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Markets at 18600: Top mutual fund gainers and losers of last one year

In the last one year, when the market stayed at the same levels, a few funds like Nippon PSU Bank BeES, quant Quantamental, quant ESG Equity, CPSE ETF, ICICI Prudential Infrastructure Fund have outperformed the index.

However, we donâ€™t believe in looking at funds from a yearâ€™s performance point of view, this is relevant when investors get drawn to investing in funds who have shown better near-term performance.

In the case of equity funds, we need to look at the performance over the long-term horizon, such as five years or more. Looking at one-year returns and making an investment decision based on these returns might not be the wise thing to do.

But for academic reasons, it is interesting to check the funds topping the charts and understand the reasons behind their performance, especially when the broader market hasn’t moved much. Nifty 50 was around 18,600 in October 2021 and again at 18,600 on November 2022.

If you are a first-time or new investor, it is essential to remember that the ranking of funds across different time horizons tends to vary, and the same fund might not lead the returns table year after year.

Let us dive into the top five mutual funds in the last year.

For this article, we are looking at the chart shared by Manoj Nagpal on Twitter.

Nippon PSU Bank BeES

As the name suggests, the fund is a passive fund that invests in PSU banks and tracks the underlying index. The attractive one-year return of 45.09% is mainly on account of the stellar performance of the PSU Bank Index.

PSU Bank stocks have rallied in the past couple of weeks.

In the last few years, these PSU banks have been in the news for all the wrong reasons after the RBI’s asset quality review. Lending to various corporates led to the accumulation of severe NPAs. However, since FY18, the sector has been slowly getting better, and gross NPAs have gone down from their highs.

PSU banks have worked hard to improve how they lend money to businesses. This is clear from the fact that credit growth in the corporate segment has slowed down and that corporates’ credit ratings have improved significantly.

As a result, PSU Bank Index has given a return of 58.7%* in this calendar year, and if we look at the top fund category that has generated the highest return in the past year, it is the PSU thematic category. This fund category also considers funds that invest in PSU banks and other PSU companies.

Quant Quantamental

Quant Quantamental Fund is second on the list, with 20.16% returns in the last year. The gains may be due to its high portfolio allocation to Adani Enterprises and ITC, whose stocks have given attractive returns in the last year.

Also, the fund has recently added Sun Pharmaceutical Industries to its portfolio.

Quant ESG Equity

Quant ESG Equity is another fund from the Quant house to feature in the top five funds in terms of its one-year returns. Its performance can be attributed to its top constituents, such as Adani Ports and Special Economic Zone, Trent and SBI. However, it is essential to remember that the fund turnover is high. This means that the portfolio undergoes regular churn to deliver attractive returns.

CPSE ETF

Central Public Sector Enterprises Exchange Traded Fund invests in PSUs. This fund was introduced as a part of the government’s disinvestment program in 2017.

PSU-based fundsÂ across the board have experienced significant gains in the past year.Â The CPSE ETF has had strong gains due to this surge in PSU equities. In the lastÂ year, the CPSE ETF had gains of 18.60%.

The fund also belongs thematic PSU fund category.

ICICI Infrastructure

The next fund on the list is ICICI Infrastructure Fund, a sectoral fund that invests predominately invests in companies related to the infrastructure sector. The fund gained 17.24% in the past year.

The fund’s top constituents, NTPC and L&T, have given stellar returns in 2022.

The sector has gained on the back of the government’s ongoing drive for infrastructure, which we can see from the performance of the infrastructure funds.

The fund category was the third-best performing equity category, with 14.13% returns in one year.

Our Take:

One year’s return is a very short span to consider the performance of equity mutual funds. We suggest that you not make hasty decisions based on one year’s performance. Also, we can see that these funds are mainly sectoral and thematic funds. Sectoral and thematic funds carry the highest risk out of all the equity mutual fund categories. These funds have the potential to give attractive returns and also lag behind other funds when the theme is no longer in the picture. So, these funds are suitable for investors who can take high risks. Also, these funds should not be a part of the core portfolio. However, if you can take high risk and understand market trends, you might allocate up 10-15% of your equity portfolio to sectoral and thematic funds.

*as on 2^nd December

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How to invest in stock market?

An easy-to-understand, complete step-by-step guide on how to start investing in the stock market, mutual fund and PMS.

Â Are you interested in earning more money through investing? But arenâ€™t sure where to start? Want to know how to invest in stock market?

If you are concerned about the risks associated with investing in choices such as stocks, mutual funds and Portfolio Management Service(PMS), then this guide is for you.

Key Steps in How to invest in stock market

Stocks

Buying stocks directly can be scary, especially if you have never invested in stocks before. So many variablesâ€”price, volume, market capâ€”mean so little to someone who does not understand how the stock market works. But it does not have to be intimidating!

Hereâ€™s a quick guide on how to invest in the stock market:

1. Do your research! Look up companies that interest you, and find out what they do, how they make money, and their valuation. It is good to know their names and at least a little about their industry. But do not make the mistake of doing too much at once.

2. Find a broker for trading stocks online. Youâ€™ll need an account with a brokerage firm to purchase stocks directly from them. There are two types of brokerage firms: discount brokerages and full-service brokers. Discount brokerages charge a flat fee for every transaction. On the other hand, full-service brokers offer transactions and research reports.

It would be a good idea to shop around and shortlist the brokerage that matches your requirements.

3. Once you have an account with one of these brokers, you can buy stocks directly from them as often as you like. All you need is to log in with your account details and make your transactions.

