Investment FAQs with Parimal Ade (Investing Satsang)11 min read
Investing Satsang 01
Here are some questions asked by the viewers in the Mahashivratri Investment Satsang dated 11th March 2021. These questions can provide you insights on some grounds. Please read these questions for knowledge purposes only and make any investment decisions only based on your research or the advice of your financial advisor.
Both HDFC Life and ICICI Lombard belongs to Insurance Sector. But the former one is a Life Insurance company. and the latter is a General Insurance Company.
In both the sectors Life Insurance and General Insurance, there are high under Penetration. Vehicle Insurance does not have higher under penetration because of the imposition of newer regulations.
In India, the Health Insurance sector is highly under-penetrated.
Both the segment have growth expectations of double-digit. The normal expectation of growth is expected to be around 12%-15% sector-wise incoming 5-10 years.
There are high opportunities for the company in this sector who can gain market share proper market practices and aggressive strategies. In the context of these 2 stocks, both are capable of doing that.
This sector will always be given a premium valuation because organic growth is available in the sector. Also, Institutional Investors are quite positive about this industry.
HDFC Life is having its brand name too and hence it will add more points to its valuation.
If anyone has allocated 100% in Equity then it is a concentrated portfolio and not an ideal asset allocation.
There are 2 things to understand Asset Allocation:
i) Asset Allocation when one has accumulated Wealth.
In this scenario, one should follow Asset Allocation. Like 60% Equity, 40% Debt.
Asset Allocation should be rebalanced every year.
Asset Allocation is the key to your Portfolio success.
ii) Asset Allocation for the planning of Goal:
For Goal Planning Approach, Asset Allocation is a must for the individual.
The expected return should be rational of 10%12% in the case of a 5-year investment horizon.
If in case, during the favorable market situation, when the expected target of 10%-12% is attained before the planned period, then one should exit with their investment. During this Goal, Realisation is much important.
During a euphoric market situation, one can rebalance one asset allocation every quarter.
AB Capital lacks the thrust of growth. But the prospect of value unlocking is possible as AB Capital is planning to bring IPO of Aditya Birla Mutual Fund of Rs. 5,000 Cr.
AB Capital is having a stake of 51% in AB SunLife Mutual Fund whereas SunLife LLC is having a 49% stake in this AMC arm of AB Capital. It will be an interesting thing to watch, how much stake is diluted by AB Capital or SunLife, or both. As of now, the market valuation of Aditya Birla AMC is estimated to be around Rs. 25,000- Rs. 26,000 Cr. Earning Visibility of Asset Management Company is good, but growth in earning is a major concern.
This is because ETF Market is getting developed efficiently and actively managed funds, which is a major income-generating source of AMC. For instance, Equity Funds have an expense ratio are between 1%-2% (both direct & regular) which is the major earning source of AMC. But in the case of ETF, the Expenses ratio ranges between 0.1%-0.25%, much lesser than Equity Funds, then this will create challenges which this AMC companies need to prepare.
The main focus of ITC business is now on FMCG and Agri-business. The company wants to grow revenue from these businesses of Rs. 1 Lakh Cr.
This target is only possible when the EBITDA margin or Operating Profit Margins of FMCG and Agribusiness go beyond 15%-16%.
Once this EBITDA margin is hit and the revenue target is achieved, there is a possibility of stock being re-rated.
85% of the profits of the company comes from the Tobacco Business which should be reduced and there should be the growth of FMCG and Agribusiness.
As of now, ITC stock will test your patience.
i) Mirae Asset Emerging Bluechip Fund
It is a Large and Mid-Cap Oriented Fund.
Investment Horizon should be 5-7 years.
ii) Parag Parekh Flexi Cap Fund
Good fund. Good Diversification in India as well as foreign equities.
Investment Horizon- Long term- 7-10 years.
ITR Filing is a good practice.
If there is no other income, no tax will be charged on this income.
There will be a growth in this stock that will not be affected by the ETF market in the near time.
Premium Valuation with HDFC AMC will always be the case due to the presence of the brand name of HDFC.
A common mistake an investor do is “To Time the Market”, which should be avoided.
The only solution to this is following Asset Allocation.
Asset Allocation is the most successful strategy for getting good consistent returns without any emotional play. As when the market goes up Fear of Missing Out (FOMO) is build up in the mind and when the market goes down, we sell in distress.
If investing in Direct Stocks, at least 10%-15% of the allocation should be towards Index Funds or Large-Cap Funds.
The existing business of Exide and Amara Raja of cars will be good.
This company can do well in the EV segment, but no such activities as of now.
There is earning and growth visibility in these companies for 3-5 years.
No views on the short-term.
But from a longer time perspective, the future is good as it seems the price war is over between Jio and Airtel.
If the Financial Advisor adding value to your portfolio, then you can continue with it.
DIY investors generally react to the situation and do not manages their behave properly.
From a long-term perspective, should continue with SIP.
The ultimate goal of your Investment should be the Accumulation of Assets. Return is the by-product of your disciplined investment.
