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Asian Paints 3094.65 (4.20%)
Axis Bank 787.50 (-6.46%)
B P C L 427.70 (-0.78%)
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Bharti Airtel 702.35 (0.88%)
Britannia Inds. 3697.85 (0.14%)
Cipla 922.50 (1.65%)
Coal India 173.60 (-0.83%)
Divis Lab. 5149.35 (2.60%)
Dr Reddys Labs 4662.70 (-0.08%)
Eicher Motors 2583.90 (-0.25%)
Grasim Inds 1728.40 (-0.63%)
H D F C 2915.00 (0.12%)
HCL Technologies 1177.15 (0.89%)
HDFC Bank 1642.80 (-0.60%)
HDFC Life Insur. 693.85 (0.55%)
Hero Motocorp 2690.15 (-0.38%)
Hind. Unilever 2396.60 (-1.65%)
Hindalco Inds. 479.85 (-1.28%)
I O C L 130.80 (-0.53%)
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Infosys 1728.95 (1.48%)
ITC 238.45 (0.74%)
JSW Steel 684.90 (-1.36%)
Kotak Mah. Bank 2188.25 (-1.03%)
Larsen & Toubro 1784.55 (-0.65%)
M & M 886.80 (-0.87%)
Maruti Suzuki 7356.25 (0.81%)
Nestle India 19004.60 (-1.11%)
NTPC 141.30 (-1.33%)
O N G C 157.90 (-3.19%)
Power Grid Corpn 190.25 (-0.08%)
Reliance Industr 2627.40 (-1.26%)
SBI Life Insuran 1186.00 (1.19%)
Shree Cement 28107.75 (1.19%)
St Bk of India 519.15 (1.29%)
Sun Pharma.Inds. 825.10 (1.43%)
Tata Consumer 818.75 (1.22%)
Tata Motors 497.90 (-2.11%)
Tata Steel 1326.15 (-1.30%)
TCS 3489.75 (0.21%)
Tech Mahindra 1567.85 (0.29%)
Titan Company 2460.10 (0.22%)
UltraTech Cem. 7354.20 (1.17%)
UPL 741.50 (3.96%)
Wipro 671.10 (0.44%)

What are your top 5 Investment Lessons in 2017?

What are your top 5 Investment Lessons in 2017?
by Nutan Gupta 14/07/2017

In 2016, the total wealth in India stood at $5.2 trillion. According to market research group New World Wealth, this means we are the 7th richest country in the world!

People are often under the impression that they have to be an economist or have a strong understanding of investments to know how money works. But that’s not true. All we have to do is look at everything that happens around us; the constructions of residences and malls, people vacationing, jobs created by new companies, money earned and spent, etc.

Some look at investing as a science, some look it as an art, and others look at it as a craft. But we can improve our understanding of investments and other related decisions only with practice. There is much to learn from the perceptive insights and thinking. Here are just a few things that we learnt this year.

Time

It’s essential to invest in the stock market for a long-term. The right time to invest in stocks is when they are available cheap, i.e. the bear phase. Purchasing opportunities in the downturn can help your stocks multiply and become wealthy, over a period of time. One should wait till their stock appreciates a good percentage.

Value

Before buying a stock, it’s important to study closely all aspects of the company. Value oriented companies tend to offer higher value for the long term. If there are two products similar nature, go for the one that is less expensive.

For instance, direct plans of mutual funds are priced lower than regular plans. A lower expense ratio directly translates into higher returns for the investor.

Stability

Consistent investment in the stock market will reap a lot of benefits. If done right, the stock market will always deliver, though the quantum or strategy of investments can differ.

For instance, the banking and financial sector was benefitted with people forced to deposit cash into their bank accounts during demonetization. Any investor who could have thought about this strategically would have made a windfall from his investments by now.

Inspection

You can’t make wealth the same way someone else did. You need to do your own research before making any investment. You can take advice and help from someone but it’s important to make your own decisions as per your requirements. One should invest only in businesses that they understand.

Evaluation

Tangible and intangible assets are also considered while valuing a company. Investors must be wary of the intangible assets, i.e. goodwill, involved. Sometimes due to goodwill, companies with good brands usually trade at higher multiples. Paying too much, even for a great branded company, might not be a good investment then.

To sum it up

Here is a quick recap of the important investment lessons:

  • Time: Buy when stocks are cheap, sell when they are high.

  • Value: Value-oriented companies offer higher stock value for a longer term

  • Stability: Consistent, and not sporadic, investment for greater benefits.

  • Inspection: Advice from experts is necessary as scenario changes for every person.

