Hierarchy of Financial Needs.

Countless Investor interactions later, a pattern of investor portfolio is emerging. 

Past experiences have led to biases and have put off most investors from an asset category. 

The omnipresence of LIC policies in most portfolios is amazing and most investors have used LIC as an Insurance and saving instrument despite LIC selling it as an insurance and investment, promising the return of total premium paid at the end of the term. By the time you reach the half-century mark and the real mortality risk starts, LIC has returned your money with a 6-7% return and the policy has ended conveniently for them.

Legacy and conditioning since birth amongst majority have led to a prominence of Bank FD’s and PPF thereby losing out on both compounding and any real return which can beat inflation. 

The more “informed” have been dabbling in the stock market and have created a portfolio and forgotten about it, still leading to a low double digit growth with the help of some outstanding “Stars” and several duds.

SIP is the latest fashion statement, but to be aborted whenever the market corrects or in the first instance of requirement of funds as it offers the maximum convenient liquidity.

A major part of the asset allocation is towards Real Estate which over the period has grown due to its illiquidity. Most people consider a House as an asset and whenever an additional amount is available, will invest in another residential plot thereby locking their funds, rather than invest in a commercial property, which can provide rental returns.

I have come across so many business friends who don’t invest in a financial asset due to its liquidity. As their growing business always requires funds, they feel that the liquidity can easily be tapped and will hamper the creation of corpus. Real estate can also be mortgaged to take LAP and other such loans from banks to meet business needs.

Arbitrary investments into convenient asset classes on the pretext of low risk, greater security and bad past experience are the most common excuses provided by investors. 

We have met people who have been saving / investing since the last couple of decades without any real wealth creation. This is mainly due to unbalanced asset allocation and failure to acknowledge both, the role of inflation and the power of compounding. 

But what has really surprised me is the total lack of financial planning and Goal setting. 

Our first question of, “the why of Investing and for what are / should you invest for” draws a blank in most cases.

As humans, we have a hierarchy of needs, a theory propounded by Abraham Maslow in 1943 wherein he has said a lower level need has to be satisfied before one can move on to a higher level.

Essentially, the needs can be classified into deprivation or deficit, safety and finally growth. Individuals must satisfy lower level deficit needs before progressing on to meet higher level growth needs. 

Similarly while saving / investing, the “hierarchy of needs” has to be kept in mind.  

The basic requirement needs to be fulfilled before you move on to your aspirational and legacy goals.

Just to simplify things, financial goal setting needs to follow a hierarchy, as that will not only decide the amount of investment but also the desired asset allocation strategy.

The first level of financial goal is safety. 

Apart from covering the “Roti, Kapda and Makaan”, and in no case do we mean an owned “Makaan” at this stage, Creation of an Emergency Fund should be the first priority. A fund which can take care of your six to twelve months of family expense, in case of loss of job or a temporary layoff due to a medical emergency. This amount has to be safely invested in a highly liquid asset as an immediate goal.

Life is uncertain and not everything can be left to God and the government. You need to take care of the family through adequate health Insurance to ensure coverage of medical costs. Next comes the need to provide for the family in case of the loss of the earning member due to permanent disability or an unfortunate fatality. In present circumstances, Term Insurance is best suited to meet any unfortunate happenings. The amount of term insurance has to cover the cost of any present Debt and a minimum of ten to twenty years of your annual expense, based on the age of your dependents and the number of years required by them to make a fresh independent start. Requirement of your spouse also needs to be factored in while calculating the amount of Term Insurance required. 

A one crore term insurance for a forty year old can cost as little as the cost of one dinner at a fancy restaurant every month for a family of four. Set your priorities and before going out for your next family dinner, ensure their dinner for the next twenty years.

The Next level is providing for all the life Essentials. 

The essentials are your Children’s education, marriage and retirement planning

In Essentials, the first step is providing for foreseeable short-term needs and goals. 

List out your “needs”and “wants” in order of priority. Needs are mandatory and unavoidable whereas the wants can wait till other things are taken care of. A child’s education, marriage etc is a cannot be postponed need whereas the long awaited vacation or SUV though “wanted”, will have to wait till other requirements are taken care of. Any compromise at this stage will lead to higher risk at a later stage to achieve other important financial life goals.

This is the money needed for expenses that you plan to make within the next two to three years. Almost all of this should be in minimal risk, short-term debt instruments.

Based on your goal horizon and time available, a good financial calculator or consultation with a Financial Advisor will help you decide the investment required for meeting the essential short term and long term goals.

