Here’s what’s going wrong with your investments!

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
Warren Buffett

Your impatience is understandable.
Equity markets are spinning at a dizzying pace, there’s more chaos than order and lastly, you are yet clueless about how should you react in such a situation – worry because bellwether indices are going bonkers by the day or happy because your portfolio isn’t imitating the magnitude?

But just because a behavior is understandable doesn’t really make it rational.
A child may cry and yearn to get an extra helping of his favorite dessert – the behavior is understandable but is neither rational nor in his best interests. Similarly, you may be sweating with anxiety by simply reading the pink newspapers but instead of following the number one rule to make profits – “buy low, sell high”, you would still deliberate on doing the exact opposite; again an understandable but irrational behavior.

Here’s some trivia that will help you draw a parallel with what’s happening with your investments
The Chinese Bamboo is among the world’s tallest and strongest grass. But wait, this isn’t the most noteworthy aspect of the bamboo. Read on and you’ll be amused.

The bamboo requires a lot of nurturing and care with adequate water, fertile soil, high-quality fertilizers, and ample sunshine. But if you were to grow the bamboo, you would realize that despite all precautions and careful nurturing, the bamboo does not even peek out of the ground for four years!

Yes, even after persistent and diligent attention, you wouldn’t even have a bud to show for it for four years! But, in the fifth year, something astonishing happens –

The Chinese bamboo grows up to a height of 80 feet in only six weeks!
Does the seed simply lay dormant for the first four years and suddenly, in the fifth year, decide that it’s time to shoot up? Obviously not. The first four years were, in fact, crucial for the seed to develop its foundation and roots underground and make it strong enough to support the exponential growth in waiting.

Now, what would happen if you dug into the soil every month and took the seed out to inspect or simply dig it out in the second or third year losing all hope? A lot many things could’ve happened but there’s one thing that would definitely NOT happen – you would never be able to see the Chinese bamboo you’ve dreamt about.

Similarly, India has jumped ranks in the Ease of Doing Business rankings, GST refunds are being fast-tracked, the Insolvency and Bankruptcy Code has brought back significant capital back into the banking system, liquidity is being bolstered through several collaborative measures between the Government & RBI and another good set of developmental reforms are underway. Sure, the system and markets may seem dormant but there’s no reason to not believe that it’s simply strengthening the foundation to create a $5 trillion economy in the next five years.

To offer more context, 2016 was a year of major structural reforms and events including the RBI governor’s abrupt exit, demonetization and the GST proposition being tabled – the impact of which continued and reflected in CY 2017 only to be topped up with additional geopolitical uncertainties like the domestic elections and global trade wars. However, for the same period which laid grounds for a synchronized global slowdown, India continued to remain resilient.

To the naïve investor, an 11% CAGR would seem petty but ask any investment veteran and you will understand that it always is about the relative performance gave that an opportunity is only as good as it stands against the next best opportunity.

While the multiple squiggly lines in the above graph may seem overwhelming, all you need to focus your concentration on is the thick blue line (NIFTY) and how it has outperformed other developed and developing economies’ indices.

So, there is merit in sitting tight while the seed of an economic reform strengthens its roots underground and continue having faith until the economic bamboo spurts out of the ground. Meanwhile, it is strongly beneficial to step up systematic investment/transfer plan amounts and make the to sow as many seeds you can at a lower cost to benefit from the imminent growth.

Time in the market beats timing the market, any day!

When push comes to shove: GoI does not shy away from doing what it takes

“Mood of doom and gloom is not going to help anyone. I am not saying we maintain a Panglossian outlook and smile at everything — I don’t expect people to smile away difficulty — but a mood of doom and gloom will not help anyone,”

-Shaktikanta Das
Governor, RBI

Desperate times call for desperate measures.

This has never been more than in recent times. With India staring at the incoming wave of a global slowdown, the two biggest forces – Ministry of Finance and Reserve Bank of India have decided to keep their long-standing feud aside and attempt to insulate India through growth-inducing measures, reforms, and policies.

