Author - Pranav Mahajan

05 Feb

Week in a Nutshell (January 30 to February 3)

Technical Talks

NIFTY opened the week on 30th January at 17,542 and the overall volatility was high, just like the previous week. It closed at 17,854 after making a recovery from the budget day low near 17,350. In the coming weeks, it might take a support at 50-week SMA at 17,260.

Among the sectoral indices, FMCG (+3.5%), Consumer Durables (+3.3%), and Bank (+2.9%) were the top gainers and Oil & Gas (-9.2%), Metal (-7.6%), and Pharma (-2.6%) were the top losers during the week.

 

Weekly Highlights

  • The US market closed the week in the green with S&P 500 gaining 1.6% and Nasdaq gaining 3.3%.
  • The Federal Reserve raised its target interest rate by 25 bps and continues to promise ongoing increases as inflation has eased somewhat but remains elevated. The benchmark interest rate now stands in the range of 4.50%-4.75%.
  • On 27th January, the Indian stock market completed the shift to a “T+1” settlement system, where every transaction will be completed within one working day post-trade.  India is the only large market apart from China to move to T+1.
  • Finance Minister Nirmala Sitharaman presented the Union Budget for FY23-24. Following are a few important announcements from an individual investor’s standpoint.
    • There were multiple changes in the new tax regime, which is without any exemptions and the FM has made the new regime the default one. However, the old regime continues and it is up to the taxpayer to decide which regime benefits her more.
    • The stocks of life insurance companies reacted negatively to the budget announcements as the new tax regime without exemptions prima facie looks attractive, and if taxpayers shift to this new regime, the insurance policy purchase may go down drastically as it is tax-exempt under section 80C in the old regime.
    • In addition to that, a tax has been introduced on income from insurance policies where the annual premium paid is above Rs 5 lakhs. This may also affect the demand for big-ticket insurance policies.
  • Maharashtra tops the list in sales of electric vehicles across all segments which have availed of the FAME II subsidy, followed by Karnataka, Tamil Nadu, Gujarat and Rajasthan. The top five states collectively account for over 56% of the 0.85 million electric vehicles bought through the scheme, according to government data.
  • During the week, Foreign Institutional Investors (FIIs) sold shares worth ₹ 144 bn and Domestic Institutional Investors (DIIs) bought shares worth ₹ 141 bn.

 

 

Things to watch out for next week

  • RBI’s rate-setting Monetary Policy Committee (MPC) will meet during 6th and 8th February to decide the repo rate trajectory. The MPC’s comments on the Union Budget and its inflation outlook will be keenly watched. The repo rate currently stands at 6.25%.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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08 Jan

Week in a Nutshell (January 2-6)

Technical talks

NIFTY opened the week on 2nd January at 18,130 and closed on 6th January at 17,860 near the 20-week simple moving average. The index is now showing some weakness as it closed below 17,900, which is the 100 Day moving average.

Overall, it was a negative week, with only Consumer Durables, FMCG and Pharma gaining 0.5% each and IT, Media and Financial Services lost close to 2% each.

Weekly highlights

  • In the US, the Dow Jones and S&P 500 indices gained 1.5% each.
  • During the weak, Brent oil and WTI Crude oil fell down around 8% due to the estimated lack of demand for oil as covid scare in China goes up.
  • The auto industry posted its highest-ever annual domestic passenger vehicle (PV) sales in 2022 at 3.79 mn units on the back of pent-up demand and better semiconductor chip supply. The figure was 23.1% more than that of 2021. CY22 figure is the highest ever in a calendar year. The previous high was in 2018 with 3.38 mn units sold.
  • Gross goods and services tax (GST) collection for December rang up over ₹ 1.49 tn, the data released by the finance ministry showed. This is a surge of 15% yoy, mainly driven by increase in retail prices of consumption items, high inflation, and action taken to ensure compliance. This was the third-highest monthly collection since the tax was introduced in July 2017.
  • India’s flagship payment platform, the Unified Payments Interface (UPI), ended the 2022 calendar year on a high note as the volume of transactions touched a record 7.82 bn in December, amounting to ₹ 12.82 tn, again a record high. In CY22, UPI processed over 74 bn transactions, worth ₹ 125.94 tn.
  • Public sector Banks have travelled a long distance since 2017 when they posted collective losses to the tune of ₹ 2.07 tn for five straight years to a profit of ₹ 665 bn in FY22.
  • The Indian economy may grow at 7% in FY23, which is higher than projections made by the Reserve Bank of India (RBI) and the World Bank, according to the latest estimates by the National Statistical Office (NSO). The economy grew 9.7% in the first half (April-September) of FY23. The RBI and the World Bank have projected 6.8% and 6.9% GDP growth, respectively, in FY23.
  • During the week, the Foreign Institutional Investors (FIIs) sold shares worth ₹ 78,000 mn and Domestic Institutional Investors (DIIs) bought shares worth ₹ 27,500 mn.