Now that your basic financial goals are taken care of and planned, move onto your Aspirational Goals.

The time has come to create your dream, follow your passion. Satisfy your entrepreneurial bug, take a sabbatical, and Plan your Start up at the age of 40 or the house that you had always dreamed of.  You may also now plan to satisfy your travel bug. You can now afford to visualize yourself with family in an Alpine Chalet or enjoying the Sunset at a pristine idyllic beach house, all to be achieved through some aggressive investment plans.

A lot of Millenials now are increasing aspiring for FIRE, Financial Independence and Retire Early.A most notable goal to aim for, and not to actually retire early, but to have the financial flexibility to lead and enjoy the life that they want at a relatively ‘younger’ age, to follow their passion and to satisfy their creative side apart from the mundane.

Now you are ready for creating your Legacy. 

Decide what you need to bequest to your family favourites, the corpus that you need to leave for your loved ones so that can lead a comfortable life. As Warren Buffet famously said,  “Leave enough money for your children, so that they would feel they could do anything, but not so much that they could do nothing.”

Plan your favourite charity, the philanthropy that you always wanted to do, the cause that always touched a cord in your heart. Start keeping aside a sum for these noble activities and build the endowment for your alma mater. 

Classify your need for making an investment. One could think of many levels beyond this and really, the details matter much less than the concept. Depending on one's circumstances, any of the levels may have to be modified. For example, you may have enough income-producing assets or a passive income pipeline to make term insurance relatively less important.

Create a system that aims at preventing you from going to higher level unless the lower one is fulfilled. If you haven't put emergency cash in a savings account, then don't buy term insurance. If you don't have term insurance yet, then don't start putting away money for your daughter's college education, not enough planned for your retirement, stop thinking of all those aspirations, and so on.

Start early, check out your risk profile, fix your time horizon, quantify your goals based on present cost, factor in inflation, decide your asset allocation strategy and start investing.

How much to invest is for the next blog. Just remember you need a budget and plan for your money. Income will not determine your wealth, a good financial plan will.

Happy Investing!

Stay Blessed Forever.

Sandeep Sahni

Inflation & Taxes… The Corpus destroyers

Just remember the wonderful times, when The banks used to give an interest of 12% and more on an FD, There was no TDS and no mandatory PAN linkage, no taxes to be paid and the corpus was doubling in every five to six years. 

On top of that, petrol was in single digits, the only snack you could eat was a Samosa, luxury car was a Maruti 800 or max a Maruti 1000, Levi’s Jeans were the fashion statement, Festivals meant the Annual purchase of new  clothes and shoes, binging was on Peter Scot whisky in summers and Old Monk in winters, eating out was at a Dhaba, summer holidays meant a sojourn in Mussoorie or Simla, winters were for visit to Grandparents, and for weekends we used to go for a picnic. 

The Club Tambola was the ultimate entertainment, The latest blockbuster movies could be watched in “air-cooled” cinema halls @ Rs 3 per ticket, Chitrahaar and Sunday Movie on DD was looked forward to, and sports were played in the neighborhood park.

Alas, The later half of the 90’s and the new millennium changed all that. The first decade brought in the wonders of the mobile phones, the Internet, multiple Tv channels, latest brands and gizmos, alternative entertainment and holiday options, the QSR’s and chain restaurants, glitzy malls, The single malts, wine and cheese pairings, Jazz evenings, weekend getaways to beach resorts, summer cruises, the SUV’s and countless avenues to splurge apart from petrol close to hitting the triple digit mark.

Suddenly, we had moved away from, “On what do I do with my earnings, there are no spending avenues, Let me just save or buy an asset,” to a different league of credit card debt and EMI’s for household gadgets and mobile phones.

The days of a movie, Cola & samosa, all in a princely sum of Rs 5 were long over.

Computerisation, Digitisation, PAN and AADHAR in the current decade ensured greater tax compliance and alas, no more savings from tax evasion. 

Who could have planned for all this? 

A double whammy, of an increase in expense due to abundant availability of luxuries converted to “necessities”, and reduction in income due to taxes.

That is how life is, full of glorious uncertainties and disruptions.  

            

             Inflation, they say is taxation without legislation. It is when you pay Rs 500 

             for a Rs 100 haircut which used to cost Rs 25 when you had hair.

And most investors assume a nominal inflation and decrease in cost of living over time during your financial planning for retirement, or children’s education or marriage etc.

