Beating the Bank FD

Most of you reading this know that there are three kind of runs in the market:

1. Bull Run - Where the stock prices & all businesses tend to soar creating capital
2. Bear Run - Where pessimism spreads & capital is eroded
3. Consolidation - Where there is a lot of indecision; neither capital is created or eroded and everyone is waiting for the next move

More often than not, I personally am looking for a return of close to 15%. However I've met my fair share of elder investors and with age they're looking for a safer return rather than have a benchmark return figure.

More conversations I have more I realize that they're simply looking for the Bank FD return. If you can offer a product that has the simplicity and the safety of a Bank FD return they're more than happy.

So, I started looking!

Here are a few products I've classified that you can look it for higher returns:

1. Corporate FD - Returns are more often than not higher than a Bank FD and specified in the offer document. Best I have seen was a 12% return offered by the Tata group which was a safe bet when the bank FDs were close to 8.5% so beat the bank FD by 3.5% which was good enough for the risk I was taking.
2. Fixed Maturity Plans and Interval Funds offered by Mutual Fund AMCs - An assured return product but sometimes the returns might be similar to the Bank FDs or even lower. Try to look at their investment mix to get an idea of the returns and the risks. Best I've seen is a 10.10% return on an FMP consisting of Bank CD portfolio. Bank FDs during the same period were around 9%. However with the help of indexation and proper tax planning I could get that complete return tax free whereas that 9% bank FD return dropped to ~7% due to 30% tax bracket. Again beat the Bank FD by 3%.
3. Monthly Income Plan offered by Mutual Fund AMCs- This is a bull run product according to me. These plans would invest 65% to 80% of the money in debt instruments and the rest in the equity market depending on which scheme you invest in. During the bull run this product will beat Bank FDs by a considerable margin. I say this because during bull runs more often than not Bank FD rates are cooling down. The best spread I saw was the MIP return at 15% with the Bank FD return at 8%. Again beating the Bank FD by 7% which is huge!!
4. Arbitrage product offered by National Spot Exchange - This product offered a return between 9% to 17% depending on the liquidity in the system. The return was know before the arbitrage trade was undertaken and I myself managed to get a 14.14% return.

Risks of the aforementioned products:

1. Corporate FD -  As far as the risks are concerned, you have to look at the numbers on their books and understand where the money they need is going to be utilized. Also, look if the debt is secured or unsecured. Read up on their credit rating reports. Look at the track record of the Group. All of this still won't assure you if your money is coming back to you.
2. FMP and Interval funds - You need to take a look at where the AMC is deploying the money. If the portfolio consists of companies with junk credit ratings the risk is similar to a corporate FD. So don't get lured in the next time your advisor tells you that the FMP return is at 12%. Ask him or the AMC to give you a break up of the portfolio mix. In my opinion a bank CD portfolio is safe but do consider the banks they're investing in at that point. If they're going to invest in a bank going broke you're better off avoiding it. For e.g. if they were to invest in Citibank during 2007-2009 period, you were better off depositing your money in SBI FD. 
3. MIP - This product has a mix of equity which goes as high as 35% so please be careful because if the equity markets do not perform well, don't be surprised if you see a negative return on your investment.
4. Arbitrage Product by NSeL - The spot exchange has put in some solid risk management systems in place, but if the exchange goes broke you're not getting your money back let alone the interest generated. However if the exchange does not go broke, you're assured of the return you could see before undertaking the trade. Amount, % return and date at which you would get the amount is guaranteed. 

Do share your thoughts and any other products you might have in mind by the way of comments or a simple email on dewang@denip.in.

PS: If one of you could proof read this, I would appreciate it!

Thanks,

Dewang K Mehta

DENIP Consultants Pvt. Ltd.

Petrol price rollback on the cards?

Just a few days back I had posted a blog (http://denipconsultants.blogspot.in/2012/09/riddle-me-this.html) about whether the oil companies in India would consider cutting the prices of petrol and diesel if the Rupee appreciated against the dollar or if the crude oil basket fell. Luckily there is an announcement today in the TOI, that they would consider cutting the petrol prices.

Following is the picture I managed to click on my phone:

Looks like we shall see the US structure where the prices are changed everyday around 3pm in a couple of years.

Thanks,
Dewang K. Mehta
DENIP Consultants Pvt. Ltd.

