EQUITY INVESTMENT TRIGGERS FOR THE FINANCIAL YEAR 2017-18

As the Nifty stands at a new high and the Sensex just a few hundred points shy of a new high, the question arises about the outlook for equities in the coming financial year. While at a very broad level, valuations may be at the upper end of the historic band, there could be some key triggers to help the equity markets in the coming financial year. There are 8 key factors that could drive the demand for equities in the financial year 2017-18…

8 factors that could drive demand for equities in India in 2017-18…

• Global liquidity may continue to pour into India in the coming financial year. The reasons are not far to seek. Even after the pain of demonetization, the Indian economy is expected to grow above 7.5% in the coming financial year. What is more; this growth will be achieved without compromising on fiscal deficit targets. This is likely to keep the FPIs interested in Indian equities at a fundamental level. If the FPI inflows in the month of March are anything to go by, then the FPI inflows are likely to continue in a bigger way in the coming fiscal year.

• The strength of the INR could be a key factor that could support FPI inflows into equities, apart from the relative valuation attractiveness of Indian equities. A strong rupee works in favour of global investors since their equity returns get enhanced by a strong currency. Ironically, the INR has strengthened from 68/$ to almost 64.6/$ at a time when the consensus estimate was that the INR would depreciate below the 72/$ mark. By wrongly anticipating the INR, most FPIs actually lost out on the rupee appreciation. Hence, the left-out feeling is leading to a surge of FPI flows into India and will continue into the new fiscal.

• Oil is likely to stay reasonably priced and that will ensure that the dividends of cheap oil will continue. Over the last 30 months, more than a trillion dollars of wealth transfer has happened from oil producers to oil consumers. India, which depends on oil imports for nearly 75% of its requirement, has been one of the obvious beneficiaries of low oil prices. With the US stockpiles high, global storage dwindling and millions of shale production in the sidelines, prices of Brent crude are unlikely to shoot up any time soon. That will benefit the Indian mid-cap companies in particular.

• Domestic liquidity could continue to flow into equities due to the TINA factor. There is no alternative (TINA) has been a key driver of domestic flows into equities. Domestic mutual funds are flush with funds due to a sharp rise in the number of SIPs. Retail investors are expected to infuse nearly $75 billion into the Indian equity markets and most of these funds are likely to flow into equity mutual funds. The way MFs sustained inflows into equities between October 2016 and January 2017 underlines that they have arrived as critical players.

• The alternatives to equity investing have been dwindling in India. Gold has become too volatile and does not assure that value will grow consistently. With the government clamping down on benami properties and real estate transactions, investors are getting increasingly wary of property market. Bonds and FDs are tax-inefficient and the yields are just about sufficient to cover the risk of inflation. Under these circumstances, only equity and equity-linked products remain as veritable investment options to create wealth. That could be a key driver for domestic demand for equities.

• Stability and continuity at the centre and states could be a major sentimental trigger for Indian equity markets. The recent emphatic victory in states like UP, Uttarakhand, Goa and Manipur have set the tone for a domination of the BJP across key states in the Hindi belt. This augurs well for continuity of reforms process post the 2019 elections. This will be a great positive especially for global investors looking for drastic reforms.

• GST could be a game changer for Indian markets. The GST overall is likely to boost GDP growth by 2% per annum. At the current GDP level of $2 trillion, this additional growth is likely to translate into $40 billion per annum. This is likely to show up in the form of additional GDP from the coming year and that will be positive for Indian equities. But the real benefits of GST may be indirect. The GST will create a national tax network that will introduce efficiencies in the way companies manage their logistics. The entire logistics rationale of Indian companies will shift from being tax-driven to being driven by commercial considerations. The actual impact of this move on valuations could be huge.

• Demonetization and digitization could be a major game changer for Indian equities. While demonetization has pushed large chunks of the informal economy into the formal mode, digitization is likely to expand the ambit of banking services substantially. In the process this could create a huge market across smaller towns and rural areas. By prising open huge markets, the combination of demonetization and digitization could push large parts of the parallel economy into the economic mainstream.

To cut a long story short, a combination of positive macros, global cues and company level factors are likely to favour Indian equities in the coming fiscal year. With India’s GDP growth likely to continue to outperform China, the growth advantage is likely to translate into greater interest in Indian equities. That may be the big story for fiscal year 2017-18.

Source By Angel Broking 

SELLING ON GREED AND BUYING ON FEAR IS EASIER SAID THAN DONE

Ask any veteran investor about his secret of investment and he will ask you to “Sell on greed and buy on fear”. If you look back at the markets over the last 10 years, this strategy would have precisely yielded rich dividends. Then why is that most investors and traders find it so difficult to sell on greed and buy on fear. For example, 2002 and 2009 were screaming buys for even the most naïve investor. Similarly, 2000 and 2008 were screaming sells even for someone with a very rudimentary understanding of the markets. Then why then did you not put all your savings into equities either in 2002 or in 2009?

