Many investors keep a keen interest to invest in IT companies as they fall in the defensive category, meaning when all sectors are down, the IT sector is generally up. Also, since IT companies have global businesses, they are not only dependent on the domestic market i.e. India forms the view-point of diversification.
So before investing in IT companies, let’s look at some of the important key ratios.
1. Operating Profit Margins (OPM).
An Investor should focus at Operating Profit Margin of IT companies, because in the Service sector, especially IT companies, employee cost is the major cost. Below is the chart of the last 3 year’s OPM of Top 5 IT companies based on their market capitalization.
2. Return on Equity (ROE):
ROE is a very important ratio to analyse for IT companies since it reflects the profit created for shareholders by reinvesting in its business. It is also said that it is profit on the shareholder’s capital on the balance sheet date. ROE should always be higher, otherwise investing in low ROE businesses will wipe out the investor’s wealth. Below is the chart of ROE generated over the last 10 years by these 5 major IT companies.
One of the key reasons to invest in IT companies:
Since IT companies have global businesses, they get the advantage of depreciating Indian Rupee, which in turn increases profits and thereby enhancing their reserves (profits kept aside) year on year. IT companies distribute a good portion of earnings through a dividend to the shareholders. IT companies are also known as cash-rich businesses. They enhance shareholder’s wealth through buy-backs or dividends. Just look at the dividend payout ratio for the past 3 years of these Top 5 IT companies below.
Since the COVID-19 pandemic and global meltdown in stock markets, the whole Indian banking sector has underperformed due to fear of NPA. Even, RBI mandated banks to make COVID-19 related provisions in their books and instructed them to not declare any dividend till the end of September month. Before investing in banks, investors need to watch out for some of the key ratios, we have taken the top 5 banks as our examples based on market capitalization. Below are some of the important parameters to watch out for:
1. On the basis of Liquidity of Banks - Capital Adequacy Ratio:
Capital Adequacy Ratio (CAR) is simply the core capital of the bank. CAR is measured based on Tier-1 capital and Tier 2 capital. Tier 1 capital is such a capital where a bank can absorb the losses without disturbing normal business operations. Thus, it provides a liquidity cushion to the bank and it also protects the depositors. Tier 2 capital is such a capital where the bank can absorb the losses in the event of bankruptcy of a bank, it provides lesser protection to the depositors. Banks are required to maintain a minimum CAR of 10.5% including a Capital Conservation Buffer of 2.5% as per Basel III norms.
2. On the basis of Asset Quality:
Bank’s asset quality matter’s the most, higher the NPA ratio, the worst the case, NPA’s ultimately wipe out the capital of the bank, thus impacting the CAR ratio.NPA means the default of interest and the principal amount by the borrower. As per RBI, banks classify a borrower’s account as NPA when the interest due on the loan is not paid within 90 days. Investors need to analyze both Gross and Net NPA ratios Gross Non-Performing Assets as a % of Gross Advances (GNPA): GNPA is the sum of all the types of unpaid loans by the borrowers. Net Non-Performing Assets as a % of Net Advances (NNPA): NNPA is the sum of unpaid loans less the provision made for these bad loans.
3. On the basis of Profitability:
One of the key profitability ratios to watch out for is Net interest Margin- NIM. Since the bank’s business model is to raise funds from depositors and lend it to individuals and businesses, it receives interest on an amount lent and pays interest on the funds raised via various routes. Thus, the difference between interest earned and interest expended over its average earning assets is called net interest earned, it is popularly expressed in % form and is popularly known as NIM.
Digital Gold [Mobile wallet platforms like Paytm, GoldRush, etc.]
Gold Market Cycle:
The gold market cycle means the period in which the instrument is in the bull run. Simply, it’s the period from the start point of the bull run to the correction start point. Usually, the gold market cycle lasts for around 8 to 10 years.
