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This Festive Season Should I invest in Gold?

This Festive Season Should I invest in Gold?
23/10/2020

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.

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Do You Know sectors to Benefit from Joe Biden’s win?

Benefit from Joe Biden's Win
by Nikita Bhoota 11/11/2020

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.

Conclusion:

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.

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10 key parameters for analysing your trades

10 key parameters for analysing your trades
17/11/2020

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.

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Is Road Contractors Segment Seeing a Recovery?

Is Road Contractors Segment Seeing a Recovery?
by Nikita Bhoota 23/11/2020

All major road contractors have reported healthy recovery in execution during 2QFY21 on account of labour and RM availability improved. Margins have largely remained flat, in spite of Covid19-related headwinds. The order book for road contractors is healthy at 2.5-6.3x book-to-bill which, coupled with the receding monsoon, improved labour and supply chains, should support healthy execution in 2HFY21. Healthy pipeline to be awarded by the NHAI in the remaining year should aid medium-term growth visibility.

Strong execution in 2Q:

Revenues for road contractors sharply recovered in 2Q, due to easing of Covid19 restrictions across regions. Labour-force availability as well as logistics constraints relating to raw materials improved QoQ and led to healthy execution during the quarter.

Margins have been stable:

Despite the significant disruption due to Covid19, Ebitda margins for road contractors have largely remained stable in the past two quarters. Higher share of irrigation contracts, projects nearing completion and pick-up in execution have supported margins during 2Q. We expect margins to be stable in 2HFY21, supported by improving execution at the high-margin, captive HAM projects.

Labour availability back to pre-Covid levels:

 Following the Covid19 lockdown in April-May, execution of road and infra projects were impacted by the unavailability of adequate workforce, given the migration back to their home towns. The situation started improving in June-July and has returned to normalcy for most road contractors.

Order book remains healthy for all road contractors:

Order book for most contractors remains healthy, at book-to-bill of 2.5-6.3x, thereby lending healthy growth visibility over the next few quarters. Many contractors including DBL, KNRC, ASBL and SADE have won projects recently as well. Furthermore, many HAM/EPC projects are yet to secure appointed dates (PNCL has Rs90bn worth of projects, where AD is pending).

Pickup in order awarding likely in 2HFY21:

NHAI has awarded 40 projects of 1,330km, worth Rs472.9bn, in 1HFY21. Overall, MoRTH has awarded projects of 5,052km in 1HFY21. NHAI targets awarding 4,500km of highway projects in FY21. We expect healthy awarding in coming months which should further improve order book for road contractors.

Recommendations:

KNR Constructions Ltd (KNRC), PNC Infratech Ltd (PNCL) and Ashoka Buildcon Ltd (ASBL) remain our preferred picks, given their strong delivery track-record, healthy balance sheets and attractive valuations

Stock Performance:

Nifty 50 have rallied 54.6% (March 25, 2020- November 20,2020) since the first nationwide lockdown was announced by Prime Minister Narendra Modi However, some road contractor companies’ stocks that have outer performed or have given more or less similar returns to benchmark index Nifty 50 in the same period.

Company Name

25-Mar-20

20-Nov-20

Gain/Loss

Ashoka Buildcon (ASBL)

44.3

74.05

67.2%

Dilip Buildcon (DBL)

216.7

362.9

67.5%

Sadbhav Eng

32.7

50.75

55.2%

PNC Infratech

84.4

167.45

98.4%

HG Infra

137.7

200.2

45.4%

KNRC

194.2

292.8

50.8%

Source: BSE

The stocks in the infrastructure sector have given healthy returns in the past 8 months. PNC Infratech gave a magnificent return of 98.4% from March 25,2020 to November 20,2020. PNC Infratech is a mid-size EPC contractor, with demonstrated capabilities across sectors including roads & highways, airports, railways and other civil engineering works. Based in Agra, Uttar Pradesh, it traditionally focusses on contracts in northern India. Dilip Buildcon (DBL) is a Bhopal-based road contractor and developer, jumped 67.5% in the past 8 months. Ashoka Buildcon (ASBL) rallied 67.2% in the same period. Ashoka Buildcon (ABL) is one of the largest highway developers in the country, with interests in EPC works (roads and power distribution), BOT road projects, and manufacture of ready mix concrete.

Sadbhav Eng jumped 55.2% from March 25,2020 to November 20,2020. Sadbhav Engineering is a leading EPC contractor-cum-developer in India. The company has restricted its focus to three key fast-growing sectors – roads & bridges, irrigation and mining. HG Infra spiked 45.4% in the same period. HG Infra is a leading Indian highway contractor based in Jaipur, Rajasthan. Almost 69% of the order book comprises projects from the government and 31% comprises projects from the private sector (FY20). KNR Constructions (KNRC) rallied 50.8% from March 25, 2020 to November 20,2020.


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Is Paint Sector on Recovery Path?

Sector update paint
by Nikita Bhoota 27/11/2020

The paints sector has seen a strong recovery in 2Q, with major players recording double-digit decorative volume growth as economic activity normalised. Recovery was led by economy-end emulsions and driven by rural upcountry towns, even as metros continued to witness sequential improvement. Benign input costs and continuation of cost-control measures taken post-Covid, led to higher than expected Ebitda. Companies remain confident of maintaining margins with festive demand led volume growth seen in Oct and sustainable cost savings.

Decorative demand led recovery:

Decorative volume growth was healthy across paint players Asian Paints (APNT)-11%, Berger Paints (BRGR)-17%, Kansai Nerolac (KNPL)-15%. BRGR saw the highest sales growth, given its focus on economy end emulsions, while Akzo Nobel (Akzo) reported a YoY decline, given higher salience of industrial and premium deco products.

