COVID-19 has made a come-back to grapple Europe once again as a second wave. The fight for bare necessities continues as Germans stockpile on toilet paper once again. Data from theGerman Federal Statistical Officeshows that the demand for toilet paper was up by 90% last week compared to pre-pandemic averages.
Queues at supermarket tills are building up once again in Europe. My neighbour promptly reported that the potted plant he had in his shopping cart for check out was dead by the time he got to the cashier for billing.Jokes aside, let’s just remember this holiday season to keep a safe distance from others, wear our face masks and fight the virus together.
This week we released a short video feature on how money invested 5 years ago would have grown across asset classes. Check it out on our Youtube channel here.
IN TODAY'S NEWSLETTER
Market update & news in brief
Your dream home just became cheaper
The number of number on SBI cards' quarterly results release
Cover story - The art of investing in equity mutual funds
In case you missed it - What happens in a cashless economy
This is a photograph of a 1/12th of an Anna coin minted in the year 1892 in India. What is its value in rupees and paise today.
Gold (per gram)
NEWS IN BRIEF
Some great news to start the week with – We now have a drug that treats COVID-19. Gilead Science, an American biopharma company, became the first organisation to have gotten an approval for a COVID anti-viral drug. It is not a vaccine just yet, because the drug only helps with shortening recovery time. It might however take a while before Remdesivir hits the shelves of your neighbourhood pharmacy.
Get ready to pay more for a cuppa.Coffee production in the country is at its lowest in over a decade this year. TheCoffee Board of India released provisional numbers which suggest that coffee production was down by close to 15% from the peak it reached in 2015-16 and about 6% less than last year. The board has said that pests have infested the crops like never before.
US payments giant PayPalsaidthis week that it will allow customers to buy, hold and sell Bitcoin within the PayPal wallet. PayPal users will also be able to use cryptocurrency to pay for goods and services from merchants who accept PayPal. Behold, the cryptocurrency era is coming! Bitcoin was up 7% the day PayPal made this announcement. Any thoughts, PayTM?
Burger King this week filed additional paperwork with the SEBI for their upcoming IPO. This document suggest that they are increasing their IPO size from Rs.400 crores stated earlier to a whopp(er)ing Rs.600 crores. The funds being raised will be used to increase the number of outlets from 261 now to 700 in the next 6 years. Given the IPO euphoria that is all around, there is a very slim chance for retail investors to actually get an allocation. Forget the IPO, let's just get a burger.
Nifty realty index was the big winner this week in the markets. The index witnessed 8% gains while the wider NIFTY500 index gained only about 1.7%. With a number of large deals concluded in the recent weeks and real estate players now managing to raise funds at lower interest rates, sentiments are starting to improve.
IN LESS THAN 200 WORDS (1/2)
Your dream home just became cheaper
SBI announced this week that it would offer 0.25% interest concession on home loans above Rs.75 Lakhs. SBI’s housing loan interest rates now start as low as 6.9% for loans up to ₹30 Lakhs and 7% for above ₹30 Lakhs. These kinds of interest rates were last seen 15 years ago. Check out the graph below for historic home loan interest rates offered by SBI to its beloved customers for the last 10 years.
We wrote about this impending interest rate reduction earlier after RBI's monetary policy committee (MPC) meeting press release. If you’d missed it, here is a quick brief – In the MPC meeting that RBI concluded on the 9th of October 2020, it made an announcement stating that risk weightage for home loans over Rs.75 Lakhs will be reduced from 50% to 35%. What does that really mean? When banks give out loans, they’ll have to set aside an amount equal to risk weight times loan value. This risk weight was 50% for higher value loans over Rs.75 Lakhs. It has now been brought down to 35%. The RBI’s prophecy was that if banks have to set aside a smaller amount when making larger loans, they’ll be more inclined to do so at favourable rates.Turns out, their prophecy came true.
IN A LOT MORE THAN 200 WORDS (2/2)
The number of number on SBI cards' quarterly results release
You want to know something quirky? We’ll tell you anyway. SBI cards and payments provider released Q2 financial results this week. We started reviewing it and realised that there were more numbers than words in the results release document. Pages 1 and 2 alone had 90 different numbers (31 of them were percentages, 55 of them were money related and 4 were just numbers). A section called Key Metrics which was supposed to show KEY metrics had 22 different numbers. A table called ‘explaining returns’ had 25 words & 89 different numbers – How is that explaining anything? We have copied an extract from a section of the report below for your reading pleasure.
