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IS STILL

Despite volatility, the yellow metal remains an attractive investment option

Gold ETFs Rise Copper Is Next Gold Why REITs Is An Attractive Asset Challenges Retail Investors Face

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Contents

SEPTEMBER 2020 VOLUME 19 ISSUE 9

pg 10 26 MF Vs Gold: Ahead of Festivals What Is Best For You? Is Gold Still A Good A comparison between returns from gold and Investment? debt mutual funds How gold prices will behave in the near future 40 Grievance And Complaint and offer opportunities for retail investors Health insurance policyholders face challenges concerning claims 44 Are Insurance Stocks A Good Buy? As pandemic sets in, market witnesses a sharp rebound in these stock prices 50 Restore Stability To Revive Economy Former Deputy Governor of Reserve Bank of India Viral Acharya, in his latest book, figures out some key issues in India’s financial sector and suggests measures too 52 REITs As An Attractive Asset Derivative instrument can help investors gain from capital appreciation

56 Stock Picks Despite challenges, L&T and HDFC AMC continue to show resilient performance 65 Data Primer Investors seek stability in savings through the Regulars yellow metal 4 Talk Back 8 Queries 60 My Plan 66 Loss Aversion Behavior Can Be A Columns Big Hurdle Ajay Bagga, Divakar Vijayasarathy, Krishnan Sitaraman, Ganesh Preplan your steps when your investments show Ram, Avinash Gorakshakar, Joydeep Sen and Shweta Purswani lower returns

Cover Design: DEEPAK SHARMA & PRAVEEN KUMAR .G

HEAD OFFICE AB-10, S.J. Enclave, New Delhi 110 029; Tel: (011) 71280400, Fax: (011) 26191420 OTHER OFFICE Mumbai: (022) 50990990 Printed and published by Vinayak Aggarwal on behalf of Outlook Publishing (India) Pvt. Ltd. Editor: Saibal Dasgupta. 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 September 2020; Release on 1 September 2020. Total no. of pages 68 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 September 2020 Outlook Money 3 Talk Back

Sanity Of Safety Or EDITOR-IN-CHIEF Rush Of Risk Ruben Banerjee EDITOR The present fear will Saibal Dasgupta not be allayed in EQUITIES AND MARKETS EDITOR the next couple of Yagnesh Kansara months. The subject SENIOR ASSISTANT EDITOR was an interesting Anagh Pal insight into the SPECIAL CORRESPONDENTS Himali Patel market, especially the Vishav choice between risk PRINCIPAL CORRESPONDENT and safety, and how it Nirmala Konjengbam stems out is quite tricky. It was a well-presented and helpful article. SENIOR CORRESPONDENT Soham Ghosh, Kolkata Dipen Pradhan

NEWS DESK Dynamically Manage Your Asset Allocations COPY EDITOR Sudeshna Banerjee For Smarter Return TRAINEE SUB EDITOR Indrishka Bose It was an informative WEB CORRESPONDENT interview with S Naren and Rajat Mishra got to learn about identifying DIGITAL TEAM my risk appetite. I also liked Amit Mishra how he discussed the optimal Sneha Santra approach to navigate the ART CHIEF ART DIRECTOR uncertain times, when the Deepak Sharma pandemic is still fragile, SENIOR DESIGNERS through dynamically managed Praveen Kumar. G Vinay Dominic asset allocation schemes. The Leela questions were commendable and overall it helped me clear several DESIGNER clouds regarding investment strategy. Rohit Rai Ananya Malhotra, Mumbai Girish Chand (DTP Operator) TECH TEAM Raman Awasthi Being Risk- Suraj Wadhwa Business Office Free With Low CHIEF EXECUTIVE OFFICER Returns Indranil Roy VICE PRESIDENT The article on Tushar Kanti Gosh small savings was Circulation & Subscriptions quite good. The Gagan Kohli, Kapil Dhal (North) G Ramesh (South) distinctions between Arun Kumar Jha (East) FDs and PPFs were Production explained in a lucid GENERAL MANAGER form, allowing people Shashank Dixit to comprehend and MANAGER Sudha Sharma understand the pros and cons. Since small savings schemes have been ASSOCIATE MANAGER a popular investment option among the people, the article surely Gaurav Shrivas added a bit more to knowledge. DEPUTY MANAGER Sachin Srivastav, Mumbai Ganesh Sah 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

4 Outlook Money September 2020 www.outlookmoney.com Talk Back

What’s On Offer For COVID-19 Patients? I have already learnt about the two policies that reimburse the costs or expenses incurred during the COVID-19 treatment. However, the article assisted me by explaining the policies in detail. Since the threat is far from being over, I was planning to take a dip into this subject and at the same time, I wanted to be sure about my choices. The story helped me clarify my queries. Deep Chakraborty, Delhi The article was praiseworthy, as it him understand the importance of Widen Your Filter helped me understand the strategy in financial discipline in life. I would like For Job Search a stepwise manner. to thank him for sharing this story, The article felt like a gush of relief. Suyash Pandey, Noida and especially the plethora of lessons It gave a reality check as well as left from his investment journey. hope in the struggling minds. It was Insights For A Alisha Chowdhury, Chennai great to learn from the experts that Pandemic Economy companies are still looking to hire I thoroughly enjoyed reading the Watch Emotions fresh talents and there is no blanket prescription for the financially savvy, While Investing freeze in the industry. Many of us are “on the road to financial freedom”. I have been following Outlook still in the phase where the pendulum Sonali Das, Kolkata Money for a couple of years, and is tilted towards negativity, but it was I found this article on SIP very a relief to know that the situation Buying Diamonds fruitful. I like the way it is explained, has improved as compared to the In Post COVID Era keeping in mind the current crisis. scenario two months back. The gold and silver rally is the talk of Also, it was great revisiting the Shipra Sinha, Kolkata the town. However, the article had important theories and it was a new perspective on the diamond absolutely commendable how the Beware Of Heavy industry and captured the consumer author tried to apply those theories Discounts On Houses preference perfectly. in the market situation. I would also I would like to thank Outlook Prachi Chaturvedi, Mumbai like to mention how he discusses the Money for presenting this column ‘five stages model’ to understand the which speaks a lot about the current Mitigating Risks With way humans deal with grief causing situation of the builders. Since many Strong Foundation change. People are finding it difficult are moving back to their home towns I can relate to Brigadier Ramnarayan to cope with this sudden outbreak because of the ongoing pandemic, and how his previous financial of humanitarian turned economic there is an increase in the percentage trajectory was. I got to learn a lot crisis, which will probably have a of buyers. The anxious buyers often from his story and the decisions long lasting effect. fail to notice the intricate details, he had taken to shape his finances. Suneel Varma, Bangalore as described in the column, and Definitely, as mentioned in the story, overlook the track record of the with discipline in his veins it was Sudden Surge In Demand builders. easier to convince him and make For Credit Cards Among Rishav Sharma, New Delhi New Users We are witnessing a surge in mobile Make The Most based payments. I was shocked to Of Your Money know that a survey has claimed that As a beginner, we often fall into the Indian market will be having over 50 mis-selling trap while looking for a million contactless cards. This shows good financial advisor. Because of how the pandemic has fast-tracked the reasons like this, we end up crushing adoption. the need to have a financial advisor. Gurpreet Singh, Mumbai

6 Outlook Money September 2020 www.outlookmoney.com Talk Back

6 Outlook Money September 2020 www.outlookmoney.com Queries A Guide To Online Term Insurance Policy

PURVESH JAIN If the policy is in pending status [email protected] due to an incomplete tele-medical I have purchased an online verification and you would like to term insurance for a cover of cancel the policy you will definitely `25 lakh on March 30. I have get a full refund of the premiums made a full payment from a you paid. However, if your policy card and alongside uploaded has been issued and the risk cover all documents. Till today, the has begun, then you may seek a insurer has not contacted refund within the free-look period me for tele-medical calls, policy conditions that insurers and the policy is not issued provide. Outside of the free-look as the tele-medical process period you may not get the refund is incomplete. Please advise of your premiums. Once the whether I will get a full company commences your risk, refund if I cancel the policy. your policy date will be from the Also, if the policy is issued, date of issuance (not the date of will the cover start from the application). date of application or the Manu Lavanya, Director & Chief Operations date of issuance of policy? Officer, Max Life Insurance

NIKHIL NAGABHUSHAN KN, [email protected] [email protected] I had invested in the following mutual fund schemes through SIP for a period of 5 years. 1) Franklin India Equity Fund 2) HDFC Hybrid Equity Fund 3) ICICI Pru Balanced Advantage Fund 4) ICICI Pru Value Discovery Fund 5) SBI Magnum Global Fund 6) UTI Equity Fund. Please advise which of these investments can be retained for a further I am 34 years, and I have an accidental death and 5-10 years and which of these disability rider in two of my LIC policies upto `50 lakh could ideally be redeemed along with term plan and an endowment plan. Do I now and switched. need to buy a separate policy for the same? Similarly Investments should be mapped with I have a health insurance policy family floater. short-term, medium-term and long- When one talks about human life value one needs to consider term goals. The above-mentioned the value of coverage. If it is as per the calculation then buying investments are various types of a separate policy is not required. I would suggest you to read multi-cap, Dynamic Asset Allocation the policy pack and compare the features. Critical illnesses are contrarian or value and thematic. considered family diseases as the entire family suffers when one And, these are long-term investment member falls ill. Hence, critical illness policies are surely an funds. One should redeem an equity additional umbrella for the additional expenses. fund if it has performed poorly than Hina Shah, Director - LUHEM its peers in the category over the long run. Hina Shah, Director - LUHEM

8 Outlook Money September 2020 www.outlookmoney.com

Cover Story

Gold Market Highlights

Experts say there is still investment opportunity in gold because it is likely to rise further

Government helped boost price by sharply raising Ahead Of Festivals rate of its gold bonds in early August Retail investors should allocate 10 per cent of their surplus savings for gold, say analysts

Gold prices rose 40 per cent due to pandemic, weakening in dollar and other reasons. These issues remain

Prices rose from `4,400 in 2000, `18,500 in 2010, IS GOLD STILL A and around `52,000 towards August end GOOD INVESTMENT? External Affairs Minister S. Jaishankar last Gold prices saw a dramatic 40 per cent year referred to the wholesome transfer of upswing and then a small correction in wealth by the British, some of which was in gold. “India had two centuries of humiliation August. Analysts said the yellow metal still by the West in its predatory form it came to offers investment opportunities because India in the mid-18th century,” he said. “An economic study tried to estimate how the reasons that led to price hike will much British took out of India, it ended up remain unchanged over coming months at a number of $45 trillion in today’s value,” Jaishankar said at the noted think tank Atlantic Council in Washington DC. But it is to the Bank of England that the By Yagnesh Kansara then government of PV Narsimha Rao turned to when it decided to pledge the old demand in India’s retail sector nation’s family gold for a loan to tide over has plunged to a 26-year low while an economic crisis in 1991. India mortgaged the price rose to an all-time high of 67 tonnes of Gold to raise $600 million to G`55,000 per 10 grams. Within this seeming prevent itself from defaulting on import contradiction is the curious plan of many payments. However, the Reserve Bank of factors, some global, and local. India was quick to buy back the pledged gold And yet, gold will continue to play a in December that year. significant role in Indian as it did in the days The RBI learnt its lesson and has been of Samudragupta, 375 CE, son of the Gupta steadily buying gold year after year with the emperor Chandragupta, who issued gold present level of stock rising nearly 10 times currency and performed the Ashvameda to 653 tonnes. It bought 40.45 tonnes of gold (horse) sacrifice to establish in war victories. in financial year 2019-20. Gold is present in India life at various There is a lesson for the retail investor levels: as an emotional and safety anchor, as here. If the central bank of India and several an hedge against inflation and also figures in other countries trust gold as an important the political sphere. investment option, why shouldn’t you?

10 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 11 Cover Story

Gold Market Highlights

Experts say there is still investment opportunity in gold because it is likely to rise further

Government helped boost price by sharply raising Ahead Of Festivals rate of its gold bonds in early August Retail investors should allocate 10 per cent of their surplus savings for gold, say analysts

Gold prices rose 40 per cent due to pandemic, weakening in dollar and other reasons. These issues remain

10 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 11 Cover Story

to analyse the gold or the silver market separately. It is convenient as the contracts are settled in cash,” said Saurabh Chandra, How Rates Chairman, MCX. Affect Gold Price Even as excitement soar in the gold market, the retail investor moved in the opposite direction. COVID-19 led to erosion of income and an strong tendency to avoid new investments. The World Gold Council has estimated that the Indian jewellery demand fell 74 percent during the three months ending June 30. Though estimates have not been made about the movement in the resale market, there is indication that vast number of early $15 trillion of the global debt is carrying negative yields. families have either sold or pledged their N Many key economies like Japan, Switzerland, Denmark, etc gold to raise funds to meet the financial have negative rates. They are -0.1, -0.6 and -0.75 respectively. Photo : Tribhuvan Tiwari and health crisis that hit millions of people. The US Federal Reserve has indicated that it is not in favour Many others could not redeem their past of negative rate environment. But the market participants think Gold Drama reach `51,200 by August 25. And yet, the pledges on deadline and allowed loan giving that the US Central bank would be forced to push the rates into he crucial point about buying gold is gold is rallying at a much higher level than it companies to take ownership of their gold. negative zone in view of the economic situation. the price point. It is now evident that did a year back. This is a bonanza for the loan givers—and a Ranawade said, “Apart from high liquidity which drives Tthe ordinary investor has missed the brief In some ways, the government is direct hit against the loan takers—because demand for gold, the falling interest rates make it unattractive buying opportunity that emerged as gold responsible for push up in prices because it the gold had been pledged at much lower for some money to move into fixed income as an asset class and prices began climbing up the price curve in raised the rate of its sovereign gold bonds prices than today. there is incentive to chase Gold Prices”. early August before hitting the all-time high from `48,000 in June for 10 grams to `53,300 The market was being driven by Jateen Trivedi, Senior Research Analyst, Currency and of `55,000 per 10 grams. The sudden jump in early August. The government needs to institutional buying and a host of other Commodities, LKP Securities said, “Interest rate reduction are is best understood in the context of steady cover itself because it will ultimately repay factors with the retail player keeping away. bullish for gold, since falling interest rates make bonds and other growth in prices at `29,667 in 2017, `31,438 bond holders at the prevailing price of gold Institutions include companies with surplus fixed-income investments less attractive, money flows into safer- in 2018 and `35,220 last year. during maturity dates five and eight years cash, hedge and exchange traded funds for yielding investments like bullions mainly Gold”. The price increase was a awesome 40 per from now. But many in the market saw the gold besides the central banks. India is a trade deficit country with imports being more than cent offering huge opportunities for short- government move as a new benchmark This is also a strong sign that many the value of exports. As the value of imports rise, inflation term profits until the prices began falling which influenced gold pricing. companies with surplus funds are investing and production costs are impacted finally resulting in a weak in the third week of August and the yellow Investors are eagerly waiting for the offer as part of their treasury management currency, he said. Weakening currency also provide conducive metal losing more than `4,000 in value to price when the government announces its program and staying away from business environment for the bullion prices to move up swiftly. The USD next batch of gold bonds to be sold between investments. The weakened economy, has weakened among major currencies of the world. It is being August end and early September. partly caused by the pandemic but mostly a pointed out that the US Greenback has entered into a quite It is not in the area of pricing but even continuation of the slowdown that began in longer weakening cycle of 5-7 years, which began in March this Gold Vs Rupee/Dollar ` 52,254 regulators have suddenly become active 2018, has dried out business opportunities year. The USD is weakening because of weak US economy. taking a decision they had delayed for long. forcing companies to look for other ways A weakening Indian Rupee (INR) adds more to the lustre of 75 50,000 The Multi Commodity Exchange (MCX) of investing. Physical gold and paper gold gold for Indian investors. With low growth and high fiscal deficit ` 74.772 launched the country’s first bullion index, are among the options. Was it wise on the and a possibly sustained impact of the COVID pandemic in India given the large size of the population, the INR may remain weak 65 40,000 Bulldex, on August 24. The move will give part of retail investors with investible funds a big push to gold futures opening up new to stay away from the gold market as prices for some more time. opportunity for speculative trading for began rising? In this backdrop, Singh said, “The correlation between the 55 30,000 both large and small investors.Gold and “We believe every investor should have Rupee/Dollar rate and the gold prices in India since 2008 GFC silver are already being traded as individual around 10 percent of the financial assets stands at 0.84 which is indeed quite high. The Rupee/Dollar rate commodities on the commodity exchange in Gold and we have been recommending and gold prices are highly correlated. It is due to the fact that 45 ` 39.41 20,000 and bulldex offers an additional option to our clients to buy gold since last year,” said Indian gold prices are derived from the international prices, so we Gold the trading community. Ashish Ranawade, Head of Products-Wealth do just the price conversion from the Dollar/Oz to Rupee/grams. ` 10,606 Rupee, Dollar “Bullion Index futures offers retail Management, Emkay Global Financial Higher the Rupee/Dollar rate, higher will be the gold prices in 35 10,000 Indian Rupee terms.” 1- Jan-08 12- Aug-20 investors an opportunity of investing in the Services. The big question is whether gold bullion sector as a whole without the need prices will continue to rise in the coming

12 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 13 Cover Story

10 GMS Of Gold Price History For The Last 95 YRS

Year Price Year Price Year Price Year Price Year Price

1925 `18.75 1944 `52.93 1963 `97.00 1982 `1,645 2001 `4,300 1926 `18.43 1945 ` 62.00 1964 `63.25 1983 `1,800 2002 `4,990 1927 `18.37 1946 `83.87 1965 `71.75 1984 `1,970 2003 `5,600 1928 `8.37 1947 `88.62 1966 `83.75 1985 `2,130 2004 `5,850 1929 `18.43 1948 `95.87 1967 `102.50 1986 `2,140 2005 `7,000 1930 `18.05 1949 ` 94.17 1968 `162.00 1987 `2,570 2006 `8,570 1931 `18.18 1950 `99.18 1969 ` 176.00 1988 `3,130 2007 `10,800 1932 `23.06 1951 `98.05 1970 `184.50 1989 `3,140 2008 `12,500 1933 `24.05 1952 `76.81 1971 `193.00 1990 `3,200 2009 `14,500 1934 `28.81 1953 ` 73.06 1972 `202.00 1991 `3,466 2010 `18,500 1935 `30.81 1954 `77.75 1973 `278.50 1992 `4,334 2011 `26,400 1936 `29.81 1955 `79.18 1974 `506.00 1993 `4,140 2012 `31,050 1937 `30.18 1956 `90.81 1975 `540.00 1994 `4,598 2013 `29,600 1938 ` 29.93 1957 `90.62 1976 `432.00 1995 `4,680 2014 `28,006 1939 ` 31.74 1958 `95.38 1977 `486.00 1996 `5,160 2015 `26,343 1940 `36.04 1959 `102.56 1978 `685.00 1997 `4,725 2016 `28,623 1941 `37.43 1960 `111.87 1979 `937.00 1998 `4,045 2017 `29,667 1942 `44.05 1961 `119.35 1980 `1,330 1999 `4,234 2018 `31,438 1943 `51.05 1962 `119.75 1981 `1,800 2000 `4,400 2019 `40,000

Source: Bombay Bullion Association

months or settle at a saturation point of the equity markets, low yields on fixed income around `50,000 per 10 grams. Most analysts and the likely situation of global liquidity believe that gold will continue to be much remaining abundant for the next one year, gold higher than last year’s level and rule above should continue to do well.” The fact is that `45,000 even in the worst case scenario. few Indians with surplus funds think of gold as But optimists think the possibilities of gold an investment option although they put a lot price increase is ample because most of the of their trust and funds on mutual funds. For reasons that pushed up gold prices continue most, gold is all about jewellery which can be to remain unchanged. Bullish speculators redeemed in the time of crisis, if any, but not a have put the future level at around `65,000. monthly investment option. Ranawade said, “Given the uncertainty in Praveen Singh, AVP- fundamental research - currencies and commodities. Sharekhan, said, “We have been bullish on gold right from ASHISH RANAWADE $1500 level and on silver from $16 level. We Head of Products-Wealth Management, see gold prices rallying to $2500 in the next Emkay Global Financial Services 18 months”. Though silver has also risen in tandem with the yellow metal, most experts We believe every investor tend to be a little less enthusiastic about it. should have around 10 per cent Ranade thinks silver is a better option for traders with appetite for high risk, and not of the financial assets the ordinary investor. “We do not recommend Silver as we believe it is more likely to be a