Education costs have multiplied by more than 100 times in the last 20 years, apart from the expense on tuitions & coaching classes which are the norm now. 

Marriage expenses, especially North Indian Weddings have gone on to another level and the multiple increases in the expense is becoming increasingly difficult to ascertain.

Some people understand compound interest, but most do not appreciate the “de-compounding” effect of inflation on their money. 

As general prices rise, the purchasing power of the consumer decreases.

What compound interest gives, inflation takes away. 

Put it another way - inflation is effectively the reverse of Compound Interest; Since each year's inflation occurs on top of the previous year's inflation, it means that the effect is just like that of compound interest and your expenses will also multiply exponentially.

Inflation eats away at your savings, bit by bit. We all know this, but even so, we fail to incorporate this knowledge into our savings and investment decisions, as illustrated by the graphic below.

A simple 7% inflation will reduce our corpus to half in 10 years and similarly, due to 7% inflation, our current expenses will double every 10 years.

A safer 6% inflation will shrink a Rs 1 crore corpus to 54 lakh after 10 years, 29 lakh after 20 years, and 16 lakh after 30 years.

This 6% or 7% inflation is the government sponsored WPI or CPI or at the most food inflation. Healthcare, education, cost and standard of living, marriage costs etc are expected to shoot at 12-15% besides changes in the spending pattern over time. 

Even with a Rs 1 crore retirement corpus, A 10% increase in spending every year and your corpus earning a 7.5% return, will erode your corpus completely in 13 years and suddenly you may find yourself helpless @ 73 years.

Another giant killer of the targeted corpus is Tax. 

They say, “a Fine is a tax you pay for doing wrong & a Tax is a fine you pay for doing right.” 

In addition to profits from selling investments, you'll pay tax on any interest, dividends, or rental or other income you receive.

Apart from reducing the corpus directly, it also affects in many other ways. Most investors I have met, will compare the returns of FD with the returns of other asset classes without taking any tax implication into account. A healthy comparison of Apples Vs Apples can only be of post tax returns of different asset classes as illustrated below:

The compounding impact, over the long term, will be quite substantial as outlined in the above case. 

The recent introduction of a 10% tax on LTCG (long Term Capital gains) in the last budget means your investment plans have to increase either the investment amount by 10% or the expected return by 10% to achieve the desired goal.

Hence the first guiding principle of any financial planning has to be that your target for Post Tax investment return should beat the projected practical inflation estimatesand not the Government sponsored figures of low single digit inflation, or you will end up compromising on your child’s education or be left to the same old dependence on your children for a “comfortable” retirement. 

A better return can be obtained not only after a higher risk but also better tax planning and intelligent investing. 

It is better to err on the side of caution while setting the target, and aiming to save a little more than the anticipated value.

Plan your investments, take inflation and tax into account and then go for your dream goals,

Happy Investing!

Stay Blessed Forever.

It’s all about numbers....

Few people would admit to finding comfort in numbers. Even at the thought of numbers, many people are instantly transported back to school, to a particular maths class and with that comes anxiety over the fact you hated it or felt you never could understand the damn thing.

That is a shame, because if we are prepared to let go of our preconceived notions, there is real comfort to be had in numbers.

The market has gone up by 300 points, the Sensex has tanked by 500 points.
These are the daily stories that we read and react.

However, a change of 300 points when the Sensex was at 10000 and change when the Sensex is nearing 40000 is a major difference. At 10000, it was a 3% change but at 38000, it is a less than 1% change, which is par for the course for any market.
However we still react to the number 300 as we did 10 years ago without realizing the percentage change.

This is called “The Framing Effect” in behavioral Economics or Investment psychology.
The framing effect addresses how a reference point, oftentimes a meaningless benchmark, can affect our decision.

Let's assume, for example, that we decide to buy a television. But just before paying Rs 15000 for it, we realize its Rs 3000 cheaper at a store down the street. In this case, we are quite likely to make that trip down the street and buy the less expensive television. If, however, we're buying a new set of living room furniture and the price tag is Rs 100000, we are unlikely to go down the street to the store selling it for Rs 97000. Why? Aren't we still saving Rs 3000?

Unfortunately, we tend to view the discount in relative, rather than absolute terms. When we were buying the television, we were saving 20% by going to the second shop, but when we were buying the living room furniture, we were saving only 3%. So it looks like 3000 isn't always worth Rs 3000 depending on the situation.

