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07 Oct 2019

MF analysis: Retirement funds are key to comfort during the sunset years

‘’The goal of retirement is to live off your assets, not on them” - Frank Eberhart

Retirement, a word that evokes excitement and anxiety simultaneously, and needs financial planning well in advance. Mutual fund ads often show happy, older couples going on holidays, taking cruises, living a normal, comfortable life. Is that possible to achieve? The sunset years are a time without earnings but with higher health expenses, when one needs a regular pension income and the backing of a sizeable corpus. This is where retirement focused mutual funds can make a difference (See top retirement mutual funds)

Most retirement funds are either debt funds, hybrid funds, equity funds or a combination of funds with varied asset allocation along with the option of a systematic withdrawal plan. These funds fall in the SEBI category of solution-oriented funds.

Salient Features at a glance:

Higher flexibility in withdrawal compared to pension funds like NPS. One can also redeem one’s holdings and switch to another mutual fund
Certain funds offer the option to switch between funds with gradually reduced exposure to high risk equity as retirement approaches
Retirement funds carry a lock-in period of five years or until retirement, whichever is earlier.
Exit load of 3-4% in case of premature withdrawal
The longer lock-in period and higher exit load levied is to discourage premature withdrawal of retirement funds
Many funds have options suited to the risk appetite of the investor like conservative, moderate and aggressive/progressive plans
Retirement funds fall under goal-based investments, which helps instill financial discipline while investing
Certain funds offer the feature of auto-switch option i.e. rebalance the portfolio based on age, life stage and risk metrics between equity-debt
Fund manager aims to minimise fluctuations in NAV
The fund management expenses are higher than the charges for NPS
Suitable for moderate to low risk investors with 40% equity exposure as against 65% in hybrid funds
Owing to the moderate risk associated with such instruments, the returns generated are lower than pure equity funds
Option to withdraw lump sum at maturity
Not suited for investors looking at a short-term investment horizon owing to limited liquidity

Investment Rationale:

Option for Systematic Withdrawal Plan (SWPs): Most retirement funds have an in-built option of SWP at the time of retirement, which may offer cash-payouts or dividends at regular intervals. Systematic withdrawals are not subject to TDS, with capital gains tax liable on withdrawn amounts. SWPs even offer the option to withdraw the capital appreciation amount and retain one’s capital invested in the mutual fund.
Suited for long term horizons: Financial planning for retirement requires considerable financial discipline by starting to invest early, regular investment and refraining from withdrawing one’s retirement corpus. Retirement planning is a long-term goal. Accordingly, retirement funds are aimed at long term wealth creation.
Risks involved: The main risk is inflation, owing to the prolonged time period of investment. Thus, one needs to select a mix of equity and debt with reduced equity exposure as one nears retirement.
Earn compounding returns: Given the long investment period, retirement funds offer opportunity to derive compounded returns and build a sizeable corpus.
Diversification benefit: Retirement funds offer a diversification advantage across asset classes. Note that systematic risk affects the markets uniformly and cannot be eliminated by diversification.
Transparency: Retirement funds offer higher transparency than pension funds with declaration of the holding mix, NAV values at regular intervals.
Evaluating funds: The investor needs to decide a fund based on the desired corpus sum and other parameters like the track record of the fund manager in delivering returns, withdrawal conditions and charges, fund management expenses and risks.
Taxes that need to be paid: Long term capital gains in case of equity funds are taxable for gains in excess of Rs 1 lakh, and with indexation on gains from debt funds. Eligible for tax benefits u/s 80C of the Income Tax Act. The investor is liable to capital gains tax at the time of each switch over.

Advantage of professional fund management: The investor can benefit from the expertise of professional fund managers, who would manage the asset allocation, portfolio rebalancing and risk mitigation aspects of the retirement fund. The returns would generally be higher than those from an insurance-based pension product.

The Baseline

01 Oct 2019

Top Recommendations by Analysts this Week

by Ritmbarah Arora

Recent news on corporate tax cuts notwithstanding, stocks have been volatile and white-knuckled in the markets in the lead-up to results. Analysts however, still have their eye on key stocks that they believe will deliver value in the coming months. See all recommendations here.

Axis Direct Recommends NOCIL: Navi Mumbai headquartered NOCIL Ltd. offers basic organic chemicals engaged in the business of rubber chemicals. The products manufactured by the company are used by the tire industry and other rubber processing industries. Axis Direct expects the stock to be profitable as revenues and earnings are expected to grow at 9% and 13% CAGR over the FY19-21E.