Profit & Loss Account for the half year ended September 30, 2020
For the half year ended September 30, 2020 total income increased by ₹27 Cr, or 0.6% to ₹4,706 Cr for H1 FY21 vs ₹4,679 Cr for H1 FY20. Finance costs decreased by ₹82 Cr, or 13.3% to ₹539 Cr for H1 FY21 from ₹621 Cr for H1 FY20. Total Operating cost decreased by ₹284 Cr, or 12.4% to ₹2,013 Cr for H1 FY21 from ₹2,298 Cr for H1 FY20. Pre-provision earnings increased by ₹393 Cr, or 22.3% to ₹2,154 Cr for H1 FY21 from ₹1,760 Cr for H1 FY20. Impairment losses & bad debts expenses for the period at ₹1,347 Cr vs ₹726 Cr for H1 FY20. Profit before tax at ₹806 Cr for H1 FY21 vs ₹1,034 Cr for H1 FY20. Profit after tax is at ₹599 Cr for H1 FY21 vs ₹727 Cr for H1 FY20.
If you are feeling dizzy, you are not alone. To those who love numbers, this may be blasphemy – But here's what's happening at SBI cards in a lot fewer numbers.
Bad loan mela continues. Their gross non-performing assets (fancy words for loans not being repaid) grew from 2.3% of total assets last year to…wait for it…4.3%.
But don’t worry, they have enough capital to keep the business going. Their capital adequacy ratio and Tier 1 capital have actually improved since last year.
The total number of cards in use issued by SBI grew by 16% from last year indicating more people are availing their services.
The amount of money people spent with their cards on the other hand went down by close to 10% year on year. This points to a trend we know all too well about - consumption in the economy is down.
But in spite of this, SBI Cards market share actually increased to near 20% from 18% levels.
There are 2 more things working out in their favour which will potentially drive higher profitability in the upcoming quarters
Thanks to low interest rates, cost of capital has reduced
They are witnessing positive operating leverage. What is positive operating leverage? When a business has lots of fixed costs, a 1% increase in sales leads to a more than 1% increase in profits. Think of a petrol station.
All said and done, the bad loan provisions pulled net profits downby close to 18% year on year.
The art of investing in equity mutual funds
This is Part 2 of the three part series on mutual funds in India. If you have not read Part 1, you can read ithere.
Equity mutual funds in India are probably the most popular kind amongst retail investors because they are easily understood. But when there are 465 different schemes to choose from, where do you even start!
We assigned each of these 465 equity mutual funds into 10 broad categories and extracted their historic performance data. History is not usually the best indicator of future performance, but the fund’s track record is the only real tangible piece of data available to us to make a judgement. So, we begin there. Have you heard the story about Snow White and the evil queen? The evil queen owned a magic mirror. Every morning, the queen looked at the mirror and asked, “Mirror mirror in my hand, who is the fairest in the land?” The mirror never lied and faithfully kept telling the queen the truth that she is the prettiest. On the day Snow White turned 7 years old, she became more beautiful than the evil queen. It is not difficult to guess what happened next!
Given that the mirror (data) never lies, we will pose the questions to it.
Mirror Mirror, tell us as we yearn,
"Which categories, amongst the 10, have delivered high return?"
P.S : I won't lie to you, this one is going to be a difficult read. But if you get through it, you will become a star mutual fund investor. I promise!
IN CASE YOU MISSED IT...
What happens in a cashless economy?
A cashless economy is one where more and more people use credit cards & digital means to pay rather than with good old paper money. It has its obvious benefits – when we don’t use cash there is no chance a pickpocket will find anything of worth in our wallet, less money is spent overall to print notes & coins, fewer chance germs and viruses have in spreading through currency notes, etc. But we will not talk about the obvious. We will dig the surface deeper to really understand what a cashless economy has in store for us as individuals, communities and nation-states.
But to be able to fully understand what happens in a cashless economy, we need to understand what credit is, why it is so important and how it works in a cashless economy. Watch this video that we published this week to know more.
Now that we understand how credit works in a cashless society, this graph below shows how much we love our cash. Surprise, surprise, we just love it! India has one of the largest cash in circulation ratio relative to GDP.
But did you notice that the cash in criculation ratio in a developed country like Japan is almost twice that as in India? Can you guess why? Read the post on our website to find out.
Central banks around the world are increasingly launching pilot projects to explore the possibility of issuing digital currencies. But how would they work and what would they accomplish? Listen to this podcast on spotify with Benoît Cœuré, the head of the BIS Innovation Hub and a former member of the ECB Executive Board. -Spotify
“It is important to view knowledge as sort of a semantic tree — make sure you understand the fundamental principles, i.e. the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang on to” says Tesla fame Elon Musk. Here are his 2 rules for learning anything faster -Entrepreneurs Handbook
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