StockViz – Page 153 – Invest Without Emotions

Why do NRIs/FPIs pay more?

admin May 31, 2014October 2, 2015

Regulatory gotchas

The Reserve Bank of India (RBI) publishes a list of securities that are off-limits for NRIs and FPIs. This list can be found here.

As you can tell, the process is very unstructured and adhoc. The execution risk (the risk of buying a security that is off-limits) rests on the broker (StockViz). We have attempted to quantify that risk in terms of higher fees.

Operational friction

Typically, there are 3 parties to a transaction: the client, StockViz and Composite Investments. Composite provides margin, client executes trades through StockViz and the pay-in goes directly to Composite.

However, with NRIs, there is an additional party: the bank that manages the NRI’s PIS account. Here, Composite has to present the contract note to the bank, who will then transfer money from the client’s account to Composite. If there were any transactions that were deemed “off-limits” by the RBI, StockViz will only get to know about it at this stage. Also, with the additional cog in the wheel, there is an element of payment risk that we have attempted to quantify in terms of higher fees.

Account opening charges

All documents provided by the NRI/FPI needs to be notarized in India. These docs typically run into 20-30 pages. Plus, the account opening docs need to be couriered to the prospective client. We have quantified these charges in our upfront account opening fee of Rs. 5000/-

Categories FAQ Tags NRI

Weekly Recap: Certainty Is an Illusion

shyam May 31, 2014June 7, 2014

Equities

The Nifty ended -1.86% this week (-2.78% in USD terms)

Major
DAX(DEU)	+1.79%
CAC(FRA)	+0.59%
UKX(GBR)	+0.42%
NKY(JPN)	+1.18%
SPX(USA)	+1.28%

MINTs
JCI(IDN)	-1.59%
INMEX(MEX)	-1.18%
NGSEINDX(NGA)	+4.12%
XU030(TUR)	+1.71%

BRICS
IBOV(BRA)	-2.77%
SHCOMP(CHN)	+0.23%
NIFTY(IND)	-1.86%
INDEXCF(RUS)	-0.48%
TOP40(ZAF)	-0.56%

Commodities

Energy
Brent Crude Oil	-0.96%
Ethanol	+1.89%
Heating Oil	-2.16%
Natural Gas	+3.59%
RBOB Gasoline	-1.41%
WTI Crude Oil	-1.32%

Metals
Copper	-0.94%
Gold 100oz	-3.32%
Palladium	+0.85%
Platinum	-1.42%
Silver 5000oz	-3.09%

Currencies

USDEUR:-0.01% USDJPY:-0.17%

MINTs
USDIDR(IDN)	+0.53%
USDMXN(MEX)	-0.04%
USDNGN(NGA)	+0.19%
USDTRY(TUR)	+0.73%

BRICS
USDBRL(BRA)	+0.81%
USDCNY(CHN)	+0.18%
USDINR(IND)	+1.02%
USDRUB(RUS)	+2.17%
USDZAR(ZAF)	+2.57%

Agricultural
Cattle	+0.99%
Cocoa	+2.42%
Coffee (Arabica)	-2.23%
Coffee (Robusta)	-3.10%
Corn	-2.77%
Cotton	+0.17%
Feeder Cattle	+2.26%
Lean Hogs	-2.89%
Lumber	-2.02%
Orange Juice	+0.79%
Soybean Meal	-0.75%
Soybeans	-1.67%
Sugar #11	-0.46%
Wheat	-3.76%
White Sugar	-0.13%

Nifty Heatmap

Index Returns

Top winners and losers

HINDUNILVR	+7.45%
TECHM	+7.65%
MPHASIS	+10.16%
IDFC	-11.83%
BANKBARODA	-11.72%
CANBK	-11.58%

Banks were hit by a wave of profit taking…

ETFs

INFRABEES	+0.44%
NIFTYBEES	-2.21%
GOLDBEES	-2.31%
BANKBEES	-3.29%
JUNIORBEES	-4.32%
PSUBNKBEES	-6.24%

Pretty much all in the red…

Investment Theme Performance

Long Term Equity*	+5.31%
IT 3rd Benchers	+3.09%
Consistent10*	+1.48%
Momentum 200	+1.18%
Efficient Growth	+0.38%
Quality to Price	-0.39%
Market Elephants	-0.41%
Enterprise Yield	-1.51%
Financial Strength Value	-1.85%
Balance-sheet Strength	-2.63%
Growth with Moat	-4.02%
Magic Formula Investing	-4.16%
Market Fliers	-7.70%

It was brutal for most investment strategies this week…

Sector Performance

Yield Curve

Yields continue to trend lower. Is the market pricing in a rate cut?

