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L&T Infotech has come out with Initial Public Offering (IPO) of 17,500,000 Equity Shares of Rs 1 aggregating up to Rs 1,400.00 Cr. Incorporated in 1996, Larsen & Toubro Infotech, a subsidiary of Larsen & Toubro Ltd., a Mumbai based IT Solutions & Services Company. The company is ranked 6th largest IT company in India in terms of export revenues and among top 20 IT service provider in the world.

Competitive strengths of the company are as following:

1. Strong domain focus enabling Business-to-IT Connect
2. Strong parentage and brand equity of our Promoter
3. Established long-term relationships with our clients
4. Extensive portfolio of IT services and solutions
5. Track record of established processes and executing large, end-to-end, mission critical projects
6. Strong management culture
7. Conducive work environment to attract and retain talent.



The price band for the issue is fixed at Rs 705-710 and the offer comes at a price equity of 13.0x-13.1x trailing (FY16) earning per share (EPS), which is at 25-30 percent discount to peers like Mindtree & Hexaware. L&T Infotech is 24 percent and 83 percent larger than Mindtree & Hexaware, respectively in terms of revenue, and earns substantially higher returns on equity (RoE).

The issue is open from July 11 - July 13. 

So, should you subscribe? 
The offer price looks attractive, given its strong parentage, healthy return ratios and high dividend payout. The promoters have left something on the table for the investors in terms of valuations.

Choosing between Fixed-income and Equity-linked investments.

As an investor, one always wishes for the best returns from investments without any risk of losing money. However, in reality, risk and returns are inversely related, i.e. with more risk come higher returns and vice versa.

For investors, the choice between fixed-income investments and equity-linked investments becomes more pronounced when it comes to meeting goals. Let's see how different investment avenues may be put to use while chasing goals.

Fixed-income investments: Interest-bearing investments such as bank fixed deposits, company deposits post office small savings products and bonds are popular among fixed-income investors. They come with a fixed return and a pre-decided maturity period. One should be investing in these instruments, only when the requirement is fixed and certain in the near future.
The principal amount invested is fairly safe in such products. They, however, fail to generate high real returns, i.e. returns don't keep up with the inflation. For example, if the return generated from them is 8 per cent while inflation is 6 per cent, the real return will be around 2 per cent.

Equity-linked investments:  In  Equity-linked investments, the returns depend on the performance of the underlying asset, namely equity shares, One could invest in equity shares directly or in mutual funds but returns from these instruments are not assured, but the potential to generate high return is also there.


Taxation: 
The interest income from most fixed-income investments such as bank deposits, post office time deposits, NSC, KVP and bonds is fully taxable as per the income tax slab of the individual. The post-tax return from them therefore is much less than what they offer.

Equity-oriented investments such as equity mutual funds, Ulips and NPS are more tax-friendly. Equity-linked savings scheme (ELSS), a variant of equity mutual fund, provides exposure to equities, gives tax-exempt return and even helps in reducing one's tax liability under section 80C.


Conclusion:

Since fixed income investments generate low real returns, it is imperative for an investor to look at equities.  If you are young and have no responsibilities in the near future and can afford risk taking, then investing in equity-linked investments like mutual funds, makes sense.

Be a wise investor!

ETFs vs. Mutual Funds

It’s important for investors to understand the key differences between traditional mutual funds (open-end) and exchange-traded funds (ETFs). Each has its advantages and disadvantages. This knowledge can translate into making informed investment decisions.




ETF's can be bought or sold just like stocks through stock exchanges anywhere across the country. While, mutual funds do not see price variation during trading hours as the Net Asset Value (NAV) is set at the end of each trading day. This gives an added advantage to ETF over traditional funds.

Rate of Return:  Most of the ETFs track a particular index and are considered to have lower expenses than actively managed mutual funds. However, when investing in an ETF, an investor needs to pay commission to the broker. Investment in ETFs works out to be cheaper when compared with traditional mutual funds or index funds in terms of fees and other expenses.

Sales Load: ETFs do not attract any sales load or there are no minimum investment, where as traditional mutual funds, may have both.

New KYC Norms Mean for Your Mutual Fund Investments

All mutual fund investors, whether new or existing, will have to provide additional Know Your Customer (KYC) details to their fund houses.




