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The current quarterly earnings season is a critical one for corporate India given the challenges like the sliding rupee, increasing crude oil prices, stock market volatility, etc. Going by results announced so far, corporate earnings are decent, but it is still early days to make a case of whether they are picking up or lagging. Big companies like HUL, TCS and Infosys have reported good earnings. RIL was a mixed bag, but overall the trend seems positive.

DNA Money spoke to market experts to understand what are the key terms that investors must look for in a company’s balance sheet and what is the likely impact on the stock price.

Guidance given by companies

“One of the most important takeaways for an investor is the guidance given by companies for the future, especially the visibility in the second half of the financial year,” said R Sreesankar, co -head- equities, Prabhudas Lilladher, illustrating about what an investor needs to look at in a company’s balance sheet to know how a company will perform, going forward.

For example, the sliding or depreciating rupee will certainly hit importers. However, even exporters will not benefit from the falling rupee if their exports are to emerging markets whose currencies may also be on the downturn.

Share of debt in company’s books

“From a company’s books (balance sheet read with the Profit and Loss account) the key figures to look for are net debt-to-equity ratio and net debt-to-EBIDTA ratio,” said Naveen Kulkarni, head of research, Reliance Securities. This shows the proportion of shareholders’ equity and debt that is used to finance a company’s assets and varies depending on the industry and nature of the business.

Thus, utility companies will typically have four times (4X) net debt-to- equity ratio, as they have high cash flows visibility, but IT companies will have negligible debt and will need cash on their books only for future acquisitions. Therefore, debt on balance sheet is the most critical component that must be considered along with the nature of the business.

“Debt reduction efforts continuously on a year-to-year basis gives an idea about the company’s intention to make it debt free or low debt company,” said Pritam Deuskar, fund manager- Bonanza Portfolio. Conversely, the continuous increase of debt shows capital-intensive nature.

Deuskar cites as an example of an automotive company that reduced its debt each year, over the last five years. The company’s share price soared from Rs 200 to Rs 600 in that phase, as its margins expanded due to interest cost saving on account of debt reduction.

Another component of the debt to equity interpretation is gearing ratio. Gearing is the level of a company’s debt as related to its equity capital and is usually expressed in a percentage form. This is especially vital in an era of rising interest rates. “With interest rates on the rise at least in the near term, one should look more at gearing of companies,” said Sreesankar. Thus, the lower the gearing ratio the better. Also, one needs to look at cash flows ensuring that profits generated are not blocked in receivables, thereby leading to poor cash flows. “In times like this lower gearing and better cashflows makes a company stand out,” said Sreesankar.

Reserves

“In the balance sheet of non-finance companies, most important factors are how reserves are increasing over a period of time,” said Deuskar. Thus, is there dilution of equity and at the same time from future perspective what is the trend of debt, that is, long-term and short-term liabilities. Net block expansion also gives us an idea about if there is an increase in fixed assets and capacities. An increase would mean that the company is an expansion mode and is positive for the company.

“It is also important is to see if net current asset (working capital) is negative, but if there is sales and profit growth in the P&amp;L, then it means company is doing business with customers’ money paid in advance,” Deuskar pointed out. This practice is not good for the company or the stock.

Understand the terms

Again there are a lot of acronyms that investors should understand: PAT (Profit after Tax), EBIDTA (Earnings before interest, tax, depreciation, amortization), EPS (Earnings per share), BV (Book Value), etc.

“EBIDTA is the operating profit which is less volatile and more indicative of the company’s operating performance,” said Kulkarni. In comparison, other income is non-business income and should not be considered in reviewing the performance of the company. “EBIDTA gives direction of the business performance and should be monitored more closely than other parameters,” Kulkarni added.

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“PAT does not reflect the cashflow of the company,’” said Sreesankar, pointing out that PAT is merely the net income of the company after deducting for interest, depreciation and taxes. PE (price/equity) is decided by the net effect of market participants. “EPS, on the other hand, is decided by the business of the company. As the business does well, EPS does well and has a positive effect on share price,” explained Deuskar.

