This issue contains an infographic in the covery story which took us over 2 months to make. It is best viewed in a desktop/laptop. The idea is to make thinking about investments as simple as taking a walk through the streets of Mumbai. A of effort and attention to details has gone into making it. If you want to jump straight into it, here is a link. Otherwise, keep reading and you will get there 🙂
IN TODAY'S NEWSLETTER
Market update & news in brief
Have you invested in debt funds yet?
The importance of international diversification
Cover story - How to invest? Asset allocation perspective.
In case you missed it - Goal based investing
GAME : THE PRICE IS RIGHT
This here is the eighth generation of Rolls Royce's Phantom. Touted as the car with the world's quietest cabin, its fitted with a 130kg sound insulation system and double laminated glass windows to cut all the unnecessary and harsh road noises. The car ended up being soo eerily quiet that RR's engineers had to add some artificial sound inside the car. Currently, it is India's most expensive luxury car. Guess its starting price!
Gold (per gram)
NEWS IN BRIEF
The stock markets made gains for the fourth week in a row, the longest streak since July. Word on the street is that theinclusionof 12 Indian stocks in the MSCI’s global standard indexes may push stock prices even higher.
Over $43 Billion of debt held by debtors to LVB (tier 2) is going to be written off. Debt holders were initially told last week that DBS will take over the debt obligations, but that changed this week.
The transport ministry issued guidelines this week to Ola and Uber on pricing. Total fee shall be capped at 20% of fare and surge pricing is being capped at 0.5 times to 1.5 times base fare. The guidelines also say that the driver shall receive 80% of fare applicable on each ride.
Laurus labs was on the news this week for making an acquisition. The up and coming pharma firm acquired a majority stake in Richcore Lifesciences, making an entry into the biotechnology segment. The company currently derives most of its revenue from API and formulations business.
IN LESS THAN 200 WORDS
Have you invested in debt funds yet?
The national statistical office released GDP figures for Q2 of FY2021. GDP at constant prices (real GDP) declined by 7.5% on a year-on-year basis. For the half-year H1 FY2021 (April – September), output declined by 15.7%.
Indicators that suffered the most include passengers handled at airports (-98%), passenger kilometres recorded by railways (-77%) & sales of commercial vehicles (-20%). Businesses in construction, trade, hotels, communication, and broadcasting services suffered the most in Q2.
Everybody is spending less. Consumers are spending less as indicated by a 16% reduction in imports. The government is spending less - Revenue expenditure, or the amount of money the government spends for its everyday operations, is down by 20%. Government final consumption expenditure (e.g., money spent on infrastructure projects) however is at the same level as it was last year. The only solace came from LIC. Insurance premiums were up by 39% in Q2.
Given the significant reduction in economic activity, we expect that additional stimulus will be rolled out.We have got our eyes on the RBI which will be expected by the government to reduce interest rates further. But thanks to supply disruptions driven by COVID-19, consumer price inflation (7.6%) is well above the central bank’s upper tolerance limit (6%). So, the RBI’s hands are tied – for now. Going into the February 2021 monetary policy committee meeting, as supply disruptions, ease & inflation mellows down, the pressure will build up to reduce interest rates further and we expect that the central bank will cut policy rates down. The key investment implication being that fixed-income investors (in bonds and debt mutual funds) may just have another good year next year!
I cannot emphasize enough the importance of international diversification when it comes to equity investments. Don’t get us wrong, we are extremely bullish about the long-term future of Indian equities. The massive population of aspiring Millenials and Zillenials in India, will propel the economy to higher growth for a long time to come. But Indian equities are not the only game in town.
For one, most of the exciting & fast-growing companies in India are privately owned. Think Flipkart, Swiggy or Zomato. Private equity investors have thronged the scene leaving very little for retail investors. And two, in the listed space, fast-growing, good quality businesses are extremely expensive from a valuation perspective. To give you an example, Berger Paints, one of the best franchises in India, sells at a price to equity ratio (PE) of 121. Amazon Inc., the global e-commerce giant and one of the fastest growing businesses of our time, is selling at a PE ratio of 94! Take your pick!
