Investment Faqs with Parimal Ade (Investment Satsang- 21)

Parimal Ade:
• A year there should be at least 1 rebalancing in Asset Allocation that needs to be done.
• The last 18 months that we are seeing in the market is something which is unprecedented bull run, Which is not backed by economic activities.
• This can be due to last year’s low base effect or could be 3-4 years muted earnings.
• Due to pandemics, there are cost-saving opportunities for companies and the market.
• Although the revenues have not increased, the operating profit margins have increased that’s why the net profits are also up. Therefore the EPS has gone up. Hence the overall market earnings have improved.

• Generally, in the normal market situation, the market gives a return on a double-digit figure, and hence asset allocation balancing should be done at least once a year, but in the current market situation, where Equity Market is yielding phenomenal returns of strong double-digit returns and above the desired rational expectation of returns, one should re-balance the asset allocation as and when it is needed.
• asset allocation re-balancing should be done similarly with all the asset classes and should be done when the particular asset class has met your desired expectations of returns at any point.
• Asset Allocation is subjective and its solution differs from person to person. It is not only an investment strategy to follow, but it also helps in managing your behavior as well.

Parimal Ade:
• Suppose, your initial allocation in Equity is 60%, and currently, it is at 70%-75%, then one has to take 20%-25% of the allocation in Equity should be in actively managed Large Cap Fund which should beat benchmark index. Or follow the Do It Yourself (DIY) technique and invest in Index Funds.
• And these allocations in Large Cap Funds or Index Funds will help you out in booking profits. As there may be a thought process that your investments in Mid-Cap Stocks and Small-Cap Stocks can grow much more in the future, and hence you don’t want to disturb these allocations.

• Now you have to take back your equity allocation to 60% by shifting surplus appreciation in equity side (recommended from Actively Managed Large Cap Fund or Index Funds, which has been discussed above) to other asset classes. And by this way your stocks where you see a great potential will not be affected by this re-balancing.

Parimal Ade:
• As Zomato has taken stakes in Grofers there is no need to worry. They will do the things at the right time.
• The current business will create a lot of opportunities.
• When active users cross 10 Cr. plus then it will be a great business.
• It was well said by Mr. Agarwal that Zomato is like an asset-light company where the CAPEX is not seen in the balance sheet as the marketing cost is more so it will impact on P&L.
• If they don’t do more marketing then Zomato can be more profitable but they are into growing stages. So they know when to be profitable.
• Still, a long journey is available.

Parimal Ade:
• To beat inflation equity is one asset class one should always have.
• One should expect a return from the equity class of around equivalent to GDP growth rate plus the inflation rate
• If the inflation is there then raw material other costs will increase automatically revenues will also increase.
• Inflation can be beaten if the investment is done in the consumption-based sector.
• For economies like India, the Inflation rate of 4% to 6% is always good.

• Most of the Flexi-Cap funds have taken major allocation in the Large Cap side rather than a small-cap and mid-cap.
• It is always recommended to have a staggered manner of investing rather than lumpsum investment.

• The banks that have made the provisioning for the loans. Such loans will be provided some valuation.
• The banks are playing safe then there is an issue of credit growth.
• As there is a lot of cleaning going on, privatization is going to happen. The aim is to have credit growth.

• No doubt individual stocks can create good wealth.
• Compounding can happen more by mutual funds.
• The problem here is some stock will give you very good returns. There be some laggards also.

• Whenever corrections happen oil prices fall which is a pinpoint for the countries like us.
• This helps them to raise the money the interest rate goes down.
• When the interest rate goes down then the borrowing cost will also go down, the profitability of the companies will also increase