14 Outlook Money September 2020 www.outlookmoney.com Infocus Rediscover The Charm Of Working From Home

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Global Silver Supply PRAVEEN SINGH the general softening of economy coupled AVP- Fundamental Research - with the harmful effects of the COVID-19 Million ounce Supply 2015 2016 2017 2018 2019 2020* Currencies And Commodities pandemic has pushed up gold prices. Governments in India and other Mine Production 892.9 892.3 863.4 847.8 836.5 797.0 Gold cannot be printed. Thus, countries like the US have also played their it is rising in comparison to part by announcing generous stimulus Recycling 166.5 164.4 167.7 167.7 169.9 169.4 currencies being printed package to meet the pandemic crisis and ended up with an increased dose of inflation Net Hedge Supply 2.2 - 15.7 10.0 which was bound to influence the price movement of the glittering yellow metal. Net Official 1.1 1.1 1.0 1.2 1.0 1.0 Simply put, gold is attracting some short-term trading opportunity and retail amount of frenzied buying by companies Total supply 1,062.7 1,057.8 1,032.1 1,016.7 1,023.1 977.4 investors are likely to get stuck in case a seeking a hedge against rising inflation, bubble builds up in silver,” he said. and out of fear that inflation might further Source: Silver Institute increase as some financially weakened Many Factors governments may be forced to print extra he going rate of silver was $26.88 per currencies. “Gold typically thrives during ounce on August 25. Ranade thinks periods of uncertainty and the current rally Tsilver is likely to rise to $30 per ounce in started sometime in October 2018 as global the medium term. Its best case scenario, it growth started falling and was further could be $35. “Silver has additional bullish triggered by the uncertainty on account of factor concerning the supply issues in Latin the US-China Trade war,” Ranawade said. America due to contagion,” he said. Notable factors that conspired to edge on However, nothing goes up or down gold prices also include the low growth rate in a straight line for long. There would worldwide, the possibility of the US Federal occasional corrections, sometimes quite Reserve further easing the monetary policy, steep ones. So, it is required that the buyers and geopolitical concerns emanating chiefly should be prudent in their risk management. from the souring relationship of the US and A successful Coronavirus vaccine at China over Hong Kong. commercial level would dent the bullish The COVID-19 situation has prompted picture of the precious metals, he said. A an unprecedented USD 19 trillion of global wide range of factors have contributed to liquidity as stimulus package from different the rise of gold prices to almost dizzy levels. governments- than three times of the They include the weakening of the dollar, stimulus given during the 2008-09 global the negative interest rate environment and financial crisis—causing an upheaval in the behaviour of different asset classes. Equities valuations have skyrocketed Global Gold supply ( Tons) against weak economic fundamentals while fixed income yields are moving in the Region 2015 2016 2017 2018 2019 opposite direction giving extremely low or negative returns. Real Estate is likely to North America 506.0 522.9 527.2 532.3 494.5 be weak as 30 percent of global workforce Central and is working from home in the new, almost 567.4 571.4 576.1 566.3 576.8 South America surreal, normal. Europe 25.2 27.8 30.5 30.9 31.4 It is possible that some of the liquidity created as part of the stimulus package may Africa 711.0 795.3 834.3 847.1 853.7 have perhaps moving into gold, he said. Asia 739.8 713.2 684.3 683.5 611.7 Praveen Singh, AVP- fundamental Central Asia 433.6 466.8 473.6 504.5 558.2 research - currencies and commodities. Oceania 353.3 362.2 367.6 396.7 407.5 Sharekhan said, “Huge stimulus leads to the debasement of the fiat currencies, too. Gold Global total 3,336.4 3,459.7 3,493.6 3,561.3 3,533.7 can’t be printed at will, thus value of gold in Source: World Gold Council terms of fiat currencies is rising”.

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

JATEEN TRIVEDI more intense than the one seen during the Sr. Research Analyst LKP Securities financial crisis of 2008-2009. In fact, there are signs that the virus Interest rate reduction is bullish contagion may last longer and in some cases for gold. The bullion is attractive get worse and further weaken the global economy, which was already weak due to because returns on fixed-income the 18- month long trade war. instruments is falling “Weak global economy means that there would be more stimulus measures and the global rates would remain low”, Singh explained. Gold has been in short supply Huge fiscal stimulus measures also stretch as mining of gold has not been able to the finances of the countries. In an alarming expand at the rate at which demand has development, global debt to GDP ratio has been increasing. “This result Global ETFs, reached the record high level of 331percent. Central Bank demand and jewelry have Stretched ratio could lead to yet another been the primary demand drivers. Notably, episode of sovereign debt crisis, which Central Banks, which were net sellers prior would be positive for the gold prices”. to the Lehman Crisis, have been stocking up Investors also suspect that the US Federal on gold every year,” said Ranawade. Reserve could embark on yield curve control With the addition of more stocks, the like it did post World War II as the US value of gold reserves with the Indian public debt reaches the level seen during government rose to $30.57 billion (around that time. If that happens, it would be highly `2.32 Lakh crore) by March 2020 from inflationary but the rates won’t be moving $23.07 billion in March 2019. The Reserve higher, so that would be quite supportive Bank of India (RBI) bought 40.45 tonnes for gold prices.Some analysts are taking of gold in financial year 2019-20, taking its the alarmist path saying that the global total holdings of the yellow metal to 653.01 economic contraction may be three times tonnes. Gold imports have fallen due to the

TRENDS IN GLOBAL BULLION PRODUCTION

lobal gold supply over past decade has shown direct Last five years average output from gold mines remains G correlation with price, with higher prices leading to at 3,477 tons, and the largest contributions come from increased mining activities. Similarly higher gold prices African and Asian regions, accounting for 23 per cent and lead to weak retail demand but higher investments from 20 percent 0respectively. The clean environment drive Exchange Traded Funds (ETF) denoted in gold. from China and banning of illegal miners and smelters from Indonesia saw output to plunge 15 percent from Asia. Central Asian countries, which have wealth of unexplored natural resources, saw their production jump 40 percent over 5 years. China, Australia, Russia, and the United States are some of the largest producers of gold in the world. Global production of gold reached approximately 3,300 metric tons in 2019. Production in China has increased from 320 metric tons in 2009 to an estimated 420 metric tons in 2019. Trivedi said, “The increase in mining shows that the demand is increasing in the bullions and pattern shows the trend will continue as the demand shall keep the mining sites busy, and in case of lack of supply the prices would remain a top”.

18 Outlook Money September 2020 www.outlookmoney.com Pandemic Disruption

Cover Story

however Corona pandemic is the worst that could have happened to already declining silver mined output. The year 2019 saw silver mined output dropping to fourth straight year in 2019 by 3.8 per cent. Other Precious Metals he current fluid situation has not only helped Gold prices to rise dramatically Tbut has also been positive for other precious metals including Silver. While Palladium has been doing well and platinum is expected to do well. Silver has shown greater gains if we compare from the start of the year 2020. Silver has given 46 per cent, Palladium rising prices. This has had a positive impact 17 per cent, Platinum 2 percent return on the country’s current account. However, compared to Gold’s 26 percent rise on this positive impact is not going to last long. Comexes and 36 per cent in Indian markets Deepti Mathew, Economist, Geojit respectively. Trivedi opined, “Going ahead it Financial Services said, “The trend of falling looks similar outperformance for rest of the imports is likely to continue in the coming year 2020 that Silver will keep riding ahead months as the economy is grappling with a of other precious metals”. consumption slowdown. Though, there would However, Ranawade is not far optimistic be some uptick during the festive season, it about long bull-run in Silver prices locally as is unlikely to witness a huge surge in the gold well as in international markets. demand, amidst the income uncertainty”. Ranawade said, “Every time silver has risen, based on speculation, the rally has Pandemic Disruption been short lived and I have no reason orld Gold Council primary data to believe this time it will be different. suggest 5 per cent dip in mined Industrial demand will fall and so will Woutput to 1604 tons on y-o-y basis during consumer, if prices rise too much. Silver first six months of the current year. Total mining and recycling (unlike gold) can 111 gold mines and 101 silver mines match up to the demand.” were disrupted due to corona pandemic, Gold to silver prices ratio reached worldwide. Central South America record high of 124 in March this year as comprising of Peru Mexico and Chile has the global economy crumbled due to the been hit the worst and the world will see havoc wreaked by the Coronavirus globally. significant dip in gold output this year. The ratio soared as the investors piled into South African mine output fell 59 percent gold, shunning silver. The historical ratio is in Q2 2020 due to severe lockdown. Silver around 57. The ratio since March high of 124 institute forecast decline in silver mined has tumbled to around 70 currently as silver output by 7 per cent at the start of 2020, played a late catch up with gold prices on stimulus measures. Singh is also not too optimistic about MATHEW, ECONOMIST firm trend in Silver prices lasting long. Geojit Financial Services Singh said, “As the global economy remains in a precarious state, it is difficult to see The festive season is unlikely silver doing much better than gold from the to witness a huge surge in gold current levels. For gold-silver ratio to drop significantly from current levels, the global demand, amidst the income economy has to do a lot better which doesn’t uncertainty look probable in next two years.” [email protected]

20 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 19 Infocus

nies (18 months track re- allotment to the promoter is Many NRIs desirous cord required as opposed to going to ensure that mean- It has become of investing in the Indian Strengthen Capabilities earlier 36 months) eligible. ingful amount of capital tough for capital markets are con- There are other relax- can be made available to companies to strained by some of the ations in certain disclosure ailing businesses. Another “pre-COVID” era require- requirements but one of the change in the takeover find capital to ments of documentations For A Sustainable Growth most important change is regulations is the allowance sustain and fuel and procedures, which many the relaxation of minimum to do a voluntary takeover their growth find cumbersome. Sebi’s With the relevant countermeasures from Sebi, Indian capital markets are subscription threshold for by a holder holding over 25 recent guidelines on seam- well-equipped to face any storm the success of an issue to per cent stake, even if they less and paperless customer 75 per cent from the earlier have acquired shares in the sorily convertible debenture on-boarding procedure has 90 per cent. last year. This will give an or an issue of NCD + played a big role in record he current COVID-19 Vijay Chandok Relaxations have also opportunity for potential warrants allows a staggered retail participation in the situation is like a black been given to listed entities M&A which, in such cir- fund raising, easing out capital market. Similar MD & CEO of ICICI Securities swan. During crisis, in their continuous listing cumstances, could be critical investor liquidity issues as investor-friendly policy human body’s natural obligations. For example, for survival of certain well as securing financing. interventions could also Tresponse is to protect the extension of timelines companies. The provision of fast track spur NRI participation. The itself by bettering its capa- for publication of accounts Sebi has taken proac- as well as reduced disclosure regulator could consider bilities. Big bang reforms in will help corporates to cope tive and numerous laudable norms for eligible compa- earmarking a portion of the history of mankind have with the issues of limited measures to tame market nies have also cut the time public issue for NRIs which been in reaction to major workforce and data colla- volatility and ease compli- to market for such issues. would encourage flow of a crisis. For instance, the tion and allow them time to ance burden on various There is enough and more new pool of capital. American civil war resulted get a good assessment of registered intermediaries appetite for high quality Sebi may consider form- in the end of slavery, World impact on businesses. like revision of market wide names at the right price and ing a task force to identify War II resulted in creation Sebi has also allowed position limit, increase in as the market infrastructure the pain points faced by the of peace keeping institu- companies to raise funds margins, extension in penal opens up. NRIs and recommend suit- tions like the United Na- through Qualified Institu- provision and extension of Sebi may consider enable resolution measures. tions, global financial crisis tions Placement (QIPs) timelines for various regula- couraging the NRI remit- In addition, the activ- has led to tighter banking without having a six-month tory filings. tance to further strengthen ity in capital markets can regulations. gap between two such our economy. NRI remit- be supported further with Closer home too, each events. Issuer can raise Shoots of resurgence tances are categorised as certain other steps such as time there is a major crisis, funds in tranches with a in capital markets natural and induced. Mil- increasing the maximum there has been a compelling two-week gap. Another With the bulwark of lions of Indians working permissible discount to the response from the system. amount of uncertainty in The response of Sebi to commensurate to a possibly important step towards the cogent and relevant abroad and sending money Sebi floor price (currently 5 Food shortage during the the capital markets. Many this uncertainty has been attenuated demand and yet private placement through countermeasure from Sebi, home to their families per cent) in case of QIPs. early decades of indepen- capital raising and M&A remarkable. go on with the fund raise. preferential issue is the Indian capital markets are constitute the natural remit- For rights issue, companies dence led to the green options being assessed The early measures taken It has become tough for reduction of time frame of well placed to weather tance and this source is listed through scheme of revolution. The 1992 stock suddenly seemed unviable. by Sebi includes the exten- companies to find capital historical prices that need to storms. under some pressure now. arrangement/change in market scam gave birth The swiftness with which sion of Sebi card’s validity to sustain and fuel their be considered to calculate While the ability to raise However, there is a large control can have reduced to electronic trading. The this happened, did not given period for IPO candidates. growth. To alleviate this, the minimum issuance price. capital has been much better untapped Induced remit- disclosure v/s full disclo- balance of payment crisis enough time to anybody to This means that the time it is imperative for freely Amendments have been in- for blue chip names a few tance, which is business sure offer document which in 1991 led to liberalization figure out the best course lost by the issuers to launch priced products to be avail- troduced to relax the condi- corporates are trying to es- investments by the rich could significantly reduce of Indian economy. These of action. a transaction during the able for the issuer to use. tions of companies wanting timate the extent of impact NRIs. This is potentially a their launch time. big bang moves short-cir- pandemic will be discount- Rights Issuances are very to come out with further before getting into capital very large pool, given the Another critical issue is cuited years of incremental ed, bringing relief to issuers well suited to such circum- public offerings under the raise mode. number of affluent Indi- that while the extension has change. Sebi has who have incurred cost stances as they provide fast track route. Amongst primary market ans abroad, and is solely been granted to the IPO and time in coming to this an equal opportunity and On the consolidation products, rights Issues have dependent on how well we card validity, the informa- Sebi has been a stepped up to stage. The other concurrent option for all shareholders. side Sebi has stepped up been the dominant choice frame policies on ease of tion in the filed DRHPs is proactive regulator support the relaxation is the flexibility Sebi has relaxed the eligibil- to support the fund infu- for capital raising in such doing business and welcom- quite dated. Sebi may con- As soon as the realities fund infusion in to change the primary issue ity conditions for issuers to sion in companies by the uncertain times. In addition, ing such capital. Sebi may sider giving a relaxation al- of the ‘new normal’ set companies by size by 50 per cent (from take a fast track route for promoters. The increase the ability to tailor various consider some of the below lowing an addendum to the in early March this year, the promoters earlier 20 per cent) so issu- rights issue. This has even in the creeping acquisition instruments such as a partly measures to encourage this DRHP for critical updates there was tremendous ers can adjust the issue size made newly listed compa- limit through a preferential paid-up share or a compul- all-season capital. on business and industry. Infocus

Jewelry Buyers Need Not Fear Price Fall In Future

Prithviraj Kothari, Managing Director of Riddhi Siddhi Bullions Limited (RSBL), a leading Indian bullion conglomerate, expressed his views at length on queries posed by Yagnesh Kansara

Why are Gold and Silver prices on rise, both CPI of 6.93 per cent, we get a real rate of interest of internationally and domestically? minus 1.68 per cent. In the wake of a negative real History is repeating itself. Gold is testing new highs rate of return from debt funds, the investor is more at it did at the time of the Global Financial Crisis and likely to choose gold over bonds. Gold is nothing but thus proving its role as a defensive tool. a perpetual zero coupon bond, which maintains the Governments are running big deficits and central purchasing value of any currency simply because it banks are printing more money. It is generating cannot be printed at will unlike government bonds PRITHVIRAJ KOTHARI, inflation which is helping to drive the bullion price which can have unlimited issuances. Managing Director of higher. The Federal Reserve in the US is not likely to There are many other triggers for yellow metal prices Riddhi Siddhi Bullions Limited (RSBL) normalize rates or end quantitative easing or shrink its to move northwards. Consumption demand – the balance sheet. Inflation is likely to grow. key driver for gold, is down as individuals across the world are trying to make peace with the uncertain Many believe it is not sensible to buy at this environment around. However, the same uncertainty is high level. Your take? expected to propel the safe-haven demand for gold. Going long on gold is the second most preferred strategy of global Where do you see Gold & Silver and Silver $34 in 3 to 6 month’s period. It’s important Your comment on RBI’s recent decision to fund managers. A high 23 per cent prices settle in the near future? Do not to panic when metals sell off. We are advising increase loan to value ratio (LTV) to 90 per cent of managers surveyed in the BofA Gold will be in you advise your investors to buy clients to keep their eyes on the fundamentals. From from earlier level of 75 per cent. Is it going to Securities August Fund Manager these precious metals at such a the fundamental point of view, there is further room benefit the consumer of the Gold loan? Will it be a Survey (FMS) said they were bullish demand due high price? for gold to go higher in the long-run. The obvious practical proposition for the lender? on the yellow metal. Surprisingly, 31 to negative In 1979, gold climbed over 274 per cent, reason for this is the macroeconomic backdrop RBI decision to increase LTV to 90 per cent from per cent of fund managers surveyed real rate of rising from just over $200 an ounce to with fragile recovery and a lot of uncertainty about earlier level of 75 per cent is overwhelmingly by BofA Securities believe gold is over $800 an ounce. But during that year, the future path of pandemic and economic growth, welcomed by banks and consumers as there is 30 overvalued. return from there were 11 corrections of more than extravagant fiscal policy, dovish Fed that will maintain per cent growth in loan disbursal witnessed by Although correction in the short- debt funds 3 per cent. We saw a similar pattern of lax monetary policy and negative real interest rates. lenders. This enhanced LTV ratio is applicable up to run would be totally normal, or even corrections in gold’s bull run between March 31, 2021 to enable the borrowers to tide over desirable, the underlying bull market 2009 and 2011. In that time, gold gained What cautions retail investors should exercise their temporary liquidity mismatches on account should continue, at least for a while, 116.7 per cent but corrected more than while dealing in these metals at current price of COVID 19. This move will provide support to i.e., until the dominant economic 3 per cent 17 times. Eleven of those level? Also, how careful should they remain while people in managing their financial liabilities during narrative changes, which is not yet happening. corrections were greater than 5 per cent. Meanwhile, buying-selling jewellery? the pandemic. silver dropped more than 5 per cent 23 times during its World Gold Council (WGC) recently provided an This is a good move as long as the gold price It is argued that Gold is a non-productive bull run between 2009 and 2011 on its way to a update on the gold industry, noting that overall gold continues to rise. But as the ongoing rally in gold has investment and generates no income in the form 339.5 per cent gain. demand was down 11% year over year in the first half now halted it may create a headache for lenders. If of interest, dividend etc. Gold prices move only Thus far in calendar year 2020 (CY20), gold prices of 2020. There was a notable decline in the demand volatility continues and gold price falls sharply, then when times are uncertain. Do you agree? have moved up nearly 30 per cent (YTD) and 38 per for jewellery (off by nearly 50 per cent), which is banks may ask borrowers to deposit additional gold The real rate of interest has turned negative. India is cent in the past one year. There is long way to go traditionally a large source of industry demand. In other as margin or make partial repayment to maintain the no exception. As per a recent SBI Ecowrap report, real ahead in this bull market and prices are not at such words, this price spike is being driven by investors, not LTV ratio of the loan below 90 per cent. This may lead rates of interest have been negative since December a high level. We are going to see big selloffs during a fundamental strength in the gold market. There could to unnecessary disputes and create pressure for the 2019, barring in March 2020. If we deduct 5.25 per bull market. We will likely see plenty more before the be some correction in prices and it might impact traders borrower to arrange additional margin. cent rate of interest on a bank fixed deposit from the current gold bull runs its course. Gold may hit $2300 but those buying jewellery shouldn’t worry. [email protected]