The revenue and earnings growth according to the analysts, will be driven by the dominant position of NOCIL in the domestic rubber chemicals market, increase in rubber demand, robust capacity expansion, high entry barriers led by strong technical expertise and continuous R&D and foray into newer margin value added products. NOCIL recently started supplying to the US market with an initial export of 500KT of quantity. Axis Direct recommended buying of this stock when the price was Rs 104.55. Since then, the price of the stock has seen an incremental growth by 7.17% and is expected to reach a target of Rs137 after Sept 21E earnings, as per Axis Direct report.

Motilal Oswal Recommends Bharti Airtel: New Delhi headquartered Bharti Airtel is a global telecommunications services company. Amidst the controversial tussle of Bharti Airtel and Reliance Jio, Motilal Oswal suggests to buy the shares of Bharti Airtel which targets a price of Rs420. Though the recommendation made at Rs356.40 has seen a decline in share price of 3.13% since then, analysts say that "the ARPU accretion from broadband subscribers is likely to grow with EBITDA CAGR of 12% over FY19-21 that will drive the stock price". Out of the incremental revenue growth, 70% is expected to flow to EBITDA.
ICICI Securities Recommends Radico Khaitan: Headquartered at Rampur, Uttar Pradesh, Radico Khaitan Ltd. manufactures industrial alcohol, Indian Made Foreign Liquor (IMFL), country liquor and fertilizers. It is the fourth largest liquor company of India. ICICI Direct recommends a buy on this stock with a target of Rs400. The stock price has increased by 1.91% since the stock was recommended at Rs319.80.

The revenue of Radico Khaitan is expected to grow at 12% CAGR to Rs2646 crore in FY19-21E.EBITDA margins are expected to remain flat at 16.5% in FY21E with absolute EBITDA growing 12% to Rs437 crore. PAT is anticipated to grow at 24% in FY19-21 CAGR to Rs298 crore, higher than the expected growth on the EBITDA front. RoE and RoCE should remain healthy at 16.5% and 19.7% respectively in FY21.

Ashoka Buildcon Recommended by HDFC Securities: Nashik headquartered Ashoka Builcon Ltd. is an infrastructure development company. The company is engaged in the business of construction and maintenance of roads, supporting services to land support-operation of toll roads and others. HDFC Securities suggests buying this stock with a target price of Rs 220. Though the stock has witnessed a decline of 2.46% since recommendation was made at Rs109.70, HDFC Securities' point in its favor is that it maintained 25-30% standalone revenue growth for FY20E and Rs40-60 bn of new order inflows. Ashoka Buildcon is anticipated to deliver 19.6% FY19-21E revenue CAGR which will largely be driven by EPC revenue CAGR of 21.4%.
APL Apollo Tubes Recommended by IDBI Capital: Headquartered at Noida, APL Apollo Tubes Ltd. is a steel tube manufacturer engaged in the business of production of electric resistance welded (ERW) steel tubes. It is the only company which has pan-India presence with warehouses and branch offices in 29 cities. IDBI Capital favors the purchase of stocks in APL Apollo Tubes with a target price of Rs1,920. The stock was recommended at Rs1,309.35 post which the share value increased by 3.87%.

According to IDBI Capital analysts, APL has outperformed industry growth in the last decade by gaining market share from small and unorganised players which resulted in strong return ratio of around 19% over FY10-19. With expanded capacity in place, the volumes are expected to grow at a CAGR of 20% over FY19-21E. Also, its EBITDA are expected to grow at CAGR of 24%/45% over FY19-21E, respectively.

Despite volatilty in markets, some analysts see short-term headwinds as a distraction from the long-term potential. Arun Kumar, Market Strategist at Reliance Securities comments, “Smart investors are nibbling on some of these stocks were value is relatively cheap with limited downside. From a time horizon of two to three years, one can accumulate some of the good stocks over the next few months."

The Baseline

27 Sep 2019

Screener: Stocks receiving upgrades from brokerages

The market has been pretty volatile over the last few weeks, despite government efforts to shore up investor sentiment with corporate tax cuts and other announcements. Brokers have largely been conservative with their calls, although some stocks still got multiple broker target price and recommendation upgrades. This stock screener tracks stocks that within the last one month, received upgrades from brokers in either target price, or recommendation, where the analyst moved their call from a SELL or HOLD to a BUY.