For example – the previous gold market bull cycle was started in 2001 and ended in 2011. In 2001 – [In 2001 approx. per gram price was approx. Rs. 400 & in 2012 it was approx. Rs. 3,112. After this high, it corrected up to Rs. 2,227 in the next 3 years i.e. July 2015].
According to Experts, currently gold is in a bull market cycle. So, if one checks the below graph, approx. from 2017, the gold entered in the bull run cycle with approx. per gram price of Rs. 2,523 and as on date gold is at around Rs. 5,230. If the usual bull cycle horizon matches with the current gold market cycle, even if in the short term, gold is in an overbought zone, one can see a good amount of growth in the remaining life cycle.
According to US-based analyst Nigam Arora, the author of The Arora Expert, “ there is more than 50% probability of gold approaching $3000 in this gold market cycle.” Earlier, Christopher Wood had said in his Greed and Fear report that gold could climb up to $4000 in the current bull cycle. [Current Price as at 6th August 2020 is approx. US$2,060.70, Mumbai – Rs. 5,768 per gram].
Returns comparison with other investment options:
If one compares the returns on major investment options for retail investors i.e. Fixed Deposit, SENSEX, NIFTY, Gold at last 20 years CAGR, Gold has provided the highest rate of return at approx.. 13% of CAGR.[Refer https://www.rachanaranade.com/blog/investment-comparison]
Experience Timeline is a visual presentation of a sequence of events, especially historical events which eventually indicates the experience of the entity.
Why Experience Timeline?
Since it indicates the experience of the entity based on which one understands how the company is growing operationally and strategically. Understanding of the entity’s operational and strategic movements is one of the important factors of consideration while performing fundamental analysis of the entity.
About Infosys Limited:
Infosys is a global leader in next-generation digital services and consulting. It enables clients in 46 countries to navigate their digital transformation.
With nearly four decades of experience in managing the systems and workings of global enterprises, it expertly steers their clients through their digital journey. They do it by enabling the enterprise with an AI-powered core that helps prioritize the execution of change. It also empowers the business with agile digital at scale to deliver unprecedented levels of performance and customer delight. Their always-on learning agenda drives their continuous improvement through building and transferring digital skills, expertise, and ideas from their innovation ecosystem.
Experience Timeline of Infosys:
Infosys was established in 1981 by Mr. Narayana Murthy and 6 engineers in Pune. It was listed on NSE and NASDAQ in 1995 and 1999 respectively. The major landmark of Revenue of US$ 1 Bn. achieved by the entity in 2004 – within 24 years of establishment. Along with such landmarks, the entity acquired many global entities in this industry to expand the entity at a global level.
Conclusion:
Understanding of operational and strategic experience is one of the important points in fundamental analysis of the entity along with other operational and financial review points.
Reliance Retail Limited founded in 2006 is a subsidiary of Reliance Industries Limited.
The fastest-growing retailer in the world.
India’s largest cash and carry chain with 52 stores and more than 4 million registered B2B and B2C customers
India’s largest consumer electronics retail chain with 8,249 stores
India’s largest fashion destination with 777 stores of Reliance Trends
Business Segments:
As per above infographic Reliance Retail is majorly in the 5 segments:
1) Grocery
2) Connectivity
3) Fashion & Lifestyle
4) Consumer Electronics
5) Petro Retail
The relation between contribution and market growth of the business segments:
To analyze and estimate the future growth of the entity one should focus on major segments of the business of the entity. Not just segmentation, but how much individual segments are contributing to the entire revenue of the entity and the future prospects of those segments can be considered.
Along with economic conditions, one of the factors to be considered is the growth of the segment in the market and whether the contribution of the segments is in line with the expected growth of respective segments.
For Example – In case of Reliance Retail, Grocery segment of the entity contributes 21% of the total revenue of the entity and the market growth rate of the segment is around 48%, Connectivity segment is contributing around 34% of the total revenue and the segment is growing at 28%.
If one considers these facts for all the segments and relates to the current economic situations, the expected growth of the segments – strength and opportunities of the business can be estimated to a certain extent.
