Olm July 2020
Olm July 2020
Olm July 2020
outlookmone y.com
Unlocking
The Market
Power Of
SMEs
Govt. stimulus may
unleash hidden
energies of small and
medium enterprises
and fuel their
stock prices
China Conflict Effect ESG Funds Up NRIs Gain In Property 8 904150 800027 07
Focused on the
right selection.
ICICI Prudential
Focused Equity Fund
To invest, consult your Financial Advisor
Download Visit
IPRUTOUCH App www.iciciprumf.com
ICICI Prudential Focused Equity Fund (An open ended equity scheme investing in maximum 30 stocks
across market capitalisation i.e. focus on multicap) is suitable for investor who are seeking*:
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them. Investors understand that their principal
will be at moderately high risk
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Contents
JULY 2020 VOLUME 19 ISSUE 7
Interviews:
26 Anurag Thakur on the stimulus package
SMEREADYSTOCKS
TO
30 How India-China conflict can hit stock market
34 Is insurance sufficient in COVID times?
BOUNCE BACK?
Health insurance is proving to be insufficient to deal
with the challenges and high cost of COVID-19
treatment
Sops may give a push to small and 38 Environment funds set to rise
mid-cap stocks Investors are willing to invest in stocks with
environment and social values
44 A Relief To MF Industry
RBI’s special liquidity window may help
mutual funds
Regulars
4 Talk Back 8 News Roll 10 Queries 52 Stock Pick 60 Morningstar 64 My Plan 66 Dear Editor
Cover Design: PRAVEEN KUMAR .G
HEAD OFFICE AB-10, S.J. Enclave, New Delhi 110 029; Tel: (011) 71280400, Fax: (011) 26191420 OTHER OFFICES Bangalore: (080) 43715021
Kolkata: (033) 46004506, Fax: (033) 46004506; Chennai: (044) 42615225, 42615224; Fax: (044) 42615095; Mumbai: (022) 50990990,
Printed and published by Vinayak Aggarwal on behalf of Outlook Publishing (India) Pvt. Ltd. Editor: Saibal Dasgupta.
Printed at Kalajyothi Process Pvt. Ltd. Sy.No.185, Sai Pruthvi Enclave, Kondapur – 500 084, R.R.Dist. Telangana and published from AB-10 Safdarjung Enclave, New Delhi 110029
For Subscription queries, please call: 011-71280462, 71280400 or email: [email protected]
Published for the month of July 2020; Release on 1 July 2020. Total no. of pages 68
Outlook Money does not accept responsibility for any investment decision taken by readers on the basis of information provided herein.
The objective is to keep readers better informed and help them decide for themselves.
My Plan
I could very well relate to this story.
It is important to stay invested
amidst all negativity. It was a great
learning from Dr DG Vijay’s story
and it can be a lesson for several
others out there. We are often
unsure of our financial decisions
when there is an underperformance
of the investment. Such stories are
really helpful.
Rishi Jain, Bangalore
Aadhar Housing Finance Ltd., CIN: U66010KA1990PLC011409, Corporate Of ce: Raheja Point – 1, 201, Nr. SVC Bank, Nehru Road, Vakola, Santacruz (E),
Mumbai–400 055. | Regd. Of ce: 2nd Floor, No. 3, JVT Towers, 8th 'A' Main Road, S.R Nagar, Bengaluru – 560 027, Karnataka. | Give a missed call: 88888 99953|
Web|site: www.aadharhousing.com
News Roll
Fitch Downgrades 9
Indians Welcome Change Indian Banks To Negative
In Customer Experience C redit rating agency Fitch has revised
the outlook on the long-term Issuer
Default Ratings (IDR) of nine Indian banks
from stable to negative in consonance with
rating changes to India’s sovereign outlook.
As quoted by Fitch, the reason for this
downgrade is the impact of the escalating
coronavirus pandemic on India’s economy.
However, earlier this month, another credit
rating agency downgraded the long-term
local and foreign currency deposit ratings
of HDFC Bank and SBI to Baa3 from
Baa2 and also the long term issuer rating
of EXIM India to Baa3 from Baa2, with a
negative outlook and had placed Bank of
Baroda, Bank of India, Canara Bank and
Union Bank of India under the review for
Stimulus Package
SME MF
STOCKS
READY TO
BOUNCE
BACK?
Graphics: Vinay Dominic
By Yagnesh Kansara
F
or more than 18 years, since he became the Gujarat There is a sober realisation that more needs to be done
Chief Minister for the first time, a key element of to help it become stronger, quality-conscious, and more
Narendra Modi’s ‘Model of Growth’ was to woo competitive. But there is also a feeling among experts
large Indian and foreign firms. He believed that if Ratan that if India continues her journey on this new path for
Tata, Mukesh Ambani, Bill Gates, and Jeff Bezos funnel a few years, it can transform the face of MSMEs as well
billions of dollars into mega projects, the economic as the economy. The combo-cocktail – encourage large
waves would help to lift the lives of millions of people. It and small firms – can inject adrenalin in the hitherto
worked in Gujarat. His experiments with ‘Make in India’ lackadaisical system. “We believe infrastructure
during his tenure as the Prime Minister were steps in the development and manufacturing-led growth is the
same direction. only sustainable model for India’s development in
COVID-19 changed the blueprint. There is a new medium to long term. Gradual import substitution,
strategic roadmap to pull the country out of the current growing domestic market and market share gains in
malaise. Apart from its focus on ‘Big Business’, it aims
to encourage local manufacturing, especially among AjAy ThAkur
the MSMEs (micro, small and medium enterprises). Head, SME & Start Up Platform, BSE
This explains why a sizeable portion of the `2,000,000
crore stimulus package targets the smaller firms. Under
the Atmanirbhar Bharat Abhigyan and self-reliance
Major problems faced by
philosophy, the objective of the short-term spur is companies, irrespective of
to inject liquidity in the system to benefit 4.5 million size, is the problem
MSMEs. There’s no denying the fact that thissegment of liquidity
constitutes the backbone of Indian manufacturing.
#
Solid return
* * * * * *
`166 `21.40 `71.60 `89.75 `1361.90 `309.50
Ramco Genus Power Kirloskar Greaves Garware Cochin
Industries Infrastructure Ferrous Cotton Technical Fibre Shipyard
*Current Market Price as on June 24, 2020 ; # These stocks recommended by LKP Securities are expected to provide
moderate return on investment (above 50 per cent) in short to medium term (One to three years).
List Of Stocks To Gain to pullback rally across global markets. Sparsh Chhabra,
Not covered#/ Economist, Centrum Group in his strategy note says,
Sector Coverage “With the outbreak of COVID-19, global equity markets
Unlisted
corrected significantly in March. Since the onset of April,
Alkyl Amines Aarti Industries
investors again started flocking around risky asset classes
Chemicals Galaxy Surfactant Deepak Nitrite (equity and like) and the risk on sentiment witnessed
Navin Fluorine a further uptick in May. This has been highly fuelled
Aurobindo IPCA by continuous mammoth liquidity injections, signs of
pharma COVID-19 cases peaking off in the European Union (EU)
Dr Reddys Alembic Pharma
region along with the signs of stabilisation seen in the
Voltas Dixon US. In addition to this, resumption of global economic
Consumer Havells Amber activity also drove the rally.”
Durables Crompton Bluestar However, the recovery in the India is expected to have
lagged effect compared to global market. India rightly
Symphony
went in for early lockdown to counter COVID-19,
Bajaj Auto thereby delaying the peak. However, it will also have a
autos
Maruti Suzuki much slower recovery. Given last two years of lacklustre
L&T Kajaria growth, the government has limited resources to
support demand in the economy. ”We believe the impact
Industrials Siemens BEL
of COVID-19 will be profound in India and the recovery
ABB BEML will be more ‘U’ or ‘W’ than of ‘V’-shape, expected in
Dabur some advanced economies,” Chhabra argues.
Marico Whatever be the shape of the recovery one thing is
FMCG certain that the rural economy will recover faster rate
GCPL
than the urban economy as prospects remain intact The
ITC forecast of a normal monsoon, its timely onset coupled
Avenue Supermarts Fab India with prospects of a bumper crop output along with MSP
retail hike and recently announced rural focussed government
ABFRL Reliance Retail*
programme - all augur well for the rural economy.