Key Points:

• In September this year, the Association of Mutual Funds of India (AMFI) came out with a circular directing mutual fund companies to collect additional information from new investors from November 1, 2015 to comply with norms of the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). The mutual fund body advised fund houses to make the additional KYC information mandatory for investors from January 1, 2016.
• The additional KYC details a mutual fund investor has to provide under FATCA and CRS include gross annual income, net worth, occupation, source of wealth and country of birth.
• If the investor is tax resident in any country other than India, the additional information required will include tax identification number and country of tax residency.

How to update?

• An investor can update the information both online and offline. For investments in more than one mutual fund, investors have the option to update the information online by visiting the respective website of the fund house.
• The investor can also download the form and submit it on the point-of-services (POS) or the nearest office of the mutual fund house.
• To avoid updating the KYC information with multiple fund houses, the investor can simply update it with the registrars.
• If mutual fund investor is serviced by a single registrar, they don't have to have to update the information with both the registrars. But in case they want to start a new investment in a mutual fund which is using services of the other registrar, they have to update the information with both registrars.

A country’s classification in MSCI can have significant impact on the equity markets of that country, as it can drive large flows in or out of the country by passive asset managers. Index funds, exchange traded funds, mutual funds , pension funds and sovereign wealth funds that have assets under management passively tracking an MSCI benchmark would have to buy constituents of a country that is included in their benchmark or sell constituents of a country that is deleted from their benchmark.




Currently, India's current weightage is 7.49 percent and China’s is 24.88 percent in the MSCI Emerging Market index. Post the inclusion of China-A shares in the MSCI Index, India's weight may reduce to 7.13 percent while China may stand at 28.51 percent in the index.  It is estimated, India may see selling worth USD 3.8 billion and exchange traded fund ( ETF )-related selling worth USD 0.9 billion as India's weightage in the index could reduce as a result.

But the US index provider MSCI's  has delayed the decision to include Chinese 'A' shares in its emerging market index, thereby boosting the prospects of more foreign fund inflows into the Indian markets, going ahead. This decision could provide a short term advantage to Indian markets, but the Indian shares could come under pressure once MSCI takes the decision to include China A-shares in its emerging index in the near future.

Sensex target 54,000!

Brokerage house Bank of America Merrill Lynch is bullish on India with an index target of 54,000 by end-2018 and believe that Investors must await dip in the market. It feels India is vulnerable to a near term global correction as too many global fund managers own shares in this market. “One of our near term concerns has been that investors are very overweight India; this makes India vulnerable to any near term global correction,” says the Merrill Lynch note, adding that a macro recovery appears to be some way off. “While we are structural bulls on India with an index target of 54,000 by end-2018, we have been highlighting that we see the market being range-bound to negative over next few months,” the note further says.



Global Emerging Markets (GEM) funds are nearly 420 bps overweight India BoFA’s view is that this makes India vulnerable to any near term global correction. India remains the most owned market in GEM by a wide margin.

“Investors, post their company meetings, seem to agree with our view that valuations were probably pricing in too much of good news. While we think the market will remain expensive through the year, we think it will consolidate for the next 3-6 months,” the note says. Merrill Lynch is bullish on auto, banks, cement and oil. It expects pharma shares to do well near term as the market consolidates.

There always risk associated with investing directly in stock markets and there are many ways to participate in this bull run. And one such way is investing through mutual funds, whether it is lumpsum amount during heavy corrections or SIP. We have already seen in this post that the best way to invest in the markets is through Systematic Investment Plan , without worrying too much about where the markets go in short-term.

Be a wise investor!

It is that time of the year we update the historical returns of the major indices, particularly BSE Sensex and NSE Nifty.  This was a huge year for Indian Stock Markets, as they hit life-time highs due to favorable results from General Elections 2014, followed by huge FII inflows into the markets. During the year the index hit an all-time high of  28822, while the Nifty hit 8626. The following table shows S&P BSE Sensex historical data - start  & close values and the yearly returns of the sensex from 2000 to 2014.



As far as the other major  indices are concerned, CnxIT gained about 18%, whereas the BankNifty gave huge returns gaining about 64% and the Cnx Midcap index gained about 55%. Despite the Sensex gaining 30% for the year there were many stocks which have lost 90% and some stocks gaining about 500-600%, many of them from mid-cap space.

