Importance of Investing in Equities

Investments a Virtue

In India investment in stocks has been more of an abuse then a virtue.

It is observed that the stock markets are being used as tools of excessive trading and speculation and less for long term investment. Also people who do not invest in the stock markets, are happy to watch their money lose value in the banks in savings accounts, current accounts and fixed deposits.

Let’s see what happens to your money if you make a Fixed Deposit of Rs. 10,000@ of 9% per annum which is taxable. Assuming average rate of taxation 20% you would be paying Rs.180 as tax on the Rs. 900, this leaves you with net earnings after tax of Rs. 720. In 5 years you would make a profit of Rs.720 x 5= Rs. 3600.

The price of the same commodity going up over the years is called inflation. Inflation in India has been around 8% for the past many years. At an average rate of 8% inflation, the product which was costing Rs.10000 has become Rs. 14000  after 5 years, whereas your investment in a Bank Fixed Deposit has grown to only Rs. 13600 (post tax). So you are poorer by Rs. 400 at the end of 5 years, effectively your money has lost value , in terms of the lost buying power of the money. Can you imagine how the value of your money is lost if you let your money be idle in saving and current account?

And as Robert G. Allen one of America’s most influential financial advisors has rightly said "How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." However, saving account must hold money for your immediate and emergency needs for at least six months to a year.

Having said this, what are the avenues to invest other than your own business? The right answer is a mix of Gold, Art, Real Estate, Bonds and Equities depending upon your needs and goals.

Today I am discussing only Equities as my opening remark needs to be justified. In India there is a gross lack of education, for the investor as well as the intermediary who service these investors. Time and again we have seen that because of lack of education the investor in equities have made investments, hoping to make profit in a short period of a few months, weeks, and days and sometimes they expect to make profit on the same day. In their zeal to make quick profits they become traders from investors, without knowing the consequences of the same. They land up paying huge transaction cost and brokerages and in the bargain lose their entire capital. Now my opening remark makes sense. 

This is the most dangerous thing which has been happening to the investments in stocks. As, once this person loses money they never invest in the stock markets and let their money idle in banks.

Let’s see now how investments in stock can be a virtue. 

Ever wondered what do banks do with their money? How do they pay your interests on deposits? How do they meet their expenses of thousands of branches across the country? Well, you should not be surprised to know that banks give loans. They give loans to individuals as personal loan but the biggest borrowers from the banks are the corporate. The corporate take loan from the banks for new projects and working capital requirements. These corporate after paying the Banks an interest rate of up to 18% per annum and still make profit. 

Now if you can invest in these companies you would also reap dividend and growth. Through the stock markets one could invest by becoming a share holder of companies. However one has to educate himself to identify the profitable companies with good management and having made consistent profit over a period of years with high growth. 

There are risks involved while investing in stocks. These are Systematic risks and unsystematic risks. Risks like political, natural calamities, breakdowns, labour unrest, wars, trend change, competition, new inventions, consumption, etc. can erode your investment value. However it has been seen that if one has invested with good companies, they adapt to change with innovations and manage their risks, such that over a long period they would be in profit. 

The risk gets mitigated if the investment is for long term. In late nineties Sensex was near 4000 whereas today Sensex is near 28000. The markets have witnessed uncertainty of coalition government, Kargil war, nuclear tests, sanctions on India, down grade by rating agencies, major crash of 2008. The issues appear irrelevant today when markets are scaling new highs. This shows that over a long period companies perform and if companies perform so does the stock markets, which in turn deliver decent returns. 

So friends, investments in stocks is a virtue , if you have a diversified portfolio with the leading sectors and the leading companies from each sector and have a time horizon of more than 5 years.

Please ensure that next time whenever you have savings, you will not let it idle in the banks, and if you think of investing in stocks, you do not abuse it by becoming a trader as we have seen that more than often, the trader destroys his wealth and with the wealth gone destroys his health. 

Request you to make investments in stocks a virtue and enjoy a healthy, wealthy and prosperous life!

Best wishes for the New Year!

Anup Gupta

 

Disclaimer:

The views expressed in the above article are my personal views. The writer, SREIL, its directors and any of its assigns will not be responsible for the correctness, completeness or quality of the information provided. Liability claims regarding damage caused by the use of any information provided, including any kind of information, which is incomplete or incorrect, will therefore be rejected.

India Rising

Dear Friends,

Have you ever wondered what it takes to be successful?

As I understand its first your hard work with a clearly defined goal. Second, proper planning for achieving the goal and last but not the least it’s fate or destiny.