Things to watch out for next week

  • The corporate result season for Oct-Dec 2023 quarter kicks off on Monday with tech giant TCS reporting its result. Market volatility is expected to go up as stock prices will react to companies’ reported results.
  • Countdown to the Union Budget for FY24 to be announced on 1st February has already begun. Expectations and speculations about the budgetary announcements will add to market’s volatility.

 

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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18 Dec

Week in a Nutshell (December 12-16)

Technical talks

NIFTY opened the week on 12th December at 18,400. For the first two days it showed a recovery after falling from the all-time high in the previous week. But the recovery did not sustain and Nifty closed the week in the red at 18,270. The 20WMA of 17,800 may act as a key support level, while the all-time high level of 18,888 may act as key resistance for the index.

Among the sectoral indices, PSU Banks (+0.8%) and Oil & Gas (+0.3%) were the only gainers. Media (-2.2%), Consumer Durables (-2.1%) and FMCG (-1.8%) lost the most.

Weekly highlights

  • The US indices, Dow Jones, Nasdaq and S&P 500 fell around 1.7%-2.7% during the week.
  • Crude oil has been falling for a while now and is trading at USD 74 per barrel.
  • The Union budget for 2023-24 will be announced on 1st February 2023. The policymaking work is ongoing and a government official has hinted that there could be possibility of increasing the tax-free slab to ₹ 5 lakh in the alternative tax regime introduced two years ago.
  • On Wednesday, the US Federal Reserve announced a 50-basis point rate hike in the Fed funds rate. Policymakers projected rates would end next year at 5.1%, according to their median forecast, before being cut to 4.1% in 2024.
  • After regaining control of Air India by the Tata group, it is close to placing landmark orders for as many as 500 jetliners worth tens of billions of dollars from both Airbus and Boeing. The planned order reflects a deliberate strategy to win back a solid share of traffic flows to and from India, which are currently dominated by foreign carriers such as Emirates.
  • On Monday, the National Statistical Office released the data of consumer price index (CPI) inflation for the month of November 2022. It showed that the CPI inflation rate eased below the Reserve Bank of India’s upper tolerance limit of 6%, to 5.88%, in November due to a sharp moderation in food prices. It was 6.77% in October 2022, and 4.91% in November last year.
  • India Inc reported its highest ever mergers and acquisitions in calendar 2022 at USD 171 billion as against deals worth USD 145 billion announced last year. The top deals include merger of HDFC and HDFC Bank, acquisition of Ambuja cements by the Adani group, Biocon acquiring Viatris Biosimilars and a merger of LTI and Mindtree.
  • The buyback tally this year is 2. 6x that of 2021’s. So far this year, 51 companies have announced buybacks worth ₹ 375 bn. By comparison, 42 companies had announced buybacks worth ₹ 143 bn, according to data furnished by PRIME Database. A buyback is one way of returning the excess cash to the shareholders of the company.
  • During the week, Foreign Institutional Investors (FIIs) sold shares worth ₹ 18,300 mn and Domestic Institutional Investors (DIIs) bought shares worth ₹ 34,600 mn.

Things to watch out for the next week

  • The Reserve Bank of India in its bi-monthly monetary policy meeting held on 7th December decided to hike the repo rate by 35 bps to 6.25%. The minutes of that meeting will be published on 21st RBI’s outlook on inflation and GDP forecasts will be keenly watched. The next meeting of the MPC is scheduled during February 6-8, 2023.
  • We are nearing the end of 2023 and we will be celebrating Christmas eve next week. We wish you Merry Christmas!

