Wealth Edge The halfway mark - July 2018

Here we are, halfway through 2018 and halfway through the earnings rebound. As we rightly cautioned in our January edition, thus far, it has been a roller coaster ride for Indian equity markets. Nifty made a new high @ 11,130 at the beginning of the year, but could not sustain those levels and has risen paltry by 1.7% YTD. Having said that, Midcap and Smallcap indices have charted a different path when compared to their larger peers, as they have retraced (from peak levels) almost 16% and 25% respectively.

Two themes which we highlighted in our January edition were that the earnings will improve even if on a low base and that the valuations will revert to mean by a decisive combination of price and time correction, both of which have played out to some extent.

On the global front, trade war concerns have been the cause of anxiety and rising Oil prices are adding fuel to the fire, literally. If the tariffs get more aggressive between US and China, it might lead to a contagion effect and that could hamper the global growth which has just started to find its way back.

On the domestic front, high-frequency growth indicators are demonstrating strength, but we continue to expect near-term challenges in other macroeconomic indicators due to rising Oil prices and weakening domestic currency. We believe that the global trade war concerns, rising oil prices, weakening macro and lower FII flows vs. strong domestic flows will continue to lead the market movement, but it is the earnings momentum that one needs to watch closely in the coming days.

Valuations, continue to remain high relative to its own history and bond market yield. Having said that, the risk-reward ratio still looks unfavourable for equities in the short term and we continue to be cautious on equities market on a short-term basis. Any exposure towards equities should be done in a gradual manner and preferably in the Large-cap space. Keeping in line with our cautious stance we have added exposure to the pharma sector in our model portfolios, given the margin of safety they currently offer.

We reiterate our cautious stance in the fixed income space, due to weakening currency, elevated commodity prices, and fiscal pressures. We continue to recommend investments in Short-term and Accrual funds.

To know more about our contrarian views and how it can benefit you, Please click here to read the report.

Winds of Change! Wealth Edge - June 2018

In our earlier editions we discussed as to how India is in the pink of its health with respect to Macro-economic indicators such as the strengthening of GDP & IIP, subdued inflation and improving fiscal and trade balances, but corporate earnings were simply unable to pick momentum in absence of an improvement in demand. Another point of discussion was how the Indian markets were able to participate in the global stock market rally, but could not really be a part of the global economic recovery, which resulted in stretched valuations as earnings were lagging behind.

Fast forward to now, the macro economic scenario have started to look hazy with inflationary pressures strengthening, weakening of the twin deficits and a weakening currency, whereas, corporate earnings are showing signs of green shoots. We are experiencing a visible pick-up in corporate earnings whereas valuations are rationalizing due to the recent healthy market correction. We believe that certainly market dynamics are changing and the current scenario shall be seen with a new set of eyes.

Globally, geo-political risks have continued to dominate investor attention. US’ withdrawal from the Iran nuclear agreement, heightened trade tensions with China, aggravated economic crisis in Argentina, and the political risks staged in Italy, Spain and Venezuela have all contributed towards volatility. All these countries are witnessing their respective bond markets react adversely. Such developments also have a contagion effect on the other emerging markets (including India). The immediate impact is generally felt in the form of broad-based risk-reduction in investor portfolios. Hence, FII flows have turned negative in the emerging market equities and bonds.

On the domestic front, developments around the Karnataka elections kept investors cautious. Wholesale and retail-price based inflation both increased for April 2018. However, Optimism over the release of GDP data for Q4FY18 improved sentiment slightly in the latter half of the month.

As far as equities are concerned, 4QFY18 earnings season has been below expectations. We have seen a clear divergence in earnings number, a visible improvement in earnings for Nifty companies (ex-Banks) against deteriorating numbers from Mid and Small cap companies making it the highlight of this result season. The same has been transpiring in the market performance of Nifty 50 vs Nifty Midcap and Smallcap indices. Going forward we do see a time correction in the Large cap equities but a certain price correction is warranted in the mid and small cap space.

In the Fixed Income space, we continue with our cautious stance due to rising US bond yields, elevated commodity prices, and fiscal pressures; and recommend investments in Short term and Accrual funds.

To know more about our contrarian views and how it can benefit you, Please click here to read the report.

