E

12,495

6.5

392

26.8

19.1

Source: 5Paisa Research

Research Disclaimer
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Gas Utilities Sector: A best play in the longer-term

Gas Utilities Sector: A best play in the longer-term
by Nikita Bhoota 07/09/2020

The Covid 19 pandemic will disrupt the performance of gas utilities companies in the short term but it is a positive play from a longer-term point of view. The growth drivers for gas consumption (stable regulations, improving last-mile connectivity, ease of imports, etc.) are intact. Thus, the gas utilities sector looks positive in general. City Gas Distribution (CGDs) are the best plays in the sector given superior revenue models (unregulated, attractive RoE, earnings growth, etc.).

Covid only defers, does not derail the macro theme:

The aspects necessary for improving Natural Gas (NG) consumption in India are still intact, regardless of the Covid 19-disruption; a stable regulatory system, expansion of pipeline network, last-mile connectivity, ease of gas imports and favourable economics vs. alternate fuels, etc, along with successful implementation of reforms in pipeline tariffs, would go a long way in increasing gas sales in India. Weak outlook on LNG pricing should augur well, at a time when economic activity remains weak. Thus, Covid 19-disruption only defers the growth theme, but does not derail it.

CGDs still best plays:

Gas sector looks positive, but CGD looks more attractive, as their revenue models are unregulated; they can generate superior cash flows and return ratios for a sustained period; and even when competition is introduced, due to their rich learning curve and through investment in technology, the operating matrix can remain unaffected.

Key developments to facilitate gas-sector growth in India:

Some of the key developments in this sector are

  • Change in priority allocation: In 2014, the government of India (GoI) made CGD companies its top priority for allocation of cheap domestic gas for Compressed natural gas (CNG) and domestic Piped Natural Gas (PNG), to enable faster penetration.
  • Changes in pipeline tariffs in 2018 to attract more investments: In order to attract more investments in creating an all-India gas grid, PNGRB revised its pipeline tariff regulations (peak capacity utilisation lowered, from 100% to 75%), allowing better returns for pipeline companies.
  • Focus on last-mile connectivity: To boost the gas economy, Petroleum and Natural Gas Regulatory Board (PNGRB) is focussing on improving last-mile connectivity and, accordingly, has expedited auction of CGD licences. In the last 18 months, 136 new licences have been awarded (1.5x existing areas). PNGRB is also planning an 11th round, shortly. Further, the Regulator has revised bid parameters, to have a greater emphasis on infra rollout.
  • Facilitating market development: A gas Exchange is planned for bringing market-driven pricing in the energy market of India. An Exchange would not only bring in more transparency to pricing, but also create a spot market to meet gas requirements.

Recommended Stocks

Our preference among CGDs is Gujarat Gas/ Indraprastha Gas (IGL) /Mahanagar Gas (MGL).

IGL is hopeful of a quick ramp-up in volumes, with easing of restrictions. In Apr-20, volumes declined to 20% of pre-Covid levels due to the lockdown. Since then, volumes have gradually picked up, increasing to 30% and 50% of normal levels, in May and June respectively. Margins are likely to remain firm, given low gas prices and management’s focus on cost controls in FY21E. The stock trades at 35.6FY21EPS

MGL management is hopeful of a faster recovery in volumes, on the back of its CNG segment, as restrictions on vehicle movement ease. The stock trades at 16.3x FY21EPS – at a significant discount to IGL.

Gujarat Gas (GGAS) has exclusive license to lay and distribute gas in 40 cities which provides long term volume growth visibility. Amid lockdown, volumes are likely to hit severely as industries account for bulk of sales (75-80%), however this will normalise with pick-up in economic activity. Stock trades attractively at 26.9x FY21E EPS and at a discount to IGL.

Stock performance

Stock Name

01-Jan-20

03-Jul-20

Loss/ Gain

Gujarat Gas

254.9

321.9

26.3%

Indraprastha Gas

425.3

447.4

5.2%

Petronet LNG

266.7

272.9

2.3%

GSPL

219.8

222

1.0%

Mahanagar Gas

1,064.7

1070.1

0.5%

Source: BSE

The last six months have been a roller coaster ride for the equity markets. Despite, many challenges due to the spread of Covid19 pandemic, the share price of companies in the gas utilities sector has given positive returns from January 01,2020- July 03,2020. However, the returns are not magnificent but the sector stocks have managed to stay in a positive zone. Gujarat Gas tops the list with 26.3% return from January 01,2020- July 03,2020 followed by IGL and Petronet LNG in the same period.
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Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?

best multi cap mutual funds
by Nikita Bhoota 17/09/2020

Market regulator SEBI on Friday i.e September 11, 2020 has revised asset allocation norms for multi-cap equity mutual fund schemes. According to the revised rules, multi-cap mutual funds will have to invest at least 75% of their total asset under management (AUM) in equity & equity related instruments versus the earlier threshold of 65% of the total AUM. The market regulator also mandated multi-cap funds to invest at least 25% in each small-cap, mid-cap and large-cap stocks. So, if a multi-cap scheme of a fund house has an AUM of Rs 10,000 crore, it will have to invest at least Rs 2,500 crore each in the three categories of stocks. According to earlier rule, multi-cap funds had freedom to invest across sectors and market capitalizations. SEBI has directed to abide by the revised rules by January 2021.