Source: DNA Money

The current quarterly earnings season is a critical one for corporate India given the challenges like the sliding rupee, increasing crude oil prices, stock market volatility, etc. Going by results announced so far, corporate earnings are decent, but it is still early days to make a case of whether they are picking up or lagging.


Decoded: What are key terms investors must look for in a company balance sheet and what is likely impact on stock price  

Exchange Traded Funds (ETFs) are always considered a safe bet, especially in a volatile equity market like the one we are seeing now. Now there are enhancements coming to traditional ETFs that will allow investors more options. Such products are just taking off in India. But going forward there is tremendous scope&nbsp;both for returns for the investor and for finding hidden jewels within equity markets. DNA Money spoke to fund managers and investment experts to understand what these new age ETF products are and how they can help you.

How useful are ETFs 
An ETF is a tradable security that tracks a particular index, say Sensex or Nifty. ETFs help in diversifying the investment portfolio and also offer low cost investment compared to actively managed funds. “ETFs mirror the indices they track and best and worst performer can be tracked looking at the underlying index and comparing it with the benchmark indices,” said Tarun Birani Founder and CEO of TBNG Capital Advisors.

What the new indices and ETFs offer 
As markets and investors mature, the need for variety grows, said Koel Ghosh, business head, South Asia, S&amp;P Dow Jones Indices &amp; Asia Index. The new generation of ETFs called factor based idices look at key factors, like volatility, momentum, etc. “The prime driver of these factor-based ETFs is to improve the diversification of index and investment options by playing with factors that have proven to reward investors over the years,” said Radhika Gupta, CEO Edelweiss AMC.

The new series of indices and the ETFs that invest in them, seek to trawl unknown aspects of the investment universe. To illustrate with an example, in the S&amp;P BSE Low Volatility Index, the top 30 stocks that are least volatile form the index. This index will have a different behaviour to a standard market-cap weighted index, as the stocks are not weighted by market capitalisation, but based on volatility.

The new indices look at other aspects of investment like volatility, quality (based on return on equity, accruals ratio, or financial leverage ratio), value (based on book value-to-price, earnings-to-price, or sales-to-price), among others, as opposed to the more traditional benchmark of market capitilisation. “The resulting index is not market-cap weighted, rather it is weighted by the specific factor,” said Ghosh.

Some new generation ETFs that will be launched, will include PSU ETFs, gold ETFs, smart beta ETFs, banking ETFs, NIFTY Alpha Low-Volatility 30, NIFTY Quality Low-Volatility 30, NIFTY Alpha Quality Low-Volatility 30 and NIFTY Alpha Quality Value Low-Volatility 30. “In the case of the smart beta ETFs (new generation of ETFs) the stock selection or weightages are not market driven,” said Chintan Haria, head - product development &amp; strategy, ICICI Prudential AMC. This means the largest companies do not necessarily have the largest weights in the index. “That’s why smart beta ETFs have a scope to perform better than traditional ETFs,” he added.

How are they better 
Traditional ETFs, usually track larger sectors, such as banking. This is a concern because such ETFs focus on market cap, rather than specific factors. Remember, in 2000, IT had a large weightage in the broader market indices and the 2001-03 correction saw the sector bringing down the indices. Today, too, banking and allied sectors (BFSI) have a 40% share of the Sensex and any negativity in this sector is bound to affect markets, indices and (established) ETFs as a whole. “However, when it comes to smart beta indices, it covers different sectors and can also have a sector/weightage cap,” said Haria.

“Factor based ETFs use well established stock-specific factors that are used in active investment and combine that with rules-based framework of passive investment,” said Gupta. Using these tactics factor-based index strategies combine benefits of both active and passive investment styles and tend to deliver risk premium in the long run in a transparent, rule-based and cost-effective manner. “The last one and three-year returns of the factor-based indices have been better than the frontline and broader indices,” said Gupta.

