Category: Daily Analysis

Is Equity the catalyst to personal wealth creation?

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10th Apr 2023

Lets evaluate several publicly available asset classes and try to answer this question. In addition, we will have a face off among two of the largest asset classes – Real Estate and Equity. This will help investors to build clarity and help choose among these assets.

Wealth Options and Components

In this Wealth chart Fig 1, we can see various Wealth Options and Components publicly available to investors.

  • The old classic asset is Real Estate (RE), in the form of apartments, land, commercial property, etc.
  • Equity markets are a rising star asset class as the digitization processes have made it transparent and accessible. Equity subcategories are also listed. AIF funds and PMS services are also available now.
  • Debt, Jewellery (and Gold and precious metals) and Alternative assets are also available.
  • Insurance is a wealth protection asset, helping cover some risks.
  • Loans are a part of your wealth, however they can be taken for Appreciating or Depreciating Assets (AA/DA). Loans are better used to buy an AA like house or education, than for DAs like furniture, cars and holidays.

Fig 1 Wealth Options

Choosing among the Asset Classes

Here is a chart of Average Returns versus Risk for each of these assets, Fig 2.

  • Returns for each asset class vary by subclass and by time periods. Here we try to take the multi-year average for each class over 5-6 years period of time.
  • Equity ETFs and MFs returns are simplified as the Nifty index.
  • Direct equity assumes blended returns across market caps.

Fig 2 Wealth and Risk

 Hence the broad principle is – You need to take a higher risk to get a higher return.

  • There are perhaps higher risk asset classes such as F&O and Private equity. Several Wealth Options are not seen here. Its seen that results and returns vary widely among Classes and so results cannot be generalized.
  • All asset classes are probabilistic in terms of returns and risks. This means that while the average returns for RE (for example) may be 8-10% per year, there can be a particular year where this may be 15-20% on the high side and (-10%) on the low side.

The choice among these assets depends upon risk appetite, comfort level and nature of the investor.

  • However the chart points to Equity as a higher returns asset, if we are able to manage the higher risk.
  • Having seen all this, the suggestion to the new investor is to try some of these asset options in small quantities to get a better understanding. Here RE is difficult as it is a big ticket item, but the others can be bought for small sums.
  • A Bank savings account and a Stock broking account would be required to try out these (non RE) assets.

Real Estate versus Equity

In this section we delve deeper into the two most common asset classes – Real Estate and Equity.

Assumptions

Let’s simplify Real Estate to an apartment purchase in the person’s place of work. For own use, and as an upgrade from paying rent. Other Real Estate options such as a second house for investing or a plot for investment or commercial property are not being considered here.

Also Equity will also be simplified as Nifty index investments. Specific products such as MFs, PMS, and Direct Equity investment services such as that offered by JainMatrix Investments will not be considered here.

Comparison

In the following table we compare the Real Estate and Equity asset classes across key parameters. (Table 3)

CriteriaReal Estate – ApartmentEquity – Nifty
Ticket sizeRanges from ₹ 25 lakhs to crores depending on city and location. However if you buy with a loan, you need to pay 20% as down payment.Generally speaking the Nifty ETF products start with ₹ 5000, and go to any number. Direct equity has no minimum.
Source for buying and sellingNew apartments can be bought directly from builders. Second sale or older are from known people or with the help of real estate brokers. Aggregator websites also help with real estate information and brokers.Buying Platform – You will need a Stock Broking account for direct equity purchase. Products like MFs and ETFs can also be bought from Bank account – investment channels. And also directly from Fund website or MF distributors.
Rating for Identifying and buyingThis can be HARD and complex. Here the buyer has to identify the location, size of property, new v/s old, builder, etc. The process involves visiting potential properties, finalizing criteria, rating them, and closing the purchase, followed by registering the property. If you decide to invest in the Nifty, it’s EASY and a simple choice of Nifty ETFs. Otherwise the rating is MEDIUM. There are 5000+ listed firms in India, but homing in to a purchase decision of 5-10-20 shares needs reading, and decisions. JainMatrix Investments provides this advisory service. Similarly choosing among MFs or PMSs.
Time and costs for TransactionsThis can take anything from 2 months to a year. The cost over and above property cost may be Stamp Duty and Registration Tax for new properties, but may also include brokerage depending upon the agent or services used.With digitalization, time to buy is very less, 1-2 days, once the buying platform is in place. Brokerage costs vary from 0.75% of purchase for full service brokers to very low for discount brokers. Other taxes are less than 0.1% except Capital Gains tax.
Selling; and Time and costSelling is also HARD. From a decision to sell, to actual transaction it can take from 2-6 months. Brokers, websites or personal network can help. The cost can be 1-2% of property value. There are payment risks so one has to be disciplined in the process.Selling is EASY. The transaction happens at market rates, and funds are transferred in 1-2 days. Brokerage and other costs are similar as buying.
Total cycle timeSo one can see that the total cycle time for Real Estate is long. It includes Buying time, holding period and selling time.Varies by approach. The Nifty ETF or other equity assets can be held till the cash is required or a better investment has been found. At JainMatrix, we suggest Long Term Investments in quality companies, which allow the money to compound. However periodic pruning of a Direct Equity portfolio can be done every 6 months, to let the winners ride and exit underperformers.
UtilityAn apartment in use by the owner is useful, saves rent and provides pride of ownership.Equity investments appreciate and earn dividend. We must save for a rainy day!!
Capital GainsLong Term Capital Gains kick in at a holding of over 2 years. Typically from buy to sell may be 8-12 years on average.Long Term Capital Gains holding period is over 1 year.
Returns from Investing  A house to stay is a good choice in terms of stability and rootedness rather than just monetary returns. It saves on rent. Having said that, an apartment asset can give 8-10% returns on average. Fig 2.The Nifty has given 12-14% CAGR returns over the past decade. Returns are estimated higher for Direct Equity. See Fig 2.

Real Estate versus Equity Opinion by JainMatrix

In fact both Real Estate and Equities are asset classes that can complement each other. Investments should be started early in the working life, salaried or business. These can be in Equity, as the minimum is a small ticket size. In a few years as this asset grows, and the need arises, it can help to initiate a real estate purchase.

Finally Pros and Cons of Equity

Pros

  • High average returns. Rising asset class.
  • Indian equity markets have achieved a global size, volumes and transparency.
  • Flexible – minimum ticket size is small, but it can scale for larger investments.
  • Fast yet robust – digital enablement now allows a stock broking account to be as easy and convenient to handle as a savings bank account. Buying, selling and dividend transactions also happen digitally. Websites and mobile applications have also improved access and ease of navigation.
  • Tax friendly – the tax rules are encouraging for equity with just 1 year for Long Term Capital Gains, LTCG not being taxed until it crosses a certain sum, and ability to set off losses one year with gains in another year.
  • Several equity products like Direct Equity access, MFs, PMS, small case and advisory services allow flexible access to all kinds of investors. See Fig 4.

Cons

  • Equity investors are exposed to market risks, and also industry and company specific risks like fraud, global events, war, weather, currency, etc.
  • Fear and Greed are driving forces in equity markets, and equities can alternate between expensive (excessively high valuations) and cheap (too low valuations).
  • Patience is a virtue, and expecting quick returns can be detrimental for investors.
  • Short term Trading versus Long Term Investing is also a difficult choice for those new to equity markets.