Data sourced from media reports shows at present the multi-cap fund (AUM of ~Rs1.5tn) holdings are tilted towards large cap stocks (~73% of AUM as of Aug-2020), So it is widely projected that the mutual funds would have to rebalance the portfolios by increasing allocation to midcap stocks (~17% of AUM as of Aug-2020) and small cap stocks (~6% of AUM as on Aug-2020). However, the clarification issued by SEBI (SEBI Clarification Circular) on Sunday evening also points out that portfolio rebalancing is one of the options available to mutual funds and the MF could consider options like merging with existing schemes. The clarification also suggests that SEBI is open to inputs from MF industry on the revised rules for multi-cap funds. 
We have shortlisted some of the 5 mid cap and small cap stocks that can benefit if the portfolio rebalancing was to happen. 

5 Mid Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
EPS CAGR (%)
FY20-22E
PE FY21E
Godrej Agrovet Ltd. Agriculture 10,190 31 30.1
Coromandel International Ltd. Agriculture 23,727 14 18.7
Ashok Leyland Auto 22,853 49 NA
Kajaria Ceramics Ltd. Building Material 8,270 8 45.2
Ipca Laboratories Ltd. Healthcare 27,214 27 25.1

Source:5paisa Research, BSE

Godrej Agrovet Ltd:
Godrej Agrovet (GAVL) is a diversified, research & development-focused agri-business company. It is one of the leading companies in the animal feed business and the market leader in the oil palm plantation industry in India. Additionally, it has a sizeable presence in agri-inputs (i.e. agrochemicals), dairy products, and processed poultry.

Coromandel International Ltd.
Coromandel is the flagship company of the Murugappa Group and operates in fertilisers and other agri-input segments. It is India's second-largest producer of phosphatic fertilisers and is particularly strong in the South-Indian states of Andhra Pradesh and Telangana. Coromandel has an installed capacity of nearly 3.5m tonne of fertilisers (22% of domestic production capacity) and also operates in the agrochemical, specialty nutrient and organic compost verticals.

Ashok Leyland:
Ashok Leyland (AL), part of the Hinduja Group, is one of India's leading manufacturers of commercial vehicles such as trucks, buses, tippers, trailers and Defence vehicles. It is the second-largest player in the medium & heavy trucks segment in India, with market share of ~33%. AL is one of the leading players in heavy buses with market share of ~43%. The company also manufactures and sells engines for industrial and marine applications, spare parts and special alloy castings.

Kajaria Ceramics Ltd.
Kajaria Ceramics is the largest manufacturer of ceramic and vitrified tiles in India. The company manufactures ceramic wall & floor tiles as well as glazed & polished vitrified tiles. It has also ventured into some allied segments (like bathware, plywood); albeit, these segments are still quite small at present, in terms of contribution to revenues and profits.

Ipca Laboratories Ltd.
Ipca Labs is a fully integrated pharmaceutical company producing branded and generic formulations, APIs and intermediates. The company has a strong position in the domestic market, mainly in cardiology, pain, anti-malarial/bacterial and anti-diabetics products. The company exports to 110 countries and is the ninth-largest pharma exporter from India, in terms of volume.

5 Small Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
EPS CAGR (%)
FY20-22E
PE FY21E
Kaveri Seeds Agriculture 3467 17 10.9
Quess Corp Industrials 6,470 14 33.6
Sudarshan Chemical Industries Chemicals 3,258 26 27.2
Heidelberg cement India Ltd. Cement 4,268 13 14.9
Persistent Systems Ltd. IT 8,949 23 21.4

Kaveri Seeds:
Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic biopesticides.

Quess Corp:
Quess Corp (erstwhile IKYA Human Capital Solutions) is one of India’s leading integrated providers of business services. Quess is focussed on emerging as the preferred business function outsourcing partner for enterprise customers across a wide range of industries. Quess’ service & product offerings are currently grouped under three operating segments: Work Force Management, Operating Asset Management and Global Technology Solutions. 