Riddle me this

I was wondering last night about the diesel price hike. First and foremost let me clear this, I am not against it. Reasons as to why I am not against it can be discussed in person or via email (dewang@denip.in).

However I would want the Government of Indian to come out and explain how and when they increase the prices of diesel and petrol.

What I want to know is the following:

• Let's say that when they hiked the diesel prices crude oil was trading around 108 and the USD/INR Pair at 55. However today when the USD/INR pair is at 54 and crude around the 102 mark, will the prices be rolled back? 

I mean I know the fall is barely 3.7% average (1.8% for USDINR and 5.6% for Crude) but would the roll back be considered? Is there a limit after which they would consider it? For e.g. 15% fall?

I would also like to know if the Government of India is looking to make these oil marketing companies profitable without subsidies, because if that is the case then a price hike will never be rolled back. Under such circumstances, I would very much like to own these businesses (rather than crib about the price hikes) since most of them are listed on the Indian stock exchange.

They might be naive thoughts but would like to understand this situation better. Calling any and all experts. Please comment or drop me an email on dewang@denip.in

PS: Needless to say, I am game for petrol price roll backs as well.

Thanks,

Dewang K. Mehta

DENIP Consultants Pvt. Ltd.

Ganpati Bappa Visits DENIP Consultants Pvt. Ltd.

DENIP Conusltants invites one and all to visit our premise to take the blessings of Lord Shree Ganesh. He's already at our office and will be there till 5pm tomorrow i.e. 20th of September 2012.

Our office address is: DENIP Consultants, 13/A Kailash Plaza, Near odeon cinema, ghatkopar east, mumbai 77.

In case you can't make it to our office, here are some pictures:

Thanks,Dewang K. MehtaDENIP Consultants Pvt. Ltd.

Indirect Investments.

Not a fan of direct investments into the stock market? You can look at the following mutual fund schemes:

1. Large Cap funds - Should have at least 25% (defensive) to 35% (aggressive) of the total funds allocated towards risk assets
• DSP BR Top 100 Equity Fund - The perfect large cap fund to own. Always features in the top 10 percentile whether a bull or a bear run.
• ICICI Prudential Dynamic Fund - Consistent performer in the large cap space to own. 
2. Mid, Small & Micro Cap Fund - Allocate 20% to 30%  (aggressive) of the total funds
• Reliance Equity Opportunities Fund - They took a hit due to the Reliance ADAG brand  taking a hit but they are back. I think Reliance funds are the dark horses in the pack. 
• ICICI Pru Discovery Fund - Again consistent performance by this scheme. I think ICICI is ensuring that all its flagship funds have a consistent performance and even if they're number 2 or 3 in the pack they'll attract funds due to consistency. 
• DSP BR Micro Cap Fund - The era of micro caps is about to hit us if the bull run is here and I think this fund has ensured that during the bull runs the performance beats any fund in the market.
3. Balanced Funds - Allocated 10% to 8%  (aggressive) of the total funds
• Birla Sun life 95 - Consistent performance and always in the top 10 percentile. Has performed well during bull runs.
• HDFC Balanced Fund - You can pick either this fund or Reliance Regular savings balanced fund.
4. Monthly income funds - Allocate 12% to 10%  (aggressive) of the total funds
• These are pure bull run products and investors can expect a 12% return over the next 5 years.
• Reliance Monthly Income Plan & DSP BR Monthly Income Plan are two funds to own in this category.
5. Gold Fund - Allocate 25% to 15%  (aggressive) of the total funds
• This will not only act as the perfect hedge to the bull run but also the hedge to inflation.
• Like the Kotak Gold fund and HDFC Gold fund in this category primarily due to their brands.
6. Liquid Fund - Allocate 8% to 2%  (aggressive) of the total funds
• Allocate funds under this category as your emergency savings funds. Like the Escorts liquid fund and Tata Liquidity management fund in this category.
• In case you do not wish to allocated 8% of the total funds under this category you can split it as 4% liquid fund and 4% bond fund.

Dark Horse Category:

• DSP BR World Gold Fund - Gold miners fund which has an international exposure.
• Reliance Banking Fund - One sector that should enjoy the bull run without any major risks.
• Reliance Pharma Fund - Another sector fund to have a part of your portfolio.