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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07 Nov

Week in a Nutshell (31st October – 4th November)

Technical talks

NIFTY opened the week on 31st October at 17,910 and closed on 4th November at 18,117. During the week, NIFTY gained 1.9%. It closed above 18,000 for the first time since early January this year. On the upside, the all time high of 18,600 can be the first target to achieve. On the downside, it can take support at the 50 week moving average of 17,100.

Among the sectoral indices, METAL (+7.5%), PHARMA (+2.9%), and OIL & GAS (+2.8%) were the top gainers during the week. There were no losers during the week.

Weekly highlights

  • The US market ended the week negatively with Dow Jones down 1.4% and S&P 500 down 3.3%.
  • On Wednesday, US Federal Reserve increased the repo rate by 75 basis points, taking the key repo rate to 4%, the highest since 2008. They also signalled that their aggressive campaign to curb inflation could be approaching its final stage.
  • On the next day, the Bank of England raised their repo rate by 75 basis points to 3%. This was the biggest hike since 1989.
  • In India, the government collected Rs 1.52 trillion as goods and services tax(GST) in October, a 16.6% rise year-on-year, driven by festival-related spending, higher tax rates, and better compliance. This was the second-highest monthly collection since the implementation of the indirect tax regime in July 2017. GST collection touched a record high of Rs 1.67 trillion in April. This is the eighth month in a row that monthly GST revenue has been more than Rs 1.4 trillion.
  • Electric two-wheeler registrations have hit an all-time high for 2022, touching close to 68,324 vehicles in the festival month of October this year, an increase of 29 per cent over the last month. However, ICE two-wheeler registration has grown even faster than electric vehicles. Overall two-wheelers have shot up by over 45% in October compared to September. With this latest figure, electric two-wheelers now account for around 4% of total two-wheeler registrations between January-October.
  • Electric passenger and motor vehicles(light, medium and heavy) which includes motor cars and buses have seen their registrations more than double in the calendar year 2022 till October 31 with another two months still to go. They have hit registrations of 31,281 vehicles compared to 13,884 for the full year of 2021 a growth of over 125% according to data from VAHAN.
  • Credit card issuers saw significant erosion of their card base during the July-September quarter as the Reserve Bank of India’s (RBI) norms mandated the deactivation of cards that have been inactive for a year. In April this year, the RBI came out with a master direction on credit and debit card issuance. It said if a credit card has not been used for more than one year, the process to close the card should be initiated after intimating the cardholder. The second quarter of the current financial year saw an outstanding cards-in-force decline by 2.55 million to 77.7 million. Meanwhile, credit card spending has continued to be on an upward trajectory. They topped the Rs 1 trillion mark for six consecutive months. Spends touched a record high of Rs 1.22 trillion, buoyed by higher discretionary spending during the festive season.
  • Credit to industries in September 2022 grew at the fastest pace it has grown in the last 100 months, aided primarily by a pick-up in working capital loans from corporates.
    According to the latest sectoral deployment data of the Reserve Bank of India, credit to industries, which accounts for 27.6% of non-food credit, was up 12.6% year on year to Rs 32.4 trillion. Month on month, it rose 1.4%, the highest in seven months. On a year-to-date basis, it was up 2.7%.
  • During the week, Foreign Institutional Investors (FIIs) net bought shares worth Rs 10.3 bn, however, Domestic Institutional Investors (DIIs) sold shares worth Rs 4.5 bn.

 

Things to watch out for next week

  • Next week is a four-day work week as NSE and BSE will be closed for trading on Tuesday 8th, on account of Gurunanak Jayanti.
  • The biggest economy, the US will report its inflation number for October this week. The second biggest economy, China will report its balance of trade data for the month of October. Political disputes kept aside, our dependence on that country for the import of raw materials cannot be ignored. Hence, this is an important datapoint to keep track of.
  • The result season for July-September quarter is coming to an end with biggies like Godrej Consumer, Tata motors, M&M, amongst others reporting their results. We expect stock specific action.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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07 Oct

Investing in times of pessimism

“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The Intelligent Investor is a realist who sells to optimists and buys from pessimists.”: Jason Zweig, The Intelligent Investor.

