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AN OPPORTUNITY BECKONS IN A CRISIS

India’s consumption story will revive and become a critical driver for the long-term GDP growth, say experts

8 904150 800027 0 5 www.outlookmoney.com May 2020 Outlook Money 1

Contents

MAY 2020 VOLUME 19 ISSUE 5

FIGHT COVID-19 WITH FACTS, NOT FEAR

As the economy remains chained down by the virus, it is important to take calculative measures to flatten the spread curve

pg 16

Regulars 8 Talk Back 12 Queries 15 News Roll 83 Dear Editor Cover Design: VINAY DOMINIC

HEAD OFFICE AB-10, S.J. Enclave, New Delhi 110 029; Tel: (011) 71280400, Fax: (011) 26191420 OTHER OFFICES Bangalore: (080) 43715021 Kolkata: (033) 46004506, Fax: (033) 46004506; Chennai: (044) 42615225, 42615224; Fax: (044) 42615095; Mumbai: (022) 50990990, Printed and published by Vinayak Aggarwal on behalf of Outlook Publishing (India) Pvt. Ltd. Editor: Arindam Mukherjee. Printed at Kalajyothi Process Pvt. Ltd. Sy.No.185, Sai Pruthvi Enclave, Kondapur – 500 084, R.R.Dist. Telangana and published from AB-10 Safdarjung Enclave, New Delhi 110029 For Subscription queries, please call: 011-71280462, 71280400 or email: [email protected] Published for the month of May 2020; Release on 1 May 2020. Total no. of pages 83 Outlook Money does not accept responsibility for any investment decision taken by readers on the basis of information provided herein. The objective is to keep readers better informed and help them decide for themselves.

www.outlookmoney.com May 2020 Outlook Money 3 Contents

pg 76 Clearing The Anju Bobby George Mary Kom Jeje Lalpekhlua Complexity Athlete Boxer Footballer RBI’s announcement of EMI moratorium facility can be a massive relief for one section of the population, and a burden for the other section

Impact Of Falling 72Interest Rate To mitigate the risk, one should explore the alternative class and Bhaichung Bhutia Virender Sehwag Sanjay Manjrekar stay safe Footballer Cricketer Cricketer Crisis Of Confidence A Shock For A New Form Of 54In Market 64The Insurers 74Finance Franklin Templeton Mutual Fund’s Removal of tax exemptions under ZestMoney has been successfully voluntary closure of six debt Section 80 C might put some in a lending out required financial schemes comes as a rude shock to severe financial risk support to lakhs of millennials investors and GenZ 68 Restructuring Finance 56 Stock Pick Amid Crisis 80 My Plan Focusing on a strong track record It is important to be financially safe Current portfolio valuation might with Hindustan Unilever and by setting aside some reserve as not be high, but will grow once the HDFC Bank liquid assets market recovers Rani Rampal Mithali Raj Pullela Gopichand 58 Morningstar Hockey Player Cricketer Badminton Player In focus: Nippon India Dynamic Bond Fund, ICICI Pru Value Discovering Fund, Franklin India Equity Fund

pg 52 Where The Economy Stands Arun Lal Harbhajan Singh Mehrajuddin Wadoo What the global agencies Cricketer Cricketer Footballer have to say about the future of India’s GDP

Columns Ajay Bagga, Devangshu Dutta, Sandip Mukherji, Susmit Patodia

4 Outlook Money May 2020 www.outlookmoney.com Anju Bobby George Mary Kom Jeje Lalpekhlua Athlete Boxer Footballer

Bhaichung Bhutia Virender Sehwag Sanjay Manjrekar Footballer Cricketer Cricketer

Rani Rampal Mithali Raj Pullela Gopichand Hockey Player Cricketer Badminton Player

Arun Lal Harbhajan Singh Mehrajuddin Wadoo Cricketer Cricketer Footballer

www.outlookmoney.com May 2020 Outlook Money 5 Chapter One

Firms Rejig On Liquidity Crisis

he second phase of the nationwide hopefully, liquidity will start improving. lockdown on account of the But thankfully, all is not lost at the stock COVID-19 crisis has brought in markets at least. The markets have been moreT difficult times for investors. While the behaving quite erratically of late, losing most markets have behaved erratically leading to of the time and experiencing moderate gains considerable loss of investor money, there from time to time. Ever since the pandemic has been a liquidity crisis in the market set in, the Sensex and the Nifty have dropped Rebuilding wealth wiped which is leading to many financial companies by an average of about 30 per cent, which, out in bouts of turbulence as rethinking on their existing products and though a huge loss, is not the maximum markets see huge outflow schemes. Indian investors have seen. Experts feel that Last week the biggest news that came in Indian investors, at least a large number of was that of Franklin Templeton, one of the them, have seen larger losses when the Sensex earliest global financial companies to launch had tanked by a larger amount. This includes operations in India, to take the inevitable and the Harshad Mehta scam, the dot com bubble unprecedented decision of closing down six burst and the Ketan Parekh episodes when of its high performing fixed income and credit the markets had tanked by around 50 per risk funds in its India unit with a total AUM cent. If the market had dropped by a similar of over `30,000 crore. Ostensibly, the decision amount now, the Sensex ideally should have came in because of a lack of liquidity in the come down to around the 17,000-18,000 bond market. It is also true that India’s debt level. The fact that the Sensex is still ruling market has been feeling the pinch ever since at around 31,000 despite the repeated falls the COVID-19 pandemic started and created a shows that the markets are still pretty resilient liquidity crisis as people stayed home. as compared to their historical past and can While this is the first big fund house to withstand these developments and pressures. withdraw major schemes from the market, If things proceed as expected, we should see the move is certain to prompt other big fund the Sensex getting back to the 35,000-36,000 houses to follow suit and withdraw schemes level by October. from the market because of lack of liquidity. The other good news is that Foreign Obviously, this will make matters worse and Portfolio Investors who had exited the market aggravate the situation as liquidity is not couple of months ago, have started making expected to improve in the market or at least inroads into the Indian markets again. This until the lockdown is lifted and normalcy should give a booster shot to Indian investors returns to the markets. This will considerably and bring back investor confidence. As and dent investor confidence and narrow down when the government opens up various options for investors, especially in the debt sectors and the lockdown is lifted gradually, market. the market is expected to become more Most people are hoping that things will resilient and bring in gains for investors. start getting normal from May-June, if, at The next few weeks would be defining for all, the government lifts the lockdown and Indian investors and would determine how people start getting back to their regular the markets behave and what happens to routines. However, things are still grim on investors’ money. The government has come the COVID-19 front and it is highly possible out twice in the last one month to provide that the lockdown will either get extended a booster package to lift sentiments. It is nationwide or at least in several pockets in expected to further announce packages for various states, which means that things will investors and the economy which will bring in not return to normal till coronavirus infection good tidings for all. In the meantime it would cases start going on a decline noticeably. So a make sense to stay invested in the markets as ARINDAM MUKHERJEE realistic estimate would be to look at June-July profit booking in these times could bring in [email protected] for normalcy to return to the markets when, less than expected results. Please stay safe.

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COVID-19 Volatility For An MF Investor I would like to compliment this cover EDITOR Arindam Mukherjee story of Outlook Money EQUITIES AND MARKETS EDITOR for putting up such an Yagnesh Kansara important thought before SENIOR ASSISTANT EDITORS Aparajita Gupta, the investors. Amid the Anagh Pal pandemic, the investors SPECIAL CORRESPONDENTS are surely befuddled, and Himali Patel, it is important to ingrain Vishav the concept of SIP and PRINCIPAL CORRESPONDENT Nirmala Konjengbam STP in such situations. Investors should understand that they must SENIOR CORRESPONDENT not stop the ongoing strategies as volatility is the best friend of these Dipen Pradhan strategies in the long run. NEWS DESK Suvashree Majumdar, Kolkata COPY EDITOR Sudeshna Banerjee SENIOR SUB EDITOR Importance Of Asset Sampurna Majumder Allocation In The TRAINEE SUB EDITOR Turbulent Times Indrishka Bose WEB CORRESPONDENT Kshitija’s column on asset Rajat Mishra allocation and how it might help DIGITAL TEAM Amit Mishra, Sneha Santra us sail through turbulent times is ART an interesting article. Praveen Kumar. G, Vinay Dominic (Senior Designers) Naresh Kumar, Mumbai Girish Chand (DTP Operator) PHOTO EDITOR Bhupinder Singh Time To Turn Wounds Into Wisdom TECH TEAM Raman Awasthi, Suraj Wadhwa To remain invested is Business Office the need of the hour. The CHIEF EXECUTIVE OFFICER unstable environment Indranil Roy might come as a shock, PUBLISHER but one must keep calm Sanchita Tyagi Rawat ASSISTANT VICE PRESIDENT and cut the expenses as Tushar Kanti Ghosh much as possible, and Circulation & Subscriptions increase the savings rate. Anindya Banerjee, I liked how this article Gagan Kohli, Vinod Kumar (North) G Ramesh (South), Arun Kumar Jha (East) explained the strategy Shekhar Suvarna by taking the example of Production 2008 crisis, where those who stayed invested gained in the long run. GENERAL MANAGER Arun Jaiswal, Mumbai Shashank Dixit CHIEF MANAGER Follow Guidelines, Ensure Safety Shekhar Kumar Pandey MANAGER I have been following Outlook Money for several years now, and Sudha Sharma I am glad how this time they focused on the COVID-19 issue and DEPUTY MANAGER Ganesh Sah answered the queries of the insurers regarding health and travel ASSOCIATE MANAGER insurance. Gaurav Shrivas Sarita Viswanath, Chennai Accounts VICE PRESIDENT Diwan Singh Bisht Letters must be addressed to: The Editor, Outlook Money, AB-10, Safdarjung Enclave, COMPANY SECRETARY & LAW OFFICER New Delhi 110029, or [email protected]. Please mention your full name and residential address. Ankit Mangal

8 Outlook Money May 2020 www.outlookmoney.com

Talk Back

AT1 Bonds Write-Off Exposes Gaps The article focusing on the Yes Bank crisis was very informative. Many depositors were baffled and had no access to information that was behind this decision. I would like to thank Outlook Money for highlighting this issue with sound investigative research. Ashish Mishra, Bangalore

Gaining An Managing Portfolio Institutional Face During Volatility I found this article on mutual This article has an interesting funds very intriguing. How India approach. When we are all has developed over the years under grappling with such uncertainty, this category was very informative. especially in the medical domain, I hope to read more of such it is important for all of us to articles. relook at our portfolios and Srijan Singh, Mumbai emergency funds. I liked how the My Plan author explained in a detailed With uncertainties all over the Digitisation Can Improve stepwise pattern, and ended with globe, it is profoundly important Insurance Penetration an optimistic frame, and the for all of us to take financial This article spoke what many of key words being patience and discipline seriously. This article us feel nowadays with digitisation discipline. is wonderfully weaved, giving us Sudip Kumar Mondal, Kolkata gradually becoming a necessity and a picture of reality focusing on a way of living a better life. It will dedicated SIPs and health insurance surely make a better tomorrow. Not A Comforting covers to mitigate the risk of any Coming to the insurance category, Message future uncertainties. People have a without any doubt digitisation has I got to understand and learn a hard time trying to figure out their simplified it and bought significant lot from Manish Tewari’s speech financial roadmap, and to have a efficiency into the insurance in the Outlook Money Conclave. strong financial commitment. And business. He has unveiled several factors it is absolutely necessary to start , New Delhi Mahima Jain which remain unnoticed, and getting financial advice from an the ramifications are not easily early age, so that down the line, we understood by the common do not feel helpless. Akash Gupta, Kolkata people. I appreciate how he focused on the fall of private COVID-19: consumption, manufacturing Where Do We Go? growth and agricultural credit. As we all are aware of the The article of Farzana Suri was full unemployment reaching its peak, I of positive notes especially when had a great time reading about all things are going downhill. I always other parameters that do not send look forward to articles like these, a comforting message. and hoping to see more. Kuheli Adhikari, Delhi Samayata Bhansali, Mumbai

10 Outlook Money May 2020 www.outlookmoney.com

Queries Various Pros And Cons Of Senior Citizen Saving Schemes

thereafter before maturity. Systematic Withdrawal Plan (SWP) from mutual funds has the potential of higher returns and is a good choice for those investors with more risk appetite. SWP from a debt mutual fund can give a reasonable visibility of regular cashflows. Always choose the monthly withdrawal percentage a bit lesser than the expected yield to maturity. Accrual based funds are highly suggested for SWPs. As far as the taxation is concerned, gains on withdrawals up to three years would be as per the marginal tax slab of the individual. SWAPNIL BHANDARKAR your information, an investment Annuity plans come with the [email protected] limit of `15 lakh, might not be a comfort of income stability but the My mother is a 62 years concern. Premature withdrawals returns are below average in most old housewife. She has are permitted only after the first cases, hence could be preferred less. `10 lakh as savings which year but with penalties at the rate Sriram B.K.R, Investment Strategist at we want to invest with of 1.5 per cent before two years and Geojit Financial Services the intention to give her a monthly stable income. Which scheme would you recommend and what are M P SINGH, [email protected] the pros and cons of each scheme? The following schemes are Senior Citizen Savings Scheme, Systematic Withdrawal Plan, Annuity Plan from some insurance companies like Tata AIA or HDFC Life. The Senior Citizen Saving Scheme (SCSS) comes with the highest safety with an interest rate of 8.6 per cent (January to March I want to invest for 12 months in liquid funds instead 2020). Investments are eligible of recurring deposits as I will be requiring funds after for deductions under Section 80C a year. I would like to know about the tax implication limit. It gives a stable income in the and which are the best liquid funds available? form of interest and gets directly Liquid funds come under the debt category. Gains realised within credited into the bank account of three years are considered as short-term and would be taxed as per the depositor. SCSS comes with a the individual’s marginal tax slab rates. Some names that you can fairly medium to long tenure of five consider are, Tata Liquid fund, Axis Liquid fund and Sundaram years, extendable for another three Money fund. years. It is advisable to be watchful Sriram B.K.R, Investment Strategist at Geojit Financial Services on factors like interest, which is taxable and is paid quarterly. Given

12 Outlook Money May 2020 www.outlookmoney.com

Queries

SARABJEET SINGH [email protected] I am 32 years old and doing an investment in PPF of 1 lakh per annum (`3 lakh till now), `50,000 per annum in NPS (`50,000 till now), and `10,000 in ELSS (`1 lakh till now). How much corpus I will accumulate and need to accumulate more to retire at the age of 60? What other investments can I do to accumulate good corpus for my child’s education? If your existing investments continue in the same pattern SRIKANTH REDDY every year, it is expected to [email protected] grow. In case of PPF it will I am an NRI and planning to invest for my child’s grow to around `1.01 crore education, who is right now four months old. I would (at an expected rate of interest like you to help me with the following queries. of 7.9 per cent per annum, How much do I need to invest monthly or yearly to throughout), each investment accumulate an amount of `35 lakh by the time my comes with a lock-in period son turns 15 years ? Do I need to pay a tax on ` 35 of 15 years. lakh? If yes, how much would it be? In case of NPS it will grow We will be requiring a little more information on your risk to around `74 lakh (at an appetite whether it is low, average or aggressive? If the corpus expected CAGR of 10 per cent is for your child’s education, we would like to know whether per annum). Investments come you are planning it in India or any other country? What type of with a lock-in period till 60 instruments are you looking at ? years of age. In case of ELSS With all the available information I would say that for reaching it will grow to around `3.5 `35 lakh in 14.7 years, and assuming that you have a moderate crore (at an expected CAGR of risk; with investments in equity-oriented mutual funds, you need 14 per cent per annum), each to invest `7,700 per month. I am also assuming your investments investment comes with a lock- are growing at an expected rate of 12 per cent per annum. If you in period of three years. expect the investment to grow at 15 per cent per annum, then the This sums it up to around investment could be around Rs 6,000 per month. `5.25 crore. We would strongly Yes. As per current tax laws, long term capital gains from suggest you to start a separate equity-oriented investments (those held for more than 12 SIP (systematic investment months) are taxed at the rate of 10 per cent on gains beyond `1 plan) for your child’s future lakh per annum. If you are doing a systematic investment, then 12 education in an equity mutual months should be counted for each instalment (including the last fund scheme. You can calculate one) for long-term. taking some real-time costs Answering your third question, you need to reconsider and the inflationary trends the future amount if it is for higher education. The education to arrive at a ball-park figure, inflation grows at higher teen digits and any lower assumption on else please contact a financial base cost or on the inflation might end up creating a big shortfall. advisor for assistance. Sriram B.K.R, Investment Strategist at Geojit Financial Services Sriram B.K.R, Investment Strategist at Geojit Financial Services

14 Outlook Money May 2020 www.outlookmoney.com News Roll

AMFI Urges Stockholders To Continue Investing obody saw it coming. Yes. Franklin Templeton’s decision to Nwrap up six of its major debt schemes on April 23, has created ripples in the world of finance. Post the event, the Association of Mutual Funds in India (AMFI), the industry’s apex body is all set to extend support to lakhs to investors who are caught in a state of flux. In a statement issued, AMFI states, “A majority of income- oriented debt schemes have invested Ind-Ra Slashes Growth in superior credit quality securities and have appropriate liquidity to To 1.9 Per Cent For FY21 ensure normal operations. AMFI strongly recommends that investors ndia Ratings and Research (Ind-Ra) has revised its FY21 gross continue to focus on their investment domestic product (GDP) growth further down to 1.9 per cent from goals, consult financial advisors and Iits earlier estimate of 3.6 per cent published on March 30, 2020. This not get side-tracked by an isolated will be the lowest GDP growth in the last 29 years and is based on the event in a few schemes of a single assumption that the partial lockdown will continue till mid-May 2020. fund company.” Ind-Ra’s estimates suggested that GDP may come back to the 4QFY20 Commenting on the latest level only by 3QFY21, anticipating resumption of normal economic development of the asset activities during 2QFY21 and festive demand during 3QFY21. However, management company, AMFI states if the lockdown continues beyond mid May 2020 (almost as anticipated) that the action is limited and a gradual recovery takes root only from end of June 2020, GDP to only six specific income- growth may slip further to negative 2.1 per cent, lowest in the last 41 oriented debt schemes managed years. The Ind-Ra research report said the proactive intervention of the by Franklin Templeton. Reserve Bank of India (RBI) notwithstanding the spill over impact of Further, the Assets Under COVID-19 has percolated into the financial markets as well, choking Management (AUM) of these six the credit channels and raising the risk aversion. The RBI announced its schemes constitute less than 1.4 seventh bi-monthly Monetary Policy Statement of FY20 on March 27, per cent of the Indian Mutual Fund 2020. Although the policy focused on (i) the repo rate by 75 basis points Industry’s aggregate AUM as on (bps), (ii) cutting the cash reserve ratio by 100 bps to three per cent, (iii) March 31, 2020. In light of the announcing targeted long-term repo operations Targeted Long-Term above, sharing his views Nilesh Repo Operations (TLTRO) worth `1 lakh crore, were primarily focused Shah, Chairman, AMFI says, “The on easing the tight monetary conditions building up in the economy, the mutual funds industry remains fully financial market reacted otherwise. committed to investor interests and Ind-Ra’s retail inflation estimate for FY21 is 3.6 per cent. Retail there is no need for them to panic inflation had breached the RBI’s upper bound of six per cent in and redeem their investments. The December 2019 and peaked in January 2020, before the prices of industry continues to remain robust vegetables, fruits and petroleum brought it down to 5.9 per cent in like in 2008 sub-prime crisis or 2013 March 2020. As the threat to headline inflation has receded lately due taper tantrum crisis.” to (i) adequate buffer stocks in cereals, (ii) good rabi harvest, (iii) record “Sebi regulations allow mutual decline in global crude prices and (iv) low pricing power of firms, funds schemes to borrow up to 20 per even the RBI now expects the retail inflation to fall to 2.7 per cent in cent of their assets to meet liquidity 3QFY21 and 2.4 per cent in 4QFY21. needs for redemption or dividend Aparajita Gupta pay-out.” Himali Patel

www.outlookmoney.com May 2020 Outlook Money 15 Cover Story

Govt Must Abolish ltCG to boost investor sentiMent An upswing will depend on the flattening of spread curve, discovery of medical cure, economic stimulus and revival of industry and consumer sentiment

By Yagnesh Kansara & Arindam Mukherjee

fter COVID-19 pandemic broke out, the community also needs support in the form of some government and the regulator has made an soothing announcement from the Ministry of Finance attempt to take care of interests of almost all (MoF) to come back into action. Athe stake holders. Finance Minister Nirmala Sitharaman India’s markets regulator Securities and Exchange announced a relief package worth `1.70 lakh crore, Board of India (Sebi) said it has granted a one-time which would take care of farmers, landless labourers and relaxation in its primary market fund-raising norms make arrangements for free distribution of food articles to make it easier for companies to raise capital amid for poor people affected by the lockdown. The Reserve the pandemic. Sebi has extended its period of approval Bank of India (RBI) followed suit with a bigger package for Initial Public Offerings (IPOs) and rights issues of `3.77 lakh crore. RBI came out with yet another by six months. This will be applicable to companies Relief Package 2.0 in the second week of April, which where Sebi’s approvals have expired or are due to expire was aimed at deepening the availability of credit from between March 1 and September 30. banks through additional Targeted Long-Term Repo These measures will benefit companies planning to Operations (TLTRO) worth `50,000 crore with a focus raise capital. What is required is a more direct step that on Small and Medium Enterprises (SMEs) and Non- Banking Finance Companies (NBFCs). Under this relief package SMEs and other corporate entities will be benefited in the form of repayment of loan for a period of three months. It also announced reduction in the rate of interest for the industrial and banking sector. However, amid all these pckages, one of the most important stake-holder that was forgotten was the investor. Following the outbreak equity markets have taken a huge beating. Markets have dipped in excess of 30 per cent. It is the investing community that provides large chunk of risk capital to the Industry and plays a Graphics: Praveen Kumar .G significant role in the development of the economy. This

16 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 17 Cover Story

By Yagnesh Kansara & Arindam Mukherjee

16 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 17 Cover Story

supports investor community and is relevant in the economy will be positive for cash flows and sentiments concerted efforts to revive domestic savings. Yet the key falling interest rate regime. The government needs to and will boost the investor confidence,” Bagga explains. monitorable with respect to investor sentiment stays keep in mind that in the low interest rate regime, it is Of course, some measures have been taken, which the spread of the virus on one hand, and the extent of only the capital market, which has the ability to attract should bring in some cheer, says Navneet Munot, ED lockdown and its impact on the economy on the other. savings and can boost the risk capital. If it fails to do so, and CIO, SBI MF. “We are a country deficient in risk The policy response on both these fronts will determine it will not only damage itself but will also badly impact capital. With domestic savings rate steadily declining the extent of damage to the economy and hence cuts Immediate the highly ambitious disinvestment programme. and at multi-year lows now, we have stayed heavily to corporate earnings. And this will continue to shape Multi-Pronged Ajay Bagga, a Private Investor, feels, “Fiscal stimulus, dependent on foreign capital. However, FPIs pulled out sentiment in the near term. action by RBI to manage the market stability and nearly $15 billion from the Indian financial markets in The prolonged lockdown and disturbance in Need liquidity and sector-focused stimulus measures will help March, their highest ever outflow, amidst heightened industrial production and business activity could take revive the real economy and corporate cash flows. For global risk-aversion. Recent moves such as increasing a toll on companies, especially the SMEs. Munot feels the markets, a liberalisation of the investment tax regime FPI limit to 15 per cent in corporate bonds and opening the big concern is that the economic distress caused by with lower STT, abolition of the Long Term Capital up certain government securities under the fully the lockdown could result in several smaller businesses Gains (LTCG) tax and reduction of the Short Term accessible route are welcome steps. Statutory FPI limits failing to survive and a huge spike in unemployment. 1. Farm Economy: With the Rabi harvest ready, Capital Gains (STCG) tax along with holding periods of Indian companies having been increased to the This will put the financial system at a heightened risk, 1 farm supply chains and markets have to work, should be introduced to boost sentiments.” sectoral foreign investment limit effective April 1, 2020. which in turn will adversely affect the economic activity, so that farmers can reach their produce to the Echoing similar views, Archana Khosla-Burman, This should help increase India’s weight in MSCI EM thus leading to a vicious cycle. buying centers and get a fair value for their labour. Founder Partner, Vertices Partners, says, “The equity index,” he explains. Munot says, “Just when after several years of clean- Similarly with the Kharif sowing season starting, government could reduce the tax burden on investors It is not that the government has not taken steps at up the financial system finally looked ready to support it is critical that farmers have credit, inputs and by temporarily removing the tax on share buyback and all that can help the economy. But these are all good growth, we cannot afford this. It is therefore imperative labour available to complete the sowing on LTCG. This could provide some relief and exemptions medium-term measures as they may not be of much that the policy makers are aggressive and proactive in time. This is largely in the hands of the state in these times of turmoil caused by the continuous help immediately. In addition to these we also need not just controlling the virus but also mitigating the governments bleeding in the stock markets. The removal of the 2. SMEs/MSMEs: Though there is good systemic buyback tax will prompt more companies to announce 2 liquidity with daily money market liquidity of more buybacks, which could help provide floor to the share than `4 lakh crore, SMEs and MSMEs who have prices. Further, the removal of LTCG tax will provide low cash cushions and staying power are facing a good booster, as shares of most of the companies an existential crisis. Like in the US, it is critical to are trading low. Along with the abolition of LTCG, enhance the credit available to these segments government may also consider reduction of Dividend and to give deferrals to them on repayments. Distribution Tax (DDT) from its current rate”. These are the largest employers after agriculture The suggestion to removal of buyback tax is in line and construction industry, and nearly 1/4th of with the recent step taken by the Commerce Ministry to them will go bankrupt unless funds are made tweak the rules for Foreign Direct Investment (FDI) by available to them urgently certain neighbouring countries. The move is to check the 3. Unemployment grants to informal workers out of hostile and predatory takeover bids by foreign investors, 3 jobs: This is the largest segment of bread winners when the stock prices have taken a severe beating in the after farmers and they have been facing a huge domestic markets. hardship. Direct transfers of survival grants should Additionally, measures to boost industrial production be made into their accounts to help them tide over and manufacturing are also required to bring back the lockdown period investor confidence. “Corporate earnings visibility and growth are the fundamental bedrock of the markets. 4. Support to troubled sectors like airports, aviation, Measures to revitalise the production sectors in the 4 hotels and restaurants, retailers and malls, real estate, logistics, NBFCs, micro finance and automobile value chain players facing acute losses AjAy BAggA due to the lock down needs to be announced Private Investor 5. Tax rate cuts in GST to lower prices and boost 5 consumption are required A lower STT, abolition of the LTCG and reduction of STCG 66. For all those who have lost their jobs, some kind of along with holding periods an unemployment insurance package should be rolled out to help them tide over the next should be introduced few months