Mutual funds

Mutual funds are a great way to invest your money, but knowing where to start may not be very clear. Hereâ€™s everything you need to know about mutual funds.

Mutual funds are investment companies that pool money from many people and invest it on their behalf. They allow investors to purchase units of the fund, which represent a portion of the underlying assets owned by the mutual fund company.

First-time mutual fund investors must first complete the one-time KYC process. After completing your KYC, you can participate in any fund without undergoing additional verification for each transaction. You can either go to a distributor or investment advisor or perform e-KYC online to complete the KYC formalities.

Once your KYC has been verified and you are ready to invest, you can choose to do so with the assistance of a bank, registered investment advisor, stock market broker, mutual fund distributor, or another financial intermediary. However, if you want to invest on your own, you can go to the fund houseâ€™s nearby office, their website, or any online platform.

If you are interested in investing in mutual funds, hereâ€™s how you can start:

Decide on your investment objective: Mutual funds are different from other investments because they have different objectives. Some are designed purely for capital appreciation, while others focus on income generation. Therefore, you need to understand your investment objective before deciding which fund to invest in.

Choose a scheme: Once you have chosen the fund category that suits your needs best, choose one or more schemes that suit your requirements best.

Portfolio Management Service

An investment portfolio that includes stocks, debt, and other securities and is overseen by a qualified money manager is known as a Portfolio Management Services. ItÂ is and may be customised to match specific investment goals. In contrast to mutual fund investors, who own units of the entire fund, you own individual securities when you invest in PMS. You are free and able to modify your portfolio in accordance with your financial objectives and personal preferences. Â According to SEBI regulations, only organisations that have registered with SEBI to offer PMS services to clients may do so. The minimum investment needed to start a PMS account is Rs. 50 lakhs, under SEBI regulations.

A Demat and a bank account are opened in your name if you choose to invest inÂ a PMS scheme. These accounts are used for all upcoming transactions in your name. The investmentâ€™s dividends are credited to this bank account. In a similar manner, the shares acquired are moved to the Demat account. This indicates that you hold each of your stocks separately. Â You would receive a daily evaluation statement of your portfolio from your portfolio managers.

There are two ways to invest. One way is by cheque, and another is by transferring the clientâ€™s current shares from their Demat account. In addition, the client must sign paperwork such as a power of attorney, Pan Card, and address proof, among others.Â

The SEBI permits PMS Providers to levy either fund management fees or performance-based profit sharing, but not both.

The yearly fund management charges, which are typically deducted from the PMS Account on a quarterly basis, fall between the range of 1-3%. However, it could vary across service providers.

If the performance of the plan surpasses a predetermined threshold, the portfolio managers may also share in the schemeâ€™s earnings.Â

Conclusion

Investing can be a scary venture to undertake, but it doesnâ€™t have to be. If you remember the old adage that â€œnothing ventured, nothing gained,â€ and keep the above-given tips in mind, then you are well on your way to becoming a successful investor.

While itâ€™s possible to do all of these things on your own, you may want to consult a financial advisor to help you navigate the process. The advisor can also help you choose an investment plan thatâ€™s right for you; better yet, they can help free up some time that would have been spent researching to learn more about other aspects of the financial market.

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Whatâ€™s the best way to invest in stocks? Invest directly or through mutual funds

The best way to invest in stocks depends on you.

Gone are the days when households used to save money in lockers or save money in traditional saving options. Thanks to financial awareness, most households are opting for market-linked investment options like mutual funds and the stock market.

Investing in the stock market has gotten the attention of todayâ€™s generation. The expectation of higher returns is the main reason behind their preference. But with greater returns comes higher risk.

Investing in equities can help build wealth over time and achieve long-term financial goals. There are two main options to invest in the stock market: directly and through mutual funds.

But the real dilemma is choosing the right option. You should know that there is nothing right or wrong. The correct option is the one that is suitable for you.

Letâ€™s compare both ways and see what works better for you.

Best way to invest in stocks – Be Expert

To invest directly in the stock markets, you must have the necessary expertise to make wise decisions. First, you must know about all the technical jargon related to the industry. Secondly, you must know how to:

To read balance sheet of a company,
To evaluate stocks carefully,
Analyse a company,
Build your investment portfolio and so on.

On the other hand, if you invest through mutual funds, you let fund managers handle your money and make investment decisions on your behalf. Fund managers have the required expertise and experience in the field of investment.

Hence, you can invest directly in stocks if you have the expertise. And if not, mutual funds come to your rescue.

How much time do you have?

Your answer to this question will decide the right path to invest in the stock market.

If you have enough time to learn about the investing world, spend hours on research, company analysis, and stock analysis, then investing in stocks might be the ideal option. You might have to make quick decisions in case of major market movements. So, it is essential to keep that in mind as well. If you can do all this, you can invest directly in stocks.

But if you donâ€™t have enough time, or your time is worth more than all the efforts needed, the mutual fundâ€™s route might be the ideal option.

Do you want to make investment decisions every time?

One of the most popular reasons to invest in stocks through mutual funds is the Systematic Investment Plan (SIP). It allows you to invest consistently without a break. Systematic investments develop a habit of consistent investment without worrying about market volatility.

Alternatively, manual investing in stocks will make you think every time you feel like investing. Some days you wonâ€™t feel like investing, and other days, you might even forget to invest consistently. Also, the market levels might influence your investment decisions. You would want to time the market. But, you might burn your fingers trying to time the market.