Conclusion

Equity penetration in India is low due to lack of access to stock brokers, pre existing fears of stock markets, inertia and invisible nature of equity assets. However a look at developed markets shows that penetration is as high as 50% compared to India’s 5-6%. Further, financialization of Indians’ assets has begun, with We expect steady growth of equity penetration and

Glossary

  • AIF – Alternative Investment Funds are SEBI regulated and pools of funds from specific investors as per a previously defined investment policy. Next version of Mutual Funds
  • PMS – Portfolio Management Service.
  • MF – Mutual Fund
  • ETF – Exchange Traded Fund – a type of MF which is passively managed, and usually shadows a well-known Index or commodity. It typically has lower management fees compared to actively managed MFs.

My Standard Disclaimer

Investment in securities market are subject to market risks. Read all the related documents carefully before investing. This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a RIA – Registered Investment Advisor.

Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

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India’s foreign trade set to cross US$ 1.6 trillion; India’s power output grows at fastest pace

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05th Apr 2023

JainMatrix Investments wants you to think positive, and get back on Track, so read this:

  1. India’s foreign trade set to cross US$ 1.6 trillion – ET – 05th Apr
  2. India’s power output grows at fastest pace – ET – 05th Apr
  3. Real estate sector on the fast lane – ET – 09th Dec
  4. November sees highest sales in the history of auto industry – ET – 09th Dec
  5. Shift from roads to rail picks up pace, thanks to DFC – ET – 30th Nov
  6. Half a trillion-dollar FII inflows may be heading India’s way – ET – 30th Nov
  7. White collar hiring stabilises and shows uptick : Monster – ET – 01st Sep
  8. Indian mfg growth trends higher as input cost inflation eases – ET – 01st Sep
  9. Germany makes renewable energy cheaper for houses & businesses – OD 16th May
  10. US inflation might have dipped last month from 40 yr high – ET – 16th May
  11. India showed fastest recovery in occupancy in APAC: Hilton exec – ET – 16th May
  12. How Karnataka insulated itself from a power crisis – DH – 18th Apr
  13. India will consume semiconductors of $80 bn: MoS IT – ET – 18th Apr
  14. Carmakers to up production as semiconductor shortage eases – BS – 18th Feb
  15. IT’s gathering momentum and Digital innovation – Hindu BL – 18th Feb
  16. Key sectors look to add capacity, fuel hopes for a recovery – TOI – 13th Jan
  17. India on its way to achieve population stabilisation – ET – 13th Jan
  18. Retail inflation rises to 5.59% in Dec as against 4.91% – TOI – 13th Jan
  19. Exporters across sectors are flushed with orders: FIEO – ET – 04th Jan 2022
  20. Maruti stock can gain with new launches and easing costs – ET – 04th Jan 2022
  21. Vax drive, tax mopup, India Inc profits show economy on track – ET – 24th Dec
  22. India can generate $813 b from agri, food sector by 2030 – ET – 24th Dec
  23. High frequency indicators look upbeat, say RBI – ET – 17th Dec
  24. World shares turn positive after Fed tapering announcement – Reuters – 17th Dec
  25. Indian economy has signs of recovery in 19/22 eco indicators – ET – 07th Dec
  26. India rising, get ready for a long equity rally – ET – 06th Nov (thanks Prajnya Rao)
  27. Roadblocks ahead as Indian IT moves into high gear – ET – 06th Nov
  28. Moody’s changes India rating outlook to stable from negative – MC – 06th Oct
  29. Not China, India will be my first bet outside the US: John Chambers – ET – 06th Oct
  30. India looks a better investment bet than China – FT Money article – 06th Oct
  31. Auto sector gets ₹25,938-crore PLI scheme – key takeaways – MC – 20th Sept
  32. Expect upside in housing sector: Keki Mistry – ET – 20th Sept
  33. Exports hit record high of $35 bn in July – BS – 27th Aug
  34. R​​enewable energy can stand on its own – ET – 27th Aug
  35. Repeal of retro tax to boost trust between industry, govt – MC – 12th Aug
  36. India can have 500-600 large tech companies in 3-5 years – MC – 12th Aug
  37. Govt set for high FY22 tax collection; Q1 is INR 5.6 lakh cr: Icra – ET – 28th July
  38. India among least prepared for automation in APAC, says survey – ET – 28th July
  39. Scientists find green option to plastic – TOI – 21st July
  40. Maruti crosses 50L cumulative sales in rural markets – TOI – 21st July
  41. Indian IT industry to post 11% revenue recovery in FY22 – ET – 07th July
  42. These states to witness good rains in July – Mint – 07th July
  43. Morgan Stanley says a bull run is only getting started, here’s why – MC – 27th June
  44. Health, credit, jobs: FM announces 8 measures – BS – 27th June
  45. Indian Railways approves 660 more trains – HT – 19th June
  46. India’s Covid Vaccination Rate Jumps 60% In June – MC – 19th June
  47. India offers huge potential for digital banks: Report – IndExp – 10th June
  48. 74% employees keen on remote work: Microsoft Index – Mint – 10th June
  49. Unlock status, rules and guidelines – Mint – 10th June
  50. Despite covid woes, profits of Indian firms hit a six-year high – Mint – 24th May
  51. India will be on faster growth path fuelled by infra – TOI – 24th May
  52. How the coming population bust will transform the world – ET – 24th May
  53. Overall coronavirus situation stabilizing in India: Govt – M’Control – 17th May
  54. Exports rise 80% to $7b during May 1-7 – Fin.Express – 17th May
  55. Crude oil and commodities rally as global recovery gains pace – FXstreet – 05th May
  56. Steel sector does well – Indian Express – 05th May
  57. RBI announces loan relief, Rs 50K cr liquidity to tide over Covid – BusinessStd – 05th May
  58. Tata gets nod to acquire BigBasket – (M’Control) – 03rd May
  59. Hot Sectors – a) Ports – $82b being invested in ports (M’Control)
  60. Budget 2021 lays foundation for $5 trillion economy – M’Control – 04th Feb
  61. India pivots to top ESG nation through Budget – ET – 04th Feb
  62. Towards $5 T: What is holding India back? – FinExpress – 07th Jan
  63. India should follow agri – led industrial growth model – BT – 07th Jan
  64. NBFC sector rebounded in six months of FY21, says RBI – LiveMint – 29th Dec
  65. Power sector limping back to normal – ET – 29th Dec
  66. Digital is the way forward in a post-Covid world – LiveMint – 16th Dec
  67. Disinvestment will now gain momentum – ET – 16th Dec
  68. India may grow at 11% in 2022, says N Chandra – M’Control – 13th Dec
  69. Six early trends in financial sector – M’control – 09th Dec
  70. View: How tech makes it possible to solve corruption – ET – 09th Dec
  71. Indian economy back on track in Q2 – FinExpress – 20th Nov
  72. India’s health spend low, needs to be made priority – BS – 20th Nov
  73. GST collections at 8-month high – IndianExpress – 05th Nov
  74. Economy to reach pre-Covid growth by fiscal-end – BS – 05th Nov
  75. COVID in India on recovery – BS – 05th Nov
  76. India reopens its doors, restores most visas – ToI – 22nd Oct 
  77. E-tailing to become USD 200-bn by 2025: Report – ETNow – 22nd Oct 
  78. FM’s consumption boost to turbocharge e-comm – BS – 13th Oct 
  79. Low finance rates leading to increased home sales – ET – 13th Oct 
  80. Gig economy to lead 80% of blue-collar jobs – BS – 13th Oct 
  81. How robust is India’s recovery? – IndianExpress – 5th Oct 
  82. Covid may have peaked in September – ToI – 5th Oct 
  83. Digital payments: Pandemic does what demon couldn’t – ET – 01st Oct
  84. Healthcare Reforms – National Med. Commission started – (ET) – 25th Sept 
  85. Export show signs of a revival – (LiveMint) – 25th Sept 
  86. Economic recovery sustains momentum through first week of Sept – (ET) – 10th Sept 
  87. Rice, sugar push up Q1 farm exports by 23% – (ET) – 10th Sept 
  88. IPL set to kick-start consumption cycle – (LiveMint) – 30th July 
  89. Unlock 4: Metros to start, no lockdowns outside containment zones – (LiveMint) 30July 
  90. Mfg. policies of govt to help firms shift base to India: ICEA – (BS) – 26th Aug 
  91. RBI at end of rate cut cycle, govt must play role for revival: Economists – (BS) – 26th Aug 
  92. Railway earnings, Power generation: weekly indicators about economy – (BS) 18th Aug 
  93. Import embargo plan for 101 defense items to boost indigenisation – (FE) 18th Aug 
  94. Must improve ease of business to be a mfg. hub: Industry captains– (ET) – 07th Aug 
  95. Here’s what Indians have been spending on during the pandemic – (ET) – 07th Aug 