18 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 19 Cover Story

second order economic impact. Signs that policy makers crackdown on black economy and reforms in the form are ahead of the curve on both fiscal and monetary of GST, a continuous thrust on lowering cost of capital, fronts will be critical in stabilising financial markets. improvement in ease of doing business, recent corporate There will be worries on debt but it is important to note tax cuts, among others. The current crisis will lead to that debt to GDP typically rises in any crisis.” unprecedented global stimulus. As growth rate falls near interest rates, debt burden With monetary policy having reached its limit will rise anyway. Taking the economy out of trouble globally, fiscal policy will do the heavy lifting, which with the growth denominator taking care of the ratio should be positive for global infrastructure and is therefore the only way to go. The RBI however must investment activity. At the same time, the case for absorb government supply to keep yields down. While just-in-time and super concentrated supply chains this may lead to concerns around our ratings and the may weaken, as global firms weigh reliability against currency, at a time when most countries are doing the efficiency, leading to a need for more diversification and same, the relative pressure will be less severe. multilateralism. With the rising distrust of China, India Munot feels that the government’s thrust over the could emerge as a strong alternative. We have to be past few years has been to revive investment activity prepared to capitalise with appropriate administrative, to create jobs and in turn support consumption judicial and regulatory realignment. sustainably. A lot of ground work has been done in So what should investors do in the absence of any this regard like formalisation of the economy through targeted relief package for them from the government? Bagga opines, “Conserve your capital, stick to your asset ArchANA KhoslA- allocation, build your emergency reserve and diversify. BurMAN Staying optimistic and understanding market cycles is Founder Partner, Vertices Partners crucial to weather the downturns.” Munot says, “Several valuation measures such as market cap to GDP and long-term earnings-based yield Removal of buyback tax spreads, are in the vicinity of Global Financial Crisis will prompt more buybacks, (GFC) lows of 2008. It suggests attractive entry points which could provide floor to for long-term investors. Investments made at such share prices valuations should be rewarding in the long run and the fact that retail investors have continued with robust SIP AD

20 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 21 Column Asset Allocation For A Smooth Investment Voyage

uilding a winning far has seen all financial income investments are a safer portfolio is dependent assets face the brunt of the investment but with relatively Bon a number of pandemic triggered economic lower returns. Cash has a role factors. It is important to slowdown. What may seem to play when all assets are remember that your portfolio the best potential asset performing poorly. Combining should be designed according class today may prove to be different assets complements to your needs and goals. Just otherwise tomorrow. Market the strengths, while fixing the like all eggs are not put into timing is next to impossible weaknesses of a portfolio. one basket, in the same way because no bells ring when having a great portfolio means peaks and troughs are hit in Asset Allocation through allocating different assets in the real world. The best way Mutual Funds the right proportion. Asset Kaushik Deva to counter the uncertainties, Asset allocation funds offer allocation is the key to building Founder & CEO, Kredere be it a global financial crisis, a different allocation of stocks, a successful portfolio that will Wealth Partner Pvt Ltd healthcare scare like Covid-19 bonds and other investments to navigate troubled times with or a local crunch like an suit different investing profiles. ease, while clocking returns in using the ‘100 minus age’ rule Earthquake or Tsunami, is While static asset allocation funds the best of times. to decide equity allocation in to be prepared with a well- maintain the ratios of various an asset allocation framework. diversified asset mix. asset classes, this approach is akin The Power of One with This is also a sub-optimal to using out-dated devices in a Many route. When putting together Determine Your fast-changing world. Dynamism One of the most important an asset allocation plan, it is Blueprint is the need of the hour. steps to build a successful most important to consider Once you have decided your This is why dynamic asset portfolio is properly dividing the interlinked factors of time horizon and the level of allocation funds, which follow a assets among different types financial goals, risk tolerance risk you’re comfortable with, model based approach consisting of investments. Because and time horizons. A holistic the next step is to determine of various economic indicators, these investments perform view allows you to plan how the investment options that are best-suited. The model guides differently depending on much money you will need at are most suited for your the asset allocation pattern economic conditions, a good certain points in your life and profile. Higher risk opens the of these funds. A change in balance can keep a portfolio how much uncertainty you door to greater rewards but economic conditions guides the strong in a wide range of can tolerate in moving from one should be mindful of the allocation of investments to economic situations. one life stage to the next. risks. various asset classes. When the Proper asset allocation Your goals are sacrosanct going is good, the fund adjusts. allows the optimal exposure What Works & What and so is reaching them on When there are problems, the to different assets individually, Doesn’t time. Your retirement cannot fund realigns itself to the new while having a combined Many investors think picking wait beyond 65 years, your reality. It’s a hands-free solution effect reduces risk and protects the best potential asset and child’s higher education that works automatically. returns better. What you put allocating maximum money or marriage cannot be Dynamic asset allocation funds in the basket, how much, and to it would be better. Others postponed if markets turn have proved to be a relatively when are the important factors. consider market timing to turtle tomorrow. This is why better investment option in be the kingmaker. Research the basket of assets should be various market cycles. They help Goals, Risk Tolerance, has shown otherwise. In built in such a way that there eliminate two major human and Time Horizon reality, asset allocation plays is no compromise in terms psychologies of greed & fear; Asset allocation cannot be in a 91.50% role and other factors of meeting your goals at the this is done by working on the silo. Merely putting % numbers together play only 8.5% role required time. principal of buying low & selling beside each asset class and in the investment journey. In Equity offers the best high. By constantly rebalancing adding them to make 100 is 2018, most of the equities long-term growth prospects to reflect the intended allocation a futile way of attaining the had a tough time, especially to investors. Historically among the asset classes, shift ultimate goal: an all-weather midcap and smallcaps. In equity has outperformed of allocation between asset proof investment solution. 2019, debt markets saw other investments but they classes can ensure a smoother Many also make the mistake of various upheavals. 2020 so are also unpredictable. Fixed investment journey. Cover Story

NAVNeet MuNot a spread of false (fake) information, leading to ED and CIO, SBI MF panic and misinformed decisions. The constant bombardment of news and information also With domestic savings rate Manage FOMO And Avoid creates bias among investors, who may then be unable to make an objective decision towards declining at multi-year Any Impulsive Decision their financial planning. Stick to relaibale sources lows, we are dependent on to procure correct information and limit other foreign capital Arti Shroffis a practicing psychologist and psychotherapist. She primarily sources of media that may not be relevant. Swayed works with individuals suffering from clinical psychological disorders such as by the infodemic wave, investors may also miss out depression, anxiety, bipolar disorder, OCD, personality disorders, emotional on the right guidance to carry out a more informed and behavioural disorders. She suggested how investors active in stock markets decision. By observing ‘information hygiene’ may flows is heartening in that regard. Sentiment measures should take care of their emotions during the current turbulence and volatility, protect you in screening out false news, which too suggest that the pendulum has swung towards during and interview with Yagnesh Kansara. Edited excerpts. leads to reduced feelings of confusion and anxiety. extreme pessimism which is positive for prospective Limit you screen time. Watching financial returns in general. While time wise, volatility may persist figures going down may cause a sense of till uncertainty on near-term economic growth and fear and pessimism. Avoid constant watch earnings outlook continues, these are good times to how would coVID-19 impact investors What would be the best approach on your investments and allow yourself buy resilient business that should emerge stronger on emotionally? for Investors? enough time to gain a more objective the other side. It is only in times like these that you can The sudden onset of the COVID – 19 pandemic Any investment involes a process of gathering perspective towards the scenario. Resist the hope to buy strong businesses, managed by good people, has fuelled volatility in the entire financial markets all types of relevant information, evaluation urge of constant checking of your portfolio that are also available at reasonable and in some cases across the world. March 2020 witnessed a steep and analysis before one arrives at a decision on movement by keeping a realistic count. outright attractive valuations.” decline in the Indian stock market following the investing. During times of economic instability, There is a demand as well as a supply shock. There are news of the insiduous outbreak. The uncertainty it is natural for investors to experience stress and how does one manage stress and anxiety two levels of impacts to consider on the economy - the and instability in this current scenario has led to anxiety related to the future outcome of their related to their investments? direct loss of economic activity during the lockdown feelings of anxiety and helplessness among old and exisiting investments. When investors experience All investments, particularly equity investments period and the second order impacts caused by business new investors alike. Amid this financial crisis, the a surge of confusion and panic, they may end involve some element of risk. Uncertainty in the shutdowns, consequent loss of employment and the threat of a protracted economic recession and high up making the wrong decisions as emotions and financial markets may lead to feeling helpless. In strain it puts on the financial system. Both put together rate of unemployment will invariably loom large. rational thinking rarely go hand in hand. this case, try to gain a different perspective by are likely to shave off a couple of percentage points In uncertain times like these, it is important to ‘re-assessing’ the potential risks and by weighing from the annual GDP growth in FY21. So while the assess the investor’s perception and decision making how can one take the right decision? the pros and cons, thus regaining a sense of control immediate focus is on survival and the first order impact towards financial planning. The first and the foremost thing one has to keep towards your finances. Allow feelings of panic to is inevitable, the promptness with which policymakers in mind is that don’t allow biases to colour your pass and try to wait for the difficult period to get act to mitigate the second order impacts will be critical. perspective. It is important to allow feelings of over by avoiding any impulsive decision driven by “The government will have to lever up further in panic and confusion to pass before making a more strong emotional responses. our view, given stretched household balance sheets informed choice and disallow any decision to be Manage FOMO. Engaging in feelings of regret on one hand and a risk-averse corporate sector on the driven by common cognitive biases such as the ‘the or thinking about ‘what –if’ scenarios, will not be other,” Bagga says. over-reaction bias’. Under this scenario, investors helpful as no one can predict a certain outcome. Going forward, growth is expected to suffer severely. who feel ‘emotionally invested’ in their stocks may One has to understand and accept that it is “In the short term we see a downturn, given 25 per suddenly react to any new information they come difficult to time the market. Long-term investors, cent of the economy has been functional in lockdown across, particularly more so when it contradicts in particular, may try to catch the proverbial Phase I. The short-term impact is a hit of nearly 7 to 9 their existing beliefs. This, subsequently, may lead falling knife and experience Feelings Of Fear Of per cent of the GDP or around `20 lakh crore of lost to another common bias known as the ‘herd effect’, Missing Out (FOMO). production. In the medium term, any upswing will where investors simply chose to follow what other depend on the flattening of the spread curve, discovery investors are doing. Under the given sceniaro of What is the way out for the investors to of a medical cure, kind of economic stimulus provided specualtion, driven by negative market sentiment, gain control of their emotions during this by the government and revival of industry and choices based on biases can prove to be ineffective. turbulence? consumer sentiment. Viewing the current market scenario, keep in “We see FY 2021 seeing no growth in Indian GDP What would be the best way to tackle the mind the bigger picture to ensure one does not at best. In the long term, India will benefit from the media hype and overload of information limit one’s perspective to only focusing on the re-shoring from China, that a lot of companies will do. floating around us? temporary crisis. Like most economic cycles, this The Indian consumption story will revive and will be a Avoid infodemic. The sudden influx of information one too will recover over a period of time to a point critical driver for the long-term GDP growth at 6 per from various media (print, electronic, social where investors can regain their confidence. cent and higher levels,” Bagga concludes. media) sources has given rise to confusion and [email protected] [email protected], [email protected]

22 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 23 Cover Story

22 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 23 Cover Story time to upgrade risk Appetite Disciplined asset allocation and long-term investment will help NIlesh shAh Take Good Advantage Of This Crisis Experts feel it is a God-sent opportunity for long-term and first time investors he corona crisis has hit us all hard. Nobody we may see substantial improvements in our country’s could predict the scale of this crisis. This failure economic growth prospects. The FPIs have pulled out $16 to foresee was due to mixed signals from global billion from Indian equity and debt market during March Thealth agencies early on. 2020. But we believe that this is a temporary phase. Once As of now, there are three models to contain this medical solution emerges, these investments will come back problem. The Chinese model is of strict lockdown. The to India as well. In the developed world, most of the yields are South Korean model is about large scale testing and in the negative, or are nearing the zero level. The search for isolation. The Japanese model is about strict personal and better yields and returns may lead money back to India. The social hygiene. Combination of these three models may market valuations have become very attractive at these levels. help us contain our corona problem. Going forward, we We believe that it is time to be overweight on equity in estimate that there may be a partial lockdown and partial a cautious manner. Once the medical situation improves, mobility to tackle this issue. the markets may begin to react positively. Markets have Market reaction has been steep. Our Market had similar experience with Ebola and SARS (albeit on Capitalisation (M-Cap)-to-GDP ratio has come down a smaller scale) in the past. Then also, the markets had to almost 50 per cent. This is almost close to the 2008 bounced back sharply once the crisis was solved with drugs bottom (43 per cent of M-Cap-GDP) level. Price-to- and vaccine. Investors though can invest according to their book ratio is now trading at around 2x (forward basis). risk appetite. Conservative investors may consider large This is well below the historical average of 2.6x. Today, caps or large to mid cap funds for investing. Investors with almost 43 per cent of top 1,000 stocks are trading below moderate risk appetite may consider multi cap funds. Risk- 1x book value. Some of the bluest of blue-chips falls in happy investors may consider mid and small cap funds. The this set. Today, Nifty 50 is back at levels seen last in 2016. point is, investors may consider it as an opportune time to Similarly, Nifty Midcap 100 is down to 2014 levels. The upgrade their risk appetite just a bit. Nifty Smallcap 100 is at around 2011 levels. The issue is Investors may invest half of their incremental investment related to health and needs a medical solution. Market in a staggered manner in a falling market when it is in fear recovery may have to wait for this. mode. The other half should be invested when the market is There are some positive side-effects emerging from in hope mode post confirmation of medical solution. the current crisis as well. For one, the Brent crude oil For the debt market investor, the yields are attractively prices have fallen to $25 per barrel. Every dollar drop in positioned currently. RBI has been aggressive in supporting By Yagnesh Kansara We have also seen overseas investors exiting the oil prices gives us an advantage of $1.5 billion. As per growth and reviving the capital markets. Towards that domestic market. From the lows we had seen on the estimates, we are looking at a gain of $40 to $45 billion purpose, they gave a liquidity infusion of around `3.75 lakh e are currently going through COVID-19 indices, a fall of 30 to 40 per cent, the markets have to the economy due to falling crude oil prices. Moreover, crore and a 75 bps rate cut in their latest monetary policy pandemic and this crisis has given birth to moved up by about 20 per cent in the last few trading there has been a massive stimulus provided by the RBI (on March 27, 2020). At that, they have kept their stance a bye-product called lockdown, resulting sessions. But it is still too early to say that the markets and the other global banks. This liquidity, sooner or later, accommodative and pro-growth. This provides attractive inW tremendous amount of anxiety and uncertainty in have bottomed out, as much would depend on the is likely to cause asset price-rise again. investment space for six-month-plus investors. Long-term financial markets across the globe. extent of its further spread, containment of its spread, Most importantly, the global supply chain may get debt investors can consider investing in credit / dynamic The equity markets have seen an unprecedented the fiscal and monetary measures, which the central re-balanced post the crisis. MNCs may look to diversify bond funds for their investing requirement. selloff across the board in the last eight to 10 weeks. banks and the governments are likely to initiate. As of their suppliers away from China to avoid supply shocks It is going to be a long haul to come out of the current This selloff has been occasioned by the rapid spread of now all the major central banks including the Fed, RBI, going ahead. As a result, we may see significant industrial situation. Economy and markets will not bottom out till the pandemic in several countries and therefore, some Bank of Japan, have all enacted measures to prop up the investments come to India in search of opportunities. If a medical solution is found. This will allow lockdown to disruption was expected to happen in the major global money supply, the liquidity and credit. In this backdrop, India helps settle companies moving out of China like be lifted and economic activity to resume. Post medical economies. Such disruptions affect economic growth, one would like to know how far the recovery is. Tata-Motors was settled in Sanand (near Ahemdabad, solution, the recovery will depend upon steps taken by the output, aggregate demand and supply, employment Bhavesh Sanghvi, CEO, Emkay Wealth Management Gujarat) with one SMS of ‘Suswagatam’ (welcome); then government and the RBI to support growth through fiscal and a host of other key macro economic variables. says, “We need to see their final impact, which may and monetary measures. Disciplined asset allocation and The adverse impact on these variables results in lower take time as is the case with monetary policy actions. long-term investment will be key to future prosperity. Stay income for households, unemployment, and also lower But the comforting factor is that the government and Long-term investors can invest safe and stay healthy. earnings for companies. It is this chain of factors that the RBI have taken many unconventional measures to caused the selloff thereby magnifying the probability of a combat this unusual foe. The actual numbers on GDP, in credit / dynamic bond funds The author is MD, Kotak Mahindra Asset Management Company global economic slowdown. employment, CPI and IIP, which we will see in the

24 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 25 Cover Story time to upgrade risk Appetite Disciplined asset allocation and long-term investment will help NIlesh shAh Take Good Advantage Of This Crisis Experts feel it is a God-sent opportunity for long-term and first time investors he corona crisis has hit us all hard. Nobody we may see substantial improvements in our country’s could predict the scale of this crisis. This failure economic growth prospects. The FPIs have pulled out $16 to foresee was due to mixed signals from global billion from Indian equity and debt market during March Thealth agencies early on. 2020. But we believe that this is a temporary phase. Once As of now, there are three models to contain this medical solution emerges, these investments will come back problem. The Chinese model is of strict lockdown. The to India as well. In the developed world, most of the yields are South Korean model is about large scale testing and in the negative, or are nearing the zero level. The search for isolation. The Japanese model is about strict personal and better yields and returns may lead money back to India. The social hygiene. Combination of these three models may market valuations have become very attractive at these levels. help us contain our corona problem. Going forward, we We believe that it is time to be overweight on equity in estimate that there may be a partial lockdown and partial a cautious manner. Once the medical situation improves, mobility to tackle this issue. the markets may begin to react positively. Markets have Market reaction has been steep. Our Market had similar experience with Ebola and SARS (albeit on Capitalisation (M-Cap)-to-GDP ratio has come down a smaller scale) in the past. Then also, the markets had to almost 50 per cent. This is almost close to the 2008 bounced back sharply once the crisis was solved with drugs bottom (43 per cent of M-Cap-GDP) level. Price-to- and vaccine. Investors though can invest according to their book ratio is now trading at around 2x (forward basis). risk appetite. Conservative investors may consider large This is well below the historical average of 2.6x. Today, caps or large to mid cap funds for investing. Investors with almost 43 per cent of top 1,000 stocks are trading below moderate risk appetite may consider multi cap funds. Risk- 1x book value. Some of the bluest of blue-chips falls in happy investors may consider mid and small cap funds. The this set. Today, Nifty 50 is back at levels seen last in 2016. point is, investors may consider it as an opportune time to Similarly, Nifty Midcap 100 is down to 2014 levels. The upgrade their risk appetite just a bit. Nifty Smallcap 100 is at around 2011 levels. The issue is Investors may invest half of their incremental investment related to health and needs a medical solution. Market in a staggered manner in a falling market when it is in fear recovery may have to wait for this. mode. The other half should be invested when the market is There are some positive side-effects emerging from in hope mode post confirmation of medical solution. the current crisis as well. For one, the Brent crude oil For the debt market investor, the yields are attractively prices have fallen to $25 per barrel. Every dollar drop in positioned currently. RBI has been aggressive in supporting By Yagnesh Kansara We have also seen overseas investors exiting the oil prices gives us an advantage of $1.5 billion. As per growth and reviving the capital markets. Towards that domestic market. From the lows we had seen on the estimates, we are looking at a gain of $40 to $45 billion purpose, they gave a liquidity infusion of around `3.75 lakh e are currently going through COVID-19 indices, a fall of 30 to 40 per cent, the markets have to the economy due to falling crude oil prices. Moreover, crore and a 75 bps rate cut in their latest monetary policy pandemic and this crisis has given birth to moved up by about 20 per cent in the last few trading there has been a massive stimulus provided by the RBI (on March 27, 2020). At that, they have kept their stance a bye-product called lockdown, resulting sessions. But it is still too early to say that the markets and the other global banks. This liquidity, sooner or later, accommodative and pro-growth. This provides attractive inW tremendous amount of anxiety and uncertainty in have bottomed out, as much would depend on the is likely to cause asset price-rise again. investment space for six-month-plus investors. Long-term financial markets across the globe. extent of its further spread, containment of its spread, Most importantly, the global supply chain may get debt investors can consider investing in credit / dynamic The equity markets have seen an unprecedented the fiscal and monetary measures, which the central re-balanced post the crisis. MNCs may look to diversify bond funds for their investing requirement. selloff across the board in the last eight to 10 weeks. banks and the governments are likely to initiate. As of their suppliers away from China to avoid supply shocks It is going to be a long haul to come out of the current This selloff has been occasioned by the rapid spread of now all the major central banks including the Fed, RBI, going ahead. As a result, we may see significant industrial situation. Economy and markets will not bottom out till the pandemic in several countries and therefore, some Bank of Japan, have all enacted measures to prop up the investments come to India in search of opportunities. If a medical solution is found. This will allow lockdown to disruption was expected to happen in the major global money supply, the liquidity and credit. In this backdrop, India helps settle companies moving out of China like be lifted and economic activity to resume. Post medical economies. Such disruptions affect economic growth, one would like to know how far the recovery is. Tata-Motors was settled in Sanand (near Ahemdabad, solution, the recovery will depend upon steps taken by the output, aggregate demand and supply, employment Bhavesh Sanghvi, CEO, Emkay Wealth Management Gujarat) with one SMS of ‘Suswagatam’ (welcome); then government and the RBI to support growth through fiscal and a host of other key macro economic variables. says, “We need to see their final impact, which may and monetary measures. Disciplined asset allocation and The adverse impact on these variables results in lower take time as is the case with monetary policy actions. long-term investment will be key to future prosperity. Stay income for households, unemployment, and also lower But the comforting factor is that the government and Long-term investors can invest safe and stay healthy. earnings for companies. It is this chain of factors that the RBI have taken many unconventional measures to caused the selloff thereby magnifying the probability of a combat this unusual foe. The actual numbers on GDP, in credit / dynamic bond funds The author is MD, Kotak Mahindra Asset Management Company global economic slowdown. employment, CPI and IIP, which we will see in the

24 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 25 Cover Story

AMAr AMBANI depend on when we’re able to rein control over the Senior President and Head of Research COVID-19 virus. Once the number of daily new cases – Institutional Equities, YES Securities begins to stagnate is when the market will breathe a sigh of relief. Having said that, I think most of the damage in price has already been done. But we may still see time Volatility in the markets will wise consolidation in 2020. Volatility, for the rest of this remain elevated as fall in year, will remain elevated, as fall in GDP gets reported the GDP gets reported and certain sectors see a follow-on damage. Bank NPAs will rise and global stress will set in.” The current crisis differs from previous ones in more than one way. Several falls have happened during tech we may not see markets falling substantially hereon. burst phase, Harshad Mehta scam case and in 2008. Damania says, “India has unique issue of poverty, This is because, in previous crisis, it was only one or population, unemployment, fiscal constraint and other sector that was impacted. However, this time, medical infrastructure so our response within limited almost all the sectors have been majorly impacted tools will decide the course of recovery at homeland. It is due to lockdown. With most of the world is shut, safe to believe that our market will find direction in the there is hardly any life and business that has remained next two to three months and volatility will be maximum unaffected. During that time it was more of a financial in this period. Needless to mention that economic market meltdown but this time it is more like an recovery will happen next year only. History suggests economic meltdown. that after every global health crisis, the recovery has Himanshu Kohli, Co- Founder, Client Associates says been V-shaped rather than U or L-shaped.” whatever damage that was to happen is reflecting in the Ambani firmly believes that we are passing through prices. He adds, “In my opinion, 65-75 per cent or two- a bear market phase. He argues, “The current state third to three-fourth of the fall has already happened of market certainly qualifies as a bear phase with the and one-third or one-fourth more would happen. Right extent of price damage seen. In the past, such periods now it is hard to predict whether we stand at 25,000 have lasted for one to three years before the previous coming months would tell us the depth of the economic Bhavesh D Damania, Founder and Chief Care Taker, levels or 22,000 levels of the Sensex, but the majority of market peak is reached again. But this time around, and financial impact of the pandemic.” Wealthcare Investments, says, “This is unprecedented the fall has already happened”. the time period may be shorter. This is because - one, At the moment the market looks positive. The world and therefore I do not think it is easy to answer the Does it mean we have entered the bear market phase? it is a health crisis and not a financial crisis so we can response to the crisis is happening while the crisis is still question. I think flattening of COVID-19 curve across A bull market or a bear market is a normal market bounce-back fast, once full economic activity resumes on, unlike any previous crisis. During subprime crisis western world will decide the course of the market. If formation and it is part and parcel of the cyclicality that and two, there isn’t much froth in the market since this of 2008, US response with quantitative easing (QE) was we have to believe China, it took them 100 days to bring we see in economic phenomena. In other words, the fall was not preceded by a massive 4-6x rally in the months after the crisis surfaced. Subprime crisis was back total normalcy in Wuhan so that much time will economic phenomena happen in cycles. But in such benchmark indices”. developing and the US Government and US Fed could be needed for western world to return to normalcy. situations, a fall in the economy and markets happen The current volatility in the market and its current have anticipated the same in time, yet the government For India, if lockdown continues through May 2020 over a period of time, that is, periodicity is a feature of state is because of risk averse approach adopted by the response was late. COVID-19 crisis didn’t give enough then we are going to have a very tough time in putting cycle. The last time we had bearish market was the time Foreign Portfolio Investors, (FPIs), adds Kohli. preparation time to any country and yet the response is economy back on track. Our GDP growth will be around the great recession was developing and maturing around He says, “Right now, the sentiment is definitely poor. quick. More than $7-8 trillion have been committed to 1 per cent, we will see huge stress in SME, MSME and 2006-2008. However, current phase of the market is bear Furthermore, the market is bearing the crisis of foreign revive global economies. This is not financial or sectoral Infrastructure sector which will aggravate the labour market or not, the opinions are divided. liquidity moving out, which means that we are currently or country specific crisis but a health crisis, which has market pains. Employment across the spectrum of skill Sanghvi says, “The current situation is quite gripped all major economies and continents. We need to sets will be impacted due to slower economic activities interesting – the economic difficulties are caused by understand the impact of this crisis on Indian markets. and consumption. It appears that western world’s curve the pandemic, or rather the fear of the consequences is flattening but ours might steepen further. So while of pandemic. Therefore, we cannot call this technically others will be out of woods, India may still be fighting a bear market, but it can be termed a market BhAVesh D DAMANIA the battle for few more months beyond May”. characterised by extreme negative sentiment resulting Founder and Chief Care Taker, The damage this pandemic has done is devastating. in a selloff. Therefore, the recovery may be faster than a Wealthcare Investments While any death is unfortunate, India has been bear market downswing”. successful in restricting fatality numbers after five weeks By definition, bear markets are defined as 20 per cent If lockdown continues into the lockdown. One key monitorable is any relapse of fall in prices, declining economic prospects and negative through May then we will the virus, as seen in recent reports overseas. investor sentiments. Of these three factors, only investor face a tough time Amar Ambani, Senior President and Head of sentiment is positive. The EU and the US have entered Research – Institutional Equities, YES Securities, feels, the recession but determination to fight the crisis and “Whether equity market has bottomed or not, will restore growth plus confidence is quite evident today so