*Unlisted ; #These stocks do not instead of ‘does’ Securities where
it has initiated coverage. These developments are likely to cheer farmers and
policymakers as they hold potential to diminish the
impact of COVID-19. These trends emerge as a silver
listed on startup platform and have raised `22 crore and lining amid an imminent growth contraction in FY21.
their M-Cap is `80 crore, boasts Thakur. Based on this theme, LKP Securities has cherry
In addition to this relief package, another factor that picked stocks belonging to the MSME sector with an
will help the stock market to recoup its losses, seen in investment horizon of medium to long term (one to
the early parts of the lockdown, is tremendous amount three years) that coincides with bounce back time period
of liquidity floating globally. In the wake of G4, central the Indian economy will take to instill normalcy.
banks of the US, Japan, Britain and China came together Lohchab says, “Sectors within our coverage,
to salvage the situation by pumping in liquidity worth which could see tailwinds, include chemicals (Navin
~$6 trillion. This unparalleled liquidity injection has led Fluorine, Alkyl Amines), Pharma (Aurobindo), Autos
(Bajaj Auto, Maruti), Durables (Voltas, Havells), Cap
goods/defence (L&T), E-Commerce (RIL). Outside
SparSh Chhabra our coverage sectors, he sees a range of potential
Economist, Centrum Group beneficiaries across agrochemicals and fertilisers, solar
panels, agri processing, plastics, auto components and
steel products. “We recommend investors to closely
With the outbreak of watch developments in these sectors to see signs
COVID-19, global equity of improvement for multi-year investible themes.
markets corrected Consumption and financials might take a back seat as
significantly in March they would revive with a lag,” he concludes.
[email protected]
on
Join us on
@outlookindia @outlookmagazine
on
July 5th, Sunday, 11:00 a.m. Satish Padmanabhan
Executive Editor, Outlook
Interview
Do you think the amount allocated for the being demanded from the loan seekers just to
MSMEs is adequate for the companies in the discourage them. Your views.?
backdrop of the hit? I have not heard of any such complaints, or such
Yes, the micro, small and medium enterprises apprehensions been expressed. For the most part,
(MSMEs) have received major relief in the form of a the scheme to automatically enhance the working
tailor-made stimulus package offered by the Narendra capital sanction by 20 per cent, with borrowers
Modi government. Also there are no significant requesting for enhancements not to be done, seems
MSME requests in recent weeks to enhance the extent to be working.
of working capital granted by the Banks that would
indicate that the current provisions are inadequate. Do you think the scheme will add to Non-
Performing Assets (NPAs) of banks as demand
How do you see the process of loan disbursal side revival may take a long time? When do you
by banks after government’s stimulus package? expect normalcy to return in the economy?
So far the information seems to indicate that banks Based on guidelines issued by SBI, and similar
have not been able to fully disburse the funds due to guidelines by other Public Sector Banks the loans
lack of demand. There are also reports that MSMEs are not being given to those with a ranking of SMA2
are not availing of the deferment of EMIs. While and below on Feb 29, 2020, or those having a default
some of this is related to the cost of deferment due exceeding 60 days pre-COVID crisis. This exclusion
to elongation of the payback period, it also indicates should screen out borrowers already in financial
that cost of funds rather than shortage of funds is trouble even without the hit from the crisis. The
of greater concern. In other words, the problem of balance borrowers being viable in “normal” times can
shortage of available funds is not the primary concern be expected to bounce back to health within a few
of MSMEs today. months of situation returning to Normal.
There are news that banks are eager to meet the As per an article in Bloomberg on June 11, 2020,
disbursement targets, but this may also lead to loosen the Finance Ministry sources have said that by
credit standards and they would be keeping a check on June 5, 2020, the state-run banks had sanctioned
their asset quality track record. In few cases, the banks `17,706 crore worth of collateral-free loans under the
are even identifying borrowers with a bad repayment. Emergency Credit Line Guarantee Scheme (ECLGS)
according to data from the Finance Ministry.
Many entrepreneurs have complained of According to finance ministry data, State Bank of
red tape while applying for loans from Public India, Punjab National Bank, Union Bank of India,
Sector Banks (PSBs) and other agencies. Bank of Baroda and Canara Bank have sanctioned the
Despite these loans being guaranteed by the highest amount of ECLGS loans till date.
central government a long list of documents is The article further quotes CS Setty, Managing
Director at State Bank of India, which has the largest
sanctions, said the bank has been able to identify
and contact 8.14 lakh eligible borrowers, all of whom
The cost of funds rather shortage were sent SMSes and offer letters starting from the
of funds is of greater concern beginning of this month. Over one lakh customers
F
our major crises in less than four years! From paralysis and comatose by September 2020, be prepared
demonetisation, Goods and Services Tax (GST), for an economic mayhem. The pandemic will turn into a
economic slowdown, to COVID-19 catastrophe! pandemonium. Remember that the MSMEs account for
The first killed many MSMEs. The second forced some a third of gross value added, more than 100 million jobs,
to shut shop. The third led to fear and loathing. And and half the country’s exports.
the fourth, well, it decimated the sector. The future Without them, the economic and business skeleton
of more than 60 million Micro, Small, and Medium that India carefully constructed over the past few years
Enterprises (MSMEs) hangs by a thin thread. If the can come crashing down.
government-induced stimulus doesn’t work – the initial A recent sector-wide survey concluded that four-
signs indicate that it is unlikely – the India economy is fifths of the MSMEs had no faith in the official stimulus
likely to go into a tailspin. package that was announced more than a month ago.
The policy makers assure us that we need to wait, as They want more. They pray that the government realises
it takes a lot of effort to re-start a large economy like that what it thinks is more than enough to revive
India after a nationwide lockdown for two months. the economy, and MSMEs, is too less. The reason:
They repeat that things have begun to move, and the there are several challenges in the implementation
positive impact will be visible in the coming months. “It’s of these measures. The ground reality is different
too early to comment because many sectors resumed from the reports that the officials receive. The various
work only a few weeks ago,” says Anurag Thakur, Union stakeholders do not seem to be on the same page.
Minister of State for Finance (See Interview on Page 26) Despite the government guarantee, the banks are
He adds that the government took “extraordinary nervous to lend more money to the MSMEs. Hence,
steps” in an “extraordinary situation.” Sadly, time is at a the lenders give excuses to fob off firms, especially
Strengthen training
and awareness among,
MSMEs, and provide
institutional support
Govt’s Credit
Plan Needs To
Be Expanded
While units worth `250 crore
turnover are now MSMEs, yet
credit line is not available for units
exceeding `100 crore turnover
By Vishav
T
he government, while funding `3 lakh crore
under Emergency Credit Line Guarantee
Scheme (ECLGS), said it was a specific response
to the unprecedented lockdown, which severely
impacted manufacturing and other activities in the
MSME sector. Under the scheme, borrowers with up to at 20 per cent of the loan outstanding on February 29,
`25 crore of outstanding credit can avail an additional 2020. So there are instances when the entity did not have
credit of 20 per cent of the loan outstanding from banks, any outstanding loan as on February 29, but is in need
NBFCs, and other financial institutions. The government of funds now. Now it will not be eligible. Therefore the
would stand guarantee for this additional credit for loans government needs to bridge this gap,” Mittal explains.
taken till October 31. He adds the scheme had received a “very slow
As on June 20, banks from public and private sectors response” from the private bankers and NBFCs, who
had already sanctioned loans worth `79,000 crore, of inspite of the sovereign guarantee are very slow in the
which over `35,000 crore had already been disbursed. implementation of the scheme. The banks are still risk
Banks like SBI, HDFC Bank, Bank of Baroda, PNB and averse and fear the future risk of NPA in their balance
Canara Bank were among the top lenders. sheet, he says.
Finance Ministry official spokesperson claims the Rajesh Sharma, Managing Director, Capri Global
scheme has so far helped 19 lakh MSMEs and other Capital (which has a large portfolio of micro and small
businesses restart their operations. business borrowers), however, claims the fiscal boost
According to Sameer Mittal, Chairman of for MSME sector had come at an opportune time when
International Trade Council in India, and Managing MSMEs were facing severe liquidity pressure.
Partner at Sameer Mittal and Associates, one needs to “Most of our MSME borrowers are covered under
understand that the scheme is valid only for existing the ECLGS to help them tide over the economic
customers of a bank, NBFC or FI, but does not cover distress due to pandemic. We have pre-approved
new borrowers. Also, the government in June changed customers, who are eligible for the `3 lakh crore
the definition of MSME wherein the units with a guarantee scheme and are reaching out to these
turnover of `250 crore get covered, revised upwards customers in a strategic way,” he says.
from `100 crore as announced in May. And yet the Sharma adds that since the scheme does not cover
credit line is available for the borrowers having turnover the loans provided in individual capacity for business
up to `100 crore. purposes, which is typically preferred borrowing mode
“So though the entities with a turnover of `250 crore by the large segment of micro and small business
might get classified as MSME, yet the credit line would owners, this exclusion needs to be addressed on priority
not be available if the turnover exceeds 100 crore. as such borrowers are missing out on the benefits.