Buying on fear and selling on fear is easier said than done. At the end of the day, initiating a trade may be an analytical game but sustaining the trade is, more often than not, a psychological game. That is where traders and investors falter and that is the reason selling on greed and buying on fear appears to be so difficult in reality. There are actually 3 reasons for the same...

Peer pressure spoils the show; more often than not...

In the stock markets, the easiest thing to do is what your neighbour at your apartment or your colleague in office is dong. Most of the investors tend to buy what is sold to them and not what they should be buying. It is during market peaks that you will find a plethora of IPOs in the market; you will find analysts recommending stocks at steep valuations; you will find traders telling that the market structure is changing etc. These forces are extremely hard to resist. More so when you see you neighbour has just bought a private banking stock at 60 times P/E and sold it off at 70 times P/E. This kind of peer pressure is hard to resist!

The bull market is likely to make you believe that the only way to make money is to keep buying like there is no tomorrow. Your intuition tells you that buying Wipro at 150 times P/E ratio in 2000 was a bad choice, but you still went ahead and did that because that is what every Tom, Dick and Harry on the street was doing.

At the peak, you start believing that this bull market is different…

At the peak of the tech boom, investors were told that technology would transform the world to the extent that electronic money will replace physical money entirely. Much later in 2007, we all believed that Unitech at Rs.25,000 per share was justified because real estate companies must be valued based on land banks rather than on sales and earnings. Eventually both these arguments flopped. Technology did not structurally change the way we did business and most technology stocks lost nearly 90% over the next few years. Similarly, land banks turned out to be notional numbers when the entire valuation of land parcels started to crumble. Not surprisingly, most realty companies lost nearly 95% of their market value and are nowhere close to their peaks even after 10 years. As John Templeton rightly said, the most dangerous argument in capital markets is “This time it is Different”. It is this perverse argument that typically induces investors to keep buying aggressively at market peaks. When there is greed, you become greedy too and believe that this time something will be different. Of course, it is another matter that things rarely turn out to be different in practice.

To be greedy at lower levels, one needs to have liquidity on hand...

This entire process is a vicious cycle. If you have been fearful at the top and sold off your shares then you will have liquidity at the bottom. The biggest reason for not being greedy at lower levels is that you just do not have liquidity on hand. You bought L&T at 6000 and do not have the heart to now sell it off at Rs.3000. So you hold on in the hope that you will eventually make a profit on L&T, which unfortunately never materializes. In the process you miss out on the salivating opportunities at the market bottoms.

There is another angle to the liquidity argument. Market peaks generally tend to lead economic peaks. By the time the market has turned down, the liquidity in the economy is tight and required funds are not easily available. Even if you have the conviction, the financier does not have the conviction at those levels to finance you. That is the crux of the problem. So is there not a solution to this problem?

The solution can come in the form of a disciplined rule-based trading. When you say rule-based, then it must strictly be rule based. For example, say you have bought an IT stock at 18 times valuations. If the historic average valuation is 23 times earnings and the stock goes 10% above that, then you exit. That means at 25 times earnings you exit. That may imply that you miss out on the last frenzy of the stock, but that is a risk worth taking and a profit worth forsaking. At least, by liquidating your position close to the peak, you are well funded when the moment of fear arises. That can be a starting point for you!

Source by Angel broking 

WHAT PRECAUTIONS TO ADOPT WHEN TRADING ON THE INTERNET

Internet trading has rapidly become the default trading platform for most Indian investors. With the spread of smart phones, internet-enabled bank accounts and more robust online trading systems, we expect the trend towards internet trading to become more pronounced in the months and years to come. Internet trading offers you simplicity, convenience and transparency. You can execute transactions at the click of a button; you can operate your trading account, bank account and demat account from the comfort of your home or office and you can have full control and knowledge of the transaction being executed. Having said that, internet trading happens on the internet and hence there are some key precautionary measures you need to take. Here are a few such measures…

Password is your key to unlock your financial profile…

As a trader on the internet, the importance of a password cannot be overestimated. It forms the basis for you to operate your trading account, your bank account and your demat account. You can increase security by making your password as complex and as dynamic as possible. Here is how! Using your name, date of birth or marriage anniversary as your password are simple giveaways. Avoid that. Never write down a password on a piece of paper or in a text file on your PC. It should strictly exist only in your memory. Most trading sites will require you to change your password at frequent intervals. Even if your trading site does not insist on that, it is always advisable to keep changing your password at least once a month. More importantly, never share your password with your friends or even your relatives and never respond to phone calls asking for your password.