These stocks include FMCG firm Dabur India, and telecom company Bharti Airtel. Airtel has been a source of real caution for investors despite its dominance in the Indian telecom space, due to the high debt on its books. However, management recently announced efforts to cut its debt by half by the end of FY20, to Rs. 500 billion. Share price of the stock has risen since the announcement. For the full stock screener, click here.

The Baseline

16 Sep 2019

What is the real price of the things we buy?

by Parul

How do you feel after you buy an expensive car, or a Snickers chocolate? Shouldn't you include that in the price?

The price of something isn't just the cost of what we pay. The real, hidden price includes everything we feel about what we buy - excitement, enthusiasm, happiness, guilt, regret. And this is very different from person to person.

Let's for example, take a stock or mutual fund investment. One kind of investor, who is very enthusiastic about investing, may snap up a stock - for example, Titan at what he thinks is a bargain price of Rs. 1065.3 on August 21st. He then watches as the price climbs and falls, to Rs. 1,037 before rising to Rs. 1,123.4 on September 13. That's a gain of +5.45% in less than a month, and he is excited and pleased.

Another more aggressive investor may have bought Titan expecting a jump of 10% in share price as markets recovered. He may feel regret at the purchase because he missed out on bigger buys while putting money on Titan.

A third, very nervous investor may have watched the stock initially fall to Rs. 1,037 on September 4, and get extremely upset at the price fluctuations.

The true cost of purchase is thus very different for different people - whether it is purchasing a stock, a box of sweets - where the price you pay is guilt after consumption, or buying a fancy new car - where the price is explaining the purchase to your wife.

It is important for investors to ask themselves: how will I feel about this on purchase? Are you the nervous kind of buyer, who would be happier with fixed deposits and low risk mutual funds, or the moderate investor, who is happy with good gains on blue chips? Or is it only the really risky investments that excite you? Knowing who you are helps you figure out the real cost of your purchase. Because there is definitely is one, and it is not just the price you pay in rupees.

The Baseline

11 Sep 2019

Screener: 100 Nifty500 companies have current PE less than 3 year, 5 year and 10 year PE averages

With market volatility and growth worries driving down share prices, over 100 Nifty 500 companies currently have PE less than their three year, five year, and ten year PE averages. This stock screener (subscription, but snapshot above) tracks stocks that have their PE TTM below these averages, making them potentially more valuable at their current share prices. Among the 103 stocks in the screener are Axis Bank, Biocon and Phoenix Mills.

The Baseline

10 Sep 2019

Indian Markets closed today on account of Moharram

Indian markets are closed today on account of Moharram (September 10). In broader news, markets have been volatile but ended strongly yesterday, driven by rise in FMCG stocks. The auto sector had more bad news, with August sales indicating a deepening slowdown and logging a tenth month of decline

FMCG sectors outside auto are more optimistic, with Titan management indicating that September showed some recovery in jewellery and watch sales. It is too soon however, to suggest a recovery. For that to happen, broader consumer and manufacturing numbers need to show a strong uptick.

Global markets have mixed cues, with the bump in share prices from US and China resuming trade talks, fading. Equity markets were higher in South Korea and Japan, while they fell in China. Hong Kong was flat. The UK Parliament passed a law against no-deal Brexit happening in October, and providing for a three year extension.

The Baseline

21 Aug 2019, 02:38PM

Reports Screener: Stocks seeing new target and recommendation upgrades

Despite market volatility and weakening sentiment, some stocks continue to see bullish sentiment from brokerage analysts.

This stock screener identifies companies that have received target price or recommendation upgrades from research analysts. The companies include Kotak Mahindra Bank, which has received 5 target price upgrades from brokerage analysts in the past month, cement company ACC Limited, which both HDFC Securities and Geojit upgraded their recommendations to BUY; Asian Paints which posted strong results and has got target upgrades from ICICI Securities and Axis Direct. See the stock screener for all 130 stocks.

The Baseline

07 Aug 2019

Results Screener: Pidilite Industries, Berger Paints among firms with upbeat results

The live results screener (subscription, but screenshot above) tracks companies that have announced results in the past two days, showing both net profit and revenue growth. This screener only selects companies that have shown both YoY and QoQ growth for both revenue and net profit.

Companies like Berger Paints and Pidilite Industries rose on their strong results performance. In total, 46 companies made the list including Sheela Foam and Torrent Power.