One more thing I have come to understand that good luck comes naturally to people who do the first two things i.e. hard work and planning.

The true qualities of a good leader, other than all of the above, are building a good team and keeping the team motivated for a good team work.

Why there was a feeling of despair and within six months why is there a sudden feeling of hope in our country?  No miracles have happened. The quarterly corporate results are nothing really great. The Industrial production, the inflation, diesel prices, etc nothing has visibly changed. But still there is hope.

The hope in India is because of its leadership. Full credits to the team of this leader for having a clear and focused goal of what he wanted to achieve. Working hard has been the way of his life and rest is history.  The story did not end there. After the first goal, the planning was so detailed, they knew exactly what was to be done once the first target was achieved.  The team was announced without any baggage, the interest of the people was kept at the top of the agenda. It wasn’t a pleasing game, although

The hopes for a better future get further reinforced by carefully observing the way Government takes up the challenge. It begins with disciplining the work force to gather their acts, as no nonsense would be tolerated, setting an example of the same and before talking big things, cleaning up in the literal sense.

Having cleaned up his back yard, it was time to get to work. And what a way! What timing! Within a span of 15 days. Mangalyaan enters Mars orbit on the first attempt at an unbelievable low cost, sending a clear message to the world, that India has arrived…

Let’s talk business.

Japan commits billions and so do China and the U.S.A.  One cannot miss out on the grand prelude with almost forty Congressmen, including members of the Senate, the who’s who of the Indian Diaspora, at the Madison Square before the grand finale with the President.

Now you see the reason of hope for a better future of our country. With hundreds of billions of Dollars committed to ‘Make in India’ there sure is hope for a brighter future. That it will generate the required infrastructure and employment for the people of this country.

The new leadership is looking in place to lead the country to truly make it a super power. The thought is right, the vision is right, the initial moves are right. Now the nation hopes the government better stays committed and deliver. Needless to say, the responsibility is huge and the expectations even higher.

The best part is, though there is a lot expected from the leaders, we as citizens need to get united to be proud of our motherland and by working for the country, no matter how small our contribution, and build a strong nation.

And if even a small portion of this is achieved, one can only guess where the capital markets will be. Its time you got your act together.

Anup Gupta

Disclaimer:

The views expressed in the above article are my personal views. The writer, SREIL, its directors and any of its assigns will not be responsible for the correctness, completeness or quality of the information provided. Liability claims regarding damage caused by the use of any information provided, including any kind of information, which is incomplete or incorrect, will therefore be rejected.

Importance of Investing in Equities

 Dear Investors

Warren Buffet has said “If you are not prepared to hold a stock for 10 years, don’t hold it for 10 seconds.”

And what do you do? If you have bought the stock in the morning you want it to go up by 5% on a daily basis. Well!  I wish that could happen.

We are seeing more and more interest of the retail investors as the markets are going up. I have a friend named Rajubhai, to whom  when I told to invest when the markets were low, said, “ Arey Anup bhai!, abhi paisa nahi hai” or “Abhi toh market khatam ho gaya hai, apun toh abhi Ek property mei invest kiya hai dou saal pehel, aur abhi 20% profit mei builder hi wapas maang raha hai.”. Now the same Raju bhai is getting interested and saying, “ Arey Anup bhai, kya daam ho gaye, ek saal pehele jo stock sau rupye me mil raha tha, aaj 350 ka bhav hai, yeh daam meh kaise leh, woh jo property liya tha uska builder ne abhi tak koi kaam bhi nahi start kiya hai, aur profit toh chodho, aasal bhi nahi mil raha hai. Bahut paisa atak gaya hai.”

The above story is true not only for Raju bhai, but all the friends I know off who have invested in the stocks or Property. Now let’s look at these two asset class separately and analyse them.

Real Estate is a good asset class and generally it is seen that people who have created wealth from real Estate have encashed on assets created by their forefathers or held by them for a long period of10 years and more.  The returns in real estate are in the range of 16% to 19% when held for a long time. The example I can give of is the flat my father bought in 1969 for Rs 70,000 is today worth Rs. 6 crores which gives it a CAGR of 16.13% in 45 years. There could be exceptions but generally this is the case. I have not sold it yet and have spent lakhs in its maintenance and renovation.  When I try to sell it, don’t know how easily it will sell and at what rate.  Let’s take another case, where I had booked a property in the suburbs in the slow period of 2008. The builders have still not started work and we have paid almost 80% of the money. How do I value this asset? How do I exit this asset? What returns do I calculate on this asset?

Now let’s look at Equities.