26 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 27 Cover Story

BhAVesh sANghVI 10-15 per cent to its historical average price. Kohli CEO, Emkay Wealth Management stay Invested And reap rapid rewards From this Volatility maintains this is a good time to accumulate and not buying in one shot but in stages. Depending on your Peak sensex trough sense Fall From sensex 1 year After 1 year After profile and depending on whether you’re an aggressive The numbers on GDP, Date Peak Value Date trough Value Peak trough Value recovery % or conservative investor, you can invest anywhere employment, CPI and IIP in for 3 to 12 months. It is advisable to invest in stages 27-Feb-86 649 28-Mar-88 390 -40% 692 116% coming months would tell irrespective of whether you are investing in weekly SIPs about the impact 09-oct-90 1,559 25-jan-91 956 -39% 2,139 196% or monthly SIPs only to the extent of the gap between the desired equity allocations in the portfolio, he adds. 22-Apr-92 4,467 26-Apr-93 2,037 -54% 3,781 72% This is a God-sent opportunity not only for long-term 12-sep-94 4,631 04-Dec-96 2,745 -41% 3,527 41% investors but for the first time investors too. After doing Ambani. He says, “First thing they should do is to enough brainstorming with respect to risk profile and ensure that there is enough emergency liquidity for 9-12 11-Feb-00 5,934 21-sep-01 2,600 -56% 3,024 13% future financial goals, they should clearly follow what months. Any excess liquidity beyond that should be used investment guru Charlie Munger says. to buy diversified mutual funds and certain direct stocks. 20,873 8,160 -61% 17,053 70% 08-jan-08 09-Mar-09 Sanghvi quotes Munger, who says, “You need If there isn’t enough emergency money to set aside, it’s overall Average patience, discipline and an agility to take losses and also a great time to start an SIP”. Source: BSE India & MOAMC Internal Research, Data as on 28.3.2020 85% adversity without going crazy. The big money is not in These SIPs can be on a weekly basis or a monthly Average of Fall>40% 62% the buying and selling, but in the waiting.” basis and with a minimum 5 to 10 years-time horizon, Average of Fall>50% 51% But the first time investors need to be careful before shares Kohli. deploying all their funds into the market, cautions After agreeing that this is the most opportune time to invest in equity with a quite longer term horizon, experts in the high voltage and bear market zone. But this is not shows that, from a long-term investment perspective, also agree on certain sectors in which investing will be permanent. As soon as there is positive news or sign the intrinsic value of the assets is much higher than the beneficial in the immediate future. of a cure being discovered for corona or vaccination or price at which they are offered. Sectors like pharma and healthcare, telecom and medicine is out, the markets will jump up and revive. Sanghvi recommends equity is definitely a good buy. consumer staples may have some benefits emanating In the past we have seen some bear phases but we have “But it should be executed in a phased manner over the from current conditions. The technology sector may been able to recover”. next six to nine months to ensure we participate in any gain to some extent due to the weaker Rupee as they Recovery from the current level means there is only dip that may be seen hereafter,” he suggests. In direct would get a better rate on their foreign currency one way and that is up. Does that mean the market has equity investment one should be into quality stocks receivables and they also the benefit of many long- term entered a stage from where the downside is limited and with attractive cash position and cash flows, and also contracts with fixed rates. But for the longer term, the it is offering a lucrative buying opportunity? leadership position indicated by market share, he adds. sector that may do better compared to other sectors as The downside for the markets is anyone’s guess from On valuation side, India is trading at Market cap well will be the consumption and BFSI as they are the here after such a drastic fall in such a short time. Two to GDP ratio of 49 per cent which quite low. Another backbone of a booming economy. quick parameters one can use to gauge how expensive point to note is that Indian equities haven’t delivered Telecom appears to be one sector that is gaining on the market is – are the price-earnings ratio and the even FD equivalent returns since last 5 and 10 years on account of social distancing. People are consuming more price-to-book ratio. The trailing P/E for the domestic point-to-point basis. content on their phones. This crisis is going to alter indexes for the last ten years shows that the markets are Damania firmly says, “So it looks like we don’t have behaviour in a big way. People will also feel compelled to at reasonable valuations based on longer term trends. much to lose from here. There are street estimates of have adequate health insurance cover in future. A very significant longer-term measure is the price- Nifty 50 going down to around 6800 - 7000 levels also. The other sector that will get benefit is the to-book ratio. The lowest P/B in the last 20 years was I believe if the market goes to those levels, there will be insurance sector because a lot of people would like to 2.12 in April 2003, and thereafter, it moved up to 6.23 in fresh buying and bulls will take charge. So market will now buy cover for them, whether it is life, health or December 2007. At present the Nifty P/B is at 2.40. This rebound very quickly as we saw in early April.” general insurance. For investors with a longer term horizon (three to five The sectors one should avoid for the time being till the years), this is the God sent opportunity. Investors who full recovery takes place includes luxury and aspirational hIMANshu KohlI do not check the stock prices on day to day basis and products as they will take time to revive as the mass push Co-Founder, Client Associates follow the principle of ‘Invest it, forget it’, the time has will be missing for a little longer time. Aviation, travel, come. Ambani says, “Long-term investors wouldn’t get leisure, entertainment, real estate sectors will be worst hit The current volatility is such price levels if all was hunky dory in the economy. and should be avoided till normalcy gets restored. because of risk averse Another advantage is that the market will give you As President Obama’s chief of staff Rahm Emanuel, approach adopted by time to identify the best trades and buy at your price. during the global financial crisis of 2008 said, “Never let Foreign Portfolio Investors One needs to revisit their asset allocation based on risk a good crisis go waste”. Similarly, investors should take a profile and allocate accordingly.” The equity market in leaf out of this. the second week of April stands at a discount of about [email protected]

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returns. Thus the average earnings of a person from why we always advise our clients against doing stock Rebuilding The Wiped Out Wealth various investments have already become much lower. picking, especially in the mid-cap and the small-cap The COVID-19 outbreak, affecting thousands, has segment, because it is very easy to get stuck with only How to square off losses with crores washed away from the markets by COVID-19 sent shockwaves throughout the country. one stock and just never recover, or it takes too long Raghuram Rajan, former governor of Reserve to recover. If someone has to do stock picking, then Bank of India (RBI) in his recent blog titled “Perhaps we would always advice blue-chip and select large- By Aparajita Gupta & Vishav first quarter of 2020-21, which means popular small India’s Greatest Challenge in Recent Times” says cap,” says Sousthav Chakrabarty, CEO, and Director, savings schemes like Public Provident Fund (PPF), economically, India is probably facing its greatest Capital Quotient. he unprecedented disruption and disbalance National Savings Certificate (NSC) and Kisan Vikas emergency since independence. “And, if someone has a capital loss in a blue- caused by the novel coronavirus (COVID-19) Patra (KVP) will yield lesser return now. Rajan had also predicted the 2008 global economic chip or a large-cap, then the only strategy at this pandemic in the global economy The PPF interest rate was slashed by 80 basis points recession. point would be to continue to hold at lesser levels, Tis unforeseen. The adverse effect, it is and will now give 7.1 per cent return, while NSC will The equity market players have lost crores of rupees depending on, which is the stock they are looking at, having on major global bourses and give 6.8 per cent and KVP will give now 6.9 per cent in this pandemic. The prolonged lockdown across the assuming they have considerable potential. If it is a other investment instruments, are also country, to keep the pandemic at bay, has cost heavily. mid-cap or a small-cap firm, especially one, which massive. “Most of the investors who were invested in has been badly beaten and where the potential looks Among the investors, those equity lost 30 to 40 per cent of their equity portfolio. extremely uncertain, then we would advise to exit who have maximum exposure to These are notional losses though and will become that position and move that money into a blue- the stock markets, were most hit real losses only if they are booked,” says Renu chip as it could be available at attractive valuation due to the bloodbath that took Maheshwari, Co-founder and Principal Adviser, price now and continue to hold or exit and sit on place in the bourses. Even the Finscholarz Wealth Managers. the sidelines for a little while and then redeploy the Indian government has drastically Rajesh Cheruvu, CIO, Validus Wealth further money in Nifty 50,” he adds. chopped the interest rates for small explains the loss incurred by saying that depending Ashish Shankar, Head – Investments, Motilal Oswal savings schemes for the on the asset class they were invested, large caps lost Private Wealth Management suggests step by step around -23 per cent for the month of March; mid- approach to mitigate the losses. caps around -30 per cent; global emerging markets He advices that it is imperative that investors adhere around -15 per cent. “Debt investors were slightly to their long-term strategic portfolio asset allocation better off, looking at the positive 10Y G-Sec return. and not take any knee-jerk reaction. Gold (in rupees) also managed to eke out a single Shankar asks the investors to create an ‘Investment digit positive return for the month. Commodities Charter’, which is a vision document and lays down the no doubt did not perform in the larger scheme of philosophy, framework and process of managing the things given the demand collapse and geo-political portfolio. The investment charter aims to understand tensions between the US and OPEC+. So, net-net in broadly the purpose of investment, horizon, return the grander time horizon year-to-date so far, cash has expectation, cash flow requirement, liquidity and probably been the king.” risk appetite of the investor and recommends the In any market crash equity investors are the worst investment roadmap. If the investment strategies hit. This crash is no exception either. Most of the within the respective asset classes are being managed equity portfolios across industry have lost almost by experts with rich experience of various market equally. Some sell off happened in debt as well but cycles, and if the portfolio fundamentals continue most of them recovered quickly. Debt funds have also seen volatility. Bank deposits have not taken any hit as they are not rAghurAM rAjAN traded in the market. Former Governor of RBI Now with a lot of money washed away by the pandemic tsunami how to rebuild portfolios to square Economically, India off the losses in future? is probably facing its “For those who have lost a lot of money in stocks greatest emergency since and mutual funds during this period, they can, of course, gain it back as long as they have not done independence stock-picking individually. This is one of the reasons

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to remain healthy, then continue to hold on to such strategies.. Additionally, with prevailing attractive valuations, Minimise long-term existing investors can also consider top-ups to their Adverse Impact equity portfolios in a staggered manner over the next six-12 months. Cheruvu says asset allocation is of primary Assess your job / business importance during these testing times. “We believe 1 income situation that because of significant correction in equity markets, investors would have become underweight A. If your job / income is secured: in equities and hence should rebalance the same in i. Keep enough liquidity for at least a staggered manner. Within equities, high quality 3 to 6 months of expenses, to tide companies with sound business models stand the test over any uncertainty in cash flow. of times and they would also have a higher likelihood of a stronger rebound from these anemic valuations.” ii. Take a look at your impending Interestingly, neither any investor nor financial financial goals. If you do not have adviser has exposure to such global pandemic ‘must have short term goals’ use this situation during their lifetimes. opportunity to invest for long term in equity. You will be able to get good Equity is best suited for long-term investment, returns from these levels. suggests Archit Gupta, Founder, and CEO, ClearTax. “One should stay invested for at least five years in B. If you are not sure about your order to reap high returns and keep market volatility current income: at bay. Market fluctuations are an integral part of i. Eliminate / reduce your liabilities. equity-linked investments and staying invested over the long-term is the only way of tackling it. Another ii. Create liquidity in your bank great option to deal with fluctuations is by investing in account (FD etc) for a minimum of equity mutual funds through Systematic Investment one year of expenses, till certainty Plans (SIPs). This will provide the investor with the returns in the economy. This should benefit of rupee cost averaging. Also, SIPs are a great include EMIs if any. option to invest monthly savings in the current market iii. Ideally have next 2 years’ scenario. Investing via SIPs and having a long-term expenses in debt / fixed income investment horizon is a great combination when it securities to give additional money comes to equity-linked investments,” he says. security till you find another job / Trying to instil hopes among the investors, Gupta source of income. says one should not lose hopes as the current market scenario is not going to prevail. The markets are down iv. If you have more money than 5 because of a pandemic and will pick up once the years of expenses, invest in equity to coronavirus is contained. take advantage of this market. At this point, when markets are down, investors should pick up equity at lower prices and hold v. Look at your options beyond your present income that can help you onto them over a period of at least five years to sustain through these hard times. enjoy high returns in the long run. One should not regained only by continuing in equity and riding make investment decisions in haste as the market the wave. The speed of recovery may also make it secure your short-term (important) conditions are never going to stay the same. Here, impossible for an investor to catch the market. The 2 financial goals in fixed income / bank ArchIt guPtA patience is the key. time line of this recovery is COVID-19 dependent and / post office financial instruments and Founder, and CEO, Maheshwari also echoes a similar voice and says the cannot be ascertained now. This time can be utilised gold bonds. ClearTax equity market crash that we saw in month of March to rebalance the portfolios and redirect them to the is an unprecedented one, but all is not lost. Usually desired purpose. 3 continue in equity for long-term goals. a sharp crash like that also sees a sharp recovery “If you have incurred losses by being in volatile If you have additional savings, invest Invest in equity mutual in equity. this can be once in a funds through systematic (of market). The losses that we see in portfolios are assets (read equity), today is not the time to move to notional / paper losses and will become real if the debt or other less volatile asset class. Volatile assets decade opportunity to invest at such low levels. investment plans investor exits the investment. can also come back with the same speed as they went

Any value that is lost in volatile assets can be down. Hold on to the equity investments, reduce Finscholarz Source:

32 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 33 Cover Story

Any value that is lost in volatile assets can be down. Hold on to the equity investments, reduce Finscholarz Source:

32 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 33 Cover Story

rAhul AgArWAl high risk companies and move money into low risk Director, Wealth Discovery stable companies. If you have additional money that and EZ Wealth you do not need for next five years, invest gradually into equity. This can average your cost of investment and help you gain faster when the markets start Look for stocks that have been recovering,” she says. hit hard but have stronger Harsh Jain, Co-founder, and COO, Groww says: pedigree to withstand crisis “The first thing that we would want to tell all the investors who have their funds stuck in the markets is – do not fall prey to panic selling. In fact, even the investors who have booked losses will agree that by Rahul Agarwal, Director, Wealth Discovery and EZ selling in a panic, they booked losses that were only Wealth advices to reassess risk taking capacity and re- notional before. On the other hand, if they would have balance portfolio accordingly. held on with a longer-term view, then they could have “Shift from low quality stocks to fundamental strong reduced the losses or even earned returns. Hence, for companies that have a chances of quick recovery once people still invested in the market, our first advice is to the market is back to stable conditions. This would be not sell anything unless they analyse their investment the right time to invest fresh capital or average down portfolio carefully. They need to assess the strength of on the existing stock holdings. The equity markets have each underlying security to determine if it can survive corrected over 30 per cent from their peaks and although such volatility or not. Once this is clear, the investors there may be further downside, the risk of another can create a list of investments that they want to significant correction has whittled down. The best redeem and wait for the right opportunity to cash out.” strategy in this period would be to look for stocks that Even after it is gone, COVID-19 pandemic will leave have been hit especially hard but have stronger pedigree an impression in the minds of the people and it will to withstand the crisis. Some sectors to look into at this take a while before they again start investing freely. point would be auto, cement, steel, real-estate hospitality This pandemic will probably change the world and aviation sector,” he adds. forever. Post and pre COVID-19 world can be very Throwing some light on how to recover the lost different and the biggest difference will come in terms valuations, Shankar says: “For equity investors, we suggest AD 2 of psychology. incremental allocation to multi-cap funds, managed by experts, who have demonstrated their skill sets across various market cycles and who have demonstrated capabilities of shifting the underlying portfolio across market capitalisation, depending on prevailing market scenario. For fixed income investors, we suggest focusing on accrual oriented, high quality portfolios (predominantly AAA), through a combination of banking and PSU debt funds, corporate bond funds, and passive roll down strategies.” He says in order to remain insulated from the present volatility, the investor has to follow a disciplined investment process and have the temperament to hold on for the long term despite interim volatility. Ongoing periodic reviews and rebalancing (as and when required) are critical to ensure that the portfolio does not deviate from the stated goals as per the investment charter. Everyone is looking for a formula to tide over this tumultuous time. People are cautiously holding on to their jobs and hoping everything will become all right. No RD one knows what the future holds for mankind, but surely to survive money is needed and since it does not grow NSC on trees, one has to multiply it intelligently to remain insulated from upheavals. PPF [email protected], [email protected]

34 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 35 Column Use SIP and STPs to gain from market volatility

of the market. This action phases will help accumulate to `10, then that month an resulted in turning notional units (in case of mutual fund) investment of `1,500 will lead losses into permanent loss. thereby helping lower the to an allocation of 150 units. cost of acquisition. The best This effectively means that when Greed & Fear Cycle approach to make the most one stays invested across the When the market rallies, of opportunities present cycle, one gets the opportunity irrespective of market across the market phases is to accumulate more units at the valuations, investors tend to invest through SIPs. SIP same cost. Third, low ticket size. to rush to the market. This offers investors a low ticket The best part with SIP based is largely due to the fear of gateway to equity market. investment is that you can start missing out on the market investments with as low as `500 rally. Conversely, when the Benefits Galore or `1,000 per month. However, market corrects investors tend There are a host of other this varies from scheme to Bharat Bagla to rush out of the market benefits as well when one scheme. So, before starting Chief Dreamer at Bees in an attempt to protect invests through SIP. First it’s with investments, check on the Network Ltd their investments. Novice the power of compounding. minimum investment amount. If investors tend to redeem Second, rupee cost averaging. one decided to stay invested over their SIP investments or stop If you are investing in mutual a decade, notwithstanding short he fear of a global their SIP altogether fearing funds via SIP it is important term volatility, the chances to a economic slowdown further losses. Both of these to understand this term. negative investment experience Towing to Covid-19 extremes are never helpful The price of SIP units is is very unlikely. related shutdowns led to equity from an investor’s perspective. calculated as Net Asset Value markets across the world (NAV). By investing for long, Use STP steeply correcting. Since the SIPs the way to go one gets the opportunity STP stands for Systematic start of the outbreak in China, In order to make the most to average out the cost of Transfer Plan. This is a investors globally have lost of equity markets, it is each mutual fund unit. For very useful tool in portfolio colossal amount of wealth. In advised that one should stay example: Suppose, in a management. Many a times Indian equity market investors invested over the long term. month, an investment of as a financial goal nears, it is alone lost `40 lakh crore The implicit understanding `1,500 led to an allotment important to safeguard the between February and March here is that as market moves of 100 units, meaning that returns generated. So, one can 2020. Owing to this many through a cycle of bull, bear the NAV was at `15 per unit. start transferring a part of investors seeing their portfolio and sideways movement, Now if the market corrects corpus from an equity fund in red, decided to cash out one’s investment across these and the NAV comes down into a debt fund such that the corpus generated stay protected from sudden equity market volatility. At such time use the STP option to transfer your fund and seamlessly manage your investments. The mutual fund industry today provides several tools aimed at easing an investor’s needs. Be sure to know about these tools and use them as well. To conclude, it is difficult to go wrong with a long term SIP in a good fund. The only thing we have to ensure is to stay invested. Cover Story

you are aware that markets inherently fluctuate then you can start wealth creation planning and as well as Building A Successful take advantage of this fluctuations,” concurs Kalpen Parekh, President, DSP Mutual Fund. While there is no ‘one size fits all approach’ to build Wealth Creation Strategy an investment portfolio, there are certain ground rules, which can help investors not only stay resilient Industry stalwarts share their insights on long-term in these challenging times but also help create wealth goals to protect against the downturn over the long run. Any investor, who is in the journey to build wealth over the long term, must start with financial planning with a goal. In financial planning, investment horizon and risk appetite are two sides of the same coin. Every investor is different in terms of risk appetite, investment horizon and return expectations. The choice of asset class or funds could vary based on the risk appetite. “Asset allocation remains the fulcrum of creating a long-term portfolio. Research has proven that for successful investing, asset allocation plays 91.50 per cent role and other factors together play only 8.5 per cent role in an individual’s investment journey. An individual’s financial requirements are unique in nature. So, it is best for investors to seek the help of a financial advisor when it comes to creating an all-weather portfolio,” says Nimesh shah, CEO, ICICI Prudential Mutual Fund. Given where the markets are, market experts are advising to increase the allocations to equity funds as equity market looks reasonably attractive. However, every investor - existing or new - needs to be mindful of risk-taking ability and investment horizon before taking exposure to equity.

