LitM Financial

09/02/2021

Latest column done by Saji Pulikan - Co Founder of LitM Financial Private Limited.

Budget 2021 has outlined a large government borrowing program, thus pushing up yields. Listed may offer bonds better alternatives to bank fixed deposits

12/10/2020

Sovereign Gold Bond Series VII open from 12th to 16th October @ Rs.5001/- per gram with 2.5% interest - Tenure 8 years, Lock-in 5 years.

21/07/2020

Comments from Saji Pulikan, co-founder and CEO of litmfin.com captured by Moneycontrol over its article "Credit risk funds and low-rated deposits not for average investors"

Investors looking for a steady income and wanting to minimize their risks should stay away from credit-risk funds

18/06/2020

Every Equity market downfall that we have seen in last 19 years has also seen the markets come back strong ( Returns graph of last 19 years find below).
This is primarily because World is a going concern and companies that adapt to the new changes after the crises stand to gain the maximum and markets will
reward the new players or the incumbents that have adopted to the new opportunities which the world has thrown to them. E.g. Dotcom crises help create large software services companies out of India, post the Global financial crises we saw the raise of well managed Financials in India too – HDFC, Kotak, Indusind banks all getting rewarded
as well managed company’s during the crises and post scaling-up.

We will see this trend emerging in this Covid-19 crises but with little different – this time the online and offline businesses of companies will converge to
create even more larger opportunities and wealth creation for their stakeholder ( e.g: Reliance Retail and few Pvt banks trying to build this theme). As investors we need to realign
our portfolios to take advantage of this change in Customer behaviour and company strategies.

India can come out of this crises strong. Our current Foreign exchange reserves stand at $500b for the first time, Oil prices are at all time lows when compared to
last decade which will bring down our import bills significantly and provide cushion to the government over fall in Direct taxes by way of increase in indirect taxes.

Companies might loss out earnings this year but all companies that survive this crises will come back strong to delivery even higher shareholder value and higher
market share. This story won’t be of which sector will come out strong but which companies can beat this loss of demand and supply side constraints, thus making it
a bottoms up case across Large, Mid and Small cap stocks which means portfolios need to have multi-cap orientation to capitalise the change.

01/06/2020

Volatility in Debt is the New Normal with the repo rates at historic lows – Fixed Deposit rates having collapsed, Debt Investors now need to look at specific opportunities which
can give higher carry with manageable credit and interest rate risk.

So it’s not category-wise that investor can invest i.e.. Liquid, Ultra Short-term, low duration or G-sec but invest scheme-wise as each scheme will carry a different yield, duration and credit risk.

Scheme-wise Investing will provide better risk-adjusted returns plus liquidity to the investor in this New Normal ( Low Interest Rate for Savers).

15/05/2020

INVESTING IN COVID TIMES

2020 has been a year of self-realisation for the entire mankind. Markets – Equity/Debt/Commodities/Currency too have demonstrated similar self-realisation i.e. markets cannot
go only UP and there needs to be some correction coming at some point of time and this time it was due to COVID 19.

Equities cannot replace debt or FDs as an investments option, there would be volatilities and this would create opportunities and thus returns
In equity markets and not a linear way up.

Debt will inherently have Interest rate and credit risk which investors need to focus before strategizing an investment plan and not expect fixed returns.

Commodities will go through cycles which could be short cycles depending on economic activity or super cycles which give direct to things to come.

Currency – no matter how much we love our currency to be stronger, ultimately the country’s balance sheet, inflation and other factors effect currency movement.

Having said this, COVID times also represent us with strong investment opportunities across the market spectrum.

Companies with strong balance sheet and scale can garner even higher market share – here I see more and more sectors going into market positions where
we seen only 2 to 4 players dominating the entire market – in India we are seeing it in Telecom ( JIO and Airtel) Ecommerce ( Amazon, FlipKart ) Private Banks
( ICICI, HDFC, Axis and Kotak).
2008 we saw Titan and other large format Gold players ( Kalyan, Jos Alukkas) cornering higher market share.

Companies that grow their market share during these ties can give multi-bagger returns in next 5 to 10 years.

Debt represents us with good yields in few market segments and companies which have sovereign guarantee but yields of these papers are still at elevated levels
Due to risk off scenario. These papers can give good returns over next 12 to 18 months especially when we expect RBI to further reduce the repo rate by another 50bps.

Keeping this in mind – we need to create two portfolios – One which is for lumpsum and Second for staggered investments.