There will be some companies in the market which will grow like this in the future.
As per the predictions, India can be in 2nd position in the economy size in the coming 20-30 years. China will be in first position and the USA behind India.
As an investor, there will only be rational growth available in any stock. As one will not put all of his money in one stock only.
Small and Mid-Cap Index or ETF in respect to this can give you good returns, but one should keep in mind that more important is Net Worth Growth.
Investment strategy should be a disciplined one to fulfill the targeted return.
There will be not much difference if you make an equal weight investment or other. You can create a little alpha but it will not make much of a difference.
For Rs. 3 lakh investment, the suggestion would start with 10 stocks first and with time take it to 15. Here, the concentrated portfolio should be constructed.
The prime reason for this is low financial literacy in India.
There is a fearful perspective of the share market in the older generation and hence there is lower penetration.
Also, Institutional Investors do not differentiate between equity and debt. These investors have their allocation in bonds only and invest on equity as per the opportunities available.
All these companies are good and if your investment horizon is 10+ years, then the return expected should be 10%-12% and should not be more than that.
Looking at the size of the business, the rationally expected return from these businesses should be around 10%-12% plus dividends.
Any growth engines in the business like in the case of RIL can also work in favor of your portfolio.
SIP will not add advantage to volatility as much from an accumulation point of view.
An ideal choice for you will be Corporate Bonds or Low Duration Government Securities Funds.
The logic behind investing in debt should be capital protection and not the expectation of return.
If you know Crypto, investment should be done only when one understands the risk and the whole model as well.
The second wave of Covid-19 and the Imposition of lockdown on several districts will have a bad impact on this industry.
The overall Leisure industry is well supported by strong domestic consumption, demographic dividend, growing millennial crowd. Pandemic might have postponed the growth which was expected in this industry.
Although the PVR stock has recovered from its lower levels.
Good Earnings and Growth Visibility in the industry.
As of now, the PE of equity of 40 is looking expensive, but the expectations from the equity market at least the companies are that they will grow their earnings in between 25%-30% in the coming 12 months. With this growth, the denominator of the PE ratio will grow, at which level, the market will look attractive.
So, with increased EPS, this 40 PE would look like 30-32, then it can be attractive.
The same thing can take place at the global level also if there is a good recovery in earnings. As GDP falls across the globe has impacted the earnings and for this reason, the market is looking overvalued.
From a viewpoint of 5-10 years, the equity market is quite positive.
We usually stay away from the company which has any corporate governance issue.
You are perfectly right!
There is no problem in paying taxes if the Income is clear.
But you need to do proper financial planning, do proper investment, manage your cash flows, and assess risk profile.
Disinvestment is going to be good for a lot of PSUs stocks.
In the case of IDFC First Bank, should track loan problems. Mr. V. Vaidyanathan is a gem person, one should also believe his vision. But should invest in this stock after proper research.
You can do some experiments also, you can analyze your risk profile.
Also start noting down how you are reacting to this situation.
PSU Stock has already gone through a great run. PSU index has outperformed Nifty and Sensex in the last 2-3 months by 20%-25%.
Looking at this rally, it seems that already there has been a discounting in PSU stocks. Normally after this downside risk is possible if the expectation is not matched.
PSU stocks with organic growth capacity can be selected and not those stocks based on any market news.
One should have a clear thought process of a long-term portfolio.
For a short-term portfolio, investments should be on the debit side.
A moderate investor can follow Asset Allocation. Also, Trading activity can corrupt your portfolio.
As the aggressiveness L&T Infotech is showing in its growth is quite phenomenal.
Valuations are stretched.
This stock will remain highly volatile as the beta of the stock is quite high.
The market is having a higher expectation from this stock, failure to fulfill of objectives of the company will lead to disappointment.
Also, the IT Sector is trading at a premium valuation in comparison with their historical PE and this sector can face market correction as well.
Earning visibility is good for this sector. Rationalization of Valuation can happen.
You should relate or connect a financial goal with this investment.
If you link this investment to a goal for 5+ years, then there is no need of withdrawing this money. But if you are going to require this money in the next 3 years, then it is better to take that money or decrease that equity allocation and go into debt.
Short-term FD, Liquid Fund, Ultra Short-term Funds, Sweep-In option.
Go slowly with direct investing.
Don’t take any action immediately. Also if any market correction comes, what will be your thought process.
Analyze your behavior.
As of now, there is the scenario of rising yield and whenever it happens, negativity is developed in debt funds.
Because the NAV of debt funds is inversely proportional to interest rates. As interest rates go up, NAVs come down and vice versa.
There will be pressure on debt funds due to rising yields but no issue of faults as of now.
Abbott, Pfizer will always be premium valued stock. There should not be high growth expectations from this stock, only rational expectations.
There is under-penetration of the financial assets industry especially depositaries.
There is organic growth available in this investor.
Earning visibility is good but the question is the sustainability of growing visibility in the future.
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