By Himali Patel reveals data from Association of Mutual Funds in “The last such steep market fall was seen during Net Inflows (`Bn) India (AMFI). If compared to March 2019, the industry the Global Financial Crisis (GFC) in 2008. Those who he COVID-19 pandemic has not only caused has fallen by 6.4 per cent translating to an asset base have witnessed 2008 understand that markets operate FY2020 583 ` tens of thousands of fatalities worldwide but reduction of 1.53 lakh crore in FY2020. The equity in cycles and investing regularly across bull and bear FY2019 1,187 has also thrown the global economies into a AUMs have suffered due to the massive sell-off in cycles is a prudent way to create wealth. The markets FY2018 2,608 Ttailspin with shutdown. One thing remains obvious is the broad market, despite net inflows in open ended (Nifty 50) fell by 60 per cent from their peak in 2008, that economic output is expected to slump sharply in equity-oriented schemes reached `11,723 crore in and not only recovered, but have grown over 5 times FY2017 1,028 the coming days. According to International Monetary March 2020. In the wake of this crisis many economists from that bottom to reach a new peak before the FY2016 938 Fund (IMF), the pandemic will shrink the world and market experts have expressed the types of post- COVID-19 pandemic,” says Sanjay Sapre, President, output by 3 per cent in 2020. It has been a turbulent pandemic recoveries one can witness. This would either Franklin Templeton India. FY2015 809 time for the equity and the mutual fund markets in be a “V-shaped” recovery, where there is a strong and Volatility is a friend of long-term investors. These FY2014 203 India as the Indian markets (NSE Nifty 50) has seen rapid recovery of the economy post slump in GDP or a corrections provide great entry opportunities for the FY2013 -144 HSIE Research AMFI, Source: a meltdown of over 30 per cent from their peak and “U-shaped” recovery where the GDP downturn is long- new as well as existing investors. is currently down by 24 per cent on a Year-To-Date lasting and takes longer than 12 months to recover. “The concept of wealth creation looks very wrong FY2012 5 (YTD) basis as on April 20, 2020. However, in the end it is futile to time the market, right now because everyone is seeing 40 to 50 per FY2011 -118 FY20 equity inflows Similarly, Assets Under Management (AUMs) of or call the bottom. No one can predict the shape of the cent price correction. The falling market prices are a are down 50.9% YoY FY2010 the mutual fund industry saw a dip of 18.2 per cent recovery – U, V, W, or some other, as the pandemic of part of the journey and being aware of that as well as 15 sequentially to reach `22.3 lakh crore in March 2020, this nature is often hard to model. recognising it upfront is extremely important. Once 0 500 1000 1500 2000 2500

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“In order to have a judicious risk-return balance, go up by 27 per cent. For instance, when markets have sWAruP MohANty Investor’s Plan of Action investors must adopt two strategies – asset allocation fallen by 30 per cent the dynamic fund has fallen only CEO, Mirae Asset Mutual Fund and diversification. It is important to have the right by 20 per cent,” says Parekh. asset allocation as each asset comes with its set of risk As a matter of fact, DAAF are for all seasons, the We recommend 70 per cent Define your financial long-term & short-term and is suitable for a certain time horizon, and generally only downside of it is that in an upward trending goals based on your age and the risk appetitie higher the risk, higher is the potential for returns,” market, they may not be the top performer adds in large cap, hybrid, multi cap you can take says Ashwani Bhatia, MD & CEO, SBI Mutual Fund. Parekh. A reason why it is imperative for investors or focus fund and 30 per cent As the stocks of some of the best managed to understand their risk profile more clearly. While in mid cap and sector funds As an investor, your choice of asset class or funds companies are available at a very attractive price, building a long-term portfolio, one should ensure a could vary based on the risk appetite investors can deploy funds for medium to long term. combination of multiple asset classes and product It would be good to invest in credible well-managed diversity for each asset class. In order to strick a risk-return balance, investors equity-oriented mutual funds. “Investors should evaluate increasing their equity coronavirus, which may be a short-term event, is must adopt two strategies based on asset “As an investor one can cherry pick three or five best exposure if the current equity allocation is less than much more than the ‘value’ of many businesses, allocation and diversification managed companies in sectors which will continue the desired allocation. Preference for hybrid funds vis- thereby increasing the ‘margin-of-safety’. We would to grow (pharma and healthcare, digital businesses, à-vis equity funds should be based on investor’s risk recommend 70:30 where 70 per cent in large cap, It is crucial to have the right asset allocation fintech, infrastructure) and directly invest or select appetite. For investors with a three-year time horizon hybrid, multi cap or focus fund and 30 per cent in mid as each asset comes with its set of risk and is mutual funds, which are focused on these sectors. and moderate risk profile, we suggest they evaluate cap and sector funds.” suitable for a certain time horizon You must avoid sectors which are unlikely to recover large, mid cap or multi cap funds,” says Ankur Some experts feel that diversifying outside of the in the short to medium term such as aviation, travel, Maheshwari, CEO, Equirus Wealth. home markets may also be a good idea for long term Investors must review their investments leisure, retail and Non-Banking Financial Companies Further, the current situation should be taken as investors looking to hedge their India exposure by periodically to ensure that they are on right track (NBFCs),” says Suresh Surana, Founder, RSM India. good times when it comes to refreshing your asset way of investing in marquee global brands that are not in meeting their financial goals Most importantly, it should not be only equity allocation. As an investor if you are unallocated/ listed in India. From a goal perspective too, overseas funds, investors should also allocate assets in different under allocated to equity, given risk profile, this is education for children is becoming an increasingly As the strategies could go out of sync with asset classes. In a balanced portfolio, equity and debt a wonderful opportunity to correct that imbalance. important goal. “Global funds help in planning goals, the goals due to a change in the prospects mutual funds, traditional products, and so on can Swarup Mohanty, CEO, Mirae Asset Mutual Fund, which require expenditure in foreign currencies in of a particular asset, investors must conduct all have their own space and this is guided by the feels, “The correction in ‘stock prices’ owing to later years. Such goals could include higher education periodical checks on the performance of funds financial goal, the tenure of the investment and clear and review the potential for future growth understanding of the product by the investor. “All funds – equity, debt, & hybrid – have space in an In the end, investors must not act based on short- investors’ portfolio. Investors can follow asset allocation term volatility as it is a part and parcel of market at portfolio level which will require them to readjust behaviour the movements in the portfolio on periodic basis. An alternative would be to invest in funds from the hybrid category and looking at their risk appetite they can choose which is better fund for their investments,” explains Kailash Kulkarni, CEO, L&T Mutual Fund. However, funds like Dynamic Asset Allocation Funds (DAAF), despite low risk, may not outperform like pure equity funds. ”The only thing that doesn’t work with DAAF is that in case markets go up by 30 per cent, a regular equity fund will go up by 30 per cent, but DAAF might only

KAIlAsh KulKArNI CEO, L&T Mutual Fund

An alternative would be to invest in hybrid category of funds and judge their risk appetite

38 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 39 Cover Story

KAIlAsh KulKArNI CEO, L&T Mutual Fund

An alternative would be to invest in hybrid category of funds and judge their risk appetite

38 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 39 Cover Story

top 5 Mutual Funds returns (AuM-wise) return (%) scheme Name AuM (` cr) 1 Month 1 year 3 year Investing In The Times Of COVID-19 sBI etF Nifty 50* 53167.24 3.48 -24.94 1.68 Avoid any speculative investment and add diversification to your portfolio for better returns Kotak standard Multicap Fund regular Plan# 22871.08 1.31 -23.97 -0.19 sBI etF sensex* 20307.62 3.46 -24.45 3.61 By Vishav to a standstill and possibility of a global recession

Equity Funds Equity IcIcI Prudential Bluechip Fund* 18891.94 4.84 -22.85 0.38 becoming more and more real. he crisis emerging out of the COVID-19 virus And it’s not just the stock markets that have been Axis long term equity Fund@ 17495.33 -1.77 -19.11 5.48 is no more just a health crisis but has taken hit. Conservative investors would also have to settle Source: Value Research ; Note:* Equity: Large Cap; # Multi Cap; @ Equity: ELSS ;All AUM as on 31st March 2020;Returns as on 17th April 2020 the shape of an economic crisis of enormous for less returns going forward as the returns on Fixed proportions.T And this crisis has not only affected Deposits (FD), Recurring Deposits (RD) and other hDFc Balanced Advantage Fund 32369.03 5.73 -20.03 -1.73 those who are infected by the virus, but the entire fixed income assets have already gone down and it is population, whether directly or indirectly. Among expected that interest rates are going to be lower in the 22849.12 3.51 -14.98 2.57 IcIcI Prudential Balanced Advantage Fund the biggest victims, after those who were actually times ahead. In such a scenario, many investors face utI unit linked Insurance Plan 3896.29 -0.52 -10.69 0.56 infected, are perhaps the small investors who had the question of what they should do with their savings put in their hard-earned savings in the equity market now: should they hold on to cash or should they invest, 3251.03 2.66 -13.15 - Hybrid Scheme Kotak Balanced Advantage Fund - regular Plan through mutual funds route or otherwise. WIth and where should they invest. 2529.05 -0.35 -13.33 1.82 stock markets correcting by over 30 per cent due to According to Joseph Thomas, Head of Research, Allocation Allocation Dy namic Asset Nippon India Balanced Advantage Fund Source: Value Research ; Note:AUM as on 31st March 2020;Returns as on 17th April 2020 the pandemic, before recovering a little bit, their Emkay Wealth Management, while equities are “clearly portfolios have lost huge portion of wealth at buy levels” because the price to book value of the and there seems to be no signs Nifty 50 is at an all-time low of close to 2.50, fixed for children. While the core portfolio should comprise by past performance as this may not necessarily visible of recovering those income products and fixed return products should of Indian funds, given the high growth rate of the sustain in future. When investing, it is best to assess losses in the near-term also be a part of the portfolio as they offer stability to economy, to capitalise on new and emerging themes and performance for the time period for which you want with the whole global the portfolio and provides the much-needed balancing benefit from diversification, global funds should be a to invest. The longer the investment horizon, the economy coming factor especially in times of high volatility. small proportion of an investor’s portfolio (about 5 to 15 more important it is that one selects funds that have “In terms of investing in this climate, two important per cent),” says Srinivas Rao Ravuri, Chief Information shown resilient performance across market cycles. factors should be borne in mind, which are of Officer-Equities, PGIM India Mutual Fund. “The choice of funds should take into account the fundamental importance to the act of investing. One Further the investors must avoid chasing the best manager’s investment style (growth, value, blend), performing asset classes and instead invest across consistency of long-term performance (ideally asset classes via asset allocation. An asset allocation over 5-10 years), and capabilities of the AMC as strategy is best suited to help investors meet various demonstrated by AUM, experience of investment investment goals, and aid wealth creation over the long team, etc,” points out Virendra Somwanshi, MD & run with optimal portfolio volatility. CEO, Motilal Oswal Private Wealth Management. “It has been historically observed that no asset In such volatile times, staggering your investments class has consistently given the best returns year after across a broader period has become extremely year. This phenomenon is called ‘Winners Rotate’ prudent to avoid getting caught off-guard at either which means a different asset class may be the best extreme of the valuation or the price curve. Investors performer every year,” says Sapre. It is critical not should consider Systematic Investment Plan (SIP) to be lured by short-term performance, or purely as a mode of investment to avoid hassles of timing the market. SIPs help you to average out the purchase cost of your investment. These intermittent srINIVAs rAo rAVurI, corrections are crucial for the SIP to deliver healthy CIO-Equities, PGIM India Mutual Fund returns. As one accumulates more units in weak market phases, the benefits of SIP become apparent Global funds help in as markets start moving up again. Investors can planning goals, which shield their mutual funds from the downturn with ongoing commitments that will benefit in the long require expenditure in run. Stick to a plan, take a deep breath and wait for foreign currencies the storm to pass. [email protected]

40 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 41 Cover Story top 5 Mutual Funds returns (AuM-wise) return (%) scheme Name AuM (` cr) 1 Month 1 year 3 year Investing In The Times Of COVID-19 sBI etF Nifty 50* 53167.24 3.48 -24.94 1.68 Avoid any speculative investment and add diversification to your portfolio for better returns Kotak standard Multicap Fund regular Plan# 22871.08 1.31 -23.97 -0.19 sBI etF sensex* 20307.62 3.46 -24.45 3.61 By Vishav to a standstill and possibility of a global recession

40 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 41 Cover Story

disruptions could affect buyers’ sentiment. As ArchIt guPtA weddings and other occasions could turn out to be Founder, and CEO ClearTax low key affairs for at least a year after this crisis is over, gold demand could slump,” he says. Markets being down makes In terms of real estate as an asset class, even this a good time for investors segment has faced several ups and downs over the past few years. While some green shoots were emerging to go for equity-linked for the real estate industry, the sector has once again investments confronted a challenge in the form of the pandemic which may have a considerable impact. However, according to Sunil Mishra, CEO, Trespect, needs to be seized of the long-term objectives of given the volatile nature of most other asset classes, real estate Price trends over 5 years investing - am I on the right course as far as my long- real estate is proving to be a safe bet for most buyers, term objectives are concerned? It is equally important provided they remain invested for a long-term. 5650 to assess whether you are getting advice from a team “Real estate has traditionally been a favourite of reliable and experienced professionals who always for many investors even before most modern stock 5550 work with you, irrespective of whether markets are put your money in PPF which gives 7.1 per cent (for markets had started trading. This preference is based falling or booming,” he says. April – June quarter) and also avail tax benefits on on three underlying benefits - regular income in In terms of fixed returns assets, Thomas advises investments, withdrawals and interest earned. If you the form of rent, security and safety, and healthy 5450 that one needs to be careful as adverse movements in have already exhausted the available limit of 1.5 lakhs appreciation in value. One of the biggest arguments in Average Price Per Square interest rates may jeopardise the portfolio objectives. and have surplus funds to invest, then opt for opening support of real estate has been its tangible nature. Your Foot In Major Metros

“At this juncture, it makes immense sense to stay at PPF accounts in the name of your family members real estate investment can be seen and experienced. 5350 Trespect Source: the short end of the curve, that is short term products, including minor children and park the money there for It is a physical asset that can be used for residence or 2015 2016 2017 2018 2019 like short term bond funds, banking and PSU Debt long-term savings,” he advises. leased out to generate income. And unlike other asset funds. These products have a maturity profile of two Archit Gupta, Founder, and CEO, ClearTax, holds classes like stocks, no crisis can wipe out your real years to three or four years and the price impact of a contrary view as he feels that bank deposits are not estate investment entirely,” he clarifies.Mishra adds Dhruv Agarwala, Group CEO, Housing.com, a rise in rates would be quite limited. The benefit of going to be a great option at this point as the interest that while real estate returns may not have touched agrees and adds that while equities have fallen in the higher liquidity usually accrues to the short end of the rates would fall with the market. dizzying heights like stocks and gold but neither have range of 25 per cent and could fall even further given curve and therefore, that is the preferred region. With “The central bank will lower the interest rates in they hit rock bottom. the big hit on expected earnings, real estate prices trajectory of growth and inflation highly uncertain, order to boost economic growth and GDP when the However, due to the lockdown, the sector has also will not fall to that extent given that they are at a and the likely expansion in fiscal deficit, it is a better economic condition is not conducive. Therefore, the been hit with construction being halted due to the multi-year low already. idea to avoid long bonds,” he adds. returns that the bank FDs would offer would not be lockdown. “In the next few months there may be a dip “As such, the current crisis may encourage people However, for those investors who have some attractive. Markets being down makes a good time for in the pace of the sector with reduced new launches who have been fence-sitters with respect to real appetite for risk and have patience to wait for at least investors to go for equity-linked investments. If one and extension in completion of projects. However, estate to consider including real estate as part of three years, this is perhaps the right time to make lacks market knowledge, then they can opt to invest in housing remains a basic necessity and demand will their overall investment portfolio. Thus, we may some significant wealth by investing in equity markets, equity mutual funds,” Gupta says. continue to exist once the situation normalises,” says see renewed interest in real estate as an investment according to Rahul Agarwal, Director, Wealth Gold is another asset class, which may be looked at Surendra Hiranandani, Chairman and Managing option. Having said that, this will take some time to Discovery and EZ Wealth. for its enduring value due to its store of value function. Director, House of Hiranandani. materialise considering the ripple effect this crisis is “If you have a low risk appetite for equity, but However, like other asset classes, gold, too, has been He adds that the sector has displayed tremendous likely to have on consumer sentiment and purchasing want to invest for long term, then go for the best impacted by this global health crisis which is fast resilience in the past while battling challenges, and power,” he explains. secured option such as small savings schemes which turning into a much bigger economic one. it does have the potential to gradually overcome the While these are tough times, this is also a good have a higher rate of interest. For example, you can Gold price naturally reflects an upward bias challenges thrown by the pandemic. time to analyse and rebalance one’s investment but it has not just been one way but volatile, says portfolio. EZ Wealth’s Agarwal feels it is advisable Somasundaram PR, Managing Director-India, World to get rid of speculative investments and add suNIl MIshrA Gold Council. In an era of leveraged positions and josePh thoMAs diversification to one’s portfolio. Some amount of CEO, Trespect rule- based trading, gold too has witnessed massive Head of Research, gold needs to be added to investment portfolios as a liquidations, perhaps to raise cash to cover losses in Emkay Wealth Management hedge against uncertainty. If one is too underweight Unlike other asset classes other asset classes. on equity, perhaps it is the right time to have some like stocks, no crisis can “While another bout of quantitative easing and Avoid long bonds in uncertain exposure to equity. wipe out your real estate low/negative real interest rates will be hugely positive growth trajectory, inflation However, all portfolio investments should be for gold, consumer markets for gold jewellery & fiscal deficit expansion commensurate with one’s risk appetite, time horizon investment entirely could see a deep phase of uncertainty as income and financial goals, he concludes. contraction amid volatile gold prices and supply [email protected]

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unfortunate event of layoffs.” AshWAjIt sINgh He adds that while top and middle management can Managing Director, Jobs Are At Risk But All Is Not Lost expect to undergo salary cuts and deferred payments IPE Global of anywhere from 10 per cent to 30 per cent on average, With extended lockdown, hiring freeze, salary cuts and job losses, some sectors will be badly affected the duration should be expected to not be lesser than If the virus spread continues, six months at least. Organisations that can meet a there could be job losses critical balance of their cost and revenue with the top across all sectors By Anagh Pal and apprehension as more and more countries are going management salary cuts, will afford to stay away from into a total lockdown to manage and mitigate the impact salary cuts at bottom levels. However when the push he COVID-19 pandemic has left us all in an of the virus. The picture is grim for India Incas well. If comes to shove, announcements on salary cuts across the unprecedented crisis since the WWII. In the virus spread continues for more months, there could board will not be surprising anymore. accounting for another sizeable 40 per cent of the openings, fact, some are calling it a bigger crisis, since be job losses across various sectors,” says Ashwajit Singh, Says Chakraborty, “Every company shall come up with the opportunity for cross company movements at these Tmore people across the world are affected. With strict Managing Director, IPE Global. different criterias to evaluate jobs and salaries”. Some levels are also available. Also important to note is that over lockdown measures across the globe and India, this crisis Kamal Karanth, Co-Founder, Xpheno, a specialist might look at rationalising headcount by segregating 91 per cent of these openings are full-time openings with is going to impact businesses in a way that has never staffing company, is optimistic, “It is still early stages, employees as performers, potentials and laggards. Some the remaining being a mix of contractual and part-time been seen before. Now the situation is more serious than and what we see and read around in the job context are might segregate based on criticality of job roles. Some openings,” says Karanth. 2008 – the devastation is faster and unknown. Naturally reactionary to the lockdowns and potentially impacted might choose grade wise pay cuts (higher wagers taking Many companies across the spectrum are hiring. “In fact, jobs will be affected. demand. The longer term assessment should not be a higher cuts) to save more jobs overall. Some might many companies who had issued offer letters for hiring on “The formal sector contributes to more than 60 per guess, but a more logical conclusion. It depends on the choose to cut jobs and ensure wage protection of those a mass level are honouring their commitments in spite of cent plus to the country’s GDP. Companies are mature tolerance of various sectors and the players within it, they want to retain. and bracing to absorb the hit by taking salary cuts so as and more importantly the ability to innovate and find If the disruption is prolonged it could have a bearing on to minimise job losses. However, 10 to 20 per cent loss alternative avenues.” Overall, things are going to be tough, India’s imports from the countries which are critical for of jobs and a gross impact of around 7 to 10 per cent on but we can expect a strong rebound. domestic economic activity. “Sectors such as the tourism salaries are expected. It will also be important to wait However, the impact is going to vary across sectors with and hospitality industry in India could render 3.8 crore and see for how long the demand and consumption is some sectors being affected in a major way, while others people jobless, which is a substantial part of the total impacted due to COVID-19,” says Kunal Gupta, Founder are weathering out the storm better because their business workforce. GoAir and Indigo have already cut salaries & CEO, Mount Talent Consulting. will not be impacted as much. across the board following a suspension of operations. The However, things hold promise in the medium to Says Rituparna Chakraborty, Executive Vice President auto and electronics industries are facing supply chain long term. “Exports are impacted, however, India Inc & Co-Founder, TeamLease Services, “Aviation, hospitality, disruptions that could result in a lower or zero hikes across could gain a larger global market share due to low costs retail (discretionary products, non essentials, mall- the sector. The economic impacts of the lockdown are and high level of quality, anti-China sentiment and a based formats), construction, outdoor entertainment beginning to be felt and will escalate in the coming democratic system in India. We could see a surge in and tourism shall have the deepest impact.” While the months,’ says Singh. manufacturing, technology growth and exports in a government has allowed partial opening of certain However it is not all gloom and doom on the couple of years,” he adds. sectors and industries, the functioning of it will largely hiring front as over 200,000 jobs have been directly COVID-19 has already caused a lot of human suffering depend how India manages to control the pandemic. The published by enterprises in the last four weeks, with and economic disruption. As per the recently released pandemic will have an impact on the employment in the over one-fourth of it being announced in the last OECD Economic Outlook Interim Report (March 2020), informal sector that are dependent on daily earnings with week. So hiring activity has not ground to a halt global growth could drop to 1.5 per cent in 2020, half most of the work being outbound and cannot be done “With junior and mid-senior level openings the rate projected prior to the virus. “The rapid spread is from home. For formal sectors, we have to wait to see how negating all global and Indian economic revival efforts. the lockdown relaxation pans out. This sudden economic pause is leading to both concern With businesses being impacted so severely, salary cuts and job losses may become a reality. The disruption Impact on sectors to the global economy due to the pandemic is expected to wipe out 6.7 per cent of working hours globally in the second quarter of 2020 – an equivalent of 195 million jobs Impacted: Travel, Tourism, Hospitality, worldwide, as per International Labour Organisation’s Aviation, Real Estate, Retail, Malls COVID-19 and the World of Work report. Says Karanth, “Announcements of enterprise top growth: Telecom, Pharma, Diagnostics, brass salary cuts have emerged and are expected Banking, Insurance to increase in the weeks to come. So despite the enterprise and industry contexts, the resilient : Utilities, Consumer Goods and familiar modus operandi is to start from Durables, Fertilizers, Technology the top for salary cuts and start from the bottom in the

44 Outlook Money May 2020 www.outlookmoney.com Cover Story

44 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 45 Cover Story

the economic downturn. Speaks a volume about their KuNAl guPtA Founder & CEO, leadership and corporate ethics,”says Prasad Rajappan, Mount Talent Consulting Founder & CEO, ZingHR. Visionet India, a technology solutions and business process management company is planning to boost its Expect 10-20% loss of jobs workforce by further adding 1,500 employees. “With and a 7–10% gross impact interest rates down in the US we see a surge in mortgage on the salaries related aspects like refinance. We are further building to cater to the demand from India,” Amit Khandelwal, SVP, Head IT, VisionetIndia. By the end of 2020, Vuram, an IT solutions company, cent of the openings. IT jobs constitute the maximum plans to grow its people strength by 15 to 20 per cent. with close to 80K active openings across multiple levels, Says Suresh Kumar C, Director - People and Operations, followed by engineering at 45K jobs and the Sales & BD Vuram Technology Solutions, “From an Industry point offering over 65K opportunities.” of view, IT and ITES hold the lion’s share with over 79 In the current situation, fresher hiring and jobs per cent of the total openings. Employers in ecommerce could bear the brunt. However, with over 80,000 of the and BFSI continue to hire and contribute to about 15 per recently published job openings at entry level positions, it is encouraging to see that these are available at a point how to survive the Downturn when the next batch of fresh graduates are entering the job market. “It remains to be seen if the campus commitments are kept by the enterprises. While some have been seen honouring offers made, the reality can only be seen in a few months from now,” says Karanth. He adds that sectors in this new normal economy will create more avenues for freshers across colleges whether top or medium ranked. Fields like fintech, hitech, research, agritech, healthtech, manufacturing,exports and a few AD 3 1 Freshers others might see a good run to hire human capital at the 1. Be more flexible when it comes to job selection base of the pyramid. 2. Start to look at non-conventional and It is too early to predict when things will get back to conventional work across in startups and SMEs normal. However, even as some sectors bounce back 3. Constantly look at opportunities even if they faster, others will take a longer time. Singh believes are short term in nature that to prevent an economic contagion that parallels 4. Explore job fairs, recruiters, college and school the virus’ rampage, the government needs to quickly alumni networks and leverage your Linked-in announce measures to protect jobs and ensure the 5. Invest your time in online courses, which can private sector, especially the small and medium increase your efficiency level of learning businesses can survive. There is a need to immediately get cash in the hands of the private sector to enable them 2 Mid-level employees to pay salaries and survive. 1. Start thinking on re-skilling as a preparatory “We expect things to start bouncing back from the for further career enhancement third to fourth quarter of this year. We also feel that 2. Get online streams of seminars, talks and even the job market will grow at a different speed in some podcasts on various topics to increase your sectors during this new normal. Work from home and knowledge and skill remote jobs might see a super boom in the new normal 3. Do all it takes to keep yourself relevant to the economy,” says Rajappan. enterprise context Optimistically one should look at 9 to 12 months for 4. Exhibit agility to take up more and be flexible a normalcy of numbers getting restored. “But there is to commercial iterations above average probability that a part of the workforce 5. Keep up to date with what your organisation is may return getting engaged in something different from doing, not just in your own team, but across all what they did pre-COVI—19,” says Karanth. Only the sections and departments fittest will survive. [email protected]