  • Evaluation: Tangible and intangible assets (such as goodwill) to be assessed while evaluating company’s stocks.

The coming year could play a crucial role in achieving India’s long-term potential of sustainable economic growth. Investors such as us can participate in this growth story through the equity route.

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When should you invest in Fixed Maturity Plans?

When should you invest in Fixed Maturity Plans?
by Nutan Gupta 14/07/2017
New Page 1

Fixed Maturity Plans (FMPs) continue to garner a lot of attention among investors in the past few years due to ease of investing, tax benefits and good returns.

Fixed Maturity Plans are close ended debt schemes with a fixed maturity horizon, meaning they are open for investments for a few days and closed until maturity. This time range could be as short as 1 month to as long as 5 years. FMPs are often compared to Fixed Deposits (FDs) due to the tenure. They often invest in money market instruments, bonds, governmental securities, etc.

Low-risk opportunities such as FMPs are a good option for investors who are spooked by the market. It’s always viable to invest in FMPs if you are looking for predictable and better returns. One thing to note is that they don’t get affected by the change in the market’s interest rate. When debt funds benefit from the fall in interest rate, the FMPs won’t join.

Why should you invest in FMPs?

Capital Protection

Due to their investment in debt and money market instruments, they provide less risk of capital loss as compared to equity funds

Low Exposure to Interest Rate Risk

They are not affected by interest rate volatility as they are held till maturity.

Tax Benefit

Tax effectiveness and indexation benefits are seen both in the short-term as well as long-term as they offer better returns as compared to FDs.

Indexation Benefit

Indexation lowers the capital gain, thus lowering the tax.

This allows an investor to take advantage of indexing his investment to inflation for four years while remaining invested for a period of slightly more than three years.

Lower Expense Ratio

There is a cost saving with respect to buying and selling of instruments since these instruments are held till maturity.

Capital Protection

They provide less risk of capital loss as compared to equity funds due to their investment in debt and money market instruments.

Who should invest in FMPs?

  • Investors with low-risk tolerance, looking at stable returns over the medium-term

  • Investors who are not pleased with returns from traditional fixed income avenues like Bank Deposits, Bonds etc.

  • Investors who want to invest money for a fixed tenure to meet certain financial goals in the future

  • Retired persons, instead of making random withdrawals from their savings, can invest to have a flexible and regular income.

  • Investors who have a three-year investment horizon and do not need liquidity during the tenure of the investment

  • Investors in the higher tax brackets, who lose a significant portion of their FD interest to taxes.

When you understand the risk-return characteristics of FMPs, you will realise that FMPs can give better risk-adjusted returns than FDs, even after factoring in the risk-free nature of FDs.

While FDs give us assured returns, FMPs give us an expected range of returns, when we go through the scheme information document and calculate carefully.

In a nutshell

Fixed Maturity Plans:

They are basically the FDs of mutual funds. Close ended debt scheme with fixed maturity.

Why FMP:

Low risk, tax benefits, ease of investing, good expected returns.

The more you know about FMPs, the more you realise that they are still excellent alternatives to FDs!

Next Article

What is stock market? What should I know about investing in stock market?

What is stock market? What should I know about investing in stock market?
by Nutan Gupta 14/07/2017
New Page 1

Stock market and the rules for investing in stock market

Have you ever been in need of cash and reached out to your relatives or friends for help? After the situation is under your control and when you have enough cash, you return your relatives or friends’ money. However, since they are your friends and family, they do not expect any returns. That said, if you were to return the money after a substantial duration, you would also consider the inflation and other interest charges when returning the money to your relative. Now, imagine that instead of a personal situation, you need money for business opportunity. Then, your friends and family who lend you would also expect returns. This is the underlying principal of stock market.

Let’s glance through the rules of investing in stock market:

Do your research well:  As a kid, you used to achieve success in exams by regularly doing your homework. This works even in case of stock market. Success is just a hands distance away if you invest appropriate time in research.

Don’t be a sheep: Following in someone great’s footstep is good. However, this is not true in case of stock market. It is advisable to avoid the herd mentality. Don’t be influenced by the actions your acquaintances, neighbors or relatives.

Invest in only what you understand: If you appear for an exam, you can answer the questions only that you’ve already prepared. You could prepare for questions only that you understood. This is true even for investments. You can be successful only if you invest in what you understand.

Be target-based instead of time-based: Even Warren Buffet doesn’t like to time the markets. Thus, instead of investing for specific time, invest with a specific target in mind.

Be disciplined: Discipline is the most essential ingredient for success. Without discipline, you tend to divert from your goals or miss the timelines and be relaxed about it. Discipline ensures that your investments help you reach your financial goals.

