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Portfolio Managemt Strategies | Types | And A Comparision

Whether it is a mutual fund or personal investment.  At last portfolio is a portfolio. No difference. Without strategic portfolio management, it’s very difficult to achieve the target. Investment into different asset classes like equity, debt, gold and cash will give the returns of different percentages and at different time periods. So, there is a need to manage, the balance between different asset classes. That’ where a strategic portfolio management plays a vital role.


STRATEGIES

Active Strategy

An active portfolio management strategy focuses on outperforming the related specific benchmark index that comprises of the assets in the portfolio. Either an individual investor /a broker /a mutual fund, the strategy remains same. Just outperforming the specific related Benchmark Index.

Suppose you might have come across the news that, BSE Midcap Index has fallen by 12% since the beginning of 2018. And’ all the Midcap Mutual Fund Schemes have fell lower than their respective benchmarks. But, Axis Midcap Scheme shown positive return of 0.74% from Jan’18 to June’18.

How it Works

Let’s better to explain with an example.

An investor  Mr. Gentleman aged 40 years has invested his savings of Rs. 10,00,000 in different asset classes as follows.

 

Initial

Asset Allocation

Amount Active

Asset Allocation

Amount
Equity

Debt

Gold

Cash

4,00,000

2,00,000

3,00,000

1,00,000

Equity

Debt

Gold

Cash

2,50,000

3,50,000

3,50,000

50,000

After allocating the total amount to gain under different classes, there was a signal of equity market down-trend. Then, to save his corpus, he planned to reduce the amount of equity exposure. So, he reduced the equity amount from 4  lakh rupees (40%) to 2.5 lakhs (25%). And, to safeguard his return, he transferred that amount to debt and Gold.

Here, the investor /portfolio manager has applied the active portfolio management strategy by timing the markets. And, trnsformed the existing portfolio to the new strategic portfolio comprised of same asset classes but with different asset allocation percentages. Sometimes, the strtegic portfolio management brings in new asset classes by the investors /portfolio managers, which they expected to be the best future performers.

After a year, his expectation got true and market had underperformed by 40%. That has similar effect on his equity investment. So he lost  Rs. Rs. 1,00,000 in equity and  instead of Rs. 1,60,000 if he might have invested Rs. 4,00,000. So, more exposer to the debt and gold has earned him more money in the form of interest and gold price appreciation. That’s how the strategic portfolio has saved him from big equity loss and earned extra money.

For each strategy there is always a second side of possibility. Let’s consider the scenario that markets moved forward and up by

 

Parag Milk Food Limited | Try To SIP In

 

Parag Milk Food is an upcoming diary production brand. Started in 1992, the factory is located on the Mumbai-Noida highway.


BRANDS AND PRODUCTS

KEY FINANCIALS

Current Market Price (CMP): Rs. 253.3 – Rs. 254.30

Market Capital (Avg): Rs. 2200 Cr.

Book Value: Rs. 47.72

EPS: 1.20

P/E: 37/38, Which was around 58 in the recent past. Has been reduced drastically within a short span of time ( 2 Months ). Which can be considered as a positive indication towards it’s price stability.

P/B: 5.31 Which is less than Vadilal Ind (7.62), Britannia (18).

Face Value: Rs.10 That’s what many good businesses keep-up their face value.

Dividend (%): 0. May consider it as, the company is utilising the profits entirely for its growth. Hence the huge growth rate can be expected. 52 Week low /high: Rs. 201.75 /Rs. 357. I hope it will soon cross the 52 week high.

GROWTH RATE

There is a considerable improvement in sales of Rs. 14 Cr for the quarter ended March 2017, as compared to the previous year. That’s in comparison with the quarter ended March 2016.

The Net Profit for the financial year 2014 is Rs. 16  Cr., whereas by the year 2016 it has been improved to Rs. 47.30 Cr. That’s we can consider as a growth rate of around 200% for 2 years. It may jump to 400% for the coming 2 years, technicals are Suggesting.