  96. Redesign, rethink whole economy for success in post-Covid world – (ToI) – 05th Aug 
  97. Joblessness at pre-covid level as India unlocks more – (LiveMint) – 05th Aug
  98. Expect V-shaped recovery over next few months: Ridham Desai – (ET) – 30th July    
  99. A major change is shift in format: Panel on education – (ET) – 30th July 
  100. Hiring optimism grows as demand gathers pace – (LiveMint) – 20th July 
  101. IT may see surge in offshoring biz – (LiveMint) – 20th July
  102. The current wave of rail reforms is actually “historic” – (ET) – 17th July 
  103. Mapping India’s Post-Covid Capex Recovery – (BQ) – 17th July 
  104. View: Never a better time than now to build for India – (ET) – 13th July 
  105. India at the cusp of a huge explosion of demand: Panasonic CEO – (ET) – 13th July
  106. Record surge in sales of vacuum cleaners, dishwashers, DIY products – (ET) – 07th July 
  107. Labour shortage, factories go the extra mile to woo migrant workers – (ET) – 07th July 
  108. PMI, GST mop-up point to a pickup in economic activity – (LiveMint) – 02nd July 
  109. India Inc’s big bet on Bharat saving the day – (LiveMint) – 02nd July
  110. Green shoots in Bharat lead country’s economic revival – (LiveMint) – 30th June 
  111. Opinion | The onus is on us to conquer fear – (LiveMint) – 30th June 
  112. Not two years, 200 projects finished during lockdown: Railways – (ToI) – 29th June 
  113. Bankers in India are more productive working from home – (LiveMint) – 29th June 
  114. Global equity markets are likely to continue their up move – (BizStd) – 27th June
  115. Migration is reversing: Trains from UP, Bihar run full – (ToI) – 27th June 
  116. Indicators of economic recovery in India – (EcoTimes) – 24th June
  117. Get India fully back to business, says India Inc – (EcoTimes) – 24th June
  118. Post-crisis, increase integration with global economy – (EcoTimes) – 20th June
  119. Kharif planting rises 40% on strong monsoon start – (EcoTimes) – 20th June 
  120. Maruti Suzuki’s model can make India a global mobile mfg hub – (EcoTimes) – 18th June 
  121. Indian economy to recover very fast: HDFC Bank CEO – (EcoTimes) – 18th June 
  122. A COVID-19 workplace readiness tool for organisations – (IISC) – 17th June 
  123. It is time to be a little positive on financial space – (EcoTimes) – 17th June 
  124. Exports bounce back to last year’s levels in June – (EcoTimes) – 16th June 
  125. Unemployment rate declines sharply as India exits lockdown – (Livemint) – 16th June 
  126. Local trains, Mumbai’s lifeline, resumes services – (Livemint) – 15th June 
  127. Construction work restarts at over 100 projects in NCR – (EcoTimes) – 15th June 
  128. Govt urges use of bicycles, EVs to mitigate risks – (EcoTimes) – 13th June 
  129. ‘Digital is the Key to Unlock this Disruption’ – (EcoTimes) – 13th June 
  130. ‘Put the money in Indian stocks, forget till 2025’ – (EcoTimes) – 12th June 
  131. Loans are getting cheaper, HDFC cuts lending rate – (EcoTimes) – 12th June
  132. View: Replacing China imports possible, even in EVs – (EcoTimes) – 11th June 
  133. ‘Time for Bold Investments, not conservative decisions’ – (Livemint) – 11th June 
  134. After steep falls, June exports show signs of improvement (EcoTimes) – 10th June 
  135. Partial lockdown lift gives work to 21 million; not salaried class (EcoTimes) – 10th June 
  136. Covid-19 is no plague or cancer; fear psychosis unnecessary (EcoTimes) – 09th June
  137. Import-intensive spending likely to feel the pinch – (EcoTimes) – 09th June 
  138. Getting growth back on track is non-negotiable: Uday Kotak (EcoTimes) – 08th June 
  139. Post Covid Opportunities – Global Work Force (Nasdaily) – 8th June
  140. Impetus To Realty Demand, But More Needs To Be Done (NDTV) – 06th June
  141. Collections improving, demand picking up in rural India (EcoTimes) – 06th June
  142. View: How to get Make-in-India to work this time (EcoTimes) – 05th June 
  143. Effects of Unlock 1.0 as new guidelines come into play – (IndianExpress) – 05th June 
  144. Cabinet approves amendment of Essential Commodities Act (Livemint) – 04th June 
  145. Goods movement pickup in May signals economic revival (Livemint) – 04th June 
  146. PM’s First Major Address On Economy After Unlock 1.0 (ndtv.com) – 03rd June 
  147. Five Indian states are leading in the recovery from lockdown – (EcoTimes) – 03rd June
  148. India’s 3-phase ‘Unlock’ Plan starts at last (ToI) – 1st June 
  149. Supply to improve post-unlock 1.0; demand pickup may be slower (Livemint) – 1st June 
  150. Over 1.65 lakh people traveled in 2,198 flights since Monday: Puri (Livemint) – 30th May 
  151. The global supply chain is being reconfigured, India can gain (EcoTimes) – 30th May
  152. Nearly 65,000 cured from COVID-19 in India, 42% recovery rate (Livemint) – 29th May 
  153. An India lockdown survey: The good, bad and the ugly (Eco Times) – 29th May 
  154. How is India doing against COVID19 in 3 graphs – 28th May
  155. Covid-19 proves the importance of telecom in India (Eco Times) – 28th May
  156. India runs on Rails: MORE TRAINS BASED ON DEMAND (Fin Expr.) – 27 May
  157. MY TAXI HAS VEHICLES WITH PPE KITS, CURTAINS (Eco Times) – 27th May
  158. COVID-19 Is Fast-Tracking Digital Transformation – 26th May 
  159. HOW DHARAVI IS TACKLING THE COVID INFECTION RATE – 26th May 
  160. AFTER 2 MONTHS, FLIGHTS ARE BACK – 25th May
  161. HOW INDIA INC. GOES BACK TO WORK, LEADERSPEAK (Eco Times) – 25th May
  162. A THIRD OF NSE MFG FIRMS BACK AT WORK (Eco Times) : 23rd May
  163. MAHINDRA FACTORY – COVID CARE READY – 23rd May
  164. We actually wrote about the need for a lockdown in Mar 2020 – CALL IN THE INDIAN ARMY TO HANDLE THIS EMERGENCY – 20th March
  1. Exporters across sectors are flushed with orders: FIEO – ET – 04th Jan 2022
  2. Maruti stock can gain with new launches and easing costs – ET – 04th Jan 2022
  3. Vax drive, tax mopup, India Inc profits show economy on track – ET – 24th Dec
  4. India can generate $813 b from agri, food sector by 2030 – ET – 24th Dec
  5. High frequency indicators look upbeat, say RBI – ET – 17th Dec
  6. World shares turn positive after Fed tapering announcement – Reuters – 17th Dec
  7. Indian economy has signs of recovery in 19/22 eco indicators – ET – 07th Dec
  8. India rising, get ready for a long equity rally – ET – 06th Nov (thanks Prajnya Rao)
  9. Roadblocks ahead as Indian IT moves into high gear – ET – 06th Nov
  10. Moody’s changes India rating outlook to stable from negative – MC – 06th Oct
  11. Not China, India will be my first bet outside the US: John Chambers – ET – 06th Oct
  12. India looks a better investment bet than China – FT Money article – 06th Oct
  13. Auto sector gets ₹25,938-crore PLI scheme – key takeaways – MC – 20th Sept
  14. Expect upside in housing sector: Keki Mistry – ET – 20th Sept
  15. Exports hit record high of $35 bn in July – BS – 27th Aug
  16. R​​enewable energy can stand on its own – ET – 27th Aug
  17. Repeal of retro tax to boost trust between industry, govt – MC – 12th Aug
  18. India can have 500-600 large tech companies in 3-5 years – MC – 12th Aug
  19. Govt set for high FY22 tax collection; Q1 is INR 5.6 lakh cr: Icra – ET – 28th July
  20. India among least prepared for automation in APAC, says survey – ET – 28th July
  21. Scientists find green option to plastic – TOI – 21st July
  22. Maruti crosses 50L cumulative sales in rural markets – TOI – 21st July
  23. Indian IT industry to post 11% revenue recovery in FY22 – ET – 07th July
  24. These states to witness good rains in July – Mint – 07th July
  25. Morgan Stanley says a bull run is only getting started, here’s why – MC – 27th June
  26. Health, credit, jobs: FM announces 8 measures – BS – 27th June
  27. Indian Railways approves 660 more trains – HT – 19th June
  28. India’s Covid Vaccination Rate Jumps 60% In June – MC – 19th June
  29. India offers huge potential for digital banks: Report – IndExp – 10th June
  30. 74% employees keen on remote work: Microsoft Index – Mint – 10th June
  31. Unlock status, rules and guidelines – Mint – 10th June
  32. Despite covid woes, profits of Indian firms hit a six-year high – Mint – 24th May
  33. India will be on faster growth path fuelled by infra – TOI – 24th May
  34. How the coming population bust will transform the world – ET – 24th May
  35. Overall coronavirus situation stabilizing in India: Govt – M’Control – 17th May
  36. Exports rise 80% to $7b during May 1-7 – Fin.Express – 17th May
  37. Crude oil and commodities rally as global recovery gains pace – FXstreet – 05th May
  38. Steel sector does well – Indian Express – 05th May