So, if you want to invest in the equity market in a disciplined manner and fulfil your financial goals, mutual funds are the correct route.

Do you want a diversified portfolio?

If you want a diversified portfolio, getting exposure to stocks through mutual funds can be the right fit. A well-diversified mutual fund would have more than 50 stocks in its portfolio. This ensures that overall risk is reduced and well-performing stocks nullify the effect of underperforming ones.

However, when investing directly in stocks, you will have to analyse each companyâ€™s stock which means a lot of effort will be needed to build a diversified portfolio. Most investors buy only a few stocks and find it overwhelming to manage them well. Hence, they tend to get out of the game early.

Only a few investors will hold a stock for 15 years. In the event of huge gains, they sell their holdings to enjoy gains. In the event of losses, most investors will sell and get out of a stressful situation.

So, if you wish to invest and stay invested for years while enjoying the advantage of diversification, you know which way to go.

Costs are also important

All funds have a specific expense ratio, the annual charge charged by the fund house. It is expressed as a percentage and depends on the fundâ€™s assets under management (AUM). Normally, these expenses are subtracted from your returns.

And these expenses depend on various factors, such as whether the equity fund is an actively managed or a passively managed fund, and if it is an actively managed fund, is it managed by a star fund manager? The expense ratio also depends on the investment option: regular or direct option and the fund size.

Suppose you have invested Rs 30,000 in a fund with an annual expense ratio of 1%. Youâ€™ll have to pay Rs. 300 to the fund house to manage your funds. You donâ€™t directly pay it, but it forms a part of the fundâ€™s return. The expense ratio is subtracted from the fundâ€™s return.

Alternatively, if you are investing in stocks directly, you have to bear expenses such as brokerage charges while buying and selling shares, transaction charges and depository participant charges.

If you are actively trading in the stock market, you might have to bear various costs.

Do you want to save tax and build wealth at the same time?

You can get tax-saving benefits (under section 80C, investment amount up to Rs 1.5 lakh) if you invest in Equity Linked Savings Schemes (ELSS), a type of equity mutual fund. However, you do not get such benefits when you invest directly in the stock market. So, this can be another reason to choose mutual funds.

Final words

Investing in equity mutual funds has pros, and so does investing directly in the stock market. Investors with more risk tolerance, time and expertise in the stock market can manually invest in stocks. Investors with less time and expertise may invest in mutual funds. Hence, no option is right or wrong. The one that fits your needs is perfect for you. However, a financial advisorâ€™s assistance can help you plan your finances better.

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Should You Invest in LIC IPO?

Here are the things you should keep in mind before investing in the LIC IPO.

It will be the first time that the insurance giant Life Insurance Corporation (LIC) of India has gone public. LIC IPO opened today on 4^th May 2022. The Government of India has set the LIC IPO price range at 902 to 949 for every equity share. LIC IPO for policyholders is available at an Rs.60 discount, and LIC employees will get a 45 discount on the LIC IPO share price if they apply for the public sale. LIC IPO date in 2022 will be open until 9th May 2022

This article will help you decide whether you should invest in the LIC IPO.

Few pointers on LIC

On 1st September 1956, LIC was formed by the merger of 245 private life insurance firms.
It is a government-owned insurance firm that was India’s only life insurance company until the government allowed private insurance companies to enter the market in 2000.
It is the world’s fifth-largest life insurance business by Gross Written Premium (GWP) and the tenth-largest life insurance company by total assets.
It has 2,048 branches, 113 divisional offices, 8 zonal offices, and 1,554 satellite offices in 14 countries throughout the world.
Fiji, Mauritius, Bangladesh, Nepal, Singapore, Sri Lanka, the United Arab Emirates, Bahrain, Qatar, Kuwait, and the United Kingdom are among the countries where it operates.
It accounts for 74.6 percent of all individual life insurance policies written in India each year, with over 290 million active life insurance policies.

LIC IPO details

LIC IPO date 2022:

The public offering will begin on 4th May 2022 and will be up for bidding until 9th May 2022.

LIC IPO share price:

The Government of India has set the LIC IPO price range at 902 to 949 rupees per share.

LIC IPO size:

The Government of India expects to raise Rs 21,008.48 crore from the LIC IPO.

LIC IPO lot size:

Applicants will be able to apply in lots, with each lot consisting of 15 shares of LIC.

IPO application limit:

A single buyer can apply for a minimum of one lot and a maximum of fourteen lots.

Factors that impact the LIC IPO

Here are some factors you need to look at before investing in LIC IPO.

Growth potential

In India, life insurance is primarily promoted as a savings product with a significant investment component built into the premium. As a result, the actual growth opportunity for insurers may be in selling attractive pure term and annuity policies to investors while encouraging those who already have life insurance to increase their coverage.

Over the next five years, growth projections for the sector may be as high as 14-15% and for LIC as high as 9-10%.

When Covid struck, Indian life insurers saw rapid expansion. From FY16 to FY20, total premium grew at a 12% CAGR, while New Business Premium (NBP) grew at a 17% CAGR. However, once Covid began selling operations, growth rates slowed to 7-7.5% in FY21.

As LIC gets two times the premium collected by all private players combined, its growth rates have typically been lower than those of the private companies. Its NBP increased by 13.5% from FY16 to FY21, compared to 18% for other insurance companies.

Market share

In the five years from FY16 to FY21, LIC has slowly lost market share to private firms. The table below shows that LIC has lost more market share in the individual business than in the group business, which it still controls.