Due to the COVID-19 situation, the savings of the general public has gone down to a certain extent as well as other financial stress has affected which can have a good impact in short term over the fashion and lifestyle segment of the entity.
Conclusion:
Understanding of business segments and its relation with the economic conditions is one of the most important things for consideration while investment decision.
Introduction Axis Bluechip fund is the flagship fund of the AMC with an Asset Under Management (AUM) of more than Rs. 33,000 Cr. as of January 2023, this is a huge AUM. The highest AUM was in August 2022 of Rs. 36,979.68 Cr. The AUM has grown multifold between 2017 to 2020 because of its fantastic returns during these years. To give you an idea about the growth of the fund, you must know that the AUM of the fund in Jan 2017 was Rs. 1,942 Cr only. Wow! If this is the growth in AUM, let us check how the returns were.
Returns 1) Calendar Returns
Source: Value Research In the above image, you can see that the fund has given amazing returns in 2014 and from 2017 to 2020. In 2021, the fund fell short to perform with the benchmark and the category. 2022 was not good as the benchmark and category both gave positive returns while the fund gave negative returns. This is where it started hurting the investors. 2) Trailing Returns
Source: Value Research In the short term, the fund is bleeding. But, by now we all are aware that you should invest in large-cap funds with an investment horizon of more than 5 years. So, if we look at long-term returns, it is 12.14%, 15.30%, and 14.64% for 5 years, 7 years, and 10 years respectively which is a fair enough performance.
Risk Return Parameters Similarly, if we look at the risk-returns parameters –
Source: Value Research Mean returns should be higher the better, you can see that the fund is lagging in the category where it is ranked second from below. A silver lining can be seen in the form of standard deviation and beta where the fund manager has managed to keep a check on volatility. But the problem lies in Sharpe ratio and Alpha. The Sharpe ratio is low, and Alpha is negative. Those who have taken the course on the Magic of Mutual funds know in detail what these ratios mean, and how important they are in analyzing a fund. If you have still not enrolled in the course, you can click on the image below –
Portfolio Concentration Now, let us dig deeper and try to understand what caused the problem. For that, we will have to compare the portfolio concentration of Axis bluechip fund with one of its peers. I think this peer can be the SBI Bluechip fund considering that it is the best-performing fund in the peers having an AUM of more than Rs. 30,000 Cr. 1) Axis Bluechip Fund -
2) SBI Bluechip Fund –
Source: Value Research If we look at the above data, we can see that Axis Bluechip fund has 87% in equity whereas SBI Bluechip has a 93% allocation to equity. So, SBI is in a better position to generate additional returns. The allocation to the top 5 stocks is more in Axis Bluechip funds, this creates pressure on the fund manager that these 5 stocks will decide the fate of the fund. So, now it becomes necessary to see which are these 5 stocks.
Top stocks in the Portfolio 1) Axis Mutual Fund –
2) SBI Bluechip Fund –
Source: AMC website I think there is no need for any explanation here. In the portfolio of Axis Bluechip fund, 3 out of the top 5 stocks have generated a negative return, while the score for SBI Bluechip fund is only 1 out of the top 5. Another stock that attracts attention in SBI bluechip fund which is missing from the Axis Bluechip fund is ITC Ltd. I hope the reason for underperformance is slowly getting clear now.
Fund Manager History Usually, when there is a change in fund management, we have seen that the new fund manager takes his time to implement the strategies, which causes the fund to underperform for a brief period of time. Let us see if it is the case with Axis Bluechip Fund –
Source: Morningstar In this chart, you can see that Shreyas Devalkar has been with the fund house since 2017. It is he who had delivered the golden returns of this fund. So, we cannot say that the underperformance is because of the change in fund management.