Please note that the total funds allocated should depend on your age and risk taking capacity but once you've zeroed in on it, you can use the allocation mentioned above to ensure enough diversification.

Do share your thoughts on dewang@denip.in

Thanks,

Dewang K Mehta

DENIP Consultants Pvt. Ltd.

Looking into the crystal ball - India 5 years from now!

Hi Everyone,

I haven't had the time to write much since quite some time due to the changes going on at DENIP Consultants and due to a lot of other commitments. However, I thought that now was the opportune time to write a few lines.

A lot has changed with regards to the Indian Investment Scenario. I honestly do believe that we are headed in the right direction and with the government policies kicking in across the globe its time to consider the next 5 year scenario.

In my opinion, the Indian GDP growth rate should clock between  6.5% and 9% with inflation averaging at 6% to 8%.  I also believe that the interest rates are about to cool off with a lot of dollar inflow into the Indian economy. This should bring down our fiscal deficit and also the rupee should appreciate to the levels of USD/INR of Rs.40 per dollar.

Sector wise break down:

1. Financial & Financial Services - Banks, M&A players and Broking houses(finally) should enjoy the next 5 years. The Government of India should start pushing for investments over savings. Term insurance will be preferred over traditional products that earn a nominal 10% return p.a. No more tax breaks for investing in Insurance, PPF should push investors towards the stock market.
2. Auto - Luxury players should enjoy a rising market share. With increasing incomes and better roads this sector will continue to enjoy returns. Keep an eye on the two wheeler sector.
3. IT - Time to go underweight on this sector. I think the wealth creation opportunities are almost done with and I would like to treat this sector now as a defensive sector where wealth is not created but your money is safe. Tax breaks to finally end too.
4. Telecom - Will 4G impact this sector? I believe so! Keep an eye on RIL and Tikona. Game changers!
5. Metals - Buy on dips over the next 2 years. Global demand and Indian demand should pick up
6. Capital Goods & Infra - Government projects to finally pick up with a view to improve the Indian infrastructure should help these companies. Finally better roads and lesser potholes should happen over the next 5 years.
7. Oil & Gas - This sector has always confused me and continues to do so. I've always bet on the top 4 and should continue to do so.
8. FMCG & Consumer Durables - Yes this is the sector that should attract investments and yes it will create wealth and employment, but do you really want to invest at 40PE? If you're invested already enjoy your profits. Remember the power sector in 2009-11 phase? This sector is going through a similar phase.
9. Real Estate - Property prices on the residential end should stabilize or fall but the rental on the same should rise. Commercial properties should enjoy escalating prices and higher rentals. 100% white payment should happen too which should reflect in the books of these developers. Still a sector where I want to purchase the property rather than own the business.
10. Power and Energy - Weren't this the sector be a part of for 2012? September already and we haven't seen them create capital for their investors. Stay invested, we are in a supply shortage phase and will see improvements in this sector too. Money will be made for people who have started investing in the past year or so due to cheaper PE's finally. Be patient.
11. Health Care and Pharma - A lot of reforms need to hit this sector. Will keep this as the one to watch out for. Have a 10 year time frame and start systematic investments in this sector. Should be a good sector fund to own.
12. Hospitality and Gambling - Will the GOI finally make gambling legal? Seems like the way forward. This sector should create wealth over the next 10 years in India. too. Tourism India promotion should help this sector.
13. Agro - Process improvements and supply side improvements should lead to wealth creation in this sector. 

Finally, the nifty chart for all you technical lovers:

I think with the interest rates falling going forward, this could be the set up to the perfect Indian bull run. Do start investing and be patient. It's time to get out of bank fixed deposits and invest in the Indian stock market for higher and better returns.

Also, don't forget to invest systematically in Gold. Gold might not give you super return in the next 2 years but with the amount of money being pumped into the system inflation should continue to be that thorn to take care of. A systematic way should help you not only accumulate gold but also take care of any major falls in the gold price. It's the perfect hedge to the bull run but the only way is to be systematic and not in one shot. 

I have put in very generic thoughts and would be happy to discuss them out in detail. Post your thoughts in as comments or just drop in an email on dewang@denip.in. 

Will be happy to respond.

Thanks,

Dewang K Mehta

DENIP Consultants Pvt. Ltd.