Be cautious of where you are accessing your trading account from…

The basic rule is that you must never access your trading account from computers that you are unfamiliar with. That includes computers belonging to your friends and relatives. Ensure that the PC or laptop that you are using has an anti-virus and anti-spyware program installed and the program is up to date. If you find the system slowing or multiple windows opening when you try to access your trading account then immediately shut down the computer as its security could have been compromised. In case your browser (Chrome or Explorer) offers to store your password, just say no. But most important, be careful of the connection you are using. Always use a dial-up connection or a secured wi-fi connection to access your trading account. Avoid trading in public places using public wi-fi systems at airports, railway stations and malls. Never, ever access your trading account from cyber cafes as that is an invitation for hackers to hack into your trading account.

Never forget to close your trading session when you are off the desk…

When you are trading on your PC or laptop, it is quite common to keep the session open when you go to grab a sandwich or to attend nature’s call. That is again a strict no! The moment you are not on your desk, you must be logged out of your trading account. Most trading accounts will automatically log you out if the system is idle for some time but you need not even take that much risk. Apart from logging out when leaving the seat, ensure that your cache is cleared at the end of each day. It will mean that you have to enter your user name and password each time, but it is worth the trouble.

Insist on a 2-factor authentication for your trading account…

Purely accessing your trading account using your user name and password is good but then it still exposes you to unwarranted attacks. A better way to protect yourself is to use a two-factor authentication for your trading account. A 2-factor authentication is an additional level of security that is imputed into your trading account to make it safer. For example, your first level can be your password and the second level can be your date of birth or some other secret code. Alternatively, your password can be authenticated each time you access the trading account through an OTP (One-Time Password) sent to your registered mobile. This 2 factor authentication further complicates your log-in process and makes it more difficult for hackers to chip into your account.

Eternal vigilance pays off when you are trading on the net…

One of the best ways to be very secure when using your internet trading account is to maintain high standards of vigilance both in terms of hardware, software and in terms of reporting. Avoid downloading any unknown software or programs from CNET or FILEHIPPO just because it is a freeware. Secondly, ensure that you are trading behind a firewall as that will successfully repel most of the attacks. Thirdly, always type your internet trading address directly in the address bar. Avoid using shortcuts and hyperlinks as these can be vulnerable to attacks. When your trading account opens first ensure that the web address is prefixed by https:// and not http://. This indicates that you have entered a secure area. Above all, you need to constantly cross check with trail reports. Check your order book and trade book each day and cross check with the e-contract notes that you receive. Ensure that shares come into your demat account on T+2 and money comes into your bank on T+2. A basic audit trail will protect you from a variety of operational hitches.

There is no rocket science about your internet trading account. In this world, there is nothing like fool-proof security. It is all about making it very difficult to break into your trading account. Such vigilance will go a long way in keeping your trading account safe and secure!

Source By Angel Broking

It is natural to look at the Union Budget each year from the point of view of the equity markets. The Sensex and the Nifty have been the barometers of market value and market sentiments and their gyrations best reflect the market interpretation of the Union Budget. If you look back at the last 2 years, the Union Budgets of 2016 and 2017 had been instrumental in giving a big boost to the equity markets. In fact, if you look at the Nifty and Sensex from the Budget day on 2016, then the indices are up by over 50% in less than 2 years. That is surely an emphatic thumbs-up for the last 2 Union Budgets. So, what exactly are capital market expecting from the Union Budget 2018-19?

Don’t let the fiscal deficit spill out of control

The last 2 years the government has managed to keep the fiscal deficit in check despite higher outlay commitments. This was well received by the markets and also eventually led to the sovereign rating upgrade by Moody’s. In the current fiscal year, the government has already touched 112% of its fiscal deficit targets in the first 8 months itself. While the fiscal deficit target for the year is 3.2%, it has kept a leeway of 50 basis points. As long the level of 3.7% is not breached, there should not be a problem. For the next year, the government should not exceed the target of 3% by more than 30 bps. Markets understand the need to pump prime the economy. As long as the fiscal deficit remains in the range, markets should be satisfied.

Rationalize DDT and tax on dividends

The markets are expecting the government to do a rethink on the 10% tax on dividends above Rs. 1 million that was recently introduced. This is leading to triple taxation of dividends. Firstly, dividends are a post-tax appropriation. Secondly, dividends are already subject to DDT. Now the 10% tax on dividends in the hands of the shareholders is leading to triple taxation. Markets are hoping that this will be rationalized through one of the methods. Either the limits of the taxable dividend can be enhanced from Rs.1 million or DDT can be scrapped. However, considering the government’s commitment to progressive taxation, this may not happen in this budget.