Further the loan amount that can be disbursed is capped [email protected]
No Ready-Made Solutions
Investors should prepare for fallout of conflict with China Saibal DaSgupta
W
ise men advise us to anticipate future
challenges and be prepared for them. Smart
companies and managements invariably have
Plan B and Plan C, along with enough cash reserves to
tackle crises. Individuals are generally advised to hold
the equivalent of six months’ income as cash to stave off
uncertainties. In addition, they need to own assets like a
self-owned house.
However, is it possible to do so for ‘Black Swan’
events? Can we ever save enough, or protect ourselves
enough for something that’s unimaginable, unexpected,
and unthinkable? COVID-19 was one such event when
professional managers found themselves at a loss of ideas,
which led to an axing of a large number of staff, and goods which can impact foreign fund flows and drag
losses and misery to investors. In most factories, there down the market in the medium and long term. No
were months when production and sales were halted as one can deny the importance of self-reliance, which is
the Coronavirus spread like wildfire across India. linked to the ‘boycott’ move besides being an emotional
The markets slide due to COVID-19 affected the response to the border trouble.
fortunes of over 50 million stock and mutual fund It’s true that the clashes did not cause immediate jitters
investors in India. Though there have been stray signs of in the stock market, which actually went into a recovery
improvement, the market situation remains a gloomy one. path after declines seen during the weeks of lockdown.
These are times when the nation needs a stimulus This may partly because the market has factored in
– not one of cash and credit, but one of morale and occasional skirmishes on the border and did not see it as
sentiments. An impetus to drive a nation to see a long-term breach in trade relationship with China.
opportunities, where there was dread. As Prime Minister Just because the market read the cross-border
Narendra Modi said, “There can’t be a better time for a situation in a certain manner does not mean it is
new beginning.” He added that consumption and demand the perfect one. Stock players take into account not
were fast attaining pre-COVID levels. one but many factors before opting for one of the
The crisis exposed the fact that a vast number of two animals-bear or bull—or choosing to stay some
Indian companies have not built sufficient strength distance away from both.
to handle production halt and market setback of a Stock and mutual fund investors need to think ahead
few months. There are many reasons for this, which and prepare for the possible fallout of intense trade
include a curious refusal to upgrade production friction with China as it would leave Indian companies
technology and plan for the long term. seriously in deep trouble. For example, nearly 60 per cent
An important question is whether companies, of the consumer electronic industry, a major attraction
individuals and governments are ready, not just for this for investors in stocks and mutual funds, depend on
crisis but the next one. It would be absurd to imagine China-made components and spare parts.
that we have reached a point when there will be no more There are no ready-made solutions that one can offer
crisis after tackling a serious slowdown and the ongoing to the retail investor in stocks and mutual funds. A safe
health crisis. An emerging danger is the likely impact of option is to rely on successful companies, whether big,
border clashes with China, and the call to boycott Chinese medium or small, with strong management capabilities
and a strong desire to continuously upgrade their
technologies. Those with linkages with the international
supply chain will also do well.
Are companies ready for not just
Covid but also the next crisis? [email protected]
AnurAg ThAkur
Union Minister of State for Finance
All India Manufacturing Association’s disbursed. This clearly indicates the scheme has taken
(AIMO) recent survey showed 78 per cent of the off. We need to wait for the demand to improve. The
MSME do not see any hope of recovery despite disbursement will be much more in the coming days.
the government’s stimulus package. Instead,
they expect other forms of assistance. What is The MSME is one of the hardest hit sectors.
your view? Could we say this is not the only measure the
Whatever decision has been taken in the past was government is going to take?
done after due consultations with industry leaders. During this pandemic, nobody can say what
It is too early to comment anything because many tomorrow holds for you. You need to look at how
sectors have resumed work only a few weeks ago. the situation pans out. We are interacting with
We are closely monitoring the progress of Rs 3 various industry leaders and things have started
lakh crore emergency credit line announced under moving. It takes a lot to restart economic activity of
‘Atmanirbhar’ package, on a weekly basis. A portion a huge country like India, after months of complete
of the funds has already been sanctioned and shutdown.
Credit rating agency Crisil has said bank credit Given the large scale damage done
growth will decline to a multi-decade low of 1 by COVID-19, do you see several other
per cent. Do you think that taking credit will be announcements from the government or a big
a big hurdle in implementing the government’s bang reform measure?
liquidity package? I have already said you do not know what the future
In situations like these you will see many hurdles, holds for you. If you look at the first step, we gave
but the issue is whether the government is active. industry a relaxation in compliance burden. The
And when you take any decision to help the industry second step we took was Pradhan Mantri Garib
and economy to grow it is not only to revive but Kalyan Yojna, where food grain and money problem
also to achieve our target of $5 trillion by 2024. The was sorted. Later, we decided on an economic
government is monitoring bank loan disbursement on package - Atmanirbhar Bharat - where not just
a day-to-day basis and companies are coming forward liquidity but reform measures have been taken
to seek the benefit of these initiatives. The entire care of.
corpus of `3 lakh crore emergency credit line is to be
disbursed until October 31. It is going to be utilised There is a likely shortfall in GST collection.
much before that. How does the government plan to compensate
states? Was there any discussion on the same
Do you think the government must change in GST council meeting?
its deadline of 2024 to achieve a $5 trillion We have taken it up in the last GST council meeting
economy, as the pandemic has created a havoc? among various stakeholders that all states and
Not really, because our intention should be focused union territories could come up with the idea on
on how to take advantage of the geopolitical situation what could be done. A special meeting will be held
or favourable conditions for India. So, India should with state governments just to discuss this issue for
work in that direction not only to look at the revival an amicable solution.
but look at the target of $5 trillion by 2024. As it is an [email protected]
T
he MSME sector has been witnessing support to survive this time of crisis and return to
liquidity stress due to prolonged economic the growth path. The recently announced Rs 3.75
slowdown. The COVID-19 pandemic lakh crore package for the MSME has made an
has made the scenario even more challenging as earnest attempt to address the capital crunch of the
the lenders have drastically reduced their credit sector. Announcements like Rs 3 lakh crore collateral
exposure to the sector. On the other hand, economic free automatic loans, Rs 20,000 crore subordinate
disruptions due to COVID-19 have disturbed the debt for stressed MSMEs, Rs 50,000 crore of equity
cash-flow cycle of the MSMEs. As a result, the SME infusion for MSMEs through a fund of funds, etc.
sector which contributes approximately 25 per cent are expected to offer the liquidity support to the
to the GDP from the service segment and more than government.
33 per cent to the manufacturing output is going However, to ensure effective transmission of those
through immense working capital stress. And a benefits to the SMEs, the government needs to make
section of the SMEs becoming unsustainable because SME credit delivery system more inclusive. One way
of liquidity stress is not a good sign for the economy, to do is to leverage digital underwriting capabilities
as the sector generates 1.3 million jobs every year. of NBFCs and SME lending institutions. The
So, given the role the SMEs have been playing to government needs to rethink their approach to SME
drive the economy forward, the segment needs to credit underwriting mechanism, risk assessment
be rejuvenated so that economy gets back on track framework so that small businesses become an
and becomes truly self-reliant. The success of the integral part of the economic revival post-COVID.
government’s call to ‘be vocal for local’ depends on In addition, the SME credit eco-system should
the collective resilience of the SMEs. also address the immediate challenges that the
However, the inherent strength of the SME SMEs are facing due to disrupted revenue cycle
segment can be measured from the fact that almost such as payment commitments to vendors, salary
90 per cent of the SME doesn’t have access to commitments to employees and other recurring
formal credit. Due to the lack of credit support, payment commitments. The SME lenders need
the SMEs are unable to leverage their scalability to roll out sustainability finance to the SMEs in
potential. Bridging the SME credit gap of $600 the form of term loans to help SMEs meet those
billion is a huge challenge. The fragmented nature expenses.
of SME sector makes it challenging for the large Simultaneously, the government should also
financial institutions to service the needs of the small focus on developing an enabling environment so
businesses as they follow a pre-defined underwriting that new-age SME lenders can build deep sectoral
process which doesn’t deep dive into the revenue specialisation and technology proficiency in order to
cycles, per-customer-value of those small businesses. develop underwriting platforms capable of reaching
As a result, the SME segment has always been out to all the SME segments.
suffering from credit under-penetration. Given the The SME growth story of India is quite inspiring
present SME lending scenario, access to credit is set and the impact of COVID-19 will not be able to
to become even more challenging, as conventional destabilise the sector in the long run. The sector
channels of credit are turning increasingly risk- requires liquidity flow to restart their activities. The
averse and NBFCs are fighting their own liquidity banking and financial institutions, regulator and
issues. the government must come together to support
SME sector now desperately wants government SMEs so that the story of the indomitable spirit of
entrepreneurship continues to fascinate
SME sector.
