2007 BC – 2017 AD, Markets Before Crash, After Demonetization

Hi

Wish you and your families a very happy Diwali.
The period mentioned above covers one Decade, 11 Diwalis and a Delightful journey, of course with Disturbances. Therefore the exercise was to analyse, 2007 Markets Before Crash and in 2017, After Demonetization.
In the last decade from 2007 to 2017, this is the 11th Diwali starting with 9th Nov 2007 till 19th October 2017. The first Diwali was before the crash of the global market due to Lehman crisis and we have  almost completed 10 years. This year 2017 Diwali also comes after historic actions of Demonetization and GST roll out.
Major Changes &  Happenings in the last decade has been
1. USA has seen three presidents from Bush to Obama and Trump
2. Euro crisis though has mellowed down has not been resolved fully. PIGS ( Portugal, Italy, Greece and Spain crisis)
3. Britain has exited the Euro group and the Brexit happened 18 months back.
4. China has seen the rise of Xi Jinping as president and succeeding Hu JIntao and by the time you get this mail, he would have an extended term
5. NDA comes to power disloging UPA and Modi becomes the prime minister.
6. Demonetization announced last year  November and GST rolled out this July, said to be structural but currently disruptive.
7. Global terrorism at peak with IS and Jihad striking at will all over the globe and Europe being the new target.
8. North Korea making noises on and off, disrupting stability in the markets.
9. World markets crashed in 2008 on Lehman or sub prime crisis and all ran for shelter.
10. Globally Quantitative easing or QE, simply put, supply of easy money was made available.
11. When FED announced buy back of these QE, emerging markets crashed in July 13, Indian Rupee for hunting for cover, inflation shot up, Interest rates went up.
12. From YV Reddy to Subba Rao managed the ship, which was was reined well by Raghuram Rajan before Handing over to Urjit Patel.
In spite of all this, where are the markets now?
A. Nifty has gone up from 5698 to 10210 — an increase of  79%
B The S& P index in the US rose from 1725 an increase of  48%
C Gold crosses 30k for the second time in 2017, after falling in 2015
D Crude after hitting a peak of 140 and breaching is now stable  around 52
This has been a good performance. BC VS AD
Insights
Having seen the nifty giving a stupendous return, of close to 80%, any investor should be happy if he has invested in the Nifty.
Instead of investing in Nifty if you had invested in mutual funds, your money would have been managed better.
I have taken Large caps, Diversified or Multi caps, Mid caps and some sectoral funds. I have considered most of the funds, which have completed 10 year period.
As said earlier, the period, is chosen to cover a crash and then recovery.
You will notice that the investments in the Large cap funds, would have grown 2.24 times. This in a 10 year period works out a return of 8,5% CAGR
You will notice that the investments in the diversified funds, would have grown slightly better to 2,75 times. This for the same period works out to 10.5% CAGR
You will notice that if you had invested in mid caps, your funds would have grown approximately 4.8 times, leaving the out-liers in DSP micro cap and Principal emerging equities, This works out an average CAGR of 17
Also investing in a banking fund, like the Reliance banking would have given, 13%.
You will also see a surprise in Pharma fund, inspite of the recent problems the sector is facing, has grown 5.3 times at 18% CAG
Inline images 2Inline images 3
Inline images 4Inline images 5
There are stocks like TTK prestige has given 50 times return, TVS Motors 20 times Bajaj Finance 50 times, it is very difficult to choose and hold these stocks.
Even if you did, you would also carry stocks which are not doing well and this can bring down your overall portfolio return.
Conclusion:
As an investor What should you do?
First do an asset allocation, of equity, debt and gold.
In equity, to maximise return, with lesser risk, invest through mutual funds.
You can depending upon your profile, allocate into large cap, multi cap, and Midcap stock and also allocate some money in to sectors like, banking, may be pharma or FMCG, which are so called defensive but ever growing.
Inline images 6
Your one lakh invested will be 3.6 lacs in 10 years, in spite of a huge crash, the markets had.
Mutual funds, give a platform to maximise your return, provided you do a good allocation.
I will be happy to help you out,  Do contact me for any clarifications, help etc.
Please note all data points are as on Diwali of respective years.
Varadharajan VS
ckar.vsv@gmail.com
Advertisements