Most people we meet show a certain discomfort and are confused when it comes to numbers. Simple mathematical calculations like growth rate, leave alone CAGR, confuses them. Investors are more comfortable if we tell them that, “your money will double in 5 years” than if we tell them, it will give a return of 15% CAGR.
They fail to understand that the market needs to go up by 100% to double its value but fall by only 50% to come back to its original value.

Investors also often fall prey to anchoring. They get anchored on their own estimates of their expenses or returns from an investment or a company's earnings. 
Ask people to guess the amount they will require to pay for their daughters post graduate education after 12 -15 years or their retirement corpus and they'll anchor on the number they know and go up, but not enough. When estimating the unknown, we cling to what we know and that is normally not enough.

At a seminar for Teachers, while explaining the concept of inflation, we took the example of school fees. I finished my High school in 1980 at St Johns Chandigarh and paid a fees of Rs 400 a year at that time and my son’s fees, who finished his high school this year from the same school, was Rs 60000, an increase of more than 150 times. 

My Post Grad fees for a PGDM, mainly due to the government benevolence, was Rs 10000 in 1988 for the full two years, which I know understand is close to Rs 25 lacs, an increase of 250 times in 30 years. An unimaginable increase, but that is how inflation works, especially related to education, marriage and standard of living.
Who would have thought of buying a Rs 50000 phone on a whim even as late as 10 years ago, but now we want to gift it our child on his 18thbirthday or for his 12th class results.

Most young people don’t know what they want in 30 years, forget that, they cannot even imagine being old, much less about the financial needs they would have.

I remember when I was graduating from my management Institute, a leading FMCG company in its pre placement talk told us that, if we start and end our career with that company, by the time we retire, we will have Rs 25.0 lacs worth of retirement benefits and that too, on a starting salary of Rs 2700, a princely sum back in 1988. Some friends who joined are now drawing more than that every month leave aside retirement benefits.

Similarly when we tell some of our young friends, aged 25 years, that lets plan for a retirement corpus of Rs 100 crores for you at the age of 65, they are awestruck and can’t even think of achieving that in their wildest dreams. However, if we tell them that it will only take a SIP of Rs 44000 per month or Rs 5 lacs per year @ 15% return to achieve it, they are dumbfounded as they can almost afford it. Going further, we tell them it will only take a SIP of Rs 17500 to start as long as you keep on topping it up with 10% every year as your income increases and they look at us as if we have come from another planet. But that my friends is not rocket science but the Power of Compounding, which we just don’t comprehend.

What if you had two options, Take Rs 100 lacs on day 1 or a magical one rupee, which will double every day for 31 days. Do a mental calculation, Calculate for yourself and decide now which option you want. (We’ll tell you the difference at the end of the blog.)

Similarly most people will not comprehend how much of a difference a FD of Rs 10 lac @ 6% and another investment of Rs 10 lac @ 12% will make over a 24 year period. They will at the most do a simple calculation and say a couple of lacs without realizing that the FDR @6% will grow to Rs 40 lacs and the investment @ 12% will grow to Rs 1.6 crores in the same period and we have not considered the impact of tax so far.

Get your numbers right, start early and let the power of compounding

do the rest.

Happy investing. 

Stay Blessed Forever.
(The magical one rupee will grow to Rs 107.37 crores on the 31st Day, just for your information.)

The Role of Financial Planning: The Why of Investing

Warren Buffet, the great investment Guru once said,” The idiot with a plan will always beat the genius without a plan.” 

Rich people plan 15 years ahead whereas the others plan for the Saturday Night and their next vacation.

In my journey as wealth advisors, over the last few years, I have met hundreds of clients, conducted seminars, awareness programs, workshops, etc, and the one thing that has always confounded me is the confusion related to financial planning. 

A majority of clients have left Financial planning to “Ram Bharose”, to luck and to their destiny. Having been brought up in a feudalistic set up, we assume that our “Mai-Baap”, God or the government, will take care of us and if nothing works, the children or the family is always there.

In a recent Retirement survey conducted by HSBC, it was revealed that only 1 out of 3 Indians is saving for retirement and more than 70% Indians expect that their children will take care of them post retirement. A tall ask indeed, in these disrupting social times.

The first question I have always asked an investor has always been, “What is your Financial Goal?” 

Most people equate financial goal with investment and answer, “I don’t know, haven’t thought about it but I have some investments here and there.” That is like saying, I don’t know where I need to reach, but I shall go by car or going to a Doctor and saying, I’am taking these medicines, will I get cured, without telling him the ailment or the symptoms or helping him with any diagnosis. The doctor can tell you that this medicine will help relieve this pain but he cannot cure you of your ailment.