T
your earnings may not shoot up to War chest, peace of mind
he faulty light bulb going cover them. Having strength in one’s own finances
on and off every few These are the reasons why more gives confidence. It also allows family
seconds can be replaced. and more people are accepting the members to understand that their lives
If your debit card is misplaced, prudence in having an emergency will not be disturbed. Emergency money
you can block the card and get source of cash to meet expenses and is a war chest. It is about being ready for
a replacement within 48 hours. obligations. With emergency funds unforeseen exigencies that are not likely
However, a sharp decline in income at their disposal, there is no need to in your control.
or an unanticipated job loss is tough run pillar to post for loans during Begin by contributing a fixed sum
to handle. It’s an emergency, S.O.S, such a situation. to the emergency fund. For example if
crisis, disaster - pick a name. This is you want to build one with Rs 10 lakh,
why you need to have an emergency Liquid realities of today invest `5,000 or `10,000 (or more)
corpus. A large enough emergency The right amount for an emergency every month to accumulate the corpus
corpuses can help you deal with fund can vary from person to you will need. It may take a while to get
any financial calamity brought person. But as a thumb-rule, saving to the target. Like all good habits, it’s
on by events such as the ongoing 6-12 months of expenses including about being disciplined. To preserve the
Covid-19 economic slowdown. As EMIs is a good beginning. You emergency funds, keep the money out
the nation looks towards becoming can always build this corpus into of easy sight, or else you may just end
‘Atmanirbhar’, each individual, that a mountain that can financially up spending it.
includes you, should have adequate support you for years to come. Start To be doubly sure, define the use of
emergency funds at your disposal. the process today. ‘emergency funds’. Avoid succumbing
To be in a good position to cover to the temptation of dipping into
Uncertainty: the only unexpected expenses, an emergency that pot of money whenever you fall
certainty fund should be liquid. Believe us, short of money. The emergency fund
There are always a best case scenario, this is the most critical feature that is the shock absorber in a person’s
a base-case scenario, and a worst-case you should keep in mind when you financial life. Assess the adequacy of the
scenario. But advocates of Murphy’s are choosing where to park your emergency fund as part of your annual
Law will tell you that: “Anything that emergency funds. S.O.S money kept financial plan review. Whenever there is
can go wrong will go wrong”. The in non-financial assets is not liquid. an event that has an impact on income
nice part of this uncertainty is that When you need money at a quick and expenses, check if your emergency
you can prepare, well in advance, for notice, you can’t hope to sell things corpus is adequate.
Cover
Interview
Story
If the border clashes continue for some more Could you mention companies that might be most
time, what impact could it have on Indian market impacted because they are dependent on Chinese
sentiments? imports or capital or otherwise?
The recent deadly face-off between the Indian and More than 70 per cent of the smartphones across
Chinese troops along the Line of Actual Control in price brands come from China. Xiomi even has a
eastern Ladakh and Sikkim led to the death of 20 manufacturing plant in India, which if asked to shut
Indian soldiers and 35 Chinese soldiers. It needs to could lead to huge unemployment. Telecom companies
be seen whether the tensions escalate further or gets import various equipment from China, which now
resolved with dialogues as it could have political, government is considering to stop. Consumer durables
economic, diplomatic and cultural consequences. In
case it aggravates, it would be a big challenge in front
of India as it heavily relies on China for imports. China
accounts for ~14 per cent of India’s total imports, while
India’s total exports to the country is a mere 3 per cent.
This trade deficit with China, also a major contributor
to India’s overall trade deficit, is one of the world’s
biggest trade deficits between two nations. Thus, this
geo-political tension could add further uncertainty to
companies that are already reeling under the pandemic.
MF Investments In Small
And Mid Caps Hold Promise DHIrenDrA KuMAr
T
is extremely important for investors to difficult to keep tabs on 70-odd ones because there is
understand the market for small and medium so much pre-digested knowledge available.
cap companies, particularly when it comes to That’s where mutual funds come in. Fund companies
investing in this segment through the instrument of are in the business of tracking a large number of
mutual funds. companies and running investment portfolios that
There are 3245 listed small-cap companies in are composed of a balanced set of chosen stocks. A
India, 160 mid-cap ones, and only 73 large-cap portfolio is not just a collection but a structure where
ones. Most of these stocks represent small and different stocks of different risk, sectoral and business
medium companies, which the government is eager profiles play a complementary role. This is something
to assist and help in their recovery from the ill- entirely out of the purview of an individual investor
effects of the pandemic. and yet something which is easily available as a service
Investors need to analyse carefully what is from a mutual fund. For getting your share of small cap
feasible in terms of research into these companies returns, there is no serious alternative.
and what should be left alone. Investing in smaller
companies are equivalent to what is called a Which Mutual Funds?
‘percentage shot’ in cricket. There are 24 small-cap mutual funds in India. Their
So investors need to have a strong desire and the track records, in length and quality, vary greatly. The
right attitude to manage the percentages. Succeed at oldest was launched more than two decades ago while
a higher percentage, and fail at a lower percentage. Be the youngest just four months back. There are three
prepared for the occasional bust and know precisely small-cap funds that we believe are the best choices for
how to recognise it, when to acknowledge it to investors. These are Franklin India Smaller Companies
oneself and let go. Just as importantly, be really, really Fund, HDFC Small Cap Fund and SBI Small Cap Fund.
prepared for the gigantic winners and own them all In our system, these are classified as ‘Aggressive
the way till they become mid-caps or even large-caps. Growth’ funds, which is exactly what I’ve described
If investments are made only in large, well- above as being the goal of small-cap investing. Of
understood, and over-analysed companies, then course, like all equity funds, one must invest in any of
investors could do well with them and yet never really these in a lump sum. A Systematic Investment Plan
have a winner. Make no mistake, this more stable (SIP) is the only way one should invest in asset types of
investing is important and must be there in every high variability.
portfolio but it will not deliver any outsize impact. I I’m sure you’ll agree that while smaller companies
mean it’s possible to invest for years in large-caps and are a great opportunity for boosting long-term returns,
have returns that are kind-of-okay. Smaller companies their variability means that they should not play an
provide that extra boost which many investors want. outsize role in your whole scheme things.
Let me elaborate. Individuals who invest in equities
Why Mutual Funds? must exploit the outsized returns that are available in
As an individual, can you mount any meaningful small-cap and mid-cap stocks. I’m not saying that they
research on 3000+ companies? Can any one of us should invest only in ALL small and mid-cap stocks--
even begin to understand the business of any but that would be too risky--but that these stocks should
a handful of companies, let alone acquire enough be a significant chunk of their equity investments. For
understanding and insight to be confident enough for most of us, the best way--perhaps the only way--to do
investing in a company? For large companies, it’s not this effectively is to invest through mutual funds.
Let’s understand both parts of this story. For
investors, the rewards from equity investing come from
dealing with the variability in business’ performance
Investing in small caps is like and stock prices. It means that to make money, there
‘percentage shot’ in cricket
are two important factors. There should be variability funds or creating market indices, grouping companies
and you should be able to deal with it. The first is by size is the most common way of classifying stocks.
supplied by the nature of equities and the second, in And with good reason too.
this case, by choosing the right kind of mutual fund. Smaller companies are inherently different from
larger ones. They are riskier because they are not as
Why Variability Is Key well-understood as bigger ones. There is relatively little
Instinctively, all of us know very well that it’s the research attention paid to them, so the truth about
variability of equities that make them great an their prospects is not widely known.
investment opportunity. Some stocks will do better However, this is actually only a small part of
than others, some will do worse. Some stocks will do the story. There is genuinely a very high degree of
better in the future than they are doing now and again, uncertainty about smaller companies’ future. Many of
some will do worse. That makes stocks risky, but this is them will never amount to anything. Many will fail and
precisely what also makes them potentially profitable. disappear. Even with the best of intentions, even with
The payoff comes from investing well, which is a way the best of research resources, even the best of analysts
of saying investing in stocks that will do better in the will make mistakes at a higher rate than they will with
future. Preferably, a lot better. larger companies.
Understand that risk and returns go together. That’s all part of the game and is never going
There’s no great payoff waiting for you for making great to change. However, it’s precisely because of this
choices for asset types that have no risk. uncertainty and this risk, smaller companies that
turn out to be winners give outsize returns. The two
Why Small aspects--high risk and outsize returns--are two sides
So let’s talk about size. From almost any perspective, of the same coin. What we have to do, as analysts and
size is one of the most fundamentally important investors, is two different things.
characteristics of a company. Whether it is for
formulating investment strategies, launching mutual The author is CEO of Value Research
E
verybody has seen those social
media forwards. A picture of
private hospital charges for
COVID-19 patients: a list of services,
with astronomical figures that could
cause a cardiac arrest even in the
healthy. That one picture frames the
famine of health resources Indian
consumers face right now. It’s a
pincer grip—scarcity at one end, and
sheer unaffordability at the other,
unfolding just like a famine.