22 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 23 Interview

Jewelry Buyers Need Not Fear Price Fall In Future

Prithviraj Kothari, Managing Director of Riddhi Siddhi Bullions Limited (RSBL), a leading Indian bullion conglomerate, expressed his views at length on queries posed by Yagnesh Kansara

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

surpassed the 2009 annual record of 646t. Gold ETF : Net Inflow So, what factors led to this trend where 1600 1,483.33 massive inflow in Gold ETF in mutual fund ``crore category was seen, given the low demand for 1400 gold? And will Gold ETF continue to grow? 1200 Let’s take a look: 1000 921.19 A Gold ETF is a commodity-based 815.03 800 Mutual Fund (MF) that mainly tracks the 730.93 price of asset like physical domestic gold. 600 494.23 Gold ETF units represent the physical gold 400 in dematerialised paper form. In India, 200 202.14 Gold ETF represents 99.5 per cent purity Mar-20 0 assurance of physical gold bars. The capital Jan-20 Feb-20 Apr-20 May-20 Jun-20 Jul-20 gains from sale of Gold ETFs are taxed at par -200 with physical gold at 20 per cent. -194.95 Source: AMFI “A Gold ETF is passively managed and closely tracks domestic gold prices derived VISHAL JAIN from London Bullion Market Association. Financial investors tend to focus on asset Head-Nippon India ETF, Nippon India Mutual Fund The performance of the scheme may differ classes that have done well in the recent from that of the underlying gold due to past. Experts call it a ‘recency bias’. And tracking error,” says Manish Banthia, Senior it is not limited to gold. Equity, bonds, These are standardised Fund Manager - Fixed Income, ICICI real estate or gold, whichever asset class instruments, traded on an Golden Opportunities Prudential AMC. performs, gets a lot of focus. Gaurav Rastogi, exchange platform, allowing Today the Gold ETFs are devoid of the Founder & CEO of Kuvera.in, believes the price discovery ills that plague physical gold such as lack of same is happening with gold and thus an Gold ETF continues to gain traction, standardisation and transparency. increase in interest in ETFs. The gold returns recording a massive net inflow of `921.19 cr “Gold ETFs are standardised, traded on have a low correlation to equity returns an exchange platform, thereby bringing especially during wars, market crash, and The current gold prices scale new highs in July against just `494.23 cr in June together a diversity of buyers and sellers in other disasters. This is what makes gold an on the back of weakness in the US Dollar, one place making it liquid and allowing price effective portfolio diversifier. tension between US and China. Rise in discovery. In a sense, Gold ETFs address the “In the past 29 years of data, the COVID-19 cases globally, boost its safe- By Himali Patel problem of fragmented physical markets,” correlation of monthly gold returns and haven appeal. Investors continue to hedge says Vishal Jain, Head-Nippon India ETF, monthly Nifty50 returns is just 0.3 per cent. their exposure to riskier assets by investing onsider this, despite a dwindling Nippon India Mutual Fund. Gold ETFs have issues of liquidity, they can a portion of their assets in gold. global demand, gold-backed According to WGC, COVID-19 was the trade at significant premium and discount For the month of July, retail inflation, Exchange Traded Funds (ETFs) main influence on the gold market in Q2, that to the underlying due to supply demand which is measured by Consumer Price brokeC all records, emerging as a safe haven led to severely curtailing consumer demand mechanics,” explains Rastogi. Index (CPI), climbed to 6.93 per cent during crisis. after lockdown, while providing support for Quantum Mutual Fund research points out from 6.23 per cent of June data. As per For the month of July 2020, the Indian investment in the form of Gold ETF’s. “The that Gold ETFs have received record inflows the value research, returns from gold Gold ETFs recorded a massive net inflow of global response to the pandemic by central in 2020, greater than any previous full year. commodity schemes under mutual `921.19 crore against the `494.23 crore in banks and governments, in the form of rate This also indicates that gold remains an under fund category for last 3 months, 1 June, registering a stellar growth of 86 per cuts and massive liquidity injections, fuelled owned asset. year (Absolute return), and 3 years cent shows the data by Association of Mutual record flows of 734t into gold-backed ETFs “Today the biggest indicator of under- (Annualised return) have been 12.12 per Funds in India (AMFI). This year so far, Gold (gold ETFs),” says the report. ownership of the metal is that global cent, 34.22 per cent and 20.31 per cent ETF category has received a net inflow of Gold has always been considered a allocation to gold stands at only 2.5 per cent, respectively as on August 13, 2020. `4,451.9 crore. (See the table: Gold ETF) safe haven during economic distress and a figure far-flung from the ideal allocation of Given the high inflation rate, Gold ETF The World Gold Council (WGC), in its has a low correlation with most other 10-15 per cent. This means that even a small clearly has become an excellent choice July report had stated that the first half asset classes, thereby providing investors uptick in portfolio allocation to the asset of investment for investors who are (H1) of world gold demand was down by with portfolio diversification. “Given the class could translate into significant price looking to beat inflation. Whether it is for 6 per cent at 2,076 tonnes (t). Interestingly uncertain conditions on account of the appreciation for gold in the time to come, consumption or for investment, one thing despite the global demand being down, the pandemic, a lockdown in physical markets, this includes Gold ETFs as well,” points out is for sure that demand for Gold ETF is inflows into Gold ETFs recorded a breaking these ETFs became the most natural avenue Chirag Mehta, Sr. Fund Manager-Alternative going to see an upswing. 734t. indicating the H1 inflows have even for investors to take cover,” concurs Jain. Investments, Quantum Mutual Fund. [email protected]

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

24 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 25 Column

Comparison Between Different Class Of Assets

raditionally, investors have embraced gold as deflation as well. Such periods are characterised by low Safety security Risk of theft Safe Safe Safe and held in vaults a safe haven for portfolio protection during interest rates and high financial stress, all of which tend political tensions, geopolitical turmoil and to foster demand for gold. Transaction Costs High Low Low Low Teconomic turbulence. Gold prices, historically, tend to surge significantly only during periods of negative Gold as an asset class Applicable for 36 months. If held for > 36 If held for > 36 real interest rates when gold reclaims its traditional There is an opportunity cost of holding gold as unlike LTCG No capital gains tax if held If held for > 36 months months months role as store of wealth that would at least keep pace bonds or equities, gold doesn’t pay any interest or till maturity with inflation to preserve the purchasing power of the dividend. Gold’s effectiveness as a hedge may help the Can it be used as col- Yes No Yes Yes investment. Bonds have a committed return, in the risks associated with portfolio volatility and thereby help lateral for loan? form of coupon / interest, which would result in real in improving risk adjusted return. positive returns most of the times, or sometimes a loss, Looking back almost half a century, the price of Not tradable on Tradable on any MMTC- PAMP Tradability Tradable Tradable depending on movement of interest rates. gold has increased by an average 14.1 per cent per year exchange India Pvt Ltd platform Gold has served as a strategic asset which acts as since 1973. Gold’s long term return has been higher an effective portfolio diversifier and aids in improving than Indian stocks and higher than Indian government Lock in period No No 5 years No risk adjusted returns while adding liquidity during bonds, also outperforming other major asset classes periods of crisis without side effects of impact cost Higher due to additional Total Return In line with price Lower than price In line with price or difficulties in timing the market (Chart-1). As per Methods of investment benefit of interest pay-out analysis of world gold council on the hypothetical Investment in gold can be done through physical gold, portfolio based on Willis Towers Watson Global digital gold, sovereign gold bond, Gold ETFs or multi- Purity of Gold Variable High High High Pension Assets Study 2019 and Global Alternatives asset funds. Every mode of investing in gold has different Survey 2017, allocation of 2.5-10 per cent investment benefits and the choice depends upon the investor’s time One time cost for storage & Can be high if Low(held in Very low(held in the books in gold provides an optimum hedge over the long run horizon and other requirements. safety-included in the price of Storage Cost kept in locker demat form) of central bank) while considering returns, portfolio volatility, risk gold while buying adjusted returns and portfolio drawdown. Debt as an asset class Gold has historically protected investors against The asset category of bond mutual funds provides an 5 years. In case no transaction 8 years. Can be redeemed extreme inflation. In years when inflation in India was excellent avenue for retail investors to participate and Tenor None None has been made for 18 continuous after 5 years higher than 6 per cent gold’s price increased 11.5 per benefit from stable returns and portfolio diversification. months, account is deactivated cent on average (Chart-2). Further, research by Oxford Mutual funds are favoured globally with the variety of Economics shows that gold should do well in periods of investment options that they offer right from liquid, ultra-short term to long-tenure. Debt mutual funds invest in fixed income securities like corporate bonds, There is an accrual in the portfolio or bonds carry a (b) we are doing the comparison after the Average Nominal And Real Gold Return government securities, treasury bills, bank certificate of coupon, which accrues proportionately to the returns significant up-move in gold prices due to global deposit, commercial papers. every day. Market based returns are over and above uncertainties. 12 Nominal Return Over a period of 18 years, short-term debt funds have the accrual. Hence, there is a better degree of stability Real Return generated a CAGR of 7.54 per cent whereas gilt funds in debt mutual funds. For comparison with debt MFs, For the investor, it is better to take a portfolio 8 8 generated a higher CAGR of 8.18 per cent. Over this the nearest comparison is gilt funds, as it does not allocation approach, which would optimise risk- period gold generated a CAGR of 12.58 per cent. carry any credit risk and market-linked volatility is adjusted returns. 4 4 Balanced allocation to equities, bonds, and gold higher than other debt fund categories. Looking at the latest returns from gold, one would

Average Annual Return Annual Average and other commodities is important for better risk be tempted to allocate higher. However, the current 0 adjusted returns across good and bad times in markets. To be noted: bull run would continue till uncertainties persist. Low inflation (<=6%) High inflation (>6%) Allocation of 10-15 per cent to gold and the balance (a) The sanguine returns from gold includes rupee India CPI% Y-o-Y between 1981 and 2019 to the staple asset classes of equity and debt as per risk depreciation. For Indian investors, the global The author Joydeep Sen is Managing Partner, appetite and horizon of the investor can significantly appreciation of gold prices is augmented as the Sen & Apte Consulting Services LLP, Shweta Purswani is Senior Sources: Bloomberg, ICE Benchmark Administration, World Gold Council improve risk adjusted returns. landed or imported cost of gold is relevant Manager (Corporate Banking) at RBL Bank.

26 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 27 Column

Comparison Between Different Class Of Assets

MF Vs Gold: What Is Best For You? BASIC PHYSICAL GOLD SGB DIGITAL JOYDEEP SEN AND GOLD ETF GOLD Investors should take a portfolio allocation approach for optimal results SHWETA PURSWANI Min 1 gram and Min 1 gram and max 4kg Min limit depends on distributor- Investment Limit No limit max no limit for an individual no max limit raditionally, investors have embraced gold as deflation as well. Such periods are characterised by low Safety security Risk of theft Safe Safe Safe and held in vaults a safe haven for portfolio protection during interest rates and high financial stress, all of which tend political tensions, geopolitical turmoil and to foster demand for gold. Transaction Costs High Low Low Low Teconomic turbulence. Gold prices, historically, tend to surge significantly only during periods of negative Gold as an asset class Applicable for 36 months. If held for > 36 If held for > 36 real interest rates when gold reclaims its traditional There is an opportunity cost of holding gold as unlike LTCG No capital gains tax if held If held for > 36 months months months role as store of wealth that would at least keep pace bonds or equities, gold doesn’t pay any interest or till maturity with inflation to preserve the purchasing power of the dividend. Gold’s effectiveness as a hedge may help the Can it be used as col- Yes No Yes Yes investment. Bonds have a committed return, in the risks associated with portfolio volatility and thereby help lateral for loan? form of coupon / interest, which would result in real in improving risk adjusted return. positive returns most of the times, or sometimes a loss, Looking back almost half a century, the price of Not tradable on Tradable on any MMTC- PAMP Tradability Tradable Tradable depending on movement of interest rates. gold has increased by an average 14.1 per cent per year exchange India Pvt Ltd platform Gold has served as a strategic asset which acts as since 1973. Gold’s long term return has been higher an effective portfolio diversifier and aids in improving than Indian stocks and higher than Indian government Lock in period No No 5 years No risk adjusted returns while adding liquidity during bonds, also outperforming other major asset classes periods of crisis without side effects of impact cost Higher due to additional Total Return In line with price Lower than price In line with price or difficulties in timing the market (Chart-1). As per Methods of investment benefit of interest pay-out analysis of world gold council on the hypothetical Investment in gold can be done through physical gold, portfolio based on Willis Towers Watson Global digital gold, sovereign gold bond, Gold ETFs or multi- Purity of Gold Variable High High High Pension Assets Study 2019 and Global Alternatives asset funds. Every mode of investing in gold has different Survey 2017, allocation of 2.5-10 per cent investment benefits and the choice depends upon the investor’s time One time cost for storage & Can be high if Low(held in Very low(held in the books in gold provides an optimum hedge over the long run horizon and other requirements. safety-included in the price of Storage Cost kept in locker demat form) of central bank) while considering returns, portfolio volatility, risk gold while buying adjusted returns and portfolio drawdown. Debt as an asset class Gold has historically protected investors against The asset category of bond mutual funds provides an 5 years. In case no transaction 8 years. Can be redeemed extreme inflation. In years when inflation in India was excellent avenue for retail investors to participate and Tenor None None has been made for 18 continuous after 5 years higher than 6 per cent gold’s price increased 11.5 per benefit from stable returns and portfolio diversification. months, account is deactivated cent on average (Chart-2). Further, research by Oxford Mutual funds are favoured globally with the variety of Economics shows that gold should do well in periods of investment options that they offer right from liquid, ultra-short term to long-tenure. Debt mutual funds invest in fixed income securities like corporate bonds, There is an accrual in the portfolio or bonds carry a (b) we are doing the comparison after the Average Nominal And Real Gold Return government securities, treasury bills, bank certificate of coupon, which accrues proportionately to the returns significant up-move in gold prices due to global deposit, commercial papers. every day. Market based returns are over and above uncertainties. 12 Nominal Return Over a period of 18 years, short-term debt funds have the accrual. Hence, there is a better degree of stability Real Return generated a CAGR of 7.54 per cent whereas gilt funds in debt mutual funds. For comparison with debt MFs, For the investor, it is better to take a portfolio 8 8 generated a higher CAGR of 8.18 per cent. Over this the nearest comparison is gilt funds, as it does not allocation approach, which would optimise risk- period gold generated a CAGR of 12.58 per cent. carry any credit risk and market-linked volatility is adjusted returns. 4 4 Balanced allocation to equities, bonds, and gold higher than other debt fund categories. Looking at the latest returns from gold, one would

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

ARCHIT GUPTA “If the bonds are sold through the exchange Founder and CEO, ClearTax Gold With An Extra Glitter before three years from the date of purchase – the gains, if any, will get added SGBs give you returns in the If you want to avoid capital gains tax, earn a safe yearly to the gross total income form of capital appreciation interest and enjoy the surge in asset class, go for SGBs and therefore are taxable and interest income at at marginal rate of tax as 2.5 per cent per the tax slabs. If one holds for over three By Vishav GAINS years, LTCG will apply at 20 per old has remained a preferred cent (plus the Performance Over last 5 years investment class for Indians for CAPITAL cess),” explains generations, not only due to Apoorva H. Vora, NAME 2016/17 2017/18 2018/19 2019/20 2020/21 Gfinancial reasons but for cultural factors Founder, Finolutions Wealthcare. PPF 8.10% 7.80% 7.60% 7.90% 7.10% as well. India is the second-largest Consider this, if you make a purchase bonds He adds that one can build gold exposure consumer of the precious metal and worth `50,000, you will earn 2.5 per cent interest not only through physical gold and sovereign EPF 8.65% 8.55% 8.65% 8.50% 8.65% considers it auspicious asset. every year for eight years’ maturity with the bonds, but also through mining stocks, SCSS 8.30% 8.30% 8.30% 8.60% 7.40% However trends are changing. While market value too. Early redemption is allowed structured products on gold, or ETFs. “When accumulating physical gold is a sign of after the fifth year. It can also be traded at stock buying gold, focus can be on its characteristics NSC 8.10% 7.80% 7.60% 7.90% 6.80% Fintrust Source: prosperity, many feel safe in keeping as an exchanges. of being a safe haven, stability, and certainty. FD 7.00% 6.50% 6.75% 7.00% 6.10% asset class in demat or digital format. The risk of loss of scrip and costs of storage The most important criteria should be to There are different ways one can invest in are also eliminated as the bonds are held in reduce portfolio level volatility, and invest Gold -0.14% 6.66% 4.24% 36.44% 23.45% gold — buying the yellow metal in physical demat form. There will always be a copy of your in gold as a reasonable hedge against global Public Provident Fund (PPF); Employee Provident Fund (EPF); Senior Citizen Savings form, Gold ETFs and now, Sovereign Gold investment details with the RBI. economic uncertainties,” Vora opines. Scheme (SCSS); National Savings Certificate (NSC); Bank Fixed Deposit (FD) Bonds (SGBs). Issued by the Reserve Bank Archit Gupta, Founder and CEO, ClearTax, Acting as an insurance against of India (RBI), SGBs have emerged as a good says SGBs are an excellent alternative to physical uncertainties, and with its inflation-beating substitute for holding physical gold. The gold for the additional 2.5 per cent returns. capacity and high liquidity, gold will continue depreciation in the last one decade. government issues such bonds in tranches and “At the start of August 2017, the price per to shine, especially in troubled times. This is “The precious metal may continue gaining investors buy them through banks, post offices one gram of gold was `2,619.25 per gram, visible in the fact that gold has given almost price until the spread of the COVID-19 and markets. and it almost doubled (to `4,769.63) at the 40 per cent returns in the last year, crossing pandemic is controlled and any obvious signs When it comes to a choice between start of August 2020. Now, if you had invested `55,000 levels, before the recent correction. of economic recovery emerge. About 10-15 investing in physical gold and gold bonds, gold in physical gold, then your returns are the Many expect it to reach `65,000 levels in the per cent allocation of yellow metal is sufficient bonds have some advantages over physical difference between the buying and selling coming months. to achieve long-term diversification of the gold. Investors earn 2.5 per cent interest per prices. There may be certain losses on account Every financial advisor would recommend investment portfolio,” she explains. annum on the principal value of investment of making charges etc. Moreover, getting cash investors to have some proportion of gold in According to Saba, if gold and its products in addition to the price appreciation of gold. for gold may be difficult too. On the other hand, their portfolio. have to be purchased for investment purpose, “it if you had invested in sovereign gold bonds, However, investment in gold should not be is the correct time to enter this asset class.” you would get returns in the form of capital compared with fixed income schemes like FD Nikhil Kamath, Co-founder and CIO, appreciation and interest income at the rate of and PPF, says Jashan Arora, Director, Master Zerodha, says it is important to note that Watch Out For 2.5 per cent. One also has to consider the effort Capital Services. “First, it does not provide any different asset classes are not perfect substitutes involved in storing physical assets and keeping fixed returns. Rather the returns are subject to for another, and a diversified portfolio is key with them safe,” he explains. price appreciation of gold. Unlike fixed income an approximate allocation of about 10-15 per While physical gold attracts Long-Term instruments, gold is an internationally traded cent to gold among other asset classes. Investors should avoid aggressive bets with gold price rise hovering Capital Gains (LTCG) tax after three years, there commodity and its performance is highly However, he warns that it wouldn’t be wise between 40 to 50 per cent over last one year and 11 per cent in July alone is no capital gains tax for SGBs if an investor influenced by factors such as supply, import to extrapolate past returns to the future. “While SGBs are best placed for HNIs as they do not attract capital gains tax if holds them till maturity of eight years. cost, currency risks and so on,” he explains. gold is considered to be an inflation-beating held until maturity Other instruments like equity attracts a 10 per According to Malini Saba, Founder and asset, the metal should be invested in to serve as Despite fixed tenure of 8 years, early redemption is allowed after 5 years cent LTCG, debt funds are taxed at 20 per cent Chairman of Saba Group Holdings, which a hedge to other investments, rather than purely One can also trade the bonds on the exchanges, though liquidity is low with indexation. So do gold ETFs. among other businesses also operates in gold for returns,” he adds. In the secondary market, one must remember that trade is at a discount Hence SGBs are best placed on the taxation mining, the market for investment in gold as Saba sees gold as a good choice for better If you buy a bond after four years of its issue, remember you would get front especially for HNIs. However, interest on an asset class is a safe bet for investors across returns than fixed deposits. She prefers investing the 2.5 per cent interest only for the remaining four years. gold bonds are taxable. the globe. She says gold has seen very less in physical gold instead and says, “We all are