Individual business is acquired through a mix of channels, including individual agents, banks (bancassurance), brokers, and so on, while group insurance is sold directly by companies.

Source: PrimeInvestor

LIC will need to establish itself in the bancassurance and digital channels to attract new consumers in the long run. It has taken some moves in this approach by partnering with Policybazaar, but the benefits may take some time to materialise.

To grow in the insurance industry, it needs a lot of money. With just a small amount of stock from its promoter and a lot of help from policyholder funds, LIC has developed its franchise to its current massive scale. This is not a path those private players may follow. As a result, LIC’s scale advantage is expected to last long, while obtaining funding for future expansion will be more difficult.

Investment performance

LIC’s investment decisions are frequently in the headlines for all the wrong reasons.

However, given the large magnitude of LIC’s accumulated float, these inefficient investing actions don’t substantially impact the company’s overall investment performance.

With Rs 40.1 lakh crore in assets, LIC controlled 3.2 times the assets of all private life insurers combined in December 2021 and had more than 15 times the assets of the second-largest company. Problem sectors, including poor loans and ‘other investments’, account for a minor percentage of LIC’s portfolio.

Valuations

Overall, LIC is expected to continue to benefit from its dominating and impregnable market position, difficult-to-replicate distribution reach, strong brand recall and confidence (because of sovereign support for its policies), and the stability that comes with a significant asset base. However, in terms of growth and profits, it is likely to fall behind private players.

Hereâ€™s what the brokerage houses have to say about the LIC IPO:

Reliance Securities

The advice from Reliance Securities is to “subscribe.” According to the report, the IPO was priced at a fraction of the price of private life insurance companies. LIC is well-positioned due to its multichannel distribution network, which comprises 1.33 million agents, partners, and alternate channels. In addition, the corporation has a solid financial track record.

Angel One

The IPO has received a ‘subscribe’ rating from Angel One. LIC’s market share loss in the individual insurance industry and historically lower earnings are worries, but the brokerage believes that valuations explain most of the problems.

Profits are expected to climb from current low levels in the coming years as the product mix improves and excess is transferred to shareholders’ accounts, which gives investors confidence when paired with cheap valuations.

Furthermore, a 45% discount for retail investors and a 60 percent discount for LIC policyholders make the IPO more tempting to them.

Geojit Financial Services

Geojit Financial has given it a ‘short to medium term subscribe rating.’ Despite downside risks such as declining market share, lower short-term persistency ratios, and sub-par margins that demand a discount to private players, the current valuation is appealing due to its strong market position and enhanced earnings per share due to changes in surplus distribution norms, and strong sector growth outlook.

Choice Broking

The IPO has been granted a ‘subscribe’ recommendation by Choice Broking. LIC has 13.3 lakh individual agents, accounting for 55% of the total agent network in India.

Ventura Securities

The issue gets a ‘subscribe’ rating from Ventura Securities. LIC operates internationally and has 2,048 branches, 113 divisional offices, and 1,554 satellite offices around the country. The business offers both insurance and investing services. At this premium level, life insurance as a proportion of GDP is predicted to reach 3.8% by FY26, up from 3.2 percent in FY21.#lic #ipo

A primer on penny stocks

Penny stocks have a stock price of less than Rs.25. Should you invest?

This article will talk about stocks that are not widely discussed, i.e., penny stocks. Penny stocks have a very low stock price, and these companies are generally not well established.

In most cases, investing in penny stocks is just like gambling or speculation. Penny stocks may have a high potential to grow your money if you are lucky and select the stock after extensive research.

Before jumping to putting your money into penny stocks, let’s explore the territory for these low price trading penny stocks.

What are Penny Stocks?

Penny stock has no exact definition, but the stocks trading at lower than the Rs. 10 are usually considered penny stocks. Also, sometimes stocks with a price of less than Rs. 25 are also considered penny stocks. Most penny stocks are associated with small-sized companies and do not have a strong balance sheet.

At the same time, few penny stocks â€Œhave the potential to give attractive returns, as they have solid fundamentals. Also, most penny stocks are not liquid, and investors may face liquidity issues during exit.

Penny stocks are highly speculative because of low-volume trade and small company size.

Things to Know about Penny Stocks

Lack of information available to the public: Adding potential investment-worthy stocks to the watch list requires researched & informed decisions. Penny Stocks don’t have information available to people. Also, the â€Œinformation available may not be correct.
Lack of Compliances: In India, penny stock companies often don’t even comply with the rules & regulations of the Stock Exchange. They are not precisely transparent in their reporting and statements.
Fraud: The stock market has several stories about frauds through penny stocks. Usually, large capital investors put money on penny stocks to influence retail investors to buy penny stocks. And as stocks reach a certain level, large investors pull out their money, which may cause enormous losses to retail investors.
High Potential: It is possible that the company will grow with time. If the company is doing well and the fundamentals are reasonable, it has a good chance of becoming a mid-cap company soon. This could make your money grow significantly.

Should You Invest in Penny stocks?

There isn’t a clear ‘yes or no’ to such a query because some penny stocks â€Œhave the potential to grow your wealth. A significant number of penny stocks, on the other hand, are questionable and extremely dangerous investments to make. Before investing in penny stocks, knowing the fundamentals, studying the company’s reports, and technical analysis are essential.

Stock price is not enough.

The standard method of considering a likely company to invest in is by looking at market capital while diversifying the portfolio. The stock price depends on the demand and the number of shares available to the public.

