CAGRfunds – Blog

CAGR Insights is a weekly newsletter full of insights from around the world of web.

Index	30-Jun-23	23-Jun-23	Change
Nifty 50	19,189	18,666	2.80%
Nifty 500	16,430	16,012	2.61%
Nifty Midcap 50	10,127	9,807	3.26%
Nifty Smallcap 100	10,837	10,624	2.00%

Chart Ki Baat

Indian Consumer Market: The Dominance of HUL. Courtesy: Euromonitor, Kotak Institutional securities.

Gyaan Ki Baat

Quant funds use mathematical and statistical model-based computer algorithms to plot their investment strategy. Quant-styled mutual funds follow a partly active partly passive investing approach.

What it means is that while the fund manager is in charge of the eventual investment decision, their actions are guided by a set of rules that decide the course of action. There are essentially three steps in constructing a quantitative – fund the input system, the forecasting engine, and the portfolio construction.

The first step is where all the necessary input is provided. This includes data points like interest rate, inflation, consumer sentiments, a company’s revenue growth earnings, cost of capital, and dozens of other variables. Then, initial screening is done to remove all the undesirable factors like high volatility, unmanageable debt, inefficient capital allocation, etc., which then leaves us with a curated list of acceptable companies. 

The second step in the process is the forecasting stage and this is where the model rules are defined along with an estimation for the expected return price risk parameters and other related metrics.

The final step is portfolio construction where a model portfolio uses optimizers and heuristic-based systems to explain which stock to buy and at what percentage should it be bought. This gives us a curated objective and templated portfolio which is also referred to as the quant fund model portfolio.

Here’s the list of curated readings for you this week:

Personal Finance

• Women and their relationship with Money – Episode 2 – Shruti speaks with Saumya Sinha about how her approach to savings and investments has transitioned over time. Watch here and Part 2 here.

• The Bollywood star who launched a family office – Vivek Anand Oberoi, Bollywood actor and chair of Oberoi Family Office, reveals the principles guiding his Indian private equity investment business. Read here.

• Sebi defers decision on overhaul in total expense ratio for mutual funds– Armed with more granular data that SEBI got from the MF industry as part its feedback to the May 18 consultation paper, SEBI chairperson said that its proposals needs a rethink. Read here.

• India pushes back plan to collect 20% tax on overseas spending beyond a certain cap- India has pushed back plans to collect a 20% tax on annual overseas spending of more than 700,000 Indian rupees ($8,500) by three months to provide banks with more time to prepare their system. Read here.

• Sebi halves IPO listing time to 3 days – This will ensure that issuers have faster access to the capital raised, thereby enhancing the ease of doing business, the market regulator said. Read here.

• NRI Series – Investment options in India – The most common query which we have received from our NRI clients and friends is where can we invest in India. Watch here.

Investing

• Analyst Estimates are useful- As a budding equity investor, I started my investing journey reading/learning from the great value investors Graham, Buffet, Lynch, and others. And, it got drilled into me that analyst estimates, predictions, etc. are useless and should be ignored as noise. Well, it turns out they have utility after all.Read here

• Tata’s runway success – The pilots’ unions at Air India that once struck fear in the heart of the government and the airline’s potential suitors have been grounded. How did Tatas pull this off? Read here

• On investment firms, brand & reputation- Nalanda Capital – Investment firms may not have a brand, but certainly have a reputation. It may well be the most valuable thing we have. Read here

• Promoters missing at the markets – When startups launch IPOs, their founders abruptly change their classification from promoters to public shareholders. SEBI worries about its impact on public confidence, but the trend is all pervasive Read here.

• Corporate Arm twisting at MCX – MCX renewed the contract with 63 Moons for a sum of Rs 125 crore per quarter for two quarters, totalling Rs 250 crore. MCX and 63 Moons, formerly Financial Technologies India Ltd., were both founded by Jignesh Shah, who had quit from the board of India’s largest commodity exchange after a payments crisis at the National Spot Exchange Ltd., a subsidiary of FTIL. Read here

Economy

• India’s improving Asset quality moves closer in line with global levels – In FY23, the SCBs GNPA ratio fell to 3.9%, a decadal-year low. The asset quality has improved due to recoveries, higher write-offs by banks, rising advances, etc. The slippages have declined across bank groups in FY23 indicating lower accretion of fresh NPAs. The PSB GNPA ratio (4.97% in FY23) continues to remain significantly higher than the private banks’ GNPA ratio (2.35% in FY23).Read here.