28 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 29 Cover Story

MALINI SABA Founder and Chairman of Saba Group Holdings variability in gold purity, inconsistence and non-transparent transaction cost, risk of theft, significant liquidity cost owing to About 10-15 per cent allocation irrecoverable making charges on resale, is sufficient to achieve storage issues especially when portfolio size is long-term diversification of large, make physical gold less attractive from portfolio investment perspective compared to gold bonds, opines Prashant Joshi, Co-Founder and Partner (Financial Research and Advisory Services), Fintrust Advisors. aware that all banks are giving the worst “Gold bonds provide for marginal passive interest rates presently. I prefer investing in income paid half-yearly, which is also added physical gold and from experience, if we look to total returns,” he adds. at the way the economies of the world have It is crucial to understand that gold, in been since 2008, it may be prudent for all of us itself, should not be invested in purely for the to learn and make sure we stay in liquid form goal of returns. Gold, a commodity that does to some extent and hold gold as an asset.” well when uncertainty is high, works well as However, she suggests that one should consult a hedge against other asset classes such as their investment advisors to get the right asset equity. While it is relatively stable, long-term allocation. returns are generally not very high.. Various factors such as concern and [email protected]

All That Glistens Is Not Gold Remember to gauge the yellow metal’s purity

gold we purchase is not certified. In such scenarios, it is always safe to go for certified jewelleries rather than going with a promise of purity. The process of certifying gold’s purity is termed as hallmarking, which was introduced in India by the

Tribhuvan Tiwari : Tribhuvan Photo Bureau of Indian Standards (BIS). Hallmarking is done through a sampling method in a licensed laboratory of BIS. Jewellers, themselves have to get a license from BIS before they get their artefacts hallmarked. It can be measured in Karat, categorised as 24, 22, 18, 14, 10. A 24 Karat gold is considered as the purest By Indrishka Bose and delicate form as it comprises 100 per cent gold. In general people prefer jewelleries made up of 22 Karat dmiration for gold is deep-rooted in India’s to 10 Karat of gold. tradition, starting from the birth of a child to Before the hallmarking scheme was revised it had an wedding ceremonies. Gold finds its place in additional component where a code letter denoted the everyA shopping list. Despite its popularity, thousands year of hallmarking. end up paying a higher price for less pure jewellery. It is always easier to gauge the purity of gold by Some prefer major brands to avoid any compromise on searching for a Karat stamp on the piece. And in case, the quality. Those who cannot afford often settle for a if you see no stamp, you can always visit the jewellery promise. However, it is found that the majority of the store and get your piece tested.

30 Outlook Money September 2020 www.outlookmoney.com Commodity Trading Made Easy Benefits Of Strong Commodity Derivatives Trading

ommodities are Well, as financial tool, kind of price fluctuations. the intervention of goods used in commodity derivatives Oscillations in prices of buyers and sellers. Since daily lives, which are beneficial to multiple export and import products, it is completely driven Care essentially movable sections of the society. often have a direct affect by market fundamentals, and exchangeable. These Whether it’s a farmer, on bottom-line pricing. the risk factor of are essentially financial industrialist, businessperson However, derivative trading manipulation also gets instruments whose value or just a simple investor, can help one sell or procure negated. Also, because is based on underlying benefits are galore in commodities at a price commodity returns commodities such as terms of commodity decided months before the usually have low or agricultural products, oil derivatives trading. An actual transaction takes negative correlations with and gas, metals and investor can benefit in the place, thereby handcuffing the returns of other major mineral products. following ways: any subsequent chances of asset classes, so often What sets apart price fluctuation that when bonds and stock commodity derivatives 1. Diversification: might happen. prices fall, commodities investments from others is Since returns from Among other major rise. For example, when the fact that it benefits all commodities markets are benefit of commodities Lockdown 1 was imposed, segments of the economy. free from direct influence derivatives trading, risk bear stranglehold While it enables the of debt and equity markets, management needs special continued with its consumer in getting an they make for effective mention. Exchanges follow tightened grip with stocks idea of the price at which hedging instruments along well-structured processes and bonds plummeting, the commodity would be with providing better along with judicious risk gold prices received a available at a certain time diversification. management procedure, shot-in-the-arm owing to in future, it provides the which acts as reassurance its status as a-safe haven exporter with an advance 2. Lower manipulations: for investors. (investment tool) among indication of the price Commodities pricing are Yet another reason as to investors. likely to prevail and thereby governed by international why should commodity However, like every enable him in quoting a pricing movements, which derivatives trading be other financial instrument, realistic price and secure a makes it less prone to included in an investor’s trading in derivative contract in an immensely manipulations and rigging portfolio happens to be the commodities also has its competitive market. by individuals. aspect of transparency. The share of risks. Hence, Now, why should On the other hand, availability of an electronic investors must keep consider investing in commodities derivative trading platform helps in themselves abreast about commodities? How will it trading can help importer or generating a transparent the markets and then take help your overall portfolio? exporters hedge against any pricing mechanism without informed decisions. Cover Story

Golden Deal

You may wish to buy gold jewellery before gold prices go up further If you need jewellery for an immediate need, remake or restore existing jewellery Take quotes from different jewellers to get the best price before selling your gold ornaments Stay away from cash for gold companies and only deal with legitimate jewellers Look for schemes like buying jewellery in installments rather than making a one-time To Buy Or Not To Buy payment - offering a designer to sit with a consumer The glitter of the yellow metal is hard to resist but watch for the price tag to recreate or restore or repair existing gold jewellery. Photo : Tribhuvan Tiwari As Dr. C. Vinod Hayagriv, Managing Director at C. Krisniah Chetty Group of By Anagh Pal “For the sake of jewelry the demand is where they have nowhere to go, and no one Jewellers explains, “The idea is to make a almost negligible, but there is a demand for to show off to,” argues Amit Mehra, MD, new piece out of an old one and that way olkata-based Anjana Mitra has her bullion alike,” says Neeraj Khanna, director, Mehrasons, Yashpal Mehra Group. you do not have to buy new jewellery yet daughter’s wedding in November. Niraj Krishna and Sons Jewellers. He, however, adds that with unlock-down save money.” However, he adds that when it With skyrocketing gold prices, she When consumers see a steep rise in price and restrictions being relaxed, jewellers are comes to the wedding market, some people Khas now decided to remake and polish some they hesitate to buy gold. “Customers usually seeing customers arriving - especially those are advancing their purchases and buying to of her existing jewellery, instead of buying wait for the prices to stabilise at a range with disposable income or professionals beat the inflationary prices of gold. everything for her daughter’s wedding. value of 1-2 per cent of the volatility. Only looking to invest in timeless pieces of There is even a trend of selling existing In the last four months, gold has been very then markets are able to regain trust in the jewellery. He maintains the footfall will take gold jewellery to meet liquidity needs, volatile, up by 8-10 per cent, which conveys purchase gold,” explains Abhishek Raniwala, a while to return to pre-COVID days. but that is mostly the case with the lower instability and uncertainty among consumers Co-founder, Raniwala, a jeweller that has “We are seeing a mix behaviour from socio-economic segment who are unable who otherwise regularly invest in the yellow existed since 1881. Delhi-based Aakansha consumers - new purchases and exchange of to meet their expenses. “Jewellery is not metal. People are shying away from buying Singh too is putting away her gold purchase old gold for new gold. What we are seeing is really the first asset, one is ready to sell fine gold at `57,000 per 10 grams. for similar reasons. She feels the price is too - families, as well as the bride and groom are to meet their needs. Jewellery is seen as a high for her comfort. looking for lighter and more wearable pieces sacred investment and auspicious asset, It is very important we contextualise (medium to light-weight pieces). The pieces usually passed down from one generation to AMIT MEHRA the current rise in gold prices within the they are choosing have more functional use, another. It holds a lot of emotional value too. MD, Mehrasons, Yashpal Mehra Group peculiar socio-economic circumstance of more versatility, as opposed to heavy gold I personally do not feel that the situation has the pandemic. “The situation has created jewellery,” says Mehra. come to the point where one would sell off The situation has created confusion in the consumer’s mind on whether Since people are looking to remake gold so easily,” argues Raniwala. confusion in the minds of the to buy or invest in a product like gold jewellery they already own and jewellers are As of now, the yellow metal is certainly jewellery at a time like this, when the business cashing in on that. The situation is such that full of glitter. Make a wise decision on consumers on whether to and basic livelihoods need funds as well. nobody wants to lose out on business. whether you want to buy physical gold or buy or not Consumers are also questioning the need for C. Krisniah Chetty Group of Jewellers is ornaments. gold and precious gems in a social situation offering a program - Beat the COVID Blues [email protected]

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

Golden Deal

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

TAPAN PATEL crunch in the market due to COVID-19 $46 billion gold loan industry is dominated Senior Analyst, HDFC Securities Ltd Pledging Gold For Loans induced pandemic.” by informal lenders, whose interest rates can These are secured loans where gold range anywhere between 25 to 50 per cent. articles are taken as collateral by the With the size of the unorganised gold loan With gold prices going high and Soaring price of the yellow metal is fuelling lending bank or NBFC. The loan is given to sector, which is estimated to be three times a liquidity crunch in the market rise in demand for gold loans borrowers against gold as a collateral. The the size of the organised sector, there is a due to COVID-19, demand for tenure of the gold varies with every lender significant potential for growth. gold loans has seen a spike and so do interest rates. Saurabh Kumar, Head of Gold Loan, IIFL By Rajat Mishra India’s largest lender SBI is offering gold Finance says, “We are going to witness a big loans at an interest of 7 to 7.50 per cent with demand for gold-backed loans in the year old is often seen as an auspicious the processing fee of 0.50 per cent. PNB is ahead. And a 50 per cent jump in overall loan and then make immediate disbursement asset in India with good gains and offering gold loans at an interest rate of 8.60 gold price means the market will expand to through NEFT or IMPS to the customer’s acts as a safe haven during crisis. to 9.15 per cent with a processing fee of 0.75 cater to the needs of the people. Gold loan bank account. Muthoot Finance is also WithG pandemic looming large, the yellow per cent. Muthoot Finance offers loans at an is a quick and easy product to get. One can offering “Loan@home” service where the metal has seen a sudden spike in demand. interest rate of 12-27 per cent. walk into a branch, take a loan and walk out NBFC is helping customers to avail loan Tapan Patel, Senior Analyst, Commodities, On August 6, Reserve Bank of India (RBI) with cash in just 30 minutes. Its hassle-free without stepping out of their homes. HDFC Securities explaining the reason increased the permissible Loan-To-Value nature is one of the reasons behind the IIFL Finance, the non-banking finance behind the picking up demand for gold- (LTV) on gold for non-agricultural purpose boost in demand.” company, has launched Digital Gold Loan, backed loans, says: “There are two reasons to 90 per cent from 75 per cent. This According to credit rating agency Crisil, which allows customers to avail loans online, which are driving the rise in demand of gold- relaxation will be available till March 2021. the overall loan growth in India’s banking without visiting the branch. backed loans in India- one, gold prices are This means borrowers can now get more system has already been decelerating and is “To make the process of availing loans going high and secondly, there is a liquidity money on the same gold collateral and banks expected to hit a multi-decade low of 0 to 1 easy, we have our 24*7 product where our can lend more against gold ornaments. Non- per cent this fiscal. existing customers need to send an SMS and banking lenders specialising in gold-backed In fact, now banks and NBFCs are once they do so their accounts are credited loans have approached the RBI seeking to scrambling to grab a pie of the rise in demand with the money. For new customers, we are enhance the permissible LTV to 90 per cent for gold loans. ICICI Home Finance has adhering to all safety norms put forward by in their case too. started offering gold loans through its 70 the health department,” explains Thomas Muthoot Fincorp, a leading non-banking branches; Canara Bank recently restructured George Muthoot, Director, Muthoot Fincorp. financier has disbursed loans worth Rs its business to launch a gold loan vertical. As per World Gold Council’s (WGC) 8,321.72 crore during Jan to March, with over Amid contactless culture, companies are estimates, Indian households are sitting on a 19 lakh customers as compared to previous trying to make the process convenient and $1.5 trillion hoard of gold, the biggest of its year. Between May and July, gold loan worth fast like never before. Manappuram Finance kind, largely in the form of jewellery. Rs 10,250 crore has been disbursed to over 20 too has announced doorstep delivery of gold With the pandemic and a surge in price of lakh customers. Mumbai-based India Infoline loans in Delhi and Mumbai. The process the yellow metal, growth of gold loans too has (IIFL) disbursed loans worth Rs 1,674 crore. promises to be hassle free and requires seen a hike. Experts are of the view that there “Loan against gold has undisputedly two employees of the company to visit the is more scope of an upswing. proven to be the best option for customers customer’s residence to appraise the gold [email protected] during unprecedented times like this. Demand has increased substantially across the board. Our portfolio has grown by 48 per cent year-on-year, with a 100 per cent increase in new loans to back customer acquisition. Disbursement has grown by 44 per cent,” says CVR Rajendran, MD & CEO of CSB Bank. According to a KPMG report, India’s gold loan market is expected to reach Rs 4.617 lakh crore by 2022 at a five year compounded annual growth rate at 13.4 per cent. The organised gold loan market comprising banks, NBFCs and Nidhi Companies contribute to nearly 35 per cent of the Indian gold loan market. About 65 per cent of India’s

34 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 35 Cover Story

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Tremors In Bullion Market

Jewelers live under stress due to bullish trend DINESH PAREKH

n 2020 gold prices have breached the psychological $2,000 per ounce for the first time after 2011 when gold price reached $1,923 per ounce. I This year seems to be the year of precious metal, as in the past eight months gold price has increased by 40 per cent. New investors in gold have emerged, for example, Warren Buffet of Berkshire, who once mocked, makes a bet on the gold market. He changed his position in Barrick gold, buying 20.9 million shares or 1.2 per cent of the company’s outstanding stock with the current market value of $505 million. In the past, Buffet cautioned against investing in the metal because it is not productive like a farm or company. He might have been averse to gold in the past, but he has Gold prices, which was around `51,200 on August 26 bet big on metal before in 1997 when he bought 129.7 is also likely to go further up to `65,000 per 10 gms before million ounces of silver. Diwali. Paulson & Co, run by billionaire hedge fund manager, The jewellers are under extreme stress as they fear that John Paulson, added its holding in Barrick Gold. Recently, soon people may rush to sell their ornaments to get rid of its shares rose to 7.4 per cent in a single day after trading the liquidity crunch which they faced due to job losses. in Newyork market. However, there is hope in Zaveri Bazaar in Mumbai Billionaire Peter Grandich of Grandich Co who bought as most of the traders and importers had honoured their gold after selling all his shares and savings said that the commitment to deliver gold and silver at the highest level gold price will touch $700 per ounce. price against costlier forward deals committed at lower As India is dependent on imports, any change in the prices. global market will immediately reflect on the domestic The CEO of RSBL Company, Prithviraj Kothari market price. mentions that at this high price, new interested investors In the Indian market gold and silver prices have are entering the market to buy gold and silver bars, recently touched the new high as import cost of bullion whereas, old investors are not daring to take the risk. metals have gone up after a rally in the global market. As Prakash from Dilkhush Company, a silver bullion the production of these gold and silver metals in India is trader says, “All traders and small investors are buying negligible silver bars at all prices. Our sales have decreased by 50 per As India is dependent on imports, any change in the cent but still, we sell 200 to 250 kg silver bars per day with global market will immediately reflect on the domestic limited staff members.” market price. Silver ornaments and utensil shopkeeper, Hitesh from In the case of silver, we have seen such record prices Hema Jewelleries informs that till transport facilities gain in the year 2011 when the price touched `77,000 per kg. normalcy they are not going to welcome more customers. Looking at the present situation silver prices are likely to They will open the shop to update the accounts and pull go up further to `80,000 per kg in a short time and will down the shutter after that. break the previous record, a leading trader said. As uncertainty lingers with loss of economic activity and exponential rise in coronavirus cases, the revival of businesses will take a long time. However, it is predicted As uncertainty lingers, revival that the price will continue to rise. of businesses will take time The author is a journalist and bullion researcher in Mumbai

36 Outlook Money September 2020 www.outlookmoney.com Viewpoint Understanding RISK If you understand the risk, know the risk and then take the risk, you will be in a much better position than if you’re ignorant of the dangers.

equity or debt, is pretty low. In fact, each risk matters to us. Based on over a decade, the potential gain on that we can decide how much of each an equity fund tends to be much investment option we should have. better than a debt fund. Strategy to mitigate risk Risk isn’t always about Consider the risks involved in driving losing money a car. To some extent, these are linked When investing, the risk of losing to the way that a car is built (how money, in the short term, is a very strong or weak is its body, what safety real one. In the long term, the features it has or lacks etc.). However, dominant risks in investing are not a lot would depend on how we drive being able to beat inflation, inability the car. For instance, driving the car Chandan Ghosh to adequately fund long term goals rashly, without wearing a seat belt, Chartered Wealth Manager, etc. What if, thanks to inflation, ten increases the risks involved. The same AAFM, USA years from now, our investments are applies to investing. Example: The not worth what it is today? What if risks pertaining to equity funds tend to we don’t have enough money during be magnified if one is investing without or a layman investor, it may retirement to enjoy a comfortable a care for market valuations and for appear to be normal that lifestyle? By being focused only short term gains. On the other hand, Fequity is riskier than debt. on not losing money, one could be investing in a staggered manner for That’s because to many of us, risk in caught unaware by long term risks the long term, tend to reduce the risks an investment is about losing money, such as these. The other risk we need involved to a great extent. and there is a greater chance of that to be wary of is not getting back happening in an equity fund than our money as and when we need it. Risk management begins with in a debt fund. We could draw a Among mutual fund investors, this knowledge similar conclusion if we were to go can particularly impact those who While investing, risk is a potential by “riskometer” that every mutual invest in closed end schemes, and obstacle in the path of getting optimal fund scheme document carries, try to exit before the maturity of the returns. We cannot avoid them, but under which schemes are classified scheme. we can surely overcome them. To do by the extent to which an investor’s so, we must first understand the nature principal is at risk. Typically, debt of risk involved. While the earlier funds are shown having low to points offer clues to the broad nature moderate risk whereas equity funds of risk, one of the ways to understand are shown as having moderately-high the finer aspects is by looking at past to high risk. Reality is that risk is performance data. The objective here too complex to be assessed in such is to looking at how various investment a simplistic manner. As an investor, options and strategies have performed, having a thorough understanding in an attempt to find the answer to of risk can help us make better the proverbial question: what’s the investment decisions. Comparison of Risk worst that can happen? This is where While debt funds are relatively the saying from former investment Context matters when safer in the short term, they carry manager, Edmond Warner comes alive: assessing risk a much higher long term risk “History never repeats itself, but you If investment tenure is short, then of underperforming the rate of owe it to yourself to be acquainted with the chances of losing money in inflation. So, can we logically make the bear markets. At least if history equity much higher than in debt. a fair comparison between debt and does then repeat itself you can’t say However, if the investment tenure is equity funds overall risk element? that you weren’t warned.” 10 years, then historical data suggests Fact is; we can’t. The approach (Author is the Founder Director, that chances of losing money, be it here is to assess the extent to which Prudent Wealth) Cover Story