Despite markets hitting all time highs only a few stocks made all-time highs or the highs which were made in 2008 bull run,  while most of them are still languishing well below their historical highs.
The message for retail investors is clear - index investing is better than individual stocks.  Unless the investor has an extraordinary stock picking skills, the Retail investors can achieve above-average returns by investing in index through Exchange Traded Funds (ETFs) like Nifty Bees or Top mutual funds, which have given consistent returns over longer periods of time.

Be a wise investor !

Financial planning can be both easy and incredibly complex. But if you focus on the basics, you can get a big jump on saving for the future. Just follow these three tips and you are building a solid foundation.

Start investing early: The longer you wait, the more you lose. You have time on your side today, this benefit won’t last forever. If you don’t have any savings, start now. All you need to do is cut down on your savings by just Rs 1,000/month and invest that amount in an equity mutual fund.  Let's say you invest Rs 1,000/month in a systematic investment plan ( SIP ) for 10 years in an equity fund that returns 12% pa., the end result is amazing and you would be patting yourself on the back.
Check out how well SIPs in mutual funds have performed over many years - Mutual Fund SIP



Get medically insured: Numerous illnesses and accidents are pretty much age agnostic. So don’t live under the deluded notion that you do not need medical insurance. Should you need it and not have it, you will watch your savings rapidly disintegrate. Granted, you may have a medical insurance provided by your employer. But what if you quit your job or get handed the pink slip and between jobs you fall ill or meet with an accident? What if you decide to become a consultant and the employers no longer provide medical insurance? Get a medical cover. The younger you are, the lesser your premium so you won’t even feel the pinch. Not to mention the tax benefit.

Avoid credit card debt: When you use your credit card, you pay for an item with money that is not yours. So basically you enjoy life on borrowed money.  It starts off as a convenience, more of a stop-gap arrangement. You pay just the bare minimum amount and walk scot free. But as you well know, or will soon learn, there is no free lunch. Remember this.  This instant gratification can put you on a slippery slope. If you have started revolving credit, which means that you could not afford to pay your monthly bill, then the only way out of this ditch is to stop using your card till your debt is cleared.

Saving money doesn’t have to require drastic steps. Instead, small, simple methods can make a big difference for your bottom line.
Be a smart investor !

It's never an easy task to invest in stock markets, either directly or through mutual funds. You have to pick the right fund-house, scheme and the timing right to get the desired returns.

Here are 5 important things to check before you invest in the best mutual funds in India.

1. Your age and ability to take risk
The most important thing while investing in a mutual fund India is to check your age and ability to take risk. If you are in the 30s, you might want to take a risk by investing in equity mutual funds. On the other hand if you are in the 50s, you might want to invest in debt oriented mutual funds, which can offer almost certain fixed returns without your capital being eroded.

2.Track record for best performing mutual fund
Take a look at the track record of the fund and check how the fund has performed over 5 to 19 years period. If the fund has not performed well in the past, then you might want to avoid the scheme altogether.

3.Asset allocation
Some schemes invest in debt, while others invest in equity and some balanced fund. If you like taking a risk go for equities, otherwise just buy a fund that puts all its money in corporate bonds, bank deposits, certificates of deposits or government securities.

4.Size of the mutual fund corpus and expenses
The larger the mutual fund corpus the better it is. This is because there are certain fixed costs, which will be spreader over the larger corpus and thus help to reduce costs.

5.Entry and Exit load
Each time you invest in a mutual fund scheme, there is a possibility that you would like to sell the same. When you buy or sell, there is an entry as well as exit load that is levied, which is nothing, but the charges that would be applicable to you. Not all top mutual fund schemes charge an exit load. But look out for those funds which charge lower entry load.

We have already seen mutual funds investments have yielded steady and excellent returns over many years, instead of investing directly in stocks. Your investment and returns, depends on your own need and objective.
Be a wise investor!

At the very basic, wealth creation refers to the process of deploying your money in a manner that there is real-value accretion over the long run. In other words, you should deploy your savings in such a way that the rate of return on your money beats the rate of inflation.

Mutual funds are excellent means to participate in equity markets and and Systematic Investment Plans (SIPs) are best way to create wealth via mutual funds.Let us look at couple some of the Top Systematic Investment Plans in Equity Funds which have given consistent returns over the past few years,as of 2014.

Check out the table below, which shows the trailing 1,3 and 5 year SIP returns of HDFC Equity and HDFC Top 200 growth schemes.

Goldman Sachs launches Central Public Sector Enterprises (CPSE) ETF, an open-ended scheme that consists of shares of 10 major public sector units, including Oil & Natural Gas Corporation, GAIL India and Coal India and it opens for subscription today with the government aiming to raise Rs 3,000 crore.