TECHNICALS

Consolidation phase is over. What’s left is the distribution phase. During distribution phase, who are really going to gain are the long term investors. One big tally takes the stock value to the level that will surpass all our expectations. Better to keep invested to be the part of that in imaginable growth and prosperity.

Don’t forget to write your valuable comment below.

Dare to reach the target price here

Updates

  • Today, ‘Buy Signal’ has been triggered. Just buy and hold for the short-term target of 290+ (04/10/2017)
  • Parag Milk Foods announced the launch of a digital TVC for its whey protein product – Avvatar Absolute whey protein.
    Powered by Capital Market – Live News

FED Rate Hike And Its Effect on Global Markets

US bonds are believed to be the safest debt instruments in the world. If there is a hike in the interest rate there, that will definitely affect the global markets in proportion. Here, markets mean not only the bond markets, but also include currency, derivative and equity.


What is ‘FED Rate Hike’

Us Fed plays the similar role in the US, as that of the Reserve Bank of India in India. The US Monetary Policy is determined and decided by a committee called ‘The Federal Open Market Committee’. The committee-meet has so much global importance that, investors, analysts and policy makers, unanimously cross their fingers and wait for the result. That’s the impact of FED rate has on Global Markets.

Queries Details
Headquarters

Established

Chair

It’s a Central bank of

Currency

Reserve requirements

Bank rate

Interest rate target

Interest on reserves

Interest paid on excess reserves?

Eccles Building, Washington, D.C., U.S

December 23, 1913 (104 years ago)

Janet Yellen

United States

United States dollar
USD (ISO 4217)

0 to 10%

0.6% to 1.50%

1.25% to 1.50%

1.25%

Yes

US, being the world’s biggest economy, Federal Reserve of US and its actions has the capacity to stir the Global Markets. The dollar being the world’s reserve currency, decides the value of other world currencies against its value. FED rate hike /cut has the power to control its value in global markets.
US Fed Rate Hike – means, Federal Bank of US is willing to provide the banks of US with the hiked interest rates, for their lending and borrowing activities. Which, in turn, leads to hiked /increased interest rates on bonds, saving deposits, loans etc.

Due to rise in interest rates in the US, the value of Dollar becomes increased, making it more attractive to the investors, in comparison with others currencies, including Rupee.

 

What is FITL /Funded Interest Term Loan And WCTL /Working Capiatl Term-Loan

Due to the burden of non-performing assets and debt problems, companies may fail to perform well, irrespective of their best performance track record. In-order to tackle this problem and provide the companies, a breathing space, RBI has bought a fixing tool called a ‘Funded Interest Term-Loan’ (FITL).


At times, when businesses feel the need for extra capital to run the day-to-day operations of the business (Working Capital), RBI has facilitated a provision called WCTL / Working Capital Term_Loan. Under this provision, RBI guided the Banks and Financial Institutions, to extend a relief /concession to potentially sick SSI Units (Small Scale Industries), under a rehabilitation program. Companies mostly utilize this facility to avail the extra capital, based on the opportunities /threats present in the market.

Working capital is a money, that is used to fund the short-term (usually less than a year) operations of a firm. This is the capital that’s generally rotated to generate earnings. The other areas of employment of the working capital include, the purchase of the necessary inventory and receivables financing.

The Working Capital can be classified as CAPEX (Capital Expenditure) and OPEX (Oerating Expenditure). CAPEX covers long-term fixed assets, whereas the OPEX covers the capital required to run the day-to-day operations of the business. Both CAPEX and OPEX is catered by the WCTL.

The working capital finance is available in both Indian as well as foreign currencies.

The WCTL can be categorized into funding facilities and non-funding facilities.

Under funding facilities, banks /financial institutions provide the direct funding and the necessary assistance to purchase the assets and /to meet the business expenses.

The non – funding facility is an indirect help provided by the banks and financial institutions to the companies. Under this facility, banks issue companies, a letter of credit (LC) /guarantee to their suppliers /customers (Government /Non-Government) for procurement of goods and services on credit.

