Author: shyam

FII (FPI) and Mutual Fund Investment Charts

Foreign investors love the India Story

Just look at the amount of money pumped into India: $25,347.95 million so far this year alone.

fii-investments.2012-01-01.2014-08-31

And just into Equities: $11,960.36 million this year.

fii-investments-equities.2008-1-1.2014-08-31

Domestic Institutionals have a debt fixation

DIIs have bought up Rs. 3,99,840.60 crores into debt this year alone.

dii-investments.2012-01-01.2014-08-31

And have been net sellers of equities. Taking out a total of Rs. 452.30 crores this year and Rs. 22,507.20 crores since 2013.

dii-investments-equity.2008-1-1.2014-08-31

There are signs that domestic investors are finally joining the party. Here’s to hoping that a majority of those funds will come from fresh investments rather than from rotating out of debt into equity.

Also, these trends beg a question: Have our regulatory and tax system skewed incentives toward debt at the cost of equities?

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REIT All the Way

We had discussed REITs (Real Estate Investment Trusts) before. The SEBI board has approved the final set of regulations.

Key take away

  1. Tax pass-through: return from investments through these instruments will be taxed only in the hands of investors and the trusts will not have to pay tax on income.
  2. REITs and Invits should have a starting asset value of at least Rs 500 crore and the initial offer has to be Rs 250 crore or more.
  3. REITs will be allowed to invest only in commercial property. They should be completed and should be generating revenue.
  4. REITs will have to be listed. But if the experience of listing NCDs is any indication, expect little no secondary market liquidity.
  5. REITs will not be allowed to invest in other REITs.
  6. Minimum investment: Rs. 2 lakhs

Impact

This will be a good way to build a diversified portfolio. Right now, investing in any form of real estate is a nightmare. Ticket sizes tend to be more than Rs. 50 lakhs for decent properties, there’s a huge legal tail-risk associated with land, the total cost of ownership cannot be fully calculated beforehand, so ROI is a matter of gut-instinct. REITs will be a net positive for investors with white money.

Right now, small ticket purchases (less than Rs. 50 lakhs) has been focused on buying up land in the outskirt of cities or Tier-2/Tier-3 cities. If REITs end up being popular, then it may negatively impact appreciation rates in these areas.

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Weekly Recap: 30 Things

world equity markets 2014-08-01.2014-08-08

The Nifty ended the week -0.45% (-1.59% in USD terms.)

Equities

Major
DAX(DEU) -2.18%
CAC(FRA) -1.31%
UKX(GBR) -1.67%
NKY(JPN) -4.80%
SPX(USA) +0.04%
MINTs
JCI(IDN) -0.69%
INMEX(MEX) +0.62%
NGSEINDX(NGA) +1.58%
XU030(TUR) -3.76%
BRICS
IBOV(BRA) -0.44%
SHCOMP(CHN) +0.42%
NIFTY(IND) -0.45%
INDEXCF(RUS) -1.80%
TOP40(ZAF) -0.38%

Commodities

Energy
Brent Crude Oil -0.06%
Ethanol -2.87%
Heating Oil -0.20%
Natural Gas +4.28%
RBOB Gasoline -0.14%
WTI Crude Oil -0.42%
Metals
Copper -0.93%
Gold 100oz +1.33%
Palladium -0.27%
Platinum +0.83%
Silver 5000oz -2.45%

Currencies

USDEUR:+0.13% USDJPY:-0.47%

MINTs
USDIDR(IDN) -0.20%
USDMXN(MEX) +0.43%
USDNGN(NGA) +0.74%
USDTRY(TUR) +0.64%
BRICS
USDBRL(BRA) +1.07%
USDCNY(CHN) -0.37%
USDINR(IND) -0.07%
USDRUB(RUS) +1.10%
USDZAR(ZAF) -0.02%
Agricultural
Cattle -2.98%
Cocoa +0.65%
Coffee (Arabica) -5.78%
Coffee (Robusta) -7.01%
Corn -0.21%
Cotton +2.18%
Feeder Cattle -2.25%
Lean Hogs -3.43%
Lumber +7.05%
Orange Juice +0.71%
Soybean Meal +2.34%
Soybeans +5.83%
Sugar #11 -0.92%
Wheat +0.60%
White Sugar -0.62%

Credit Indices

Index Change
Markit CDX EM -0.94%
Markit CDX NA HY -0.18%
Markit CDX NA IG +1.57%
Markit CDX NA IG HVOL +2.63%
Markit iTraxx Asia ex-Japan IG +5.84%
Markit iTraxx Australia +3.13%
Markit iTraxx Europe +2.10%
Markit iTraxx Europe Crossover +18.10%
Markit iTraxx Japan +1.89%
Markit iTraxx SovX Western Europe +3.59%
Markit LCDX (Loan CDS) -0.02%
Markit MCDX (Municipal CDS) -0.21%
Credit blew out. No sector was spared with even the high quality Investment Grade (IG) index getting hit. Japanese equities down almost 5%, Asian IG spreads +5.84%. What a mess…

Nifty Heatmap

CNX NIFTY.2014-08-01.2014-08-08

Index Returns

index performance.2014-08-01.2014-08-08

Sector Performance

sector performance.2014-08-01.2014-08-08

Advance Decline

advance.decline.line2.2014-08-01.2014-08-08

Market Cap Decile Performance

Decile Mkt. Cap. Advance/Decline
1 (micro-cap) -7.55% 59/73
2 +1.64% 68/64
3 +0.28% 65/67
4 +0.26% 67/65
5 -0.83% 65/67
6 -1.03% 66/66
7 -0.28% 70/62
8 -1.34% 64/68
9 -1.13% 64/68
10 (mega-cap) -0.51% 66/66
Most of the market bled out. Large-caps continued to out-perform the rest of the market.

