Portfolio Update - July 2016

Utilizing the magnificent rally in our markets, some stocks were sold to increase cash levels. Please check the updated portfolio for further details.

http://www.investorzclub.com/2013/03/amit-agarwals-model-portfolio.html

Performance of Real Estate vs Stocks vs Gold in India - 2011 to 2016

When it comes to asset allocation, majority of Indians prefer Gold and Real estate over Stocks as they provide tangibility and sense of security. But sense of security is not sufficient as far as investments are concerned as savings in any form need to beat inflation for creating wealth.

So lets check how each of these asset classes have performed over last 5 years and whether Indians are right in their judgment of allocating majority of their investment capital in Real estate and gold:

CPI INFLATION IN INDIA

CPI Inflation has averaged around 8% in past 5 years

7 Mistakes You Shouldn’t Make When Purchasing Term Insurance in India

Buying a term insurance and buying the right term insurance plan, both are different things. In the scramble to get a low-cost policy, people often forget to read the fine print and end up making mistakes that give inconvenience to their loved ones in the future. Given that, how useful a term insurance policy is, you can’t afford to make a mistake. It is important to exercise caution and wisdom while buying a policy. How? By avoiding the following mistakes:

Image credit: cnbc.com

1. Not disclosing important information on the policy application form: The insurer has rights to reject a claim if it finds that the policyholder did not mention vital points in the insurance proposal form. If your close relative has suffered from any chronic ailment, mention it in the form at the time of buying the policy. Similarly, if you are a heavy smoker, don’t categorize yourself as a casual smoker. It is a suppression of a fact. It is important to disclose your facts otherwise your dependents may face a tough time in getting the claim amount. So even if it means paying a few bucks extra in premium or having to undergo some medical tests, it will be worth it because the purpose for which you are buying a term plan — to secure your family’s future— is met. It is important to be honest when it comes to filling up the form, so that the claim is not rejected and your family is completely secured.

Now get loans through ATMs

The Automated Teller Machine (ATM) got introduced in India about 3 decades back. Initially, the machine that were launched as cash dispensers have over the period taken over host of other banking transactions. Today, the ATMS that are available on all corners of our cities have become an integral part of day to day banking transactions.

With the technological advancement, you can now even look at getting an instant personal loan from these ATMs. What does this mean to you?

• Cutting out on process delays and getting easy personal loans
• As lenders will be vying for migrating the borrowers to ATMs for operational ease and cost effective process, one can expect low interest personal loans
• Given the wide availability of ATMS, funding can be received from any corner of the country without any hassle.   

Investment Advise from Martin Sosnoff

An insight into the life of a lesser known but great investor "Martin Sosnoff"and bunch of advise to take home. Enjoy

Top 5 large companies impacted most by BREXIT

As they say "Unexpected Always Happens" and BREXIT happened exactly when financial markets was least expecting it. Britain exiting from Europe will have large ramifications on European Union and might lead to disintegrating the union which will happen off-course over the years. But this brings uncertainty to businesses and that is what market dislikes most. 

Though India is largely insulated from the BREXIT for the time being but if EU is to disintegrate it could be a serious problem for us also as we do substantial amount of business in Europe. Also the uncertainties in European countries might lead to capital flight to safe heavens such as USD and precious metals which would certainly impact our stock market returns.

On a medium terms basis companies which are deriving more than 50% of their revenue from Euro Zone should be watched carefully for any adverse impact of U.K exiting from Europe. Following are the top 5 companies which derive  substantial amount of revenue from Euro Zone:

4 Bad Behavioral Mistakes in Investing

Source: investopedia

Remember them as ROOM : 
Regret Theory - Overconfidence - Over & under reacting - Mental Accounting

8 Rules that leads to Success

Actual cost of petrol in india without taxes - 2016

After consecutive hikes in fuel prices in India since 30th March 2016, Petrol is almost Rs.9 dearer while diesel is expensive by around 10 bucks in Delhi. 