The early reprieve India got during
the COVID-19 pandemic now seems
a distant story. The very nightmare Photo: BHUPINDER SINGH
the lockdown sought to prevent
is now upon us. Existing hospital question: who’ll foot the bill? the latter should still be a choice—an
capacities are swamped. This is where the insurance older policy should suffice to cover
We have an active caseload of 2 drama begins. The biggest bone of a new disease. But several insurance
lakh-plus, leaping up by 16,000+ contention: insurance companies companies are dragging their feet and
every day. The turnover of the sick refusing to reimburse patients. looking for ways to cut corners. As
is so huge that governments, both Consumers are understandably angry it stands, the number of distraught
at the Centre and in states, have at private hospitals for seemingly patients—crying about not being
inevitably turned to private hospitals. profiteering from a calamity—at reimbursed—can itself become a small
But that has brought in the inevitable a time when India’s wallet is thin. graph among India’s COVID graphs.
Hospitals have their own reasons Thing is, a cumulative demand
and sob stories; yet, the government is putting strain even on insurance
has moved to cap charges in places companies, just like a run on the bank
JAYAN like Delhi. But why are insurance would. Smaller firms are reportedly
MATHEWS companies acting pricey? Because putting their policies on hold for new
Co-Founder and Chief a pandemic is an unprecedented clients, fearing huge losses. Most
Product Officer, Vital situation even for them. are refusing to reimburse the cost of
Insurance The Insurance Regulatory Personal Protective Equipment (PPE)
Authority of India (IRDA) says kits—which typically form a big part
existing health insurance policies of medical bills. Others, as consumer
Those with smaller suffice to cover COVID-19 expenses. rights activist Bejon Kumar Misra says,
sum insured have to Alongside, it’s encouraging insurers “are refusing cashless treatment and
pay large amount from to come out with new COVID- asking patients to pay from their own
their pocket specific policies. But for consumers, pocket and get reimbursed later.”
By Himali Patel inflows, these funds performed better combined assets of $1 billion. Globally,
than the global universe. there are almost 3,300 ESGs with assets
F
irst, your worst nightmare Towards the end of March 2020, of almost $840 billion.
came true. Like other global the assets of sustainable funds, Several reasons can explain the
indices, the BSE Sensex which focus on companies that rank fascination for the sustainable funds.
plunged. And then, there was some high on Environmental, Social, and COVID-19 has highlighted issues
good news. From its low of 25,381 on Governance (ESG) issues, were down related to health, safety, environment,
March 23, 2020, it recovered 60 per 12 per cent from their all-time high at and sustainability. “More companies are
cent of its losses over the next three the close of 2019. According to a May under scrutiny for decisions that affect
months. Now, there’s better news. 2020 report by Morningstar, this was their employees, vendors, customers,
Worldwide, as also in India, certain lower than the 18 per cent decline and other stakeholders. COVID-19 is
funds, dubbed ESG or “sustainable” for the global universe of all the a litmus test to verify a company’s true
ones, showed “resilience” during the funds. The sustainable funds “pulled sustainability, and its commitment to
sell-off triggered by the COVID-19 in $45.6 billion in the first quarter ESG best practices in these difficult
pandemic. In terms of both assets and of 2020” compared to “an outflow times,” explains Chirag Mehta,
of $384.7 billion for the overall fund Senior Fund Manager - Alternative
universe”. Investments, Quantum AMC. In the
In Asia, and specifically in India, future, both companies and investors
CHIRAG MEHTA the ESGs performed better than will be obsessed with non-financial
Senior Fund Manager in Europe and North America. parameters, apart from profits,
- Alternative “Bolstered by new fund launches”, revenues, and other financial figures
Investments, their assets in Asia (minus Japan) and ratios. “As we rethink our personal
Quantum AMC went up by 21 per cent. The report values and priorities, several companies
stated that “Indian (ESG) funds went out of their way to help the society.
experienced record inflows of $507 The theme of ESG or sustainability is
COVID-19 is a litmus test million in first-quarter 2020”. Clearly, becoming not just a luxury but indeed
to verify a company’s there is a huge investor interest in a necessity in the present-day scenario,”
sustainability and its sustainable funds. At present, there feels Jinesh Gopani, Head – Equity, Axis
commitment to ESG are seven such funds in India with AMC. Social responsibility will emerge
Quantum India ESG Equity Fund - Direct Plan -1.66 -8.87 - - 14.15
Quantum India ESG Equity Fund - Regular Plan -1.88 -9.18 - - 14.15
SBI Magnum Equity ESG Fund -7.50 -15.87 1.55 5.41 2,323.67
SBI Magnum Equity ESG Fund - Direct Plan -7.30 -15.52 2.45 6.29 2,323.67
Source: Value Research; Note: Return as on 9th June 2020, AUM as on 30th April 2020
Average ESG Risk Score as per Sebi’s rules, only the top 1,000
listed companies need to furnish
Healthcare 38.68 Business Responsibility Reports,
Utilities 37.11 which highlight their initiatives on
Basic Materials 36.45
ESG issues. There is also a lack of
Energy 35.42
Industrials 30.61
regulatory desire to push companies
Sectors
Serving Stakeholders A
Top Priority Now
Stakeholders are extremely important and maintaining a balanced approach to
boost their confidence will help firms bounce back from the crisis.
Arvind Gupta, Partner and Head – Management Consulting, KPMG in India
explains how firms need to establish the new normal and communicate this
approach to their stakeholders, during an interview with Himali Patel.
The pandemic has caused a serious business take care of their stakeholders in their decision-making,
slowdown. How are the corporates trying to they are likely be more resilient over the time.
reassure stakeholders (investors, creditors,
employees) during decision-making? What do stakeholders go through when their
The aftermath of COVID-19 outbreak is going to views are not considered?
reverberate through the economy for a long time, All stakeholders expect their needs to be taken into
pushing us to transform and innovate the way we account as companies strategize to meet new challenges.
operate. We are seeing firms establishing incident By not meeting these basic expectations, companies would
management teams, redoing business continuity plans see fear, confusion and anxiety across the value chain.
and charting stakeholder communication strategically to These may include investors who doubt the financial
deal with all unseen and unexpected challenges. viability of their investment, or employees who may be
Organisations are attempting to respond on multiple facing job and financial insecurity, or the creditors who
fronts simultaneously. They are looking at safeguarding may doubt the company’s worthiness. This will have
their workforce by promoting employee benefits like a ripple effect negativity affecting both the brand and
remote working, increased health cover and developing reputation. At present, the hospitality and the airline
employee risk mitigation strategies. While doing so, they companies are trying to ensure safety of customers by
are also looking at opportunities to preserve cash for maintaining high hygiene standards and make both
operational continuity, re-thinking how they can manage customers and employees feel comfortable about being
their regular activities and identify opportunities for associated with them.
realigning expenses in this dynamic environment.
Companies are re-analysing their strengths so that Which principles would contribute to a more
they can make a positive impact on shareholders. We are sustainable and prosperous future for the
re-doing our offerings to better match the market needs, stakeholders?
making our stakeholders hopeful and confident. Firms need to establish the new normal and accordingly
Firms are sharing execution plans with stakeholders change the way they operate and communicate with
for inputs, fostering collective decision and sense of stakeholders to give them confidence.
belonging. 1. Companies with a robust business continuity plan and
well-laid policies to deal with emergencies are better
Why do you think stakeholders matter now more placed to cope with downturns.
than ever? 2. Openness in sharing the financial situation of the
Many large organisations have stepped up efforts to organisation would foster security amongst employees,
provide more social benefits, they are extending sick creditors, partners and investors.
leaves to employees, longer credit period to its vendors 3. Businesses to need find means to help employees deal
and forgoing downsizing. with increased levels of anxiety and monotonous work-
With such uncertainty, businesses know that if they life through innovative ways of engagement, active
listening, and providing opportunity to upskill and reskill.
4. They also need to recognise and weed out short-term
crisis that may victimise employees or investors, by
Firms are re-analysing their using innovative methods for stability.
strengths for a positive impact [email protected]
By Aparajita Gupta businesses. “We have seen no fall in the lockdown we were growing 20
our user base during the lockdown. per cent month-on-month. Since
W
ith the coronavirus- In fact, the transactions on our the last three months we have been
induced lockdown platforms have grown by 2X. Before growing by 30 per cent month-on-
getting prolonged, month. We crossed 6 million users in
the fintech platforms are reaping April,” says Harsh Jain, Co-founder
a harvest with netizens thronging and Chief Operating Officer, Groww.
various sites for financial solutions. As an investment platform,
Many fintech platforms have even Groww currently offers direct
seen its traffic getting doubled during NithiN KAmAth mutual funds and recently launched
the lockdown period without any Founder & CEO, stock investing. The average age of
marketing spent. Zerodha investors on Groww is 28 years.