That’s exactly what happened in India for software services between pre-Y2K and 2001; Realty, power & infra stocks in 2008 and 2020, amidst the covid fear, the hospitality and leisure sectors.

It is proven time and again that such extreme corrections provide the best investing opportunities. Most stocks that get beaten down for no fault of theirs have value in them. However, falling from their peaks is neither a necessary nor a sufficient condition for having value. To recognize value, we have to rationally distinguish between transitionary and permanent events.

Usually, we underestimate the risk when the market is going up and miss out on opportunities when the market is going down. Optimism vs pessimism is characterized by fear of missing out in a bull run vs fear of crashing out in a bear phase.

Buying when the carnage is happening requires separating emotions from rational thinking.

Investors can use the following framework to identify the right stocks during times of pessimism:

  • When no one is talking about a sector/company, when it is totally out of favour, it generally trades at a historically low valuation.
  • Survivability test – can the company survive the current downturn? That will largely depend on the company’s business model, the amount of debt it has, and its cash-flow-generating ability.
  • Are the insiders i.e., the founders or the management increasing their stake in times of pessimism? If yes, that’s a very positive sign. It shows their belief in the company.
  • The cost-saving initiatives have the potential to permanently improve a company’s profitability.
  • If a company is facing temporary demand disruption, operating at lower capacity utilization is not always a negative point. This means with the rise in demand the company can improve output without any significant requirement for capacity expansion.
  • Even if the company stands true to all such parameters, if it is facing a corporate governance issue, it should be avoided. There are always better alternatives.

 

Conclusion: It is rewarding to be optimistic during pessimism however, one should be extremely disciplined and patient in order to reap the results. Also, sticking with the framework, setting up milestones and avoiding companies with governance issues proves very helpful.

 

With excerpts from: www.cfasocietyindia.org

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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22 Sep

How do we learn things? Through feedback loops

 

 

How do humans learn anything? Through feedback loops. Imagine you are riding your bike and getting late for the office – you don’t see any traffic cop at the red light… and you jump it. There was an incentive and an opportunity. A few hours later, you get a challan message. There was a camera that caught you. The next time you won’t dare to jump the red light as you already got feedback from your previous misadventure. Similarly, if you, as a good Samaritan, helped a blind man cross the road, you will instantly feel good for the deed.

Sportspersons make excellent use of feedback they receive when they make a right move or a wrong move. A tennis player who keeps hitting the net while playing a backhand topspin, instantly realizes that she has to practice it more while training.

Unfortunately, in investing, it is risky to rely on feedback.

You buy a stock and the next day the market falls and takes the stock down with it. Does it instantly become a bad investment? A long-term approach is critical for most investments to succeed.

There are a dozen reasons for markets to go up and many times the same reasons for them to fall. But feedbacks are most useful when the link between our actions and results is clear. A stupendous 25% GDP growth takes the market down just because the street was expecting an even higher number. In investing, the instant results of any action can be highly misleading. Over short time horizons, meaningless noise dominates outcomes.

Learning from short feedback loops only works if the impact of negative feedback is minor. You know that drinking poison will kill you. You don’t have to verify it by consuming it and facing its consequences. Similarly, we already know the risks involved in taking concentrated stock positions, borrowing money to invest in the stock market, and putting money in an unregulated instrument like crypto. The negative consequences of these won’t count as lessons after facing catastrophic losses.

Investors learn from their own experiences and the experience of others. Our sample size is simply too small. And hence, it is far too easy to learn the wrong lessons.

Here is a short, non-exhaustive list of things to remember:

  • Ignore near-term feedback as much as possible.
  • Decide what type of feedback is useful.
  • Learn the right things from the right people.
  • Weigh evidence correctly.
  • Focus on general principles rather than specific stories.

In investing, useful feedback is often received too late because meaningful results only emerge over time. Investing is an exercise in dealing with short-term noise, deep uncertainty and profound behavioural challenges. The best we can do is base our decisions on sound principles, always be willing to learn and understand that most short-term feedback can be ignored.

