The media was almost entirely pre-occupied with figuring out US election results this week. We still don't know the final word on it. Meanwhile, Twitter labelled several of Trump's tweets as 'disputed' and potentially 'misleading'. Like these two below. But the president did not let any of this discourage him. He claimed that Twitter is out of control 😀
The stock markets were also out of control this week. SENSEX surged a staggering 2,300 points just this week. Investors all over the country rejoiced the move. But some are cautioning about the massive overvaluation in markets and potentially an upcoming lost decade for equity investors. Who knows!
IN TODAY'S NEWSLETTER
Market update & news in brief
Reminder : Gold bonds open for subscription this week
Game : The price is right
8% per annum for 5 years - Bond offering
Cover story - Heard about negative interest rates?
In case you missed it - Looking to buy a house? Read this first.
Thought for the day
How much gold does the Reserve Bank of India (RBI) have in its reserves?
Gold (per gram)
NEWS IN BRIEF
Anarock group, one of India’s real estate services company, released a research report this week on the residential property market. Their findings are consistent with our own analysis in that inventory levels are at a near 4 year low. While the 4-quarter moving average for launches is down by 9%, sales is down by 31% (As of the most recent quarter).
The largest chemical manufacturer in the world, Germany based BASF, put a $4Bn investment in Gujarat on hold due to the pandemic. The chemical complex was due to be jointly built with Abu Dhabi national oil company and the Adani group. The company said that the global economic uncertainties caused by the pandemic have led them to review the timing for undertaking the project.
ICICI announced this week the launch of their millennial focussed banking platform – ICICI Bank Mine. Anyone under the age of 35 can apply online through the bank’s app and will get access to a whole range of services including their refreshed iMobile app, instant savings account opening, curated credit/debit cards, access to sqrrl’s host of investment services and more.
Amazon this week announced that it will be making an investment of over Rs.20,000 crores in Telangana to set up multiple data centres for its Amazon web services (AWS business). AWS is the market leader in cloud computing and one of Amazon’s fastest growing segments. The division clocked in nearly 36% revenue growth last year.
Goldman Sachs this week released a research report suggesting that the US dollar could depreciate by 15% within the next 3 years. The report cited several reasons including the effect of the pandemic on US economy, sustained negative real interest rates and a massive bond-buying program by the FED. The bank suggests investors to hedge the risk by holding Japanese Yen.
IN LESS THAN 200 WORDS (1/2)
Reminder - Gold bonds open for subscription this week
For those of you who read our piece on sovereign gold bonds last month, this is just a quick reminder that these bonds are opening for subscription again this week from the 9th to the 13th of November. For those of who didn't manage to read it, here it is again.
In 2015, the Indian government made holding gold even more lucrative for resident Indians. They came out with the sovereign gold bonds.
How do they work?
The price of a sovereign gold bond (SGB), denominated in 1 gram of gold, varies with the price of gold. An investor who wishes to buy the SGB pays a price equal to 1 gram of gold today and holds his/her investment in paper format (holding certificate). Twice a year, the government pays 1.25% interest on these bonds (2.5% annually) on the nominal value of 1 gram of gold. At the end of 8 years, the bonds are redeemed at the prevailing price of gold. Investors can also exit from these bonds at the end of years 5, 6 and 7 if they so wish. Each investor can buy a maximum of 4Kg gold worth of SGBs. These instruments are safe and are backed by sovereign guarantee.
For investors looking to make an “investment” in gold, this is by far the best option. As is obvious, if you are looking to buy gold for ornamental purposes, these gold bonds will hardly do the job in your ring finger 😉
GAME : THE PRICE IS RIGHT!
This 7-bedroom, 7-bathroom apartment in Breach Candy, Mumbai shares a slice of the sky with the two most expensive residences in the world – Antilla and JK house.
An iconic high rise this one, is home to the who’s who from different walks. It boasts a balcony with a sea view, penthouse, a sky deck and is split across 3 levels (12th, 13th and 14th). Currently listed on Knight-Frank for sale, Guess the price!(Scroll down for the right answer!)
IN LESS THAN 200 WORDS (2/2)
8% per annum for 5 years - Bond offering
Muthoot finance has come up a bond offering (non-convertible debentures) that is currently open for subscription to resident Indians. There are 3 different interest payment options (monthly, annually and at maturity) and 2 different tenors (38 months and 60 months) in offer for investors. The maximum coupon rate offered is on the 5 year annual pay bond at 8% for retail investors. The below image is an extract fromthe bond offerings document and captures interest rates being offered. The bond is rated AA(stable) byICRAand AA/Positive by CRISIL. More importantly, the bond offering is ‘secured’ by collateral and negative covenants* on the bond protect investor interest to a very large extent.
For those opting to take the monthly/annual interest payments, these are subject to tax at normal rates. For those opting to get a lumpsum payment at the end of the tenor without interim interest payments, the final amount is subject to long-term capital gains tax at 20% with indexation or 10% without indexation.
*What is a negative covenant on a bond? These are things the issuer cannot do unless they pay the amount due to bond holders. Here is an example – The company shall not pay any dividend to its shareholders unless it has paid the amount due on the NCDs.
Should you invest? The risks are balanced and the Muthoot finance’s business is doing well. Over 95% of their loans are backed by gold and consequently their asset quality is better than some of other NBFCs’. In the declining interest rate environment that we are in now, actual returns on high quality bonds like these will tend to be higher than fixed deposits. They'll do the job for most investors looking for a stable fixed income offering. But please check out the prospectus and speak to your financial advisor before investing.
Bank of England this week announced a bigger than expected monetary stimulus to support the British economy struggling from BREXIT and the second lockdown driven by another wave of COVID-19. Curiously, they also announced that the bank is working on negative interest rates. But what exactly are negative interest rates and how does it even work?
Real estate investors in India have had it tough over the last decade. Average inflation over the last 7 years stood at about 5% per annum and residential property prices across most major cities did not even appreciate by the same %. This was at a time when average housing loan interest rates were at 9% per annum. This chart from Knight-Frank shows this rather sad trend.
This trend worsened as we got into 2020 as prices fell dramatically across most major cities. This chart below shows that.
Given, we are where we are, how should one think about real estate investments today? Should you invest in a residential property?
To answer that question, we need to look at demand and supply factors that drive real estate prices. We will look at 3 demand-side and 3 supply-side factors to make a judgement call on where we are now and how these metrics could evolve over the next few years to affect property prices. We will also give you our top picks of areas where we expect property prices to appreciate the most in the next few years.
Kotak Mahindra bank announced a further reduction in home loan interest rates to 6.75%.
Lupin confirmed this week that they also suffered an attack on their IT systemsafter Dr.Reddy’s labs.
Whatsapp this week received permission to roll out its payment services in India. Now you can send messages and money through the app. Do you have our number? 🙂
ANSWER TO QUIZ
That's the amount of gold the RBI had in its reserves of March 2020. The US FED owns about 8,100 tonnes and has the biggest reserve amongst central banks. But the Indian public at large holds over 25,000 tonnes of gold and is the largest owner of the precious metal.
THOUGHT FOR THE DAY
Also, Be You!
Will Ackman, American hedge fund manager, in a rather simple presentation uses a lemonade stand business analogy to explain everything about finance and investing. If you are keen and have 45 minutes to spare, check this out. Youtube
As someone who reads voraciously from so many different sources everyday, I am a strong advocate of speed-reading. But research results on this topic are a bit divided. Life Hacker
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