  39. RBI announces loan relief, Rs 50K cr liquidity to tide over Covid – BusinessStd – 05th May
  40. Tata gets nod to acquire BigBasket – (M’Control) – 03rd May
  41. Hot Sectors – a) Ports – $82b being invested in ports (M’Control)
  42. Budget 2021 lays foundation for $5 trillion economy – M’Control – 04th Feb
  43. India pivots to top ESG nation through Budget – ET – 04th Feb
  44. Towards $5 T: What is holding India back? – FinExpress – 07th Jan
  45. India should follow agri – led industrial growth model – BT – 07th Jan
  46. NBFC sector rebounded in six months of FY21, says RBI – LiveMint – 29th Dec
  47. Power sector limping back to normal – ET – 29th Dec
  48. Digital is the way forward in a post-Covid world – LiveMint – 16th Dec
  49. Disinvestment will now gain momentum – ET – 16th Dec
  50. India may grow at 11% in 2022, says N Chandra – M’Control – 13th Dec
  51. Six early trends in financial sector – M’control – 09th Dec
  52. View: How tech makes it possible to solve corruption – ET – 09th Dec
  53. Indian economy back on track in Q2 – FinExpress – 20th Nov
  54. India’s health spend low, needs to be made priority – BS – 20th Nov
  55. GST collections at 8-month high – IndianExpress – 05th Nov
  56. Economy to reach pre-Covid growth by fiscal-end – BS – 05th Nov
  57. COVID in India on recovery – BS – 05th Nov
  58. India reopens its doors, restores most visas – ToI – 22nd Oct 
  59. E-tailing to become USD 200-bn by 2025: Report – ETNow – 22nd Oct 
  60. FM’s consumption boost to turbocharge e-comm – BS – 13th Oct 
  61. Low finance rates leading to increased home sales – ET – 13th Oct 
  62. Gig economy to lead 80% of blue-collar jobs – BS – 13th Oct 
  63. How robust is India’s recovery? – IndianExpress – 5th Oct 
  64. Covid may have peaked in September – ToI – 5th Oct 
  65. Digital payments: Pandemic does what demon couldn’t – ET – 01st Oct
  66. Healthcare Reforms – National Med. Commission started – (ET) – 25th Sept 
  67. Export show signs of a revival – (LiveMint) – 25th Sept 
  68. Economic recovery sustains momentum through first week of Sept – (ET) – 10th Sept 
  69. Rice, sugar push up Q1 farm exports by 23% – (ET) – 10th Sept 
  70. IPL set to kick-start consumption cycle – (LiveMint) – 30th July 
  71. Unlock 4: Metros to start, no lockdowns outside containment zones – (LiveMint) 30July 
  72. Mfg. policies of govt to help firms shift base to India: ICEA – (BS) – 26th Aug 
  73. RBI at end of rate cut cycle, govt must play role for revival: Economists – (BS) – 26th Aug 
  74. Railway earnings, Power generation: weekly indicators about economy – (BS) 18th Aug 
  75. Import embargo plan for 101 defense items to boost indigenisation – (FE) 18th Aug 
  76. Must improve ease of business to be a mfg. hub: Industry captains– (ET) – 07th Aug 
  77. Here’s what Indians have been spending on during the pandemic – (ET) – 07th Aug 
  78. Redesign, rethink whole economy for success in post-Covid world – (ToI) – 05th Aug 
  79. Joblessness at pre-covid level as India unlocks more – (LiveMint) – 05th Aug
  80. Expect V-shaped recovery over next few months: Ridham Desai – (ET) – 30th July    
  81. A major change is shift in format: Panel on education – (ET) – 30th July 
  82. Hiring optimism grows as demand gathers pace – (LiveMint) – 20th July 
  83. IT may see surge in offshoring biz – (LiveMint) – 20th July
  84. The current wave of rail reforms is actually “historic” – (ET) – 17th July 
  85. Mapping India’s Post-Covid Capex Recovery – (BQ) – 17th July 
  86. View: Never a better time than now to build for India – (ET) – 13th July 
  87. India at the cusp of a huge explosion of demand: Panasonic CEO – (ET) – 13th July
  88. Record surge in sales of vacuum cleaners, dishwashers, DIY products – (ET) – 07th July 
  89. Labour shortage, factories go the extra mile to woo migrant workers – (ET) – 07th July 
  90. PMI, GST mop-up point to a pickup in economic activity – (LiveMint) – 02nd July 
  91. India Inc’s big bet on Bharat saving the day – (LiveMint) – 02nd July
  92. Green shoots in Bharat lead country’s economic revival – (LiveMint) – 30th June 
  93. Opinion | The onus is on us to conquer fear – (LiveMint) – 30th June 
  94. Not two years, 200 projects finished during lockdown: Railways – (ToI) – 29th June 
  95. Bankers in India are more productive working from home – (LiveMint) – 29th June 
  96. Global equity markets are likely to continue their up move – (BizStd) – 27th June
  97. Migration is reversing: Trains from UP, Bihar run full – (ToI) – 27th June 
  98. Indicators of economic recovery in India – (EcoTimes) – 24th June
  99. Get India fully back to business, says India Inc – (EcoTimes) – 24th June
  100. Post-crisis, increase integration with global economy – (EcoTimes) – 20th June
  101. Kharif planting rises 40% on strong monsoon start – (EcoTimes) – 20th June 
  102. Maruti Suzuki’s model can make India a global mobile mfg hub – (EcoTimes) – 18th June 
  103. Indian economy to recover very fast: HDFC Bank CEO – (EcoTimes) – 18th June 
  104. A COVID-19 workplace readiness tool for organisations – (IISC) – 17th June 
  105. It is time to be a little positive on financial space – (EcoTimes) – 17th June 
  106. Exports bounce back to last year’s levels in June – (EcoTimes) – 16th June 
  107. Unemployment rate declines sharply as India exits lockdown – (Livemint) – 16th June 
  108. Local trains, Mumbai’s lifeline, resumes services – (Livemint) – 15th June 
  109. Construction work restarts at over 100 projects in NCR – (EcoTimes) – 15th June 
  110. Govt urges use of bicycles, EVs to mitigate risks – (EcoTimes) – 13th June 
  111. ‘Digital is the Key to Unlock this Disruption’ – (EcoTimes) – 13th June 
  112. ‘Put the money in Indian stocks, forget till 2025’ – (EcoTimes) – 12th June 
  113. Loans are getting cheaper, HDFC cuts lending rate – (EcoTimes) – 12th June
  114. View: Replacing China imports possible, even in EVs – (EcoTimes) – 11th June 
  115. ‘Time for Bold Investments, not conservative decisions’ – (Livemint) – 11th June 
  116. After steep falls, June exports show signs of improvement (EcoTimes) – 10th June 
  117. Partial lockdown lift gives work to 21 million; not salaried class (EcoTimes) – 10th June 
  118. Covid-19 is no plague or cancer; fear psychosis unnecessary (EcoTimes) – 09th June
  119. Import-intensive spending likely to feel the pinch – (EcoTimes) – 09th June 
  120. Getting growth back on track is non-negotiable: Uday Kotak (EcoTimes) – 08th June 
  121. Post Covid Opportunities – Global Work Force (Nasdaily) – 8th June
  122. Impetus To Realty Demand, But More Needs To Be Done (NDTV) – 06th June
  123. Collections improving, demand picking up in rural India (EcoTimes) – 06th June
  124. View: How to get Make-in-India to work this time (EcoTimes) – 05th June 
  125. Effects of Unlock 1.0 as new guidelines come into play – (IndianExpress) – 05th June 
  126. Cabinet approves amendment of Essential Commodities Act (Livemint) – 04th June 
  127. Goods movement pickup in May signals economic revival (Livemint) – 04th June 
  128. PM’s First Major Address On Economy After Unlock 1.0 (ndtv.com) – 03rd June 
  129. Five Indian states are leading in the recovery from lockdown – (EcoTimes) – 03rd June
  130. India’s 3-phase ‘Unlock’ Plan starts at last (ToI) – 1st June 
  131. Supply to improve post-unlock 1.0; demand pickup may be slower (Livemint) – 1st June 
  132. Over 1.65 lakh people traveled in 2,198 flights since Monday: Puri (Livemint) – 30th May 
  133. The global supply chain is being reconfigured, India can gain (EcoTimes) – 30th May
  134. Nearly 65,000 cured from COVID-19 in India, 42% recovery rate (Livemint) – 29th May 
  135. An India lockdown survey: The good, bad and the ugly (Eco Times) – 29th May 
  136. How is India doing against COVID19 in 3 graphs – 28th May
  137. Covid-19 proves the importance of telecom in India (Eco Times) – 28th May
  138. India runs on Rails: MORE TRAINS BASED ON DEMAND (Fin Expr.) – 27 May
  139. MY TAXI HAS VEHICLES WITH PPE KITS, CURTAINS (Eco Times) – 27th May
  140. COVID-19 Is Fast-Tracking Digital Transformation – 26th May 
  141. HOW DHARAVI IS TACKLING THE COVID INFECTION RATE – 26th May 
  142. AFTER 2 MONTHS, FLIGHTS ARE BACK – 25th May
  143. HOW INDIA INC. GOES BACK TO WORK, LEADERSPEAK (Eco Times) – 25th May
  144. A THIRD OF NSE MFG FIRMS BACK AT WORK (Eco Times) : 23rd May
  145. MAHINDRA FACTORY – COVID CARE READY – 23rd May
  146. We actually wrote about the need for a lockdown in Mar 2020 – CALL IN THE INDIAN ARMY TO HANDLE THIS EMERGENCY – 20th March