 

 

With excerpts from www.behaviouralinvestment.com

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their research and analysis and should consult their investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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17 Aug

How and why to read an Annual Report

When we buy shares of a company, we become part owners of that business. But we as owners do not participate in the day-to-day activities of the business. That is the job of a management team that may or may not be part owners like you and the other shareholders. Here, the management always has a better idea of what’s going on in the business, and the shareholders i.e., the owners can be kept in the dark. This can result in a Principal-Agent conflict. Better disclosure norms in addition to management’s integrity prevent this conflict to a certain extent. An annual report plays a big role in this.

  • The Annual Report (AR) of a company is an official communication from the company to its investors: A listed company generally issues an investor presentation every quarter or twice a year and many companies conduct a conference call for the investors to ask questions to the management. However, conducting such calls is only advisable by the regulation and not a mandatory requirement. On the other hand, issuing an Annual Report is a requirement for a listed company.
  • The AR is the right source to get information about the company; hence AR should be the first choice for the investor to source company-related information: If a company publishes a quarterly presentation, it would contain time-specific content, i.e., information about that specific quarter. However, an AR generally includes a company’s history, recent developments, and plans.
  • The AR contains many sections, with each section highlighting a certain aspect of the business: Apart from general information about the company, an AR always has the Chairman’s and/or CEO’s message, a management discussion and analysis (MD&A) section, and the company’s standalone and consolidated statement of accounts.
  • The AR is also the best source to get information related to the qualitative aspects of the company: The MD&A section is one of the most important sections in the AR. It has the management’s perspective on the country’s overall economy, their outlook on the industry they operate in for the year gone by (what went right and what went wrong), and what they foresee for the year ahead.
  • The AR contains three financial statements – Profit & Loss Statement, Balance Sheet, and Cash Flow statement. There’s a famous saying that goes, “Revenue is vanity, profit is sanity but cash is the only reality”. It suggests that revenue and profit figures can be manipulated but it is extremely difficult to tamper with the cash flow statement. Yes, basic accounting knowledge is required to analyze financial statements.
  • The standalone statement contains the financial numbers of only the company into consideration. However, the consolidated numbers contain the company and its subsidiaries’ financial numbers. It is important to look at both standalone and consolidated numbers especially when the subsidiaries are partly owned by the parent entity.

Does this short article cover everything that has got to do with reading annual reports? Absolutely not. But it might help a beginner to skim through an AR and determine, from the sea of information available, what is material and what is noise – separate the wheat from the chaff.

Are you reading an AR for the first time? We suggest choosing a company about which you have some domain knowledge. For example, a pharmaceutical company if you’re a doctor, a tech company if you’re from that field, or an automobile manufacturer if you have a knack for it.

Finally, reading an annual report is an art and one gets better at it with practice.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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13 Aug

This Week in a Nutshell (August 8-12)

Happy 76th Independence Day to all our readers!

Technical talks

NIFTY opened the week on 8th August at 17,401; with a holiday on Tuesday, the four-day work week ended with NIFTY closing at 17,698 (+1.7%). The index is trading above all the moving averages on a daily as well as weekly timeframe. On the upside, the upper Bollinger band level of 18,100 might act as a resistance. On the downside, it can take support at the 50 week moving average near 17,100. Even though, the RSI of 60 does suggest some caution, in the recent past NIFTY has comfortably traded at 60+ RSI level.

Among the sectoral indices, METAL (+4.6%), PRIVATE BANK (+3.6%), and FINANCIAL SERVICES (+3.0%) led the gainers, whereas MEDIA (-2.0%), FMCG (-1.1%), and PHARMA (-0.6%) were the losers this week.