Here is a look at returns from NIFTY 50 (blue line) and NASDAQ(red line) over the last 10 years. The Indian stock market has significantly underperformed compared to the tech heavy American index.
TheCallan institutein US publishes a periodic table of investment returns each year. Here is a look at the 2019 periodic table.
While that information is specific to the US, the trend is similar across the world. No two winners from consecutive years come from the same asset class/market. And therein lies the need to diversify.That way, a portion of your equity investments will always win. If you are looking to get started, here is something for you to think about - Given how much US technology companies are changing our lives, have you considered investing a small portion of your money in those stocks? Which other country do you know about that is also growing rapidly? Have you considered investing in stocks in that country?
Name the country where the world's first airmail post was delivered?
How to invest your money? Asset Allocation Perspective
Last week we wrote about goal based investing. This week, we take a look at asset allocation based investing. We review the asset classes, assume a 55%/45% allocation to risky/risk free assets and look at how an asset allocation based investment would work. Follow along this infographic or check out the full version of it at our website here.
The key to getting your asset mix (risky vs. risk free assets) right, is to quantify your risk tolerance. But how exactly would one quantify risk tolerance? Hit the link below to know more and find out the ideal asset allocation for you.
We could give you an answer to that question in 5 bullet points. But that’s not us. Give a man a fish, and he will eat for a day. Teach a man how to fish and you feed him for a lifetime. This newsletter will teach you how to fish, metaphorically 🙂
Word of caution: There are an infinite number of approaches you can take to arrive at an answer to that question. But all (good) roads, lead to Rome. Here is one, metaphorically 🙂 (Two metaphors in a row, I am on a roll!)
GOAL BASED INVESTING
It is the 1st of the month. Salary Divas! Arnav Ramaswami, our protagonist has decided to take Rs.10,000 from his salary and invest it. But where?
He approached us and we asked him, "So Arnav, what are some of your short term and long-term goals in life? The nation wants to know!"
And then, he showed us this chart.
This is perhaps what most people’s funding chart looks like – The short-term goals are adequately funded while the long-term goals are not. This is normal. If your short-term goals are not fully funded, your Rs.10,000 should go towards funding them into a risk-free/short-term money market fund. But if you are like Arnav whose short-term goals are all well-funded, then read further.
Stock price of Slack Technologies, the workplace collaboration tool developer, went up by nearly 40% after Salesforce announced that it is looking to purchase the company. This move is set to further intensify the competition between Salesforce and Microsoft.
Motilal Oswal’s 5-year g-sec ETF NFO is now open for subscriptionand closes on the 2nd of December. The scheme looks to invest in government bonds with 5-year constant maturity.Moneycontrolhas a good analysis on the ETF if you are interested.
Burger King’s IPO is opening for subscription this week from the 2nd to the 4th of December 2020 at the price band of Rs.50-Rs.60. Investors looking to subscribe to the IPO will need to bid for a minimum of 250 shares and then in multiples of 250. Just 10% of the IPO is reserved for retail investors.
ANSWER TO QUIZ
where the world's first airmail flight took place in February 1911. A French pilot carried approximately 6000 letters & cards across the ganges from Allahabad to Naini (18 Km, 27 minutes).
THOUGHT FOR THE DAY
Are you failing enough?
It has never been easier to pick up a side gig and increase your earning potential. Here are 10 good ideas. Medium
Equity markets witnessed wild swingsthis year, but not currency markets. Professor Rogoff of Harvard University thinks it is just the calm before the storm. Project Syndicate
ANSWER TO THE PRICE IS RIGHT!
That's what Rolls Royce's 8th generation Phantom car costs. The car comes with an alertness assistant, a 4-camera system with panoramic view, all-round visibility with helicopter view, night vision and vision assist, active cruise control, collision and pedestrian warning, cross-traffic warning, lane departure and lane change warning, 7x3 high-resolution heads-up display and a WiFi hotspot. That last bit is our favourite feature 🙂
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