Tag: Stock market tips

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Mutual fund cut-off times restored: Now, buy, sell units before this time for same-day NAV

Mutual fund investors, from today, can place their orders for subscription or redemption of units in line with the revised cut-off time. Capital markets regulator SEBI on Friday restored the buying and selling time for all schemes other than debt mutual fund schemes and conservative hybrid funds to their normal cut-off time of 3 PM. The restoration of the cut-off time comes six months after SEBI decided to trim the cut-off timing for both equity and debt funds in April, keeping in mind the coronavirus-aided disruptions. Earlier the cut-off time for debt, equity or hybrid funds had been revised to 1 PM.

From today investors looking to purchase liquid or overnight funds will have to place their orders before 12:30 PM for availing the same day’s net asset value (NAV). On the other hand for redemption of liquid and overnight funds, orders need to be placed before 1 PM. Similarly, investors looking to buy or sell units of debt mutual fund schemes and conservative hybrid funds, other hand liquid and overnight funds will now have to place orders before 1 PM. However, investors of all other schemes can now place their order till 3 PM for both purchase and selling of units.

SEBI had trimmed the cut-off timing for purchases and redemption of mutual fund units in April, as India witnessed the first few weeks of the nation-wide lockdown, and tackled challenges faced by financial institutions and market participants. The move followed Reserve bank of India’s (RBI) circular where it changed trading hours for various markets such as, commercial papers and certificates of deposits market repo in government securities; call/notice/term money; tri-party repo in government securities; repo in corporate bonds; foreign currency; foreign interest rate derivatives and government securities. The central bank, earlier this month, extended the trading hours in these markets by an hour.

Although the revised timing will be applicable from today, the mutual fund industry will see a change in NAV applicability rules in less than three months. The market regulator last month tweaked rules for buying of units that will come into effect from January next year. According to SEBI’s revised rules, Mutual fund orders will soon get the NAV of the day when funds reach the asset managers and not of the day of application. Earlier, investor orders worth less than Rs 2 lakh, had the advantage of getting the NAV of the same day despite the fund transfer taking a few days.

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Small-caps a ‘double-edged sword’: 7 things to watch before investing in a heap of 5,250 small stocks

In India, there are more than 5,500 listed companies, which is the highest in the world. In terms of market cap, all companies, apart from the Top-250 companies, fall in the Small-Cap category. This means that there are roughly 5,250 listed small-cap companies (Market cap of <INR 8,000Cr) in India today.

Small-cap investing is a double-edged sword with high risk-reward. Biggest wealth is created when one invests in the right business much ahead of the curve. One should look out for the following traits when investing in small-cap companies:

Consistency: This is what separates the men from the boys. Consistency in operational performance is an important trait, which helps small companies turn into big businesses. One must look out for consistency in revenue, margin and return ratio, across different time frames.

Scalability: One must try to find businesses that are scalable. Scalability is one of the key factors for high earnings growth in the future. Businesses with lower scalability seldom create wealth.

Promoter/ Management integrity: This is all the more important when investing in small-cap companies, which are relatively lesser-known. One must be cautious of promoter/management that has a sketchy past and have overlooked minority shareholder interests. Look out for corporate governance loopholes and stay away, wherever there is even an iota of doubt.

Float/liquidity: This risk is unique to small-cap investments. Lower liquidity should always be taken into consideration before investment. A company with very little float and low liquidity can be detrimental to your portfolio. Liquidity is generally low in small-cap companies and it increases over a period of time with better price discovery and broader stock ownership.

Leverage: Small businesses are relatively more vulnerable to the vagaries of the economic cycle. Small companies with high leverage are more likely to go belly-up in black-swan events like GFC, Covid-19 etc., which severely impact the economy. Any company with a Debt/Equity ratio of greater than 1.5 times should be carefully assessed.

Capital allocation: Look for a business with efficient capital allocation. Historical trends of Capex, working capital and dividend payout should help one assess the same. A minimum ROE of 14%, which helps businesses cover their cost of capital should be an important filter. Try to identify companies with RoE of more than 20%.

Leadership position: Invest in a business that has leadership in a niche segment or where it has a technological lead over its peers, or a strong brand pull. These factors provide a strong pricing power, which would eventually fuel earnings growth.

All in all, an investment portfolio should have exposure to small-cap businesses, which should clear the above-mentioned criteria or other attributes which fit the individual’s risk profile. One should be very choosy in identifying small-cap businesses to invest in, out of the 5,250 small-cap listed companies. Filtering out companies on attributes like inconsistency, low standard of corporate governance, weak business moat, incompetent management, high leverage, inefficient capital allocation, etc. goes a long way in wealth creation.