Thought for the weekend

In an uncertain world, we cannot plan everything ahead. Here, we can only cross each bridge when we come to it, not beforehand. The very desire to plan and organize everything may be part of the problem, not the solution.

Small children often need security blankets to soothe their fears. Yet for the mature adult, a high need for certainty can be a dangerous thing. It prevents us from learning to face the uncertainty pervading our lives.

At the same time, a psychological need is not entirely to blame for the illusion of certainty. Manufacturers of certainty play a crucial role in cultivating the illusion. They delude us into thinking that our future is predictable, as long as the right technology is at hand.

Source: Certainty Is an Illusion

Categories Your Money Tags weekly

ETFs vs. Indices

shyam May 29, 2014September 9, 2014

ETFs (Exchange Traded Funds) offer investors a convenient way to gain exposure to a particular index. Since these funds are not actively managed, they are measured by their how cheap they are (in terms of asset management fees) and their tracking error. Before we begin, some key terms:

Kurtosis

Kurtosis is a measure of “peakedness” of a distribution. For a normal distribution, Kurtosis is 3. Positive excess Kurtosis indicates fat tails while negative indicates peakedness.

Skew

Skewness is a measure of asymmetry of a distribution. Positive skew indicates a long right tail while a negative skew indicates a long left tail.

How effective have Indian ETFs been? Lets pull up some histograms and see for ourselves.

NIFTYBEES vs. CNX Nifty

The Nifty ETF actually shows a -ve skew and a lower kurtosis compared to the index. This is how tracking error and fees manifests itself in daily returns. However, their impact on cumulative returns is minimal. The story for less liquid and higher-fee ETFs are different.

PSUBNKBEES vs. CNX PSU BANK

Notice the big difference in kurtosis and skewness? This is tracking error personified. The story for the Juniors’ are not that different.

JUNIORBEES vs. CNX NIFTY JUNIOR

Given that there really isn’t much of a push either from investors or from asset management firms on ETFs, the dynamics are unlikely to change in the short term.

Categories Investing Insight, Your Money Tags ETF, returns

Alibaba: The Riddle Wrapped in an Enigma

shyam May 24, 2014September 9, 2014

We are setup for an epic fight between Amazon and Alibaba in the US. Something that will be keenly watched by the Bansals, now that they want to be Alibaba instead of Amazon (LiveMint). But what exactly is Alibaba? How did they become a multi-billion dollar company with a finger in every pie?

Alibaba is a lot of different things for different people

If you think it looks like a land-grab, you are right. They basically asked: What would a newly online Chinese consumer want? And connected the dots.

Alibaba is huge

The Wall Street Journal says that Alibaba’s Taobao and Tmall sites reached $240 billion in combined transaction volume last year. By way of contrast, EBay posted $76.5 billion last year in so-called “gross merchandise volume” excluding vehicles.

Alibaba now handles roughly 80% of all online shopping in China. Alipay is not only a payments processor (the world’s largest, at that) but also runs a money-market fund with more than $65 billion in assets.

What are investors buying?

Its hard to say. Alibaba stock will buy investors a stake in a Cayman Islands-registered entity which is under contract to receive the profit from Alibaba’s lucrative Chinese assets but will not actually own them.

The reason is that China permits privately controlled firms in some industries to tap foreign markets by establishing offshore companies permitted to wholly own Chinese companies. Yet it prohibits foreign investments in certain restricted industries, including the Internet. These controlled industries must be owned by Chinese nationals; no foreign investment are allowed.

So, the work-around has been to establish ownership by Chinese nationals, while setting up an offshore company that can be publicly listed. Mimic an owner relationship by setting up contracts between the two parties so that the offshore public firm reaps the successes of the Chinese firm — without actually owning shares in it.

Basically, investors are buying into a story.

Can Flipkart + Myntra = Alibaba?

Hard to say. Social networking in India is basically owned by Facebook (+ WhatsApp). Uber is here, and so are half a dozen home-grown taxi “startups.” Online payments are heavily regulated by the RBI and payments startups are in round 2 of the hunger games. Amazon.in is a looming threat and selling other people’s brands is a lousy business model. Its probably too late to be the “Alibaba of India”… and its probably going to be tougher just hanging on to being the “Amazon of India.”