Use PDCA for problem solving

Hi.
All of us face problems and the degree of difficulty of solving the problems vary depending upon the nature of the problem. The primary reasons the problems arise can be broadly classified into three categories.
1. The problem caused due to natural disaster or simply put “force majeure” like flood, earth quake, fire or war and so on. Generally it is not known when this will occur and the extent of damage is generally huge.
2. The second set of problems are caused by others, friends, relatives, colleagues, sometimes by Government policies and even strangers. There could be a reason or no reason in case of strangers. You still get the problem and are affected.
3. Third set of problems are self inflicted and are the results of your own actions.
If you understand the cause of the problems, you can take preventive action for future occurrence or you would have gained experience to solve this.
One of the problem solving method is known in simple terms as PDCA.
pdca.jpg
The first step is Plan
It is said, that a person, with no direction in life, is like a duckweed floating on water. Have a Goal.
Goal with a timeline is a target.
To achieve this have a strategy. Strategy is the approach to get to your goal.
Have a actionable list to achieve the Goal.
Next step is Do.
An idea without an action plan is just a dream. To convert your idea to reality you must do based on the steps you have arrived in the planning stage.
We do not know if the actions we have taken will yield the right results. But we must get started. You can never do a thing with 100% accurate plan and actions. However, you should be able to measure the results of your action.
Therefore Doing is the critical part.,
Check what you have done.
What is not measured cannot be monitored.
Based on the actions, check the results and see if they are as planned.
If they are not as per plan, you need to correct your actions.
How do we go to the right actions.
the QC tools, especially the 7 QC tools, are to be used along with PDCA will understand the cause and effect and help you do course correct.
The 7 QC tools are 1. cause and effect diagram, 2. Check sheet, 3. Control Chart, 4. Histogram, 5. Pareto chart, 6. Scatter diagram and 7. Flow chart.
The last step is Act on the corrective measures.
Having identified the right actions in the previous step, implement the action and continue the PDCA process for best results.
Likewise in the process of creating wealth we do get hurdles or problems or risk as we call it financial terms . They are
1. Market risk: This is like force majeure and you have no control. However the remedy here is doing a proper asset allocation. Meaning investing across assets like equity, debt, gold etc. Don’t put all eggs in one basket. This risk is generally known as systemic risk
2. Unsystemic risk :The second type of problem are caused by some individuals or companies and will affect a particular company or sector. Like Infosys affected both due to Sikka vs Murthy and issues in IT slowdown.
You can overcome this by diversification. Easiest method is to invest in a mutual fund who diversify in various companies instead of you investing in one or two companies.
3. The last one is self-inflicted and by choosing to invest in a particular stock. For this you need time, knowledge and patience to reap good benefits. If the stock you choose does not do well, you risk a huge loss.
Though it is simple to invest ” do it yourself”, you can minimise this taking the help of a good coach or advisor.
So the success depends on knowing the problems and avoiding the same by asset allocation or diversification or taking help from people like me.
Do contact me for further clarifications or any assistance
Not knowing is ignorance
Knowing and not doing is blunder
Knowing and doing is success.
Wish you success
Varadharajan VS
ckar.vsv@gmail.com

Pharma MAGIC: The Ills and Pills

Hi

Everyone wants to live long. To live long, apart from doing, yoga, exercises etc, one of the things we need is medicine. Though, Ayurveda, Homeopathy offer medicines in their own form, It is the allopathy or the medicines, that we have in consultation with our doctors, to get rid of their ills, which has bulk of its share.That is where the pharma companies, come into picture. These companies, do a lot of research, develop a drug, get the approval of authorities concerned and sell it to us. This is a big industry and the current global business is around 1.2 Trillion US dollars. ie close to 7 lac crore rupees.
The Indian market is estimated to be 36 billion USD. Of late we hear that the pharma sector is not doing well and the share prices have come down anywhere around 50 to 70% from their two year highs. Let us understand, what is happening in the industry.