Will I redeem my investments in this fund? We all know that the stock market moves in cycles and there are ups and downs. Axis blue chip fund has witnessed a positive cycle from 2017 to 2020 now it is time for the negative cycle. You cannot expect a fund manager to keep generating amazing performances every single year. It is not like the fund manager is selecting stocks that are not good. His stock picks are simply going through a rough phase. Maybe now he will relate to our merchandise which says “I Buy… Asa Kasa Kay?” :D. Jokes apart I think it is only a matter of time until the fund reverses to its glory days. All we need to do is be patient. This was all and only about the Axis Bluechip fund, but there is more to this analysis. The lead trader/dealer of Axis Mutual Fund who was also one of the fund managers was recently barred by SEBI in a front-running case linked to the fund house. To know more about the front-running scandal and if this scandal changes my view about investment in this fund don’t forget to watch the video on my YouTube channel. Until then!
Starting a family is a wonderful time, everyone is happy, excited, and a little nervous but it can also be a stressful one. If you are a parent, parents-to-be, or planning a family in the future – one of the most important things to consider is how much it is going to cost. You cannot put a price tag on having a child; it is a priceless experience that adds immense joy and meaning to life. However, smart parents are those who are prepared for the journey emotionally, physically, and most importantly, financially.
One of the most important things you can do to reduce stress is to establish sound financial habits early on. Here are ten financial tips to keep in mind when starting a family:
1. Create a budget
A budget is the foundation of good financial management. It helps you understand your income, expenses, and how much money you can allocate toward different categories. Create a budget including your income sources, expenses, and savings goals.
a. Save for emergencies Having an emergency fund can provide peace of mind and financial security. Aim to save at least six months of living expenses in an emergency fund.
b. Consider childcare expenses Child care can be a significant expense for families. A study by Aditya Birla Capital suggested that the cost of nine months of parental care and delivery might go up to Rs. 2,00,000/- and the two-year cost of raising an infant (0 to 2 years) can go up to Rs. 5,00,000/-. Consider the cost of child care when creating your budget, and start planning for it as early as possible to enjoy the best time of your life.
c. Don't overspend on baby items Babies need a lot of stuff, but you don't have to spend a fortune on it. Consider buying gently used items or borrowing from friends and family to save money.
d. Plan for education expenses Planning for your child's education expenses early can help you avoid financial stress later on. There is no need to explain how expensive the education system is. According to a survey by NDTV, in most schools in Tier-I and Tier-II cities, the annual tuition fee might range from ₹ 60,000 to ₹ 1.5 lakhs.
2. Get a life insurance Life insurance is important if you have dependents who rely on your income. It can provide financial support for your family in case something unexpected happens. If you already have insurance then review your insurance coverage regularly to ensure that it meets your family's needs. Consider getting a term life insurance policy if you don't already have one.
3. Plan for retirement
It's never too early to start saving for retirement. There are numerous government schemes as well as private plans to help you accumulate your retirement fund. Consider setting up a retirement investment as early as possible and contribute regularly to it.
4. Make a will
Creating a will is an important step in protecting your family's financial future. It ensures that your assets are distributed according to your wishes and can help avoid legal complications.
5. Communicate with your partner
Effective communication with your partner is essential for good financial management. Set financial goals together, create a budget, and regularly review your finances to ensure you're on track.
Starting a family is an exciting and challenging time, but by following these financial tips, you can establish good habits that will help you achieve your financial goals and provide security for your family's future. This will help you enjoy the happy moments in your life stress-free. So, stay aware and start investing, until next time!
Establishing financial goals is a crucial first step toward obtaining success and stability in your finances. But a lot of people have trouble figuring out what their financial goals should be and how to achieve them. We'll go through several actions you can take to make sure your financial goals are practical, achievable, and significant in this blog.
1. Determine how you are currently doing financially - Examining your present financial condition is the first step in defining financial goals. This entails figuring out your net worth, figuring out how much money you make, and figuring out how much money you spend. You can use this information to assess your financial situation and make goals since it will assist you to do so.