Be more practical, less emotional: Attachment issues are realistic and we all tend to face them at some point in our lives. However, it is best avoidable in case of stock market. It is advisable that you not get attached to a particular company or a sector. You need to see the trends and invest according to your research. Be practical and choose your stocks; don’t let your emotions chose your stocks.

Don’t put all your eggs in one basket: Change is the spice of life. Diversification is the spice of investments. To maximize your gains and insure your investment against market volatility and inflation, it is recommended that you diversify your investments and not put all your eggs in one basket.

Be optimistic but be realistic: Optimism is a great asset. It can take you places in life. However, when it comes to stock market, you need to have a perfect balance between being optimistic and realistic. You need to set realistic targets and not presume your stocks to be made of superman DNA.

Try and invest only the bonus: Occasionally, market volatility effects the stock market as a whole. Thus, you are bound to get your gains, albeit after longer time period. If you invested all your earnings into stock market without diversification, you could be in for a surprise. Hence, it is advisable that you only invest the extra amount that you have.

Scrutinize strictly: Investments are like babies. You need to constantly monitor their progress. If you allow them to grow unmonitored, you stand a chance to be in for a surprise. Thus, monitor your plans and be a proud investor.

To sum it up

Your investments in stock market have the potential to earn huge. However, it demands time and efforts. If you are ready to make some intelligent investments, you can rest assured that you will get guaranteed returns.

Next Article

5 Stocks Recommendation For Feb 25th, 2019 – Mar 1st , 2019

Stock recommendations
by Gautam Upadhaya 21/07/2017

1) Balkrishna Industries Ltd - Buy

 

Stock Balkrishna Industries Ltd
Recommendation The stock has witnessed a breakout from its sideways consolidation
backed by an uptick in volumes on the daily chart. It has also shown
positive momentum on the daily MACD-Histogram, an indication that
the uptrend will continue in the short term.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs850-855 Rs892 Rs827
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
BALKRISIND 16543 Rs1467/741 Rs987

 

2) REC Ltd - Buy

 

Stock REC Ltd
Recommendation The stock has witnessed a consolidation breakout backed by an uptick
in volumes on the weekly chart. Derivative data indicates fresh long
positions in the stock.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs131-133 Rs139 Rs127.8
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RECLTD 26068 Rs148/89 Rs119

 

3) Mahindra & Mahindra Ltd - Buy

 

Stock Mahindra & Mahindra Ltd
Recommendation The stock has witnessed a rounding bottom formation and has managed
to close above its 10-DEMA, short-term resistance level on the daily charts.
It has also formed a bullish hammer candlestick on the weekly charts.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs641-647 Rs672 Rs625
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
M&M 80272 Rs992/615 Rs771

 

4) Raymond Ltd - Buy
 

Stock Raymond Ltd
Recommendation The stock has witnessed a breakout above its resistance levels backed by an uptick in volumes on the daily charts. It has also shown strong momentum on the daily MACD-Histogram.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs721-728 Rs755 Rs705
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RAYMOND 4478 Rs1151/593 Rs806

 

5) HDFC Bank Ltd - Sell

 

Stock HDFC Bank Ltd
Recommendation The stock has formed a bearish engulfing candlestick pattern backed by an uptick in volumes on the daily chart. Derivative data indicates fresh short positions in the stock.
Buy/Sell Range Target Stop Loss
Sell (March Futures) Rs2105-2120 Rs2030 Rs2164
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
HDFCBANK 569029 Rs2219/1830 Rs2041

 

Research Disclaimer

Next Article

Short Put Options Trading Strategy

Short Put Options Trading Strategy
by Nilesh Jain 02/08/2017

What is short put option strategy?

A short put is the opposite of buy put option. With this option trading strategy, you are obliged to buy the underlying security at a fixed price in the future. This option trading strategy has a low profit potential if the stock trades above the strike price and exposed to high risk if stock goes down. It is also helpful when you expect implied volatility to fall, that will decrease the price of the option you sold.

When to initiate a short put?

A short put is best used when you expect the underlying asset to rise moderately. It would still benefit if the underlying asset remains at the same level, because the time decay factor will always be in your favour as the time value of put will reduce over a period of time as you reach near to expiry. This is a good option trading strategy to use because it gives you upfront credit, which will help to somewhat offset the margin.