46 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 47 Column Long Live Volatility nvestors all over the world or redeeming investments, market correction presents a are facing twin battles may actually result in a brilliant opportunity for a long I– keeping themselves permanent loss. Therefore, it term investor to take or enhance protected from the pandemic is imperative to understand one’s equity exposure. One year and dealing with the fallout that market volatility is not the from here on, many investors of equity market volatility. problem but it our aggregate will be looking back at present There is a flood of negative decision of what we do during situation and will acknowledge it news flowing from all corners volatile times which actually as a missed opportunity. This has of the globe. Under these hurts an investor. Hence we been the trend among investors circumstances, investors are left investors are only responsible over the past several market to brave market volatility while for the volatility seen in our corrections. seeing their portfolio value (life portfolios. Market corrections Markets generally tend to savings) erode substantially. over the past decades have Deepak Kumar move in line with corporate When stock markets turn largely varied between 20% Bhardwaj earnings. Owing to extreme volatile it brings along a - 30%. In extreme instance Chief Investment developments such as a certain sense of uncertainty there has been 50% correction Strategist, The Capital lockdown, there could be and human beings in general as well. Every other year a Investment Advisory instances that corporate earnings Services are not adept when asked to long term investor would have could take a beating. But this is deal with uncertainty. For an witnessed 10% swings too. But a one-off. Eventually industries investor, the fear of loss is despite all these developments, time is responsible for superior will come back to normalcy and more unnerving than the actual equity markets have returns generated over long earnings too will be back on loss or even the joy of a gain. eventually recovered and have term. This is because volatile track which will be reflected in Therefore, it is not the volatility successfully made new highs. times provide an investor the share prices as well. but the uncertainty due to Only those who have stayed with the opportunity to buy/ Conviction is the single most volatility that causes emotional invested could have benefitted accumulate more units (in important factor which helps setbacks. For example: When from such corrections and the case of mutual fund) at lower an investor tide over difficult on a roller costar ride, the ups ensuing rallies. However, what price, helping us to lower cost times. Within the emerging and down of the ride is a part is often seen is that fearing of acquisition. And in case market basket, India is unlikely of the enjoyment and is not notional losses, investors rush of major market dislocation, to be extremely affected by to be feared. Similarly, market in to redeem their investments like the one seen recently, then the pandemic. This is largely volatility is not be feared but thereby making the losses investors can consider lump because India is not dependent is to be enjoyed by an equity permanent. By doing so, sum investment as well. If on exports unlike most of the investor. Volatility must be one becomes an unfortunate the volatility were to reduce other emerging markets. As a considered as a friend of an victim of the fear of market then the opportunity to make result, the global slowdown is investor rather than an enemy. volatility. outsized gains also reduces. likely to have a minimal impact The important point to It is often said that in equity Therefore, an investor should when compared to other note here is that an investor’s markets losses are temporary not only learn to live with markets. Going forward as global response (emotional action), but gains are permanent. As volatility but also learn to tide allocation to the emerging market stemming from the fear of an investor, it is important over volatility gainfully and will be decided, India is likely to loss triggered by market to understand that volatility wish “Long live volatility”. attract a sizeable portion of such volatility, read stopping SIPs which is seen from time-to- The pandemic induced inflows, aiding further for the markets to recover substantially. S&P BSE Sensex Calendar Year Return (39 years) So, rather than getting unnerved by the current bout of market volatility, a smart investor should learn to make the most of such times. To conclude, it is safe to say that volatility was, is and will be there. It is difficult to imagine equity markets devoid of volatility. So, learn to embrace Source: MFIE, Calendar Year returns are absolute returns as on 31stDec 2019. Launch date of Sensex is 1st Apr 1979 with a base value volatility than fighting it. of100. Calendar Year Returns: From 1st Jan to 31st Dec every year. Cover Story

swelling imports to Global Financial Crisis (GFC) of Esha Tiwary 2008. However, if we compare them with the current Startup Incubator and General Tomorrow Is Going To Be Yet Another Day situation, nothing seems to match up to the magnitude Manager, Entrepreneur India of the impact of the novel coronavirus or COVID-19. Myriad repercussions might redefine India’s startup ecosystem in a post pandemic world While the country’s robust startup ecosystem had shown some real signs of growth and promising future, It would be of great help the sudden wave of the deadly virus has jolted the very if the government help By Rajat Mishra the boundaries cast, creed, colour and of course base of India’s startup scene. startups to stay afloat geopolitical barriers. According to Traxcn, (a Bangalore-based data- t was not long ago when a professor of This invisible enemy has brought global economies driven research platform) it might come as a entrepreneurship at Massachusetts Institute of to a screeching halt and put the world under lockdown. surprise, but till February this year, Indian startup Technology, speaking to an international English India is no exception. In an effort to fight COVID-19, a raised funding, which was three times more than However, that might differ from one startup to another, Idaily said that the 2008 global financial crisis was country with 130 billion population has been put under 2019. In fact, before the pandemic tightened its grip depending upon the genre it caters to. all about eliminating the weak and survival of the lockdown for a second term. Needless to say, with daily over the economy, things were looking brighter for Sharing his views on the same, Ajay Tiwari, Founder, strongest. economic activity coming to a standstill, pay cuts, Indian startups. Happylocate, India’s first one-stop relocation platform, Fast forward 2020—the world is grappling with layoffs and even smaller organisations, especially start- A report released by KPMG in February last year says, “Surely sailing through the pandemic is very a brand-new challenge that has shaken the root of ups completely shutting down. stated that the number of startups in the country daunting and a tough challenge. But the situation human survival and livelihood. The novel coronavirus As a developing economy, India had endured several increased to 50,000 in 2018 from 7000 in 2008, which would be different for essentials and digital-learning or COVID-19 has wreaked havoc, transcending hardships – from the 1991 economic crisis owing to is a 7.14× jump. Sadly, the smooth-running startup platforms. Similar business categories will have an street was forced to cut-short its journey owing to the COVID-19 pandemic and of course the multitude of challenges it threw up. And the pertinent question looming large is—will the crisis lead to multiple boom startup street india and bust story of many startups or like the 2008 financial crisis it will act as a filtering mechanism pushing innovation in entrepreneurship at its best. World’s 2nd largest startup hub However, we must understand that the pandemic has given rise to a typical situation. Unlike previous Around 26 startups are recognised every day economic crisis, the virus has transcended all political and economic boundaries leaving no Big Brother Provides the 3rd biggest startup ecosystem for developing economies (also badly hit) to turn to. globally A deep-rooted sense of uncertainty across global economies is indeed evident. 1300 new tech startups were launched in 2019 Back in October 2008 when world’s leading venture capital firm, Sequoia Capital had issued a missive to its portfolio companies titled RIP Good Times in the wake of the GFC. And sensing the vibes of cataclysm ushering slowly passed on a piece of advice that companies should reduce costs and start generating profits as soon as possible. And cleaving through yet another recent crisis graver than the GFC, the firm published an open letter sharing more or less the same advice to its portfolio companies. Aptly naming it as the Black Swan of 2020, Sequia Capital said that it may take much longer for the global economy to recover. The founder of a certain Silicon Valley-based startup on the condition of anonymity said that after taking into consideration the extenuating circumstances we decided to limit our operations and took certain crucial measures. He further added that finding the next round of capital (funding) would be one of the crucial challenges the startup sector will have to endure.

48 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 49 Cover Story

unfair advantage over others. And largely sailing That is the question of the hour. Providing an insight Drawing similarities between GFC and the current LovEprEET through will not be smooth.” into this dilemma, Esha Tiwary, startup incubator and pandemic leading to economic downturn, Jha adds Co Founder and Business Head, Infurnia Comparing the Black Swan of 2020 with the GFC, General Manager at Entrepreneur India, says, “This that the only similarity that two crises share is the Tiwari adds that while the timing of both the economic is a very challenging time for early stage startups as uncertainty factor is their rise and spread. And this is Enterprises are hesitant in crashes are same, the current one is way graver than they do not have the capital infusion to tide over an where government’s role comes in. Policy responses entering into any contracts its predecessor. Nonetheless, the present digital-savvy extended economic slump. It would be of great help need to be crafted accordingly since the COVID-19 is a and awaiting clarity on how economy with higher acceptance levels has an edge and if the government help startups to stay afloat.” public health crisis. is expected to bounce back sooner. But Tiwari quickly She also adds that being an incubator they are Nevertheless, analysing from another perspective, soon the market will rebound adds a caveat stating that the pandemic is a “big speed emphasizing more on the communication part. “We startups like Clairco seem to have looking at a breaker and not a simple roadblock.” are committed to supporting them through this somewhat brighter future. While chances of raising However, some experts differing in their opinion say challenging phase,” she adds. funds and grants are somewhat better for companies that, not all startups will have to bear the brunt. In fact, However, Ayush Jha, Co-founder and CEO of Clairco, like Clairco, revising and optimising operation plans are very much on the agenda especially keeping in certain startups focused on video communications will a Bangalore- based startup focusing on providing clean mind the supply chain processes. be on an upward spiral. On the other hand, startups air (by turning air conditioners into purifiers) says, While startups like Clairco seem to captured catering to online groceries and edtech will be able to “As hygiene and wellness have become the focus, air the rainbow visible thinly through a dense overcast consolidate their ventures substantially. But startups purification will be at the heart of it. We are confident sky, for some dark clouds are looming large like related to travel and hospitality, food and beverages that we will come out of this stronger than ever. Though never before. For example, Infurnia, an architecture including online food delivery services will dwindle there are few operational challenges at the present due and interior design software startup is staring at away to a great extent if not completely. to lockdown but we understand that it is temporary uncertainty as the construction sector has come to a On the other hand, another sect of entrepreneurs and for the larger good. It will take a few months for the standstill owing to the pandemic. The company’s Co- is of the opinion that economic recovery depends economy to recover from the coronavirus crisis; but one Founder and Business Head, Lovepreet says, “With how soon the spread of the pandemic is contained. must not lose sight of hope.” almost all construction activities coming to a halt, While it is a universal truth that in the battle between and the interior design firm coming to a standstill, we human beings’ grit and an invisible virus, obviously are seeing significant slowdown in sales. Enterprises the former will emerge victorious. But at what cost? are hesitant in entering into any contracts before they get more clarity on how soon and how well the market will rebound.” Total Funds raised By Lovepreet also added that even though they have not indian startups recently laid off any employee so far, it would be of great help if the government steps in and creates some program similar to the Small Business Paycheck protection program launched in the United States. Kapil Jain, Founder of Graphitto Labs, a Mumbai - based communications startup says that many startups will face challenges (some already are) amid the lockdown including sharp decline in business activities over the past few weeks. Most startups were anyways working remotely, depending heavily upon the online space, often at minimal cost; however, the pandemic is all set to redefine the way even startups function. While for some the pandemic is a boon in disguise (startups like ClairCo or others focusing on video calls), for some it has already wreaked havoc. As predicted, since Source: Traxcn business tenets would be redefined in a post COVID-19 world, the country’s start-up ecosystem is leaving no stone unturned to revamp strategies and innovate solutions that can help them ride the tide. Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 And far as the future of India’s startup ecosystem’s trajectory is concerned – will have to wait and watch. $1–2 bn up to $2 bn $2.9 bn Till then, let all of us – stay home and help flatten $1.3 – 2.1 bn up to $4 bn the curve. [email protected]

50 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 51 Cover Story

50 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 51 Growth Projections

sector has gone into a negative zone Who Predicts What Trapped In The Whirlwind Of Adversity now. This will take some more time to come back to normal. Speaking Organisation Growth (in %) Year With every passing day, the global agencies portray a grim GDP forecast for India for FY21 optimistically, six-seven months from now the country is likely to grow at -2 World Bank 1.5 – 2.8 FY21 per cent or -3 per cent. The overall rate ADB 4 FY21 By Aparajita Gupta acted swiftly to shore up the some relief, the slump in demand is likely of growth for FY21 will be around -10 economy hit by the pandemic. to lead to a declining credit quality and per cent,” he explains. S&P Global Ratings 3.5 FY21 part from killing over a Ongoing reforms to personal and rising defaults, particularly among the Painting a grim portrait of the Fitch Ratings 0.8 FY21 million people worldwide, corporate taxes along with measures non-financial corporates with weaker economic situation, Kumar says, “My the novel coronavirus to strengthen the agriculture and credit profiles.” suspicion is we are into an economic IMF 1.9 FY21 (COVID-19)A pandemic has infected rural economy and alleviate financial Fitch Ratings has also chopped depression and its recovery will take the global economy very adversely sector stress will help accelerate India’s growth to a 0.8 per cent for FY21 two to three years. Future economic a room for a further downgrade revival of the economy, Kumar says, and India is no exception. With every India’s recovery.” attributing it to the unparalleled global growth will depend on the number depending on how the pandemic “Coming one or two months will be passing day, various global agencies The S&P Global Ratings has recession that is underway caused by of days the lockdown continues. The plays out over the summer. We were very crucial and the recovery will be are predicting lesser growth for India further cut India’s GDP forecast to COVID-19 pandemic related disruptions. longer the period of lockdown, the already at a low level of growth, and very slow. This is a situation worse for the current FY21 fiscal and the 3.5 per cent from 5.2 per cent for However, it has projected 6.7 per cent worse will be the economic recovery we have no clear idea what the hit to than a war. Demand does not collapse just ended FY20. FY21. It said in a report, “While growth for FY22. rate. Having said that we also need growth will be, or for that matter the in a war. Here, in this case, both The World Bank has projected lower official interest rates and In its latest report, Global Economic to keep in mind that the number length of this crisis.” demand and business have collapsed.” that India’s Gross Domestic Product government stimulus actions provide Outlook, Fitch Ratings says it now of people getting affected by the He explains that the most “The government should look (GDP) growth may plummet to 1.5 expects world GDP to contract by pandemic is an important indicator. vulnerable sections of the economy at the survival packages, where the to 2.8 per cent in FY21 due to the 3.9 per cent in 2020, a recession of The consumer and business sentiments are small and medium-sized poor will be having the basic food to COVID-19 impact. unprecedented depth in the post- are down after the economy received enterprises that already had cashflow survive on. The government should “In India, GDP growth in the ARUN KUMAR war period. a shock. Since consumer sentiment problems. The government should expand the public distribution system fiscal year that has just started is Malcolm S. Analysing these predictions, Arun is down, the demands for things will loosen stringent KYC provisions otherwise there will be food riots. expected to range between 1.5 and Adiseshiah Chair Kumar, Malcolm S. Adiseshiah Chair be simultaneously going down. In a temporarily and bring private fintech The farming sector will collapse 2.8 per cent, implying the per-capita Professor, Institute of Professor, Institute of Social Sciences situation when consumer demand does companies inside the tent as because there are no labour, transport GDP growth of between 0.5 and 1.8 Social Science said that the official data of growth does not rise, business sentiment partners. The priority is getting cash or traders. The government should percent. This would come after the not include the unorganised sector. The will be low, following that the out quickly to normally under- start procuring farm products from already disappointing growth rates The economic growth unorganised sector is badly hit after the investment will be low.” banked enterprises. the farmers directly and start using of previous years. The green shoots rate has already demonetisation drive in the country. Moody’s Investors Services has Even the International Monetary it through the public distribution of a rebound that were observable at “Rate of growth of the Indian economy slashed India’s 2020 GDP estimate to Fund (IMF) projected 1.9 per cent system,” he adds. the end of 2019 have been overtaken plummeted to negative has already plummeted to negative before 0.2 per cent from 2.5 per cent earlier. growth for India in FY21 from 5.8 In this maze of problems, by the negative impacts of the global before the pandemic the pandemic broke. Even the organised The economic costs of the per cent that was projected earlier. everyone is looking for a solution. crisis,” stated World Bank’s report coronavirus crisis amid the near The IMF also projected a sharp But the solution seems to be few and South Asia Economic Focus, shutdown of the global economy contraction of the global economy by far between. “Saving the GDP is Spring 2020. are accumulating rapidly. Moody’s 3 per cent in 2020. not the priority. The first priority The Asian Development Bank Investors Service expects G-20 ICRA, too, has projected that the is saving lives, and then the second projected India’s GDP will slow down advanced economies as a group to Indian economy will grow at 2 per is preserving well-functioning to 4 per cent in FY21 due to a weak contract by 5.8 per cent in 2020. cent in FY21. Speaking about the enterprises. If that is done, we can global environment and continued Even with a gradual recovery, 2021 return to a pre-virus level of output efforts to contain the COVID-19 real GDP in most advanced economies when this is over. Trying a big GDP- outbreak in the country. The forecast is expected to be below pre-corona- MIHIR SWARUP focused stimulus right now would be assumes that the pandemic dissipates virus levels. SHARMA counterproductive,” says Sharma. and full economic activity resumes “The contraction in economic Senior Fellow and Head, Saving lives and the economy are from the second quarter of 2020. activity in the second quarter will Economy & Growth the two vital tasks of the government. “The COVID-19 pandemic be severe and the overall recovery Programme, Observer With the recent measures of easing Research Foundation jeopardizes global growth and India’s in the second half of the year will be partial lockdown, some economic recovery. But India’s macroeconomic gradual,” says Madhavi Bokil, Vice activities have resumed. But the fundamentals remain sound, and President, Moody’s. First priority is saving mammoth challenge of turning the we expect the economy to recover Mihir Swarup Sharma, Senior lives and the second wheel of the economy to its fullest strongly in the next fiscal year,” says Fellow and Head, Economy & Growth is preserving well- capacity remains in front of the ADB Chief Economist Yasuyuki Programme, Observer Research government. Sawada. “Indian authorities have Foundation says, “There is certainly functioning enterprises [email protected]

4852 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 49 Growth Projections

48 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 5349 Franklin Templeton Fallout

AMCs credit risk funds. Even if they face huge redemption pressure like FT, most have already increased Will The Pandemic Spread Further? allocation to AAA, G-Sec and raised cash levels to combat such situation”. The closure of six debt schemes by Franklin Templeton MF has eroded investor confidence He said, now is the correct time to consider investing in Credit Risk funds in a staggered manner. Though, the By Yagnesh Kansara scenario, this is the best possible volatility will be very high, one should way to safeguard the interest of be ready to live with that. Existing s the saying goes - a bull exiting investors and is the only Investors should examine their market is when you get a Investor viable means to secure an orderly portfolio and take action. Many debt stock tip from your barber… realization of portfolio assets. fund categories are safer and stable .AA bear market is when you get a Hence from April 24, 2020, the which can be considered in case, one is haircut from your fund manager! Trustee and the AMC have: (a) fully risk averse”. Similar, or rather more severe ceased to carry on any business There is no doubt that this than that has happened in the Indian activity in respect of the Schemes; development has shaken up the debt financial market last week. The (b) ceased to create or cancel units mutual fund industry. This coming lockdown imposed as a containment in the Schemes; (c) ceased to issue or after a series of NAV write-downs/ measure to stop the spread of redeem units in the Schemes. segregation by various fund houses COVID-19 pandemic has taken The Reserve Bank of India (RBI) mutual funds for some more time will be charged for these funds. due to downgrades/defaults by its first toll in the Indian on following Monday announced a to come because of the economic Investors will get redemptions in the investee companies will not do any financial market. The special liquidity facility slowdown and the resultant future when the underlying bonds good for the risk-on sentiments of closure of its six debt of `50,000 crore for sluggishness in economic activity mature or when they pay interest. retail and HNI investors. This episode schemes by the mutual funds in the emanating from the pandemic, Hence, Existing investors can expect once again highlights the weakness in Franklin Templeton wake of the winding Thomas adds. partial amount credits in their the secondary debt markets in India as (FT) Mutual Fund up of six debt funds Amit Singh, Head, Investica, accounts if there are investments in they tend to get illiquid by small bouts has resulted in eroding by Franklin Templeton. the online MF platform powered any of these six schemes. of micro and macro negative news. the confidence of Banks can avail of 90-day by Choice Broking says, “Retail Investors conviction towards Deepak Jasani, Head Of Research, investors to a large funds from the RBI’s repo window Investors should be Prudent while credit risk funds was never high, HDFC Securities opines, “Despite extent and has created a sort of crisis and use it to lend exclusively investing in debt funds and should coupled with that lockdown the categorization by Sebi, a lot of of confidence in the market. These the fixed income segment, are to mutual funds or purchase always look only for the quality of extension and no clarity on full debt schemes take on risks that are six debt schemes together have more facing continuous and heightened investment grade corporate papers the portfolio and should completely scale resumption of economy, the not reflected in their scheme risk- than `28,000 crore Assets Under redemptions.’ held by MFs. The scheme will be ignore past performance, big conviction dwindled more. Investors o-meter or their category names. Management (AUM). These funds have been facing available from April 27 to May 11. names and big brands while making started redeeming money to which, Fund managers with a view to Through a notice dated April 23, significant redemption pressure, This is third instance when the investments”. FT had to liquidate best of their generate higher return tend to take 2020, FT MF announced its decision which intensified in the months central bank has opened a special Omkeshwar Singh, Head- holdings and eventually the scheme higher risks in the portion of other to wind up six of its schemes; of March and April. These funds window for the MFs. RankMF, Samco Securities, says, was left with illiquid, low rated and investments permitted in even safe Franklin India Low Duration Fund, witnessed an estimated net outflow Joseph Thomas, Head of “Investors affected by the current thinly traded papers. low risk categories. Investors would Franklin India Ultra Short Bond of `9,148 crore in March alone. The Research - Emkay Wealth crisis have no choice, but to wait so Bhavesh D Damania, Founder also do well to desist from chasing just Fund, Franklin India Short Term fund house maintains that in this Management says, “The erosion in that the liquidity gets back to the and Chief Care Taker, Wealthcare returns without having regards to the Income Plan, Franklin India Credit investor confidence usually results lower end of the system as and when Investments says, “The situation risk taken by the respective schemes. Risk Fund, Franklin India Dynamic in more redemptions and may lead the lock down is over and economic doesn’t seem to be the same AMFI on its part should educate Accrual Fund and Franklin India to liquidity problems for the mutual activities re-start, only then the AMC with other fund houses and their investors on this aspect (how to assess Income Opportunities Fund. Deepak fund industry, when many of them will pay back the realisable money”. schemes!! Most large players have this risk). On a higher level, faster legal As per the fund house, ‘There has Jasani already have negative cash in debt FT has always maintained its already cleansed their books since resolutions/recoveries will help in been a dramatic and sustained fall in Head of Research, funds. So, more than a crisis of image of managing low credit default of IL&FS, DHFL, Zee. So I development of buying out of stressed liquidity in certain segments of the HDFC Securities liquidity, it is a crisis of confidence”. high yield debt funds. Many retail do not foresee similar run on other assets and improving the depth and corporate bonds market on account Though RBI may have investors opted for these funds liquidity in secondary debt markets”. of the COVID-19 crisis and the FT’s voluntary wind announced opening of special to get higher returns. Now that One hopes that this is a one off resultant lock-down of the Indian up of six debt funds window to help debt MFs tide over these schemes have shut down, the These six debt case and we will not see more such economy which was necessary their liquidity problems, the after existing investors cannot do any cases even though the economy is yet to address the same. At the same has shaken up the effects of the low rated credit risk transaction in these six schemes. At schemes together have to come out of this difficult phase. time, mutual funds, especially in debt MF industry fund portfolios may haunt the the same time, No expense ratios ` 28,000 crore AUM [email protected]

54 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 55 Franklin Templeton Fallout

54 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 55 Stock Pick Playing A Very Sailing Through The Hindustan Unilever HDFC Bank CMP: 2337.65 CMP: 946 Defensive Game PE: 73.23 COVID-19 Storm PE: 20.57 Analysts are positive on HUL’s growth *As on April 20, 2020 Brokerages expect the bank to post a 30% growth *As on April 20, 2020

By Himali Patel strong earnings performance like Why Buy lthough COVID-19 On the quality front, the bank Why Buy nimbleness, stringent cost savings, Consistent growth with maximum pandemic might have witnessed a marginal slip in its Gross Strong financial record with consistent hen it comes to Fast- premiumisation and best-of- breed range of new generation products discounted two quarters of Non-Performing Assets (GNPA) at profitability and stable NIM Moving Consumer analytics are likely to benefit it in Its acquisition of VWash from Ade-growth in earnings, many market 1.42 per cent of gross advances as Strong market leadership with Goods (FMCG) space, the future as well,” says an analyst at Glenmark Pharma bodes well for experts and analysts believe that on Q3 FY2020 as compared to 1.38 steady branch addition and the brand distribution network HindustanW Unilever (HUL) has a Motilal Oswal Financial Services. 283.51 blue-chip stocks like HDFC Bank per cent in Q3 FY 2019. Further track record of strong financials That said, the company in the are trading at attractive valuations, the Net NPA stood at 0.48 per cent on every count on a higher base. month of April 2020, completed Watch out for offering once in a decade opportunity. of net advances as on Q3 FY2020. Watch out for The company, which is into its merger with GlaxoSmithKline Volatile commodities on the back Being one of India’s leading private “Asset quality is expected to remain Asset quality concerns can manufacturing of branded and Consumer Healthcare (GSKCH) with of sluggish market growth can banks that offers a diverse range of under pressure. However, growth continue, under the given current packaged FMCG products, saw a consideration of total equity value impact margins financial products, HDFC Bank has in advances and deposit despite adverse macros an increase in demand for home of `31,700 crore for 100 per cent of a proven track record of not only weak economic environment should and hygiene related products due GSKCH India. In addition to that, 200 good earnings but is also backed by drive the company’s performance,” 200 to the present pandemic. Despite HUL has also paid `3,045 crore to a strong risk management system. cautions an analyst at Geojit Financial COVID-19 crisis, analysts continue acquire the Horlicks brand for India Further, many brokerage houses are Services. The Net Interest Income to remain positive with its volume from GSK. In March 2020 it has also 150 expecting HDFC Bank to remain (NII) rose 13 per cent in Q3 backed 150 growth on account of strong demand announced the acquisition of VWash unfazed by COVID-19, thereby by the growth in advances of 19.9 per 119.00 for its products. The company’s net brand from Glenmark Pharma. expecting to post a 30 per cent cent and a growth in deposits of 25.2 sales and net profit have clocked a “With HUL’s extensive distribution 100 growth earnings in its net profit in per cent. However, the Net Interest 100 Compounded Annual Growth Rate reach of 7+ million outlets and direct 119.00 fourth quarter (Q4) for financial year Margin (NIM) for the quarter stood Note : Prices quoting (CAGR) of 4 per cent and 7 per cent distribution of 3.5+ million retail (FY) 2020. As of December 31, 2019, stable at 4.2 per cent. on ex-split basis from September 19, 2019 respectively. That said, the company’s outlets, we believe it would be able 50 the bank enjoys a wide distribution That said, HDFC Bank’s cost- 50 79.01 third quarter (Q3) performance to market VWash on a much wider as 100 taken value Base BSE Sensex network spread across 5,345 banking to-income ratio for the quarter as 100 taken value Base BSE Sensex for financial year (FY) 2020 was scale across geographies. This would Hindustan Unilever outlets and aiding customers with stood at 37.9 per cent in Q3 FY2020 HDFC Bank broadly in line with most broking help the product grow faster with the 0 14,533 ATMs/ Cash Deposit & as against 38.4 per cent in Q3 0 firms’ estimates. The total sales rose company, going forward,” points out 2 Jan 2017 20 Apr 2020 Withdrawal Machines (CDMs) across FY2019. The bank’s continuous 2 Jan 2017 20 Apr 2020 4 per cent during the quarter as its an analyst at ICICI Direct. Source : BSE India 2,787 cities/ towns. focus on deposits has been a key Source : BSE India domestic consumer business grew by Considering the extraordinary On the financial front, HDFC catalyst for the maintenance of a 4 per cent year-on-year. economic slowdown, HUL, going Financials Bank’s net profit and Interest earned healthy liquidity coverage ratio Financials The company’s segmental revenue forward, is likely to sustain a robust have clocked a Compounded Annual at 140 per cent, that is well above Net sales (` crore) PAT (` crore) IE (` crore) PAT (` crore) for the nine-month-ended December revenue growth and continue to Growth Rate (CAGR) of 15.9 per the regulatory requirement. “Over 31, 2019 increased by 5.3 per cent dominate a premium to the peers FY19 39311 FY19 6060 cent and 15.7 per cent respectively the past 10 years, HDFC Bank has FY19 105160.74 FY19 22332.43 Y-o-Y. Out of this, the home care being the leader in the category. “We over FY 2015-2019. “We believe steadily grown its loans market FY18 35550 FY18 5227 FY18 85287.84 FY18 18510.02 segment contributed to 35 per cent of currently estimate 15 per cent PAT the bank will be able to gain market share to ~8.5 per cent of the system, the revenue, beauty and personal care CAGR over FY20-22 (post-merger) FY17 33252 FY17 4490 share driven by strong leadership driven by steady branch addition, FY17 73271.35 FY17 15280.48 by 45 per cent, foods and refreshment and value the stock at 46xFY22 pro- position across segments, large improving employee productivity contributed to 19 per cent and forma earnings per share (EPS) of OP (` crore) EPS (`) distribution, digital focus and strong and effective use of technology TI (` crore) EPS (`) other products by 1 per cent. On `46.4, thus assigning a target price FY19 9430 FY19 28.028 capital adequacy,” says an analyst at to gain distribution efficiency. FY19 124107.79 FY19 82.00 the operating front, the Earnings of `2,136 (Quoted as on April 1, IDBI Capital. When it comes to the Within retail loans, it has been FY18 7885 FY18 24.139 FY18 101344.45 FY18 71.33 Before Interest, Tax, Depreciation 2020),” says an analyst at Prabhudas bank’s net revenues for Q3 FY2020, institutionalising the sales process so and Amortisation (EBITDA) grew Lilladher. The company remains one FY17 6696 FY17 20.722 it posted a 19 per cent growth as to increase the pace of customer FY17 86148.99 FY17 59.63 ` 19.2 per cent Y-o-Y on back of of the best defensive players in the OP: Operating Profit; PAT: Profit After Tax; at 20,842.2 crore as compare acquisition,” says an analyst at Axis IE: Interest Earned; TI: Total Income; PAT: Profit After improved operating leverage. “Factors current uncertain environment as per EPS: Earnings Per Share; Source: Ace Equity to corresponding quarter of the Securities. Tax; EPS: Earnings Per Share; Source: Ace Equity that have led to the company’s various broking firms. previous year. [email protected]