Weekly highlights

  • The US market closed the week in green as Dow Jones continued its streak with 6th consecutive week of positive returns. During the week, the US declared its July CPI inflation. At 8.5%, it is lower than the previous month, but still on the higher side from an absolute point of view.
  • Coming to the Indian markets, our market cap to gross domestic product ratio (Mcap/GDP) has crossed 100 percent. With a positive move in markets since July, we currently stand at 102 percent against a long-term average of 81 percent. India’s GDP is estimated at nearly USD 3 trillion.
  • The Mcap/GDP ratio is also known as the Buffett Indicator, as Warren Buffett considers it to gauge the mood of the market. Too high a number suggests that the market seems to be overvalued and the opposite on the other side.
  • However, this can be applicable to a developed market like the US. In a developing market like India, with a gradual move towards formalization of the economy, the market capitalization will inch up higher as more and more companies get listed and this will eventually reflect in the GDP.
  • The civil aviation ministry has removed the lower and upper caps on airline fares from 31st The caps were imposed in May 2020 to regulate airfares in times of the pandemic. Especially with the removal of the lower cap, it is more likely that airfares for short-distance domestic flights will come down as airlines compete with each other for passengers.
  • China’s trade surplus stood at USD 101 billion in July. It is the highest since 1987. The trade surplus is the excess of exports over imports. Despite political tensions between India and China, in a globalized world, where there is interdependency on each other when it comes to the manufacturing of goods, Chinese exports doing well translates positively for the world economy as well as for India.
  • FII (Foreign Institutional Investors) were net buyers of shares worth Rs 78,499 mn and DII (Domestic Institutional Investors) were net sellers of shares worth Rs 24,780 mn this week.

 

Things to watch out for next week

  • The corporate results season for the April-June quarter of FY2023 comes to an end as we approach 15th As we celebrate the 76th Independence Day of India, we enter into another four-day work week on Tuesday. Going forward, company-specific developments will be keenly watched.
  • Just like this week, during which we saw a few new 2-wheeler launches from Honda and Royal Enfield and a Hyundai car, next week is also lined up with new cars from Toyota, Maruti-Suzuki, and an EV from Mahindra. As we approach the festive season, we are expecting many more such launches.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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19 Jul

Do REITs deserve a place in your portfolio?

 

Real estate investment trusts are like mutual funds, where money is pooled from investors and units are allotted to them, which represent ownership in real estate assets. REITs invest in income-generating real estate properties. These income-generating real estate properties can be residential buildings where flats are rented, commercial office spaces, warehouses, hotels, shopping malls, airports, etc. In India, as of now, only commercial REITs are allowed to do business.

Speaking about India specific, a REIT will raise money from investors and either acquire a developed property or develop a property on its own. Later on, this property is rented to different tenants, which are predominantly corporate entities. The rent collected is then distributed to the unitholders after deducting all the necessary expenses.

Each REIT has a sponsor who acts as a trustee for the unitholders and owns the property on behalf of the unitholders. The day-to-day activities concerning the properties such as choosing the right tenant, negotiating the lease terms with the tenants, maintenance of the properties, etc are handled by a management team (REIT Manager) appointed by the sponsor.

Let’s look at some advantages of considering REITs as an investment:

  • Direct exposure to real estate requires a large amount of investment, whereas, REIT units are available at a low-ticket size. Over and above that, an investment through REIT provides diversification benefits, which is difficult to achieve by directly owning properties.
  • REITs are highly regulated and are required to distribute at least 90% of the net distributable cash flow to the unitholders. It is also mandatory for a REIT to have at least 80% of its portfolio invested in fully developed properties. This eliminates execution risk to a large extent.
  • The dividend distributed by the REIT is often tax-free in the hands of the unitholder. This may not always hold as it depends on the REITs ownership structure.
  • As REITs distribute more than 90% of their net distributable cash flow to the unitholders, a REIT acts as a hybrid instrument with regular dividend pay-out and capital gains due to share price change.
  • REITs also provide stability to your portfolio as a REIT’s stock price does not fluctuate much because it is valued based on the value of real estate assets it is owning, and real estate prices generally fluctuate less than stock prices.

Although there are no specific disadvantages of having a small exposure to a REIT, here are certain difficulties a REIT, as a business, can face, which will eventually affect the unit price and NDCF:

  • Recently in the COVID period, most companies chose work from home over going to the office. In such a situation, there can be lease cancellations or uncertainty about future lease renewals.
  • Any economic slowdown results in MNCs laying off employees and in the worst-case scenario, exiting the country. REITs lose business when office spaces are kept vacant for a long period.