Give a big boost to infrastructure and rural spending

That has always been the booster dose for the economy and the markets. Infrastructure has strong externalities and hence has a multiplier effect on growth. The government spending on roads and highways has been a big boost to growth and that is expected to continue. The big stress on GDP growth came from agriculture. With the government committed to doubling farm incomes by 2022, the expectation is of a big push to infrastructure and rural spending in this budget.

A corporate tax cut; but, no LTCG please!

The government had promised a progressive cut in tax rates from 30% to 25% but also a simultaneous removal of exemptions. That will make the announcement neutral. The expectation is a cut in corporate tax rates and phasing out exemptions in a time-bound manner. After all, even the US is aggressively pursuing corporate tax cuts. Indian corporate tax rates are already among the highest in the world. The market also hopes that the LTCG on equities is not re-introduced. Tax free LTCG has been a key driver for investments in equities. However, an increase in the time limit for LTCG from 1 year to 3 years looks possible to foster a longer term approach to equities.

Including equity under ELSS definition

There are two aspects to this point. Firstly, the ELSS includes only equity mutual funds and that is narrowing the definition of eligible investments under Section 80C. In the past equity investments in infrastructure were also eligible under Section 80C subject to 3 year lock in. It is time to reintroduce that section. Also the benefit under ELSS is too small. In fact, a separate sub-section under Section 80C can be introduced for ELSS and Infrastructure equities with a separate sub-limit. That will give a big boost to long term investments in equities.

Including mutual funds for Section 54EC benefits

Section 54EC benefits are available when long term capital gains are reinvested in specific infrastructure bonds with a lock-in period. In the past, mutual funds and infrastructure equities were also included under the definition of eligible investments under Section 54EC of the Income Tax Act. In fact, if the government goes ahead and enhances the cut-off for LTCG on equities to 3 years, then extension of Section 54EC to equities will be a good measure to neutralize the effect. Again this will be a big boost for investors to look at equities for the long term.

A boost for purchasing power of investors

Lastly, the one thing that markets always expect is a boost for purchasing power of small investors. In the last few years domestic mutual funds have emerged as much bigger players than FPIs in terms of flows into Indian markets. That has been largely driven by retail savings surpluses. The budget is expected to give a big boost to retail surpluses in the form of lower tax rates, higher tax exemptions etc.

At a procedural level, it is also expected that the process for on-boarding of FPIs will be made simpler and also that the pending tax issues pertaining to large companies like Vodafone, Cairn and Nokia are amicably resolved. That will be a big boost for market sentiments. After all, markets are substantially about investor sentiments!

 Sourc By Angel Broking. 

 The Process of Trading

When you buy a share using your trading account, money is transferred out of your bank account and the share is transferred into your demat account

When you sell a share, it is transferred out of your demat account into the share market. The money resulting from the transaction will be madeavailable in your bank account.

Share Market Basics

As an Indian investor, the two share markets that you can trade in are:

 National Stock Exchange (NSE)

 Bombay Stock Exchange (BSE)

The two depositories with which all depository participants are registered are:

National Securities Depository Ltd (NSDL)

Central Depository Service Ltd (CDSL).

Two methods of trading

Trading is one of the methods of how to invest money in the share market. It can be defined as active form of buying and selling of securities with an intention to make profit.

There are two types of trading:

In intraday trading or day trading, you must square off all positions before the market closes. For the purpose of intraday trading, you may avail of margins, which is defined as the funding provided by the broker to increase your exposure in the stock market. It allows you to purchase/sell additional number of stocks, which would otherwise require you to invest greater amount of funds.

Delivery trading involves buying the stocks and holding them for more than one day, thus taking their delivery. It does not involve the use of margins, and hence you must possess the funds for your share market investments. It is a more secure method of investing in the Indian share market.

How Much You Should Invest

How much financial risk you can tolerate should determine how much you should invest. Your investments should not endanger your savings. It is also important to diversify your portfolio and utilize features such as stop loss to minimize losses.

What Should You Base Your Decisions on?

Financial analysis: Financial analysis is used to make inferences about future share prices and overallhealth of acompany using company reports and non-financial information such as industry comparisons and estimates of demand for growth of the company’s products. It is important to ask questions such as “What advantage does this firm have over other firms?” or “Does it have a sizeable market share?”

Technical analysis: Technical analysis involves the use of a two-dimensional chart to map the historical movement of prices. It uses historical values of share prices and volume charts to make predictions about future prices.

Using both types of analysis will allow you to make sound decisions.

Know Your Rights

Before entering into a contract with a broker, ensure that it is registered with SEBI and that its credentials support its claims. Ensure that you receive a ‘Statement of Accounts’ for funds and securities settled every quarter, and documented proofs of all deposits that you make.