Top Winners and Losers

TATACHEM +4.71%
ADANIENT +8.16%
CUMMINSIND +9.13%
UPL -8.75%
PETRONET -7.88%
ZEEL -6.02%
UPL swung like a yo-yo. Up 5.65% last week, down 8.75% this week. Most analysts maintain a target of Rs. 400 (Rs. 303.50 on Friday.) What gives?

ETFs

GOLDBEES +2.68%
JUNIORBEES +1.61%
PSUBNKBEES +0.81%
NIFTYBEES -0.47%
INFRABEES -1.04%
BANKBEES -2.48%
Surprisingly, JUNIORBEES ended in the green while NIFTYBEES ended red.

Investment Theme Performance

Momentum 200 +1.56%
Growth with Moat +1.23%
Long Term Equity* +1.12%
Market Elephants +0.96%
Efficient Growth +0.91%
Balance-sheet Strength +0.43%
Quality to Price +0.31%
Industrial Value +0.27%
Enterprise Yield -0.24%
Financial Strength Value -0.40%
IT 3rd Benchers -0.53%
Refract: PPFAS Long Term Value Fund -1.75%
Consistent10* -1.78%
Magic Formula Investing -2.62%
ADAG Mania -3.58%
Market Fliers -4.26%
Most strategies ended in the red.

Yield Curve

Is it officially time to panic? The yield curve inverted this week…

yieldCurve.2014-08-01.2014-08-08

Total return bond indices

Sub Index Change in YTM Total Return(%)
GSEC TB +0.01 +0.16%
GSEC SUB 1-3 +0.24 -0.23%
GSEC SUB 3-8 +0.26 -1.47%
GSEC SUB 8 +0.13 -1.43%
Yields went up across the term-structure…

August Nifty OI

nifty.puts.calls.AUG.2014-08-01.2014-08-08

August Bank Nifty OI

bank-nifty.puts.calls.AUG.2014-08-01.2014-08-08

Thought for the weekend

An introspection that is worth a read. My favorite:

Everything is mediocre. Most jobs are mediocre. Most people’s work is mediocre. Most products and experiences are mediocre. Most lives drift to mediocre. When you rise above the mediocrity, people will notice.

What is yours?

Read: Thirty Things I’ve Learned

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Why Diversify?

One of the main benefits of diversification is that if you invest in a group of assets with low correlations to one another, then you are likely to get the highest return for a given level of risk. But has it really worked that way for Indian investors? Here’s what we found while we crunched some numbers using CNX 100 and GSec 8+ year total return index since 2003.

Correlation

Yes, correlations are low: 0.0624. And we have a scatter-plot to prove it:

CNX 100-GSEC_SUB_8-2003

Returns

Here’s how the yearly returns look like (%):

stocks.vs.bond.returns

An 80:20 stocks:bonds portfolio would have had an average return of 21.43% vs 25.81% of a stock-only portfolio – a give up of 4.38% in returns – with lower volatility.

The question is, is it worth the trade off if you can stomach the volatility?

Related: BOND ≠ BORING

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Using SMA to Reduce Volatility of Returns

Introduction

We saw how a CNX 100 50-day tactical investment strategy boosts returns of a naive buy-and-hold strategy (here) even while considering trading costs and other friction (here.) To visualize how this works, lets have a look at the histogram of daily returns since 2010 (1150 trading days.)

Naive buy-and-hold

bh-returns-2010
Daily Returns
<= -2%
36 days
<= -1%
165 days
>= +2%
41 days
>= +1%
188 days
Average
+0.04%
Std. Dev.
1.07

200-day SMA switch

200-sma-returns-2010
Daily Returns
<= -2%
16 days
<= -2%
85 days
>= +2%
21 days
>= +1%
122 days
Average
+0.07%
Std. Dev.
0.79

100-day SMA switch

100-sma-returns-2010
Daily Returns
<= -2%
11 days
<= -2%
66 days
>= +2%
21 days
>= +1%
114 days
Average
+0.09%
Std. Dev.
0.74

50-day SMA switch

50-sma-returns-2010
Daily Returns
<= -2%
7 days
<= -2%
53 days
>= +2%
24 days
>= +1%
110 days
Average
+0.11%
Std. Dev.
0.71

Conclusion

Even after considering trading costs, impact costs and tracking error, this strategy comes out way ahead of a naive buy-and-hold strategy. Better returns than buy-and-hold with lower volatility and at a low cost!

You can follow the Theme here.

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