Equities give an average return of 17% to 18% CAGR, over a long period, plus dividend of 1.5% totaling to 18.5 to 19.5% CAGR. An example, BSE SENSEX  in  Dec 1979 was 119 and in end Aug 26638 giving CAGR 16.72 plus dividend of 1.5%  totaling to 18.22% CAGR in 35 years plus other corporate benefits. Equities are most easy to invest, very easy to handle, especially after dematerialization and the most important aspect; it is Tax free in the long term.

In equities also there are exceptions, for e.g. Rs.10000 invested in Wipro Ltd., in 1980 has become Rs. 558 crores, which translates into a CAGR of 47.58% for almost 35 years. (The detail working of the same is available. Please email to info@sre.co.in). In some cases people have lost their entire investment.

 Friends,  you may make your own calculations of the growth for the investments you have made in real Estate vis a vis Equities.

I am a man of Equities and would always advocate Equities and SIP i.e. Systematic Investment Plan with a diversified portfolio in the frontline stocks. These provide consistent return, free of any fear of non completion of project, encroachment, maintenance cost and legal hassles etc., and above all, tax free.

Anup Gupta

Equity Investments are subject to Risk. The views expressed in the above article are my personal views. Investors are warned to take their own investment decisions and understand  any investment product before investing. The writer, SREIL , its directors and any of its assigns will not be held responsible for any loss occurred to the investors based on this article.

Recent Situations in J&K and our Responsibility

Will continue to write on financial matters, however looking at the current flood situation in Jammu and Kashmir couldn’t hold myself.

Natural calamities happen. Nature is beyond any body’s control. The question is how soon the civilized world can respond to set thing back in order. How soon the state provides relief measures to the affected in such challenging times. How the people of the country contribute to soften the impact on their fellow countrymen for the loss of family members, loss of livestock, loss of homes, loss of work place, loss of roads, loss of power, loss of food and more...

The recent floods, in the state of Jammu and Kashmir are one more of such natural disaster. A National Disaster for India. The PM has already announced a relief package of 1000 crores and assured more would be made available if required, the state has also announced relief packages to the affected families to the extent of Rs 2 lacs, and 35000 army personnel have been deployed. This information would give you some kind of idea of the magnitude of the disaster in the region.

All known charitable organizations and corporate and individuals are doing their bit. Every friend I have, wants to do something for our fellow Indians. The feeling of Nationalism is at its peak. Whoever I meet says, ‘thodha sa mei bhi kuch karna chahunga, apne bhaiyon ki madad ke liye. Apne desh ke liye’.

And dear friends these small contributions you make, goes a long way to the fellow countrymen who give you countless blessings, from every corner of their heart.

Luckily for us we have a leader who has done a wonderful job in restoring the various cities, towns and villages in the earth quake affected Saurashtra and Kutch. These are testing times in an equally testing terrain. Show it to the world, that India cares and use all your good experience to restore our Jammu and Kashmir.

The losses people have incurred is immeasurable and irreplaceable, at the same time please lets ensure they do not lose HOPE.

And to restore Hope, let us all wow to contribute with a large heart, in cash or kind. Every contribution is welcome no matter how big or small. 

These acts of charity are the best investments one can make. The returns of this investments are beyond your or anybody’s comprehension. No portfolio manager or investment advisor, using all their talent and research can ever in their life time come close to the benefits you will get for money invested  for charity.

Please continue Investment in charity.

PMLA and Its Implications

Hope you all have updated your email Ids and mobile nos. as appealed to you in my previous article. Today I would like to share some information on the Prevention of Money Laundering Act (PMLA).

Now how does this regulation affect the common man? It needs to be understood that all transitions in the financial markets are monitored and transactions above a certain value are scrutinized. They are reported to the relevant authorities by the banks, stock brokers, mutual funds and very soon jewellers and property dealers will also be reporting transactions.

Have you ever wondered what the authorities are monitoring? They are monitoring mainly terror money, proceeds of crime money and any other form of black money. Now the question arises, what is terror money? Terror money is- Funding by organisations for unlawful violence and war for a religious, political, or ideological goal; and deliberately to target or to disregard the safety of non-combatant; violent acts that are intended to create fear in the minds of normal public at large. What are proceeds from crime money? Money acquired by acts of crime like drugs, human trafficking, extortion, bribes, etc. What is black money? Black money refers to funds earned, on which income and other taxes have not been paid.

Please understand that money earned by legal transactions on which tax is not paid is tax evasion which is also punishable, this is black money. But money of terror and crime is illegal even if you pay tax on the same and is punishable as a criminal activity.