As on 1st June 2016, Petrol is costing Rs. 65.6 a liter while its production cost is just Rs. 25.31. 

Changes in Securities Transaction Tax - 2016

With effect from 1st June 2016, rate of levy of Securities Transaction Tax (STT) on sale of option has been revised from current rate of 0.017% to 0.05%.

Accordingly, STT on the transactions executed on the Exchange on or after June 01, 2016 shall be charged at the rates indicated below:

Trading Idea - June 2016

This months trading idea is a contra call on Nifty which has seen very sharp up-move of 500 points in a week. But with every rise the valuation of Nifty is getting richer which is already expensive at 8200.

Free E-Filing of Income Tax Return in India – 2016

If you are a salaried individual and need to file your income tax return for the financial year FY-2016 you can do it yourself for free and that too without any technical knowledge.

Online portals like H&R block, Clear tax etc. are offering hassle free easy step by step process that collects your tax related data and documents through simple questionnaires and e-file your returns online. These online e-filing portals are registered e-Return intermediary and information you provide them are absolutely safe & secure. You can download the list of all registered e-return intermediaries from Tax Information Network of Income tax department.

Health Insurance must for a sound financial future

We all talk and listen a lot about financial planning and the importance of right asset allocation for Equities, bonds, gold, real estate etc. but even the best of the allocation strategy will fall apart if we are not adequately insured for life and health.

While many of us have a life insurance, though very small and inadequate, majority of Indians have no health insurance. As per recent National Sample Survey Data released in April 2016, Over 80 per cent of India’s population is not covered under any health insurance scheme. The data reveals that despite seven years of the Centre-run Rashtriya Swasthya Bima Yojana (RSBY), only 12 per cent of the urban and 13 per cent of the rural population had access to insurance cover. This poses a major threat to a family's financial future. 

Portfolio Update - May 2016

Quite a few changes in the portfolio. Exited one, added a significantly beaten down stock with attractive valuations and averaged another.

Please take a look at the updated portfolio:

http://www.investorzclub.com/2013/03/amit-agarwals-model-portfolio.html

Personal Accident Insurance – 16 important points everyone should know

At 28, Viren was one of the most punctilious planners that I had met in my life. He had a good professional life, completing the picture was his loving wife and two kids, whom he adored. Being a family man, he had bought two term insurance policies and a family floater health insurance policy. Armed with both these insurance policies, he was confident about his family’s financial security in his absence.

However, life is not so simple and easy. Viren met with an accident and his grave injuries left him incapacitated to work for at least next two years. While his family floater mediclaim policy took care of his hospitalization expenditure, for the rest, he dug into his rainy day savings to meet household expenses. However, the ordeal did not end here. As the sole breadwinner was unable to continue his job, the financial situation deteriorated. As term insurance policies pay benefits in case of death only; in this case, Viren was alive, and therefore, his term insurance policy didn’t pay anything. Suddenly, his poor state struck hard and Viren asked himself, if he could’ve done anything to avoid his gloomy state. 

Expectations vs Reality

Trading Idea - May 2016

For the Month of May one can initiate a short put trade on Adani Ports. The stock has corrected sharply in-spite of good results primarily because of unexpected balance sheet expansion and slower than expected volume growth. However the fall is quite sharp and has made implied volatility high.

One can sell 1 lot (1600 shares) of Adani Ports 160 put @ 0.5 for a cash flow of Rs.800 before brokerage and taxes.

Total Return from the trade:

Portfolio Update April 2016

Booked significant gain in a stock in the portfolio due to massive run-up. Not that the stock was expensive but a 70% up-move in a very short span of time is quite significant and its wise to take the profit off the table. We made around 40% return on that stock in 6 months time.

Cash Position increased to almost 25% of the portfolio as there has been around 1200 points up-move in Nifty from budget day low.

Please check the updated portfolio for further details:

Model Portfolio Performance Review - 2016

On 21st March 2016, model portfolio completed its 3rd year of existence. Though last year was quite challenging for few stocks due to global commodities melt down, 2017 is expected to be quite good in terms of portfolio performance as the stocks in the model portfolio has deep value and are backed by hard assets on ground.

