Should you stop investing when you decide to buy a house?

Should you stop investing when you decide to buy a house?
31/05/2018

Owning a house is an important milestone for any individual, especially in India, where it is, more often than not, compared with getting married and, at times, with having one’s first child. There is an emotional, personal, as well as cultural significance attached to this event. Financially, too, it is a significant investment that demands and requires severe scrutiny and importance.

Most working individuals start planning for this investment early on and dedicate an important part of their savings towards the down payment of the loan. Furthermore, once the down payment has been made and the house is purchased, a considerable part of their income is diverted towards paying the equated monthly installments, or EMIs.

Considering the fact that paying EMIs on a house loan is a major financial responsibility, some would say that it's hard to continue investing after one has bought a home. Moreover, apart from the EMIs, regular monthly expenses also need to be taken care of. However, it would be prudent on one’s part to cut down costs and invest some money even during these times.

With the amazing power of compounding, there are certain advantages of investing even smaller amounts over the long run.

Given below are the three top reasons to continue investing even after you decide to purchase a house on a loan.

To cover part of your loan

It is a good habit to divert a part of your funds into a long-term investment plan. An amount of Rs3,000 per month can be invested in an equity vertical. This can yield a sizeable amount to pay off a significant chunk of your home loan.

To invest salary increments and other significant gains

You can divert these funds into a lower-risk based debt fund and be safely invested.

To prepay the principal amount on the home loan

If you have been saving for some time, you can utilize some of these funds to prepay the principal amount of your home loan. This reduces your outstanding principal, which leads to a reduction in EMIs over the remaining tenure.

Given that buying a home is a huge event, it is important to do a thorough analysis of your finances before even thinking about it. One must jot down the figures and calculate current as well as future expenses and investments to arrive at the component which can be used towards buying a house.

The following two are the most important prerequisites:

A contingency fund

One must always budget his/her monthly expenses and set up a fund that can sustain you for six months. This will be your contingency fund and should be saved for emergencies. Also, one should invest this amount in a debt fund, as it can be easily liquidated, instead of just allowing it to lie in the savings account.

Retirement corpus

A retirement corpus is a long-term investment and cannot be compromised with. After all, we all have to retire and it is common sense to be financially independent at that time. Hence, one should not sacrifice their retirement investments to buy a house.

With proper planning and early investments, one can easily buy a house as well as save a healthy retirement corpus.

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5 Stock Tips This Dussehra

5 Stock Tips This Dussehra
by Nikita Bhoota 02/06/2018

Dussehra is considered to be an auspicious festival in India. On this day, Lord Rama has killed Ravana. This festival signifies the victory of good over the evil. Similarly, an investor can overcome their loss-making investments by adding the right stocks in their portfolio. Based on research, fundamentals and valuations, we recommend the following stocks for investment this Dussehra.

Infosys

Infosys is the second largest IT Company in India. The company’s service lines are more focused on discretionary spends like ADM and ERP constituting 67% of the revenues. On the vertical front, BFSI accounts for 33% of the revenue. Geographically, North America contributes ~61.9% of the revenue followed by Europe (~22.5%) in FY17. We expect 11% revenue CAGR over FY17-19E due to pickup in BFSI and retail segment supported by higher customer spends in the US. Similarly, large deal wins will keep the growth momentum. We expect 8% EBITDA CAGR over FY17-FY19E due to increasing focus on cost optimization. We expect 5% PAT CAGR of over FY17-FY19E. The appointment of Mr Nandan Nilekani as the non-executive chairman would restore a sense of security among investors, employees, and clients. We expect an upside of 15% from CMP of Rs 898 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 68,485 27.2 14,353 62.5 14.4 296.2 3.0
FY18E 70,746 26.6 14,326 62.4 14.4 358.6 2.5
FY19E 76,058 27.1 14,993 65.3 13.8 423.9 2.1