Though it is a big subject by itself, I shall try to make it simple to understand. I call it as the MAGIC

Before we see the MAGIC in detail, basically the pharma and chemical companies do manufacture any one or more of the following categories.

a. GENERICS. When a drug is invented, normally the company that invents applies for a patent and the period of patent is valid for about 7 years. Till that period, no other company, can copy or produce that drug. After the expiry of the patent period, it is open and other companies can manufacture same or similar drug. The drug then moves into Generic category. Generic drugs are those drugs after the expiry of the patent period.

b. API – Active pharmaceutical Ingredient. is the main drug itself, where the active portion of the drug is present. Almost every pharmaceutical company is having API manufacturing.

c. CRAMS – Contract Research and Manufacturing Services, is an outsourcing activity where the company engaged does the work for another company in research or manufacturing. This is similar, to Foxcon making electronic components for mobile phones and assembly

d. Biosimilars. A biosimilar (also known as follow-on biologic or subsequent entry biologic) is a biologic medical product which is almost an identical copy of an original product that is manufactured by a different company. Companies like Biocon, Dr Reddys are investing heavily into this activity.

Having understood the basics, the Pharma sector has the MAGIC issues.

M- Margins. Majority of the sale of products come from Generics and there is heavy competition and there are also price regulations by the governments. Indian companies, with majority of sales in the US is struggling against competition and Pricing.

A- Approvals Any new drug, needs to be approved by the regulator and the major agency doing this is FDA or US FDA. US food and drug administration. A company has to make ANDA ie application for new drug approval and after getting that only, they can sell the drugs.

G- Geography. The market in which the pharma company present is also important and determines the sales, regulations approvals and margins. Currently majority of the sales is from US and Europe and US is the major market for Indian Pharma companies.

I – Inspection. Normally approvals and Inspections are a combination. However, Inspection is an ongoing activity. The regulators, check the manufacturing companies for quality, process compliance and data integrity. These inspections are periodical and based on the report, they can even prevent the companies from manufacturing till the noted issue is resolved to the regulators satisfaction.

C – Currency. Since the business is from different markets, the currency rate, fluctuations and they in turn affect the net profit of the companies. Un hedged forex can swing the margins.

Currently anyone or all of the above ILLS are plaguing the pharma industry. So what is there for us an investors?

Having mentioned about the sector, it is an industry where there is high entry barrier for competition and new companies to enter the sector. The skills required are also of high order and difficult to acquire easily. The companies are there for long haul and there are no fly by night operators. The quality of the management is very important.

PiLLS available.

a. Many companies are working hard to adhere to the compliance and overcoming any deficiency observed.
b. The data integrity and systems are improving.
c. The managements are committed and we have seen that some of the companies, who were issued observations like DR Reddys, Wockhardt, Divis Labs are already have got clearances.
d. This is an industry which is for long haul and This is suitable for those investors, who can with stand oscillating pressures .

Do choose the company and stay invested. If you cant chose the company, go for a pharma fund through the mutual fund route
Do contact me for any clarifications.
pharma pills

Brazilian team, under new coach, Playing beautiful football

Hi

One of the most entertaining sport is Football. The 90 minute game has the most viewership across the globe. Brazil, the Five times world champions have been struggling in the last season and crashed out of the world cup. Now with the new coach Tite, the team is playing superbly well. Tite has truly transformed the team.

Read this link http://bit.ly/2wQH6U2

Role of a coach.
Coach in any team is the most important man. He is the one, who works out the strategy for the team, identifies the right talent and the best man for the best job. He not only knows the team but also the competition, environment, rules of the game. He is the GO TO man as far as anyone in the team is considered.

Role of a Captain
He leads the team and is one of the talented players. He is instrumental, in implementing the strategies of the coach. He works in tandem with the coach. It is impossible for any team to be successful unless the two integrate well.

After Dunga left, Tite had taken it upon himself to build the Brazilian team and results are so far very good. Players also love to work with coaches like this.