Re-fueling Volatility Wealth Edge, May 2018

In the March edition of our newsletter, we shed light on the multiple signs of the potential dangerous curves ahead in the equity markets, and in April about the breather in the form of a market rally which would probably be ‘The First Pit Stop’. Accordingly, post the correction seen in March, markets recovered in April. We believe that the factors such as a strong dollar, impending global trade wars, hardening of the US bond yields and a resilient Oil will ‘Re-fuel volatility’ in the days to come.

Globally, Oil prices gained, and may continue to do so as the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries are likely to continue with output cuts until inventories return to their normal levels. Oil supply disruption in an increasingly hostile environment in Venezuela also contributed to the price movement. Higher commodity prices had elevated concerns on inflation while the 10-year US treasury rate is hovering near 3%. Further, trade friction and sanctions by the US could lead to higher prices not only for oil and metals, but at some stage other goods that are hit with tariffs too. This has led to a cautious stance from the FIIs towards Emerging markets and therefore EM currencies in general have witnessed increasing pressure.

On the domestic front, India’s Trade deficit widened to a 5 year high. For a net oil importing county like India, a sustained rise in crude oil price would have adverse macroeconomic implications. Higher oil prices will weaken the economic growth, push up inflation and deteriorate the twin deficits (current account deficit and fiscal deficit). This may have an adverse impact on the Indian G-Sec yields. Rising commodity prices and cost of capital will add pressure on margins of Indian corporates.

The Q4 FY17-18 result season hasn’t been encouraging so far. We will have to wait and watch for the entire earnings season to unfold to have a concrete conclusion. However, we believe there is scope for valuations to rationalise. The current risk-reward ratio seems to be unfavourable for equities from a shorter-term perspective, while the earnings in the medium term are expected to be good. The outcome of the Karnataka elections is another key event which will have to be closely observed and its impact assessed.

To know more about our contrarian views and how it can benefit you, Please click here to read the report.

The first pit stop! Wealth Edge, April 2018

Earlier in March, we brought your attention to the multiple signs of the dangerous curves ahead in Equity markets. March turned to be just that. An action-packed month that started with Mr. Trump’s Trade war announcement followed by CBI taking noticeable action against fraudulent banks. We also the U.S. Fed raising interest rates while the Bank of Japan's chief hinted at a possible exit from its ‘ultra-easy’ policies. These events have led to an increase in volatility and have caused the markets to continue their downtrend after the swift fall in February.

We presently believe that the current breather is probably a first pit “The First pit stop” to further lower levels during the year ahead. This pause will help participants to evaluate the changing trade dynamics and likely perception of investors, domestically and globally.

Globally, US-China trade war needs to be closely watched as China has hit back, though mildly, through a US $ 3 bn tariff. The move may not look significant prima facie, but is effective as it aims to hit The President’s voter base, namely the farmers. If the tensions between these two giants escalate, we surely can see a lot of collateral damage globally. But that is a big if, considering that all Governments know the fragile states of their economies.

Its likely that global trade has slowed down in the last quarter, which can be interpreted by Baltic Dry Index that has dropped more than 40% since mid-December. This index is reported around the world as a proxy for general shipping trade which symbolizes the epicenter of global trade, that of movement of basic raw materials.

On the domestic front, apart from the global worries, asset quality issues for Public sector banks have only deepened, coinciding with political uncertainty from impending elections, deteriorating trade balance due to higher oil prices and deteriorating fiscal policy environment. These key concerns need to be meticulously observed.

We have seen a reasonable correction in the last two months, but the valuations are still high and are some distance away from being called as fairly valued. The recovery in earnings is very critical for such rich valuations to sustain. Hence, we continue toretain our cautious stance on Equities and suggest measured exposure towards them if at all.

Happy navigating the many pit stops that lie ahead this year. Strict adherence to asset allocation is the only way out.

To know more about our contrarian views and how it can benefit you, Please click here to read the report.

Investment Alternatives to Savings Account

Investment Alternatives to Savings Account

In today’s world, financial security for an individual is a must. Which means that at any point of time, that person should have a contingency fund to take care of expenses that are unexpected in nature. Unforeseen expenses such as medical emergencies can seriously dent one’s savings.

Usually, a majority of the people prefer to leave the money in their savings account due to the ease of availability of their money. Many, however, fail to realise that the interest received through savings account is less than that of the rate of inflation. This means that the person’s money is actually losing value in comparison to inflation. Here we suggest some effective alternatives to a savings account.