The detailed performance review of the portfolio at market value as on 21st March 2016 is given below:

Post Office Small Savings Rates - Ready Reckoner

Govt of India has decided to review small saving schemes rates at Post Office on a quarterly basis instead of revising the rates once in a year. 

For the quarter effective 1st April 2016 to 30 June 2016, the rates have been reduced by 0.4% to 1.3% depending on the saving scheme. You can download and print the post office rates in India ready reckoner pdf from the following link:

Life is just an employer - Why ask less?

Jessie Belle Rittenhouse in his very inspirational poem "My Wage" termed Life as a generous employer from whom you can get whatever you ask for. If you ask for penny you will get penny and if you ask billion you will get billion. Life gives you exactly what you ask for. The poem also got featured in the very famous book "Think and Grow Rich" by Napoleon Hill. 

Trading Idea: Sell Nifty 6300 put

After a long while trading idea section is being restarted. Will try to publish one trading idea per month going forward. 

For the month of March 2016, one can sell Nifty 6300 put 1 lot (75) at Rs.15 thereby generating decent return on investment. Since 6300 is a very strong support area, it is highly unlikely that Nifty would close below that level in March series. Implied volatility at 6300 strike is quite high due to budget round the corner.

Total Return from the trade:

Considering one is able to sell the March PUT option of Nifty 6300 strike price at current market premium of Rs. 15 he/she can generate following return from this trade:

Portfolio Update Jan 2016

First Portfolio update of Calendar 2016. Sold a holding, averaged another in half and increased cash position to be deployed on further correction for buying Nifty BEES.

You can check the updated portfolio using the marquee at the right sidebar.

Buy Indian Stocks, China stock market crash an opportunity

Chinese stock markets and fear of its hard landing has played havoc on commodities and scaring equity investors globally. But doesn't it feel like it's getting far too much? Oil at $30 with just around a million barrel oversupply when half the world production of 95 million barrels per day is making cash losses at current prices. Similarly doom Sayers are predicting crash in Chinese economy and thus a crash in global stock markets. Lets look at some facts behind Chinese stock markets and if it really can hurt global investors and markets.

CSI 300 5 Year Chart

1. Unlike mature markets of Europe, America, India etc, Chinese stock markets have more than 80% retail investors with barely 2% foreign holding. So a 50% crash in Chinese market would affects these foreign investors portfolio by just 1%. BIG DEAL!

You don't need a bear market to lose money

In past 2 years what I've hated most is people telling me I should be making lot of money as market is going up since then. In fact it hasn't been that very different than my past performance. 2015 specially was quite bad for my equity investment portfolio as I am overweight some commodity companies in oil & aluminium space which had a terrible year in-spite of Nifty Sensex almost flat. That is exactly the biggest problem with general investors. When market goes up they don't participate cursing the market as gone up so much while when it comes down they wait indefinitely to catch the bottom.

You can make or lose money in any kind of market. So you don't need only a bull market to make money while even a raging bull market can make you lose a great deal of money. 

For example in a bull market you lose money if:

Where to invest in 2016?

If Nifty corrects to 7500  - 7600 levels that would be good time to start buying Nifty Bees (Goldman Sachs ETF for Nifty Index listed and traded just like any other stock) as a diversified portfolio of 50 great stocks in India. At 7500 the index would have roughly 7% earnings yield which will also be your fixed deposit yield 1 year forward. With gold & Real estate delivering negative return and thus out of Indian investors portfolio one will not have much choice but to invest in Indian equities. 

Low earnings base of current year, sharp reduction in interest rates, under utilization of factory capacities, govt. spending & reforms, and benign commodity prices will all work together in favor of Indian equities and thus provide floor. A good monsoon next year will add icing on the cake and Nifty could breach 9000 by next Diwali. 

Portfolio Update - Oct 2015

Sold couple of stocks from the portfolio and generated some cash to be deployed once market retraces some of the recent gains.