“The base metal, sometimes Is Copper The New Gold? called as Dr Copper, as it often plays a role in deciding the health of the global economy, has seen a surge by Time to invest in the base metal, which has a whopping 45 per cent since mid- seen a 45% surge since mid-March March, despite the shackled economy,” says Malini Saba, Founder and Chairman, Saba Group Holdings. By Vishav clear, falling to its lowest levels since “The red metal has its widespread late 2016 in March. However, by use in power generation and opper prices have lately seen mid-June, it had bounced back with transmission, manufacturing a surge like never before, improvement in copper demand machinery and more than 65 per having risen around 45 per in China, coupled with stimulus cent of it goes directly into building Ccent in only a few months. After packages and supply disruptions construction and electronics. falling due to the lockdown, the price in top-producing countries. It Thousands of copper workers’ illness of copper has now bounced back to surpassed $6,000 a tonne in June and mining restrictions disrupted pre-COVID levels, and surpassed it. and is now trading at around $6,700 production, thus decline in output, It is now expected to keep surging as a ton. It was trading in the $4,300- in Chile and Peru, the biggest factories open up and manufacturing $4,400 range in mid-March. exporters of copper ore in the picks up the pace. This surge in One major factor for this price world,” she explains. copper prices is interesting because surge is the remarkable bounce- Pointing towards the strange usually, copper and gold prices move back in Chinese demand fuelled by phenomenon, Saba adds that in opposite directions. When there the government’s push to stimulate both gold and copper are moving is an economic slowdown, price in unusual ways, despite the of gold shoots up, as is happening downgrading global forecast by recently, because investors look for IMF and a resurgence of COVID-19 a stable investment instrument. One major factor for infections, forcing governments Copper prices at these times, this price surge is the around the world to re-impose however, fall as manufacturing and remarkable bounce crippling lockdowns on business. construction face hurdles. back in Chinese However, she expects the trend to That is the reason it is surprising demand fueled by its continue and demand for copper, and that both copper and gold prices in turn its prices, to rise further. have been rising in tandem in the government’s push to “Copper has experienced a last few months. Copper prices stimulate economic phenomenal growth in China, India, crashed early this year with the activity and other emerging market economies. scale of the COVID crisis becoming Its demand has also increased in the manufacturing and construction economic activity especially in the industries and is expected to rise copper-intensive infrastructure further as electric vehicles become sector. As per experts, China, more prevalent in the world. The rule which consumes half the world’s of supply and demand tells us that this copper, has been steadily can cause the price of copper to travel eating through stockpiles up as a result,” she says. as industrial production Investors normally tend to focus restarted and construction on precious metals to diversify their sector picked up pace. portfolios. But base metals like copper With government’s offer an opportunity to profit from support to the copper- industrial development, especially in consuming sectors, a countries like India and China. Apart further pick-up in Chinese from trading in contracts on the demand will probably remain exchanges through a broker, one can the key driver in the second also invest in copper stocks. half of the year. [email protected]

38 Outlook Money September 2020 www.outlookmoney.com General Insurance Made Easy Motor Insurance FAQs

Does COVID-19 outbreak 60 days or more only to meet Mr. Parthanil Ghosh, President – Motor impact vehicles due to the monsoon woes. Hence, we Business, HDFC ERGO General Insurance Company long time periods of non- will advise to take help of your Ltd. “An individual’s vehicle is a prized possession and usage? workshops to check the vehicle requires a good insurance cover to secure it against The lockdown not only disrupt- before monsoon. damages, especially during the monsoons. Coupled with ed daily lives but also caused immobility during the recent lockdown the chances of vehicles to remain immobilized What is a fool-proof way these risks aggravating are especially high. It is always for prolonged durations due to to protect my vehicle better to be safe than sorry. Therefore, apart from the reduced need of travelling to from these uncertainties? taking personal care of the vehicle it is wise to invest in a comprehensive motor insurance policy with essential workplaces or running errands; Apart from taking the above add-ons to avoid any added financial and emotional this has caused vehicles to remain steps to avoid any untoward stress during these monsoon periods.” stationary for elongated periods damage to the vehicle, a com- of time potentially leaving them prehensive motor insurance more prone to breakdowns. policy will cover unwarranted financial losses and cover your and flat tyre replacement requiring replacement caused Is there a way to avoid ve- vehicle against uncertainties. Spare key – The customer can due to water entering the engine hicle breakdown? avail two services where the in- (hydrostatic losses) or oil leakage The best way to avoid break- How can vehicle insur- surer will arrange for a spare set in engine or gearbox of keys from your residence, and down due to immobility is to rev ance add-ons give more Zero-depreciation: Get com- the insurer will pay for changing up the engine at least once every safety? pensated for the full value of the car’s lockset. These depend on four days, keeping it lubricated It is highly recommended to in- damaged parts which need re- eligible conditions and charging the battery in regu- vest in add-on motor insurance placement in case of an accident lar intervals. Starting the car for packages to cover maximum Any add-ons specifically without any deduction towards a few minutes on a regular basis possible financial losses: for immobile vehicles and depreciation will ensure that the tyres remain Engine and gearbox protec- for monsoon protection? Cost of consumables: This in good shape. We at HDFC tion cover offers protection Vehicle owners are advised to cover pays for consumable items ERGO have launched #Jumpt- against expenses which are in- get following add-on cover such as nuts, bolts, bearings StartThem campaign, to help all curred on repairs and replace- while insuring their vehicles which require replacement in our customers to jumpstart their ment of parts insured: case of damage, and are normal- vehicles in case there are some Consumables cover is for re- Return to invoice: In case of ly not covered as part of claim total loss (due to floods /water problems in starting them post pair and replacement of most No Claim Bonus Protec- logging) or theft of your car, long period of immobilization. consumables like oil, nuts, bolts, Allows customer to be entire value mentioned on your tion: Monsoons bring with them pot- screws, washers among others vehicle’s sale invoice, including eligible for the next ‘no claim holes, water clogging, flooded Roadside Assistance Service registration charges and road tax bonus’ slab discount on renewal roads and traffic jams. In the (RSA) cover provides services paid, for the vehicle is paid regardless of any claims made current situation, most vehicles such as mechanic on the spot, Engine & Gearbox protec- on account of damages while have come back on the road after vehicle towing, battery restart, tor: Pays for the value of parts the vehicle in parked. Insurance

“It is a matter of perception. Some the policyholders. All my 3,000 people are satisfied with the services employees work around the clock to UPASANA KAMINENI provided by the private sector get the claims settled in an expedited KONIDELA health insurers, whereas the few manner.” others are happy with the state-run The Supreme Court has taken a MD, Family Health general insurers for the same. It is critical view on the insurers’ lagging Plan Insurance TPA the market share enjoyed by various when it comes to settlement of HI insurers which can be seen as a claims in time. Despite taking differentiator,” says Sanjay Datta, In a recent judgment, the Supreme business from insurers, Chief Underwriting and Claims, Court has asked the Centre to ICICI Lombard GI. examine why insurers are not TPAs ensure timely PED is another grey area where reimbursing the entire COVID-19 claim settlement people face difficulties while buying treatment cost. a policy or even at the time of claim The apex court took judicial settlement. notice of general complaints about government to proactively look into Abhishek Muthiah, a start-up insurance companies playing truant the problem faced by citizens during coach from Coimbatore, is suffering in reimbursing the full cost of the pandemic. from bone-related diseases. Soon, the treatment and told the Union A bench of Chief Justice SA Bobde after having a successful surgery and Justices AS Bopanna and V in July 2018 he applied for a health Ramasubramanian told solicitor Photo: PTI insurance top-up plan as his existing Incurred Claim Ratio general Tushar Mehta to “take care base plan did not have the necessary Net Incurred Claims: Health Insurers of the insurance companies” who are coverage to compensate for the 125 allegedly slashing the reimbursement A Focus On Grievance And Complaint COVID-19 treatment. amount due to COVID-19 patients. 100 “Insurers went against the IRDAI Milind Kharat, the Insurance 75 Health insurance policyholders are caught between hard rock and deep-sea as they guidelines and denied the policy, Ombudsman for Mumbai and Goa struggle to settle their claims citing my pre-existing illness. 50 in an interview, informed that the Following the incident, I have raised 25 Mumbai centre has received only two a complaint with IRDAI’s grievances 0 107.12% 109.86% 75.85% 71.32% 60.68% 59.58% complaints and the value is less than Public Sector Private Sector Standalone ` By Kumud Das According to them, the insurers Normally, they directly approach the cell,” claims Muthiah. Insurers Insurers Health Insurers 1 lakh. are busy patting their backs by ombudsman with their grievances. “Choosing the correct health “The two complaints that we olders of health insurance claiming that they receive very few However, insurers often deny the insurance plan might prove to be FY 2018-19 FY 2017-18 received were in the non-life segment policies encounter multiple complaints from policyholders, renewal of HI policy on the ground quite a challenge for many, due to Source: IRDAI Annual report and both have been redressed. challenges when it comes hence suggesting that customers are of Pre-Existing Disease (PED). Their the varied types of health insurance Hto renewing old policies or getting largely satisfied with their services. woes do not stop here, as it is found plans available in the market. You Gross Direct Premium Income In India their claims settled by insurance The government has appointed that the policyholders’ claims get need to weigh the plans as per Market Share companies. several Insurance Ombudsman deferred for an uncertain period on your requirement and then choose General And Health Insurers across the country to handle some flimsy ground. accordingly,” says Dhirendra 2018-19 2017-18 2018-19 2017-18 grievances of insurance customers. Jagriti Chandra, a New Delhi Mahyavanshi, Co-Founder, Public Sector Insurers 67,794.23 68,658.85 45.00% 40.52% Even though the move has brought based professional, had taken Turtlemint, an InsurTech company. the redressal framework into focus, it a health insurance policy from In reply to an RTI query by an 12.58% 1.28% works through a system that appears Oriental Insurance along with a Indore-based activist Mukesh Private Sector Insurers 65,419.82 81,287.15 43.42% 47.97% to be quite discouraging. top-up of `20 lakh from Liberty two Trivedi, the IRDAI has said that 21.59% 24.25% Policyholders of Health Insurance years back. there is no particular qualification (HI) are compelled to run from pillar “It has been two months that required for the doctors to be Standalone Health Insurers 8,314.28 11,354.03 5.52% 6.70% to post to either get their policy I despatched the claim form appointed by TPAs that have been 41.93% 36.56% renewed or even their claims settled. along with all the required fixed by the authority. Specialised Insurers* 9,133.81 8,148.42 6.06% 4.81% originals and have not received However, Upasana Kamineni an acknowledgement yet,” claims Konidela, MD, Family Health Plan 10.75% -10.79% Chandra. Insurance TPA Limited (FHPL) GRAND TOTAL 1,50,662.13 1,69,448.46 100.00% 100.00% Now the question arises which denied it by saying that “though Consumers are mostly 17.59% 12.47% insurer state-run or private sector it is true that TPAs take their facing hassle in one is better in terms of premium business from insurers, they do Source: IRDAI Specialised Insurers*: ECGC (Export Credit Guarantee Corporation of India) settlement of claims rates or hassle-free claim settlement. ensure timely claim settlement of & AIC (Agriculture Insurance Company of India Limited (AIC)

40 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 41 Insurance

We have received a total of 800 complaints as of July 31, 2020,” says Milind Kharat. He described that the nature of complaints indicated the consumers are mostly facing hassle in settlement of claims. “Abiding by the guidelines of the local government, we have kept our offices open. Complaints are Photo: PTI received through both online and offline mediums and are being registered daily. Our Mumbai nearly 50 lakh policies, and have companies will not be able to reject centre has disposed of the highest received around 6 lakh claims, any claim, there was emerging news number of complaints through out of which 5.7 lakh claims are of insurers denying claims or delaying online hearings. So far, we have not settled. I would consider this to be a settlements. Labelling the news as received any complaints regarding satisfactory position.” merely rumours Radhakrishnan claim denials,” Kharat informs. Many consumers are left stranded says, “While we too have heard The provision of a cashless facility as they face obstacles due to legal market rumours to this effect, I can is extended by the hospitals as per technicalities. Based on this, both assure you that this is not true of the Preferred Providers’ Network Sahai and Radhakrishnan have United India Insurance and I am arrangement that insurance gladly announced that they have sure, not true of other PSUs as well. companies have with PPN hospitals. simplified the process by displaying While every claim is not payable and Such companies take action against FAQs and other requirements, insurers do reject some, it is to be hospitals that deny cashless facilities. to ensure that claims do not add noted that not a single COVID-19 IRDAI has already addressed the headaches to the customers. related claim has been denied.” matter and issued instructions to the New India Assurance has received “We have neither denied nor companies in this regard. complaints related to cashless repudiated a single claim so far. Atul Sahai, CMD, New settlements, admission of PPE kits Around 77 per cent of claims have India Assurance, and Girish cost, submission of documents, and been admitted on cashless, and rest Radhakrishnan, CMD, United India non-availability of hospital beds. on reimbursement basis out of total Insurance briefed their views on “In general, the nature of the 17,356 claims. A total of 13,223 claims this subject. When asked about complaints follows a normal have already been discharged. Around the COVID-19 claims related pattern, like delay in receiving claim 10,000 claims have been settled under complaints, Sahai says, “We have amounts and policy documents, cashless,” states Atul Sahai. received seven complaints and in policies that fail to appear for online The incurred claims ratio, which is terms of the claimed amount it is purchase, and so on. However, a a total claim paid by the insurer as a around `9 lakh.” plethora of complaints have also ratio to the total premium collected While Radhakrishnan replies, entered in the form of queries on by them, of the health segment was “From April 1, 2020, we have issued COVID-19 related claims,” says reduced to 89.34 per cent in the year Girish Radhakrishnan. 2018-19 from 92.21 per cent a year Apart from other expenses, the ago. Speaking for the New India insurance companies also cover the Assurance, Sahai informed that all cost of PPE kits, as patients could claims have been settled to the extent DHIRENDRA MAHYAVANSHI end up spending as much as a fourth that cash facilities were granted. of their hospital bills on PPE kits, “United India Insurance has Co-Founder, during an extended hospitalisation. received 6.30 lakh claims during this Turtlemint “We have made it clear from the lockdown and settled 5.70 lakh claims very beginning of the pandemic out of which 4.60 lakh were health- You need to weigh that we shall cover the cost of PPE related. We have also settled over the plans as per your Kits under the scope of our health 21,000 COVID-19 claims including policies,” says Sahai. those under Government Health requirement and then Even though IRDAI’s guidelines Schemes,” says Radhakrishnan. choose accordingly state that the health insurance [email protected]

42 Outlook Money September 2020 www.outlookmoney.com Column

Save Tax With Wealth Funds Invest in National Infrastructure & Investment Fund to get 100 per cent tax relief DIVAKAR VIJAYASARATHY

ndia needs huge investments in its ailing Government Pension Fund Global (Norway): infrastructure and the government is doing whatever $1 trillion + it takes to make it attractive for global investors to Chinese Investment Corporation: $940bn participate.I India is expected to be the world’s third- Abu Dhabi Investment Authority (ADIA): $745 bn largest construction market by 2022 and will require an SWFs are traditionally passive, long-term investors. investment of over $770 bn in the infrastructure sector They invest in a wide range of assets classes including for sustainable development government bonds, equity and FDI. India has been one (ibef.org). of the top destinations for SWF investments garnering Budget 2020 gave a tax relief of 100 per cent nearly 8 per cent of all deals happening in this space exemption for Sovereign Wealth Funds (SWF) on (2018-19 - SWFI). Some of the prominent investments passive incomes--interest, dividends and capital gains-- made by SWFs in India include `5,683 crore investment earned from investment in infrastructure and other in Reliance Jio by ADIA and `7,614 crore investment in notified sectors. All investments made on or before GVK Power and Infrastructure by ADIA, Canada’s Public March 31, 2024 are eligible for this tax relief provided, Sector Pension Investment Board and NIIF. they are held for a minimum period of three years. Given The scope of this exemption is not restricted to only the present scenario, the time limit for investment is core infrastructure like roads, bridges but has also been likely to be extended by a year or two. expanded to include sectors like transportation, logistics, These government-backed wealth energy, telecom, education, tourism, medical, affordable funds are the National Savings housing. Certificate (NSC), Sovereign Even though these investments would, predominantly Gold Bond Scheme (SGB) be in the unlisted space, the trickle-down effect is and National Infrastructure expected to be felt across facets: Investment Ltd. (NIIF) A one rupee investment in Infrastructure increases (Category-II AIF). GDP by at least two rupees (S&P Global ratings) India’s domestic savings saw in India. a gradual fall from 36 per cent A sustained inflow of long term global capital ensures in 2007-08 to just over 30 per cent a stable currency and keeps the inflation in check. during fiscal year 2019. Hence, the The annuity flows from these investments could be need for long-term external capital on bundled and listed as instruments with a fixed benign terms is felt now. yield, thereby offering a hybrid option with proven To give a perspective, a SWF is a state-owned pool of annuity flows. money with a mandate to invest in diversified financial Eventually the equity portion of these investments and developmental assets with the dual objective of would get listed to provide an exit option to investors betterment of societies as well as earning a passive thereby increasing options for market participants income. The National Investment and Infrastructure Consistent advent of high-quality investors like SWF Fund (NIIF) is involved in infrastructure financing. would increase the corporate governance, reporting Globally, major SWFs held nearly $8.2 trillion of and accountability standards in the market. assets in 2019 (SWFI). However, it is reported that the The introduction of exemptions for SWFs is a positive present holding of SWF has drastically reduced to $2.6 initiative to bring in the much need patient capital in an trillion, thanks to COVID. Some of the top-ranking infrastructure starved economy. SWFs are: However, tax exemptions alone are not going to drive investment decisions given the scale and complexity of these investments. India has been one of the top The author is Founder and Managing Partner of destinations for SWF investments DVS Advisors LLP

www.outlookmoney.com September 2020 Outlook Money 43 Insuracne Stocks

insurance have surged during spread SARS MADHUKAR LADHA ICICI (CY 2002-04) and MERS (CY 2013-14) Analyst, HDFC Securities Prudential Life in India. According to Madhukar Ladha, Analyst, HDFC Securities, “1QFY21 data Protection sales have improved indicates that protection sales have improved with the sum assured/

with the sum assured/ premium ratio (x) premium ratio (x) increased Insuran increased to 56.3 vs. 32.4 for FY20. This ratio

Insuran HDFC SBI Life Life SBI to 56.3 vs. 32.4 for FY20 was even higher in May 2020 at 61.0.” Term insurance being a traditional product has a higher sum assured per rupee of premium paid by the consumer. This business and weaker capital market appetite means higher the ratio higher is the sale of impacting insurance companies’ investment the term product. Savings-linked insurance portfolio have been putting pressure on products, on the other hand, have a lower insurance stocks earlier. sum assured per rupee of premium. As per It also resulted in a short-term impact on research, the ongoing pandemic is expected the sales volume of new policies since the to reset mindsets in terms of the importance Indian insurance industry has been largely of life insurance as a risk cover rather than following an offline sales model, believes a savings-linked investment product. This, some experts. “The Government of India has according to experts, also means demand for provided a grace period towards those citizens protection products is likely to gain further who are unable to meet their insurance momentum. premium obligations during the lockdown. As per July data from Insurance This created a short-term pressure on both, Regulatory and Development Authority of the new premium business and the renewal India (IRDAI), released in August 2020, after a year-on-year drop in first year premium for the last four months, the life insurance Spike in non-single sum assured to premium Are Insurance Stocks A Good Buy? sector has witnessed a positive growth. First year premium of life insurers grew by 6.9 per ` 12.0 cent in the month of July 2020 to 22,986.1 In 1QFY21 Average stock price of six listed insurance companies are up over 60 per cent crore, compared to `21,509.2 crore in July 21.7 LIC 21.1 In Ratio terms 2019, largely driven by the private insurance 21.0 companies. Private insurers reported first By Himali Patel the recent lows of March 2020. A sharp year premium of `7,815.1 crore in July 2020, 83.3 rebound in stock prices was also observed. up 26.1 per cent from `6,197.4 crore in July 45.5 MAXL 44.6 f the pandemic brings some relief to On an average, the stock prices of these six 2019. Similarly, in July 2020, the non-life 38.4 India’s under-penetrated insurance sector, companies rose over 60 per cent since March. insurance industry has reported a growth could stocks stay behind? Multiple factors have led to a sharp rebound in both, month-on-month as well as year- 73.9 40.6 IPresently, out of the 57 insurance in stock prices. “The rise in stock prices comes to-date figures. The monthly gross direct IPRU companies - with 24 in life and 33 in non-life from the fact that participants took comfort premium till July 2020 increased marginally 33 25.8 business - six companies are listed on the from the data that the death rate due to by 1.6 per cent to `56,339.8 crore from Indian bourses. In fact, ICICI Prudential Life COVID is low and thus it is not going to hit the `55,442.1 crore till July 2019. Public and 13.8 Insurance became first Insurance company to insurance companies badly,” says Ajit Mishra, private sector have grown at nearly the same SBI Life 13.8 go public in the year 2016. VP - Research, Religare Broking. pace for the period ended July 2020. 14.2 HSIE Research IRDAI, Source: The year 2017 witnessed a spate of Initial Data projects a sudden surge in demand for “A reason that could be attributed towards 12.2 Public Offerings (IPOs) in life and non-life insurance products in India, which has so far growth in life and non-life is that July 2020 51.5 insurance including SBI Life Insurance, The been at an average of 3.7 per cent against the was the last month for investing in insurance 40.6 HDFC Life New India Assurance, General Insurance global average of 6 per cent. policies and claiming deduction under 40.2 Corporation (GIC RE), HDFC Life Insurance As per the July report of HDFC Securities Section 80D and Section 80C of the Income 35.4 and ICICI Lombard General Insurance. on life insurance, research on Google Trends Tax Act,” argues CARE Ratings in its report Stocks of all these companies were indicate a steep rise in interest for both term on ‘Life Insurance and Non-Life First Year 0 20 40 60 80 oversubscribed post their IPO launch. and health insurance to a near all-time high. Premium’. Lockdown has led to disruptions These stocks saw a smart pull back from Well, earlier too, sales of health and term across channels. Moderation in protection 2018 2019 2020 1Q-2021