For example, if a company’s stock price is Rs.30 and shares are 1,00,000, the market capital sums to Rs.30 lakhs. At the same time, if a company’s stock is trading at Rs.300 with 10000 public shares, it will also have a market capitalisation of Rs. 30 lakhs.

The argument is that, while a stock’s price point isn’t always necessary, its market capitalisation and fundamentals are essential.

Conclusion

While there are plenty of opportunities to make money with penny stocks, we’d advise against buying into most penny stocks. Most of them aren’t worth the time or effort. Who knows? Some of those stocks could end up being lucrative investments. But what if they’re just a scam in disguise? So, should you invest in penny stocks? There’s no one-size-fits-all answer. But we can say this: as long as you do your research and are aware of the risks involved, you can probably still find a few penny stocks worth putting your money into.

Do you need to invest in international stocks or mutual funds?

Portfolio diversification is one of the most important tenets of personal finance. It is a risk-mitigation strategy that implies â€˜spreading investments across various financial instruments, industries & markets. While investing in a mix of different assets is common, diversifying investment across different countries can also be considered an effective strategy. When the portfolio consists of securities of domestic and foreign markets, it is called international/ geographical diversification.

Today, with a gradual decline in fixed barriers such as cross-border capital flows, information gathering & political controls; attaining international diversification in oneâ€™s portfolio has become even more accessible and vital.

Why is international diversification important?

Stock markets and economies of different countries tend to perform differently at the same time. In other words, the same global or local event is likely to affect two different economies differently. International diversification enables you to build a portfolio that can withstand firmly during economic crises and generate optimal risk-adjusted returns. For instance, letâ€™s assume you have invested in both Indian and US stocks. Now, if the Indian stock market takes a sharp downturn, you will incur partial losses as the investment in US securities can cushion your portfolio returns. This is because the US stocks will not be as much affected by the Indian stock market correction.

How to avail international diversification?

Â· Direct Equity

Foreign financial markets may have different characteristics than domestic markets. One can invest in the listed stocks of foreign markets through registered brokers. Investing directly takes a lot of research and analysis of the cross-border markets and requires paying higher charges. Other countries may not have the same rules or disclosure policies applicable to the companies, so it’s difficult to find out information about the company. Thus, investing directly in foreign stocks might be a tedious task for investors.

The maximum amount an individual can invest in international stocks through direct equities in one financial year is capped at USD2,50,000.

Â· Mutual Funds

International mutual funds in the form of Fund of funds or ETFs are the most cost-effective, easy, and convenient way to avail international diversification in your portfolio. After thorough research and deep analysis, the fund manager and the fund house build a scheme portfolio that lowers the chance of picking up the wrong stocks. Also, mutual funds are a less expensive investment avenue than a direct investment in foreign stocks.

Thereâ€™s no cap on investing in an international Fund of Funds (FoF). Investors can invest as much amount as they want in a year through these mutual fund schemes and get exposure to international companies.

Benefits of international diversification

Â· Exposure to international markets

International diversification gives access to markets with different characteristics and growth opportunities. Some of the leading global brands are from the US and other western countries. Investing in them by buying their stocks can help you grow and participate in their growth journey.

Â· Domestic market risk mitigation

International diversification can also minimize the concentration risk of investing in one region. When you invest in stocks across borders, you are likely to benefit from the various areas doing relatively better than your home country.

Â· Long-term wealth creation

When you invest in emerging markets (China, Brazil, India, etc.) that have more growth opportunities than the developed economies (US, Europe), your portfolio returns are likely to enhance over the years. Similarly, investing in developed markets like the US also presents a wealth creation opportunity as these markets are mature and relatively stable than the emerging markets.

Â· Protection from rupee depreciation

Since international diversification also implies diversification across currency, your investment portfolio strengthens against currency depreciation risk. For example, the value of the rupee has dropped from Rs. 43.435 on Jan 03, 2000, to Rs. 75.116 on Dec 03, 2021, against the US dollar. In such a case, having exposure to foreign currency through international funds can set off the impact of rupee depreciation.

Although one must consider risks associated with an international investment such as political/country risks, currency risk, legal and regulatory risks & settlement risk/trading costs before taking the final call. Investing in international markets can play a role in risk-mitigation of the investment portfolio, and therefore investors can allocate around 10% of their equity portfolio in international stocks or funds.

What you need to know about NSE Digital Index

Digitisation has changed the way we live, affecting nearly every area of our life. The alarm we set on our mobile phones in the morning, smart appliances in the kitchen, the scanner we use in the office, online shopping, and several other things in the list signify the presence of the digital sector in our day-to-day lives.

Considering this rapid adaptation and prospective growth of the digital theme, the National Stock Exchange of India (NSE) has launched Nifty India Digital Index. The index consists of stocks of companies in the digital sector. It tracks the performance of selective companies belonging to software, e-commerce, IT-enabled services, industrial electronics, and telecom services sectors. The core objective of the index is to give a concentrated exposure to one of the booming and important sectors of the economy.

Why the digital theme?

Ã˜ Changing consumption patterns leading to rise in demand

Digitisation has brought a lot of time and energy-conserving changes in our lives. As the young population across the globe starts adopting and enjoying new digital and technological advancements, the appeal for digital products and services is going to rise as well.

Ã˜ Booming IT-BPM industry

The IT & business service industry in India has its reach across the globe, and it is diversified across multiple verticals, such as retail, telecom and BFSI. Given the hike in offshore demand for Indian software services, our IT market is expected to increase in the coming years

Ã˜ Governmentâ€™s support and initiatives

The Indian government is taking a number of steps to promote the growth of the digital industry in the country. Radical efforts to enhance digital infrastructure in the country can also play a significant role in the digital industryâ€™s development.