Such factor based ETFs can easily be bought by retail investors. “ETFs are essentially index funds that are listed and traded on exchanges like stocks and can be bought and sold anytime during the trading day,” said Gupta.

The factor based ETFs allow investors to get into markets with a lower investment outlay. “Factor based ETFs give retail investors an opportunity to participate in the growth of equities through the purchase of small units,’’ said Haria. One can even buy just one single unit of an ETF. One can use strategy to choose one’s factor ETF, just as you would with buying a particular stock. To cite the example of the sliding rupee’s effect on the bourses and on the ETFs. An export oriented ETF will certainly benefit from the depreciating rupee. But the same sliding rupee would affect crude prices and sectors like banking will be affected.

“So stock selection, sector caps, and weightages play a key role in the returns that a factor based ETF will give,” said Haria. “Look at your risk tolerance and goals,” said Birani. Thus, investors looking at bluechip equity investment can look at Nifty or Sensex ETF, whereas investors ready to take a higher risk can look at the Nifty Next 50 or Junior Nifty structures, Birani advises.

Source: DNA Money

Factor-based indices and ETFs based on them will track key factors untracked so far, such as volatility, momentum and the like


Exchange Traded Funds: Why new indices will offer more investment choices

India’s bourses that had recently seen lifetime highs appear set for a major round of corrections. Various economic factors make some sort of correction in the stock markets inevitable. But small investors still have options to benefit from such corrections. “There could be a correction in the stock markets of some 10% or even more with a six to nine month timeframe in mind,” said Sahil Kapoor, chief market strategist, Edelweiss Investment Research,

However, Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas said, “Most of the bad news (that can negatively affect markets) is getting priced in, which makes current levels attractive for investors.”

Fixed income is viable option

Investors should remember their risk-return objectives and accordingly allot their investments. Fixed income investments are a viable option in a falling equity market and hence, should form an important pillar of an investor’s portfolio. Not only does fixed income provide liquidity towards short-term goals, it also helps diversify the overall risk of the portfolio.

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“Investors at this point should look at allocating fixed income investments towards ultra-short duration and short-duration funds,” said Kaustubh Belapurkar, director, manager research, Morningstar Investment Adviser India.

“Investments may be made in dynamic debt funds,” said V K Vijayakumar Chief Investment Strategist at Geojit Financial Services. While debt funds will not offer attractive returns in a rising interest rate scenario, as presently, dynamic debt funds are a good option since they actively alter allocations between short and long-term bonds .

Investors can also look at parking any excess cash in liquid MFs, said Kapoor.

“There is opportunity in investing in AAA Fixed Maturity Plans (yield around 9% per annum) given the attractive interest rates available in the market,” said Jani. FMPs are closed ended MF schemes that invest in debt instruments.

Don’t avoid equity entirely

It’s not just debt or fixed income that investors need to look at. Even within stock markets there are pickings to be had in a declining market. “Even in correcting markets, a strategy of purchasing, say 5% cent of your investment portfolio every fortnight, works well in adjusting risk and providing the needed time to capture better absolute entry points,” said Kapoor.

Investors could look at domestic -driven small ticket consumption sectors like appliances, two-wheelers and dairy sector, said Kapoor.

According to Vijaykumar, even mid- and small-caps are slowly becoming attractive. “I would advice investments in mid- and small-caps through MFs, preferably through Systematic Investment Plans (SIPs),” he said.

Mid- and small-cap stocks do offer wealth creation opportunities from a long-term perspective. But given the stretched valuations in these segments, investors need to stay invested for at least 7 to 10 years, to make meaningful returns from these sectors, said Belapurkar.

Have cash and want to get rich fast but scared of losing money? Don’t let volatile equity markets scare you! 3 profitable steps: 1) Invest according to your risk-return objectives; 2) look at short- and ultra-short term debt funds, along with 3) staggered investments in equities.&nbsp;


Get rich fast or will this step make you lose money? 3 steps to big profits

The Indian rupee has been touching new lows vis-a-vis the US dollar, recently hitting a lifetime low of Rs 72.98 against the dollar. For Non-resident Indian (NRI) investors looking at buying property in India, the depreciating rupee is a positive, as it means more value for money. However, they must keep in mind several factors - legal, geographical, financial, etc.