Ending with quote from Peter Lynch:

“In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten.”

30/03/2020

Yesterday, we saw RBI come out with few measures which will help provide liquidity and boost the economy as the world faces these uncertain times.

Apart from the Key rates that were revised we also saw the marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.65 per cent from 5.40 per cent.

RBI was categorical is saying that they will target inflation at 4% in medium term but refrained from giving any guidance on GDP growth nos.

LTROs to a tune of up to Rs1lac crs, Liquidity availed by banks under LTROs has to be deployed in investment grade corporate bonds, commercial paper
and non-convertible debentures and has to be held till maturity (HTM).

What do these measures mean for investors:

• For Debt investor – corporate yield spreads have already compressed after these announcements by around 100bps which might see further compression, thus investors can buy into
Certain good quality – Short-term and Medium term Debt Mutual Funds from 1 year perspective.

• For Equity investor – RBI has clearing refrained from giving any guidance on the GDP growth nos. which means that we will see volatility in the equity markets with sharp ups and downs
depending on the news flows on Covid-19 and also other measures taken by central banks and governments around the world.

Spread your Equity investments over next 6 to 8 months.
Stick to large-cap names and Market Leaders.
Bullish on: Large Private Banks, Private Insurance cos,
Consumer Discretionary
Bearish on: Auto, Real Estate, High Debt cos

13/02/2020

Can customers of Gold Schemes replace it with Gold Mutual Funds?
I am born and Brought up in Pune and my last few years of professional life have spent in Bangalore – thus Both these Cities are close to my heart.
Consumers in Both these cities - Bangalore and Pune have been hit by two Different Jewellery schemes with their hard earned money nowhere in sight.
Generally consumers fall for these schemes as they can save at periodic intervals usually once a month for 11 months and then get the 12th month paid by the Jeweller to either purchase Gold at the end of the 12th Month or can encash their investments.
What is happening in these schemes is that Jeweller gets Funds plus Customer for their gold products at the end of the period.
Structure is a win-win situation where one needs funds and other gets returns – Only that this is a unregulated investment product and relies on trust that there won’t be any loss of money in the transaction – sadly always it doesn’t end well as is in most unregulated markets.
Fortunately India has been blessed by Good Regulations and Regulators (SEBI, RBI and other institutes) who together created a robust investments options.
Mutual Funds have got wide acceptance mainly for equity investments with now money flowing into Debt from retail consumers.
For Passive investors Gold Mutual Funds can come in handy which provides opportunity to invest monthly or periodically. Also there is an option to invest into Gold ETF for active investors.
These Golds funds can be sold/redeemed with the Mutual fund House any time without any hassles just like going to your Jeweller and excising your option to Buy Gold or encashing your returns.
No Need to worry about price discovery or liquidity which might be a problem with Gold Bonds.
Once consumers redeem these funds they can go to ANY Jeweller and BUY Gold

Connect: https://litmfin.com/

07/02/2020

Large Impact of RBI Monetary Policy

RBI has introduced 1 to 3 years Term Repos of upto 1 lac crs.

This will help lower the cost of funds for banks and better transmission to end borrower.

How does this work?

Repo is the rate at which RBI lends to Banks @ 5.15% for overnights, now RBI can lend at the same rate for 1 to 3 years to Banks.

Banks will get funding at lower rate, this will help them to keep SLR securities ( G-sec, SDL, TBills) with RBI to get
this low rate funding also from market perspective excess SLR would have hit market for further lending by banks
this supply will not hit the market thus we saw rally in the short end where yields of 1-3 years fell by 10- 15 bps.

03/02/2020

Top Investments in Last 10 Years:

As per the chart you can see Asset Classes that are at Top for one year might not find place in the next year as a Top performing Asset.
This gets back to the question - How important is Asset Allocation?
It’s like farming – Farmers who do – Multi-crop farming are better placed to face the price/production/climate volatilities than One Crop farmer.
If we can plan it in the most ancient occupation then – it can be better envisaged in the investment scenario today.
Before elaborating over Asset Allocation – Investors need to know their own Risk Appetite first, as each Asset comes with its own pros and cons thus one needs to know its suitability for the investor and then allocate accordingly.
If investor places his money into overvalued assets, investors will experience poor long term returns. It’s important to overweight asset categories that are bargain priced and underweight or avoid asset categories that are expensive.
Proper Asset Allocation will be the biggest determinant for Investor returns moving forward.
Author works with https://litmfin.com/