Stock Shots

Lakshmi Energy and Foods Ltd. Q4 results reveal that an amount of Rs. 924,53 Cr., has been paid towards the interest of FITL and WCTL. The time given to payback, is 8 years, which is usually not more than 5 years. Approved by the IEC under RBI guidelines, hopefully the company is utilizing the funds successfully. The overall annual income from operations has grown by Rs.10.67 Cr. Which is not reflected in the overall profit due to the payment of Rs. 924.53 Cr towards interest costs of FITL and WCTL. So, we have to consider it as an effective employment of funds acquired, for its progress.  Hopefully the next quarter will be far better than this and so as our returns.

Technically the chart is bullish. Stay invested.

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Preferential Allotment Of Shares | Impact On The Current Market Price Of The Share

When a company has a debt, and wants to reduce it or would like to expand the existing business, there are many methods to raise the required funds. But of all, the easiest one is the allotment of preferential shares. Through the allotment of preferential shares companies can raise debt, without much must to follow norms /paper work. Whereas, the other methods of acquiring capital, needs procedural enhancement of norms and time. That means, they are very time consuming and complicated in comparison with an allotment of preferential shares directly to the second party.


Preferential allotment of Shares is the process, through which shares are allotted to the selected group of investors /institutions /companies on a preferential basis. Under this process shares are allotted to the investor with an agreement that, whenever the company decides to pay dividends, the holders of the preference shares will be the first to be paid.

  • Cumulative Preferred Stock
  • Non-Cumulative Preferred Stock
  • Participating Preferred Stock
  • Convertible Preferred Stock. This is also simply called as the Preferred Stock

Benefits and Drawbacks of Preferential Share Holder

Benefits

No brokerage expenses

Preferential shares are preferred over the common shares, while allotting dividend

In the case, if the company is not able to pay a dividend in the current year, the preferred shareholder has the right to claim that dividend in the subsequent years.

In the event of liquidation of a company, preferential shares takes precedence over the common stock. That is, in the case company goes bankrupt, preferred shareholders are paid off first, before the common stockholders. Capital is secure.

Drawbacks

The first and the foremost drawback is that, the preferred shareholder possesses limited voting rights while passing resolutions of the company. Whereas an equity share confers on its holder, a right to vote on all resolutions that require shareholder approval under the relevant act /law /the articles of association of the company. Also enjoy the right to appoint or remove the directors and auditors of the company, as well as approve the company accounts.

Preference shares are riskier than bonds, but less riskier than equity.

Preferential shares are preferred after the NCDs during company bankruptcy and the consequential liquidation.

Effect On EPS & Stock Price

Positive Effects

Few companies start to perform well after the allotment of preferred stock. This depends on the factors like, whom the stock is allotted and how successfully the raised fund is utilized for the growth of the business. If, the stock is issued to ‘well informed veteran investors’, then their participation will definitely drive the business towards its growth.

Negative Effects

Diluted Earnings Per Share takes into account all the outstanding convertible securities, like convertible debentures, convertible preferred shares, stock options and warrants. Hence diluted EPS gets affected by the preferred stock if it is convertible.

The preferred stockholders, usually exercise their right to convert the preferred stock into the common stock at a pre-agreed ratio. They do so, if stock price hikes after the issuance of preferred stock. Due to which, the number of shares increases. Thereby, reducing the EPS and in turn the stock price.

Hence, a convertible preferred stock can be considered as a dilute, which increases the number of shares, reduces EPS and hence the stock price.

Preferential shares are not accessible to common investors. Companies prefer high net worth individuals, institutions and other companies for preferential allotment. And, the whole process is carried out privately through a private placement of the offer. Hence available for only high net worth individuals. The minimum threshold amount to invest is Rs.10, 00,000 (Rs.10 lakhs). This can be considered as one of the distinctive features of a Preferential allotment of shares by the companies.