How a falling rupee helps

The Indian currency started the financial year (April 1, 2018) at Rs 65 to the Greenback and now stands around 72 to the US Dollar, a slide of almost 11% in just six months.

While NRIs have always been key investors in the Indian real estate market, the falling rupee translates into a monetary advantage for them, as they can get more rupees for the dollar. The economics, thus, works in favour of the NRI, who is investing his funds into India.

“For the NRI investor, the ticket size in several Indian markets is still more viable than in global economies,” explained Arvind Nandan, Executive Director, Knight Frank India, about the attractiveness of Indian realty. For example, the median-price for a two or three Bedroom Hall Kitchen (BHK) apartment in a second-tier metro is about Rs 60-lakh (about US$85,000). Even a stronger rupee will mean below US$ 100,000 ticket size. This makes it an attractive proposition.

The rate of return is another attraction. While returns on investment in realty is highly subjective, there are good returns to be had. “Certain locations and projects may appreciate by between 5 and 10% or even more, on the back of lack of supply and huge demand,” said Anuj Puri, Chairman - Anarock Property.

According to Nandan, on a general basis, real estate investment can fetch about 7-8% annual appreciation over a 10-year horizon. Apart from this, residential yields in most Indian markets have been in the range of 2-2.5% per annum. “Thus the overall gross returns can be in the vicinity of 10% annually,” Nandan explained. However, investors must remain conscious of the fact that real estate investment is best done with a seven-to-eight year horizon. While there have been cases of extremely strong capital appreciations in very short time, that is not the usual course.

Even commercial property can offer good returns. “For a well located commercial property in Gurgaon and Bangalore, the expected annual returns could be in the range of 10%-12%,” said Arvind Hali, MD and CEO, ART Affordable Housing Finance.

“Also, with Indian markets still on a growth path, the future appreciation in property value is perceived to be much better in the longer term,” said Nandan.

In fact, according to Puri, given the current trend of rupee depreciation, it is unlikely that it will strengthen enough to kill NRI investor appetite.

Conditions to keep in mind

NRIs with a valid Indian passport can invest in the Indian realty market, though there are few pre-conditions. NRIs with a valid Indian passport need no prior approval, unless they are residents of few neighbouring countries - specifically Pakistan, Bangladesh, Sri Lanka, Iran, Nepal, Bhutan, Afghanistan and China.

An NRI can buy as many properties - residential or commercial - as they want, but are not allowed to buy agricultural land, plantation properties and farmhouses. “However, such properties can be gifted to or inherited by NRIs,” said Puri.

Transactions must be done in Indian rupee, through regular banking channels, via an existing NRI account.

In case of an inherited property, NRIs must provide documentary evidence with regard to inheritance of property and also certificate from chartered accountant in the specified formats.

Home loan

An NRI can also get a home loan for property purchase on fulfilling normal banking criterion. These include furnishing proof and documents regarding lengths of their overseas stay, their employment and income status, age proofs, etc. The process can be done online for most part. Different countries’ residents will have to meet varying eligibility criteria. “Home loan is usually easily available, except for citizens of some select countries,” said Nandan.

Do the due dilligence

Investment into real estate needs a lot of checking and caution. “A major hurdle for an NRI is the relatively less transparent market (as compared to developed economies),” said Nandan.

While several online portals and advisory firms do provide transaction data and supply information, these can often show only a part of the picture. Ground level checking on latest market conditions, transactions, listings, etc, is needed.

“Title insurance is another challenge that NRIs could face, if they have spent time in countries where it is a norm,” Nandan added. With most states now having implemented RERA, worries regarding false promises, project features, completion dates, etc, are getting addressed to some extent.