Investment is only a “means”to achieve your goal. Before you decide on your “means”, you need to decide, Why you want to go, Where you want to go, in how much time do you want to reach there & how much are you willing to spend for reaching there and only then can you decide on the means to reach there. 

To put it simply, e.g. I need to go to Delhi from Chandigarh, I need to reach in 5 hours and I can only spend X amount of money. I shall decide accordingly and take a car or a bus or a train and amount of money will decide how comfortably I travel. If I want to reach faster, either I pay more & take a plane ride or take a higher risk & drive faster.

Same is the case with financial planning, I need to decide my financial goals, the time I have to achieve them and amount of money I can spend or spare in achieving them and accordingly we can decide from amongst the various options & choose the option that optimizes my risk & return.

Most investors we meet, have not given any thought to their financial Goals and have started their journey through piecemeal investing. Starting a SIP and investing in a FD or a PPF, thereby assuming all future financial worries are taken care of. 

While conducting a recent workshop for Unit Mangers of a leading MF Distributor, all young & bright MBA’s, when asked, “How many of you are investing?” Most hands went up.

But when I asked, “why are you Investing & what is your financial goal”, 

“Have you drawn up a Financial Plan for yourselves?” Most of them were silent & mind you, this was a group who is supposedly selling products through Financial Goal Planning and they had not thought of making a plan for themselves. 

One brave manager said, “My Goal is to to buy a Mercedes.” Wonderful thought, at least he has a goal, but when asked, “when do you want to buy it? Soon!” He replied. 

I asked him further, “How much do you think it costs today or will cost in the future?” and he had no idea. 

That is the problem, The quantification of goals; the present cost of that goal and the future cost after inflation, the point made earlier about the Goals & the Means, the Why of Investing.

As soon as you decide the three W’s, The Why you want to invest, Where you want to reach & When do you want to reach there, The How will come automatically, the means will make you reach your end Goal. 

Another, interesting observation that we have had in our interaction with investors, is the absence of a time frame and the lack of clarity on the impact of inflation & increase in standard of living. Most people assume that their expense will come down after retirement, not realizing that there will only be a structural shift in the kind and % spend from staples to other areas. 

In a study we did recently, we found that, the impact of inflation can be so strong that it can completely wreck your retirement corpus and bring it to Zero in 10-15 years. 

As highlighted below, suppose you were to retire with Rs 100 lacs at the age of 60 and assuming you make a healthy post tax return of 7.5% on your corpus and that is sufficient to meet your expenses in the first year, still that corpus will be fully eroded by the time you reach 73 years of age, in case your cost of living increases by 10% every year. 

That can be the severe impact of inflation on your corpus and is definitely something that cannot be ignored.

The privileges and perks of the earning years, gets one used to, the luxuries and comforts of life, and these comforts cannot be ignored on retirement. As we age, we require greater level of comfort to enjoy a peaceful life. Health concerns and reduction in ability to perform even the smallest tasks itself leads to an increase in the standard and cost of living, something that we rarely plan for.

While the going is good, we forget about investing and our future goals.

Most investors leave their planning till too late. As we approach our half century, suddenly it dawns on us, that major life goals urgently need to be taken care of. 

I have learnt only one magic trick in my years as an advisor, and that is that, Wealth Creation takes time and one sure shot way of achieving financial goals is through the Power of Compounding. The later you start, the riskier it gets and your chances become bleak.

Think about your financial goals, Make your financial plans and start your journey in your Sunrise years and don’t leave it to the sunset or you will miss the Stars.

Happy Investing!

Stay Blessed Forever.