 

Coal India Limited | A Cool Player In Your Portfolio

CMP: 276.50. Both on NSE & BSE (19/05/2017)


Till now all the power generation companies are heavily dependent on the imported coal. Lack of domestic coal availability has led to this situation. The current import quantity is 65 million tonnes, which is almost 51 percent of the total coal requirements. If this surge continues, the day is not far away that, India becomes completely dependent on the imported coal for its power generation needs. Then, why Coal India? Of no use???

Shakti – The Power Policy to Reduce Coal Imports

In order to change this situation, ‘The Cabinet Committee for Economic Affairs’ has approved a new Coal Linkage policy called ‘Shakti’ – The Power. This policy is an auction based and  This is a scheme to harness the thermal power generation in India.

The total thermal power capacities in India, in the private sector tunes until 30,000MW. Out of which, 2/3 are equipped with ‘Long-term Power Purchase Agreements’ (PPAs). Shakti, the new power policy is going to benefit all these private players in the thermal power sector. Under this policy, all the thermal power generation companies with PPAs will get the right to get the fuel from ‘Coal India Limited (CIL)’.

A total 20.000MW private power generation sector is going to be benefited under the new policy. In 2009 CIL issued a ‘Letter of Allocation’ to few power projects. The total capacity of these power projects stands at 12,000MW. And, another 8000MW without LOAs, but with short-term ‘MOUs’ (Memorandum of Understanding). But CIL failed to provide the fuel.

Coal India Limited is the Biggest Beneficiary

In this entire activity stream the biggest beneficiary is ‘The Coal India Limited’. It’s going to be benefitted @Goventment’s focus on the harnessing of power generation. The total import percentage of coal falls to 12% (547 MT) of the total Coal India’s production capacity in the financial year 2017. The target is to achieve zero imports. Just a 10% hike in Coal India’s production can make this possible to happen.

All the state-owned power companies have already reduced their imports. 25 million tonnes in FY16 to 12 million tonnes in FY 17. Targeting ‘zero-imports’ this year.

The aim of Shakti is clear. It ensures that all the power projects are supplied with enough coal as per the linkages provided. A  long fuel supply agreement will be signed off with competitive tariffs. It will benefit the plants that have signed Power Purchase Agreements on the basis of imported coal.

Benefits of Coal India Investors

The stock has been under-performing, since for the past one year. Currently trading around 277, almost a 52 week low, the stock is trading at 14 times of its fY18 earnings. This usually happens considering the huge cash in the books, zero debt and finally its monopoly in the sector

Analysts were expecting Rs. 15-17 per share earnings (EPS) in Coal India in the fiscal year 2017. But, this new policy has changed the number to Rs 20 per share. That’s how the investors are going to benefit.

The same should reflect on Coal India’s earning, which is expected to increase to about Rs 20 a share as against analyst expectations of about Rs 15-17 per share in fiscal 2017. The stock has been, a big under-performer in the past year. At the current price of Rs 277 per share, the stock is trading at 14 times its FY18 earnings, which is reasonable considering the huge cash in the books, its monopoly status in the sector and the zero debt.

Till now Coal India has been a favorite pick of the dividend lovers. One who would like to park their capital safely under the roof of Giant Company that will securely pay off its return in the form of a dividend. A dividend yield of 10.09% is better than any bank fixed deposit. But, after the implementation of new coal policy, the tradition is going to be changed. It’s no more a dividend pick, but running to sit in the peer basket of growth picks.

Among the power companies, the immediate beneficiaries are GMR, Adani Power, Reliance Power, Vedanta, KSK Energy, CESC. Shortage of fuel linkages has led these firms and their power plants, operating at below financially viable levels.

Why to ‘Buy’?

Since for a month I’m feeling that the stock is going to sit in a technically bullish position. But, there was no fundamental support for my analysis. But, after the announcement of the Shakti policy, I’m recommending to buy it for your long-term portfolio. In the long run you will realize what is meant by ‘The power of compounding’, the success mantra of Mr Warren Buffet.

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