Sudarshan Chemical Industries:
Sudarshan Chemical Industries (SCIL) has grown to become India’s largest and the world’s fourth-largest manufacturer of colour pigments. Its estimated market share in India stands at ~35%. The company’s product portfolio comprises organic, inorganic and effect pigments serving four main end-uses: coatings, plastics, inks and cosmetics.

Heidelberg cement India Ltd.
Heidelberg cement India Ltd (HCIL) is a subsidiary of Germany based Heidelberg Cement, the world’s third largest cement producer. HCIL’s clinker plants are located in Madhya Pradesh and Karnataka and its cement grinding units are located in Madhya Pradesh, Uttar Pradesh and Karnataka. Current cement grinding capacity of HCIL is 5.4mtpa (2.1mtpa in Damoh, 2.7mtpa in Jhansi and 0.6mtpa in Ammasandra).

Persistent Systems Ltd.
Persistent Systems is a technology services company. The company’s focus is on helping clients build and manage software-driven businesses. Its business strategy is aligned around four key areas: 1) Digital: Bringing together their technology partner ecosystem, solutions and a unique architecture to enable enterprises with digital transformation; 2) Alliance: Focus on the long-standing and multi-dimensional relationship between PSYS and IBM; 3) Services: Focus on services for software and product development including an agile and experience design; 4) Accelerite: Focus on products that include business-critical infrastructure software for enterprises, telecom operators and the public sector.

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A Beginner’s Guide to Investing Internationally from India

International Investment
by Vested Team 20/09/2020

Ace investor & co-founder of First Global, Shankar Sharma’s global portfolio was up 70% in 2019. His Indian portfolio, by his own admission, didn’t do nearly as well. He attributed this performance to this strategy of diversifying across countries. “If you have single-country, single-asset exposure, you are fated to lose sooner or later, irrespective of what the government or fund managers tell you,” he says. In the post-Covid era, he’s gone to highlight how Indians must expand their horizons beyond domestic shores. “The Indian market has delivered zero, in fact, negative returns in dollar terms,” Sharma adds.

In 2020, Indians are now eyeing international investments in larger numbers than ever before. There are several factors fueling this interest. A number of US stocks, including Apple, Amazon, and Facebook, have exhibited steady upward growth, making them attractive alternatives to Indian stocks. In contrast, investing in the Indian economy has been a mixed experience in 2020 and prior. Even before the coronavirus pandemic, the International Monetary Fund (IMF) lowered India’s economic growth forecast from 6.1% to 4.8% for 2019-20. Naturally, the numbers became more concerning as markets tanked March onwards. Such developments, coupled with a broad increase in interest, are paving the way for international investments from the Indian investor community. If you’re looking to get started with investing internationally from India, here’s a handy guide covering the what, the why, and the how.

Why should you invest in US Stocks?
“What’s interesting about US stocks is that you not only get exposure to the United States but also to the world, as many companies have global operations but are listed there.”This statement from Viram Shah, co-founder and CEO of Vested Finance, highlights one of the major advantages provided by investment opportunities in the US market. Portfolio diversification is one of the many reasons why investing in US stocks is a helpful addition to your portfolio. US indices such as the NASDAQ and S&P 500 have very little correlation with Indian indices such as the Sensex – 0.36 over the past decade, to be precise. From a diversification perspective, this makes investing internationally an essential task for Indian investors.

vested graph 1

Figure 1: Dow Jones Industrial Index vs Sensex. Annual returns 2010-2019. Source: ET

Another advantage that the US stocks have over Indian stocks is the currency in which they trade. The US dollar is up 6% against the rupee this year alone. The US markets have also proved to be more stable than Indian markets in the long run.

And when you focus on returns, international investments typically outperforms domestic stocks investments. The DJIA has beaten the Sensex over 3-year, 5-year, and even 10-year periods.

Perhaps more importantly, despite this performance, the Dow Jones is at a lower price-to-earnings value (20.53) than the Sensex (25.01) as of Feb 2020. At the same time, dividend yield remains higher in US markets.

vested graph 2

Figure 2: Returns comparison between Dow Jones and Sensex (INR based), from January 2009 – Dec 2019

So, how can you get started?
How to start investing internationally from India
Investing in international markets may seem overwhelming at first. But it is 2020, and fortunately, the process has been significantly simplified for those who are keen on diversifying their portfolios. There are many ways by which you can go about investing internationally:

  • You can purchase mutual funds that invest in international stocks
  • You can invest in Exchange Traded Funds (ETFs) using an investing account. ETFs are different from mutual funds as they are listed and traded just like stocks and tend to have lower expense ratios
  • Or, you can directly invest in international stocks listed on international exchanges using dedicated platforms.