Source: 5paisa research

Aurobindo Pharma

Aurobindo Pharma Limited (Aurobindo) manufactures generic pharmaceuticals and active pharmaceutical ingredients in India. The company's product portfolio is spread across six major therapeutic categories of antibiotics, anti-retrovirals (ARV), CVS, CNS, gastroenterological, pain management, and anti-allergic.  It derived 79% of revenue from generic pharmaceuticals and remaining from active pharmaceutical ingredients in FY17. Geographically, US business contributes 44% to Aurobindo’s total revenue.  We expect 20% revenue CAGR over FY17-FY19E due to strong pipeline of 134 products which majorly includes niche and high value products. Clearance to unit 7 in Hyderabad is also beneficial for the company. Further, recent approval for serum and tablet formulations of gRenvela will also boost the revenues. We expect margins to improve by 110 bps as strategic backward integration of marketing with API manufacturing is expected to reduce the intensity of ongoing pricing pressure. We expect 28% PAT CAGR over FY17-FY19E. We expect an upside of 15% from CMP of Rs 698 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 15,089 23.1 2,301 39.3 17.5 161.0 4.3
FY18E 16,301 23.2 2,386 40.7 16.9 201.7 3.4
FY19E 18,173 25.5 2,947 50.3 13.7 252.0 2.7

Source: 5paisa research

Manappuram Finance

Manappuram Finance is an NBFC, offering gold loans, microfinance, housing loans and commercial vehicle loans. Its AUM comprised of gold loan (81.4%), microfinance (13.14%), housing finance (2.2%) and others (1%) in FY17. We expect income to grow at 28% CAGR over FY17-FY19E on account of pickup in gold segment. The company is strongly focusing on short-term gold loans owing to current volatility in gold prices. Manappuram is also focusing on housing finance and microfinance and targets to derive 50% of revenue from these segments in next three years. We expect AUM to grow at 20% CAGR over FY17-FY19E. We expect GNPA to remain flat at 0.8% in FY18E. We expect an upside of 18% from CMP of Rs 95 over a period of 1 year.

Year NII (Rs Cr) Net Profit (Rs Cr) EPS (Rs) ROE (%) P/BV
FY17 1,943 726 1.7 24.8 2.8
FY18E 2,185 836 2.0 24.9 2.5
FY19E 2,489 959 2.3 24.9 2.1

Source: 5paisa research

Titan

Titan Company is India’s leading player in branded jewellery, watches and precision eyewear. Its revenue consists of Jewellery (78%), Watches (15%), Eyewear (3%) and others (4%) in FY17. We expect 42% revenue CAGR over FY17-FY19E on account of sub-brand Rivaah in wedding jewellery segment. With this, Titan targets to reach 40% market share in FY21E vs 22% in FY17E. Additionally, the entry in high value studded jewellery will also support the revenue growth. Recently, government has fixed GST rate of 3% (expected 5%) on gold which bodes well for the company. We expect EBITDA margins to improve by 90bps over FY17-FY19E on account of cost saving initiatives by the company. Titan is a debt free company which lends financial stability. We expect 60% PAT CAGR over FY17-FY19E. We expect an upside of 15% from CMP of Rs 587 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 12,614 9.5 761 8.6 68.5 48.6 12.1
FY18E 15,075 9.9 1,019 11.5 51.1 60.0 9.8
FY19E 17,968 10.4 1,285 14.5 40.6 74.5 7.9

Source: 5paisa research

Asian Paints Ltd (ASL)

Asian Paints is the largest paint manufacturer in India with market share of 53% in decorative paints and has a strong dealer network of ~45000 dealers. We expect revenue CAGR of 14% over FY17-FY19E on account of strong demand for decorative paints due to shorter repainting cycle (repainting forms 65% of the decorative paint demand). ASL is working on 2 Greenfield projects (Mysuru-6,00,000 KL and Vishakhapatnam- 5,00,000KL) to expand its decorative paint capacity.  The first phase of both the capacities- 3,00,000 KL will be completed by FY19E. GST will reduce the tax arbitrage for the unorganized segment (30% of industry) and will provide additional benefit to the organized players in the long run. We expect EBITDA CAGR of 14% over FY17-FY19E due to shift from distemper to external emulsion (high margin) in decorative paint business. We expect PAT CAGR of 11% over FY17-FY19E. We expect an upside of 15% from CMP of Rs 1161 over a period of 1 year.

Year Net Sales (Rs Cr) OPM (%) Net Profit(Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 15,290 19.8 2026 21.1 55 79.3 15.1
FY18E 17,244 19.6 2173 22.7 51 93.8 12.8
FY19E 19,908 19.9 2533 26.4 44 110.7 10.8

Source: 5paisa research

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5 short term trades

5 short term trades
by Gautam Upadhyaya 02/06/2018

Short term calls are the buy/sell recommendations generated on the basis of technical and derivative data points with a trading horizon of 2-5 days. The objective is to capture stocks displaying strong momentum or a short-term reversal in trend. Short term calls will be generated in cash and F&O segments. The calls should be executed when the underlying price is quoting within the mentioned range.