Nifty India Digital Index aims to track companies that are most likely to benefit from the development in the digital sector and prosper in future. It includes companies having the exposure to the digital theme and which have the potential to rise as digital advancements reach the new pinnacle.

Index funds or Exchange Traded Funds following this index as their benchmark index will benefit from the growth of these digital-theme based companies. Investors investing in such schemes are likely to create wealth from the boom of the digital sector in the future.

Structure of the NSE Digital Index

The index comprises 30 stocks based on their six-month average. Stock weight is capped at 7.5% each, and it is decided based on their free-float market capitalisation (as on the cutoff dates at the end of January and July). The sector weights are capped at 50% each.

The new index was launched on December 14, 2021 and April 01, 2005, is considered as the base date for the index. The base value is Rs. 1,000. The index is reviewed and reconstituted on a semi-annual basis.

Who should invest in NSE Digital IndexÂ

Investors believing in the growth of the digital industry and those willing to earn reasonable returns from the growth of companies in the digital space should consider investing in the Nifty India Digital Index. Also, those with a high-risk appetite, long-term investment horizon, and seeking thematic/sectoral diversification in the portfolio can consider investing in this index.

NIFTY INDIA DIGITAL INDEX COMPANIES

TATA ELXSI

TCS

STLTECH

PERSISTENT

INFOSYS TECHNOLOGIES

CYIENT

SONATA SOFTWARE

WIPRO

BHARTI AIRTEL

AFFLE

ORACLE FINANCIAL SERVICES

HONEYWELL AUTOMATION

HAPPIEST MINDS

INDIAMART

BIRLA SOFTWARE

L&T TECHNOLOGY SERVICES

HCL TECHNOLOGIES

MPHASIS

VODAFONE IDEA

L&T INFOTECH LTD

TECH MAHINDRA

MINDTREE

COFORGE

IRCTC

TATA COMMUNICATIONS

INTELLECT DESIGN

TANLA

JUSTDIAL

NAUKRI / INFO EDGE

FIRST SOURCE SOLUTIONS

An update on Marcellus’ Kings of Capital PMS

Saurabh Mukerjea’ PMS firm Marcellus Investment Managers made waves with its Consistent Compounders and Little Champs strategies. But, its 3rd offering – Kings of Capital (KCP) – has not created alpha. KCP is a financials sector focussed investment strategy with a portfolio of banks, NBFCs, life and general insurers, asset managers and brokers. Since its inception about fifteen months ago, the KCP strategy has under-performed Bank Nifty by 20 percentage points. Here, we take a detailed look at the KCP strategy.

PMS construct

The three tenets for selecting stocks in Kings of Capital remain the same as the other two strategies â€“ Consistent Compounders and Little Champs: Clean accounting and good corporate governance; Historical evidence of prudent capital allocation; and High barriers to entry so that companies are able to sustainably generate return on capital higher than cost of capital.

Marcellus KCP created a portfolio of high-quality lenders, general insurers, life insurers, asset managers and brokers. The portfolio was launched on July 28, 2020.

Performance

Since inception (to Oct 31, 2021), KCP has given 32.8% gain versus Bank Nifty TRI’s 57.6% return. In the last 6 month period, KCP generated 15.1% vis a vis 19.7% of Bank Nifty.

In the last 1 year, KCP has given 40.86% versus 61.9% of ASK Investment Managers Financial Opportunities, 63.27% of Kotak Fintech and 58.61% of Trivantage Capital Management Resurgent Financial Equity. This shows clearly that Marcellus KCP has under-performed both Bank Nifty and PMS peers.

While the lenders in the KCP portfolio i.e. banks + NBFCs have delivered good returns since inception, the non-lenders in KCP have delivered lower return leading to a lower blended return and relative underperformance vs. the Bank Nifty.

Also, do note that since KCP uses capital allocation filters to zero in on Financial Services companies which have historically demonstrated the ability to deploy capital prudently, it has missed out on some turnarounds in the Financial Services sector. Of course, missing them does also mean avoiding perfect entry and exit into such stocks.

You can read a note by Marcellus on KCP under-performanceÂ here.

Our take

Without going into the finer details, the truth is no PMS or any fund manager can always deliver alpha. Strategies will have to go through ups and downs. Marcellus had made a name with Consistent Compounders (largecap bias) and now with Little Champs (smallcap bias). KCP is a sectoral/thematic play on financials, and as such a more different & difficult challenge.

Unless you have reasons to disagree with KCP investment philosophy and portfolio, there is no need to be unduly worried. We would advise you to wait and watch KCP performance for another year before taking a firm call.

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One97 Communications: What you need to know about India’s largest-ever IPO

The much-awaited IPO of One97 Communications, the holding company that owns and operates the PayTM super app and other allied businesses, is opening November 8, 2021. The offer worth â‚¹18,300 crore, comprises a fresh issue of â‚¹8,300 crore and the rest being offer for sale. Founder promoter Vijay Shekar Sharma, along with other marquee investors such as Antfin (Netherlands), Alibaba.com Singapore E-Commerce and BH International Holdings are selling partial stakes in the IPO.Â

The IPO is the biggest-ever for the Indian capital markets, and eclipses Coal India’s then mammoth offer. This is also the costliest mainboard IPO in terms of share price by virtue of the Rs 2,080-2,150 per share tag, that surpasses the record held by Dix Technologies (â‚¹1766 per equity share). Should you invest in One97 Communications (PayTM) IPO and will it make money for you? We help you find answers.