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Rakesh Jhunjhunwala made over Rs 1,400 crore from these 7 stocks in the July-September quarter

Ace investor Rakesh Jhunjhunwala saw his net worth surge by over Rs 1,400 crore between July and September this year. While Sensex zoomed 10% during this phase, seven big names in the big bull’s mammoth portfolio outperformed the market, and helped him enjoy the benefits. These stocks include Titan Company Ltd, Escorts Limited, Crisil, Lupin, Rallis India, Jubilant Life Sciences, and Fortis Healthcare. However, it must be noted that shareholding data as of 30 September for Escorts and Jubilant has not been reported so far. Sensex and Nifty have been outperforming other emerging markets since April, despite the sluggish performance posted by them in the previous month.

Although Rakesh Jhunjhunwala’s wife Rekha Jhunjhunwala booked profits in Titan, the big bull’s equity stake in the Tata Group company remains the same as the previous quarter. He owns 3.93 crore equity shares of the company despite his rather angry line of questioning during the previous investor call. The value of Rakesh Jhunjhunwala’s stake in the company at the end of June this year was Rs 3,734 crore. The stock price has surged 26% during the last quarter taking the value of his stake higher by Rs 977.64 crore to Rs 4,712 crore.

billionaire investor’s shareholding in rating agency Crisil remained the same as the previous quarter at 21.06 lakh equity shares. With the share price of Crisil gaining 11.23% during the quarter, Rakesh Jhunjhunwala’s wealth soared from Rs 340.45 crore to Rs 378.68 crore, adding Rs 38 crore to his wealth. Pharma firm Lupin also contributed in helping the big bull’s wealth surge. Stocks moved higher by 12.75% between July and September, translating to a Rs 77.28 crore jump in Rakesh Jhunjhunwala’s holding in the stock, during the period Jhunjhunwala added 3 lakh shares of the pharma major to his portfolio.

Agrochemical firm Rallis India has been on the big bulls radar for long. Big bull’s shareholding in Rallis India remained at over 2 crore equity shares during the quarter, the same as the April-June quarter. However, with the stock moving up over 5% in the period, the value of Rallis India in Jhunjhunwala’s portfolio increased by Rs 26.94 crore. Fortis Healthcare’s stock was up 10.8% during the quarter, marginally beating the index. Big bull retained his stake in the firm, which increased the value of his portfolio by Rs 26.5 crore.

Although Escorts Limited’s shareholding pattern for the September quarter is not known, assuming that Rakesh Jhunjhunwala’s stake in the company remained largely unchanged, he would have pocketed Rs 220.90 crore profits. On similar lines, Jubilant Life Sciences is yet to report its latest shareholding pattern. However, assuming that the big bull retained his 81.45 lakh shares in the company, he could have increased the value of his portfolio by 63.98 crore.

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Sustainable investing: Why investing in ethically sound companies is a trend that is here to stay

Amidst the COVID-19 crisis, and an increasing concern over climate change and other environment-related challenges, the consideration of Environmental, Social & Governance (ESG) factors while making investment decisions is gaining traction.

In India, certain investors consider the ethical aspect of what they are channelling their capital into – often, this process involves negatively (or exclusionary) screening of certain companies engaging in tobacco, alcohol, or arms, for example. With increasing investor awareness over time, there appears to be a shift towards a more inclusionary approach to investing. This approach has come to involve positive screening with a primary focus on ESG factors, such as funds with exposure to renewable energy and eco-friendly transport.

Thematic indices such as the NIFTY100 ESG index and the NIFTY100 Enhanced ESG Index are designed the reflect the performance of companies within the NIFTY100 index that have an ESG score and steer clear of businesses engaged in tobacco, alcohol, controversial weapons and gambling operations. These indices beat the NIFTY50 benchmark consistently from 2012-2018, bringing to the forefront the idea that companies that effectively manage ESG challenges are generally more sustainable in the long-run, and can offer a better risk-adjusted performance.

Interestingly, COVID-19 has fostered a rising concern for the environment amongst Indian investors. According to a Morningstar report, sustainable funds in India have brought in upwards of $500 million from January to March 2020. The report also speaks of the “stickiness” of these funds. Since investments made in these funds are driven by the ESG values that investors firmly believe in for the long-run, they are more likely to stay invested even in times of poor performance, translating into a fascinating resilience in times where other funds are seeing unprecedented volumes of sell-off.

The millennial generation is vast, with 426 million millennials in India alone, almost 34% of the country’s population. This generation is more conscious of these factors and could pave the way for ESG investing to become a norm in subsequent years. Several American studies have shown that millennials have a higher tendency to contribute to socially responsible activities. In line with this, more companies will be forced to incorporate ESG factors into their business processes to cater to this generation’s tendencies.

In India, ESG investing is still a fledgling industry. With only three schemes that have not delivered spectacular returns so far, ESG investing may not excite too many investors at the moment. However, ESG-based investing is a theme that we anticipate is here to stay. With investors and regulators alike coming to terms with the adverse impacts of climate change and unsustainable business practices, non-financial factors are coming to the forefront, and most companies will have to align to this or risk being uncompetitive.

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