Are startups in India all about funding?

Bengaluru based food tech startup dazo shuts down due to lack of funding

Thank god I am not running after the startup frenzy aka showing prototypes & raising millions. A business is not just about how much you can raise from VCs and be billionaire on paper but keep burning cash. I believe it's about doing something you are passionate about but makes economic sense. I can sell a 1000 buck product at 500 and show a billion dollar sales in 1 year as long as I ve $500 million funding in my bank and get a 10 times sales valuation of $10 billion making myself notional billionaire. What's that?

I think in India we are repeating of what happened in U.S in 2000 and could cost India dearly. Startup.com (https://www.youtube.com/watch?v=ibuiUXOTE4M) documentary filmed in 1999 is an eye opener. There is nothing like doing something on your own but being a Marwari I understand the importance of starting small, scaling gradually and not do something that requires huge amount of incremental capital to start. I am an old school guy but I like to take home my profits even it's very small and use that to grow the business gradually with small doses of fresh capital. That helps me not go bust even if I do a blunder, which is bound to happen in your early stages of starting a business.

Can Cairn India and Vedanta Merger happen?

Given the current scenario in which metals and mining companies globally are facing brutal sell-off it seems highly unlikely for the Cairn and Vedanta merger to go through. Mining giant Glencore collapsed 30% in a single day on 28th Sep 2015. Vale, another Brazil based iron ore giant, is down more than 80% from it’s 2011 high. Back home we have Hindalco and Vedanta Ltd and both has corrected 65% and 75% respectively from their 2014 high. Cairn India is also a commodity company but the dynamics of crude oil is very different from metals which are recyclable. Beside that China consume 40-50% of most of the global metals produces while crude oil demand is fairly distributed.

Portfolio Update as on Sep 2015

Equity Portfolio Update after three & half months. Some minor adjustments done on existing shares and added a new name where huge value has emerged and has very favorable risk reward ratio. Please check the updated portfolio below to see all the changes:

Amit Agarwal Model Equity Portfolio

Can IDBI bank be privatized?

IDBI Bank is governed under IDBI act which was amended in 1994 to allow 49% private ownership (as shown in the extract below taken from June 2015 investor presentation). As per Memorandum of Articles of Associations minimum govt shareholding in the IDBI Bank has to be 51% (As shown in the second shapshot taken from the presentation).  Use the link in brackets to open June 2015 investor's presentation ( http://www.idbi.com/pdf/investor/IDBI_Investor_Presentation_June_2015.pdf)

Snapshot1: IDBI Bank History

Personal Finance - The James Altucher Way

James Altucher challenges conventional thoughts at every step and compel readers to think and act differently. Here is his take on personal finance and why the terms itself is a big scam in his view. 

I personally agree with him on most of the points and if you really want to get rich in your life his points need serious attention. Following is the link to his personal finance blog post:

LIC & Goldman Sachs backed Amtek Auto destroyed 80% of Investors Wealth in a Month

We all feel safe in stocks which are backed by strong Institutions and get good sleep while owning them believing nothing too bad will happen there. We assume that these institutions that pay huge salaries to hire best in class research analysts have done thorough analysis before putting money into the stock and we can safely follow them. Well in investing world nothing is safe and especially in Stocks where all the analysis is on paper while the actual show is run by the management / promoter. While following Institutions is relatively better than doing personal analysis (if you are not a very seasoned analyst), following them blindly and committing all or major portion of your capital to one single stock could bring you disaster.

Amtek Auto is one such example which is backed by some renowned institutions such as LIC & Goldman Sachs. As on 30^th June 2015 LIC held more than 8.4 million shares while Goldman Sachs had 4.2 million shares of the company. Together Institutions held over 15% of the company as on 30^th June 2015. 

Pitt Bull's Marty Schwartz Interview 2015

Must Watch Q&A session with Pitt Bull's author Marty Schwartz. The 70 years old legendary trader who was featured in the first edition of Market Wizards by Jack Schwager shares tons of wisdom and some key strategies he employed in 80's and 90's and how his trading styles have evolved with the advent of algo trading and HFTs. A bit lengthy interview but worth a watch.