How to invest in US stocks with 5paisa
5paisa through Vested platform facilitates international investing by offering both direct investments in stocks and ETFs and investments through curated portfolios. Investors can open an account through a paperless process with no minimum balance and take advantage of commission-free investing. All they need to provide is their:

  1. PAN card number and copy, and
  2. Proof of address

Here’s how the two investment options work:

  • Direct investments by opening a US brokerage account: To facilitate direct investments, we offer a dedicated platform where Indian investors can directly purchase stocks and ETFs in the US markets. This method lowers overall costs for the investor, but funds must be wired to the US. The Liberalisation Remittance Scheme (LRS) allows this, with the annual upper limit capped at $250,000 per person. We also offer fractional investing capabilities, lowering the barrier of entry for many
  • Diversified investments into curated portfolios for varying risk profiles: Our platform, investors that want more advice on what to invest, can also invest in Vested’s proprietary curated portfolios. These portfolios are called Vests. Vests are curated for different risk profiles and are constructed with different themes in mind. Vests might be a great option for investors looking to expand their investments to international shores but wishing to retain a narrow focus on specific sectors or industries
vested 5paisa

How does Taxation work

International Exchange Traded Funds (ETFs) are treated as debt funds for taxation purposes. This means that to qualify as long-term holdings, you must keep them for three years. While the short-term capital gains tax rate is as per your applicable income tax slab, long-term capital gains tax is charged at 20% with indexation benefits.
For investors making direct investments in US markets, they are liable to pay taxes on both investment gains and dividend gains. Investment gains will be taxed in India only – where the tax liability is determined by the duration of their holdings. 24 months is the long-term capital gain threshold, with the rate of 20% with indexation benefit. Investments held less than 24 months will incur short-term capital gains tax, calculated according to applicable individual income tax slabs.

Dividends are taxed in the US at a flat rate of 25%. Thanks to the US and India’s Double Taxation Avoidance Agreement (DTAA) though, taxpayers can offset the income tax they’ve already paid in the US. Learn more about this topic here: how taxation works for Indians investing in US markets.

Investing Internationally from India: Closing Thoughts

International investments help you gain exposure to other markets. Geographical diversification can reduce country risk, including risk from negative events that might impact India’s domestic economy. Moreover, as mentioned earlier in this post, when you compare investing in Indian markets vs US markets, US stocks have historically exhibited lower volatility, higher returns, and higher international exposure.

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Here’s all You Need to Know About IPO Application Process

IPO
22/09/2020

Initial Public Offering (IPO) is the first time issue of shares to the public and listing of stock exchanges. It can be a Fresh Issue of shares, Offer for Sale by existing shareholders or a mixture of both. Application for subscribing for an IPO can be done through both Online & Offline modes.

How to apply for IPOs online?

If you want to apply for an IPO, you need the below:

* Demat account - To hold your shares

* Trading account - To sell your shares

* UPI ID - To block funds in your bank account

You can open demat account with any SEBI registered Depository Participant (DP). These DPs can be banks or brokers.

Key Steps to Apply for an IPO Online.

* Login to your trading platform and select the desired issue (company) in the Current IPO section.

* Enter the Number of lots and price at which you wish to apply for.

* Enter your UPI ID and click on submit. With this your bid will be placed with the exchange.

* You will receive a notification to block funds in your UPI app. Approve the block request.

* Upon the successful approval, the required amount will be blocked in your bank account.

* On allotment, the blocked amount will be deducted from your bank account and shares are credited into your Demat account. Any extra amount to the extent of shares applied but not allotted, will be unblocked by your bank.

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Check Glenmark Life Sciences IPO & Rolex Rings IPO and apply online through 5paisa

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How to apply for IPOs offline?

An offline application is made by submitting the filled-up application to the designated collection centre.

Fill in details like Name, PAN, Demat number, bid quantity, bid price and submit the ASBA application to the Self Certified Syndicate Banks (SCSB). The bank will upload the details of the application in the bidding platform. The onus is on you to ensure accurate details to avoid chances of rejection.

 

Check Out the List of Upcoming IPOs in 2021

 

Tips for making money in IPOs:

1. For retail Investors, in case of over subscription, allotment is done on a lottery basis. So, it is advisable to apply from multiple family accounts instead of more lots from single account.

2. In order to increase allotment chance, instead of select a lower price, it is advisable to place the IPO bid price at cut off, which signifies that you are ready to buy the stock at final decided price.

3. Grey market premium (GMP) is the premium for which people are ready to pay for buying the shares before even stock is listed on the exchange. High GMP signifies higher demand in the market and hence can give more listing gains.

All the required details are available in the Red herring prospectus. You are advised to read the risk factors thoroughly before applying.