We have been tracking this infection since March when it came to India and we had to declare the lockdown. Today, 6 months on, we are at a different phase in the economy. We have to understand that this virus will not go away, it is we who have to adjust to it. Even as we maintain social distancing, and wear masks, and wash hands regularly, the important thing now is to dive back into business and achieve some semblance of normalcy.

Regards,

Punit Jain

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain and JM has no ownership or known financial interests in any company mentioned in this note. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

Corporate Transformation: From Cost to Time

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Growing up in a middle class home, I have pretty much got used to worrying about cost. Going on a holiday? What’s the best deal you can find? Buying a coffee table? What’s the best price you can find for that size and quality?

In recent years, there has been a new challenge. On getting overworked, and with budgets not a big issue, the issue was, how can I plan that holiday within that limited time? How can I buy that furniture fast and right? Can I do all this today, and still get a good night’s sleep?

Optimize for Time: That’s when the thought struck me. Rather than optimizing for Cost, I need to optimize for Time. Productivity is more important. Speed and accuracy may cost more, but are a better option.

This needs a radical rethink of the way we make decisions. One way to do this is the digital tools available. E-commerce for buying? Check. Travel websites for holidays? Check. Doing everything yourself? No, no. Outsourcing of design and execution? Check. The other way is outside expertise.

In corporate environments too, a more precious commodity than budgets, is the time of the workforce. How can we do this work within this time constraint? Planning and project management tools? Check. Portals, collaboration tools and email for employee collaboration? Check.