Some of these companies while making this criteria, still disappointed investors due to misses in consensus estimates, like Titan.

The Baseline

05 Aug 2019

Results Analyzer: Venky's India, Dwarikesh Sugar, Globus, Vesuvius

by Rushali Srivastava

19 results have been declared by the companies for the quarter ending June 30, 2019 and 8 companies have reported positive profit results. Some of the companies are as follows:

Venky’s (India) reported a net profit growth of 106.6% on a quarterly basis at Rs 61.8 Cr in June 2019 quarter against Rs 29.9 Cr in the quarter previous to it. Profits declined on a yearly basis by 13% from Rs 71 Cr in the year ago. The stock hit a year low of Rs 1100 today which was the new 52 week low but price quickly increased post results by Rs 170.3 from its opening price today, posting a gain of 14.3%.

Basic EPS growth was the same as that of net profit and stood at Rs 43.9. Total revenue increased by 19.8% YoY at Rs 913.6 Cr compared to Rs 762.5 Cr in the year ago quarter.

Operating expenses increased by 26.2% on a yearly basis at Rs 804 Cr compared to 637.1 Cr in June 2018 quarter.Operating profit decreased by 14.9% YoY at Rs 101.3 Cr in the quarter but on a quarterly basis it increased by 74.9% from Rs 58 Cr in March 2019 quarter.

FII/FPI have decreased their holdings by 1.35% of holdings in Jun 2019 quarter. Number of FIIs/FPIs holding stock fell by 14 to 59. Institutional Investors have decreased their holdings by 1.36% in the quarter. It made a new 52 week low today and has fallen 61.2% from 52 week high of 3445. It made its 52 week high on Aug 06, 2018.

Dwarikesh Sugar Industriesreported a net profit decline of 35.2% YoY at Rs 19.9 Cr in June 2019 quarter from Rs 30.7 Cr in the year ago quarter.

Total revenue increased marginally on a yearly basis but increased by 77.7% QoQ at Rs 380.5 Cr compared to Rs 214.1 Cr in March 2019 quarter.

Basic EPS decreased by 35% YoY at Rs 1.1 compared to Rs 1.6 in the year ago. Operating profit also declined by 19.2% at Rs 36.3 Cr against Rs 45 Cr in the year ago. Operating expenses increased by 116.7% in the quarter at Rs 342.6 Cr against Rs 158.1 Cr in March 2019 quarter. EBIDT in the quarter declined by 16.8% YoY at Rs 37.9 Cr against Rs 45.5 Cr in June 2018 quarter.

It made its 52 week high on Oct 15, 2018 and 52 week low on Sept 05, 2018 and has fallen 39.1% from 52 week high of 34.4. After the results were out, the stock price declined steeply by 4.12% to Rs 20.95.

Globus Spiritsreported a net profit growth of 24.9% at Rs 9.4 Cr in June quarter against 7.5 Cr in the year ago. However, profits declined on a quarterly basis by 34.5% from Rs 14.4 Cr in March 2019 quarter.

Basic EPS growth was the same as that of net profit and stood at Rs 3.3 in the quarter.

Total revenue increased by 27.9% at Rs 297 Cr compared to 232.3 Cr in June 2018 quarter.

Operating expenses increased by 30% YoY at Rs 266.7 Cr in June 2019 quarter from 205.1 Cr in the year ago. Operating profit increased by 9.5% on a yearly basis at Rs 28.9 Cr in the quarter.

EBIDT increased by 11.5% YoY at Rs 30.3 Cr in the quarter compared to Rs 27.2 Cr in the year ago quarter. Promoters holding marginally changed to 55.1% from 54.5% as of Jun 2019 quarter. Number of FIIs/FPIs holding stock rose by 1 to 8 in the quarter.

It made its 52 week high on Sept 19, 2018 and 52 week low on Aug 01, 2019. It has fallen 49.4% from its 52 week high of 214.95 and is currently near its 52 week low. The stock price decreased by 1.63% today to Rs 108.7 with a decrease of Rs 1.8 from the opening price.

Vesuvius Indiareported a 12% decline in its net profit at Rs 19.6 Cr against Rs 22.2 Cr in the year ago. After the result announcement, the stock price fell from the intraday high of Rs 1028 to Rs 980.1.

Basic EPS also declined by 12% and stood at Rs 9.6 in the quarter compared to Rs 11 in the year ago.