Apart from digital payments Evidently, the online traction for
companies who witnessed a boom these platforms have gone up thanks
Witnessed a surge in
during the demonetisation and are to the young population.
now seeing good traction on their account opening to the Bala Parthasarathy, CEO & Co-
platforms, other fintech platforms are extent of over 300 per founder, MoneyTap says, “We are
also witnessing sharp surge in their cent post lockdown witnessing an impressive surge in
By Himali Patel
T
he Government has come
out strongly with a huge fund
meant to support the Mutual
Fund (MF) industry after the recent
collapse of a few funds including
the major Franklin Templeton (FT)
Mutual Fund.
But only `2,430 crore out of the
`50,000 crore allotted for the purpose
was utilized till June 11, which is more
than two months out of the 90-day
period allowed by the government.
The low offtake could mean that most
major players in the industry feel
confident about their future.
An increased volatility in capital
markets has led to liquidity strains
in the Mutual Fund (MF) industry,
forcing companies like Franklin
Templeton (FT) Mutual Fund to by the central bank that saw a very Agriculture and Rural Development
wind up six of its credit-focused debt limited utilisation yet proved to be (NABARD), Small Industrial
schemes on April 23, 2020. This was a confidence boosting measure,” Development Bank of India (SIDBI) and
further intensified by the redemption recalls Raveendra Balivada- Head National Housing Bank (NHB)
pressure followed by a contagious of Investment Advisers, HDFC “By giving a boost to the available
effect on the overall industry. Securities. funding, we believe RBI has given
In a move to ease liquidity pressure RBI has constantly provided relief comfort to mutual fund managers
on MFs, the Reserve Bank of India to many other participants in the regarding their ability to meet funding
(RBI) has opened a Special Liquidity capital market, which has indirectly requirements in case of redemptions.
Facility (SLF) for mutual funds worth benefited the MF industry with Further measures like Targeted Long-
`50,000 crore on April 27, 2020. efforts like provision of moratorium, Term Repo Operations (TLTROs) have
The scheme was made available liquidity infusion in apex financial provided the much-needed market
from April 27 till May 11, 2020 or bodies like National Bank for liquidity,” says Mayank Prakash, Fund
up to utilisation of the allocated Manager - Fixed Income, BNP Paribas
amount, whichever was early. This Mutual Fund.
measure by the apex bank has raveendra According to Association of
provided necessary confidence to the Balivada Mutual Funds in India (AMFI), Assets
investment community, when the MF Under Management (AUM) of Indian
Head of Investment
industry was affected by continuous Advisers, HDFC
MF industry has risen 2.6 per cent
redemptions. Securities sequentially at `24.5 lakh crore in May
“The very provision of the facility 2020, owing to growth in liquid and
has provided enough confidence to arbitrage funds. However, compared
stem redemptions. As on June 11, The facility has to May 2019, the AUM slipped by 5.4
2020, only `2,430 crore has been provided enough per cent in May 2020, translating to an
availed. In 2008 and 2013, similar confidence to stem asset base reduction of `1.4 lakh crore.
liquidity supports were provided redemption In May 2020, the largest proportion
What is your assessment of the economy and and keeping their long-term goals as the objective to
market after the government’s stimulus measures? decide on their investments.
Indian equity markets have seen harsh corrections due If Investors stay firm, they stand to gain from the
to the pandemic. ongoing market developments and build a sizeable
However, our government has risen to the occasion. corpus that can help them achieve their financial
Atmanirbhar plan as a dynamic mantra, and the life goals. Let us not overlook the fact that each of
`20 lakh crore package will help the economy resurrect these crisis events leading to market correction, is
in the coming quarters. helping investors accumulate more number of units
As far as Mutual Fund (MF) industry is concerned, at lower net asset value, through the SIP route. These
it is heartening to note that retail investors continue investments will make a big difference to the investor
to demonstrate mature investment behaviour. They corpus when the market rebounds in view of the
continue to repose confidence in equity mutual funds, inherent strength of the economy.
as reflected by robust monthly Systematic Investment
Plan (SIP) contribution. Even the debt side has seen What should investors opt for between equity
a steady rise in the net flows as investors are shifting and debt MFs? Will you reassure investors to
towards high-quality AAA-rated debt in view of the continue investing in equity funds even though the
trend of reducing interest rates. bulk of them have hit the bottom in terms of NAV?
Credit risk concerns have ebbed, following Debt schemes serve as the best investment vehicle if your
regulatory support, and with redemptions coming investment horizon is between six months and three
down, we could see investors allocating higher years. Risk averse investors can opt for debt schemes,
quantum of savings to schemes having high-quality which have high-quality AAA paper, like corporate bond
debt paper. fund, or banking and Public Sector Undertakings (PSU
fund), savings fund. In fact, MF Industry is offering SIPs
What is your view on SIP flows? Will they into high-quality debt funds too.
continue to breach `8,000 crore threshold in the Investors should opt for equity funds if their
given scenario? investment horizon is for a very long term. The best
Allow me to respond a bit differently. Equity markets approach would be to invest periodically through goal-
have been at their peak of uncertainty and volatility and oriented SIPs into chosen equity schemes.
reigned supreme in the last 18 to 24 months. Against
this backdrop, it is important to observe the behaviour AMFI BCG report last year had set a target
of retail investors. SIP contributions have risen and of achieving `100 lakh crore AUM and 10 crore
now have been breaching the threshold of `8,000 investors. Has that goal post changed in the
crore plus. Even in the last three months of COVID- given scenario?
impacted economy, SIP contributions continue to The goal post has certainly not changed. At worse, the
be robust. Investors have realised the importance of MF Industry may now take a bit more time to arrive
staying invested, not getting distracted by these events at the goal post. However, increasing awareness of
mutual funds coupled with ease of onboarding newer
Investors, thanks to increasing adoption of technology,
will hopefully help the industry achieve that target,
Retail investors continue to earlier than envisaged.
repose confidence in equity MFs [email protected]
T he world is currently
navigating a challenging
environment, unprecedented
in its scope and impact. The near-
term trajectory of the market looks
when prices fall. As a result, you are
able to lower the average cost of your
investment, thereby reducing volatility
and improving the probability of
generating higher long-term returns.
uncertain.
However, it is important to note No need to try and time the
that over the long-term, the economy markets – Most equity market
will recover and the stock markets participants tries to time the markets
will generate returns. There have in an attempt to ‘buy low and sell
been instances in the past like the high’. However, anyone who has
Balance of Payments crisis in 1991 or ever tried to do this will tell you that
the Global Financial Crisis of 2008 Vinay Agrawal it is a redundant exercise. It is near
when markets corrected in the range CEO, Angel Broking Ltd impossible to accurately predict the
of 20% to 60%. In case of each of market tops and bottoms out. Thus,
these instances, markets eventually it makes sense that instead of trying
recovered to not only recoup all the the equity markets through an SIP to time your entry and exit from the
losses witnessed during the crisis you can smoothen volatility, reap markets, you focus on consistently
but also to generate significant gains. the long-term benefits of equity participating in the markets to
Having said that, the interim periods investing and harness the power leverage intermittent opportunities.
are usually checkered with extreme of compounding. Compounding Through fixed, periodic investments
volatility, making it difficult to make is a mathematical process that an SIP will ensure that you are able to
optimal investment decisions. ensures that the principal invested participate at market tops, at market
In such an environment, how and the returns generated on that bottoms and at all times in-between.
can you best take advantage of principal are reinvested to generate Reduce the impact of behavioural
future growth prospects to generate further returns. Over the long-term, biases – greed and fear influence
compelling long-term returns? compounding can exponentially most investment choices - the greed
The simple answer to that is, increase your earnings from an to make more money and the fear of
“Invest through a Systematic investment. losing money. It is these emotions
Investment Plan (SIP) and continue that can often influence your
with your existing SIP investments”. Benefit from rupee-cost investment decisions and hinder your
averaging – due to the inherent ability to make wise choices. An SIP
SIPs as vehicles of long- volatility of equity markets, stock by its very nature inculcates discipline
term growth – SIPs are simply prices are bound to fluctuate sharply in the investment process and helps
investment vehicles that inculcate in the short-term and change over you overcome behavioural biases
discipline in the investment process the long-term. By investing all your that might come in the way of your
and make it easy for investors to money at a particular price-point you investment decisions.
participate in the volatile equity are exposing yourself to heightened The benefits of SIP are fairly well
markets. Through an SIP, you can volatility. However, if you were to known. However, when faced with
invest a fixed amount of money participate in the market at all price highly volatile market conditions
periodically in the equity markets. levels, then you would be able to and an uncertain future, it is easy to
SIPs give you a great deal of mitigate portfolio volatility and forget these advantages and succumb
flexibility in terms of how much enhance long-term returns. Since to the fear in the environment. Do
you want to invest (the investment an SIP entails investing a fixed remember that SIPs are vehicles
amount can be as low as INR amount of money at fixed intervals, of long-term growth that can help
100) and when you want to invest it ensures that you purchase fewer you navigate the volatile investment
(fortnightly, monthly, quarterly, units of an investment when prices landscape to generate robust long-
etc.). By consistently participating in rise and more units of an investment term returns.