44 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 45 Insuracne Stocks

with the sum assured/ premium ratio (x) premium ratio (x) increased Insuran increased to 56.3 vs. 32.4 for FY20. This ratio

44 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 45 Insuracne Stocks Column

When it comes to the Q1 FY2021 the Factors That Led To A Sharp Rebound performance for most life insurance business has not been good. “The Value of New Testing Time For HFCs Business (VNB) has declined between 29 The stock prices of six listed insurance per cent and 43 per cent for some leading With loan growth diving to a multi-year low, managing KRISHNAN SITARAMAN companies rose over 60 per cent on players. The stocks, however, had a smart liquidity remains key average since March. pull back from the recent lows of March and a few of them hit the valuation hurdle. Investors took comfort from the data We expect APE for most leading players to otential home buyers, shelving plans with the Banks’ Home Loan (HL) AUM Are Chart 2 that the death rate due to COVID-19 fall marginally in FY21 and then recover in pandemic, will exacerbate the already weakening Rising At A Faster Clip Than HFCs’ is low thus it’s not going to hit the FY22,” adds Oza. growth in Assets Under Management (AUM) of 30% 25% insurance companies badly. 25% 23% In insurance business the measure of Housing Finance Companies (HFCs) this fiscal. AUM 20% 19% P 17% 19% profitability is usually computed as the growth will decline for the industry and even turn negative 20% 15% 15% 19% The business was least impacted as present value of future profits on the for some HFCs, on heels of a tepid 5 per cent growth in 17% 17% 15% 18% 10% 13% most of the companies have strong digit business and is sourced in a particular period fiscal 2020, diving all the way from 27 per cent in fiscal 5% 7% platforms, allowing clients to transact (usually the preceding 12 months). This is 2018. Home sales are expected to drop sharply this fiscal. 0% FY14 FY15 FY16 FY17 FY18 FY19 FY20 even during the lockdown. known as VNB. Most experts agree that Further, prices are expected to fall across segments, with Bank HL Growth HFC HL Growth companies saw healthy growth despite a low luxury segment the most impacted, leading to lower loan Also, the increased awareness regarding penetration of insurance in India. ticket size, hence, reduced disbursements. With funding Source: RBI, CRISIL estimates the importance of insurance products “We would reiterate our preference for access remaining a challenge, players are focussing on especially health and life acted as a insurance stocks such as HDFC Life, ICICI maintaining higher liquidity, which will also impact At the same time, the Reserve Bank of India’s long-term trigger for a swift rebound. Prudential, SBI Life and ICICI Lombard are disbursements. repo operations window, partial credit guarantee, and with only long-term view,” says Mishra. That said, not all sub-segments of HFCs will perform National Housing Bank’s refinance schemes have eased For Kotak Securities, the five insurance the same - while home loans AUM is expected to witness funding access in the last couple of months. But these have premiums,” explains Siji Philip, Senior companies they track, a decent upside of low single digit growth, the non-housing portfolio - served as a one-time push and a sustained pickup in fund Research Analyst, Axis Securities. more than 15 per cent is seen in only one primarily developer loans and loans against property - is raising through traditional routes remains to be seen. Some market experts, are of the view stock - SBI Life Insurance. After the sharp expected to contract. Banks too are expected to gain share in the home loan that the lockdown has impacted the life rally from the recent March lows, valuations Many other shifts and changes in trends are in the market, given their lower funding cost and greater access insurance segment badly while general of companies are slightly on the higher making, not all negative. What could support AUM, to resources. Banks have already been giving HFCs a run insurance has done well. In life insurance, side. “Our long-term view on the sector despite lower disbursements, is the slower rundown in for their money in this segment in recent years. In fiscal the Annualised Premium Equivalent (APE) and companies remains positive. One or outstanding home loans stock due to the longer tenure 2019, home loans growth of banks crossed that of HFCs has gone down by 13 per cent in the first two companies could also find space in the of this asset class, and 20-30 per cent of the retail book for the first time in the last five years. four months of FY21. Nifty-50 in future as market cap of the leader and 80-90 per cent of the wholesale book being under HFCs have been put to test on several fronts in recent “Due to the pandemic the individual sum HDFC Life is ~ `1.22 lakh crore and that of moratorium. Capitalisation of accumulated interest would times. Even before the pandemic hit, housing sales were assured business in life insurance, in the first SBI Life is ~`86,000 crore,” says Oza. also support AUM levels. Meanwhile, fallingq interest under pressure and continued funding access challenges four months of FY21, has gone up by 9 per Today the Insurance business, protects the rates on home loans in the near to medium term and and focus on conserving liquidity were only reducing cent but due to the sharp de-growth of 43 per livelihoods of people. The future earnings home prices moving south, come as a reprieve for HFCs, business growth. Competition from banks is expected to cent seen in the group assurance business have a direct correlation with the earnings by raising affordability. We have already seen many new intensify. Tighter underwriting processes to prevent sharp and overall sum assured has seen a fall of 13 of people, their business performance and as well as established players focussing on affordable asset quality deterioration is leading to a lower but sharper per cent,” says Rusmik Oza, Executive Vice net worth. “With the increase in India’s housing loans. This segment should continue to be a key growth focus only on retail segment. President, Head of Fundamental Research at per capita income, insurance penetration contributor to home loan disbursements. The key for HFCs to maintain their position and Kotak Securities. is expected to see a 50 per cent growth by tide over current challenges will be to strengthen their 2023. It indicates that the prolonged earning HFC AUM Growth Is On A Chart 1 capital base, manage funding access prudently and keep visibility for the insurance sector in the Downward Trajectory credit costs under check. Conservative asset liability AJIT MISHRA future,” explains Siddharth Sedani, Vice 16 27% 30% maturity management and liquidity preservation would 24% VP - Research, Religare Broking President, Equity Advisory, Anand Rathi 14 21% 25% help stabilise HFC balance sheets. These would be the 12 18% Shares and Stock Brokers. 10 20% important monitorables for key stakeholders of HFCs. Going forward, although the pandemic 8 15% Those with strong parentage or part of large corporate Reiterate Our preference for 6 10% Lakh Crore 5% has played a major inflection point of ` 4 groups, are expected to fare relatively better on fundraising HDFC Life, ICICI Prudential, 5% 2 7 9 11 13 13 SBI Life and ICICI Lombard are awareness of Insurance amongst consumers, 0 0% and disbursement, navigating the current environment listed insurance players are going to enjoy FY16 FY17 FY18 FY19 FY20 with less pain. with long-term view the premium valuations hand-in-hand. HFC AUM AUM Growth [email protected] Source: CRISIL estimates The author is Senior Director, CRISIL Ratings

46 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 47 Insuracne Stocks Column

46 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 47 Standpoint

3. Income is critical, savings are more 6. Negativity sounds intelligent. important, but investments are most Positivity makes you rich: Ride Your Financial Goals important: Pessimists are intelligent, Optimists Take the example of the King of Pop, are rich. Main street looks at the past Be optimistic, flexible, open to new ideas and benefit from AJAY BAGGA Michael Jackson. In 1985, MJ used while Wall Street looks at the future. As compounding wealth earnings from his album “Bad” and investors, having an optimistic outlook is bought ATV Music which owned 250 a key ingredient to success. Beatles songs. It cost $47.5 million. Ten This is as true for advisors as it is for inancial success is a combination of wealth, successful and rich have this acute sense of self years later in 1995, Sony Music bought clients. Without this optimism and faith, wisdom and freedom to do as we please. Here knowledge. Don’t try to keep up with the Jones. ATV Music. MJ got paid $150 million, there would have been no Microsoft, we are presenting the seven top secrets to The Jones are most probably over leveraged or plus a stake, plus an annual income of no Amazon and no Facebook. It is good financialF success: broke. $11-18 million. In 2016, Sony Music to be grounded, practical and plan for Remind yourself, like that Jon Bon Jovi song: bought out Michael Jackson estates’ contingencies. But financial success 1. Know yourself: “It’s my life holding in Sony/ATV for $750 million. also involves intelligent risk-taking and The better you know yourself, the better you Tomorrow’s getting harder, make no mistake Paul McCartney, who co-wrote most of believing in the potential of companies to will do. This self-awareness and self-confidence Luck ain’t enough the Beatles songs with John Lennon, had deliver superior returns on equity. are critical. Understand your income, expenses, You’ve got to make your own breaks more money than MJ in 1985 and had savings and investments. Understand what It’s my life the right of first refusal on ATV Music. 7. Flexibility, agility, continuous provides you with great joy and satisfaction. And And it’s Now or Never” He did not have the vision. Despite all learning, experimentation: keep reminding yourself that your first instinct to his problems, all his debts, this single “Rich is not In August 2019, Tesla had a lower market act may be wrong. A huge advertisement industry 2. Postponement of gratification, investment move of Michael Jackson took care of his cap than GM. At $355 billion in August is constantly enticing you to spend your money. before self: financial legacy. a goal, 2020, Tesla has a higher market cap than Even in terms of investments, the maximum Warren Buffett says, “Do not save what is left `1 crore in GM, Ford, Fiat Chrysler, Daimler, BMW, pressure comes from products where the provider after spending; spend what is left after saving.” 4. Financial Literacy: financial Ferrari, Honda and Hyundai, combined. makes the highest commissions or margins. Only This ability to postpone gratification was tested The best lessons in finance can be learnt The new investors coming into the you can determine what is best for you. The in the famous Marshmallow experiment at vicariously. The best advice would be investments market, the so called Robinhood traders, Stanford University in 1972. Students who were to buy as many income generating in 10 years have benefited from not having prior able to choose postponement for higher assets as early in life as possible. Time is!” experience or knowledge and have made rewards, showed better outcome. and diversification are the best friends the most of the 50 per cent returns I have a story that illustrates this. of investors. Time allows compound from the market bottom on March 23, My uncle’s friend was looking to buy interest to work its magic for investors, 2020. The big lesson is of openness, of an apartment in a nearby town and while diversification ensures survival across market flexibility, of agility and of not getting stuck to a way asked my uncle to help him decide. The cycles. Building competencies or hiring competent of thinking or investing. The market is a great leveller. apartments were very nice. However, advisors helps investors harness these forces. Basic The example of the 167 million Chinese retail stock the next week, as a new car model understanding of markets, accounting, law and traders shows this will end badly for most Robin Hood was launched, his friend bought investing can be a force multiplier. traders. Chinese retail traders with 30 per cent market the car instead. My uncle, who had ownership made 80 per cent of the market trading gone only to give company, ended 5. Budgeting, written plans and goals: volumes in 2016-2019, and consistently lost money up buying an apartment. Thirty Having written goals has been shown to be a key to the institutional players who generated 11 per cent years later, the car had long since success habit of the uber-rich .Thomas Corley in returns. Trading is very tough to make money off. But been junked, the apartment “Rich Habits: The Daily Success Habits of Wealth what can be learnt from this segment is their agility was worth around 65 times Individuals” found that 67 per cent of wealthy people and their experimentation. Successful investors should its purchase price. The annual had written goals and 81 per cent of them kept daily learn from all players and then create their own rent on it was three times the to-do lists. strategy. And be ready to modify this as disruptive purchase price. My uncle is Neuroscience has discovered that writing creates innovation changes market realities. no more, but my aunt told me 23 per cent better recall and reinforces these goals, In conclusion, I would like to remind you that there how that apartment became a enhancing the chance of success by 1.4 to 1.6 times. are no experts on the path of financial success, your central motif in their successful So do yourself a favour today. Write out vivid success reality is unique and the opportunities to succeed are retirement. goals, draw them, create pictures of them and revisit infinite. Be optimistic, self-aware, flexible and open to Postponement of instant them frequently. That one initiative will increase your new ideas. Be resolute to stay the course, compound gratification and investing in an chances of success by a large margin. and diversify. Good Luck. appreciating asset is one of the Make the goals S.M.A.R.T. (specific, measurable, best life choices one can make. achievable, relevant and time-bound). The author is a Private Investor

48 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 49 Standpoint

48 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 49 Interview Restore Stability To Revive Economy Former Deputy Governor of Reserve Bank of India, Viral Acharya in his latest book - Quest For Restoring Financial Stability in India - has figured out some key issues in India’s financial sector and suggested some measure too, during an interview with Rajat Mishra. Edited Excerpts:

The RBI came up with a loan moratorium during all failures, right. Even the Federal Reserve got the housing this pandemic. Your views. crisis wrong. The question here is - are we learning from I think there should be some scope in the system for these mistakes, do we have the capacity to fix the failures temporary stopgap measures, especially, if the shock and reduce the likelihood of their recurrence? The RBI’s is unprecedented like this pandemic, which no one financial stability report has been flagging some of the could have anticipated. The shock in terms of working risks regularly. Now we have to address them. We have not conditions, the inability of large sectors to generate been able to do so in a decisive manner so far. We need to immediate revenues during lockdown can’t be completely question, diagnose, and then fix things. The central bank left unaccommodated. The moratorium with a sunset should adopt a supervisory specialised carder, use big data VIRAL ACHARYA clause is the right approach. The idea is to accommodate analytics and risk management techniques, besides onsite Former Deputy Governor of the temporary problems, without eliminating the supervision. The central bank should adopt regulatory stress Reserve Bank of India discipline of repaying creditors on time. tests that needs to be embedded in the supervision and the We need to prepare the financial system for regulatory framework. The stress tests should clarify how absorbing losses and ensure there is a wherewithal, much capital needs to be raised by banks ahead of time so both in corporate restructuring as well as in personal that the bridge can withstand crises. The NPA has got to rise because economic activity has growth. This means finding the capacity to provide fiscal delinquencies that may arise. collapsed in the short run. We are expecting a significant relief and repair. That could mean identifying space for How do you assess the distressed NBFCs in India? contraction for the whole year. Some of the sectors were infrastructure investments, which I understand is on You have always supported decisive It has something to do with the post-demonetisation gush already declining or heavily indebted, even in the lead the cards. Adherence to FRBM targets with a medium- recapitalisation of banks. Why do you think this of deposits that came from the informal economy into up to the COVID. We shouldn’t forget that our growth term, need of an independent bipartisan fiscal council, mitigates the adverse impact of the pandemic? the formal economy. Banks were not in a capacity to lend had been declining for two to three years even before which can monitor the government’s progress and vet As we expect some economic activity to revive and given their poor capitalisation. Therefore, yields on deposits the pandemic. Hence, the NPAs will see a rise in legacy the budgets. rebound with COVID getting controlled, we would were low and these deposits flew into debt liquid mutual assets as well as COVID-affected sectors. This is why We need to rationalise expenditure - do less on want the cost of credit for corporations. Those who have funds, which then started chasing the higher yields on the the Reserve Bank of India’s financial stability report has subsidies and more on capital expenditures. We productively aided in the revival, should have low cost of non-bank finance company paper. So, this sudden surge of estimated gross nonperforming assets to be in the range shouldn’t be in denial as to where our current borrowing borrowing. The undercapitalised banking system is more liquidity in a very short period led to a deterioration of the of 12.5 to 15 per cent. Analysts see these ratios going and deficit numbers are, because the government has interested in maintaining hefty margins to generate a underwriting standards, especially in the housing finance higher than what has been projected. So, the only solution been doing a lot of fiscal tricks to do off-balance-sheet quick return on capital. They are not interested in growing loans. Eventually, once the liquidity conditions got tight, is to prepare the financial sector for the oncoming losses. and extra-budgetary borrowings. their loan book and competing for loans by offering inflation rose and so did cost of borrowing in the economy. When you buy a property the decision should be based We need to do a consolidated public sector attractive lending rates. So, if we have an undercapitalised Overall short-term borrowing pressures went bad. NBFCs on location and when it comes to running a financial borrowing assessment so that we know where we are banking system fighting legacy loan problems, coming should have asset quality review the way it was done for sector or regulating it, it should just be based on capital. and where we need to be in the medium term. We need out of COVID will still not aid in economic recovery. banks in 2014-15. So, I laid out two to three steps that to do a course correction - a massive disinvestment They will act as a headwind to economic should follow the asset qualitative view. This Do you think the central government has done wave. This has to happen not just in the non-strategic recovery. Thus it is crucial to ensure the could be done by subjecting the weakest ones enough for bank’s retail customers? Please identify sectors besides finance, but in the financial sector as economy doesn’t have a lasting scar from NBFCs should to prompt corrective action. This may mean areas that require improvement? well. Large public sector banks can be considered for the pandemic. have asset selling them off and getting the moderate We have a huge fiscal deficit and expenditure and a large privatisation, where majority stakes can be brought ones to show their capital levels to the healthy amount of subsidy-based welfare programmes. The down to 25 or 30 per cent. Thus public exchequer’s Do you think RBI has failed in quality review ones. Provide transparency in the healthiest question is whether it is time to rationalise some of that burden for recapitalising banks comes down and doesn’t predicting recent situation where banks the way it was ones so that the market doesn’t have to and roll them into some form of a universal basic income jack up the borrowing requirements. Disinvestment is and NBFCs went bust? What do you done for banks question the balance sheet strength. because then only the households can decide on things. It required even in insurance and non-banking financial suggest? in 2014-15 would lead to a bit of rationalisation and perhaps a more sectors, where the government has a large presence. So, Yes, failures do happen. Not even the best How should banks deal with growing effective use of subsidies by the households. that’s my five-point agenda. of the banking regulators in the world get Non- Performing Assets (NPAs)? The best thing that could be done is to help revive [email protected]

50 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 51 Interview Restore Stability To Revive Economy Former Deputy Governor of Reserve Bank of India, Viral Acharya in his latest book - Quest For Restoring Financial Stability in India - has figured out some key issues in India’s financial sector and suggested some measure too, during an interview with Rajat Mishra. Edited Excerpts:

50 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 51 Property

the aspirational aspects of making the investment. On the other hand, REITs As An if investment is the sole purpose of putting money in real estate, then REITs is a better option as it is a Attractive Asset highly liquid instrument. “However, since REITs This derivative instrument with underlying assets in realty essentially behave like mutual offers stable rent-yielding cash flows funds investments, it requires a certain level of sophistication for By Vishav According to a study by Savills understanding the complexities of India, a premier professional market-related instruments. The eal Estate Investment Trust property consulting firm, ever since best returns can be accrued only if (REIT) could be a viable the IPO and listing in 2019, Embassy the investment horizon is for the alternative to traditional Office Parks REIT had shown an Rinvestment, with falling interest appreciation of 8 per cent (at the end rates, diminishing debt returns of Q1FY21), reaching a maximum REITs In India from asset-backed investment appreciation of around 50 per cent 2013: Sebi introduces draft instruments, coupled with threat of in the pre-COVID phase. On the regulations in line with international inflation and drop in income. other hand, Mindspace IPO got models REITs are derivatives that own or oversubscribed by 13 times and got finance real estate assets in a range listed at an 11 per cent premium. 2014: Finalisation and release of REIT regulations of properties and earn a return “It is just the beginning for of 12-15 per cent. Of these, 6-7.5 REITs in India and with increasing Amendments Photo: DEPOSIT PHOTOS 2015-2019: per cent is fixed (based on rental clarity in regulations, significant to regulations and multiple tax income) and the balance is through improvements in Ease of Doing reworkings market escalations. Business rankings, and strong rental “India has approximately 650 to be a resilient, low risk and high 2019: India’s first REIT: Embassy While REITs have existed for performance in commercial real million square feet of Grade A office return asset class. Office Parks listed the past 60 years, and are now a $2 estate, the REIT journey would space of which, 310-320 million Anurag Mathur, CEO of Savills ANURAG Mindspace Business Parks trillion asset class globally, India only accelerate further,” says the square feet is REIT-able stock. India, says Indians have had a 2020: MATHUR REIT, backed by K Raheja Corp Group saw its first REIT in April 2019 when “India REIT: A Potential Investment India’s office stock would touch generally positive experience from and Blackstone Group, goes for IPO Embassy Office Parks REIT IPO got Window” report by Savills India. one billion square feet in the next the only REIT (before Mindspace CEO of Savills India listed on the stock exchange and It adds that despite the COVID six to eight years. And in next two IPO) during the last one year, Source: Savills India paved the way for retail investors bump, REITs have a lot of potential years, nearly 100 million square including the difficult phase of 2020. The yields from to participate in commercial real in the Indian market owing to its feet is expected to be listed on Agreeably, just one REIT doesn’t REIT have remained estate. More recently, Mindspace saturation in foreign shores. Indian stock exchange. Therefore, make the complete story, but it long term of three to five years. Business Parks REIT IPO got listed Experts feel listing of REITs the asset class presents itself with certainly provides a glimpse into unambiguously Investment in REITs also doesn’t on the exchange early August, only makes investment in commercial tremendous opportunity and this real estate-based derivative. attractive have the added tax benefits (under the second REIT to be listed in real estate liquid and accessible to growth to all class of investors,” Mathur believes that Embassy Sections 24, 80C and 80EE) that are India. investors even at a small ticket size Dutt says. REIT has created some favourable allowed by the government on direct worth `50,000. Also tax exemption Investors earn in two ways ground for REITs in the near the two factors that should investments in housing,” Sudhalkar on dividend distributions by REITs from REITs. First, they get returns future. “Despite global and determine his decision to invest concludes. Most experts feel retail also makes them very attractive. through stable rent-yielding cash domestic economic upheavals of in REITs or in direct real estate investors can consider investing up According to Sanjay Dutt, Joint flows, with 90 per cent of the 2018-19, India posted its highest- properties are the purpose of the to 10 per cent of their portfolio in RAVINDRA SUDHALKAR Chairman, FICCI Real Estate earnings distributed to unit-holders. ever office space absorption for investments and the understanding REITs and diversify, restricting their Committee, and MD and CEO of Second, they also benefit from the two consecutive years, clearly of the associated risk-return exposure to 5 per cent in a single CEO, Reliance Home Tata Realty and Infrastructure, capital appreciation as the market underlining a very strong occupier interplay, feels Ravindra Sudhalkar, REIT. A higher return always has a Finance India’s first REIT outperformed price of the underling assets rise. demand for its office buildings. CEO, Reliance Home Finance. higher risk attached to it. equity markets by around 2000 basis While COVID has impacted The yields from the singular REIT He says that for someone with While India is a safe destination REITs do not have the points in the last five quarters since the commercial real estate sector, on the market have remained real need to own a house, direct for REITs, thanks to the really small added tax benefits that launch, as opposed to the All REIT Dutt however believes that as unambiguously attractive, even investment would make sense as number of options against global Index in the US which outperformed India continues to be top global through the lockdown phase,” he the gratification of “ownership” average, a fall in realty price can are allowed on direct S&P 500 by around 440 basis points IT outsourcing destination, explains. of a property instils a sense of affect the returns. investments in housing over 20 years. commercial real estate will continue From an investor’s perspective, security in the buyer and satisfies [email protected]

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USP For Retaining Clients A good advisor can make both MF investors and industry flourish GANESH RAM

n February the capital market regulator Securities and to pause or exit the market and those who started new SIP Exchange Board of India (Sebi) allowed investors to did only in equity. The SIP book should have grown but invest in Mutual Funds (MFs) through stock exchanges unfortunately it stagnated. directlyI from the fund houses without going through Investors should understand that MF is a special distributors, to ensure a level playing field. vehicle, which is much regulated but has lots of complex This was welcomed by fund houses, which could underlying data. Like fund houses have CIOs and fund further lower the transaction expenses and skip paying the managers monitoring and managing the market or scheme distributor’s commission. Even before this announcement, performance, we have advisors who are experts on investment there were other direct channels available to investors. decisions. It is disheartening to see that without adequate There is no doubt that investors who opted for Do it knowledge or information; investors choose the schemes Yourself (DIY) mode or direct mode have increased from based on some reports and information publicly available and 5 per cent (12 plus months ago) to 15 per cent of current end up criticising the MF industry and products. This also MF transactions. However, the complimentary metrics for results in a panic and impacts the overall growth. Without the MF transaction undertaken during the time period is in-depth knowledge, MF is not an investment product to play not that encouraging, which is approx 55 per cent of the with money. Investors should choose proper advisory for their redemptions is from DIY mode. This clearly shows retail investment decisions which helps in building optimism and investors panic and start redeeming as they lack proper also significantly helps in market to stabilise and grow. This advisory during crisis. is not all for investors. Advisors and distributors should also If you look at the last three months’ market data, which view their prospective clients and maintain relationships with was the best time to start a balanced SIP portfolio, with them. To have a successful client relationship management, equity, debt and performance backed sectoral funds. each advisor should demonstrate five “C’s” - communication, Instead, a majority of the investors, in DIY mode, chose clientele, clarity, calibration with market dynamics and cognitive with technology. They result in “confident advisor”. Recently, we came across many Independent Financial DIY Investors Have Five Disconnects Advisors (IFAs), using BSE STAR MF, who have done 100, 200, 300 and even 500 SIPs per day in this pandemic. When Their decisions are based on half-cooked we spoke with these advisors, we learnt that they have information/data, publicly available excellent business relationship with their clients and saw this They expect double digit returns within a short span crisis as an opportunity. of time Many advisors are concerned about DIY growth but out They expect to earn additional one or two per cent of 40 per cent being reported, 20 per cent pertaining to returns from DIY against advisory mode They undertake MF transactions as it is extremely corporate and institutional investors and rest 8-10 per cent convenient to do with many apps that have are UHNI/HNI. That leaves retail DIY at only 10 per cent. mushroomed I spoke to one advisor from Chennai who has chalked out They do not monitor fund performance and time for a plan for his clients by depicting how expenses have reduced entry/ exit, which an advisor is qualified to do for them during the current lockdown and how they can choose to invest the money saved from reduced expenses into MFs. The advisor has chosen his top 25 per cent clients Best Decision Has Four Data Sets and has been communicating with them. Advisors should consider platforms, which provide value addition, reducing Investor’s goal, risk appetite, return expected time, cost and improve efficiency. This is one of the Unique Picking up the competent advisor who has rich Selling Proposition (USP) to choose and retain clients. A experience and connect confident advisor makes a huge difference to investors and Performance of funds and other important fund/ the MF industry, which the industry is in need for. AMC-related data Diversification of investment portfolio The author is Business Head-Mutual Funds at BSE. The views expressed are personal

54 Outlook Money September 2020 www.outlookmoney.com

Stock Pick

Resilient Performance Larsen & Toubro Staying A Leader HDFC Asset Management CMP: 995.85 CMP: 2399.1 L&T’s domestic and international prospects PE: 24.15 HDFC AMC continues to be a preferred choice PE: 40.12 offer revenue visibility *As on Aug 20, 2020 of individual investors *As on July 20, 2020

By Himali Patel impacted Q1 revenues, the company’s wo years post raising AUM is 39:61 compared to the industry ordering activity has continued. Why Buy `2,800 crore through IPO, ratio of 38:62. Having said that, the Why Buy espite challenges, one of It managed to bag orders worth Strong business model, diversified HDFC Asset Management company continues to be a preferred Superior and diversified product India’s largest engineering `23,574 crore in Q1 FY2021 on the order book bodes well for investors TCompany (AMC) garnered choice of individual investors with 15 mix with multi-channel distribution and construction firm, back of the domestic business in the Healthy balance sheet with good subscription upto 83 times in July per cent share in individual AUM. network DLarsen & Toubro (L&T) have infrastructure segment. That said, the return ratios 2018, marking its journey as a publicly Its Profit After Tax (PAT) for the Has maintained its market share at showcased a resilient performance order backlog remained diversified listed company. Being the second quarter ended June 30, 2020 was approximately 15% for its first quarter (Q1) FY2021. and healthy at `3,05,083 crore (76 per Watch Out For largest AMC by size of Asset Under `302.4 crore as compared to `291.7 L&T reported a revenue at `21,260 cent domestic) which was up by 4 per Delay in government infrastructure Management (AUM), it is managing crore for the quarter ended June Watch Out For crore in Q1 FY2020, down by 28 per cent during the June quarter. spending and slowdown in `3.57 lakh crore. Principal shareholders 30, 2019 resulting in an increase of The current continued outflows in cent year-on-year (Y-o-Y). This was “Although FY2021 may be domestic environment can include Housing Development Finance 4 per cent. Some establishments equity funds of the industry can broadly in line with brokerages as the relatively weak on account of macro impact earnings Corporation Limited (HDFC) and including HDFC AMC were exempt impact the company company had announced that they uncertainties, we expect L&T to 250 Standard Life Investments Limited from the lockdown and therefore 250 were operating at 40 per cent levels bounce back during FY2022 owing 200 (SLI), who own 52.8 per cent and 26.9 were functional during the pandemic. 200 during the quarter. Over the last five to multiple levers such as strong 143.71 per cent stake respectively. Further, the corrections in markets years, the company’s net sale and business model, diversified order HDFC AMC provides a large suite from May onward has led to a spike 132.17 net profit has clocked a Compound book, and healthy balance sheet,” 150 of savings and investment products in AUM, which signals good future 150 Annual Growth Rate (CAGR) of 8 per says an analyst at Sharekhan. The across various asset classes like revenues over the next few months. cent and 14 per cent over FY2016-20. management of the company has equity, debt and ETFs among others As per the Association of Mutual 100 100 The core infrastructure also pointed out that the that provide income and wealth Funds in India (AMFI) the Indian 101.40 segment of the company labour availability has 73.18 creation opportunities MF industry’s AUM has was down by 53 per cent improved to 1,90,00 in to customers. “Its grown from `6.69 lakh 50 50 Source : BSE India : BSE Source India : BSE Source Y-o-Y, the power segment mid-July from the low of as 100 taken value Base Note: Trading ex-bonus in the diversified product crore as on July 31, 2010 as 100 taken value Base Note: Trading ex-bonus in the ` by -33 per cent and the 70,000. L&T is expecting ratio 1:2 since 13 July 2017 mix, which includes to 27.12 lakh crore as ratio 1:2 since 13 July 2017 engineering segment by to improve as the situation 0 27 equity-oriented on July 31, 2020 which 0 -57 per cent due to the normalise in next few 2 Jan 2017 20 Aug 2020 schemes, 98 debt schemes (including is more than a four-fold increase in a 2 Jan 2017 20 Aug 2020 nationwide lockdown. quarters. BSE Sensex Larsen & Toubro 72 Fixed Maturity Plans (FMPs)), span of 10 years. This bodes well for BSE Sensex HDFC Asset Management However, its IT and Technology “Although there are challenges in three liquid schemes, and five other the HDFC AMC going forward. segment saw a growth of 58 per cent ramping up execution due to social Financials schemes (including exchange- Courtesy its over 65,000 empanelled Financials led by the consolidation of Mindtree distancing, we believe the near- traded and funds of fund schemes), distribution partners across Net sales (` crore) PAT (` crore) Net sales (` crore) PAT (` crore) and growth in L&T Infotech Group. normal level of labour, coupled with enables it to operate through various Independent Financial Advisers (IFAs), “Manufacturing, construction and a diversified and robust order book, FY20 151019.35 FY20 10822.32 market cycles, cater to specific national distributors and banks, FY20 2003.25 FY20 1262.41 operating expenses were down by 49 could lead to recovery in execution. customer requirements and reduce today HDFC AMC has an established FY19 141313.92 FY19 10237.58 FY19 1915.18 FY19 930.60 per cent Y-o-Y, largely due to cost- We expect L&T to report a revenue concentration risk,” explains an analyst distribution reach through a total of control measures and the higher of `1.4/1.53 lakh crore in FY21/ FY18 119683.16 FY18 8440.29 at HDFC Securities. 221 branches of which 145 are in B-30 FY18 1756.77 FY18 711.29 proportion of IT and Technology FY22,” says an analyst at HDFC The company is India’s largest locations. “We expect the premium Service (TS) businesses due to the Securities. The company’s domestic OP (` crore) EPS (`) Actively Managed Equity Fund with valuation of the AMC to continue OP (` crore) EPS (`) Mindtree consolidation,” points out as well as international prospects FY20 28045.92 FY20 68.02 Quarterly Average Asset Under owing to its higher operational FY20 1712.40 FY20 59.32 Source : Ace Equity : Ace Source an analyst at Anand Rathi. continue to offer a revenue visibility. Management (QAAUM) in equity- efficiency and industry leading AUM Equity : Ace Source FY19 25756.32 FY19 63.48 FY19 1387.55 FY19 43.78 The net profit fell from `1,473 Many brokerages like Motilal oriented funds worth Rs 1.29 lakh metrics. We continue to apply a P/E ` crore in Q1 FY2020 to 303 crore Oswal, HDFC Securities, Sharekhan FY18 21361.67 FY18 52.59 crore with the market share of 14.5 of 43x on FY22 estimates (E) earnings FY18 1067.59 FY18 33.78 in Q1 FY2021, a degrowth of 79 per and Emkay Global among others OP: Operating Profit; PAT: Profit After Tax; per cent as on June 30, 2020. As per per share (EPS),” says an analyst at KR OP: Operating Profit; PAT: Profit After Tax; cent on the back of a lower revenue. continue to remain bullish on the EPS: Earnings Per Share; Source: Ace Equity the management, the ratio of equity Choksey. EPS: Earnings Per Share; Source: Ace Equity Although the pandemic has company’s future prospective. oriented AUM and non-equity oriented [email protected]

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Safe Route For Better Returns Investors and traders need to focus only on quality blue AVINASH GORAKSHAKAR chips or invest through mutual fund

etail investors are back in the market. The huge inflow of new depositary accounts opened Rbetween March and April 2020 reflects the activity. As per records, Central Depository Services Ltd (CDSL) has opened 1.2 million new Depository Participant (DP) accounts during this period as against 4.2 million DP accounts between April 2019 and Feb 2020. The new breed of Robin Hood investors are moving rapidly on the back of online trading activity but proper risk management and asset allocation is yet to be understood. Some key problems and challenges include lack of knowledge, reading, networking and process. Almost 90 per cent of the retail investors and traders don’t know what the company manufactures, what are its revenue and profits, dividends paid, management invest through mutual funds - a safe way quality, which is like driving a car New investors to generate better returns over the long without brakes. may use term. Most retail investors and traders Compromising on asset allocation and books to lack the emotional mindset whether to position sizing is the second big problem speculate, trade or invest. where one sector or stock comprises get started A wrong speculative trade often 80 per cent of the entire portfolio. This and stay becomes a long-term investment for leads to severe imbalance in the risks connected a retail trader. Thus having clarity on associated and massive losses when the emotional mindset can have a huge things go wrong. impact on the profit and loss account. Position sizing is often completely ignored, which It is better to stick to either trading or investment leads to retaining losers and selling the winners. and not mix both as this can lead to huge losses in For an ideal asset allocation it is better to have a volatile markets. combination of debt and equity. Position sizing could Penny stock is another common problem with most be maintained by having a small portfolio of 5 to 10 retail traders and investors who feel they are buying at stocks. Many face information overload and noise in low cost. the markets by seemingly complex and contradictory This is the reason retail shareholding in penny advice on business channels and advisory websites. stocks like JP Assoc, JP Power, Manpasand, Idea have New investors may find it easy to use books to get increased significantly. started and stay connected. Investors must avoid penny stocks completely One of the biggest challenges that new investors and focus on quality businesses, which are wealth and traders face is having limited capital, which compounders over the long term. prompts them to buy poor quality stocks. They need to focus only on quality blue chips or The author is Director Research at ProfitMart Securities

58 Outlook Money September 2020 www.outlookmoney.com Viewpoint When To Exit Equity Know how to deal with the reasons to exit from Investing in Mutual Fund

t is a question that recurs periodically Iand is often phrased as: “Should I book profits?” or “Should I exit now and re-enter later?” Which is another way of asking: “When should I sell my equity holdings?” As with most investment questions, the answer is, “It depends.” It depends on who you are and what you hold and what stage of your life and your investing cycle you’re in and so on. But it can be distilled down to three sim- Kavita Hurry, Mom Squirrel, & Vivek Hurry, Pop Squirrel, ple rules: sell for something meaningful; of Squirrel Consulting Pvt Ltd. rebalance your portfolio; underperfor- mance. Sell when it’s underperforming or, worse, be forced to reinvest at a higher Sell to use the money for some- This is a tough one relating to what psy- price than you originally paid? Don’t sell. thing meaningful chologists call “loss aversion”. A particu- You want to pay for a new house to live lar MF scheme is doing poorly and has Let’s get out and get back in in. Or you need to fund your daughter’s been for some time. You’ve waited for it when the market improves! college education. Those are meaningful pick up, but it hasn’t. But you still want This is the most common mistake made uses for the money. Using the money to to hang on to it in the hopes that you’ll by newbies and it never works. It’s an buy a second house that you hope will make up your money. Often, it’s far bet- understandable emotional reaction to appreciate is not meaningful - it’s merely ter to cut your losses, take what you get uncertain or bad times: fear. But it’s not changing your investment strategy, which and redeploy it somewhere that has bet- rational. History has shown time and again is a whole other discussion; or to buy a ter chances of making you money. What that markets always improve in the long swanky, flashy car that will give you tem- matters is that overall your portfolio gives run: after wars, assassinations, natural di- porary joy and then inevitably succumb you good returns, not that this particular sasters, whatever. It’s the nature of the to depreciation and potholes is not mean- investment gives you the return you envis- beast. Firstly, if you sell when markets are ingful - it’s an indulgence. Decide what’s aged. It’s okay to get it wrong occasionally, down, you’re divesting at the lowest point meaningful for you, but don’t divest equity so don’t get emotional about it. Emotion and then you want to get back in when for indulgences. is usually the wrong rationale for an invest- it’s getting more expensive. That makes ment decision. no sense. It’s like saying I need a suit, but Sell to rebalance your portfolio I don’t want to buy it when there’s a sale As you get older you need to re-balance Extraordinary profits in a short on; I want to wait and pay more once the your portfolio either because your risk time? sale is over! Secondly, nobody is ever able profile changes (you don’t have the This is rarer and trickier, because what to correctly gauge when the market has hit luxury of waiting for returns via capital constitutes extraordinary profits and a its bottom and when it’s on its rise back. appreciation, so you need to increase the short time tend to be subjective, so use Markets don’t move in straight lines. Ev- proportion of less risky assets in your with caution. Decide whether the profit is ery fall and every recovery has its own set portfolio) or you need more income- extraordinary by comparing it to the rest of peaks and troughs and it’s impossible generating investments to replace the of your life, not by some absolute num- to really know when “the market has im- salary you will no longer be paid. So, ber like 100% or Rs.1 lakh. How do those proved” except with hindsight. periodically review where you are in life, numbers compare to your current income, The trick to making equity investing how your portfolio is doing, what your your portfolio size? A useful measure is work for you is to give it loads of time income needs and expense requirements seeing what you can do with the profits. and keep on investing systematically all the are and then decide on divesting some of Can it contribute enough for something time. In the short term, equity can yo-yo your equity portfolio to park the money meaningful? Or are you going to squander more than most. In the long term, a good in fixed income holdings that generate a it away; or be forced to reinvest in some- equity portfolio retains value and appreci- regular income. thing that’s not offering a decent return; ates better than most investments. My Plan