These are larger economic issues that will be faced by any other business along with a REIT.

In India, we currently have 3 listed REITs and while the Nifty 50 index is down 6% year to date, the REITs are up from 8.5% to 10.5% for the same period. Investors’ interest has come back to REITs with the opening up of the economy and higher occupancy levels of the office spaces. The only limitation here is that of limited options as there are only 3 REITs and 1 International REIT Fund of Fund in India. This significantly limits the choices for investors.

Source: Tradingview

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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26 Jun

Week in a Nutshell (20-24 June)

Technical talks

NIFTY opened the week on 20th June at 15,334 and closed just below 15,700 on 24th June. The index is trading near the lower Bollinger Band level of 15,370 which might act as a support, although a weak one as the markets have been falling for the past three weeks. On the upside, the 16,200 level might act as a resistance, since a gap was made last week. The RSI (14) at 40 has been consistently coming down.

Among the sectoral indices, AUTO (+6.9%), CONSUMER DURABLES (+4.6%), and FMCG (+4.2%) were the gainers during the week. METAL (-2.7%) was the only loser.

Weekly highlights

  • All the major US indices have risen from 5.4% to 7.5%, a recovery after two weeks of continuous selling.
  • The WTI Crude oil fell 1.7% and Brent Crude closed flat for the week after worries about the US economy going into a recession, which means lower oil demand.
  • The minutes of the RBI MPC meeting got released this week. The rate-setting committee has indicated of further rate hikes are on their way as inflation has been consistently staying above the upper tolerance band of 6%. The RBI has the mandate to control inflation and let it stay at 4% +/- 2%. Hiking or lowering interest rates is one of the prominent tools to control inflation.
  • Another update related to RBI is the fall in forex reserves that the RBI maintains. The latest data released by the RBI report shows that the foreign currency reserves have fallen by USD 10 bn in the last two weeks as the RBI has stepped up intervention in the foreign exchange market. The RBI has been selling dollars to curb excessive volatility in the exchange rate and prevent runaway depreciation of the Indian rupee. The forex reserves with the RBI now stand at USD 590bn. The rupee has been depreciating against the dollar and now trades below ₹78.2/USD.
  • The government, from July 1 will ban 22 single-use plastic products such as plastic spoons, forks, plates, etc. Within that also falls plastic straws that come with tetra pack juices, milkshakes, and buttermilk. Manufacturers of such products including Amul, Parle Agro, Dabur, etc are pleading with the government to postpone the ban on straws as an alternative which is paper straws which are largely imported and they cannot be made available in a short span.
  • After a scare of a few electric two-wheelers catching fire, this week in Mumbai, a TATA Nexon EV car caught fire while parked. Now even though many EV manufacturers are saying that a small percentage of EVs catching fire is normal and is a global phenomenon, it will still create a negative sentiment in the minds of the prospective customers of electric vehicles.
  • However, good news for internal combustion engine (ICE) vehicles that run on traditional fuels like petrol, diesel, and CNG. Many manufacturers are about to launch their newer models and variants as we approach the monsoon and subsequently the festival season. Multiple test vehicles, covered in camouflage have been located by auto enthusiasts. This has always been a strong indication that upcoming launches are expected very soon.
  • FII (Foreign Institutional Investors) net sold ₹ 1,15,116 mn and DII (Domestic Institutional Investors) were net buyers this week. DIIs bought shares worth ₹ 1,16,704 mn.

Things to watch out for the next week

  • At the beginning of the month, economic data watchers will look for GST collection data, and in addition to that, stock market watchers will look for monthly automobile sales volume data. Automobile, a sector that contributes 7% to the GDP and creates big employment opportunities, a consecutive and steady recovery is essential for the economy.
  • The G7 Summit will be held in Germany on Monday. The leaders will likely discuss rising worldwide inflation and the post-war scenario in Russia, Ukraine, and the European Union.
  • The US economy had contracted 1.5% in the January to March 2022 quarter. A consecutive decline in the quarter ending June will officially make the US economy to enter into a recession. Hence, the quarterly GDP numbers to be released on June 29 will be keenly watched.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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