Government of India Divestment Plan FY 2015 - 2016

Stocks to watch where Govt. of India has decided to divest minority stake in the fiscal year 2015-16. ONGC and IOC are among the biggest divestment candidates and are expected to fetch more than 20k crores. 

In total govt has set the target of little over Rs.46000 crores through minority stake sale of listed companies.While divestment in IOC could be little easy as the stock has been hitting life time high, thanks to the falling crude prices, but a 5% sale in ONGC appears difficult as the stock is hitting 52 week lows, thanks again to the falling crude prices.

Among the lot ONGC and Nalco appears very attractively valued at 280 and 38 bucks as on 25th July 2015 for investment purpose with at least 2 years horizon. 

Indian Companies that benefits from fall in crude oil price

60 percent fall in past one year and more than 10% fall in past one week, India being a huge energy importer benefits immensely from the crude oil price collapse. Also there are many sectors and companies withing those sectors that benefits hugely from the fall in crude oil prices. For example Paints industry is a direct beneficiary and Asian Paints in particular with very strong brand positioning. Following is the sector wise analysis on who is going to be benefited the most.

Top 10 crude oil producers in World - 10 Years chart

One magnificent chart that shows the year wise production of top 10 global crude oil producing countries for any year starting 2004 to 2014.

# Crude oil production of top 3 producing countries v.i.z U.S, Saudi Arabia and Russia is up 1.5 million barrels per day in 2014 vs 2013.

Private Sector Banks: 2014 & 2015 results at a glance

Thirteen Private sector banks reported Rs. 37,361 crores of Net Profit for the financial year ended 31st March 2015 against Rs. 31,680 crores of profit reported in the year ended 31st march 2014.

5 Reasons why LIC could say no to the Cairn Vedanta merger

1. LIC till 31st March had little over 1.5% stake in Vedanta Ltd while over 9% stake in Cairn India. If there is more value in Vedanta Ltd than Cairn India then why LIC stake in Vedanta is just over one and half percent. Also the logic of tax overhang on Cairn India for low valuation is meaningless as if the court ruling is in favor of CBDT, it is Vedanta which will have to shell out the tax and penalty amount which will be huge setback considering it's already stretched balance sheet. 

2. LIC had over 11% stake in Hindalco till 31st March 2015 and has recently increased it's stake in the company by 2% to 13%. As we all know Hindalco and Vedanta are somewhat similar company with majority of revenue coming from Aluminium and copper refining. Its must be observed that LIC is preferring Hindalco vs Vedanta for obvious reason. If the merger go through LIC would eventually have very high exposure to metals sector as it's stake in Vedanta Ltd will be go over 6%.

3. LIC currently receives around 150 crores of dividend out of it's investment in cairn India while post merger it's dividend income from swapped shares will reduce to around 70 crores per annum with relatively increased risk as Vedanta has very high amount of debt and Cairn India is a cash rich company.

Minority Shareholders against Cairn India - Vedanta Merger

The relentless fall in Cairn India share prices since past couple of months in-spite of handsome recovery in crude oil smells fishy and hints at share price rigging to benefit the Anil Agarwal group so that the residual 40% public stake in Cairn India can be swapped with least number of Vedanta Ltd shares. Cairn India being the only pure crude oil private player listed in India, existing public shareholders can benefit in no way with this reverse merger and is intended to benefit only the Vedanta group.

In an article titles "Cairn India Stock Analysis", it was really surprising how Cairn India is trading at ridiculous valuations and available at only 4 years of cash flow. Crude oil outlook will also improve in couple of years and hence long term shareholders should defeat this merger. As per SEBI act on M&A of listed companies, a minimum of 2/3rd of public shareholders approval is required. LIC and Cairn Energy PLC holds around 20% while rest is being held by MFs and public. If you are against the merger please vote below and share your comments.

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