An example that comes to mind is the Bangalore Metro – BMRCL. Eleven years after it was set up, the firm has recently bid out for Project Management software that can capture the complexity of its work, help tie the loose ends and do work on time.

Corporate Objectives: Business or Group Leaders with large teams in place have instinctively moved to Time optimization for their teams. The team is fixed (in the medium term) and everyone is on a salary so the objective is for the team is to work better together, and do more. The workload should also be well spread across the team rather than a few getting overworked even as others are relatively free.

What’s changed is the tools, and outsourcing and digital options we have to do this in practice.

Software versus Jobs: Another mental constraint some of us struggle with – is the use of software going to result in the loss of jobs? Is there a trade off between use of software versus number of jobs and employees? This may be true of some legacy bloated PSU firms where employee collaboration is by physical files and paperwork. Collaboration software surely helps teams work better and faster with fewer people. But many of the non collaboration digital tools that we now have access to are just outsourcing the work to another organization that can do it more efficiently. This organization does the work, and grows, while your firm becomes more focused. In effect, total employment may not be affected, but productivity improves.

Example – Second Generation PSUs: The second generation PSUs in India have been set up without legacy workforces and are super focused on their core competencies. Petronet LNG, IRCTC and CONCOR come to mind. They have their own employees handling senior management functions and the core work. Non core work like security, facilities management, recruitment, routine procurement, travel, logistics, canteens, etc. can and are being outsourced to competent agencies. Keeping the core staff low.

The ‘L1’ dilemma: Indian PSU procurement and tendering is famous for awarding projects to the ‘L1’ bidder. Looking back at the performance of projects bid out, perhaps the L2 or L3 bidder would have been a better choice if the primary criteria was not just price, but also Speed, reliability and Quality of work. So many projects flounder on execution after the bidder realizes he is in losses or is unable to handle project challenges. The Total Cost of a Project includes Project bid value, real costs of project, time of project and maintenance for the life of project. So here also for better success rates and performance, the tendering process needs to be ‘L1’ for Total Cost of Project, incorporating a probability of timely completion and penalties and counter guarantees. This is harder to judge, but its time our decision making advances, and gets better results.

Cheers and success to you. Comment on this article if you find it interesting.

Punit Jain

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. This is not an equity research or investment report. Any mention of companies in this report is to illustrate a point and we make no comment here on valuations or investment attractiveness. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

A View on the Sensex

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Date: 28th Nov 2021

The Sensex Returns V/S GDP Growth chart

Chart Explanation

  1. Chart Notes: 2021SF is 2021 So Far. CY is calendar year. Also a positive ‘High-Low Return’ number indicates that intra-year high was after intra-year low and vice-versa. Data Sources: wikipedia, Bloomberg, Credit Suisse.
  2. The CY Sensex returns reflect key events – 1999 dot com up; 2000 crash, 2008 crash etc.
  3. The average CY Sensex return over 20 year period is 18%.
  4. The High Low Return is the intra CY volatility. The GDP real growth line largely runs similar to Sensex return while being mostly positive and smoothened out. Except 2020.

Key Observations

  1. The CY Sensex return over 2018-2021SF isn’t very high. It looks like just average returns. The volatility is high with higher highs and lower lows. GDP growth has fallen in 2020 and now looks in recovery mode.
  2. It does appear that the GDP fall is not reflected in the Sensex returns.

Conclusion

  • Sensex returns have been low to average, contrary to public opinion. Volatility has been high.
  • A good GDP recovery in CY21-23 can raise Sensex returns to above average levels.

Disclaimer:

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Indian Markets, Over or Undervalued? – A discussion

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Summary: In this note, we debate on the current levels of the Indian markets, using several well-known ratios, in the context of local and global events. We are perhaps continuing from my previous Outlook article – Equity Outlook, Nov’20: Rising like a Phoenix from the Ashes

Introduction

  • The Markets are at an all-time high as Nifty crossed 17,000 levels and Sensex 58,000 levels. However, the Indian markets have been quite volatile in the last 2 years.
  • In this note we try to debate and understand the causes and effects, and if the markets are Overvalued or Undervalued at these levels.
  • Here are 20 year and 2 year charts of Nifty. Over 20 years, the Nifty has gained at 15.4% CAGR. Fig 1.
  • In Mar’20, the market fell sharply by 39% due to Covid fears, but recovered thereafter See Fig 2.

Fig 1 and Fig 2: Nifty (Source tradingview) – All charts are clickable

PROS: Reasons why the Indian Stock Market is Overvalued

1. The Covid pandemic has affected the Indian economy, yet the markets are booming.

  • The GDP growth in FY21 was -8%. In the second wave of May-July this year too the social and economic impact was hard. Inspite of this, the stock markets have risen. So, until the economy recovers, markets certainly look overvalued.

2. High P/E ratio of Nifty, as well as Midcap and Smallcap indices

  • PE of nifty was recently as high as 42 times, and even today at 28 times means that investors are paying ₹28 for ₹1 of earnings. See Fig 3. Before the 2008 market crash, Nifty PE ratio was 28.29.
  • Historically, a Nifty PE ratio of more than 25 means the Indian market is overvalued. 
  • Due to pandemic, there has been a fall in earnings of companies, even as the stock market rose. This was one of the main reasons why Nifty 50 touched life time high. For example, Reliance Ind. and TVS have shown steady growth but there has been a steep fall in earnings of companies like ONGC, Maruti Suzuki etc. which caused a large increase in Nifty PE ratio.
  • Cash influx by FIIs. During the pandemic, Central banks of USA and Europe printed cash in trillions as stimulus. The US Fed reduced interest rate to as low as 0.25%. FIIs started investing some of the cash in emerging markets like India for growth opportunities.
Fig 3: Nifty PE

3. Market Cap to GDP Ratio

  • This ratio is sometimes referred to as the Buffet indicator. It is a good way to check if the market is overvalued or undervalued compared to its past historical average.
  • Historically India’s Market cap to GDP ratio is 75%. A ratio of 100% is a sign of an expensive market.
  • Before the stock Market crash of 2008, the market cap to GDP was 103%.
Market Cap / GDPInterpretation
85% < ratio < 101%Moderately overvalued
Ratio >101%Significantly overvalued
Today’s level103% indicates Nifty is overvalued

4. Stock Market in a Bubble

  • In India, investors seem to be in a frenzy and attracted to the stock markets. Total Demat accounts have doubled in the last 2 years. What started as a hobby and pass-time during the lockdown, also encouraged by mobile apps by stock brokers, has grown into a massive wave. The IPOs are getting highly oversubscribed.
  • According to RBI, prices of risky assets have surged across many countries and have touched record high levels during 2020-21 on the back of unparalleled levels of monetary and fiscal stimulus.
  • The US Fed said the turn in market sentiments “following positive news on the development of and access to vaccines and the end of uncertainty surrounding US election results” were some of the major factors that led to increased valuation of global equities, also reflecting in Indian markets.
  • This asset price inflation in the context of 8% contraction in GDP in FY21 poses the risk of a bubble.