Sandeep Sahni

The India Investment & Growth Story

First Published in May 18

It has taken 70 years for India to Reach $ 2.5 Trillion Economy, & India will take only 7-8 more years to reach $ 5 Trillion
i.e. the Total amount of Money that was made in Last 70 years would be made again in the next 7-8 Years.
The Question is how much will you make?
We have absolutely no doubt that the ones who can catch a few right trends in next 7-8 years are going to be very very rich.
China took 5 years to double its GDP,
US took 10 years to double from $2.4 to $5 trillion,
it is estimated that India will take 7 years to get there.
The Idea is simple, there will be 100’s of entrepreneurs & businesses out there who will increase their profit 10-15x from current levels,
they will grow at 30-40% and we need to back them.
The Biggest Trend is India. The biggest growth story is India!
Within India there will be Sector Trends that will change every 3-4 years like:
Automobiles
India Sold a whooping 2 Crore Two Wheelers V/S 1.7 Crore Two Wheelers sold by China.
Interestingly India Sold 33 Lakh Passenger Cars in FY2018 V/S 2.4 Crore two wheelers.
Slowly but Surely in the next 10 years, with the 2 wheeler owner upgrading to 4 wheeler, we are confident that India will sell 1 Crore+ Cars and the average ticket size of a car would also Increase rapidly.
Out of these 33 Lakh Cars, more than 50% i.e. 18 Lakh Cars were sold by Maruti alone. Maruti has a Market cap of 2.6 Lakh Crores and did Profit of about Rs8000 Crores in FY2018.
The Indian automotive Industry has the potential to generate up to US$ 300 billion in annual revenue by 2025, create 65 million additional jobs and contribute 10 -12 % to India’s GrossDomestic Product as compared to 7% at present.
Financials
This is one space where the Opportunity is Largest in all the Three Verticals i.e. Lending, Protection and Wealth Management.
Lending – The Top 45 Business houses in India are 50% of Nation’s banking debt even after nationalization of banks.
The Top 20% of India is well banked and Opportunities are now on the lower ticket size retail lending (80% of Population).

With Upsurge of MFI, SME Lending, consumer finance, affordable home loans, Retail Credit is a big trend which are typically small ticket size loans with higher NIM spreads.
India’s Credit needs will grow at 15-16%, whereas Smart private Bankers/NBFC can grow faster at 20-30% easy for next 7-8 years.There is an Opportunity to grow loan book by 3-5x easily.
Protection – This Again is a multiyear theme, from Life to Auto insurance to Health, to crop, to even your cellphone.
Here not only there will be Growth of 15-17% in the general Market but there will be large Market share shift from PSU Insurers to Private companies, we believe Private Insurers can grow @ 20%+ for a long long time.
Wealth Management & Investment
We Strongly believe that Markets are underestimating the financialization of savings as a theme, the total Profit pool of top 5 Asset management companies (57% Market Share) in India was just Rs1800 Crores in FY2017.
The Profit Pool is so small that one midsized popular hedge fund, Pershing Square, made more Profit than the Entire Indian Asset Management Industry.
We have absolutely no doubt that the Profit Pool will grow multi fold in next 5-10 years and there will be massive wealth Created in this space.
Consumer Durables & FMCG
Just to illustrate, we shall take the example of just one industry,
Air Conditioners – we hope the Indian summer is not killing you because you are in an A/C room right now reading this but you will be suprised to know that only 4% of Indian Households own a Air Conditioner, (10% Indian households own Air-Cooler) whereas 85% of Indian Household have fans.
In China the Penetration of Air conditioners grew from 8% in 1995 to 70% in 2004.
Voltas is the Market Leader with 24% Market share in A/C in India and Sold 10 Lakh Air conditioners this year and had a Profit of Rs 650 Crores in FY2018 and has a 20,000 Crores Market Cap.
10 years from today, we don’t know what profits Voltas will make but we are confident thatIndia’s Penetration of Air Conditioners will go up from 4% to at-least 25%.
The same can be said about most other consumer durables and FMCG products.
The doubling of GDP will also lead to doubling of per capita income & the per capita income is expected to expand from $ 1862 at present and reach close to
$ 4000 by 2025.
What it essentially means is that an average family of four will have a monthly income of Rs 1 lac by 2025.
As the incomes rise & disposable surplus increases, % spend on basic necessitiescomes down and spends on personal consumption, low cost housing, autos, entertainment etc will go through the roof.

The Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 672

billion in 2016, with modern trade expected to grow at 20 per cent - 25 per cent per annum,

which is likely to boost revenues of FMCG companies

Rural consumption has increased, led by a combination of increasing incomes and higher aspiration levels; there is an increased demand for branded products in rural India. The rural FMCG market in India is expected to grow at a CAGR of 14.6 per cent, and reach US$ 220 billion by 2025 from US$ 29.4 billion in 2016. On the other hand, with the share of unorganised market in the FMCG sector falling, the organised sector growth is expected to rise with increased level of brand consciousness, also augmented by the growth in modern retail. Another major factor propelling the demand for FMCG in India is the growing youthpopulation, primarily in the country’s urban regions. Online portals are expected to play a key role for companies trying to enter the hinterlands. The Internet has contributed in a big way, facilitating a cheaper and more convenient means

to increase a company’s reach. It is estimated that 40 per cent of all FMCG purchases in India will be online by 2020, thereby making it a US$ 5-6 billion business opportunity. By the year 2025, e-commerce will contribute around 10-15 per cent sales of few categories in the FMCG sector.