Handling of money from any of these activities is called money laundering. This money is not only illegal but also criminal.  Therefore there was a need of PMLA regulation to stop illegitimate money to enter the system in any form. There is a need to strictly monitor this illegitimate money so that it is not used to create any form of asset, moveable or immovable.

Friends, for all of the above mentioned activities, money is the consideration for the people involved, and these people try to park this illegitimate money so that the same can be used later. And if all the avenues to use this money are blocked by monitoring the movement of money, this world would be a safer place. There would be no incentive to commit crime or terror or evade taxes as the same would not be financially beneficial to anyone.

Therefore, it is a primary responsibility of every person to ensure that no person can get away by doing acts of terror, crime or tax evasion and should ensure proper reporting to the relevant authorities whenever they find out of the same.

So strengthen the arms of the Government in prevention of money laundering by reporting any kind of illegitimate money. That is the least you can do for your own safety and the safety of your family, friends and the country.

The Prevention of Money Laundering Act, 2002 (PMLA) was brought into force with effect from 1^st July 2005. Necessary Notifications / Rules under the said Act were published in the Gazette of India on July 01, 2005. Subsequently, SEBI issued necessary guidelines vide circular no. ISD/CIR/RR/AML/1/06 dated January 18, 2006 to all securities market intermediaries. These guidelines were issued in the context of the recommendations made by the Financial Action Task Force (FATF), a global body on anti-money laundering standards.  Compliance with these standards by all intermediaries   and   the country   has become imperative   for international   financial relations.

Some important events in the week; The PM had a fruitful trip to Japan with commitment of about 35 billion of USD investments, Australia inking the Uranium supply to India, the EPFO committing to deploy 5% to the equities market and of course, after more than 50 years our PM Modiji addressing the children on teachers day. All this have helped to boost the sentiment which translated into the Sensex crossing 27000. Stay invested. 

Latest Important Circulars

Dear Investors,

Greetings from Anup Gupta!

After being in the world of finance for more than 25 years now and continue, I was suggested by a dear friend; why not share some of your experience with others. Hope I can connect with you all.

I am a fan of regulation, and though at times have got annoyed with the constant regulations and changes by all our regulators, have realized that, they are in the benefit of all, and especially the investors.

So I sincerely thank the regulators for bringing in discipline, transparency and accountability for the capital markets. It is the best thing that has happened for the investors. There are still various issues which are being represented, to increase investor participation in the capital markets, of which I am also a part of, but I am sure the big picture has been well accepted by one and all.

Another recent regulation concerning updation of email ID and the Mobile number of the Investor will help to reduce the no. of complaints related to unauthorized trading is one of the best things that can happen for the investors and for better regulations of the Capital markets.[NSE Cir. No. NSE/INSP/27339 dated Aug 12, 2014, NSE/INSP/27368 dated Aug 18, 2014 and BSE Cir. No. 20140811-25 dated Aug 11, 2014]

The gist of the circulars is; the brokers have to collect the email Id and Mobile no of all clients who want to participate in the Capital markets and upload the same to the Exchanges, latest by 30^th September.

Now why I am really happy about this circular is the multifold benefits this will have in the overall transparency to the markets is;

From the client perspective: It will ensure same day confirmation of trade to the client, as the email and SMS would be send to the client by the exchanges, there would be enhanced authenticity, most of the brokers also have been sending the confirmations by email and also sending SMS to clients to confirm the trade so placed by the client. If any discrepancy, the same could be resolved on the same day, thus avoiding disputes and unwanted loss.

For the Broker: It would help in sending email & SMS to all the investors , confirming trades executed on their behalf and error if any, could be reported to the broker on the same day itself. It would help further in making margin calls wherever required. It would also enable brokers to give price alerts to clients to further improve services to clients.

For the Regulator: The exchanges would directly email and SMS the trade confirmation directly to the investor, imposing a stamp of further transparency and reliability to the clients participating in the capital markets. It would prevent any kind of misuse by the investor or the dealer, and would greatly help in reducing the complains of unauthorized trading.

Hence I say, this circular is very helpful for all the retail investors, and they should ensure that, their right email Id and mobile no is uploaded by the brokers to the Exchanges.

The markets are looking good in the long term and it would be a pity if you, as investors are deprived of participating in the markets for a simple compliance, of not having an Email Id or a Mobile No.

The views expressed by me are my personal and request every investor to take his own decisions before investments in the capital markets. Remember that all investments are subject to risk and the writer or the company or any of its assigns would not be held responsible for any investment decisions taken by the public based on this article. The writer is the director of Sykes & Ray Equities and actively invests in the capital markets.