1) Reliance Industries Limited - Buy

Stock

Reliance Industries Limited

Recommendation

The stock has formed a large bullish engulfing candlestick pattern and has witnessed a strong bounce from its 200-day EMA backed by a surge in volumes. Derivative data indicates fresh long formation.

Buy/Sell

Range

Target

Stop Loss

Buy (Cash)

1100-1110

1325

960


2) Tata Power Company Limited - Buy

 

Stock

Tata Power Company Limited

Recommendation

The stock is on the verge of a flag pattern breakout on the daily chart and has taken support along the rising trend line. It has also shown positive momentum on the weekly MACD histogram. Derivative data indicates fresh long formation in the stock.

Buy/Sell

Range

Target

Stop Loss

Buy(Cash)

75-76

91.5

65

3) ITC Ltd - Buy

Stock

ITC Ltd

Recommendation

The stock has witnessed a positive bounce from its support levels on the weekly chart (89-period EMA). It has also managed to give a close above its 200-day EMA on the daily chart. Derivative data indicates fresh long positions in the stock.

Buy/Sell

Range

Target

Stop Loss

Buy (Cash)

Rs280-283

Rs324

Rs254

 


Research Disclaimer

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5 Stocks for next week 5th Feb-9th Feb 2018

5 Stocks for next week 5th Feb-9th Feb 2018
by Gautam Upadhyaya 02/06/2018

MARUTI SUZUKI INDIA- SELL


Stock

MARUTI

Recommendation

The stock has breached its support levels on the daily chart and has witnessed a bearish crossover on the daily MACD indicators. Maruti has also given a close below its 10 period EMA on the weekly chart, which affirms our negative view on the stock.

Buy/Sell

Range

Target

Stop Loss

SELL(FEB FUTURES)

8980-9020

8600

9293

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 Day M.A

MARUTI

273140

10000/5804

8028


 

HDFC BANK- SELL


Stock

HDFC BANK

Recommendation

The stock has breached its support levels along the rising trend line and is on the verge of witnessing a bearish crossover on the daily MACD indicator. The stock has formed a shooting star candlestick pattern on the weekly chart.

Buy/Sell

Range

Target

Stop Loss

SELL(FEB FUTURES)

1948-1960

1880

1993

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 Day M.A

HDFCBANK

504763

2014-1294

1743


 

PIRAMAL ENTERPRISES-SELL

Stock

PIRAMAL ENTERPRISES

Recommendation

The stock has faced resistance along the declining trend line and has given a breakdown on the daily chart. Derivative data suggests fresh short position, which is indicated by a rise in O.I and decline in price.

Buy/Sell

Range

Target

Stop Loss

SELL(FEB FUTURES)

2642-2658

2505

2749

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

PEL

47779

3083/1700

2611


 

POWER FINANCE- SELL

Stock

POWER FINANCE

Recommendation

The stock has breached its support levels on the weekly chart after witnessing a sideways consolidation for nearly seven months. The stock has formed a large bearish candlestick patter on the daily chart. Derivative data suggests fresh short formation in the stock indicated by rise in open interest and decline in price. We expect the negative trend to continue in the following week.

Buy/Sell

Range

Target

Stop Loss

 Buy

110-112

104

115.8

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

PFC

29291

169/110

126


 

BRITANNIA LTD- BUY


Stock

BRITANNIA LTD

Recommendation

The stock is in a rising channel formation on the weekly chart and has given a positive bounce from its support levels. We expect the positive momentum to continue in the stock.

Buy/Sell

Range

Target

Stop Loss

Buy

4715-4729

4910

4572

NSE Code

Market Cap(Rs in Cr)

52-week High /low

200 M.A

BRITANNIA 

56787

4963/2918

4258


Research Disclaimer

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Why you should consider taxation before investing

Why you should consider taxation before investing
03/06/2018

“…nothing can be said to be certain, except death and taxes.” The great statesman Benjamin Franklin uttered these words over 200 years ago and they still hold true to this day. Investment is subject to taxation and thus, you must ensure that it does not eat into your returns.