Ebitda beat across the board:

Paint companies registered strong EBITDA margin, as a result of benign input costs and lower than estimated fixed costs, as aggressive cost reduction initiatives taken previous two quarters sustained, even as sales witnessed strong recovery.

Outlook on paint sector:

Overall, we continue to remain cautious on the prospects of the paints sector over the longer term, despite near-term tailwinds resulting from pent-up demand as lockdown eases and economic activity resumes. We believe the sector is highly overvalued, given moderate growth outlook.

Stock Performance:

S&P BSE Sensex has rallied 53.6% (March 25, 2020- November 25,2020) since the first nationwide lockdown was announced by Prime Minister Narendra Modi Here, we have discussed some paint companies’ stocks that have given positive returns or have outer performed the benchmark index S&P BSE Sensex in the same period.

Company name

25-Mar 2020

25-Nov 2020

Gain

Kansai Nerolac Paints Ltd.

326.9

522.7

59.9%

Berger Paints India Ltd.

450.3

635.8

41.2%

Asian Paints Ltd.

1,594.1

2,154.3

35.1%

Akzo Nobel India Ltd.

1,990.9

2,114.0

6.2%

Source: Ace Equity

The stocks in the paints sector have given healthy returns in the past 8 months Kansai Nerolac Paints Ltd. gave a magnificent return of 59.9% from March 25,2020 to November 25,2020.  Kansai Nerolac Paints (KNPL), the Indian subsidiary of Kansai Paints, Japan, has a presence across industrial and decorative coatings. Within the Industrial segment (45%), automotive coatings constitute ~75% of sales. Within the decorative coatings segment, KNPL’s product range spans the entire portfolio from high-end emulsion (~35% share) to low-end distempers/primers (~35% share).

Berger Paints India Ltd. rallied 41.2% in the same period. Berger has presence in the decorative paints, industrial coatings segments in the domestic and international markets. Further, it has a presence in external insulation finishing systems. In the industrial coatings segment, Berger caters to the protective coatings, automotive (primarily two-wheeler and three-wheeler and commercial vehicles) and general industrial segments. Its FY20 revenue mix stood as decorative paints 82%, Industrial paints 10% and rest 8% was contributed by international business.

Asian Paints Ltd. jumped 35.1% from March 25,2020 to November 25,2020. Asian Paints, the largest paint manufacturer in India, operates in the decorative as well as the industrial coatings segments (through its JV with PPG Industries) and has been the market leader in the Indian paints industry since 1968. The company is the second-largest automotive coatings player in India and caters for the auto OEM and refinish markets. Asia contributes the largest share of revenue to its international business (48%), with the rest coming from the Middle East (26%), Africa (20%) and South Pacific regions (6%). It has a strong distribution network in India, with more than 65,000 dealers across the country. Akzo Nobel India Ltd. has given the lowest return of 6.2% in the same period.

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What to consider before investing in an IPO?

What to consider before investing in an IPO?
by Nikita Bhoota 22/12/2020
There is a lot of buzz in the primary market after remaining muted for the most of the year 2020.  Many private companies have decided to go public by making its shares available to investors in the stock market. This process is popularly known as Initial Public Offer (IPO)

Selecting an IPO for an investment purpose is not an easy task. Therefore, 5 paisa team has come up with the points to look for before selecting an IPO. An investor must understand the basics and financials of the company before applying for an IPO. The information about the company is available in draft red herring prospectus (DRHP). In simple words, a DRHP or offer document provides detailed information about the business operations and financials of the company. The Securities and Exchange Board of India (SEBI), has made it mandatory for companies to file a DRHP before going for an IPO. 

However, going through a huge document may be a tedious task. So, investors can focus only on some of the essential parts of the document, which will be good enough to understand the business and its prospects.

Below, are the key points one must look at the DRHP and in general before applying for an IPO

Management Team and Promoters Background:
Promoters and top management are the key assets of the company. Take a close look at promotes and managers who are usually going to take all the decisions of the business. The investors should check on experience, salary paid and the average number of years spent by the top management in the company. They should also check, there is no corporate governance issue in the company because any negative news could be a red flag and adversely affect the future performance of the company.

Strength and Financial Performance of the Company:
The investor should also take note of the company’s strength and its positioning in the industry. Studying about the positioning and strategies will help to visualise the future prospects of the company. Similarly, going through the historical financial numbers is also important. It is essential to check if there is a sudden spike or fall in financial performance in the past one year or few quarters just before an IPO.

Understand the objective of the issue and shareholding of the promoters:
It is important to check the promoter shareholding before and after the IPO. A higher promoter shareholding in the company is always better for minority shareholders. It is also important to understand the utilization of funds raised through the IPO. If the funds will be utilized in the existing business or for an expansion, it will be a good sign of future prosperity.

Check the Valuations:
This seems tricky for retail investors but it is an important aspect that shouldn’t be ignored. To begin with, 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 and return on equity, return on capital employed can be used to conclude whether the IPO is available at a discounted price or is expensive as compared to its competitor in the market.

Read the Research Notes and Risk associated with the business
The retail investor should consider the views provided by various brokerages in their IPO research notes, which are publicly available. 
Secondly, companies need to mention all major risk factors related to the business in its prospectus. Reading the risk factors is very important. At times there are certain litigations and liabilities, which can be a threat to the company’s future business prospects.

Conclusion:
The decision to go for an IPO must depend on your investment objectives, how much risk are you willing to take, and whether you believe in the growth potential of the company. Don’t make decisions based on the publicity or peer pressure or recommendations. Be wise and take informed decisions. Good IPOs can give magnificent returns in the long-run.