What are the type of short-term investment options?

Savings A/c

A savings account is a deposit account which bears a nominal interest rate for individuals to save and earn interest on the cash they hold. Interest rates offered are usually less than that of Certificate of Deposit, a document issued by a bank to a person depositing money for a specified period of time or Commercial Paper, a short-term money market instrument which has a fixed maturity period as savings accounts require no credit check and offer high flexibility on withdrawal of funds.

Liquid Funds

Liquid funds are debt mutual funds that invest in securities whose maturity cannot exceed 91 days. These type of funds do not have any lock-in period and as the name suggests, are quite easily and conveniently redeemable.

Ultra-Short Term Funds

Ultra-Short term funds typically invest in fixed income securities such as certificates of deposits, treasury bills, commercial papers or corporate bonds. The income they earn is from the coupon payments received from its underlying investments.

Historically, both Ultra short-term funds and Liquid funds have given higher returns than a savings account with similar liquidity but savings account still offered more flexibility inaccessibility of money. This, however, is not the case anymore due to the introduction of an instant redemption facility available with certain liquid funds. Through the instant redemption schemes, an investor has access to his corpus 24/7 365 days a year. A daily limit of Rs 50,000 or 90 percent of redeemable value is offered by the fund houses through the IMPS banking platform.

A historical comparison of returns made by Liquid Funds against that made through Savings AccountInvestment Alternatives to Savings Account

To conclude, if like an online purchase or a chat with your friends, if a habit of “Savings” is also made simpler, would you still want to keep your idle cash in a bank account or under the pillow? The answer to this would most likely be a NO! As we’ve seen here, there are certain funds that provide an effective alternative option that allows you to invest your extra idle cash, earning relatively good returns at great convenience.

*For the purpose of calculations, the returns of all liquid funds existing at that point of time have been considered.

To know more about financial planning click here: Wealthsecure


Financial Planning and Online investment - For Women

 Personal Financial Plan

Women are pretty adept at playing many roles at ease. They play a very critical role in every family because they are the ones who plan and control the household budget. However, studies have shown that despite being educated, women aren’t as confident about financial matters as men. They rely either on their father or husband when it comes to financial planning. It is high time women become financially independent and logically plan for contingencies as well.

The need for financial planning for a woman:

Ø   To understand her financial situation: A financial plan displays a correct picture of your cashflows, thus helping in understanding cash surplus/deficit at the end of a particular period. If there is a deficit, you can check and understand the nature of expenses incurred and curb the expenses by prioritising the goals. If there is a surplus, you can systematically invest that money for future consumption.

 Retirement Planners

Ø  Tracking her’s and her family’s goals: A financial plan analyses your current and future savings and allocates the money for your goals, based on their priorities. It also considers the liquidity requirement for any contingencies in future. Hence, you get to know what all goals would be achieved in future and to what extent.

 Personal Financial Planner

Ø  To have a proper plan of action: A financial plan does portfolio restructuring, if your financial investments are not performing well. Then based on the suggested restructuring, it shows purchase/redemption at each instrument level.

 Wealth Management Services

There are certain key strategies that women can use to ensure they find the right support:

Ø  Find a good financial planner, who will explain you the basics of the process, and use sophisticated financial tools for planning your future financial journey.

Ø  List down your goals, along with their priorities, so that your planner can design strategies to help you achieve those goals.

Ø  Help your planner with all the required data to generate an accurate financial plan.

Ø  Make sure that your planner understands your needs as they change over time and updates your plan accordingly.

Financial Plan takes care of asset allocation. This asset allocation can be easily achieved via investing in mutual funds (MFs), since MFs offer exposure to various asset classes.Any woman, even without a proper financial background, can diversify her portfolio by investing in such products. SIPs with long term horizon can help her in wealth creation.

Online platforms like www.wealthsecure.com have made MF investing easy and convenient for women of all ages. They can view all their investments at one place. They can get personalized investment advice and recommendations for their future goals on such platforms. The financial plan generated using such advanced financial tools can be executed online in a very hassle-free manner.

Women have always followed some or the other method of saving money for contingencies. Women are also earning more than before. Rather than simply keeping aside some amount of money every month and randomly investing it anywhere, women should start making use of such smart financial assessment tools and do goal based investments. By this way, they will be able to achieve their goals smartly and intelligently.