Besides, isn’t “______ of [something]” a red flag for most venture capital firms? But it seems like its a story that investors are willing to hang their hat on for now.

Sources:

Categories Investing Insight, Your Money Tags innovation

Weekly Recap: Towers of Abstraction and Sedition

shyam May 24, 2014

Equities

The Nifty continued its crazy ride on Modi’s rocket ship, +2.28% (+2.84% in USD terms.)

Major
DAX(DEU)	+1.44%
CAC(FRA)	+0.83%
UKX(GBR)	-0.58%
NKY(JPN)	+2.59%
SPX(USA)	+1.71%

MINTs
JCI(IDN)	-1.16%
INMEX(MEX)	+0.72%
NGSEINDX(NGA)	+2.08%
XU030(TUR)	+4.39%

BRICS
IBOV(BRA)	-2.26%
SHCOMP(CHN)	+0.40%
NIFTY(IND)	+2.28%
INDEXCF(RUS)	+3.35%
TOP40(ZAF)	+1.85%

Commodities

Energy
Brent Crude Oil	+0.70%
Ethanol	+3.79%
Heating Oil	-0.01%
Natural Gas	-0.72%
RBOB Gasoline	+1.41%
WTI Crude Oil	+2.35%

Metals
Copper	+0.32%
Gold 100oz	-0.01%
Palladium	+1.78%
Platinum	+0.64%
Silver 5000oz	+0.52%

Currencies

USDEUR:+0.52% USDJPY:+0.49%

MINTs
USDIDR(IDN)	+1.77%
USDMXN(MEX)	-0.35%
USDNGN(NGA)	-0.07%
USDTRY(TUR)	-0.78%

BRICS
USDBRL(BRA)	+0.53%
USDCNY(CHN)	+0.04%
USDINR(IND)	-0.47%
USDRUB(RUS)	-1.72%
USDZAR(ZAF)	-0.57%

Agricultural
Cattle	-1.07%
Cocoa	+4.27%
Coffee (Arabica)	-1.01%
Coffee (Robusta)	-3.57%
Corn	-1.65%
Cotton	-3.72%
Feeder Cattle	+2.97%
Lean Hogs	-1.91%
Lumber	-2.91%
Orange Juice	+2.06%
Soybean Meal	+4.79%
Soybeans	+3.26%
Sugar #11	-2.35%
Wheat	-3.22%
White Sugar	-3.66%

Nifty Heatmap

Index Returns

Top winners and losers

UNIONBANK	+25.01%
DLF	+27.96%
CANBK	+29.61%
AMBUJACEM	-4.97%
SUNPHARMA	-4.76%
GODREJCP	-4.45%

DLF: dinged before elections for fear of Modi victory, panic buying after elections on Modi victory. Did somebody say class-action lawsuit?

ETFs

PSUBNKBEES	+14.93%
JUNIORBEES	+9.12%
INFRABEES	+8.34%
BANKBEES	+3.30%
NIFTYBEES	+2.35%
GOLDBEES	-5.57%

Gold? What gold? Get me some PSU banks!

Investment Theme Performance

Market Fliers	+21.11%
Magic Formula Investing	+11.41%
Quality to Price	+11.30%
Momentum 200	+10.10%
Growth with Moat	+9.69%
Consistent10*	+9.47%
Long Term Equity*	+8.85%
Balance-sheet Strength	+8.79%
IT 3rd Benchers	+5.09%
Market Elephants	+4.87%
Enterprise Yield	+4.11%
Financial Strength Value	+3.87%
Efficient Growth	+3.18%

The Modi wave continued to lift all boats…

Sector Performance

Yield Curve

All quiet on the western front.

Advance Decline

Thought for the weekend

Geeks have deep isolationist tendencies. They build an early affinity with machines and programs. They sense that programming is the ultimate in world-building, and what’s more, it’s executable! They build elaborate towers of abstraction. They are drunk on the clean rationality of the world that the machine and they have built and understand.

The world of humans is messy, unpredictable, and — this is the part that infuriates you the most, the part you simply don’t get, the part that will forever make you an outsider — unreasonable. Humans are unreasonable.

Source: Why technologists want to secede

Categories Your Money Tags weekly