NRIs can take some precautions to secure their investment in Indian real estate. One can hire a lawyer to vet property documents, verify the original title deed documents; ensure that the property title is in the name of the seller, do a thorough check to ensure that the seller has cleared all dues related to the property, verify that the seller has not diluted the right to transfer the property to a buyer, ensure that the property is not built on agricultural land without requisite government permissions. “An NRI may get into legal problems in such transactions (agricultural land),” said Puri. In the case of under-construction property, it is advisable to give a power of attorney to the developer or a trusted associate.

3 Top Dos and Don'ts for NRIs Buying Property: 
1.&nbsp;Hire a lawyer to vet property documents&nbsp;&nbsp; 
2.&nbsp;Ensure that the property is not built on agricultural land without requisite government permissions&nbsp;&nbsp; 
3. In case of under-construction property, give a power of attorney to the developer or a trusted associate

&nbsp;

A weak rupee does offer a good opportunity for non-resident Indians looking to invest in India. But don’t be hasty and appoint a lawyer to check title deed of property.&nbsp; &nbsp;


NRI? Buying property in India? Beware! Don't lose your money

The rise in internet penetration and use of digital technology is, unfortunately, matched by an increase in cyber crime and frauds. Recognising this, insurance companies, today, offer insurance policies that protect you from cyber crime and make good your loss.

“We live in a digital world, in which individuals freely share a lot of their personal as well as financial information online. Technology has advanced and so has the increase in cyber-crime rate, which is the driver behind HDFC Ergo General Insurance launching a cyber insurance policy for individuals recently,” said Ritesh Kumar, MD &amp; CEO.

“Cyber cover is a pressing need,” said Sasikumar Adidamu, chief technical officer, Bajaj Allianz General Insurance, which too has an individual insurance product against cyber crime.

HDFC Ergo’s product is called E@Secure, while Bajaj Allianz’s is called Bajaj Allianz Individual Cyber Safe Policy.

According to the National Crime Records Bureau (NCRB) report 2016, there has been an increase in the incidence of cyber crimes, by 6.3% to 12,317 cases in 2016 from 11,592 cases in 2015. This perhaps why insurers are waking up to the threat of cyber crime against individuals and the need to provide insurance.

However, Rakesh Goyal, director, Probus Insurance, an insurance broking firm said,&nbsp; “Individuals do not feel the need for such insurance and, hence, it is not a widely offered product so far.”

Need for cyber insurance 
In a recent report, the Internet and Mobile Association of India noted that there are over 500 million internet users in India. “Each one of these users is susceptible to cyber attacks,” pointed out Adidamu, and the number (of net users) will only increase, he stressed. The government’s emphasis on digitisation and increasing popularity of digital payments is also an impetus for cyber insurance products being introduced.

As people become more aware, demand for such products will increase. Experts noted that cyber insurance would be one of the key thrust areas for insurance companies in the next three to five years.

What is covered 
The Bajaj product provides cover to individuals who fall victim to threats such as cyber attacks, cyber extortion and cyber bullying. It also covers IT theft loss, being a victim of email spoofing and phishing, losses and expenses related to defence and prosecution cost related to identity theft, cyber extortion loss and transportation for attending court summons.

The HDFC Ergo product insures individuals against loss or damage arising directly out of the use of the internet.&nbsp;&nbsp;It covers unauthorised online transactions, phishing and email spoofing, e-extortion, identity theft, cyber bullying. The policy covers the entire family including children, nowadays ever present on social media and susceptible to online stalking and harassment.

Who should buy the cover 
“Just about anyone who uses the internet is vulnerable to cyber crime, and need to plans their (cyber) insurance accordingly,” said Adidamu.&nbsp;“Everyone who uses social media, netbanking, or surfs the net would need to consider an insurance product to cover their cyber exposure,” said Kumar.