Over the past couple of weeks, Nirmala Sitharaman had announced a slew of big-bang measures including rollback of the controversial surcharge on equity capital gains, intent to recapitalise public sector banks, dispose angel tax, fast-track GST refunds while the generally conservative RBI decided to move out of its comfort zone and pay out a surprisingly large sum of INR 1.76 lakh crore.

While these measures are expected to be instrumental in the economy, Finance Minister Nirmala Sitharaman chose to not wait for more data and in fact acted proactively by calling for another press conference late Friday this week with another set of surprises. Following are a few highlights of the announcements made during the press conference.

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Key takeaways for investors:

We continue to maintain a stance that now is a good time to start accumulating through systematic plans with a medium-term horizon. The short-term outlook for Indian equities is that markets are expected to be highly volatile in the short term and offer massive wealth creation opportunity for investors willing to ride the tide and participate in the imminent recovery. Investors with a moderate investor profile and time horizon of 5+ years can choose to explore top highlighted funds in the multi-cap category.

Decoding Side-pocketing in mutual funds!

Side-pocket, as literally explanatory, is a provisional pocket to cast aside a certain fraction of the total funds available – in our context, to the mutual fund.

Side-pocketing as a concept was first brought into mainstream discussions in 2015 when Amtek Auto’s credit rating was downgraded by several notches and was classified as a potential default. At the time, JP Morgan AMC had significant exposure to Amtek Auto’s debt instruments and the investors incurred heavy losses on account of the write-off in value. Now, such negative returns triggered panic and heavy redemptions by investors – now, as you can imagine, Amtek Auto’s securities were illiquid (could not be sold since there were no buyers) and the AMC had to start offloading good & liquid instruments to meet redemption requirements and as a result, the proportion of good to bad securities dropped and the AMC was left with a larger exposure to the bad assets – practically causing a run on the system. Though JP Morgan tried freezing redemptions, but the regulator did not permit such a restriction. This led to discussions around the possibility of mutual funds creating a side-pocket.

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RBI’S INR 1.76 Lakh Crore Defibrillation to The Indian Economy

Following Nirmala Sitharaman’s prescribed economic booster shot late last Friday, RBI decided to inject the Government coffers with a heavy dosage of surplus reserves of INR 1.76 lakh crore late evening yesterday.

This slew of economy-reinvigorating measures by the GoI and RBI’s large-hearted contribution comes amid a time when India is surrounded by a global, synchronized slowdown. This time, with global pressure mounting and the Indian economy staring at a downside risk of 30bps-40bps, RBI loosened its grip on fiscal prudence and seems to have acknowledged stimulus as the need of the hour.

The Bimal Jalan committee was set up under the stewardship of the renowned former RBI governor Bimal Jalan with an objective to recommend ways to utilize RBI’s excess cash reserve and part transfer to the Government of India. Though RBI has been among the most resilient Central Banks globally in terms of deviating from the established norms for fiscal prudence, the committee’s recommendations were reportedly guided by the fact that the central bank’s resilience should be in line with larger public policy objectives.

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No makhan-chori this Janmashtami!

O’ naughty Krishna, stealing butter sure was fun,
With friends supporting, it was a pretty good run

 

But Mommy waited around the corner with a loving whack,
And then, came a time when all had to be given back

Just a day before Indians celebrated the birth of the natkhat & loving Lord Krishna, the Finance Ministry presented Indians with more than one reason to celebrate the day with even more enthusiasm.

The biggest announcement making headlines is the withdrawal of recently proposed colossal surcharge rates applicable on investments in equity/equity-oriented schemes. The proposed surcharge took tax burden up to as high as an effective 42.7% which was obviously received with an equally massive backlash by foreign portfolio investors by way of heavy-duty offloading of Indian equities.

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You’re probably being the ‘bazaar’ fool!

Some said incoming was abundant rain,
Ol’ John bought a farm & sowed to gain.

Some said they knew it would snow,
Ol’ John bought firewood that’d glow.

Some said the horizon seemed sunny,
Ol’ John bought hats to make some money.

Alas! The visitor was spring and breeze so cool,
Markets rejoiced, while Ol’ John remained the ‘bazaar fool’

Ol’ John was simply trying to play every story that the market fed him but unfortunately landed up being the ‘bazaar fool’ as he lost everything to the chaos. This is something similar that has been happening with many investors, especially with the novices.