The total revenue declined by 6.9% YoY at Rs 224.8 Cr compared to Rs 241.3 Cr in June 2018 quarter. EBIDT also declined by 9.6% YoY at Rs 37.1 Cr in the quarter.

Operating profit declined by 13.5% YoY at Rs 30.9 Cr in the June quarter compared to Rs 35.8 Cr in June 2018 quarter.

Number of FIIs/FPIs holding stock rose by 1 to 52 in Jun 2019 qtr. Number of Mutual Funds holding stock rose by 1 to 29 in Jun 2019 qtr. Institutional Investors have decreased their holdings by 1.15% of holdings in Jun 2019 qtr. It made its 52 week high on Aug 06, 2018 and 52 week low on Aug 02, 2019 and is currently near its 52 week low. It has fallen 26.9% from its 52 week high of 1341.3.

The Baseline

02 Aug 2019

Superstar investments in June: Jhunjhunwala, Ashish Kacholia, Dolly Khanna

by Rushali Srivastava

As June shareholdings were released, superstar portfolios have grown more detailed. Some updates on what large investors bought and sold in the June quarter:

Rakesh Jhunjhunwala publicly holds 32 stocks with a net worth of over Rs. 11,691.2 Cr. He bought shares and increased its holding in:

Agro Tech Foods- increased its holding by 0.51% increasing its total holding to 7.5% in the company with 1,828,259 number of shares amounting to Rs 92.3 Cr.
Spicejet- increased its holding by 0.42% with total holding of 1.67% in the company with 10,000,000 shares amounting to Rs 135 Cr.
Jubilant Life Sciences- increased holding by 0.27% with a total holding of 1.9% with 3,025,000 number of total shares amounting to Rs 132.4 Cr.

He sold shares and decreased its holding in the following companies:

NCC- decreased the holding by 0.91% with the new holding percentage of 9.86%; 59,208,266 number of shares amounting to Rs 434.3 Cr .
Dewan Housing Finance Corporation - decreased holdings by 0.73% to 2.46% total holding with 7,720,000 shares amounting to Rs 36.8 Cr.
Federal Bank- decreased holdings by 0.46% to 2.93% total holding with 57,221,060 shares amounting to Rs 513.6 Cr.
Lupin - decreased holdings by 0.22% to 1.71% total holding with 7,723,605 shares amounting to Rs 596 Cr.
Prakash Industries - decreased holdings by 0.07% to 1.46% total holding with 7,723,605 shares amounting to Rs 12.4 Cr.

Ashish Kacholia who heads Lucky Investments and is an active participant in company earnings calls, publicly holds 21 stocks with a net worth of over Rs. 537.9 Cr. The shares bought by him as per the shareholding data filed with the exchanges are as follows:

KPIT technologies- Bought 4,269,579 shares of the company which is 1.56% of holding in the company amounting to Rs 33.9 Cr.
DFM Foods- increased holding by 0.34% with a total holding of 2.33% with 1,115,053 number of total shares amounting to Rs 27.8 Cr.
Majesco- increased holding by 0.24% with a total holding of 2.59% with 736,123 number of total shares amounting to Rs 33.5 Cr.

He sold shares and decreased its holding in the following company:

CHD Developers- decreased holdings by 0.33% to 5.31% total holding with 6,833,322 shares amounting to Rs 2.1 Cr.

At present, Dolly Khannapublicly holds 6 stocks with a net worth of over Rs. 164.4 Cr. The shares sold by her due to constant decrease in the share price as per the shareholding data filed with the exchanges are as follows:

NOCIL- decreased holdings by 0.14% to 2% total holding with 3,310,025 shares amounting to Rs 28 Cr.
IFB Agro Industries- decreased holdings by 0.19% to 1.11% total holding with 104,240 shares amounting to Rs 2.9 Cr.
Muthoot Capital Services- decreased holdings by 0.25% to 1.28% total holding with 211,092 shares amounting to Rs 11.4 Cr.
Radico Khaitan- decreased holdings by 0.28% to 1.13% total holding with 1,502,904 shares amounting to Rs 44.8 Cr.
Rain Industries- decreased holdings by 0.31% to 1.91% total holding with 6,422,542 shares amounting to Rs 56.4 Cr.
Nilkamal- decreased holdings by 0.34% to 1.49% total holding with 222,804 shares amounting to Rs 21 Cr.