56 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 57 Stock Pick Playing A Very Sailing Through The Hindustan Unilever HDFC Bank CMP: 2337.65 CMP: 946 Defensive Game PE: 73.23 COVID-19 Storm PE: 20.57 Analysts are positive on HUL’s growth *As on April 20, 2020 Brokerages expect the bank to post a 30% growth *As on April 20, 2020

56 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 57 Morningstar: Mutual Fund Guide

Nippon India Dynamic Bond Fund ICICI Pru Value Discovery Fund

Investment Strategy Fixed-Income Statistics Manager Biography And Fund Strategy rashant Pimple is a competent such as gross domestic product Fixed Inc Style Box (Long) High Mod rinal Singh took over the reins of down factors aren’t ignored. With the Equity manager and has 15 years of growth, inflation, fiscal deficits, and this fund in February 2011. Over investment strategy rooted in value Portfolio Date: P Average Eff Duration - “M Sectors 31/3/2020 experience on the fixed-income trends in government borrowing. Average Eff Maturity 6.7 the years, he has emerged as a skilled bets, the fund’s portfolio is significantly side. He has been with the fund The manager maintains a quality Average Coupon 7.4 portfolio manager, adept at running distinct from the benchmark index house for more than a decade and portfolio and invests only in AAA rated Average Price 105.2 funds of varied types. While he is an and other funds. He is patient with his % has exhibited a flair for managing securities. They also use the analysis expert in the small/mid-cap segment, stock picks especially from the small/ Basic Materials 11.9 duration strategies. The fund house of sell-side research and credit-rating he specialises in value investing, too. mid-cap segment, a strategy that jells Fixed Income Style Box Consumer Cyclical 13.5 has witnessed a change in the agencies to form a view on companies’ Naren is at the helm of the investment well with his investment philosophy. Financial Services 7.7 ownership, resulting in Reliance creditworthiness. The exposure High function and works closely with the The strategy is not without risk. It can Real Estate 0.0 Mutual Fund being renamed Nippon limits are decided by the head of Med investment team. His contribution to hold back the fund in rising markets Consumer Defensive 4.6 India Mutual Fund. fixed income, Amit Tripathi, or the the top-down and sector views are a when valuations are stretched and can Low Healthcare 12.4 The investment strategy is investment committee, depending on big positive. lead to value traps. Hence, its long- Utilities 10.9 research-intensive and relies mainly on inputs provided by the credit research Ltd Mod Ext Mrinal Singh’s investment term success will depend in no small Communication Services 7.7 fundamental research. The manager team on the type of issuer and the approach entails scouting for stocks measure on the manager’s execution Portfolio Energy 5.5 primarily focuses on active duration tenure of the issue. he believes are trading at a significant capabilities. On that count, we believe Top Holdings Weighting Industrials 6.4 bets. Given that duration is an integral The execution of the process (%) discount to their fair value. He relies Singh is equipped to successfully ply part of the strategy, studying the has been good, with 60%-70% on a combination of absolute and the strategy Technology 19.5 GOVT STOCK 46.43 macroeconomic scenario for taking of the core portfolio reflecting the relative valuation parameters (such Mrinal Singh professes to manage Total 100.0 an interest-rate directional view forms medium- to long-term view of the GOVT STOCK 22.29 as P/E, price/book value, EV/EBITDA) the fund in an unconstrained manner the broader framework of the process. fund manager; the remaining 30%- 7.26% Govt Stock 2029 8.45 for picking stocks. Additionally, he with value as an underlying theme. Portfolio Weighting The investment team incorporates 40% of the portfolio is tactical, used 7.88% GS 2030 7.41 looks for differentiating factors Singh prefers quality stocks and will Top Holdings the views of key external economists to take advantage of any short-term (technological prowess, cost not invest in a company, which doesn’t (%) Triparty Repo 6.93 and an in-house economist on factors movement in rates. advantage) that can give the company meet all his selection parameters. Infosys Ltd 9.62 Swarna Tollway Private Limited 2.92 a sustainable edge. While a bottom-up Hence, he doesn’t invest in companies Sun Pharmaceuticals Industries Ltd 9.06 Calendar Year Returns 13.9 Indian Railway Finance Corporation Limited 1.91 approach is more prominent, top- that are highly leveraged” Mahindra & Mahindra Ltd 6.86 Calculation Benchmark: None 11.7 RELIANCE INDUSTRIES LIMITED 1.32 NTPC Ltd 6.83 10.0 Indian Railway Finance Corporation Limited 1.27 Calendar Year Returns 8.4 Bharti Airtel Ltd 6.58 8.0 Housing Development Finance Corporation 6.0 5.7 0.64 Calculation Benchmark: S&P BSE 500 IndiaTR ` ITC Ltd 4.32 6.0 4.8 5.5 Limited 4.7 PI Industries Ltd 4.11 4.0 3.8 3.1 3.0 100 Return 2.0 1.0 Fund Snapshot 80 Wipro Ltd 3.66 0.0 60 2019 2018 2017 2016 2015 Indian Oil Corp Ltd 3.08 YTD 40 37.6 Morningstar Category India Fund 23.8 Nippon India Dynamic Bond Gr India Fund Dynamic Bond Return Grasim Industries Ltd 2.83 Dynamic Bond 20 9.0 -16.6 -22.5 0.6 -4.2 -1.8 4.6 5.2 5.4 0.4 Trailing Returns Fund Size (`) 8.1 billion 00 -20 Inception Date 15/11/2004 Fund Snapshot Data Point: Return Calculation Benchmark: None YTD 2019 2018 2017 2016 2015 Annual Report Net Expense Ratio 1.85 ICICI Pru Value Discovery Gr S&P BSE 500 India TR ` YTD 1 Year 3 Years 5 Years 10 Years Morningstar Rating Overall ***** Morningstar Category India Fund Value Nippon India Dynamic Bond Gr 3.82 10.84 6.64 7.38 8.39 Manager Name Multiple Trailing Returns Minimum Investment (`) 5,000 Fund Size (`) 117 billion India Fund Dynamic Bond 0.96 5.74 4.85 5.90 6.90 Morningstar Analyst Rating Neutral Data Point: Return Calculation Benchmark: S&P BSE 500 India TR ` Inception Date 16/8/2004 Annual Report Net Expense Ratio 2.13 YTD 1 Year 3 Years 5 Years 10 Years Morningstar Rating Overall ***** Disclaimer Manager Name Multiple @2017. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. This report is issued by Morningstar Investment ICICI Pru Value Discovery Gr -16.57 -19.80 -3.53 0.34 10.40 Minimum Investment (`) 1,000 Adviser India (“Morningstar”), which is registered with SEBI (Registration number INA000001357) and provides investment advice and research. Morningstar Analyst Rating Bronze Please visit www.outlookindia.com/outlookmoney/invest/picking-the-right-mutual-fund-2542 and read important statutory disclosures, as S&P BSE 500 India TR ` -22.47 -20.93 -0.40 2.80 7.12 mandated by SEBI, regarding the information, data, analyses and opinions given in this report. Data Source: Morningstar India

58 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 59 Morningstar: Mutual Fund Guide

Nippon India Dynamic Bond Fund ICICI Pru Value Discovery Fund

58 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 59 Morningstar Mutual Fund Guide

Franklin India Equity Fund

Manager Biography And Fund Strategy

he presence of a seasoned competitive advantages that can Equity Portfolio Date: “Tmanager in Anand generate healthy ROEs and ROCEs. Sectors 31/3/2020 Radhakrishnan, an experienced He focuses on profitability using EVA and stable team that ranks among as a measure. A contrarian streak is % the best in the industry, and a perceptible in the manager’s stock Basic Materials 8.5 fundamentals-driven investment picks. Radhakrishnan will pare/exit Consumer Cyclical 10.2 strategy backed by extensive positions he believes are expensive. Financial Services 26.9 research are the most appealing That said, the strategy is not without aspects of this fund. risks. His valuation-conscious Real Estate 0.0 Analysts gauge companies using approach and inability to play Consumer Defensive 10.6 DCF models and parameters such momentum will hold the fund back Healthcare 5.8 as ROE, P/BV and P/E. Sector-based during speculative or bull markets. Utilities 3.4 model portfolios created by analysts The fund also struggled owing to a Communication Services 8.4 are compiled by the research head few investment calls that could have Energy 4.9 to create market-cap-based model been best avoided. A more prudent Industrials 8.6 portfolios that serve as guides to approach would help in this regard. Technology 12.7 the portfolio managers. The skilled The fund’s portfolio largely Total 100.0 management team’s participation remains stable in terms of allocation, aids the process in no small nature, style, and diversification. Portfolio measure. Anand Radhakrishnan Both large and mid/small-cap Top Holdings Weighting seeks companies with clean stocks form part of the portfolio, (%) balance sheets. He looks for with more than a 70% allocation to HDFC Bank Ltd 8.17 steady businesses with sustainable large caps.” Infosys Ltd 7.35 Bharti Airtel Ltd 6.96 ICICI Bank Ltd 4.90 Calendar Year Returns Axis Bank Ltd 3.94 Calculation Benchmark: S&P BSE 500 India TR ` Larsen & Toubro Ltd 3.88

100 HCL Technologies Ltd 3.04 80 State Bank of India 2.95 60 Marico Ltd 2.79 37.6 40 30.6 Mahindra & Mahindra Ltd 2.51 Return 20 9.0 -22.3-22.5 3.3 -4.4 -1.8 5.0 5.2 4.4 0.4 0 -20 Fund Snapshot YTD 2019 2018 2017 2016 2015

Franklin India Equity Gr S&P BSE 500 India TR ` Morningstar Category India Fund Multi-Cap Fund Size (`) 76 billion Trailing Returns Inception Date 29/9/1994 Data Point: Return Calculation Benchmark: S&P BSE 500 India TR ` Annual Report Net Expense Ratio 2.20 YTD 1 Year 3 Years 5 Years 10 Years Morningstar Rating Overall *** Manager Name Multiple Franklin India Equity Gr -22.26 -24.57 -4.05 0.55 8.48 Minimum Investment (`) 5,000 Morningstar Analyst Rating Silver S&P BSE 500 India TR ` -22.47 -20.93 -0.40 2.80 7.12 Data Source: Morningstar India

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Eternal Money Lessons From Life AJAY BAGGA It would be a huge achievement if you have clarity about the value for money

ithin a year of starting work for a loan crisis and the Latin American debt defaults. As multinational, I was sent to New York in belt tightening happened, raises and bonuses were the 1990s for training at the headquarters. held up and jobs were at threat. WeW used to get $20 per diem in which we had to I saw Mr Grasshopper walking into the office a manage our food costs for the day. All the other week later, no car and no swagger. He was behind expenses were borne by the employer. There was on his EMI so all the furniture in his house and this intern working with us, who used to drive into his car was repossessed. That is when I realised the firms parking lot in a swanky Mercedes. The his whole life was a house of cards, built on CEO of the firm, who has been hailed as one of the unsustainable debt and just in time EMI payments. best bankers of the 20th century, used to use the NY At the first sign of trouble his entire edifice of debt subway. We were fascinated by the lifestyle of this collapsed around him. Within a month he was intern. He had a magical aura around him of opulence without a job and had moved back into his parents’ and privilege. Our self-pressed polyester shirts and ties house to save costs. and Bata shoes were the subject of snubs. And the one Mr Desi Ant came to see me a few days later. credit card we had worked only in India and Nepal. I asked him how things were, given the general Having to pay cash everywhere was seen as so passé. gloom in the economy and reduced expenditure We will call him Mr Grasshopper. all around. He said he paid cash down for all In New York I met Mr Desi Ant also. Like me, his purchases, used every dollar of tax planning he was a Punjabi from a refugee family who lost available to his business and was in fact buying everything in the 1947 partition of India. Through more cabs in the downturn. He had seen many a cousin he somehow made it to the US, started cycles from Nixon to Ford to Carter to Reagan and waiting tables in the cousin’s restaurant. Within a George Bush Sr. He prepared for cycles and for year he had started driving a cab and then went on success through sagacity and frugality. That talk acquire many cab licenses, which were a gold mine in was one of the most important lessons in money those pre Uber / Lyft days. When I met him, he was a management and financial planning that I ever platinum customer who still drove sometimes, but was got. As I rose to be the Chairman of the Financial managing a huge transportation operation of Punjabi Planning Standards Board of India and to head and Pakistani cab drivers. His children were all Ivy many venerable institutions, those lessons in hard League educated - one a doctor and another a lawyer. work, perseverance, grit, determination, clarity of Mr Grasshopper would talk derogatorily about Mr objectives and humility have helped me navigate Desi Ant, mimicking his accent, his gruff mannerisms through the good and bad times. and his lack of education. Mr Desi Ant would like to Both stories have a happy ending. spend time with us youngsters and share stories of Mr Grasshopper went into business with a people he had driven and things he had seen. More former client and married his daughter (I forget if on that some other day. He had a great story on the the marriage came first or the business, it’s been 30 market crash of 1987. years now!). The India offshoring miracle happened Then one July a US Congressman cast doubts on the in a few years and it was one of the few businesses firm’s solvency. in the world where you had a massive cost Things had been challenging with the savings and advantage. He got in at the right time and the rest as they say, was history. He has not changed much. Mr Desi Ant is a dear friend and a sounding board. He still goes to office, still runs a tight ship Earn, spend wisely, do extreme in various businesses that he has acquired. He gives a lot to charity and to immigrant welfare. I savings and invest for long term call him for advice and for getting infected with his

4662 Outlook Outlook Money Money May May 2020 2020 www.outlookmoney.com www.outlookmoney.com Standpoint

optimism and sheer love for life and success at all he he has donated more than $46 billion to philanthropic touches. I like stories that end with “And they lived causes since 2000. He still lives in the house he bought happily ever After”. in the 1950s and drives an equally modest car. Buffett For both my friends, the story ended well. prefers to reinvest and grow his money, rather than I was thinking of them as I see people all around us take it out of the bank. Not one for lavish purchases, he losing jobs, panicking about the future and worrying spends relatively little of his billions – except when it about their investments. comes to philanthropy. Crisis/ crash/ recessions are a great time to reassess Another is someone who has given huge amounts to our core values. What do we want out of our life? charity in India. I will not name him as he likes to be very What defines us as human beings? What would we self-effacing. I used to run a project offering corporate like to be our legacy? How do we safeguard our future digital salaried accounts to firms. His company was a and those of our loved ones? customer. In those pre big data/pre algo times, he made These are good questions to think about. There are me do analysis on what were his employees spending no right or wrong answers; there are answers that are most on. We worked out discounts with major retailers good for you as determined by you. for each of those categories, so the purchasing rupee A critical question you can evaluate at this time is - of his employees was stretched. He drove an old car What is your relationship with Money? and stayed very modestly. More lessons from him in Do you want to be the Mr Grasshopper or Mr future columns. I would like to end with this advice. Desi Ant? Or some mixture of the two, or maybe, Yes times are bad. Learn. Work on ensuring that you something totally different from both. If you can earn money, spend wisely, do extreme savings and invest clarify your values towards money, that is a huge in a diversified manner for the very long term. That achievement. Then you will drive the process of money is the simple, but not easy to do, mantra for financial management for yourself, rather than being a cog in independence and financial liberation. the great wheel of Samsara. My life style has not changed in this lockdown If we can recognise there is a huge world that wants except for not being able to go to TV studios, speak to market our products, services, dreams, promises at conferences or go for the rare meeting. I use digital in exchange for our money, we will be able to be more platforms to do all my meetings now and find much objective in spending our money. more time and energy available for doing what I love At no point am I asking you to be miserly. But there doing the most - meditating, reading and thinking. is a pride in being frugal. Follow the money mantra I have shared with you. I will give you two examples. The first is legendary So that you can also achieve this financial liberation. investor and one of the richest men in the world, It is priceless. Warren Buffett. Like in his investments, he is careful to the point of being frugal in spending his fortune, but The author is a Private Investor

47 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 63 New Tax Regime

penetration, which is very low in protection and long term savings. Insurance Sector To Take A Hit India, will come down further at There is a large scope for growth least for the short term. in protection products, which are Removal of tax exemptions under Section 80C could have a detrimental impact on life insurance As per income tax statistics for bought from a risk perspective and AY 2018-19, total taxpayers stood are not impacted by tax incentives. at 58 million, and out of which 15 Long term savings help individuals By Vishav majority of the salaried class in Sitharaman unveiled a new simpler million fall under the bracket of build corpus for future financial India invests in insurance products income-tax regime, offering tax- `5 lakh to `10 lakh income levels. needs like children’s education, Deductions & hirty three-year-old Nakul with their primary motive to payers to opt for lower tax rates by This segment of individuals could marriage, buying a house, retirement Khajuria invests Rs 50,000 save tax. However, in the Budget not availing any existing tax saving be sensitive to the available tax etc. So the role of insurance Exemptions Not every year in a Unit Linked 2020-21 Finance Minister Nirmala exemptions - including insurance exemption as an incentive to buy in customers’ lives remains Available In New Tax InsuranceT Plan (ULIP). While he premiums, something that worked insurance. “While this segment is paramount,” Murlidhar says. Regime hopes to get some decent returns as life blood for the life insurance only around 5 percent of the total On the day Sitharaman from this policy in the long run, his industry for a long time. individual policy universe, it is a announced the new tax regime in Tax Breaks on Life Insurance primary reason to start it was to RAHUL Most industry observers believe sizable 50 per cent of the annual her budget speech, life insurance Premium save tax. He claims a deduction of AGARWAL that removal of tax exemptions new policies issued,” Agarwal says. companies tumbled up to 10 per Medical Insurance Premium ` 50,000 every year under Section Director, Wealth under Section 80C in the new tax However, G Murlidhar, cent with HDFC Life, ICICI Life Investments in Provident Fund 80C on his policy. Asked whether Discovery and EZ regime could have a detrimental Managing Director, Kotak Insurance and SBI Life Insurance all Wealth Home Loan Principal and he would have taken this plan had impact on life insurance products Mahindra Life Insurance, opines bearing the brunt. More individuals Interest his income not been taxable, or if as well as Equity-Linked Savings that the impact will not be moving towards the new tax regime Education Loan Interest there was no income tax deduction Schemes (ELSS) of mutual funds. material for the insurance industry could mean lesser insurance policy The industry will House Rent Allowance on this scheme, he says he may have face some collateral While a significant part of the in the immediate term but, in the sales which constitutes to be 30-40 then opted to spend some of that population opts for life and health long term, it could have an impact per cent of their business. Leave Travel Allowance money, or invested in an FD. impact of the new insurance to save tax, these policies which remains to be seen. “This is a concerned zone for Standard deduction of Sharma is not alone as a Income Tax regime are crucial for their financial “Firstly, it is a parallel and insurance companies for whom `50,000 wellbeing and opting out of them optional tax structure; the existing the tax benefits were a significant may save them some money in tax incentives for insurance sales magnet. They will simply the short run, but can put them in will continue. The existing tax have to rework on how to regain severe financial risk in case of any incentives play a very important business. Be that as it may, the are different ways that permit one mishappening. role in inculcating a long-term Finance Minister has put across a to save tax on life and medical According to Rahul Agarwal, savings culture of households strong message for the companies to insurance policies. And truth Director, Wealth Discovery and EZ and in funding infrastructure move their focus from tax benefits be told, many citizens purchase Wealth, Finance Minister’s move investments and growth; so we to promoting life security,” says insurance policies just to lessen came as a shock for the domestic believe these factors would have a Amit Sharma, Founder and CEO, their tax outgo to such an extent insurers because when the incentive significant influence if and when a eExpedise Healthcare. that they commit to making to avail the tax exemption is complete phase-out is considered He adds that even when it is expensive investment mistakes. removed, there are high chances by the government in the future,” advised not to utilise insurance Looking at a silverline in that people would not buy he explains. exclusively for tax saving, under the removing the tax incentives, additional insurance coverage. He adds that for most current income tax system there Sharma feels that by removing the “The industry as a whole is taxpayers, foregoing exemptions exemptions in the new tax system, expected to face some collateral is not going to be beneficial as the taxpayers could save themselves impact of the new income tax exemptions under the existing tax from mis-purchasing of insurance regime as the nature of domestic regime are substantial. So they policies. industry dynamics is such that may opt for the old tax regime G MURLIDHAR “The government objective insurance cover is sold and not as long as they have that option. Managing Director, behind doing so is to promote the bought. And in the absence of any Moreover, life insurance is under Kotak Mahindra Life real agenda behind buying policies – Insurance tax incentives, it will be far difficult EEE tax regime, so it is not just protection. The common man could for the insurance agents to push the the deduction available at the time forgo the tax benefit on paying life sale, particularly in the part, which of purchase, but also the receipts Existing tax incentives insurance premiums under section is largely motivated by tax benefits - under the policy that are tax-free are important in 80C to limit their tax liability in lower ticket-size ULIPs and par- under section 10(10D). the new income tax slab structure savings products,” he says. “Also, for customers, insurance inculcating long-term and still buy the same for their life’s Agarwal adds that insurance provides two key benefits – savings culture safety,” he adds.

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EZ Wealth’s Agarwal agrees themselves against unforeseen and adds that for individuals who medical exigencies and not merely DIVYANSHU are genuinely interested in buying TRIPATHI to save taxes. “Therefore in our insurance, things have not changed. opinion, health insurance as an He says that the new age educated CEO and Co-Founder, industry may not necessarily consumer buys insurance for a Easypolicy get impacted as a result of the variety of reasons, the tax incentives revised tax-regime. However, a is one of the reasons but not the Do proper calculation more realistic impact can only only motivation. and draw comparison be assessed only post analysing “Given the long-term nature of how many individuals opt for the insurance products catering to both between the old and regime.” Most industry insiders savings and mortality risk cover new slabs available feel that for short duration, till needs of individuals, the impact on everyone does calculation of their appeal will be limited. People implication of new tax regime are becoming more aware of the with a different sales approach going versus the old on their own income long-term benefits of insurance forward,” Agarwal says. tax, people will be confused and that can play a key role in financial The industry at this point is the impact could be unknown. planning for any individual. In hopeful that a large section of their However, in the short term, the India, there is a general awareness customer base would not opt for impact on insurance products now that in a country where social the new tax regime. They, however, which have some tax saving security is available only to some, maintain that removing tax component will be more compared purchase of health insurance, life incentives given for putting to other insurance products like insurance and term insurance is a money in insurance is a disservice motor, health and term insurance. mandatory requirement for securing to the customers. “As these are pure protection individual financial security as well When it comes to health and asset protection products as for the family,” he explains. insurance, healthcare expenses having no tax saving mindset in In this new alternative are rising annually and at a rate consumer’s mind,” says Divyanshu arrangement of removing tax much higher than the general rate Tripathi, CEO and Co-Founder, exemption there is a lesson for of inflation. The cost of treatment Easypolicy. the industry also, which needs to or medication is becoming a major “All the calculations that I recalibrate its sales pitch. “Going burden on individual budgets. have done on different salary forward insurance should be sold as According to Shreeraj Deshpande, bands, I have seen that savings on a savings and protection tool rather Chief Operating Officer, Future income tax is much better with than a tax saving instrument. India Generali India Insurance Company, old slabs and citizens will end up is a huge market and still has a large health insurance protections need paying more if they go for new pool of populace which is either in- to be perceived as a need by every slabs without exemptions. So, my insured or under-insured, therefore individual rather than being bought suggestion would be to do proper there is ample room for insurers to for tax purposes. calculation and draw comparison grow and thrive their business albeit “In view of the ever rising cost between old and new slabs with of medical expenses we are already and without exemptions before seeing an increased number of opting for any slab or in case help ASHUTOSH persons buying insurance cover. needed to do this then they should SHROTRIYA A person who does not have an consult CAs or financial planners Head-Products and insurance cover should ensure you for the same,” he advises. Business Process, purchase a suitable cover. Persons In India, every incentive should Religare Health who already have health insurance be given to enable people to buy Insurance cover should ensure adequacy of the health insurance and there should cover,” he says. also be an awareness programme Health insurance Ashutosh Shrotriya, Head- to educate people about the as an industry may Products and Business Process, benefits of buying insurance, Religare Health Insurance, feels concludes Nivesh Khandelwal, not necessarily get most individuals buy health CEO, CareCover. impacted insurance to financially prepare [email protected]

9066 Outlook Money May 2020 www.outlookmoney.com General Insurance Made Easy All you need to know about COVID-19 Insurance

Why does it become does not impact the existing all the more important health policies. As per to get an insurance IRDAI, insurers are liable to cover in the current pay policyholders the claims situation? raised for hospitalization The COVID-19 pandemic and medical expenses is a proof that health incurred for the treatment exigency can strike anyone of Coronavirus, if one tests at any time. Therefore, it positive. is important that each of us has access to the best What kind of policies healthcare facilities. If one should customers opt tests positive for COVID-19, for? Should one go for the hospitalization bills Coronavirus-specific will eat into your savings, policy? Lifetime renewability an employee may even be leaving a hole in your A corona-specific policy Wide network of cashless left with no health cover pocket. This is just one will only cover you for the hospitals on choosing to leave the example why a health policy virus when it is prevalent. A trusted health employer and there’s a gap is a wise choice. Further, A regular health policy, on insurance brand in the employment with the a comprehensive policy the other hand, will cover next employer. ensures that apart from you for most viral infections What are the down- Also, if an employee being financially secured, requiring hospitalization. sides of banking on seeks to port from the you get the right treatment Therefore, individuals must the health insurance employer’s group health from the best hospitals. opt for a health policy which policy offered by your policy to an individual best suits their requirements employer? health policy, the How is Coronavirus and ideally, look for the Health covers which individual will be subject being announced as a following in a health plan: employer’s offer their to underwriting guideline global pandemic have Comprehensive cover employees’ are group health of the insurer. In such an impact on existing with ample Sum Insured policies. Under such policies instances, the individual is health insurance Cover for expenses if the employer decides to required to declare the past covers? arising from critical discontinue the insurance medical history and may While Coronavirus has been illnesses and pre-existing cover and the employees have to undergo pre-policy declared as a pandemic diseases do not have their own health checkup, before by the World Health Minimum or No sub- individual policy; they will be being allowed to port into Organization (WHO), this limits on room rent left with no cover. Similarly, an individual health policy.