5. Debt to GDP Ratio

  • The central govt. total debt/ GDP at end of FY21 was 58.73%. High ratio indicates that the market is highly leveraged. During 2008 the ratio was highest and was 58.86%.
  • In a similar way, India’s total public debt (Centre and States) is likely to touch 90% of GDP in FY21, the highest ever recorded. In 2019-20, the total public debt to GDP ratio was 70%.
Fig 4: Debt to GDP ratio

6. Nifty Price to Book Value

  • It is the proportion of price to assets you own when you buy shares of a company.
  • The average long term Nifty PB is 3.5. Majority of the time, Nifty PB stays in the range 2-4 range.
  • It hit a peak of 6.55 during 2008.
If PB greater than  4Expensive
Between 2.75 – 3.5Fairly priced
Less than 2Cheap
Currently  PB ratio4.25

7. The monetary and fiscal stimulus has to end, followed by Global Tightening

  • With some recovery, the Fed and other Central Govts. have to draw back on the easy liquidity, raise interest rates, and the Indian stock markets will crash.
  • This is a likely scenario, but we cannot say if this will happen in the next quarter or next 4 years.

CONS: Reasons why the Indian Stock Market is still Undervalued

1. Reforms in the Indian Economy

  • A series of reforms in the last decade such as IBC, RERA, GST, crackdown on Black Money and investments in Digital and Fintech have happened and the benefits of these are unfolding.
  • Growth initiatives like ‘Make in India’ and ‘PLI for manufacturing’ have set the stage for higher employment, reduced imports and a stronger economy and self-sufficiency.
  • Govt. initiatives like controlling deficits, import substitution (in defense and monetization of gold assets) have strengthened the domestic economy.
  • The Digital Transformation of Indian Stock Markets, and the fall from grace of Indian Real Estate for investments.

2. The China + 1 Situation

  • The trade and political tension between USA and China has changed the equations in the last few years. USA had become dependent on China for a lot of manufactured products. With changing equations, it has become necessary for global firms to look at alternatives for manufacturing at scale. India is positioning itself as a good alternative by the Make in India and Production Linked Incentives (PLI) in manufacturing, extending from electronics, chemicals, defense, textiles, auto, etc.
  • In capital markets, China recently cracked down on several domestic sectors like steel, education, ecommerce, fintech, etc. Many foreign investors lost money as the changes in business ground rules were sudden and unexpected and based on China’s authoritarian system. China may thus become an unattractive option for global capital, and India may emerge as a stronger alternative.
  • These situations can result in India attracting high FDI and FII capital in the next few years.  

3. Because of Covid, many domestic sectors were affected, but are recovering fast

  • Sectors such as Travel & Tourism, passenger transportation, Hotels, Restaurants, Auto, mfg., Real Estate & construction are sectors still below pre-Covid levels. Banks have also suffered. All these sectors are expected to recover in 1-2 years, which will help improve earnings of the sectors.
  • The IMF has put India’s growth forecast as 9.5% for fiscal 2022 inspite of the second wave of Covid during Apr-Jun‘21. Chief Economic Adviser K V Subramanian said the economy is expected to stabilize to 8% growth in subsequent years.
  • Strong economic growth will drive up the Earnings, and reduce the high valuations of the market. Already we can see that the Nifty PE has fallen from 42 to 29 in just 2 quarters as the economy improves earnings and recovers from Covid, see Fig 3.
  • With better earnings, the high P/E ratio of Nifty, as well as Midcap and Smallcap indices will correct.

4. High Exports growth

  • India’s exports are growing very well in the last few quarters, in sectors such as gems and jewellery, petroleum, chemicals and engineering. The indications are of an economic revival in India and the country is on track to achieve $400 billion of goods exports this financial year and attract high FDI in FY22.
  • India’s foreign exchange position has strengthened in the context of the pandemic and India has been growing forex reserves at a record pace.
  • The INR has strengthened in the last few quarters, while there was a broad decline in the USD after the Fed Chairman said more progress was needed in the economy to withdraw stimulus.

5. Covid fears reducing, and global economy in a rebound

  • The second wave of Covid is receding in India. A third wave is possible, but we have already seen that the second wave was handled well by the administration and industry.  
  • Vaccination is scaling up in India and should cover a majority of the population soon. This will allow free movement of people, a return to work, and ensure a rapid recovery of the economy.
  • Post covid, the global travel will recover. Meanwhile in India IT based services and manufacturing are ramping up and supplying consumers in a global recovery.
  • A massive migration of workers in India from Urban centers to villages, is slowly reversing as jobs beckon across construction, logistics and retail. Education centers and offices are also reopening.
  • The high Market Cap to GDP Ratio may correct if the GDP rises as expected in next few years.
  • The Stock Market appears in a Bubble but it is in fact recovering from many years of under penetration of equity and slow growth. A new generation of younger investors are more optimistic and positive in their thinking.
  • The fiscal deficit would remain elevated over the next two years but the debt to GDP ratio is expected to stabilize or flatten out.
  • The private sector has been underinvested in Capacity and Capex in the last decade. With lower interest costs and higher growth expected, the private sector is making capex plans. If the trend accelerates, the Price to Book Value will reduce.
  • The stock market is forward looking. It anticipates higher GDP and growth in the next few years, and the Nifty levels reflect this optimism.

Conclusion

  • As an investor in the Indian markets over the last 15 years, I have always believed in the growth story and the resilience of the market. At around $1947, the Indian per capita income is low. Given the freedom, global connects and govt. initiatives, the economy should be able to achieve over 7% GDP growth over the next few years. Except for the informal sector and unlisted space, much of this growth should translate into gains for the stock markets in India.
  • The Indian economy has been reset by the Covid infection. However most businesses have been able to adjust and adapt to it in terms of prevention and resolution. It’s not business as usual any longer. The people and businesses are back, stronger than ever, and with a new urgency.
  • Assuming a full recovery for the economy over the next year and good growth thereafter, the markets will stay positive. Given the context of excellent liquidity, low interest rates and a benevolent, growth oriented, stable policy environment, the Indian markets can continue to rise.
  • Markets are unpredictable in the short term, but participants and investors can expect good returns in a 3-5 year period horizon.  

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

Cryptocurrency – Or is it a CryptoCommodity?

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Date: 16th June 2021

Summary

  • There is an excitement around Cryptocurrency (CCS) – a combination of high potential gains, high tech backbone, a novelty, and a rebelliousness, that has attracted investors and driven demand. While initial purchases were by professional traders, speculators, crooks and gamblers, the ecosystem and exchanges have been helping to simplify and popularize it.
  • The success of an asset class like CCS will be largely driven by regulations, and demand – supply. Regulations are now by and large benign. So far the demand has exceeded supply, but in June 2021 we are in a very positive investing cycle across stocks, commodities and CCS. A reversal will challenge CCS price trends.
  • If the two major issues around CCS of – 1) too many coins options and 2) high wastage of electricity for CCS mining and processing – are addressed, CCS has the potential to become a widely used and stable currency.
  • Until this happens, CCS has characteristics closer to global commodities, hence our term, CryptoCommodity.
  • Investing now into CCS is for professional traders, those with a high risk appetite, and who can see as much as a 50% fall in value, at least temporarily. Some experts suggest a maximum 5% of investible funds to be allocated to this asset class.
  • Past report on Cryptocurrency available A Note on Cryptocurrency

Introduction

  • The story of cryptocurrency (CCS) and blockchain technology began in the year 2008 when the globe was going through the financial crisis. We saw the fall of Lehman brothers, rising unemployment, and the bubble burst. Meanwhile, Satoshi Nakamoto founded bitcoin which was the first decentralised currency in the world valued at $0.0008, which is currently trading at $38,700. Also see Market caps of Coins in Fig 1a.
  • In the past 12 years of CCS market, many new coins were introduced that have almost disappeared. On the other hand, Dogecoin that was promoted by Elon Musk, helped it to rally very high just by his tweets.