Premium rates and sum insured 
Bajaj Allianz and HDFC Ergo charge small premiums for the amounts covered. For the Bajaj product the sum insured is from Rs 1 lakh to Rs 1 crore. The premium for this cover ranges from Rs 700 to Rs 9,000, depending upon the sum insured and is the same across all ages. The HDFC Ergo product’s sum assured ranges from Rs 50,000 to Rs 1 crore. Premium range for the HDFC Ergo product - Rs 1,551 for a Rs 50,000 cover to Rs 15,700 for a Rs 1 crore policy cover. This is for individuals with different rates if additional cover is taken for family. “Get a clear understanding of exactly what the insurance policy covers,” said Goyal.

How to make a claim 
“It is advisable to know the claim process as insurance and cyber risks are both subjects that a layman will not be very well versed with,” said Adidamu. Along with lodging a complaint over phone, the insured also needs to give a written notice to the insurer company, in case of a cyber attack. Along with the claims form, a copy of the FIR (First Information Report) lodged with the police or cyber cell also needs to be submitted. In addition, also provide other relevant documents concerning your loss that will help the company in the claims process.

Completing the claims process depends on various factors. Clarity on the investigation as well as submission of documents are a vital requirement. “Once clarity is achieved on eligibility of claim, settlement is done within 14 days,” said Adidamu.

Don’t try to submit a false claim as insurance companies have cyber experts who will access claims and weed out and reject fake claims. Also, the product will cover losses that the insured faces from a cyber attack that originates from anywhere in the world. But the policyholder has to be geographically located in India to be able to get the claim. The product can be purchased online. The customer has to provide basic details and answer a few question related to risk. The premium amount is pre-decided as per the plan opted by the customer.&nbsp;

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“It’s best to review the cyber insurance policy every six months and make sure you still have the coverage you need,” said Goyal. Also, check whether your policy covers the new types of frauds, during the semi-annual review.

Source: DNA Money

According to the National Crime Records Bureau (NCRB) report 2016, there has been an increase in the incidence of cyber crimes, by 6.3% to 12,317 cases in 2016 from 11,592 cases in 2015. This perhaps why insurers are waking up to the threat of cyber crime against individuals and the need to provide insurance.


Worried about losing your money? You must take this step

The BSE (Bombay Stock Exchange) recently launched a software that would help investors, across the board, to get information quickly and seamlessly. The exchange, has launched a chatbot ‘Ask Motabhai’ which is based on AI or artificial intelligence.

“With the chatbot in place we would be able to serve our audience better and help them with quick information without having to go through any other channel,” said Ashishkumar Chauhan, MD &amp; CEO, BSE.

The chatbot, that can be accessed on the BSE webpage, provides information on stock price, corporate results and announcements, in real-time, of over 5,000 companies listed on the exchange. The exchange took this initiative to make it convenient and faster for investors, especially small, retail investors, to get information about the over 5,000 companies listed on the exchange.

Apart from stock prices and corporate news, visitors to the BSE webpage look for information about financial issues like mutual funds, derivatives, and Initial Public Offerings.

The BSE chatbot is programmed to address market related queries, like “What are the new IPOs?” and “Which stocks are trading at their 52-week high?” in addition to the capability to address queries related to corporate actions and a stock’s price.

Will this help small investors?

“The dissemination of information through various new online mechanism on exchanges is good step as it gives all financial data, on the website,” said Kishor P Ostwal, CMD, CNI Research said.

However, the consensus among experts is that similar dissemination of data is already provided in a smaller manner by some brokerages as part of the package that they offer to subscribers of their services. Small investor can make his/her own decisions using information and own analysis.

“Expensive software is for traders, not investors. Small investors do not need expensive software and can rely on the financial information available on exchanges,” added Ostwal.

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At the end of the day, investment decisions are based on future cash flow, free cash flow, sectoral trend, management quality and company’s growth prospects. One limit of the technology is that the data, from whichever source, is the analysis of the past data of the company, which generally works as a post-mortem.

“It is expertise and analysis, rather than software and reports that would give the small investor his edge. Data is in the public domain. So rather than data it is the analysis of the data and research that can give any investor the edge,” said Clifton DeSilva Director Altina Securities.