About the scheme:

The scheme which is open till 21 March 2014, will mirror the returns of the CPSE index from the National Stock Exchange, which is currently at 1855. The CPSE index has ten stocks, chosen on three criteria — a 55 per cent Government holding, a 4 per cent dividend yield, seven-year dividend paying record and a free float market cap of  Rs.1,000 crore or more.

Pros and Cons:

• Companies making up this fund have been selected for their dividend record in the last seven years, therefore, the fund is likely to receive steady cash flows from its holdings in the form of dividends. This will prop up its returns of the fund. 
• There is a 5 percent discount for investing in the NFO and also you get a discount in the form of loyalty bonus wherein for every 15 units, you get one unit free after one year.
• Investing in CPSE ETF is a low-cost route to investing in PSE stocks.

• At the same time these stocks have had a good run and also some of the stocks are part of the Nifty Index. And any profit booking in Nifty will lead to a substantial correction in these stocks as well. 

Hence, investing in PSE ETF can be considered only if  you can actively track returns and book profits when the stocks run up. Since the ETF is to be listed on the National Stock Exchange, one can wait and watch the performance of the fund and consider investing at a later stage.

There are many websites and online tools for technical analysis of Indian stocks. But when it comes to Fundalmental analysis of stocks using Stock screeners, there aren't much available. There is some good news for Investors who want to analyze Indian stocks using fundamental ratios and stock screener.




Google Finance now provides excellent stock screener for online analysis of Indian stocks. Investors can now filter stocks using the stock screener, based on the criteria like Market cap, P/E ratio, Dividend yields etc.

Also, there are more options to choose from and one can filter stocks using different criteria available like -Financial ratios, Operating metrics, Growth rates and Margins.

You can try the Google Finance stock screener here: Google Finance

Gold has given positive returns for the past 12 consecutive years, going up from Rs.500 per gram to Rs.3000 per gram. Recently, Gold fell more than 9% in a single day and is been falling since then, leading us to believe that the gold run may have been over for now.

Investors often seek guaranteed and safe returns and seeing the price of gold rise continuously over the previous years, they would have been led to believe that the price of gold would never crash. However, this is not the case and prices do correct after giving such big returns over the years.

The reasons attributed to fall in gold prices are dip in demand, rising speculative activity and increased participation in equities. Equities all over the world have performed well, despite the gloomy economic climate.

There are not many reasons for gold to remain as a good investment. Only reason that we  could find is the slowing down of the  perception of global economy, which make investors to park their funds in gold.

So what should retail investors do?

As we have saying in previous posts about gold, investments should be limited to 5-10% of one's portfolio and that too Gold ETFs are preferred ones. Avoid trading in commodities or investing in physical gold (unless it is for jewelry purposes) and limit your investments in gold.

Be a wise investor !

We have already seen the historical returns of the BSE Sensex, which indicated an average return of about 20%  per year, despite many yearly returns varying from -20% to +60%. The following table shows BSE Sensex historical data - open, close and the yearly returns of the sensex from 2000 to 2012.




There are some interesting points to note from the above table. Post 2008 crash of about 50% and 2011 negative returns of 24%, markets have given positive returns of 81% and 25%. Also the average returns for the past years is about 20% despite the markets being down 24%. The lesson is pretty much clear - long term investing pays and one need not bother too much about the ups and downs of the markets.

During the past few years, the returns from investing in individual stocks have been varied.  Despite markets being at 2 year highs, only a few stocks are at similar highs, while most of them are still languishing well below their historical highs and are down anywhere between 80-90%. The message for retail investors is clear - index investing is better than individual stocks. Individual or Retail investors can achieve above-average returns by investing in index through Exchange Traded Funds (ETFs) like Nifty Bees or Top mutual funds, which have given consistent returns over longer term.

Be a wise investor !

Credit Analysis & Research Ltd (CARE) is the second largest credit rating company in India. CARE offers rating and grading services across a diverse range of instruments and industries including IPO grading, equity grading, and grading of various types of enterprises.The company being professionally managed has no identifiable promoter and has domestic banks and financial institutions as key shareholders.

Credit Analysis and Research (CARE) is entering the capital market on 7^th December 2012 through an offer for sale of 71.99 lakh equity shares of Rs.10 each in the price band of Rs. 700 - Rs. 750 Per Equity Share.