      To know more about financial planning click here: Wealthsecure

The pendulum has swung! - Wealth Edge, March 2018

You know the street signs that grab your attention on the road and appropriately lead you to take caution? Multiple signs, similar to the ones mentioned above, have been reminding us of the dangerous curves ahead in the equity markets. We experienced an eventful February full of critical announcements and news flows ensuring the return of volatility as global markets, including India, retreated.

In the month of January we released our Alpha Edge report titled ‘Remember the pendulum’, where we highlighted the prospects of change in market direction and correlated it to the movement of a pendulum. Our view still remains the same, that we are likely to see sustained periods of volatility ahead. Now, the pendulum seems to have swung.

Globally, markets were broadly weaker in February. Higher-than-expected US wage data, initially put the bond markets under pressure - as investors priced in the potential for a more proactive Federal Reserve - before worries spread to equity markets. Rising rates, inflation and talks of trade wars have caused market participants to re-evaluate their views on the overall state of markets.

Indian equity markets under performed their emerging market peers in February. Domestically, markets have become increasingly reactive to news flows, which were probably ignored earlier. Another major development has come from the banking sector where an alleged fraud at state-controlled Punjab National Bank has raised concern over the wider sector. Over the last year, even though India has been a part of the global markets rally, it has not really been a part of the global economic recovery. This has led to valuations stretching to near historic levels. The latest earnings season and high frequency indicators are suggesting some bit of recovery finally being underway. However, the higher expectations built around the recovery over the last three years pushed the valuations to the extent that has left little or no room for further price appreciation.

Higher inflation, domestic rate hike fears, fiscal slippage, political uncertainty and the upward movement of global bond yields, will continue to act as an overhang on multiples. Hence, we continue to retain our cautious stance on equities from a short term point of view.

To know more about our contrarian views and how it can benefit you, Please click here to read the report.

Role of a Financial advisor in Tax Planning

 Financial Planning Advice

If you are a salaried person or self-employed or are recently retired from the job, the filing of your taxes would be a very stressful time for you. Most of you must be taking professional support for doing this and thus managing to save some tax in the process. However, have you ever thought of the role, a Financial advisor can play in the tax planning?

While an accountant’s job is to file your taxes with the maximum benefit to you, a financial advisor will make sure that your taxes fit with your short and long-term financial strategy throughout the year. His task is to help you identify the sources and types of income you have, how these will change over time, and how the tax will evolve with them.

Life events such as retirement or career change come with a change in income and other benefits. Your advisor can help you optimize your current situation through effective tax planning. He knows exactly what kind of products are suitable for you based on your tax status and also after considering your life goals.

Advantages of seeking the help of a Financial advisor while tax planning:

Ø  After considering your financial goals, your Advisor does your asset allocation based on your risk profile.

Ø  Since he has a complete picture of your financial situation, he is in a better position to recommend you products for tax planning.

Ø  He will not just try to minimize tax for the year but would help you plan your taxes in advance.

Ø  He also maintains a record of trading gains and losses, which can be easily shared with the accountant at the time of filing taxes.

Almost all financial decisions have a tax impact. If the impact of taxes is not taken into consideration while making financial decisions throughout the year, you could be paying more in taxes than you would otherwise.  It is important that tax planning is not seen as separate from financial planning and instead, done simultaneously while making financial decisions and incorporated into your overall financial plan. 

By having a financial advisor helping you in choosing the right investment strategies to minimize the taxes you pay throughout the lifetime, you will be able to plan your current and future cash flows as well.

Most of us handle our taxes in a reactive manner versus a proactive approach. We just share our yearly transaction statements with our accountant and hope for the best. Understanding the impact taxes will have on our financial well-being is very essential. There are always new laws and changing provisions in the tax code, which, again illustrate the importance of planning.

Tax planning and financial planning are closely linked because taxes are such a large expense item as you go through life. So planning to reduce taxes is a critically important piece of the overall financial planning process.

If you want to minimize the anxiety generally associated with the time of tax filing and avoid surprises, consider adding a financial advisor to your tax team. 

To know more about financial planning click here: Wealthsecure

Free lunches... No more! - Wealth Edge, February 2018

The time has come for the earnings to stand up to expectations. As there is probably no room for sentiments led PE expansion. The quarterly results of the top 50 companies seem to indicate that the coast could be clear on the earnings front and indeed they have been better than expected. All that we now need to await is whether this was on a low base of post demon dip in Q1, 2017. The next quarter will, therefore, be the all critical quarter that proves that the tide has really turned on the earnings front.