Source: DNA Money

The BSE (Bombay Stock Exchange) recently launched a software that would help investors, across the board, to get information quickly and seamlessly. The&nbsp;exchange&nbsp;has launched a chatbot ‘Ask Motabhai’ which is based on AI or artificial intelligence.


How to invest in stock markets now: 'Ask Motabhai' to investors' rescue

The recent reduction in GST (Goods and Services Tax) rates has been hailed by analysts as being positive for markets and for sectors whose tax rates have been reduced. However, a closer inspection of facts indicates that ground realities may not turn out to be as rosy as the street hopes.&nbsp;“The GST rationalisation is being viewed by markets as a positive surprise,” said Jagannadham Thunuguntla, senior vice-president and head of research (wealth), Centrum Broking.

“As the tax rates on more than 100 products have been reduced, (equity) markets were positive of the news,” explained V K Vijayakumar, chief investment strategist at Geojit Financial Services. 
After the recent GST rationalisation, only 35 goods are in the highest tax bracket of 28% GST. When GST was implemented on July 1, 2017, there were 226 goods in the 28% category, which means about 191 goods have seen reduction in the GST rate.

Sectors that will benefit from GST cut: There are some specific sectors that will benefit from the GST rate reduction. Consumer sector (paints and varnish), light electrical (refrigerators, freezers, vacuum cleaners, and TV upto 68 cms), auto, fertilizers, sugar, textiles and footwear and hotels. “Companies in these sectors saw a positive reaction in their stock prices,” said Hemang Jani, head - advisory, Sharekhan by BNP Paribas.

Sectors that will not benefit from GST cut: Equally, too, there are sectors that will not benefit from the move. Air conditioners, digital cameras, dish washing machines and TVs above 68 cms will not benefit from the tax rate reduction.

Concerns from GST reduction: There are several points of concern from the GST reduction. Both from the economic, as well as, sectoral point of view. The recent move could result in a revenue loss of Rs 10,000 - 15,000 crore (to the exchequer), said analysts.

“Most companies would be passing on the GST reduction (that is, the reduction in taxes to consumers,” said Jani, “Thus where would be the improvement in profit margins profits,” he asks.

Even if the beneficiary companies pass on the tax cuts to consumers in the form of reduced prices, this may not necessarily be a good thing. “The higher demand (due to reduced rates) can build inflationary pressures and with the risk of a higher fiscal deficit, can push up interest rates in the economy quicker than expected,” said Suman Chowdhury, president-ratings at Acuit Ratings and Research.

Such macroeconomic headwinds need to be observed carefully as they can impact the profitability of mid- and small-caps over the next few quarters despite the strong buoyancy in demand. In fact, besides macro economic woes from India, the beneficiary companies will have other concerns that may affect any paybacks from the GST cuts. 
Take textiles for example. The industry has gone on record that they will reduce prices by 5% from August. “But we have to factor in competition. The (textile) industry in Vietnam and Bangladesh are doing better than their counterparts in India,” said Vijayakumar.

Besides, most of the beneficiary sectors are in the mid- and small-cap sectors, where traditionally variables like crude oil and other input prices are major challenges.

According to Dhananjay Sinha, head of research, economist &amp; strageist, Emkay Global Financial Services, there are several economic hurdles that may yet affect these companies. These hurdles include, hardening interest rates, higher inflation, and eventually an increase in taxes. “The concern is that some of these negative symptoms are already visible,” he said.

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The equity markets are tracking whether the average GST collection would cross Rs 1 lakh crore per month, a key trigger said Thunuguntla.

Source: DNA Money

There are some specific sectors that will benefit from the GST rate reduction. Consumer sector (paints and varnish), light electrical (refrigerators, freezers, vacuum cleaners, and TV upto 68 cms), auto, fertilizers, sugar, textiles and footwear and hotels. “Companies in these sectors saw a positive reaction in their stock prices,” said Hemang Jani, head - advisory, Sharekhan by BNP Paribas.