Issue Details:

• Issue Open: Dec 07, 2012 - Dec 11, 2012.
• Issue Size: 7,199,700 Equity Shares of Rs. 10. 
• Face Value: Rs. 10 Per Equity Share.
•  Issue Price: Rs. 700 - Rs. 750 Per Equity Share.
•  Market Lot: 20 Shares.
• Minimum Order Quantity: 20 Shares.
• Listing at BSE and NSE. 

On a consolidated basis, for 6 months ended 30th September 2012, company’s total income was Rs. 104 crore, with a net profit of Rs. 50 crore, resulting in net margin of 54.6% and EPS of Rs. 17.43, on equity of Rs. 28.55 crore.

India’s largest credit rating agency and S&P’s 53% subsidiary CRISIL at current price of Rs. 1024, quotes at a PE multiple of 34 times and  ICRA, in which Moody’s holds 28.5% equity stake, trades at 32 times. Whereas CARE, at the current IPO price is offered at lower P/E multiple of 20 times at the estimated EPS Rs. 35, which is attractive at current market conditions.

Hence, considering the valuations, investors can invest with a long term view and current market conditions favor those who invest for listing gains too.

HDFC Equity Fund, from one of the leading mutual fund house HDFC, was launched in 1995 and since then it has been one of the top performing fund in the multi-cap category. While there are many funds that have been performing over short and medium term, we look at this fund because of its excellent performance over longer period of time.

Snapshot of the fund:

HDFC Equity fund is relatively a large fund managing assets worth US$ 2b( about 10000cr), with S and P CNX 500 index as the benchmark. This fund is basically a multi-cap fund having financials and energy as the top sector holdings. The top holdings include State Bank of India, Icici Bank, ITC, Infy and Tatamotor DVRs. The fund has both dividend and growth option.

Performance:

The fund has given stupendous returns of 21% per annum since inception and its past 3 year and 5 year returns stand at 7% p.a. and 10% p.a. respectively, while the market has gone nowhere in the past 5 years. The 10-year Systematic Investment
Plan (SIP) has given returns of about 24% p.a and one couldn't ask for better performance.

Disciplined Systematic Investment in this fund has certainly generated very good  returns, for a passive investor. For the active investor, investments in this fund when markets are down sharply or during bearish phases will give you spectacular returns. It is one of the best funds to be in, for the long term.There is another equally good performing fund, HDFC Top 200 Fund and you can read more about it here HDFC Top 200 Fund

A DVR or Differential Voting Rights share is just like an ordinary equity share, but with voting fewer rights. For example, while a normal Tata Motors shareholder can vote as many times as the number of company shares he/she holds, those who hold DVR shares will need to hold 100 DVR shares to cast one vote. World over many famous companies such as Google, trade shares with different voting rights (DVR). In India it was Jagatjit Industries that was the first to do a DVR.

Companies issue DVR shares to prevention any hostile takeover and dilution of voting rights. This also helps strategic investors who are looking at a big investment in a company, but with fewer voting rights. Some of the companies who have issued DVRs, which are traded in NSE, include Tata Motors, Pantaloons, Jain Irrigation systems and Gujarat NRE Coke.


Is it suitable for retail investors to invest in DVR shares?

These are good instruments for long-term investors, typically small investors, who seek higher dividend and are not much interested in voting rights. Mostly, these shares trade at a discount to their corresponding equity shares and the discount rate ranges from 30-40%. If a retail investor decides to invest in a company's share based on the fundamentals, the same could be done in the company's DVRs.

The following reasons support investing in DVRs:

1. The discount factor - the company's share available at a lesser price for the same fundamentals. There is a chance of these discount being reduced, due to market forces. And this could provide some more appreciation, than the stock itself. 
2. There is a chance of higher dividend being given than the regualar equity shares.(For e.g, Tata motors declared a higher dividend for DVRs).

What are the disadvantages?

DVR shares are usually thinly traded, which means these are illiquid stocks. Also, during bearish phase of the markets, the discount could widen and this could be a dampener factor. But, caution should taken that an investor should not invest, just because the DVR is available at a large discount.

Other than the few disadvantages mentioned above, the DVRs are good instruments for medium to long-term investors, provided the fundamentals warrant in investing in the company. Over time as investors feel more familiar with such type of instruments, more issues would follow and maybe the discounts would narrow.