Globally, January month was dominated by good news such as better than expected job market report, which showed unemployment shrinking and wages rising. However, this good news of higher wages compounds the pressure on the US Federal Reserve to raise interest rates, so as to tame inflation and prevent the economy from overheating. As things stand at least 2 to 3 hikes seem to be on the cards.

Given a decade of ultra-low interest rates, any quickening of pace in rate hikes or expectations about it, trigger the kind of fear that comes with a paradigm shift. A shift that makes fixed income look attractive incrementally, calling for a possible reallocation from risk assets to ‘safer assets’. A distinct possibility given how far valuations have reached across the world. If this narrative gains ground, what was witnessed during the first week of February, may be a trailer of things to come. Perhaps, the time for “Free lunches” may have gone and an increasing earnings momentum alone can support the markets from here on. Especially in India

Domestically, India certainly participated in the global equity market rally but not completely in the global growth momentum. The expectations from the Union Budget was that it will focus on growth initiatives and less on structural reforms which were the focus of previous versions of the Union budget. The budget clearly did not disappoint, as it gave due importance to all sections of the economy and tried to enhance the ease of-doing business while keeping its focus on infrastructure development. However, the imposition of LTCG on equity shares and units of equity oriented mutual fundshas triggered a short term perception disruption in the equity markets coinciding with volatility from a global sell-off.

Even though we have seen around 6% correction from recent peak, the valuations are still high and do not look reasonable post this correction. The recovery in earnings is very critical for such rich valuations to sustain. The Q3 FY18 results have been in-line, however, fag end of the result season needs to be watched closely. The way to go about it is to stagger fresh investments, as markets could give enough opportunities to invest throughout the year.

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Investment Combo (Debt and Equity)

 Financial Plan

Equity markets have been experiencing a bullish phase recently. However, the market pendulum is one that swings forever between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them relatively cheap).

During unpredictable phases of the market, you try to read as many articles possible and take every bet to reap maximum gains out of the markets. At such a point, wouldn’t it be ideal if your principal was fully protected while your portfolio also had an exposure to the equity markets? Safety of principal may be achieved through investing in the debt asset class through fixed income securities like FDs, NCDs or ESS. However, they will not guarantee maximum returns. In case of such investment options, there are assured fixed returns.

Such debt products are selected due to the following advantages over other riskier products:

1.    Principal protection

2.    Payout not influenced by market risks and hence fixed

3.    Option of choosing Monthly/Quarterly Payout

4.    More liquid investment 

Individuals earn assured monthly payouts on such instruments. This interest earned can be invested into equity mutual funds through the SIP route to capture the upside of the markets without risking your principal invested. The opportunity to predict fixed return from less-risky debt product and using its returns to invest in an equity SIP is illustrated below.

For the purpose of calculations, we’ve analyzed the returns made by an equity mutual fund and a debt option such as Non-convertible debentures (NCD) for the last 10 years (NCDs are long term debt instrument issued by the companies which offer equal to or more than 200 basis points than bank fixed deposits. They also earn fixed returns through coupon interest that is promised to be paid by the companies with an option to choose the frequency of payments.Company pays back the principal amount on the date of maturity.

Assumptions made for illustration purpose:

1.     Similar returns in NCDs were available 10 years back

2.     Bank savings interest rate: 4% p.a.

3.   Interest on NCDs is credited in bank and left untouched, hence earning 4% returns for 10 years


A sum of Rs.1,30,000 is invested into NCD in open issue which offers coupon return @ 9.50% p.a., payment being made monthly. The said investment fetches monthly payout of Rs.1029.16 which is then parked as an SIP in Equity MF (Rs. 1000pm).

The above practice is continued for 10 years till the NCDs mature.

On the maturity of such NCDs, the principal is received fully.

 Investment Portfolio Management

The above chart clearly shows the reward for making your money work for you.

 Financial Planning Tools

It’s evident from the above that investments in equity holdings will provide better returns in long-term as against money left idle in Savings A/c. Risk-averse investors should consider this option of investing in debt instruments with a regular payout to ensure principal safety and the yield generated by them into equity markets through mutual funds to get the maximum exposure.

To know more about financial planning click here: Wealthsecure