Surprise! GST rate cut may not be beneficial for this segment

​After seeing net inflows of more than Rs 10,000 crore in April and May, equity mutual funds (MF) saw lower inflows at Rs 8,794 crore in June, according to data from the Association of Mutual Funds of India (Amfi). Net inflows into balanced funds fell to their lowest in two years, to Rs 1,482 crore. Balanced funds recorded an inflow of Rs 2,666 crore in May 2018. So what were the specific factors that affected equity MFs in June?

Indian MFs were picky in their stock selection during June, preferring to stick to trusted sectors and names against a back drop of changing macro-economic conditions and volatility, both domestic as well as globally.

“Macroeconomic factors, both domestic as well as global, were some of the main factors that ruled the strategies on MF (equity) managers,” said Aditya Makharia head of research, Motilal Oswal AMC. 
What mutual funds bought

June saw heavyweights (large-cap stocks) holding the fort, for Nifty, amidst the broader market sell-off. The midcaps and smallcaps traded near to their yearly lows, according to an analysis by Edelweiss. 
“The tilt towards quality and growth is quite evident in the investment pattern of domestic institutional investors (like MFs),” said Gaurav Dua, head of research, Sharekhan by BNP Paribas.

The most sought after sectors were pharma and IT. “So, broadly, the investment strategy of fund managers was tilted towards defensive and value picks,” said Sandip Raichura head of retail at Prabhudas Lilladher.

“Do remember that the rupee weakened (against the dollar),” said Makharia. Thus, exports led sectors got a natural fillip. Also the growth in the US economy meant that IT was a favoured pick, as a lot of the sector’s outputs goes to the US.

“One big healthcare company got approvals for its plant from US FDA, which was under observation earlier. Some other pharma companies also got product approvals, giving a shot in the arm to their stock prices,” said Atul Kumar, Head - Equity Funds Quantum Long Term Equity Fund &amp; Quantum Tax Saving Fund.

As much as Rs 1,000 crore of pharma stocks were picked up by fund managers, while approximately Rs 650 crore was invested in IT stocks, according to an analysis by Prabhudas Lilladher. “Consumer demand revival is among most preferred investment theme,” says Dua. 
What mutual funds sold

But MFs also avoided certain sectors. Investments into capital goods, infrastructure, chemicals, cement, utilities, private banks and autos declined in June. “This is the very nature of thematic and cyclical investments,” explained Raichura, about these sectors losing flavour. Fund houses began buying into infrastructure stocks on the back of government reforms. However, with the lack of private investments, these sectors are still lagging behind. “Hence, fund houses now seem to be switching to other investment opportunities, with better growth prospects,” he added. 
Future course of action

“The macro-economic factors especially the trade wars, will be a guiding factor,” said Makharia. Higher interest rates in the US will affect Indian equities. Rising crude oil prices would affect the stock markets negatively, if they go up.

Domestically, the progress of the monsoon will affect equity markets, as will the earnings of corporate India. “A disappointment in earnings announcements will lead to a de-rating of stocks,” noted Raichura. Hence, fund managers will be keeping a close eye on the ongoing earning season to base their investment strategy for the next couple of months.

“The progress of monsoons, MSP hikes, fiscal policy target maintenance would also be key,” said Bekxy Kuriakose, head - Fixed Income, Principal MFBut there are several takeaways from the experts which the retail investor can use to benefit his/her investment outlook.

Watch this Zee Business video

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“We believe that corporate earnings are at a cusp of a strong revival and equity returns over the next two- three years would outpace returns from all other asset classes,” said Sharekhan’s Dua.

Source: DNA Money

Domestically, the progress of the monsoon will affect equity markets, as will the earnings of corporate India. “A disappointment in earnings announcements will lead to a de-rating of stocks,” noted Raichura. Hence, fund managers will be keeping a close eye on the ongoing earning season to base their investment strategy for the next couple of months.


Manik Kumar Malakar