Conclusion:
“MORE MONEY WILL BE CREATED IN THE NEXT 7-8 YEARS THAN INDIANS CREATED IN THE LAST 70 YEARS”
There are opportunities to make it large.
There will be cyclical ups and downs but smart investors would easily make 10x in next 10 years.
Don’t Miss this BIGGEST TREND EVER. Start your investment today,
Convert from a saver to an investor.
Mutual Funds offer you the best opportunity to enter this market & reap the benefit. Do you know that there were more than 25 mutual funds who multiplied the Investors money more than 25 times in the last 15 years & are poised to repeat the same phenomenon in the next 10 years.
Let the professionals handle your investment & take care of the risks and sector calls.
Step forward, take the call.
Meet your Financial Advisor & Start your SIP today.
Happy investing!

Mutual Funds are subject to market risks, please read offer documents or consult your
Advisor before investing

Disclaimer : Any information provided by Sahayak & their associates does not constitute an offer, invitation & inducement to invest in securities or other investments and Sahayak is not soliciting any action based on it. Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money / original capital. Guidance provided by Sahayak is purely educational. Sahayak doesn’t guarantee that the information disseminated herein would result in any monetary or financial gains or loss as the information is purely educational & based on past returns & performance. Past performance is not a guide for future performance. Future returns are not guaranteed and loss of original capital may occur. Before acting on any information, investor should consider whether it is suitable for their particular circumstances and if necessary seek professional advice. All investments especially mutual fund investments are subject to market risks. Kindly read the Offer Documents carefully before investing.

Sahayak does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Sahayak doesn’t guarantee that the information provided herein is accurate, complete, or timely. Sahayak makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on such information.

Current Market Scenario Mid July 18

First Published by Sandeep Sahni on 150718

The markets are very interestingly poised at this juncture.
Both the Bulls & Bears have their arguments ready, the markets can turn either way, a 10-15% correction or an all time high of Nifty touching 12000 & Sensex scaling a level of 40000 from this juncture.
Lets talk about the Bears theory first:
Market is trading at a PE of 23 +, Adverse macros, Concerns on Fiscal & Current account deficits are looking real, Oil Prices continue to be obstinately high, the bond yields are hardening, interest rates are expected to be anything but benign, inflation has resumed its upward journey and crossed 5% , IIP has touched a low again, Exports are down month on month and Quarter on Quarter, Fund flow into the markets and mutual funds is slackening,
FII’s continue to withdraw from all EM’s and India in particular, Fed Rate tightening is on, Trump continues on his maverick unpredictable, foot in the mouth behavior, Trade war threat is no longer looming but is actually happening, No real correction in the market since demonetisation and
so on & so forth.
And the Bulls are countering the above with:
India continues to be the fastest growing economy in the world with a growth rate of more than 7%, ( It has recently replaced France as the the 6th Largest Economy in the world & will shortly replace Dear Old England as the 5th Largest with the difference between them & us being only a couple of $100 Billion which we should overtake before the year is over)
India is a consumption story which is leading to the Earnings revival as is visible in the first 2 quarters of Calendar 2018,
The sensex level has remained at 36000 in this year but the PE multiple has come down from 26 in Jan 18 to 23 in Jun 18 clearly outlining the earnings revival,
The time correction being witnessed in the last six months may last only the next few months,
We are having a great monsoon so far which should lead to positive rural demand & lower inflation,
Most sectors like Autos, Consumption, FMCG, Infra, IT, Pharma etc continue to do well with a mild concern in PSU Banking.