Fig 1a- Market Capitalization in USD B / and Fig 1b – Volatility of Asset classes

  • CCS are digital currencies that utilize blockchain technology to provide improved security, anonymity, and decentralization. There is no central authority for CCS, and no third parties needed to facilitate transactions.
  • In Fig 1b, we compare Bitcoin with Gold and US equities in terms of volatility and drawdowns over 10 years. Bitcoin has the highest drawdowns, showing that it is more risky. 
  • Transactions are highly secure and independent. The most famous CCS, the blue chip cryptos, are Bitcoin and Ethereum. They have market capitalizations of ₹50.3 lakh crore and ₹22.6 lakh cr. resp.
  • Bitcoin, Ethereum and Dogecoin have rallied 2.7X, 9.4X and 133X resp. in a one year time frame. See Fig 2a.
  • CCS offers more confidential transactions with least transactions fees involved and provides more lucrative opportunities for easier international trade.
  • But CCS has some adverse effect on environment in terms of consumption of more power and electricity for mining which made Tesla to withdraw from Bitcoin as a payment option.
  • Even though CCS is decentralised, but they are still several powerful operators, who can manipulate the prices, and we can see huge dips and bounces in the market.

Fig 2a – BTC movement last 5 years and Fig 2b – In 1 year (Sources – Statista and Coinbase)

Recent News and Events

  • Recently RBI had issued notices to banks which gives relief to Indian crypto investors, allowing transactions in CCS but it needs to be regulated under KYC, Anti money laundering and combination of Financing of terrorism, Prevention of money laundering Act (2002).
  • The El Salvador Congress on June 9 approved a bill making the world’s largest CCS, Bitcoin, legal tender in the country. The Central American country is now the first ever to make Bitcoin legal tender.
  • Last month US CCS exchange Coinbase successfully listed on the Nasdaq stock exchange. This listing could stabilize CCS, change the perceptions of individuals and make the future bright for the industry. Coinbase also faces competition from Binance, the world’s largest crypto exchange, as well as decentralized exchanges like Uniswap, which handle more trading activity than Coinbase.
  • U.S Treasury calls for stricter CCS compliance with IRS as they pose tax evasion risk. Treatment of this in India is unclear. GoI has constituted a panel to develop crypto regulations for India.
  • China has taken a decision to ban financial institutions and payment companies from providing services for crypto transactions and has warned investors against speculation and volatility. This news led to bitcoin falling 50% from the years high to the lowest since February, See Fig 2a and 2b.
  • With the initial few CCS taking off, many new coins were being introduced in the form of ICOs (Initial Coin Offers). However this market became frothy and by Nov 2017, there were around 50 ICO offerings a month.
  • Indian blockchain start-up Polygon, is the first well structured, easy to use platform for Ethereum scaling which aims to provide faster and cheaper transactions on Ethereum. Mark Cuban a US based entrepreneur has invested an undisclosed amount in the Polygon Matic coin, which hit a new high market cap of $14 B.
  • Tesla allowed Bitcoin as payment option for purchasing vehicles, but later Elon Musk removed the option as there was significant increase in mining of the CCS after his announcement.
  • As technical outlook remains positive and strong, Bitcoin is expected to reach $4,00,000 level in 2021 as per Bloomberg. Many investors have added an exposure to CCS as a small part of their assets.

CRYPTO v/s GOLD

  • Gold is a traditional global store of value; Cryptos are new
  • Gold is physically heavy, difficult and costly to transport; CCS are instantly transferred
  • Country wise restrictions or taxes for import or export; CCS are digital and generally permitted
  • Gold is well established and regulated; CCS has low to medium clarity on rules and regulations
  • A rise in gold prices over the past 50 years; CCS/ Bitcoin has seen massive rally over last decade
  • Gold has been a protection against large risks like war and infection; also provides safety against inflation
  • CCS is itself volatile, so is not yet a safe store of wealth, but more is itself a high risk, potentially high gain asset
  • CCS can in future become a major threat to gold in global wealth and savings

CRYPTO v/s CURRENCIES like USD or INR

  • Cryptocurrency is weak as a currency due to high volatility.
  • Central banks stabilize their currencies and hedge against other asset classes to smoothen the spikes. Year on year movements reflect Trade balances and the strengths of their economies.
  • However CCS is increasing being accepted for purchasing on websites and as a medium of exchange. 
  • But it is right now being used as a speculative investment by itself.
  • CCS may evolve in time as a store of value and as an alternative to other stores of value.

CRYPTO v/s COMMODITIES like Crude Oil, Steel or Copper

  • The volatility of CCS can be compared to some global commodities.
  • Global commodities have supply restricted by mining and mfg. constraints and fluctuate in line with demand and supply.
  • Trading of global commodities happens rapidly on global exchanges but fulfilment and logistics to back the transactions of course require time.
  • Global commodities have an inherent utility and so trading of these is essentially the matching of producers with consumers, with a small fraction of speculative trading also happening.

Top Cryptocurrencies to invest in 2021

  • There are by now a large number of CCS, see Fig 3a below for a list.
Fig 3a – Cryptos
  • Of the options, we share a suggested ordered list of CCS for traders.
  1. Bitcoin
  2. Ethernum
  3. Cardano
  4. Ripple
  5. Polkadot
  6. Bitcoin Cash
  7. Tron
  8. VeChain

How to invest in cryptocurrency in India

  • There are lot of India available platforms like WazirX, CoinDCX Go and Coinswitch Kuber, etc. An investor can download the app, open an account by providing personal details, identity proof like Aadhar or PAN card. These apps are available in Play store and Appstore. Once the account is verified, the customer can link their bank account and add money to the wallet in the app using Mobikwik or bank transfer. See Fig 3b.
  • Once the balance reflects in the wallet, the customer can purchase coins available by just clicking to buy.
  • Purchased coin will be shown under My Investments. The platforms are user friendly and simple to navigate. See Fig 3c.
Fig 3b – Payment Transfer and Fig 3c – Buy the coin

Key Advantages & Disadvantages

Opinion and Outlook

  • There is an excitement around CCS – a combination of high potential gains, high tech backbone, a novelty, and a rebelliousness, that has attracted investors and driven demand. While initial purchases were by professional traders, speculators, crooks and gamblers, the ecosystem and exchanges have been helping to simplify and popularize it.
  • The success of an asset class like CCS will be largely driven by regulations, and demand – supply. Regulations are now by and large benign. So far the demand has exceeded supply, but in June 2021 we are in a very positive investing cycle across stocks, commodities and CCS. A reversal will challenge CCS prices.
  • If the two major issues around CCS of – 1) too many coins options and 2) high wastage of electricity for CCS mining and processing – are addressed, CCS has the potential to become a widely used and stable currency.
  • Until this happens, CCS has characteristics closer to global commodities, hence our term, CryptoCommodity.
  • Investing now into CCS is for professional traders, those with a high risk appetite, and who can see as much as 50% fall in value at least temporarily. Some experts suggest a maximum 5% of investible funds to be allocated to this asset class.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any Cryptocurrency or related app. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain has no cryptocurrency assets as on date. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor or cryptocurrency specialist. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.