Invest To Make Up For plans. He would compare such role in the continuation of Manoj’s returns with traditional investment financial plans during the turbulent The key is to correct avenues and trap himself in a times. It was this persistence and The Lost Time dilemma while deciding whether to conviction into the financial plans, the mistake, instead Instead of timing the markets, spend some time in the markets continue his SIP investments. which helped Manoj recover the lost of repenting over it At this point, it was crucial returns during the market rebound. to reinforce Manoj’s trust and It is said, “Storms are often preceded confidence in investing in mutual by silence”. The subsequent year to continue saving towards his funds. He was repeatedly reminded post three years of stagnant returns retirement corpus. With seven years about his primary goal for helped the investment portfolio of investment experience, Manoj starting the SIP. Being concerned reflect 20 per cent annualized returns shares, “The ongoing COVID-19 about Vallari’s graduation, he by February 2017. crisis has eroded returns significantly felt incentivized to continue Manoj was delighted as his efforts for investors, and the portfolio was accumulating the desired investment bore fruits and he could accomplish not left untouched. However, despite corpus. The regular guidance and his desired corpus for Vallari’s the corrections in equity markets, handholding played an essential education. He further decided our portfolio continues to reflect around 11 per cent annualised returns over the entire SIP duration, culminating into 120 per cent absolute returns on the initial Kapil Jain shares some of the lessons from the investments.” success of Manoj’s investment journey Manoj believes that besides periodic review, placing trust in your Manoj Joshi with wife, Mrunalini One must start investing early financial advisor is important. and daughter, Vallari The lost time is one significant financial mistake that cannot be undone, as A financial advisor can be one’s time waits for no one. Early investments will help you achieve the desired guide in the investment journey. financial goals effortlessly. When one gives more time for the investments to Not only does he help chalk out the grow and prosper, the power of compounding does great wonders. This also investment strategy, but also helps anoj Joshi, 51, provides allocation principles. financial goals in February 2013. helps the investors to accumulate higher corpus with lower investments, as the investors stay focused and guide information systems When Manoj discussed his Vallari was 14 yea at that time, and the portfolio continues to generate returns and grow within itself. However, them periodically in reviewing the to pharmaceutical aspirations and financial goals, it Manoj estimated that he had to even if one has delayed investing and made certain financial mistakes, the investment portfolio to measure Mcompanies. He lives with his wife, turned out that retirement planning accumulate around `10 lakh for her key is to correct that mistake, instead of repenting over the lost opportunity. the achievement of the financial Mrunalini and daughter, Vallari, who had not yet found a place in his wish education five years later. While goals objectively. This also keeps the is a lawyer-in-making. His desire for list. While discussing, he informed his investment horizon was fairly Link your investment in mutual funds to your goals portfolio healthy as the investors financial planning found its roots him that his retirement was still extended, the initial investments It is often helpful when one links his/ her financial plans with specific financial can identify the underperformers when he decided to accumulate around 15 years away, and presently, were made in large-cap funds to have goals. With a focused investment approach and spelled-out investment pulling the portfolio returns down funds for Vallari’s higher education. his prime focus is his daughter’s a smooth investment journey for horizon, one can choose the mutual fund schemes best suiting the and take further steps to replace such To align his financial interest, he educational expenses. However, him and to build his confidence in circumstances. For example, short-term goals may require more allocation schemes. came in touch with Kapil Jain, his thoughts changed for good the markets. However, as luck would towards debt for reasonable stability. In comparison, one may choose to have While Manoj continues to stay Founder of Enrichwise Consultancy once he was made to understand have it, the equity markets were a higher allocation in equities while saving for long term financial goals. The on course to accumulate a healthy Services, Thane. the importance of time for his stagnant for the next three years. As linked goals often act as a hidden motivation for investors. retirement corpus, it is crucial for Kapil Jain is a gold medallist from investments to grow. Time lost is such, the SIP returns in February other investors as well to incorporate IIM Indore and has experience of contemplating could be covered with 2016 were closer to around 5 per Have patience while investing his lessons into their investment over two decades in the financial quick action. cent per annum. As the SIP was not The investors need to stay patient in their investment journey. While strategies and make well-informed markets and advisory. He practices He immediately started an SIP yielding the desired results for the there may be periods of insignificant returns, a single market rally may decisions towards long-term wealth what he preaches, as he is a value (Systematic Investment Plan) for first few years, Manoj would often be compensate for all such periods. However, timing such market movements is creation. investor and a firm believer in asset `30,000 per month towards his at his wits’ end regarding his financial challenging and almost impractical to be achieved consistently by the retail investors. Instead, staying invested across the market cycles can be a more prudent and balanced investing strategy. This allows the investors to benefit from the market rallies as and when they happen. The investors need to Disclaimer ignore short-term volatility and instead focus on the financial goals when Financial Planning of Manoj Joshi is based on the “personal opinion and experience” of Kapil Jain and that it the storm is brewing. Kapil Jain should not be considered professional financial investment advice. No one should make any investment decision without first consulting his Director, Enrichwise or her own financial advisor and conducting his or her own research and due diligence. Consultancy Services

60 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 61 My Plan

60 Outlook Money September 2020 www.outlookmoney.com www.outlookmoney.com September 2020 Outlook Money 61 Morningstar: Mutual Fund Guide

Kotak Gilt Investment Fund

Investment Strategy Fixed-Income Statistics

bhishek Bisen is an experienced a detailed analysis of various factors Fixed Inc Style Box (Long) High Ext Amanager and has been with such as gross domestic product, Average Eff Duration - the fund house since October 2006. international investment position, credit Average Eff Maturity 12.3 He is backed by an eight-member and deposit growth, liquidity, currency Average Coupon 6.6 investment team. The presence of the movements, monetary and fiscal policy, Average Price 103.5 fixed-income head--Lakshmi Iyer--is a global factors, and prevailing market big positive, and her contribution gives sentiment. The manager takes tactical the team an edge. calls using short-term influencing Duration play and yield-curve factors such as liquidity conditions in the Fixed Income Style Box positioning are the main sources of market, inflation, money supply, market High return. The investment process is sentiments, trader positions, open Med research-based with an overlay of active market operations by the Reserve Bank trading executed through government of India, auction/issuance of securities, Low securities. The strategy’s edge resides and monetary. The high portfolio Ltd Mod Ext in the team’s ability to use macro turnover ratio compared with peers views based on its research and then reflects its active investment strategy. Portfolio develop strong conviction and position The fund predominantly invests Top Holdings Weighting the portfolio across the yield curve. in mid- to long-term securities issued (%) The investment team incorporates by the central government and has views of economists and sell-side historically maintained portfolio 6.19% Govt Stock 2034 49.75 research analysts. The interest-rate duration above six years regardless of 5.79% Govt Stock 2030 18.51 direction is determined by conducting market conditions. 6.79% Govt Stock 2027 11.48 GOVT STOCK 9.76 16.5 Calendar Year Returns 5.77% GOI 2030 9.21 13.8 Calculation Benchmark: None

10.0 9.2 9.8 9.2 7.7 8.0 7.4 6.0 5.2 5.3 5.5 4.0

Return 2.0 1.7 0.7 Fund Snapshot 0.0 YTD 2019 2018 2017 2016 2015 Morningstar Category India Fund Kotak Gilt Investment Reg Reg Gr India Fund Government Bond Government Bond Trailing Returns Fund Size (`) 9.7 billion Data Point: Return Calculation Benchmark: None Inception Date 29/12/1998 Annual Report Net Expense Ratio 0.99 YTD 1 Year 3 Years 5 Years 10 Years Morningstar Rating Overall **** Kotak Gilt Investment Reg Reg Gr 10.04 10.12 8.03 9.26 8.90 Manager Name Abhishek Bisen Minimum Investment (`) 5,000 India Fund Government Bond 8.35 9.32 6.93 8.14 7.85 Morningstar Analyst Rating Bronze

Disclaimer @2017. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. This report is issued by Morningstar Investment Adviser India (“Morningstar”), which is registered with SEBI (Registration number INA000001357) and provides investment advice and research. Please visit www.outlookindia.com/outlookmoney/invest/picking-the-right-mutual-fund-2542 and read important statutory disclosures, as mandated by SEBI, regarding the information, data, analyses and opinions given in this report.

62 Outlook Money September 2020 www.outlookmoney.com Viewpoint Importance of setting up a contingency plan Pandemic brings into focus the importance of having a contingency fund

he outbreak of the achieve over a period of mega-pandemic has time. Retirement, kid’s Tshattered several higher education and mar- illusions over stability riage are a part of long term and taught us that it is financial goals. These goals impossible to anticipate can be comfortably reached the specificity of risk and only if one makes calcula- uncertainty. Nobody would tive plans, using various fi- have ever envisaged that nancial products. businesses across the globe However, amidst all these collectively could come planning we often fail to set to a standstill. No one’s up an emergency fund that worst-case scenario had will take care of the inves- a COVID-19 pandemic tor and his loved one during pencilled in for 2020. rainy days. These were the thoughts The thought process best reserved for a movie behind creating this emer- script. gency corpus should be me- “In life’s journey, hav- ticulous. Never fall for the ing the ability to predict the trap in setting the goal of future gives us an unfair some rounded numbers like advantage. If we can un- Rs 3 lakh or Rs 5 lakh. The derstand the laws of cause ideal approach is to keep and effect, anyone can pre- aside the yearly expenses as dict the future. What we do your emergency fund. To today leads us to tomorrow’s help deliver a realist plan, destination. Why does this Nitish Purohit tally all the items of your simple truth seem to be dif- Partner - JNV Advisors LLP monthly expense plus your ficult for people to under- fixed financial obligation. stand?” goes a famous say- The sum may look formi- ing from Celso Cukierkorn, Businessmen were af- of us the importance of dable but it is worth keeping the author of the bestseller fected on a different scale having a contingency fund aside for uncertainty ema- - Secrets of Jewish Wealth when their businesses were or an emergency corpus to nating due to instances such Revealed! shuttered due to the man- sail through the storm. The as health ailment, loss of a No stratum of society datory lockdown, leaving other paramount learning job, or even loss of life. Just was exempt from the effects them with a fixed cost and through these challenging like any other financial goal, of the pandemic and its as- no income. Even large- times is the importance of one should save a part of sociated fallouts. Everyone’s sized companies found planning cash flows. When one’s income in a planned cash flow was impacted, be it themselves leveraged in the times are good, most of us and systematic manner for the salaried class, a business- form of honouring em- have a vague understand- this objective. Lastly, do man, or an industrialist. A ployee salaries, loan inter- ing of our cash inflow and not let this amount lie idle salary cut or even job losses est payments, and several outflow, but distressed time in a savings bank account. across sectors pinched sala- other obligations related to focuses on several aspects Deploy this into a liquid or ried individuals and signifi- operating costs. The events which we often tend to leave a short term debt mutual cantly impacted one’s cash made a dent in the finances on the peripheries. fund where the amount will flow. While inflows were of these industrial houses, This is where financial earn you some gains, easing drying up, financial obliga- even though it may be short planning steps in. Every the burden of reaching your tions in the form of EMI, term in nature. individual has a variety of target figure in a profoundly rent or household expenses These unprecedented short term and medium- disciplined manner. remained static. times have taught each one term financial goals to ([email protected]) Investor Initiative An Investor Education & Awareness Initiative Roadmap to Retirement Planning

The second edition of the investor education and awareness series held by Aditya Birla Sun Life Mutual Fund, in association with Outlook Money, focused on outlining the “Roadmap to Retirement Planning”. In a conversation with Special Correspondent Vishav, valuable insights and experience-based advice were shared by K.S. Rao, Head - Investor Education and Distribution Development, Aditya Birla Sun Life AMC Limited, Amit Trivedi, Author, Speaker, Trainer, and Blogger with over 26 years in capital markets, P.V. Subramanyam, Author, Blogger and a Chartered Accountant, and Kiran Telang, also an Author, Certified Investment Adviser with SEBI and a founder member of the Financial Planners’ Guild.

he discussion addressed a range of issues related to retirement Tplanning including how to reinvent one’s approach in times of COVID. “There are some financial goals in our life which we set and there some goals which are already set by themselves. Retirement is one such goal that is already set for many and all that we need to follow with right plan of action. Destination is set and we need to focus on the road map,” K.S. Rao said. He added that the earlier one starts, the bigger a difference it makes to the size of the retirement corpus even with a smaller investment amount. “Since most 22-23, it’s better to know how much they conscious about what they are doing with people see retirement as a goal which is can invest every month, instead of how the rest of their life,” she said, adding important, but not urgent, they tend to much one would need at retirement. Even that the balance between financial and postpone or ignore planning for it,” Rao if one starts small and keeps increasing personal aspirations leads to a “mindful said. He added that a `5,000 a month the investment amount, it would lead to retirement”. On the need to revisit one’s investment for someone who starts at 25 a big enough corpus, he said. retirement plans during the COVID crisis, years can become a corpus of `1.8 crore Amit Trivedi said while most experts Trivedi said what happened in 2020 was by the time they turn 55. Whereas a delay say that one formula doesn’t work for something no one planned for and what of five years with the same investment everyone, he believes the contrary. came as a huge surprise. Comparing the amount would lead to around half of that “There is only one formula that works in financial planning exercise to cricket, he corpus. “That’s why one needs to start as case of retirement planning and that is said that what we are facing now is the early as possible.” the compound interest equation, and it “fourth or fifth day of a test cricket match P.V. Subramanyam said that one can works for everyone. Also, the longer the when the wicket is rough and turning like retire with a comfortable corpus even by investment horizon, the better it is,” he anything”. investing Rs 40 a day, if they start early said. “In such a case, the batsman’s primary and increase the investment amount by Kiran Telang said that retirement is not job is not to score at high rate but to stay 10 per cent every year. just an event, but a phase of life. “And it on crease and protect the wickets. These He added that nobody knows for sure might be your longest phase where you are survival times and once you have taken how much one needs to save for retirement are not earning an income. The decisions care of the survival, then you can go and and that everyone is guessing. “When you you make in your working life affect how hit those boundaries. So first, focus on are young, you don’t need to bother about you keep yourself happy and worry-free having a sufficient contingency fund, then how much you need for retirement as long in that phase of life. These decisions insurance. And then, make sure you have as you know you require a good corpus. could be about how happy you are with provided for your loan EMIs. And after all Only at the age of 50-55, you would be what you are doing with your job, about that, one should look at the whole exercise able to estimate how much you need. Even your relationships and friendships, and of investment for various goals,” Trivedi then we are guessing,” he said. yourself. There needs to be a balance. said adding that one should also reassess Subramanyam added that at the age of While earning money, one needs to be their goals based on the new reality.

To watch the complete interview, visit: http://bit.ly/3bfEH80 Data Primer

As on 19th August, 2020

Macroeconomic Inflation (March) 6.93% Interest / Bank Rate 4.25% Factors Repo Rate 4.00% Reverse Repo 3.35% By Himali Patel Base Rate 7.40% - 9.00%

etail inflation for July 2020 jumped Savings Deposit Rate 2.70% - 3.0% to 6.9 per cent, from 6.2 per cent in Term Deposit Rate >1 Year 5.00% - 5.40% June 2020. The rise in inflation was Ron the back of higher food and fuel price Current A/c Deficit (CAD) 0.9% which rose 8.71 per cent and 2.8 per cent respectively. Rising food prices largely due Fiscial Deficit 2018-19 3.39% to supply chain disruptions are the main Estimated Fiscial Deficit 2019-20 4.60% reason behind such high numbers. RBI had kept the interest rate unchanged on August GDP Growth Rate -March'20 Qtr 3.10% 6th meeting and hinted higher inflation GDP (Trillion): Nominal $2.94 until September. With that, the expectations of further stimulus, an ultra-low interest Gross Savings Rate 30.10% rate environment, and geo-political tensions 11,254 Monthly are other factors that are leading investors Per-Capita Income (FY 2020E) ` to seek some stability for their savings INR/USD 74.76 through the yellow metal. [email protected] INR/Euro 89.28 INR/Pound 99.14 Nifty 11408.4 Sensex 38614.79 Nifty PE 32.09 Sensex PE 27.74 Gold Rate (MCX) 53185

Source: RBI, Government Data, AceEquity

www.outlookmoney.com September 2020 Outlook Money 65 Open-ended

Loss Aversion Behaviour Can Be A Big Hurdle How to manage the fear of market loss and take careful decisions leading to profits

he tendency to experience losses and employee), along with post office SAGNEET KAUR that are psychologically twice schemes; whereas, financial market as powerful as compared to investments, such as equities and mutual equivalentT gains, is referred to as loss funds, despite being highly attractive, tend aversion behaviour. It is a simple but to be limited to less than 10 per cent of the powerful tendency, aka bias, encapsulated total household savings (RBI, 2018). in the expression: “losses loom larger than People investing in stock markets are gains” (Kahneman & Tversky, 1979). often referred to as gamblers by those External factors impacting loss aversion who don’t invest, or by those who invest in in individuals are correlated: positively, lower return investment assets. This shows with three cultural traits of individualism how loss aversion or fear of losing money (self-reliance), power (in-equality), and keep individuals away from financial masculinity (manliness); and negatively, market-linked investments, which leads with higher levels of wealth and education. to unbalanced asset allocation across asset As Indians tend to value the three cultural types. Loss aversion can be hurtful not only traits more (Hofstede, 2011), this may while taking small losses, but also when explain why some researchers have refusing to take big losses (Kemp, 2020). “Preparedness found us to be more loss averse than Let’s take the example of Rohan Sharma, a for crisis will individuals in America or Britain 32-year-old IT professional, who has been act as a nudge (Wang et.al., 2016). investing in the stock market since 2010. As we all have limited money He keeps high aspirations, but tends to to mitigate and resources to invest, we have be sensitive to losses as compared to uncertainty” a general tendency to allocate acquiring equivalent gains, arising out money on assets that perform of any two investment scenarios. or are safe. Traditionally, Indians When any of his stock investment have favoured debt investments: performs bad, he holds the investment primarily, bank’s fixed longer in anticipation of recovery. deposits followed by Similarly, when any asset provident funds (public investment goes slightly up in price, he books profit just to realise a gain of any amount. This is followed How to overcome loss aversion and generate wealth? religiously even in situations where his own analysis clearly indicates that investment Measure your reaction during the crisis by getting yourself profiled on risk- should be abandoned in the first case, or taking capacity. If you have higher potential for regret, more is the likelihood of should have been held longer for a much taking irrational buy and sell decisions. larger profit in the second. These are two of Think clearly while making investment goals for your portfolio. Plan strategically the most fundamental mistakes investors and achieve specific goals (small, medium and long-term) by allocating money to different asset classes in sync with your risk taking capacity and time horizon. make owing to loss aversion, which are the Preplan what you will do when your investments show lower returns. Prepared- biggest wealth destroyers. ness for crisis will act as a nudge to mitigate uncertainty. Rohan has gained a return in the range Be rational while selecting relatively riskier investment opportunities. Even if of 5-10 per cent in 10 years, whereas one or two riskier investments perform well, it should cover for the total cost of benchmark indices Nifty and Sensex have all failed investments, which overall leaves you with a handsome return at the portfolio level. rallied to give over 100 per cent return in Trust in logically and statistically trained algorithms over people and their the same investment duration. instincts, while making predictive judgements about “what will happen next?” Such algorithms generally give good results. The author is the Associate Director, Behavioral Research, Morningstar, India

66 Outlook Money September 2020 www.outlookmoney.com THERE IS AN OPPORTUNITY BEHIND EVERY DARK CLOUD. A chance to benefit from good companies going through a temporary downturn.

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