Tax-saving schemes attract many people, but even they are not free of caveats. For instance, in instruments like National Savings Certificate (NSC) and Senior Citizen Savings Scheme (SCSS), the interest amount is added to your income and becomes a tax liability with each year until the tenure ends.

Before delving into the details of why taxation is important for your investments, it is important to determine the type of investor “you” are. The following factors can help answer this question:

  • Your investment goals
  • Your tax bracket

To begin with, taxes can be levied at any predefined point during the three life stages of an investment:

  • Investment/Contribution stage: Tax is not levied as the investment is made in the first stage. However, there is a chance for tax savings under Section 80C, where investments up to ?1.5 lakh can be made tax-exempt.
  • Income earning stage: You begin to earn from your investments in this phase. Interest may be taxed or exempted on certain conditions:
    • Interest on fixed deposit is taxed irrespective of tax slabs.
    • Interest on Public Provident Fund (PPF) is not taxed.
    • Dividend on equities are tax-free.
  • Withdrawal/Maturity stage: Upon maturity, some investments maybe taxed or exempted. Short-term equity investments are taxable on sale within one year. Non-equity mutual funds are taxed as per slab.

Based on this logic, we can classify our earnings as Taxable (T) or Tax-Exempt (E) and further divide them into six categories:

EEE: Exempt –> Exempt –> Exempt

All investments under this are tax-exempt during all three investment stages. Popular investment products include EPF, PPF, etc.

EET: Exempt –> Exempt –> Tax

Withdrawals are taxed at marginal rate. For e.g., NPS.

ETE: Exempt –> Tax -> Exempt

Investments are taxed only on the income earned during the tenure. Examples include NSC and SCSS.

TEE: Tax –> Exempt – > Exempt

Investments are not tax exempt. Popular options are stocks, equity and balanced funds.

TET: Tax –> Exempt -> Tax

Only the interest income is tax exempt. For example: non-equity hybrid funds, debt funds.

TTE: Tax –> Tax -> Exempt

Tax is not levied on maturity. Best examples include fixed deposits (FD) and recurring deposits(RD).

It is imperative to keep the above forms of investment in mind to decide upon the one suited for your needs. Some popular investor categories and their corresponding, suitable products include:

High and mid income-tax bracket investors (less than 60 years):

  • Tax exemptions are extremely important for this category of investors.
  • Their primary focus should be saving tax during the initial investment period by availing tax-saving deductions.
  • In this scenario, EEE, EET, and ETE investments can help to acquire initial rebates. Mixed with conventional options like TEE and TET can even create wealth.

Low income-tax bracket investors (less than 60 years):

  • Tax exemptions do not matter greatly as a token investment in EEE investments is enough.
  • You are better off investing in wealth accumulation instruments, which fall under TEE and TET categories.

Retired investors:

  • Retired people, those likely over the age of 60, enjoy more tax benefits than their younger counterparts.
  • They would benefit more from Senior Citizens Saving Scheme that falls under ETE.
  • Tax-free bonds and debt instruments that offer reasonable returns at minimal risk. These fall under TEE’s.

Non-tax paying investors:

  • The focus should be on wealth generation investments through TEE and TET as tax would not play a significant role.

Conclusion:

A penny saved may not always be a penny earned as your money may be tied down for a long period. Also, tax rebates are limited. Therefore, an investment that maximises after-tax returns should be an all-around success.

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5 Penny Stocks which are not Penny

5 Penny Stocks which are not Penny
by Nikita Bhoota 03/06/2018

Penny stocks are the ones which trade at a very low price. Usually, these stocks lack liquidity and carry high risk. The public information available on these stocks/companies is very limited, which makes it difficult for an investor to understand the future prospects of the business. However, penny stocks with good fundamentals and strong business models have the potential to become multi baggers in the long run. Here are some of these stocks.