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*Terms & Conditions Apply. Coverage & benefits as per the policy & plan opted for. HDFC ERGO General Insurance Company Limited. IRDAI Reg. No.146. CIN: U66030MH2007PLC177117. Registered & Corporate Office: 1st Floor, HDFC House, 165-166 Backbay Reclamation, H. T. Parekh Marg, Churchgate, Mumbai – 400 020. For more details on the risk factors, terms and conditions, please read the sales brochure/ prospectus before concluding the sale. Trade Logo displayed above belongs to HDFC Ltd and ERGO International AG and used by the Company under license. UIN: my:health Suraksha - HDFHLIP20049V041920, Health Suraksha- Revision - IRDAI/HLT/HDFCERGO/P-H/V.II/158/15-16, Health Suraksha Top -Up - IRDA/NL-HLT/HDFC-ERGOGI/P-H/V.I/115/13-14, my:health Medisure Classic Insurance - IRDA/NL-HLT/L&TGI/P-H/V.I/249/13-14, my:health Medisure Super Top Up Insurance - IRDA/NL-HLT/L&TGI/P-H/V.II/31/14-15, HDFC ERGO Hospital Cash Insurance - IRDA/NL-HLT/HDFC-ERGOGI/P-H /V.I/126/13-14. UID: 4342 Savings

have to adjust to,” says Neha Kirpal, Mode To Access Various Assets Salt Away Shillings For Rainy Days co-founder of a mental health platform, InnerHour. Type of Asset Mode to access Availability Quick look at certain thumb rules to ensure financial readiness during emergency “Especially for bread earners, an inability to provide for their family Cash Safe Storage 24 x 7 in a consistent way has created T + (1 To 2) Working Cheque By Dipen Pradhan levels of psychological damage, and Days Liquid Bank Balance many have developed insomnia NEFT/RTGS Working Bank Hours hradha Rastogi had been and eating disorders because of the mulling to move to a new anxiety,” she adds. IMPS/UPI 24 X 7 apartment at Lajpat Nagar in Maintaining personal finance Equity Stock Broker T + (2) Working Days SNew Delhi when the government in place will be an acid test as we announced the lockdown 1.0. face uncertainties induced by the Equity Mutual Funds Investment Account T + (2) Working Days The 23-year-old professional was Covid-19 pandemic. While the T + (1 To 2) Working Debt Mutual Fund Investment Account working from home as much of the virus has had a profound impact on Days country prioritises social distancing both investment and expenditure, Gold Safe Storage Working Hours amid the novel Coronavirus it is the time to restructure the outbreak. But a week later the budgeting practice as we enter the Real Estate Direct/Broker Weeks to Months company sent an email asking her, new normal. Source: Finzy along with 30 to 40 per cent of The rule of thumb is to be employees, to leave without pay for financially safe not only for the sake three months. of accumulating wealth, but also Jain, co-founder, Groww, says. Shocked and panic-stricken, setting aside some reserves as liquid Fund managers opine that an Balancing personal Rastogi is worried if she will get assets that can immediately be used individual should have a separate her job back as the company has to convert as cash-in-hand during fund to cover a lean period in life, finance is an acid test not given any assurance till now. emergencies. An emergency fund is which may happen in 18 months, amidst the pandemic However, she had been saving close parked for immediate requirement 20 months or in 10 years of your to 10 to 15 per cent of her salary – to cover expenses that tails along life. Also, goal-oriented savings your salary every month, and not decent enough to sustain a living during dire needs. might help you out in case any make the best of the returns, and for a few months without a source Although Rastogi’s savings with a third-sort of emergency takes place. keep it as liquid funds. You would of income. private bank was not an investment, Then it raises a question as to what want to keep a certain corpus Because the government it will be sufficient to cover her percentage of income should an linked to your current standard of announced the lockdown all of a monthly expenses such as rent, individual allocate for emergencies? living and also link it to inflation by sudden, like Rastogi many were ration for a few upcoming months. Sharing his views on the same, continuing to add five per cent or unprepared. Millions of Indians However, investments instruments, Lalit Mehta, co-founder, Decimal six per cent every year, depending are now facing financial strains, such as mutual funds, offer Technologies, says, “I would peg it on inflation,” Mehta says. whether in the form of unexpected redemption even before the asset’s to inflation-linked absolute money, Over the past few weeks, the medical costs, losing a source of maturity date, while generating because for an emergency, you really Covid-19 induced uncertainties income or seeing their savings interest on the principal amount. do not want to save 10 per cent of caused many investors anxious plunge amid the outbreak. Also, funds parked in fixed deposits about whether to sell or buy stocks Needless to say, the pandemic can be used as liquid assets during in the markets, while gold and and its effects have started taking an emergency; however, equities are government bonds fared relatively a toll on people’s mental wellbeing high-risk instruments. well, equity markets, mutual as well. “Stocks are also a form of liquid AMIT MORE funds—whether small, mid or large “When we look at it from a asset but you do not want to invest cap— credit risk funds, real estate psychological point, I think the your money as emergency funds, Founder and CEO, have seen a sizable volatility. Finzy first response to the lockdown because there is a lot of volatility “This uncertainty and volatility has certainly been of panic. While similar to equity MFs. Debt bonds can be unnerving for many. some are trying to figure out their also do not have liquidity, so you Quality stocks can be Investments are typically meant to personal finance, there is a longer can have fixed deposits or recurring accrued; but remember, be long term and the same applies term which I am worried about are deposits as you would not mind to investments in stocks and mutual existential questions and concerns losing a few percentages in returns not too many catch the funds. One needs to be selective in about the new normal that we will during times of emergencies,” Harsh price curve’s bottom selling. Quality stocks can surely

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76 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 6977 Savings

be accumulated, but remember not too many catch the bottom of the price curve,” says Amit More, founder and CEO of Finzy. Although it is best to avoid leveraging your income beyond your means in these uncertain times, salaried professionals can opt to avail short-term personal loan through smartphones- enabled fintech lending companies. These companies provide short term unsecured loans provided the applicant submits last three months salary slips, bank statements, joining- letter from the company, along

with documents such as Aadhaar rate: Try to borrow at card, pan card or voters’ ID. the lowest interest rate NEHA KIRPAL However, if you need to borrow available. Interest rates in the for any unplanned expenditure or economy are at benign levels, Co-founder, cash flow mismatch, here’s what to and credit might become InnerHour keep in mind, as told by More: expensive as banks may try to Reducing Balance Vs Fixed: cover the NPA losses. For many, the inability Loans should be reducing Lock-in Clause: Make sure to provide for their balance loans and interest rate there are no lock-in clauses should not be charged on fixed in the loan terms. You might family consistently, principal. be stuck with the loan longer has led to anxiety Fixed vs Floating Interest than you desire. Pre-payment Charges: Ensure that you have Loan Against Securities-Rates and Charges complete flexibility of prepayments in part or in full Name of Lender Interest Rate Processing fee and without any charges. Hidden Charges: Ensure 0.15% of loan amount Axis Bank 10.5%–12.75% there are no hidden charges (Minimum 1,000) ` like documentation charge, UCO Bank 10.70% `250 legal charge, franking charges, etc. 0.15% of loan amount Insurance Coverage Federal Bank 12.5%–13% : (Minimum `150) If you have ample term IIFL 12%–18% 0.25%-1% of amount life insurance cover, you can negotiate to avoid any Tata Capital 10.5% onwards Upto 1% of loan amount optional insurance covers. Premium amounts are Indian Bank 10.95% 0.308% of loan amount typically high in such covers. Kotak Mahindra Bank 9.25%–13% Upto 2% of loan amount Online vs Offline Loans: Social distancing should Citi Bank 10.75%–13.25% Upto 1% of loan amount be top priority; so digital Canara Bank 13.85% `100-250 processes are better than physical ones. Source: Paisabazaar.com [email protected]

7870 Outlook Money May 2020 www.outlookmoney.com Investutorial

Battling The Black Swan DEVANGSHU DATTA How should investors come to terms with the global pandemic

n the realm of economic slang, a black swan is an Businesses will recover even if they go through long event that is utterly unexpected until it happens. periods of stress. Sectors like tourism and hospitality, The metaphor appeared in 17th century when will have to cope with abnormal changes in consumer EuropeansI discovered black swans in Australia. Until behaviour. However, the global economy will then they believed that the the world has only white eventually bounce back. It always does. swans. The coronavirus or COVID-19, is a black swan. There will also be new opportunities. Given that The world has often been swept by lethal millions are working from home, there is likely to epidemics like Ebola, H1N1 (Swine flu) and severe be investment into tools that enable working from acute respiratory syndrome or SARS—21st century home efficiently. Figuring out how to deal with the successors to Spanish Flu (1918) and smallpox. There next pandemic will also mean that labour-intensive are dozens of infectious, but less deadly diseases, industries might arrive at more sanitary ways to run like the common cold and flu. However, contagious businesses. The entertainment and sports industry will diseases like the flu and cold have low mortality rates. find better ways to deliver content remotely. There will Now, the coronavirus is an all-rounder. It is less be real-time reviews of public-transport systems, of deadly than Ebola but 10-30 times deadly than the flu healthcare, and many other sectors. and of course infectious. If the stock market dips further, consider buying By the time you read this column, we will have a more. Historically, the Nifty and Sensex has rarely better sense of the impact on the global economy. fallen below an average Price Earning (PE) of 15. The But the disease has already triggered a worldwide current PE is about 20, and given poor results in the recession. Billions in lockdown for weeks equals severe next six months, the market should fall more. But economic damage. Many people will soon be out of it will rebound. If you hold SIPs, let them continue work. Factories are shut; farms are not being able to as they reduce average cost of acquisition and boost sell produce and non-essential services are locked eventual returns. down. When the lockdown eases, there will be a If you wish to create hedges, there are two options— hangover caused by low demand because unemployed gold and short-term commodities. The painless way people spend less. to invest in the former is through exchange traded In late March as this column is being written, funds. But you can also buy the physical metal, or nobody knows how long this will last. That is why invest in NBFCs, which offer loans against gold. Gold financial markets are going crazy. Investors constantly is usually a safe haven during periods of crisis as it look for a sense of the future and a black swan makes it could preserve value during a long recession. Second, unpredictable. consider short-term trades in commodities if you can There is one primary rule to investing in such handle high risks and volatility. situations: do not panic. The stock market has fallen Epicentre of COVID-19, China, is also a global and it is likely to fall more. The rupee has nose-dived. industrial hub. Since its huge domestic market was As a professional you are likely to go through hard shut down, as a result, industrial metals and petroleum times for sure. have been sold down. However, while the crisis in But, do not panic. The world has survived more fatal China is easing off, it is getting worse in the rest of the pandemics. It will survive this one and will make the world. Once that giant economy starts functioning changes required to cope with the next such pandemic. properly again, there could be a rebound in metals and other commodies. All we can do is to remain optimistic and await recovery. Until that happens, stay home, stay safe! Do not panic; economy will The author tracks economic, behavioural and corporate trends, bounce back, it always does hoping to gauge good avenues of returns

46 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 71 Losing Interest Cushioning Impact Of Rate Cuts Retirement Bucket Strategy Bucket 0 Bucket 1 Bucket 2 Bucket 3 Bucket 4 Tweak your investment strategy, invest in liquid schemes and opt for Systematic Transfer Plans This is called as This is for all the This is for all the running This is for all the This is for all the emergency bucket. running expenses expenses that you will expenses that you expenses that you Your monthly expenses that you incur need from 37th month- will need from 73rd need from 121st month What is this for nd th th x 24 months expenses ever month 72 month or from 4 month to 120 onwards, that is 10 By Anagh Pal money should be for the next 36 year to 6th year which is month which is 48 years from now parked here months or 3 years 36 months months he world grapples with When this Only during medical 1st month – 36th 37th month – 72nd month 73rd month – 120th 121st month onwards COVID-19 pandemic with money should emergencies. Not for month month economy facing one of the be used regular expenses steepestT challenges since the Great Where should Joint SB account/ Joint SB account Senior citizen savings Dynamic asset Large cap mutual fund, Depression. While governments this money be Liquid funds/ Bank and Liquid funds scheme, Debt mutual allocation funds multicap an hybrid are announcing stimulus packages, invested fixed deposits funds, fixed deposits mutual funds central banks all over the world are To be refilled from any Refill from bucket Refill from Bucket Refill from bucket This bucket won’t get How to refill the of bucket no.1,2,3 number 2 number 3 number 4 refilled as it supplies lowering interest rates because they buckets when want more money in the economy to bucket 1,2,3,4 when money exhausts they becomne empty to spur demand. The Reserve Bank of India (RBI) too has lowered the Source: Grow Wealth; Note: 1) This strategy has to be followed only after checking the risk profile of the investor 2) This strategy should be done by taking professional help reverse repo rates from 4 per cent to 3.75 per cent. “As per the recent to lower compounding. So if the rate environment will lead to lower DEEPESH announcements by the RBI, we can financial goals are longer, then there inflation. If their entire portfolio MEHTA expect a further cut in the interest would be shortage of funds when beats inflation, then the impact Founder and CEO, rates in the near future. The RBI the goal is in front of you,” says is minimal. If the return on their Grow Wealth and is trying to maintain adequate Deepesh Mehta, Founder and CEO, investment is 7 per cent and if Author, Power Your liquidity in the system and ease Grow Wealth and Author, Power inflation is 6 per cent, they are in a Child’s Financial Future the inflationary pressure on the Your Child’s Financial Future. comfort zone. However, if their net economy,” says Harsh Jain, Co- He says that to mitigate the risk, investment return post taxes is 5 For longer financial founder and COO, Groww. one should explore the alternative per cent and inflation is above that, “Interest rates are likely to asset class, which would benefit they need to look for an alternative goals there would be remain low for at least the next 3 from falling interest rates. One does strategy to overcome this problem. shortage of funds with months. Thereafter, depending on not need to change asset allocation (See Retirement Bucket Strategy) low interest rates the containment of the virus and if goals are near. But if their goals “FDs and RDs have a fixed resumption of economic activity, it are long term, then as per the risk interest rate for the entire tenure. is possible that RBI may slowly start VK Vijayakumar, Chief Investment term average over the next 1-2 years. profile, they should shift the money Hence, senior citizens who had portion of their funds in a liquid tightening and interest rates may Strategist at Geojit Financial “We recommend to use a higher mix to alternatives that are available invested earlier when the interest scheme and starting a Systematic go up, but only marginally. There Services. of equity in the portfolio for long today. One should also have an rates were higher will get the Transfer Plan (STP) for investing is no clarity on this presently,” says However, one needs to term goals. One can invest in equity exposure to equity as per as the promised returns. Those making in an equity fund that invests in understand that one should not mutual funds through the SIP mode asset allocation. fresh investments will face the heat blue-chip companies that pay high focus on nominal interest rate, or in lump sum on a staggered basis,” However, lower interest rate may of the currently lowered interest dividends. They can talk to their but on the real interest rate. “This says Sousthav Chakrabarty, CEO, and pose a challenge to senior citizens. rates. This is likely to affect some investment advisor and restructure is because if the inflation is high, Director, Capital Quotient. 2019 was already a year of rate cuts of the people in the short term but their portfolio to meet the regular even if the nominal interest is high, If someone’s financial goals are very and with COVID-19, the returns we don’t see this being a long-term income requirement,” says Jain. HARSH JAIN your real interest rate may be low near, say two to three years, this fall in on fixed deposits will experience a problem,” says Chakrabarty. Shekhar suggests an equity Co-founder and because your purchasing power goes interest rates would not affect them noticeable drop. Since interest rates are falling and exposure to an index fund even COO, Groww down,” says Vidhu Shekhar, Country much and they should continue with Says Mehta, “For senior citizens are expected to fall further, retired after retirement to make up for their Head, CFA Institute. their deposits which they hold. and retired people they depend on individuals can consider rebalancing losses for a fall in interest rates. Retired people can park Long-term goals are unlikely to “But for someone whose financial interest income for their regular their investment portfolios. “Ideally, one should never reduce a small portion of fund be affected by the current macro goals are 7 to 10 years away and if they expenses. A falling interest rate They can start looking at other one’s equity allocation to zero. It factors that have caused slump in have invested in a low yield deposits, scenario puts less money in their investment avenues within their risk is also important to have the right in a liquid scheme and both debt and equity as both are then the impact would be severe. This pocket for spending.” However, tolerance to ensure regular income. advice,” he concludes. start an STP expected to return to their long- is because low interest rates will yield on the other side, a falling interest “They can consider parking a small [email protected]

5672 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 57 Losing Interest Cushioning Impact Of Rate Cuts Retirement Bucket Strategy Bucket 0 Bucket 1 Bucket 2 Bucket 3 Bucket 4 Tweak your investment strategy, invest in liquid schemes and opt for Systematic Transfer Plans This is called as This is for all the This is for all the running This is for all the This is for all the emergency bucket. running expenses expenses that you will expenses that you expenses that you Your monthly expenses that you incur need from 37th month- will need from 73rd need from 121st month What is this for nd th th x 24 months expenses ever month 72 month or from 4 month to 120 onwards, that is 10 By Anagh Pal money should be for the next 36 year to 6th year which is month which is 48 years from now parked here months or 3 years 36 months months he world grapples with When this Only during medical 1st month – 36th 37th month – 72nd month 73rd month – 120th 121st month onwards COVID-19 pandemic with money should emergencies. Not for month month economy facing one of the be used regular expenses steepestT challenges since the Great Where should Joint SB account/ Joint SB account Senior citizen savings Dynamic asset Large cap mutual fund, Depression. While governments this money be Liquid funds/ Bank and Liquid funds scheme, Debt mutual allocation funds multicap an hybrid are announcing stimulus packages, invested fixed deposits funds, fixed deposits mutual funds central banks all over the world are To be refilled from any Refill from bucket Refill from Bucket Refill from bucket This bucket won’t get How to refill the of bucket no.1,2,3 number 2 number 3 number 4 refilled as it supplies lowering interest rates because they buckets when want more money in the economy to bucket 1,2,3,4 when money exhausts they becomne empty to spur demand. The Reserve Bank of India (RBI) too has lowered the Source: Grow Wealth; Note: 1) This strategy has to be followed only after checking the risk profile of the investor 2) This strategy should be done by taking professional help reverse repo rates from 4 per cent to 3.75 per cent. “As per the recent to lower compounding. So if the rate environment will lead to lower DEEPESH announcements by the RBI, we can financial goals are longer, then there inflation. If their entire portfolio MEHTA expect a further cut in the interest would be shortage of funds when beats inflation, then the impact Founder and CEO, rates in the near future. The RBI the goal is in front of you,” says is minimal. If the return on their Grow Wealth and is trying to maintain adequate Deepesh Mehta, Founder and CEO, investment is 7 per cent and if Author, Power Your liquidity in the system and ease Grow Wealth and Author, Power inflation is 6 per cent, they are in a Child’s Financial Future the inflationary pressure on the Your Child’s Financial Future. comfort zone. However, if their net economy,” says Harsh Jain, Co- He says that to mitigate the risk, investment return post taxes is 5 For longer financial founder and COO, Groww. one should explore the alternative per cent and inflation is above that, “Interest rates are likely to asset class, which would benefit they need to look for an alternative goals there would be remain low for at least the next 3 from falling interest rates. One does strategy to overcome this problem. shortage of funds with months. Thereafter, depending on not need to change asset allocation (See Retirement Bucket Strategy) low interest rates the containment of the virus and if goals are near. But if their goals “FDs and RDs have a fixed resumption of economic activity, it are long term, then as per the risk interest rate for the entire tenure. is possible that RBI may slowly start VK Vijayakumar, Chief Investment term average over the next 1-2 years. profile, they should shift the money Hence, senior citizens who had portion of their funds in a liquid tightening and interest rates may Strategist at Geojit Financial “We recommend to use a higher mix to alternatives that are available invested earlier when the interest scheme and starting a Systematic go up, but only marginally. There Services. of equity in the portfolio for long today. One should also have an rates were higher will get the Transfer Plan (STP) for investing is no clarity on this presently,” says However, one needs to term goals. One can invest in equity exposure to equity as per as the promised returns. Those making in an equity fund that invests in understand that one should not mutual funds through the SIP mode asset allocation. fresh investments will face the heat blue-chip companies that pay high focus on nominal interest rate, or in lump sum on a staggered basis,” However, lower interest rate may of the currently lowered interest dividends. They can talk to their but on the real interest rate. “This says Sousthav Chakrabarty, CEO, and pose a challenge to senior citizens. rates. This is likely to affect some investment advisor and restructure is because if the inflation is high, Director, Capital Quotient. 2019 was already a year of rate cuts of the people in the short term but their portfolio to meet the regular even if the nominal interest is high, If someone’s financial goals are very and with COVID-19, the returns we don’t see this being a long-term income requirement,” says Jain. HARSH JAIN your real interest rate may be low near, say two to three years, this fall in on fixed deposits will experience a problem,” says Chakrabarty. Shekhar suggests an equity Co-founder and because your purchasing power goes interest rates would not affect them noticeable drop. Since interest rates are falling and exposure to an index fund even COO, Groww down,” says Vidhu Shekhar, Country much and they should continue with Says Mehta, “For senior citizens are expected to fall further, retired after retirement to make up for their Head, CFA Institute. their deposits which they hold. and retired people they depend on individuals can consider rebalancing losses for a fall in interest rates. Retired people can park Long-term goals are unlikely to “But for someone whose financial interest income for their regular their investment portfolios. “Ideally, one should never reduce a small portion of fund be affected by the current macro goals are 7 to 10 years away and if they expenses. A falling interest rate They can start looking at other one’s equity allocation to zero. It factors that have caused slump in have invested in a low yield deposits, scenario puts less money in their investment avenues within their risk is also important to have the right in a liquid scheme and both debt and equity as both are then the impact would be severe. This pocket for spending.” However, tolerance to ensure regular income. advice,” he concludes. start an STP expected to return to their long- is because low interest rates will yield on the other side, a falling interest “They can consider parking a small [email protected]