Real Estate
I
ndia’s already ailing real estate India, agrees and adds that NRIs Maharashtra for FY21.
sector faced a snowball effect had traditionally been buying There have been a considerable
post pandemic when the global properties in India. The sector number of inquiries from NRIs
economy was struck by a crisis like sees highest remittances from the when it comes to investing in real
never before. Private Equity (PE) diaspora. Sadly, there has been a estate, especially from the Gulf
investments in the real estate sector decline in NRI investment post countries followed by the United
crashed by 93 per cent to around 2014 when the residential market States and other European nations.
`1,800 crore during the first five went through a slump. Moreover, funding is also easily
months of 2020, down from about “In the wake of the current available to NRIs from banks
`25,000 crore in the corresponding crisis, we expect to see a heightened and housing finance companies.
period last year, mainly due to the NRI activity driven by first-time
nation-wide lockdown imposed homebuyers in the age group of 27
since mid March. to 37. These purchases will be seen
However, there is a consensus as a hedge and safeguard against
that some new pockets of crises. However, the rider to these
opportunities may actually help the purchases will be of right value
crisis-ridden sector bounce back and and proven track record of the
emerge stronger. developers,” Jain says.
According to Manju Yagnik, Vice Yagnik adds that time couldn’t
Chairperson, Nahar Group and have been more beneficial for
Vice President, NAREDCO, NRI them to invest with a fall in Indian
investment is one such potential rupee, subdued property prices,
area, with increased uncertainty of over a decade low interest rates,
jobs, visa related issues as expats. reduced stamp duty in most states
Promising Pockets
in Bangalore micro markets like
kanakapura Road, ORR, Devanahalli, Sarjapur Road
in nCR Sector 150 noida, noida City Center, Dwarka
Expressway (gurgaon)
in Pune Hinjewadi, Wagholi, Baner, Wakad
Source: 360Realtors
B
enough data points to make sure upside, we become a blind believer of
iases can cost you a lot! you are considering all the scenarios unlimited upside and always feel this
Almost everyone takes wrong and then do a probabilistic study. time it’s different.
decisions because of certain Put down the various outcomes and How to address it: The best
biases that are set in their mind. then co-relate with your most recent approach is to write down your views
Much has been spoken/discussed experience. or theories about investing, business,
about Behavioral biases and how Recently we have seen markets team building etc. and then find
it impacts our decision making. performing mainly on account of evidence in actual cases which are
However, just a fraction of people the run-up seen in growth stocks. against your views.
possess the rightful knowledge to Value as a theme has been a laggard.
understand these biases. Expecting this trend to continue If you find yourself more upset
forever may not work as money 4 with losses than the gains you
Why do people have biases? would definitely move to value make, you are exhibiting Loss
It is because we are humans. That’s pockets over a period. Aversion. This bias will lead to selling
how brains are developed to think. your winners quickly while holding on
There are certain patterns for Second one is the Anchoring to your losers. Recently, this bias was
which a human brain is naturally 2 effect – We experience this visible in the credit markets when one
hard wired to think. ‘Once burnt all the time, particularly when of the Asset Management Company
twice shy’ is the simplest phrase dealing with stock markets. It is said closed down their credit related funds.
that can explain why we all suffer that once we buy a stock at a certain Immediately, investors seeking safe
from a powerful bias known as the price, the investor by no means can returns exited en masse. This episode is
Recency Bias. sell the stock below that price. This a clear case of loss aversion combined
Just after the attack on World is because our mind is anchored to a with recency bias which ultimately leads
Trade Centre, there was a sudden particular price and deciding to sell to irrational behaviour.
drop in people taking flights. Similar at a lower price becomes difficult. How to address it: Don’t get bogged
trend played out in hotel industry Owing to this the investor tends to down by losses of individual portfolios.
post the tragic attacks by terrorists keep waiting for the stock to regain Instead, look at overall positions of
in Mumbai. Ironically, the best time its price and consequently may end your entire basket of wealth and then
to take a flight or visit a hotel was up with huge losses. analyze the returns.
after such attacks given that security How to address it: Think forward Keeping away from these four
is stronger. These examples indicate and don’t be hooked to previous biases will surely help you avoid costly
that a recent negative impact can values/ numbers. Think objectively mistakes. Happy investing!
Stock Pick
Strong Execution
And A Healthy Order
KEC International
CMP: 244.1
PE: 11.50
KEC offers a healthy order book amid lockdown *As on 22nd June, 2020
T
he efficient working capital should help KEC emerge stronger Consistent profitability growth
management and execution post pandemic versus peers,” despite challenges.
ramp-up are two components explains an analyst at Motilal Oswal Healthy order inflows and efficient
that have aided KEC International Financial Services. working capital management.
(KEC) despite the economic slowdown. The company’s order book stood
This RPG Group flagship company at `24,000 as on March 2020, with 1 Watch Out For
has showcased a strong execution per cent growth Y-o-Y. On the order Rising competition and project
capability and a healthy new order inflow front, its total order intake execution delay may dent margins.
inflow despite the challenges in for FY20 stood at `11,331 crore,
Fourth Quarter (Q4) of Financial down by 19.5 per cent. “Overall
Year (FY) 2020. The company is a performance has been satisfactory 300
global Engineering, Procurement across segments for FY20 barring
and Construction (EPC) major and order inflows, which were impacted
is executing multiple projects across by economic slowdown. Efficient
250
over 30 countries. It delivers projects working capital management
Base value taken as 100
A
better product mix, benign primarily caters to rural markets,
commodity prices and with over 75 per cent sales coming Why Buy
other cost efficiencies from tractor. The pandemic spread Innovative product profile with
have led Escorts to report a robust in rural areas so far has been robust distribution network.
Quarter Four (Q4) Financial arrested and the process of gradual Strong leadership position in the
Year (FY) 2020 performance. lifting of lockdown is on. Given the tractor industry.
Being one of the leading players signs of revival in tractor demand,
in tractor industry, Escorts has we expect Escorts to be the prime Watch Out For
strong presence in the north and beneficiary with its leadership, Increased raw material prices,
western market, with an overall strong distribution network and Delay in funds by Kubota.
domestic market share of 11.6 per innovative product profile,” says an
cent for the year ended March analyst at Chola Securities. 303.46
2020. The company is mainly This year Escorts is expected 300
into manufacturing of equipment to benefit from equity investment
for agriculture, infrastructure by Japan’s leading tractor major
and Railways for domestic and Kubota. Further, it will also acquire
250
international market with 1000 plus 40 per cent stake in Kubota’s
Base value taken as 100
By Vishav Gupta is not alone. Many what can such investors do?
investors face this crisis as equity According to Archit Gupta,
S
umit Gupta (name changed), markets have washed off most Founder and CEO, Cleartax, while
a first-time investor, put in of the gains they made over the it won’t be wise to exit the market
around `3 lakh in an equity last few years. While Gupta has at this point, redeeming some of
fund in 2018, hoping to have enough postponed his plans to buy the car, their investments might be the only
returns to buy a nice car when he it’s an option not every investor option for such investors.
turns 30. Hoping for 14-15 per cent has. There are many whose dates “We understand that children’s
annualised returns, Gupta hoped of realisation of goals are fast education and future planning
to have around `4.5 lakh by 2021. approaching with no possibility to are of utmost importance. As the
However, in April, still 10 months push them to a later date: parents achieving of the goal cannot be
away from his 30th birthday, he got who were saving for their offspring’s deferred, it becomes essential to
the shock of his life when he found wedding or their higher education. redeem at least some part of the
the value of his corpus reduced Or those who were saving for investment,” he says.
to just over `2.10 lakh. While his retirement. These events and goals He advises such investors to
portfolio has recovered a bit, he is cannot be postponed. But with their pull out around 60 per cent of
still far from his goal. corpus significantly eroded in value, the corpus and utilise it for their
requirement, while the remaining
portion continues to stay invested.
“If 60 per cent of the portion is
not sufficient, then look for other
means instead of pulling out the
It is the best option entire investment, because that
for investors to take would mean exiting in the red
which should be the last option,”
advantage of the rupee Gupta argues.
cost averaging According to Nitin Shahi,
Executive Director, Findoc, the
pandemic took everyone by
surprise and in the short term, not
too many options were available for
those who invested in equity. He
advises a more proactive approach
to tide over the crisis by reassessing
the investment portfolio, and if
possible, investing more via SIPs
to take advantage of the fall in the
equity market.