Take the case of Saina Naiwal, who parted with his coach, Gopi chand, has not been having a good run ever since. Recently she has expressed to go back to work him, as her coach. Good players, who want to succeed don’t have inhibitions and Saina, I hope will overcome her bad patch and be successful.

read this link http://bit.ly/2xdbxEf

Similarly, For an investor, no doubt he is he decision maker. But every investor needs a good coach. A coach, who guides and works with the investor, is known as financial advisor. The advisor, helps the investor to formulate his goals derived from his dreams, assesses his risk profile and guides to invest in the right instrument. Like the Coach in any game, it is not a one time activity but an ongoing activity, till the goals are achieved. This may involve, training, skilling, providing psychological support during troubled times and reworking the strategies, as and when required.

Do you have dreams?
Do You have goals?
Do you have a strategy?
DO YOU HAVE A COACH?

You are the Captain, for you money! But with an advisor, you can make your money do WHAT YOU WANT.

I would love to be your coach. Captain are you ready?

Do contact me

Varadharajan
ckar.vsv@gmail.com

A review of stocks after 3 years

Hi

I had recommended a set of stocks in September 2014 and after three years just wanted to check where the portfolio.
Notes:
1. The recommended list had 37 stocks and 1 stock now got added because of Grasim demerger as AB capital has been allotted.
2. If one would have allocated 10k per share uniformly. Since it is not possible to buy fractional shares, the nearest value has been taken. For example some shares would have been bought between, 9500 to 10 k while some would have been bought above 10k upto 11k.
3.Some shares have received extra shares, by way of bonus and splits and they have been considered accordingly.
4. Dividend declared after Sep 2014 till date has been considered.
5. It is also assumed that no share has been tendered under buy back, if any was offered.
6. It is also assumed, the current portfolio is the same without any churning.
Performance.
1.  The total investment was Rs 3,69,440  and the current value is Rs. 6,15,215
2. The absolute return is 66.5%
3. Three stocks have grown over three times. They are Federal Bank, Berger Paints and Brittania
4. Four stocks have under performed and the return is negative. They are Sun Pharma, Idea cellular, Rallis India & Tata motors DVR.
5. 6 more stocks have grown between 200 to 300%
Conclusion.
Though there are many stocks that have performed better than some of the stocks in the list, this is the chosen list based on my understanding.
Normally, one does not distribute the investment equally, but according to our liking we may have over allocation in one stock and under allocation in other. Performance would vary.
Though theoretically, it may be a good return, practically it poses many behavioral issues. Many people would have exited some of the stocks at some point I am not sure how many would have held on to stocks like hindalco when it reached as low as 59.
The selection of stocks was based on sector, the management an the market potential.
With conviction in chosen stocks, one can make decent return with a distributed portfolio.
If you have any query please do contact me.
The sheet is enclosed for your reference and use.
STOCKS REVIEW

Thanks & regards

varadharajan

+919500100909

Bell curves -& your Portfolio. It is appraisal time!

Hi

It is appraisal time!. You heard it right and it is the annual appraisal time for your portfolio.
But for those who do not know what is a Bell curve, let us understand it first.
Let us consider 50 students in a class and measure their height. The data looks like this
Inline images 1
And if you plot the distribution on varying heights and the no of students,  using histograms and draw a curve, the curve will look like this
Inline images 2
This curve is known as Normal Distribution curve or simply Bell curve as it resembles the shape of a bell.
You will notice that the majority of the class in the middle range with in the orange color band and there are few people, who are shorter than the average of the class and some are taller than the average of the class. These are marked in yellow in the image.
In a distribution like this,  around 5 to 10% fall in the yellow band and they are known as outlier.
Similarly the portfolio you have will have stocks which give very good returns, which is on the right side of the image and there may be few stocks which are in the left yellow band and they may be giving negative return. These are the ones which pull down the overall return of the portfolio.
Appraisal system.
Many companies use this bell curve to fit their employees based on their performance. It is not necessary that the pattern may follow a bell curve like the above. But then, they force fit the performance and fit the employees into a bell curve.
Why do the do that?
a. the organisations want to reduce the average wage hike of the all the employees as a universe.
b. They want to reward the out performers very well and they may get wage hike in excess of 50 to 75% or may be more.
c. They identify the second best performers and say pay around 20 to 30%
d. The average performers get around 10 to 15% and
e. the under performers are the one on the left side yellow area, either get no increment or asked to leave the organisation.
The average hike in wages would be (0.15*75 +0.20*25+0.55*10)  which is 21.75%
The force fitting is hurting the individuals and slowly the companies are coming out of this system.
What has this to do with your portfolio.
Your portfolio of stocks may or may not follow a normal distribution like the above.
You cannot force fit the portfolio as the performance is not in your hands.
However you need to do an appraisal of your portfolio and identify the performers and non performers.
You must constantly move your portfolio  from the blue range to the green range. see image below
Inline images 1
Move your portfolio to the greener curve and this enhances your returns on the portfolio. A skewness to right is good for the portfolio and selection of good stocks will help you move right.
Do remember that keep aside your emotions. Remember
Opinions Confuse
Facts convince. 
Things to do can be summarised as below
a.  Take a look at your portfolio.
b. Find out portfolio returns and individual stock returns.
c. Try to map the distribution curve.
d. Unlike a Bell curve appraisal you cannot force fit the returns and churn the portfoio to improve the returns
e. Keep moving the greener pastures.
g. Do this once a year.
Thanks
varadharajan VS
ckar.vsv@gmail.com