If you’ve been reading too many pink newspapers lately, you would have probably convinced yourself to believe that it’s almost game over for global and Indian equities.

But, is it so? Or are you simply being played & made the ‘bazaar fool’?

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This time, “action” begins after the “cut”

The world’s hogging on rate cuts,
Driving investors across the world nuts.
We all want cheaper loans and growth,
But is this the only way to get both?

You must have already heard about the 35-bps rate cut by the RBI in its monetary policy meeting, but here’s something you would have missed – India was not the only to surprise with a deeper-than-expected rate cut. The Reserve Bank of New Zealand caught the market off-guard with a rate cut of 50 bps (which is twice the expected cut) bringing its official cash rate to an all-time low of 1% while Bank of Thailand cut its rate by 25 bps for the first time since 2015. This has happened only in the next couple of days following a rate-cut announcement by the U.S. Federal Reserve.

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mid and small cap

There’s more to your mid/small-cap portfolio than you can see

We all know a kid who remained at the bottom of the class long enough for people to lose all faith in his progress only to be surprised when he lands a great opportunity and is perhaps more successful in life than most peers.

Even in Indian equities, many in the small/mid-cap space are assumed to be underdogs till one fine day when an opportunity comes knocking and it hits one out of the park. True, one cannot simply generalise all small/mid-cap stocks to be underrated, but the ones that offer a massive wealth-creation opportunity along with business turnaround.

While Indian capital markets, along with other emerging nations, witnessed a difficult phase last year, bellwether index Nifty still managed to climb to an all-time high last month but the small-caps at the bottom of the market-cap was unable to keep pace. At the time of writing this NIFTY50 has delivered a one-year return of ~3% but the NIFTY Smallcap 100 recorded a steep -16% decline and NIFTY midcap 50 slumped by almost 7% for the same period. The valuation polarization is too sharp. We look at mid and small-caps creating new bottoms and the basket dragging quite a few high-quality stocks along – this pushes them into the undervalued zone.

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SEBI turns hero for investors, Trump three-way fist bumps with Shinzo and Modi and more

Monsoon seems to have brought along cheer on many fronts – right from pleasant weather to pleasant news for investors. Here’s what you must know to reassure yourself that your investments are headed in the right direction.

SEBI wears the cape to save investors once again

While Indian investors have only recently realised the ugly side of credit risk, SEBI has stepped in to ensure that investors are protected. SEBI’s recent circular tightens regulations for mutual funds, especially for the debt funds to offer insulation against the increasing probability of further markdowns on already sub-rated instruments.

Here are the most notable measures that will augur well for mutual fund investors.

1. A liquid fund should hold a minimum of 20% assets in cash, gilts

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MyWay Wealth Weekly Update (Issue #37): All that glitters IS gold and more…

Indian Indices ended the week in red, but gold has lived up to its reputation of being a safe haven asset class and appreciated by 3.10% for the same period.

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#Top2: Reasons for gold regaining sheen

  • The dovish stance from major central banks:

The Federal Open Market Committee (FOMC), the policy-making arm of the U.S. Fed kept rates unchanged in a range of 2.25% to 2.5% on Wednesday even as it signaled that it is ready to cut if data so warrants. Along with the US, the other central banks like Australia, Europe signaled to ease their monetary policies to support economic growth.

  • Gold buying by major central banks:

Global Central Banks, especially of countries having exposure to America’s unexpected policies, seem to be loading up on their gold reserves as a hedge against any major economic headwinds they may face.

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Bottom line:

Gold as an asset class is known to be a natural hedge to economic risks your portfolio may be exposed to. While this short-term gleam in gold prices does not warrant an out and out investment into gold, it sure strengthens the case for a diversified asset allocation into equity, debt, and gold.

It makes sense for investors to hold an indicative ~5%-10% of the total portfolio in gold mutual funds or digital gold to maintain a well-diversified portfolio that will help build a consistent, sustainable and risk-optimal portfolio for the longer term.