2. Define your short-term and long-term goals - It's time to define your financial goals after you've evaluated your existing financial status. Start by establishing both short- and long-term objectives. Paying off debt, setting up an emergency fund, or saving for a down payment on a home are some examples of short-term objectives. Long-term objectives can include supporting your children's education, retiring comfortably, or purchasing a home.
3. Be specific and measurable in your goals - It's important to make your financial goals specific and measurable. For example, rather than setting a vague goal of "saving more money," set a specific goal of saving a certain amount each month or increasing your savings rate by a certain percentage. This will make it easier to track your progress and stay motivated.
4. Establish a schedule for accomplishing your goals - Choosing a schedule for reaching your financial goals is a crucial component of goal-setting. Think about your short- and long-term objectives, and decide when you want to accomplish each one. You can use this to prioritize your goals and build a strategy for accomplishing them.
5. Make a plan of action - It's time to make an action plan when you've established your financial goals and the timeframe for reaching them. This should include concrete actions you can take, like raising your income, cutting your costs, or making stock market investments, to reach each goal. Make a timeline for finishing each goal and break it down into smaller, manageable tasks.
6. Consistently assess and modify your goals - Finally, when your circumstances change, it's critical to periodically assess and modify your financial goals. If your income or expenses change, you might need to revise your schedule, modify your goals, or set new ones after you've reached your previous ones.
In summary, establishing financial goals is a crucial first step toward financial success. You can develop a road map to financial stability and success by analyzing your present financial condition, identifying clear and measurable goals, establishing a schedule, making an action plan, and routinely reviewing and updating your goals. Always keep in mind that setting financial goals requires time and work, but they are ultimately worthwhile.
In addition to this, I have also made a detailed video on “How to set SMART Goals?”
A few years ago, we would visit nearby stores to purchase items like clothing, books, gadgets, and other necessities. However, shopping has become more convenient since the rise of online marketplaces like Flipkart and Amazon as we can now access thousands of products at the touch of a button—and at great prices, too! The Buy Now Pay Later (BNPL) programs, which let us order items online and pay for them later in flexible payments, improve our online shopping experience. But is this facility a blessing or a curse? Let's find out in this blog.
With a short-term credit product called "Buy Now Pay Later," we can make upfront purchases that can be paid for over the course of four or six payments. In essence, we are taking out a short-term loan and we will need to pay it back in a lump sum or through EMIs. The majority of the time, we use these loans for online shopping.
Paytm Post-paid, Amazon Post-paid, Flipkart Post-paid, Zest Money, Simpl, PayPal, Lazy Pay, and Mobi Kwik Post-paid are the entities providing this facility in India.
We can purchase items with the help of BNPL plans without having to pay for them right away. But we should proceed with caution and only purchase items that we can genuinely afford to pay for; otherwise, we run the risk of purchasing something we didn't really want but ended up doing so because it wouldn't immediately strain our budget. In addition, interest will be added to the amount that was defaulted if we delay or neglect to pay an instalment.
Although BNPL schemes offer flexibility in selecting payback terms and instalment amounts at no additional cost, our credit scores are negatively impacted by late payments. But in all the fuss about BNPL hurting credit scores, the opportunity it affords new borrowers to establish strong credit histories is being disregarded. We can build solid traditional credit ratings by making on-time repayments and using credit responsibly. To do this, we must improve our knowledge of personal finance. With this goal in mind, I am developing "Mastering Money Management," a brand-new course on personal finance. Details will shortly be released on my website www.rachanaranade.com.
Moving on BNPL schemes have their own advantages and disadvantages. Advantages include quick and simple approval of interest-free loans, minimal documentation, low processing fees, customized repayment schedules, and safe and transparent online transactions. Disadvantages include impulsive spending, interest and fees for late payments, and the possibility of a lower credit score.
There is no such thing as a free lunch when it comes to money. The price of our purchases must be paid in any case. Therefore, the choice to buy now and pay now or buy now and pay later is entirely up to us, i.e., the consumer.