“In case of emergency
requirements, especially for
education, one can go for an
education loan. For other goals, one
can opt for loans against insurance
and also gold loans as they are
easily available and are one of the
cheapest resources to avail credit
in the short term. Unavoidable
expenses may be done through
By Dipen Pradhan
G
old is a symbol of wealth
and holds a deep emotional
connect with India’s culture,
and has served as a financial support
through the years. But as the modern
investment instruments become
more visible and easily accessible, and
high-end consumer goods become
more lucrative, the young Indian
population is reportedly becoming
less prudent to invest in the golden
metal. Further, the market facing
global economic recession induced
by the novel Coronavirus pandemic
is unlikely to attract more young
consumers at the time when the price
of the golden metal is skyrocketing.
If history is a guide, gold has
provided positive returns during
periods of economic shocks, falling
equity markets, high inflation, falling
currency rates, and geopolitical
uncertainties; however, entry at this
point for an individual consumer will
be at a higher price point. Gold prices
in India rose to `48,420 per 10 grams
on June 24, this year.
The Reserve Bank of India
estimates the GDP growth of the
country is likely to remain in the
negative territory in 2021, and much
will depend on how the curve begins
to flatten and moderate. But why is
gold performing at an all-time best
during this uncertain period, and is going to remain very much in the expansionary monetary policy and fiscal
what does it mean for the investors reckoning. There is no visibility in policy, because when the central banks
in gold? terms of economic return, and there across the globe go on an expansionary
“Given the background of the is no rebound of economic activity mode to finance deficit with economic
global economy, gold as an asset class – or, you see a very U-shaped or growth remaining low, eventually they
L-shaped recovery, which will take have to print money, which again leads
time. I think this could go to support to monetary debasement – and gold as
gold,” Hitesh Jain, Lead Analyst, an alternative currency always comes
Interestingly gold Institutional Equities, YES Securities, back in the reckoning,” he adds.
tends to do well in says. “The other things which also The COVID-19-induced lockdown
falling equity markets remain supportive for gold are has paralysed the country’s economy,
WHAT IS HEDGING?
I Hedging
f done properly, treatment is reimbursed. farmer who is in the
one can make Hedging is used not only business of selling maize.
profits by trading in by individual traders in is nothing The current price of maize
commodities. However, the commodity market, but a risk is `25/kg. He anticipates
commodity trading is but also by institutional that the price of maize
fraught with risks. These investors and large management may fall to `20/kg after a
risks come because price corporations. strategy. month. So he sells futures
of commodities may Hedging is based on contracts at today’s price
fluctuate. the principal of offsetting. farmer anticipates that (`25) a future date a month
Hedging is nothing When hedging is done, the price of wheat may later. If after a month
but a risk management one takes equal but go up. So the farmer the price of maize falls
strategy. The idea of opposite positions in two buys a position in the to `20 a kg, he can still
hedging is to eliminate different markets. The future market at today’s sell the maize at `25/kg
the uncertainty that idea is to hedge a certain price, that is `15/kg for according to his contract.
comes with price investment with the help a date a month later. In this example, the farmer
fluctuations. Hedging is of some other investment. After a month, the price is selling futures in the
thus a way of protecting Hedging is a strategy in of wheat goes up to market to protect himself
oneself against a negative which you protect loss in `20/kg. But the farmer from a fall in prices and
event. Hedging does investment A by a profit can still buy wheat at hedging his losses.
not stop the negative in investment B. `15. Here, the farmer is As we have seen, risk
event from occurring Similarly, hedging basically hedging against is an essential part of
but reduces the impact is done in commodity the price of wheat by commodities trading.
of such an event. So trading to protect buying a futures contract. Having a basic knowledge
hedging is similar to someone from fluctuating However, if after a month of hedging and apply
insurance. If one takes prices. Let us take an wheat is selling at `14 a hedging strategies in
health insurance, one example. Let us say that a kg, the farmer can buy correct manner will help
cannot protect oneself farmer is into the business what for `14/kg and the you understand the market
from a health emergency, of processing wheat. The contract lapses. better, protect yourself
but insurance can ensure current price of wheat Let us take another from losses and be a better
that the cost of one’s `15/kg. However, the example. There is another investor.
Morningstar: Mutual Fund Guide
Disclaimer
@2017. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. This report is issued by Morningstar Investment
Adviser India (“Morningstar”), which is registered with SEBI (Registration number INA000001357) and provides investment advice and research.
Please visit www.outlookindia.com/outlookmoney/invest/picking-the-right-mutual-fund-2542 and read important statutory disclosures, as
mandated by SEBI, regarding the information, data, analyses and opinions given in this report.
40 33.5
14.9 Sanofi India 3.54
20
-8.7 -13.9 0.1 -2.1 -18.0 -12.5 5.0 9.3 8.7
00
-20 Fund Snapshot
YTD 2019 2018 2017 2016 2015
SBI Magnum Midcap Reg Gr S&P BSE Midcap TR` Morningstar Category India Fund
Mid-Cap
Trailing Returns
Fund Size (`) 29 billion
Data Point: Return Calculation Benchmark: S&P BSE Midcap TR ` Inception Date 29/3/2005
Annual Report Net Expense Ratio 2.33
YTD 1 Year 3 Years 5 Years 10 Years Morningstar Rating Overall ***
Manager Name Sohini Andani
SBI Magnum Midcap Reg Gr -8.72 -8.40 -5.83 2.16 11.42
Minimum Investment (`) 5000
Morningstar Analyst Rating Neutral
S&P BSE Midcap TR ` -13.91 -10.16 -3.72 5.31 7.68
Data Source: Morningstar India
40 38.0 33.3
18.6
Bajaj Finance 4.36
20 10.9 6.5 2.6
0
-11.3 -15.0 -3.6 5.0 -1.2 -2.0
-20
YTD 2019 2018 2017 2016 2015
Fund Snapshot
Axis Bluechip Fund Gr S&P BSE 100 India TR ` Morningstar Category India Fund
Large-Cap
Fund Size (`) 130 billion
Trailing Returns
Inception Date 5/1/2010
Data Point: Return Calculation Benchmark: S&P BSE 100 India TR ` Annual Report Net Expense Ratio 2.30
YTD 1 Year 3 Years 5 Years 10 Years Morningstar Rating Overall *****
Manager Name Shreyash Devalkar
Axis Bluechip Fund Gr -11.33 -4.25 7.90 8.38 10.31 Minimum Investment (`) 5000
Morningstar Analyst Rating Neutral
S&P BSE 100 India TR ` -14.96 -11.08 2.48 5.81 8.21
Data Source: Morningstar India
A
shu Sabharwal, 52, runs a when she met Jitin Jain, who was
boutique market research then a part of Axis Bank. He is now
company-Qualisys. She lives an independent financial advisor and
Stick to the agreed
with her two children, Mudit and continues to guide Sabharwal in her plan and stay focused
Omanshi. While Mudit is pursuing financial affairs. on long-term goals
law from Delhi University, Omanshi The preliminary conversations
is in her first year of graduation in with Sabharwal helped Jain work some persuasion, she was convinced
Mass Communication & Journalism. out individual goals and suggest about investing in equity, through
Sabharwal took charge of her a comprehensive solution, which SIP route.
family’s financial plan after her could add tax efficiency over the Jain recalls that campaigns like-
husband’s demise in January 2018. current structure. Prioritising “Mutual Fund Sahi Hai”, (Mutual
Without much exposure to money safety over returns, Sabharwal was Fund is the right choice), among
matters, she wanted to stay risk- apprehensive about investing in others, have played a crucial role in
averse and invested all her savings in equity and diversifying across debt spreading awareness among masses.
fixed deposits. funds. Jain helped her understand They started with a monthly
However, her financial plans took the concept of Systematic SIP of `1 lakh for long-term goals.
the right turn a few months later Investment Plans (SIPs), and with Further, any surplus amount
Disclaimer
Financial Planning of Ashu Sabharwal is based on the “personal opinion and experience” of Jitin Jain and that it
should not be considered professional financial investment advice. No one should make any investment decision without first consulting his
or her own financial advisor and conducting his or her own research and due diligence.
Mahesh Balasubramanian
MD & CEO, Kotak General Insurance
A smart investment
that’s easy for one and all.
*(Systematic Investment Plan) SIP facility is generally available in Daily, Monthly & Quarterly frequency
“Visit here https://licmf.info/KYCredressal to learn more about KYC requirements, SEBI Registered Mutual Funds and Grievance redressal.”
Connect with us: /LICMutual /LICMutual /company/LICMutual 1800-258-5678 www.licmf.com
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.