Weekly bank nifty options Play as T20 instead of ODI

Hi

Are you the one trading heavily into options? If no then skip this article as it does not make sense to you.

If you trade in options, may be you can read this.

NSE introduces weekly expiry of bank nifty options from JUne 2016

As you know, option premiums is the sum of intrinsic value of the underlying plus the time value of money.

The longer the time to expiration, for a given value of underlying, the premium will be higher. This the premise on which you must read and understand what the change to weekly options can do for you.

With the weekly expirations, the time value of money has drastically come down for a new contract from 28 to 35 days depending on the expiry period or when the last Thursday falls in a month. With the weekly options the time to expiration is 7 days or 5 trading sessions.

Therefore the probability of making or losing money in premium due to time value was higher earlier. Now, because of the premium reduction, due to weekly options, you can consider trading and benefit out of this. However care should be exercised as there is risk of volatility and hence risk of losing the premium paid.

Also the time of buying and selling the options do matter.  You can consider this option.

One of the widely traded index option is the bank nifty option. and normal day the fluctuation can be 0.25% to 0.5% and  many days it is around 1%.  Hence a 1% variation in one day can give you opportunity to trade .

Here is what you do. Let us assume the bank nifty spot is 17500. On the first day of the contract ie. on Friday, you can use a strangle option and buy a put option for a strike price of 17200 and a call option for a strike price of 17800. you can stretch the stike prices so that the premium you pay is managed well. It is possible that you can buy both options with a total premium of 60.

When the bank nifty opens on Monday or Tuesday the effect of 1 to 2% in either direction can give you good premium for one of the options and based on the directions, you can possibly make a decent money . Let us take last Friday, 17th June 2016, 18200 call option of bank nifty was available for 40 and later came down to 22 and 17300 put option was available for 30 and went up to 35. If you had bought them you could have paid Rs 70 though it is higher, as it is difficult to judge the movements on both sides. It is therefore good to buy both these simultaneously.

ALSO Note that both these options are out of the money options and hence they are available cheaper.

Therefore exercise care.

Today when the market opened the put option went to 110 and the call option ended with 12 and you could have got at least 110 from the sale of put of option, even if you don’t sell the call option there by making 110- 40-30 which is Rs 40 and with a lot size of 30 it is 1200. Assuming the brokerage though on the higher side could be 436 leaving with a profit of 764 on an invest of 2100 which is around 30% . I have tried and watched this for the last 3 weeks and there is a possibility of a money play here.

However, take care of the directions of change and movement of the market & the brokerage. Since the time to  expiration is very short, you may end up losing the whole money.

The purpose of writing this is to make people aware that there are good opportunities, if you are an option trader and weekly bank nifty has changed the game to T 20 from ODI.

 

For any clarifications please feel free to contact me.

 

 

Thanks

varadharajan

ckar.vsv@gmail.com