Strategy Short Put Option
Market Outlook Bullish or Neutral
Breakeven at expiry Strike price - Premium received
Risk Unlimited
Reward Limited to premium received
Margin required Yes

Let’s try to understand with an Example:

Current Nifty Price 8300
Strike price 8200
Premium received (per share) 80
BEP (strike Price - Premium paid) 8120
Lot size 75

Suppose Nifty is trading at Rs. 8300. A put option contract with a strike price of 8200 is trading at Rs. 80. If you expect that the price of Nifty will surge in the coming weeks, so you will sell 8200 strike and receive upfront profit of Rs. 6,000 (75*80). This transaction will result in net credit because you will receive the money in your broking account for writing the put option. This will be the maximum amount that you will gain if the option expires worthless. If the market moves against you, then you should have a stop loss based on your risk appetite to avoid unlimited loss.

So, as expected, if Nifty Increases to 8400 or higher by expiration, the options will be out of the money at expiration and therefore expire worthless. You will not have any further liability and amount of Rs. 6000 (75*80) will be your maximum profit. If Nifty goes against your expectation and falls to 7800 then the loss would be amount to Rs. 24000 (75*320). Following is the payoff schedule assuming different scenarios of expiry. For the ease of understanding, we did not take into account commission charges and Margin.

Short Put Options Trading Strategy

Analysis of Short Put Option Trading Strategy

A short put options trading strategy can help in generating regular income in a rising or sideways market but it does carry significant risk and it is not suitable for beginner traders. It’s also not a good strategy to use if you expect underlying assets to rise quickly in a short period of time; instead one should try long call trade strategy.

 

Next Article

Cash and Carry Arbitrage

Cash and Carry Arbitrage
by Nilesh Jain 05/08/2017

Arbitrage: Arbitrage is the process of simultaneous buy and sale of shares in order to profit from difference in the price of underlying assets. It is the process of exploiting risk free return which arises due to price differences. Arbitrage opportunity exists because of market inefficiencies.

Cash And Carry: Cash and Carry arbitrage is a combination of long position in underlying assets and short position in underlying futures. Cash and carry arbitrage occurs when market is in "Contango", which means the future prices of an underlying asset are higher than the current spot price. To initiate cash and carry arbitrage, the difference between spot price and future price should be reasonably high enough to cover transaction cost, financing cost as well as to earn profit. As expiration date approaches nearby, prices of spot and future converge and liquidation of position can be done at that time.

In order to exploit the risk free return, the arbitrageur/ trader will have to carry the asset until the expiration date of future contract. Therefore, this strategy would be profitable only if the cash flow from future at expiration exceeds the acquisition cost and carrying cost on long asset position.

Let’s try to understand with the help of example of DHFL.

Cash market price (as on 25th April 2017) (S)

Rs 422

June Futures (Expiry on 29th June 2017) (F)

Rs 430

Contract size

3000

Fair value is measured by the formula

F= S*(1+R)^n

Rate of Interest

9% (p.a.)

Time to expiry (n)

65 days

Amount borrowed

Rs 12,66,000 (422*3000)

Cost of Borrowing {0.09*(65/365)}

1.6%

Basis

Future price-spot price

Expected future price (F) = 422*(1+9%) ^(65/365)

Therefore, in above case F= 428.53

Current future price= 430

Hence, we can see that there is an arbitrage opportunity.

Risk free Arbitrage = Rs 1.47 (430-428.53)

To take the advantage of this mis-pricing, an arbitrageur/ trader may borrow Rs 12,66,000 at an interest rate of 9% p.a. and buy 3000 shares of DHFL in cash market at Rs 422 and sell 1 lot of DHFL Futures contract at Rs 430.

Cost of borrowing in Rs [(1266000)*(9%*(65/365))]= 20,291

Gains from price difference between futures and spot= Rs 24,000

This would result in to net arbitrage opportunity of Rs 24,000-20291= Rs 3,709

Scenario analysis:

Case 1: DHFL rises to 435, at expiry

Profit on underlying (cash) = (435-422)*3000= Rs 39,000

Loss on futures = (435-430)*3000= (Rs 15,000)

Gross Gain on Arbitrage= Rs 24,000

Cost of borrowing: Rs 20,291

Net gain from arbitrage: Rs.3,709.

Case 2: DHFL falls to 415, at expiry

Loss on underlying (cash) = (422-415)*3000= (Rs 21,000)

Profit on Futures= (430-415)*3000= Rs 45,000

Gross Gain on Arbitrage= Rs 24,000

Cost of borrowing: Rs 20,291

Net gain from arbitrage: Rs.3,709.

To round up, in any cash and carry arbitrage, the moment you lock in your position, your profit is fixed depending upon the arbitrage opportunity. This is also called risk free arbitrage because your profit is secured irrespective of underlying price movement.

Whenever futures are trading at a substantial discount to spot, a reverse cash and carry arbitrage opportunity arises.