About the company

One97 Communications Limited was incorporated on December 22, 2000. The company today is Indiaâ€™s leading digital ecosystem for consumers and merchants. Paytm offers â€˜Payment Servicesâ€™, â€˜Commerce and Cloud Servicesâ€™, and â€˜Financial Servicesâ€™ to 33.3 crore consumers and over 2.18 crore merchants registered with them, as of June 30, 2021. Theirs is a 2-sided (consumer and merchant) ecosystem. One97 Communications launched Paytm in 2009, as a â€œmobile-firstâ€ digital payments platform to enable cashless payments for Indians, giving them the power to make payments from their mobile phones.Â
Starting with bill payments and mobile top-ups as the first use cases, and Paytm Wallet as the first Paytm Payment Instrument, they have built the largest payments platform in India based on the number of consumers, number of merchants, number of transactions and revenue as of March 31, 2021.
Paytm is available across the country with â€œPaytm karoâ€ (i.e. â€œuse Paytmâ€) evolving into a verb for hundreds of millions of Indian consumers, shopkeepers, merchants and small businesses.
The “Paytm” brand is one of India’s most valuable payments brands, with a value of $ 6.3 billion.
Besides, One97 Communications subsidiaries has made PayTM a payments-led super-app, through which they offer their consumers innovative and intuitive digital products and services. Paytm Payment Instruments allow consumers to use digital wallets, sub-wallets, bank accounts,buy-now-pay-later and wealth management accounts.Â
Paytm is the only payments company in India that, together with their affiliates, owns each layer of the payment stack. It offer services such as Paytm Wallet, Paytm QR, Paytm Soundbox, Gold investments and Fixed Deposit, Paytm Postpaid, Merchant Cash Advance and FASTag.Â

The hype and realities

The excitement around the IPO of PayTM is purely a play on the current under penetration of digital payments in the country and the leadership position that the company enjoys.Â
Put together, One97 Communications subsidiaries has 32 subsidiaries (includes PayTM Money and 17 foreign subsidiaries), 10 associate companies (includes PayTM Payments Bank) and other joint ventures.
One97/PayTM generates revenue in the form of transaction fee, consumer convenience fee, and recurring subscription fee (from merchants), payment services. That’s one of the biggest moneyspinners for it.
Software and cloud services accounts for 14 per cent of revenue in FY21.Â
The companyâ€™s Gross Merchandise Value (or GMV) grew by 33 per cent CAGR over FY19-21 to â‚¹4 lakh crore.
For FY21, One97 Communications reported a revenue base of â‚¹3187 crore and loss of â‚¹1701 crore compared to revenue of â‚¹3540 crore in FY20 and loss of â‚¹2942 crore.Â
Despite steady growth in merchant on-boarding and transaction volumes (GMV), its operating revenues dropped 7 per cent CAGR over FY19-21 to â‚¹2,802 crore. This implies an average take rate of 0.69 per cent, which further dropped to 0.61 per cent in June 2021 quarter.
Do note the take rate for the company is low and may remain so even going ahead. The RBI has restricted the transaction fees and commissions on various payment services to less than 1 per cent (varying across payment instruments), apart from imposing per transaction limits on such fee income (in the range of â‚¹15 to â‚¹1,000).Â
PayTM faces tremendous competition from large players such as Google, Walmart-Flipkart/PhonePe and Reliance-Facebook. Besides there are numerous other fintech players it competes with in each separate segment.
The company also has no profits in the past to show. Its EBITDA (loss) margin, improved from negative 130 per cent in FY19 to negative 59 per cent in FY21.Â
The company is sitting on a cash (and bank) balance of â‚¹2,498 crore (pre-issue) as of June 2021 and could heopefully get another â‚¹8,300 crore through the IPO. That’s a total of â‚¹10,800 crore.Â
Do note that PayTM around June-July 2021 saw a series of exits from KMP such as Amit Nayyar, Rohit Thakur, Jaskaran Singh Kapany and Amit Veer.Â

To invest or not

Translating revenues to profits has ben a tall task for PayTM.Â
While you can bet big on the under penetration of digital transactions and financial services in the country, PayTM is present in everything. That casts the net wide, but thin. Given its ambitions and vision, the path to profitability is 18-24 months but that can change based on how the businesses run.Â At a price band of â‚¹2,080-2,150 apiece, the company is valued at EV/revenue (FY21) of 40.3 times compared to its profitable foreign listed peers that trade in the range of 7 to 12 times. We consider players such as Paypal, Square, and Ant Financial as peers of One97 Communications (PayTM). The price tag of the IPO leaves little on the table for investors. Even for IPO investors who aim for listing gains, the large size of the IPO means the oversubscription numbers will be, at best, modest.
Recent tech IPOs such as Nazara Tech. (EV/sales of 8 times), Zomato (EV/operating sales of 29 times) and FSN Commerce or Nykaa (EV/sales of 22 times) were not priced as aggressively as Paytm. So, risk reward ratio could be less favourable for investors who buy at this PayTM IPO price.Â