Sintex Plastics (SPTL)

SPTL was established by transferring the plastic business (66% of FY17 revenue) and the Prefab & Infra business of Sintex Industries (34% of FY17 revenue). Sintex Plastics, a leading player in custom molding business (mainly composites), stands to benefit from growing trend of composites replacing metal parts across industries. Thus, we expect revenue CAGR of 12.8% over FY18E-20E. We see EBITDA CAGR of 15.6% over FY18E20E due to operating leverage and better product mix over FY18E-20E. Owing to the decline in interest outgo, we expect SPTL to post 17.5% PAT CAGR over FY18E-20E. SPTL is done with its capex cycle and has lowered its focus on w/c intensive Prefab & Infra business, thus enhancing cash generation. This will lead to net debt declining by ~Rs1,500cr over FY17-20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 5,996 15.0% 332 5.6 11.6
FY19E 6,757 15.3% 392 6.6 9.9
FY20E 7,635 15.7% 458 7.8 8.4

Source: 5paisa research

NHPC

NHPC is a hydropower generation company with power generation capacity of 5,171MW in FY17. The company generated 23,275mn units of electricity against a target of 23,000 for FY17. The company is planning a significant expansion of power generation capacity over the coming years. A total of 8,481MW is currently under the clearance/approval stage. This includes plans to setup a thermal plant (1,320MW capacity) through a joint venture. We expect the company to report revenue CAGR of 18.1% over FY18E-20E aided by 7.2% CAGR in generation volumes and Plant Load Factor (PLF) remaining at 62-63% over the same period. We see EBITDA CAGR of 28.2% over FY18E20E aided by better utilization of newly added capacity. We expect PAT CAGR of 20.8% over FY18E-20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 9,031 57.3% 2855 2.8 9.9
FY19E 10,700 63.3% 3,593 3.5 7.9
FY20E 12,600 67.4% 4167 4.1 6.8

Source: 5paisa research

MEP Infra

MEP Infrastructure is independently and collectively engaged in toll projects, OMT (Operate, Manage & Transfer), Hybrid Annuity Model (HAM) and BOT. Due to MEP's JV with San Jose India, it is strategically planning to extend its road development portfolio based on HAM. It has bagged 5 new projects under HAM model worth Rs3,230cr.  MEP has achieved the first milestone for the Nagpur, Package-II and Mahuva to Kagavadar project. The Authority paid the first milestone payment (20% of physical progress) for Nagpur, Package-II and Mahuva to Kagavadar. The appointment date for other two HAM projects is expected shortly. The company has started collecting toll from 124 entry points to Delhi. EPC order book of Rs3,000cr also provides strong revenue visibility. Thus, we expect 27% CAGR in revenue over FY18E-20E. We see PAT CAGR of 39% over FY18E-FY20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 2,444 44.2% 67 4.1 20.9
FY19E 3,877 33.3% 116 7.2 12.0
FY20E 3,994 33.6% 124 7.6 11.3

Source: 5paisa research

IDFC Ltd

IDFC Limited, through its subsidiaries, operates as a non-banking financial company in India. We expect NII to grow at CAGR of ~23% over FY18E-20E led by ~20% growth in credit. Among segments, faster growth is expected to come from retail. Expansion of banking business and non-interest income growth from AMC and securities business will lead to strong loan book growth. Its NIM is expected to expand by ~20bps yoy to 2.30% in FY18E. We foresee non-interest income to grow by ~16% yoy in FY18E supported by the Infra Development Fund worth ~Rs440cr. Alternative Investment Fund is expected to benefit from PE deals and infra debt management. Due to higher granularity, we expect NPA to improve in FY18E. It has increased its focus on branch efficiency, which should improve cost/income ratio.

Year Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV
FY18E 851 5.3 9.8 0.7
FY19E 1,193 7.5 7.0 0.6
FY20E 1,445 9.1 5.7 0.6

Source: 5paisa research

SJVN

SJVN is a power generation company which operates hydro, wind and solar plants. The total power generation capacity at the end of FY17 stood at 1,964.6MW. Hydroelectric sources generate power of 1,912MW with wind and solar accounting for 47.6MW and 5MW respectively. SJVN is also planning to set up a 1,320MW thermal power plant at Buxar, Bihar. The company has committed to develop 1,000MW of solar power generation capacity over the next 5-7 years. We expect the company to report revenue CAGR of 7% over FY18E-20E aided by near ~100% utilization levels over FY18E-20E. We foresee EBITDA CAGR of 6.9% over FY18E-20E aided by better utilization of new capacity added by the end of FY19E. We expect PAT CAGR of 6.9% over FY18E-20E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x)
FY18E 2,669 78.8% 1561 3.8 9.2
FY19E 2,856 78.7% 1,691 4.1 8.5
FY20E 3,055 78.6% 1784 4.3 8.1

Source: 5paisa research

Disclaimer: Stocks mentioned in this article are not stock recommendations. They get mention in the story on the basis of their performance.

Research Disclaimer