56 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.comwww.outlookmoney.com MayMay 2020 2020 Outlook Money 7357 Fintech Watch

purchasing the desired product, make Chapman, its CEO. Keeping this target payment using the given credit limit. We believe in providing audience in mind, the platform aims Making Millennials Creditworthy On the other hand, when it comes at benefiting over 5,00,000 potential to availing personal loans, what affordable, digital, small students. “The financing can be availed ZestMoney is helping people avail loans despite a low or no credit score users will have to do is other than, ticket consumer credit at zero interest cost, making higher login, registering and sharing KYC education affordable for everyone,” she documents, shop something from any A survey conducted by adds. In order to realise this goal, the By Sampurna Majumder and Ashish Ananatharaman, the trio ZestMoney is the ease of process. All one of the partner e-commerce sites ZestMoney last year, reveals that 20 tech company has already tied up with first met while working at Wonga—a that a user needs to do is to login and and make consistent repayments. per cent education loans were availed online educational platforms such as s an age cohort, millennials London-based payday loan provider. register at the site with a vaild email This way the user will be eligible to by women whereas men comprised GreatLearning, BITS Pilani, UPGrad fall within the bulge bracket Later when Chapman moved to adress, complete his or her profile, avail a loan. Depending upon the barely six per cent within the same. and Springboard. of India’s earning populace. India, the three met yet again only to check for the relevant scredit score requirement, the fintech may ask its The research also found that average When it comes to geographical AHowever, when it comes to managing zero in on a certain business idea and and then proceeed with whatever customers to set up the repayment loan amount for women is 35 per reach of its customers, ZestMoney has their finances Indian millennials then the rest, as they say—is history. her personal requirement is. What based on his or her risk profile. cent higher than men. In 2019, the no barriers. While most of its current somewhere miss out on major However, unlike Wonga and its ilk, sets apart the fintech firm are its two Sharing more about ZestMoney’s average amount of EMI financing clientele hail from Tier I cities, other pointers. Yes. In an effort to realise ZestMoney is very much a consumer- major services—shopping and direct customer base, its founders state that, taken by women were around Rs cities are also fast picking up. Within their life goals, they often look for centric loans company. That is to say payment at e-commerce platforms while there’s no age bar in terms of 20,000, whereas for men the amount a span of three years, ZestMoney has loans despite a low credit score. And that it works with consumers who and of course availing short-term the target audience, however, most of was `15,000. already brought in 10,000 pin codes numbers of such individuals are have no credit card, limited credit loans sans the major paperwork. their customers happen to be young One of the major segments, that under its ambit with further plans increasing with each passing day. history and often very little assessable Let us understand, how the professionals within 35. While both ZestMoney has been able to leverage of expansion. As far as visitors are Tapping into this very data, to help them build a profile and two services work. In case of the men and women form a large base upon is the education loans segment. considered, on a daily basis, the website demographic space, Bangalore-based become ‘creditworthy.’ Operational former, a user will have to login, of customers, of late the percentage “Young professionals aspiring for registers in thousands, at times closer fintech company ZestMoney has since 2016, the firm has successfully register, complete the profile, upload of the latter has increased to a higher education often face a dearth to a lakh. “Every day, almost 20,000 been successfully lending out the disbursed crores of short-term loans documents such as an identity and great extent. In fact, in certain loan of financial assistance. This is because customers apply for loans on our required financial support to lakhs to thousands of Indians. address proof, and start using the segments, such as education loans, mostly, it comes with a premium platform,” says Ananatharaman, who of millennials and Gen Z. Speaking One of the biggest benefits credit limit across ZestMoney’s women customers have surpassed attached, making the decision serves as the fintech’s chief technology to Outlook Money, the fintech’s of availing small loans through thousand merchant partners; after their male counterparts substantially. tougher than it ought to be,” says officer. Till now, ZestMoney has served founding trio say, “We believe in over six crore customers and by the providing affordable, digital, small end of 2019, the tech company almost ticket consumer credit to the masses.” hit the `4000 crore mark in terms of They further go on to mention that, Priya Sharma, ZestMoney Flash Facts annual run rate. a certain data share by the Reserve Lizzie ChaPman While ZestMoney is successfully Bank of India, states that annually, and aShiSh achieving its original goal settings, they roughly 4.5 crore credit cards are ananatharaman are also well aware of responsibility issued in India annually. However, a towards the society. Though the lot of duplicity is often reported in Founded company is yet to weave in a full- the process. fledged corporate social responsibility Given the duplicity and dormancy, 2016 program, they do their bit in ways such that suggests around two crore as volunteering with local government people are actively using credit cards schools where they help students (maybe less), which is less than five Location understand the importance of financial per cent of the adult population, education from an early age. a minuscule number in a global Bangalore Believing in the dictum that there context. At the same time, UPI is no short cut to success, ZestMoney adoption is skyrocketing and we wants to become the most-loved believe more than 40 crore people Return Visitors brands in India within the fintech are transacting and interacting online space. Their hard work has already today. For these people, a new form 50% started reflecting the desired results. of finance is needed, they further add. While it received the Fintech of the “This is what we focussed (new form Year award in 2017 by India Fintech of finance) on and hence decided Funding (so far)) Forum, Entrepreneur India named to leverage,” says Sharma, chief $57 million ZestMoney as one of the 50 Start-ups operating officer, ZestMoney. to look out for in 2019. Priya Sharma, Lizzie Chapman [email protected]

74 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 75 Fintech Watch

74 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 75 EMI Moratorium

they should continue to pay their Discovery, and EZ Wealth says that Resolving The Installment Dilemma EMI installments during these the guidelines issued by most of three months as well. The verdict the banks and NBFCs mention that ARCHIT GUPTA Think carefully before you opt for any loan moratorium as it would only lead to a higher liability is not completely straight-forward. unpaid interest amount on the loan The moratorium would make account during this moratorium Founder & CEO, sense for those individuals whose period will be capitalised, that is, Clear Tax capacity to pay their EMIs has been added to one’s outstanding principal substantially hit. Those who can amount. Also, few lenders have People who do not have pay their EMIs comfortably should stated that the EMI will remain the liquidity for the next continue to do so as opting for a same as original and the loan tenure moratorium would only add more will be adjusted accordingly. three months, must liability for them. For example, Bajaj Finance has avail the moratorium Explaining this, Archit Gupta, issued a communiqué which states, Founder, and CEO, ClearTax, says that to keep one’s instalment at the opt for the moratorium or continue that if an individual avails a housing current levels, the tenure of their their EMI payments. However, it loan of `50 lakh at an interest loan will be enhanced accordingly, entirely depends on the certainty of rate of 8.5 per cent in March and Agarwal explains. having a regular income for the next decides to opt for the moratorium, “As a result, while their EMI three months. As far as we know, then the principal amount after amount will remain the same, the we are not aware if the pandemic the first month of the moratorium amount of interest cost on the loan has hit bottom or not. Availing the would increase by `35,000 bringing will increase due to the extension of moratorium can be the right choice for the outstanding loan amount to the remaining tenure. Some other people who do not have an adequate `50,35,000. And since he would lenders have issued statements that amount of liquidity for the next three incur compounded interest, the the loan tenure will be shifted by months. For those who are doubtful interest applicable for the second only three months but the EMIs about their income during the next and third months would be even will be recalculated to adjust the three months, borrowers can consider higher. At the end of the moratorium interest portion outstanding during opting for the moratorium for a month period, the total amount payable the moratorium period. Individuals and then decide whether to continue would have increased by `1.07 lakh. are therefore advised to contact the benefit or not, depending on the Now after the end of the their lenders and understand what situation,” Gupta explains. moratorium period, depending on are the options that have been made Ravindra Sudhalkar, CEO, Reliance the bank, the borrower can either available to them,” he suggests. Home Finance, also feels that the pay this interest amount upfront, However, this moratorium can be moratorium facility should be availed can pay higher EMIs, or would have a massive relief for the self-employed only if there is any possibility of non- to pay EMIs for a longer duration borrowers since their income has payment of EMIs due to loss of income as interest would accrue on this taken a hit due to the lockdown in or disruptions in cash flow during the By Vishav whose finances have been affected installments that are due for payment increased amount every month. For the wake of the novel coronavirus period between March 1 and May 31 by an unprecedented nationwide till May 31, 2020, without any penalties instance, in the given example, for pandemic, says Gupta. and that people with steady income ith the whole nation lockdown. However, coming to their or any impact on their credit scores. a loan tenure of 30 years, the extra “Borrowers can either choose to sources should continue to pay their under lockdown to slow rescue, the Reserve Bank of India Loans ranging from home loans, interest to be paid would amount EMIs as per their current plan. down the exponential instructed banks to grant an optional personal loans, car loans, corporate to around `3 lakh for someone “Banks and financial institutions Wspread of the novel coronavirus three-month moratorium on all loans, agriculture loans, and even who opts for the moratorium if have been allowed to come up (COVID-19), businesses have been outstanding loans to all borrowers credit card loans availed from they increase the EMI amount with their own set of norms for hit which has led to a disruption on their EMIs. commercial, regional, rural, NBFCs, keeping the loan tenure same. The SOUSTHAV implementation of the moratorium of financial liquidity for a lot of This essentially means that and small finance banks come under increase in EMI would only be `822 CHAKRABARTY option for specific loans. Since the people. Things may have become borrowers can defer their EMI this scheme. However, those availing per month. The scenario becomes CEO & Director, interest accrued during the period is especially worse for those who this optional moratorium would have worse for someone who decides Capital Quotient to be collected only after the end of have taken loans of one or the to pay the interest for this additional not to increase the EMI amount the moratorium period, banks and other kind had it not been for the three-month period. because in such a case, the tenure Customers affected financial institutions are generally RBI’s intervention. Paying Equated Those who can pay Due to this, many questions have of the loan would increase and one by COVID-19, have to recalculating the EMIs by adding Monthly Installments (EMIs) of arisen among people regarding would end up paying extra interest the accrued interest to the principal those loans would have been a their EMIs comfortably whether it makes sense for them to worth over `9.5 lakh. contact their lender amount and also increase the tenure nightmare for some of the borrowers should continue to do so opt for this moratorium or whether Rahul Agarwal, Director, Wealth bank for more clarity of the loan as per the period of

6076 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 61 EMI Moratorium

60 Outlook Money May 2020 www.outlookmoney.com www.outlookmoney.com May 2020 Outlook Money 7761 EMI Moratorium

Loan Moratorium - Things To Know has formulated its policy to offer this EMI holiday facility to its customers, The moratorium is an option to suspend payments people should check with their Interest would continue to accrue on all outstanding loans banks first. Those with sufficient cash flow should continue to pay EMIs “If given a choice, it would be better Those who are cash strapped or are staring at job loss for people to add the additional interest should opt for it amount in the total amount payable Prioritise obligations, continue to pay high-interest to the bank and repay it in parts along loans like credit card bills with the EMIs. This will ensure that they do not take the additional load of Ask the bank about how it would affect your EMI trying to repay the interest and bring amount and loan tenure their repayment schedule back on If you avail the moratorium, make some bulk payment track. A situation like a pandemic can and increase EMI amount whenever cash flow take some time to be brought under situation eases control. Therefore, people should avoid making an upfront payment,” he says. While the moratorium is available moratorium,” he advises. inform the bank that they do not on all term loans and credit cards, Jain Sudhalkar added that since require it. Some other banks decided recommends avoiding taking the EMI part and full loan repayments are to leave it to the customers to opt moratorium on credit card payments allowed in all variable rate home for the facility barring which their since in such cases, credit card loans without any penalty, anyone EMIs would be deducted in a normal outstanding will jump higher over the who avails this moratorium should fashion. So, customers affected by three months of the moratorium due to make some bulk payment whenever COVID-19 and unable to pay their very high-interest rates. the cash flow situation eases to liability, have to contact their lender “You can opt for a moratorium on ensure he or she does not pay a huge bank for more clarity on terms and other term loans like home loans, and amount of extra interest on the loan. conditions,” Chakrabarty says. personal loans,” he says. Salaried individuals who do not The important thing to According to EZ Wealth’s Agarwal, have any impact on salary should not understand here is that this is not if one is short of cash flow to meet all defer the EMIs. For self-employed, an EMI waiver, warns Harsh Jain, of the financial obligations, they need even if the cash flows are impacted, Co-founder, and COO, Groww. to prioritise the obligations, continue if the EMI amount can be paid Usually, when people hear about to pay those which have the highest comfortably, one must not opt for the government extending benefits negative impact on their future the moratorium. during the time of crisis, a waiver is cash outflows. While the RBI governor a natural assumption. Hence, people “For example, your first priority announced the moratorium facility must remember that the RBI has should be to pay your credit card mandating it for all banks to give only allowed the banks to offer an outstanding on time after that if this option to their borrowers, the EMI deferment – not waiver. you have leftover funds you should apex bank left it to each bank to According to Jain, since each bank pay other unsecured loans which formulate its policy around the carry higher interests and then think same. This has also led to some of paying the EMI on term loans complexities and confusions as outstanding. While the burden different banks decided to go their could be manageable for home loan way in implementing this facility, borrowers given the prevailing benign Sousthav Chakrabarty, CEO, and HARSH JAIN interest rate regime, this may not be Director, Capital Quotient, says. CO-founder & COO, the case with credit card users. Being “For instance, some banks decided Groww unsecured loans, the interest charged to give a default moratorium option is exorbitant, which can be upwards of to all its home loan customers RBI has only allowed 40 per cent per annum in most cases indicating that even if one can banks to offer an and could balloon to an unmanageable pay the EMI, they would get the amount if you do not make attempts to moratorium on their loan and the EMI deferment, clear the dues,” he concludes. onus would be on the client to not waiver [email protected]

6278 Outlook Money May 2020 www.outlookmoney.com Investsense

Doubt Till You Find The Light SANDIP MUKHERJI Common misconceptions need to be cleared regarding mutual fund investments

or some of my clients receiving quarterly will have to pay tax on it as per the tax slab. While profits from mutual funds is a high, which it is good for one who falls within low or nil tax is a proof that their investments are yielding slabs (as the dividends will be tax-free or at very Fresults. In reality they might not be in need for low tax incident) investors falling under a high funds; however, they feel good to receive the tax slab (say 30 per cent plus surcharge) the tax on amount of money at regular interval in their bank dividends will be expensive. High-income group account. I am at my wits end with such clients investors will now be better off in growth options explaining that their principal is growing at a very rather than toy around with a dividend option. In slow pace within a dividend plan, defeating the growth option the investor will have to pay 10 per purpose of investing for capital growth. Albeit cent tax on the gains on redemptions that too the most of these clients invest these dividends first `1 lakh gain is exempted. Therefore, dividends into mutual funds after six months but they do not make sense as compared to growth options. do not seem to have understood the power of However, if one needs the dividends periodically as compounding, which works wonders in a mutual a supplement to one’s income say after retirement, fund in a growth plan. They have argued many then I would rather recommend a Systematic a times saying that a bird in hand is worth two Withdrawal Plan. This is more tax efficient and the in a bush. In other words, my clients maintain capital would also grow alongside. that the hard cash in bank account is a tangible Second, I will address the issue of a lower NAV profit whereas the growth in the Net Asset Value being cheaper than a higher NAV in a mutual (NAV) of the fund is intangible and is therefore of fund. This is a very common fallacy in the investor no consequence. I am penning this article with a community. Let’s say fund A has just been launched hope to try and address this issue. in a new fund offer (NFO) and has a NAV of `10 Yet another issue, which I try making investors per unit like in the case of every NFO and fund B understand (often in vain) is that NAV of a fund has been launched five years back and has a NAV of is not an indicator of how cheap or expensive `15 per unit. that fund is. These are two fundamental points of Logically, the NAV of fund A is lower than mutual fund investments but at times we need to fund B and hence is cheaper. Well, in this case the brush up our basic knowledge in terms of mutual assumption is wrong because fund B has been in fund investments. existence for a longer period and hence its NAV is Budget 2020 abolished the dividend distribution different. tax deduction by the fund houses. Now the onus The NAV pricing has no bearing to the future of paying the tax is on investors. Earlier no matter, performance of the funds. Performance can be which tax slab investors used to be in, the fund compared of funds in similar periods regardless houses would deduct 10 per cent along with of the NAVs. Always choose a fund on the basis of surcharge and pay the proceeds to the investor tax performance and other parameters but never on the free in their hands. Now, however, the dividends basis of NAVs. will get added to the investor’s income without I hope I have been able to clear the any deduction by the fund house and the investor misconception of dividends Vs Growth and the expensive Vs cheap funds basis the cost differential of the NAVs in this article. Happy Investing. At times brushing up knowledge The author is a wealth advisor and Founder, of mutual funds is necessary Tangerine Ideas

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was suggested to be done in a to invest in the volatile markets as Sreekanth analysed their investment Have A Goal-Based Investment Plan staggered manner either through per the investment plan advised portfolio and undertook the following SIP or Systematic Transfer Plan by his financial advisor, as he actions: Understand the importance of asset allocation strategy amid inherent volatility in equity markets (STP) to average out the impact of understood that while the current 1) The portfolio was considered to market volatility. portfolio valuation may not be be rebalanced to ensure sufficient While Dr Thiagrajan had a high, the same will grow once the liquid funds by the time such funds pleasant investment experience for market recovers. Dr Thiagarajan also were required. the initial months, he experienced switched his exiting investments 2) The relative valuation of different the market volatility in its real from traditional investment schemes was reviewed to select sense post demonetisation. products into mutual funds once the schemes to be redeemed/ Markets corrected significantly such investments matured. switched out. after the demonetisation of high- In October 2019, Dr Thiagarajan 3) The exit load applicability was denomination notes was announced confirmed that her daughter, reviewed to ensure that the units by the prime minister in November Sanjana, was appearing for the PG – being redeemed are free from exit 2016, which resulted in all the NEET exam, and they would need to load, to ensure minimum leakage existing profits getting vanished. pay the first year fee by March 2020. from the investment returns. However, Dr Thiagarajan continued With the financial goal well in sight, 4) The redemptions were also planned from different investment portfolios like self, wife, and children to ensure Dr Thiagarajan sailed through the highs and that the tax incidence due to long lows and shared his learning from the entire term capital gains is minimal. process, which are being outlined below: With careful consideration of the above steps, the required amount was switched to liquid funds. Amidst Portfolio Alignment based on goals timelines: It is always the market volatility, Dr Thiagarajan advisable that the investment portfolio stays aligned with the financial had got nervous during the first goals. A goal-linked financial plan with proper asset allocation carries week of March 2020 and cautioned immense potential to render peace of mind, even if the markets are to withdraw the investments to highly turbulent. If one is aware that the financial goals still have fund the amount required towards sufficient time to go, the short-term market volatility may not impact her daughter’s admission. He was r Thiagarajan is a renowned was involved in the entire process. and advantage of goal-based investing, the overall financial plan. Further, defining the investment horizon pleasantly delighted when he was told practicing dentist in The discussions spanned across the importance of asset allocation upfront can also help to select the suitable schemes matching the that the requisite amount towards Vellore. His wife, Sumathi, different topics, including the strategy amidst the inherent volatility in desired time horizon. Sanjana’s admission was already lying isD running a diagnostic center as safety, liquidity, and tax efficiency equity markets safe in non-equity funds. With a sense director of the center. They both are in investment in mutual funds. While retirement planning was Rebalancing higher returns to safer schemes: As one nears the of accomplishment to plan well in blessed with a daughter, Sanjana, Further, the discussions were also indeed one of the significant long-term financial goals, it is important that the portfolio is de-risked to protect advance towards different goals, Dr and son, Vishnu Raajan. When they aimed to gauge the risk beating financial goals, his son’s graduation the existing returns and to limit the downside. With lesser time in hand, Thiagarajan processed the transaction met Sreekanth Narasimhan, Founder ability of Dr Thiagrajan, to design an in June 2019 and the admission of it may be difficult for the investments to bounce back if the markets get for transferring funds towards her & Director, Sree Investment Goal- investment portfolio best suiting his his daughter for her post-graduation into correction mode. As such, one may need to dilute a larger chunk of daughter’s admission. Based Investing – A Vital Ingredient risk profile and financial goals. It was in dentistry in 2020 occupied a investments to realize that goal or stay Just like the medical fraternity is to Successful Financial Plan! also necessary to discuss and align larger share in his near-term goals. staying committed to the national Sreekanth had a detailed the return expectations to ensure a Considering the financial goals and Need-based withdrawal, not market-based: This is another cause amidst the ongoing coronavirus discussion with Dr Thiagarajan pleasant investment experience for the investment horizon, a suitable important aspect of prudent financial planning. If the markets are doing outbreak, it is crucial for all to stay about on their short and long Dr Thiagrajan, who did not have an investment plan was formulated with well, one is often enticed to continue to stay invested to ride the future committed to their financial plans to term financial goals. Even while earlier experience of investing in monthly Systematic Investment Plan market rallies. However, it is always better to limit the redemptions as achieve their financial goals. Dr Thiagrajan did not have a mutual funds. As the discussions (SIP) for each of his specific goals after per the specific needs, instead of being based on the market trends. financial background, he took a continued, Dr Thiagarajan was also considering the available investment One should not ride the profit until the deadline and safeguard the goal keen interest in the discussions and keen to understand the significance surplus. Investment in equity schemes amount well before the deadline if the financial goal has already been achieved. A smooth investment journey is not only about generating the Disclaimer returns when the markets are good, but also protecting the downside Sreekanth Financial Planning of Dr Thiagrajan is based on the “personal opinion and experience” of Sreekanth Narasimhan when the markets are bad. Narasimhan and that it should not be considered professional financial investment advice. No one should make any investment decision without first Founder & Director, consulting his or her own financial advisor and conducting his or her own research and due diligence. Sree Investment Services

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Putting Money To Best Use In Crisis SUSMIT PATODIA What are the best ways to secure investments during darker times?

quities work with a higher degree of certainty before the recovery has begun. Don’t waste time only in the long term. The most important trying to catch the bottom; some of the sharpest reason to invest in equities is the fact it single-day returns have been made in the bear earnsE compounding returns. For example, 15 per market. Analysing 30 years of Nifty returns data, 18 cent compounded for five years is 2x, 10 years is out of the best 30 days of returns actually happened 4x, 20 years is 16x. So longer the horizon, the in bear markets. “I will invest when the market more the return! stabilises” is not an effective strategy In times like now, the haze is so heavy that even More returns are made when things go from worse simple math of compounding gets difficult to see. to bad than good to great. Play the full cycle. Never turn off this beacon of light. There is never the BEST time to invest. There For example, you invested `100. > up 25 per cent are better and not so better times. Don’t listen to and down > 40 per cent; suddenly the lights go off. anyone who speaks in ABSOLUTES in our Darkness blinds us. While in the dark, the important markets. We aim to be right 6/10 times over long aspect is how we feel a lack of control and perceive periods of time that things are going to get worse. While its natural CHANGE – It is important to spend time to to think so, it is also important not to brood over the understand what may change and what may not decision that you took when it was up 30 per cent. change. A small change in a large set of people leads It does not matter now. It is a lesson to be learnt but to exponential business change. This is why they not an action to be fretted upon. say every crisis leads to a change in leadership in What has always helped me to navigate the dark the market. The best of the past may not necessarily is to have a proper framework. Frameworks can be be the best in the future. In fact, they have a higher developed through extensive reading, listening to probability of being near the bottom in the future people and thinking, like net practise in cricket. Finally, investing in the dark demands certain Think of it like playing against Shane Warne calculated strategies. If we don’t get a second wave without the technical knowledge of leg-spin. You of the virus, we should be able to get back to our do not know what the next ball is going to be (dark) FY20 earnings by the first half of FY22. This would but if you don’t know how to play, it doesn’t really effectively mean a loss of 1.5 years. This is how I would matter (framework). It is still possible that you get think about when investing now. Three steps that I out, but the probability of hitting a century increases would recommend that you follow: manifold if you practice in the nets. 1. Keep aside one year of expenses in a bank account Now, how to go about navigating in the dark? with a stable bank Well, so, you are now left with `75 (as illustrated 2. Pay off all debt. You can’t go bankrupt if you don’t earlier) and disillusioned with the market and its have any loans participants. The simplest decision is to take money 3. Incrementally take up your equity exposure in off the table and walk away. But as they say, the your asset allocation. Use down days to invest or a easiest normally is not right. So, what should one do? simple periodic investment plan Enlisted below are five simple guideposts that I would like to leave with you one long-range help me to navigate the dark: thinking exercise – if India’s nominal GDP compounds BOTTOM – The bottom is only made the day at 9 per cent per annum in dollar terms from FY22 to FY30, what will our GDP by then? Where will India globally rank?

A well-planned framework can TThe author is the Associate Director and Fund Manager, help navigate through darkness PMS, Motilal Oswal AMC

6882 Outlook Money May 2020 www.outlookmoney.com Dear Editor, The one constant in my whole life has been equity investments. I grew up in a household where money management and equity were discussed daily. Like a sponge, I was soaking up the finer points. I grew up in humble surroundings. My grandmother and mother had to sell all their jewellery for my father’s brokerage license. My mother would double up as his typewriter. Nine of us lived in a small two-bedroom apartment in Mumbai. We were extremely conservative and judicious with our money.

My father has been my biggest inspiration and role model. Most of my lessons about money and investment have come from him. The way he led us was something I always looked up to. He believed that one’s outlook towards money had to be the same regardless if one won a lottery or earned it through hard work. If you are conservative with your money in your professional life, you cannot be spending lavishly in your personal life. Simply put, if you do not respect money, it will not respect you. This consistent attitude often leads to better decision-making and helps one avoid big money mistakes.

The year 1992-93 was important for us as a family and for our business. It laid the foundation of our value system and investment philosophy, in addition to providing us with confidence and self-belief. Although I was just a kid, it would take me more than two decades to realise how this impacted my behavior towards money. This was the era of Harshad Mehta securities scam. My father was trying to establish himself as a broker who did things the right way. However, a lot of his contemporaries were getting rich in no time. He even got offers to join them but he refused. He held on to his beliefs that he would be rewarded in due time. It showed us that managing people’s money as well as our own required a huge degree of integrity, honesty and responsibility, no matter how unpopular it was in the short-term. Since then, there was no looking back.

I lived through subsequent market cycles. Every cycle made me more resilient and confident in managing my own finances and making rational decisions. In 2015, my father suddenly passed away in a car accident. I was made responsible to manage our family finances as well as the future of our organisation. I had the good fortune to learn some important money lessons that I put into practice. Patience is crucial when it comes to investments. Having a plan and following an investment philosophy is key to long-term success.

The key to achieving financial independence is to be debt-free. I am fortunate my family started investing on my behalf since I was six years old. By the time I went for my higher education and got married, I did not have to take any loan. Being debt-free, allows the investments to compound uninterrupted. I regularly invest my savings, which helps further in growing the corpus. I have started investing for my daughter since she was six months old. I hope this will help her follow her dreams and passion, without being bogged down by debt. This will be my biggest joy and gift to her.

My investments are predominantly in equity, about 80 to 90 per cent, the rest are in liquid funds to take care of emergency or unexpected expenses. This asset allocation works for me, as I believe equity is the best asset class for wealth creation and I am not perturbed by the volatility that is associated with it. I am young enough to take on the risk associated with equity at this time.

My wife is a director in a multinational bank. Her hard work and dedication have always inspired me to do better. My daughter could not ask for a better role model. My wife is more than capable of managing her own finances after being in banking for 15 years. Her asset allocation is quite different. Real estate, gold and equity make up for her basket of investments. Managing money separately helps us complete our asset allocation as a family, yet aids in reaching our financial goals.

Neil Parag Parikh Chairman & CEO, PPFAS Mutual Fund

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