Brokers views

Ashika: Leveraging the large scale, reach, and deep and high-frequency engagement by consumers and merchants on the payments platforms, it has been able to add new payments offerings, as well as expand into commerce and cloud services and financial services. Each of its offerings increases the scope of the ecosystem for consumers and merchants, enhancing the value of the ecosystem. There is a large opportunity for Paytm to leverage the technology infrastructure and expand to international markets. In 2017, Paytm piloted the bill payment services in Canada and in 2018, Paytm partnered with Softbank Corp. and Yahoo Japan Corporation to launch PayPay, a leading digital payments and financial services company in Japan.Â
Axis Capital: India is a country of hundreds of millions of young and aspiring consumers who are underserved in payments and financial services products. There are millions of small businesses in India that would benefit from having increased access to affordable software, technology and financial services. These consumers and small businesses can be served through technology-led, digital-first commerce. Paytm has a large addressable market in India. The market segments that they serve have large growth potential, due to significant under-penetration, and the ability of technology to grow the market.Â

Company	One 97 Communications (PayTM)
Open date	8-Nov-21
Close date	10-Nov-21
Allotment date	15-Nov-21
Listing date	18-Nov-21
IPO band	â‚¹2080 to â‚¹2150 per equity share
Share face value	â‚¹1 per equity share
Bid lot	6 Shares
IPO registrar	Link Intime India

Policybazaar IPO opens for subscription; Pricing, issue details

PB Fintech Ltd, the owner of Policybazaar.com, has hit the IPO markets on November 1, following a flurry of public offers over the last week. The listing, that aims to raise about â‚¹5,700 crore, consists of a fresh issue of â‚¹3,750 crore and the rest as an offer for sale. PB Fintech is known for its digital market places â€” Policybazaar.com for insurance and Paisabazaar.com for consumer lending. Read on to know more.

About the company, business
Gurgaon based PB Fintech commenced operations in FY08 initially as an insurance web aggregator. Subsequently, it entered the credit market to provide convenient access to insurance, credit, and other financial products. In addition to creating a distribution channel, it also provides online marketing, consulting, and support services for the financial services industry. It follows an asset-light capital strategy without undertaking any insurance or credit risk on its books. The company has been successful in building Indiaâ€™s largest online marketplace for insurance and lending products.

Policybazaar is the flagship platform and caters to consumer demand for higher awareness, choice, and transparency towards the online sale of insurance products. It has thus evolved as Indiaâ€™s largest digital insurance marketplace, with market share of 93.4% (based on the number of policies sold). It has partnered with over 50 insurers. In June 2021, the company received the broker license, which would allow it to target offline and corporate businesses as well.

Paisabazaar is the largest digital consumer credit marketplace, with market share of 51.4% on the basis of disbursals. It began its operations in FY14 with the goal to transform personal credit access. It is widely used to access credit scores, with 21.5 million consumers as of March 2021. It has partnered with over 50 lenders across banks, NBFCs, and fintechs for personal loans, business loans, credit cards, home loans, and LAP.

Financials

Revenue for PB Fintech is driven by commission and fees, from insurance (68 per cent of FY21 sales), and lending (21 per cent).

PB Fintechâ€™s insurance business generates commissions on sales (43 per cent) and outsourcing services (49 per cent). The commission rate and outsourcing charges are 5 to 6 per cent. Paisabazaar generates commission revenues from loan disbursals and other services in the range of 3-6 per cent.

Revenues in FY21 were impacted by the pandemic. Revenues grew by 12 per cent in FY21 compared to 62 per cent in FY20. Thankfully, they have recovered to 36 per cent in Q1 of FY22. The company is loss-making at bottomline level.

With a successful IPO, the company plans to acquire companies which are complementary to its health/insurance/lending platforms. For this, it has earmarked â‚¹600 crore. Brand building, offline channel and overseas presence have been allocated â‚¹1,500 crore and â‚¹375 crore each.

Premium valuations

PB Fintech’s businesses are firmly placed at the cross section of financial solutions and digital adoption. The company’s leadership position may allow for high growth for quite some period. The IPO price commands a premium valuation of 46 times FY21 sales. This type of valuation heightens the risks.

The IPO price values PB Fintech at a market cap of Rs 44,250 crore to Rs 46,125 crore. This is roughly $6.15 billion. To justify this valuation, IPO investors would have to estimate high revenue growth (over 40% CAGR over next 3-4 years) and this could give a clear path to profitability.
IPO anchor investors are backing the valuation. PB Fintech has informed BSE regarding garnering Rs 2,569.3 crore from 155 anchor investors ahead of its IPO. The amount is 45% of Rs 5,709.7 crore which it intends to garner from IPO.

Brokerages view

Motilal Oswal: “We note that globally companies with strong revenue growth and superior margin profiles trade at higher multiples. PB Fintech would continue to invest in the business, which would support the growth momentum over the medium-long term. Thus, we believe robust business growth, along with improving operating metrics, would enable the company to trade at higher multiples. Thus, at proposed valuations, the implied P/Sales multiple corresponds to 16â€“19x on FY24E.”
Angel Broking: “In terms of valuations, the post-issue FY2021 EV/Sales works out 47.6x to (at the upper end of the issue price band), which is high considering historical financial performance (making continuous losses on bottom-line front). Considering the company’s overall business model and higher valuation, we recommend a NEUTRAL rating on the issue.”

Company	PB Fintech (Policybazaar)
Open Date	Nov 1, 2021
Close Date	Nov 3, 2021
Allotment Date	Nov 10, 2021
Listing Date	Nov 15, 2021
IPO band	â‚¹940 to â‚¹980 per equity share
Share face value	â‚¹2
Bid Lot	15 shares
IPO Registar	Link Intime India

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