Banking should also benefit going forward as the government going into Elections will try & resolve as many issues as possible, either through hair cuts in NPA resolution, Bank Recapitalisation or resolution of High Profile cases like Mallya, Nirav Modi, Bhushan Steel & Power, Binani Cement, Essar, Videocon etc which alone should see more than Rs 1 Lac crore of written off / Provisioned assets being realized.
Though the markets are trading at a premium, the valuations have not touched the alarming levels of PE of more than 28, PBV of 6.5 & market Cap to GDP ratio of 1.48 which was seen in 2008.
India deserves a premium valuation due to its growth potential and sound fundamentals which is leading to a structural change and valuation upgrade. Hence, PE Up gradation has resulted in earlier average PE levels of 16-18 to current levels of 21-23.
Liquidity levels remain high with the current trend of financialisation of assets. Even if 5 % of the current FD base of Rs 1.15 lac crore shifts to the market in the near future, it will only equal the total current investment in Equity mutual funds of close to Rs 8 lac crores.
The Foreign reserves are more than $ 400 Billion equal to almost 9 months of Imports, FDI has crossed $61 Billion, India continues to be the recipient of Highest Inward Remittance of close to $ 70 Billion every year.
Our savings rate continues to be in the range of 25-30%, & with a $ 2.5 Trillion Economy, we are saving close to $ 800 Billion every year. Even if 5% is routed to the market, who needs FII’s after this.
The infrastructure push continues with the Indian Economy requiring close to $ 5 Trillion of Infra spend in the coming 5-7 years and the multiplier effect of that itself will generate & sustain the economic growth.
Convincing arguments by both the Bulls & Bears.
However, our take on the current market scenario is as follows:
While evaluating any market, we must keep in mind, two factors,
1) The basic nature of the market is irrational. Markets don’t behave in a very rational manner. They give a premium to

anticipated events & discount expected problems. They always are moving ahead of the events and when the event happens or doesn’t happen, it reacts accordingly.
Thus timing of the market becomes increasingly difficult.
Today the market is anticipating a growth in earnings, easy liquidity due to financialisation of assets, and the market has now started factoring in the headwinds in macros & uncertainty related to political stability for the next 12 months. Hence the increase in noise as expected in the Election year is also going to be a key determinant of market sentiment, a crucial element of the market.
2) Averages never Lie
The most common argument that is heard in any bull run is “This time it is different” combined with arguments on
re rating & structural change etc etc to justify higher valuations.
But averages & history doesn’t lie. If we don’t learn from it, we end up paying for it.
In the Indian context, as the market goes beyond a 22-23 PE valuation, the risk return ratio definitely turns unfavourable. If the probability of gain is X, then the probability of loss becomes a multiple of X, more in the range of 3X or 4X.
Hence, in the current market situation, we should avoid learning a costly lesson & keep a downside capital protection strategy in place.
The cash holding of most Mutual Funds today are also at an all time high thus indicating an expectation of an impending valuation correction.
However, as mentioned above, no one can time the market. Money is made only by those investors who stay invested in the market and don’t let the market hiccups bother them.

Warren Buffett's diversified company Berkshire Hathaway,

which deals in multiple businesses, is sitting on a whopping

$116 billion in cash and short-term US treasury bills, at the

last count as he also feels the markets are overvalued.

Growth and value are two fundamental approaches, or

styles, in stock and equity mutual fund investing.

Growth investors seek companies that offer strong

earnings growth while value investors seek stocks that

appear to be undervalued by the marketplace. A combination

of the two strategies is the need at this hour, a balance

between growth & value.

Going forward, there is going to be a lot of volatility in the market. We expect that the market will be range bound in the next 12 months, a range of +/-10-15%
Investment horizon becomes important because in the next 5- 7 years, the economy is expected to double from $ 2.5 Trillion to $ 5 Trillion. The growth of the economy has its positive impact on the market. Just to illustrate, from 1991 to 2018, the Economy has grown around12 times from $ 230 Billion to the current level of $ 2.5 Trillion, but the Sensex has gone up from 1000 to 36000, a whopping 36 times. The markets in the long run always grow at a multiple of the Economic growth.
In this market scenario, any investor needs to evaluate his portfolio or investment on the following basis :

1. a)  Investment horizon & fund requirement in the next few years based on investment goals.
2. b)  Overall Asset Allocation Strategy.
3. c)  Review of current portfolio & rebalancing based on point
   (a) & (b)

We suggest the following action plan :

1. a)  Avoid a lumpsum investment in Equity or Equity based mutual funds at this juncture. Put your lumpsum in an Arbitrage fund to get a steady return and do an STP over the next 12 months into your desired Asset class.
2. b)  Follow your Asset allocation Strategy, rebalance your portfolio in consultation with your Financial Advisor based on your needs.
3. c)  Continue your SIPs, they are the best designed product to help you tide over the expected volatility and build your portfolio.
4. d)  There are products in mutual funds which follow a Dynamic Asset Allocation strategy based on their valuation models which are designed for riding over volatility and give you downside capital protection. Do look at them as a viable strategy.

I shall like to end with a famous quote,

"The stock market is filled with individuals who know the price of

everything, but the value of nothing." - Phillip Fisher

Make wise & informed choices. 

Happy Investing!
Sandeep Sahni