• Gujarat’s MSMEs reel under loss of demand – MSMEs contribute 33 percent of India’s GDP, 50 percent of its exports, and 19 percent of its employment. Read here.

• Pakistan Gets IMF Initial Approval for $3 Billion Loan Program – Pakistan is one of the biggest customers of the IMF with almost two dozen bailouts since the 1950s. Read here.

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Check out CAGRwealth smallcase portfolios here.

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That’s it from our side. Have a great weekend ahead!

If you have any feedback that you would like to share, simply reply to this email.

The content of this newsletter is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information outlined in this newsletter unless mentioned explicitly. The writer may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated in this newsletter.

CAGR Insights is a weekly newsletter full of insights from around the world of web.

Index	16-Jun-23	09-Jun-23	Change
Nifty 50	18,826	18,563	1.42%
Nifty 500	16,181	15,877	1.92%
Nifty Midcap 50	9,884	9,599	2.97%
Nifty Smallcap 100	10,741	10,443	2.85%

Chart Ki Baat

Gyaan Ki Baat

Convertible & Non-convertible debentures (NCDs) are issued by the companies to raise funds from investors.

Convertible debenture holder has the option of converting the debenture to the share of the issuing company. This option is not provided in non-convertible debentures. These debentures can either be secured (backed with a company asset) or unsecured (not backed with any asset).

The substitute for Debentures is fixed deposit but generally Debenture provides a higher rate of interest than FD and they have much higher credit risk than bank fixed deposits.

For example, IIFL Finance NCD of 5yr tenor is being issued with a coupon rate of 9%.

CAGR RISE

Last Thursday, Shruti and I conducted an informative and engaging educational corporate workshop for the employees at Sun Pharmaceuticals in Mumbai as part of our CAGR RISE initiative. Read here

Conducting these sessions and spreading financial awareness is a passion project for us. It gives us a sense of fulfillment even if the attendees end up being 1% better at their finances.

We curate and customize the content closely with the HR/Admin team to ensure that we only focus on topics that add value. For every corporate, we have a customized session. So far, we have conducted over 100+ sessions.

If you believe your colleagues can benefit from such a workshop, do help us to connect with the right person in your organization.

Here’s the list of curated readings for you this week:

Personal Finance

• RBI has announced the first tranche of Sovereign Gold bonds (SGBs) for FY2023-24. Issue Period: June 19 – June 23, 2023.- It is a wonderful product for investors looking to take exposure to gold as a diversification tool. Reach out to us if you are interested to invest. Read here.

• SEBI acting against unregistered advisory services – Over Rs 12-crore earnings from unregistered advisory services impounded, and three entities banned. Read here.

• Does your mutual fund portfolio have many large-cap active funds⁉– Recently, I read an interesting research paper on the Mutual fund space in India. The paper clearly finds out that holding more than one active large-cap mutual fund does not add any diversification benefit to a client’s account. Read here.

• Over 65% of partial NPS withdrawals are for residential property – Of the total 4.87 lakh partial withdrawal cases reported in FY 2022-23, 3.25 lakh are towards the purchase or construction of residential property. Read here.

• What % of my salary income should I invest in mutual funds? There are several thumb rules around how much we should save and spend. But I am not a big fan of thumb rules.
  There are no right and wrong answers to these questions. And every single person needs to find their own sweet spot. Read here.

Investing

• Must read – FY23 Report Card of India Inc. – Nifty-500 ex-financials: 24% inflation driven revenue growth in FY23, 12% CAGR FY19-23. EBITDA margins have declined from FY22 peaks, returning to pre-pandemic levels. Balance sheet leverage slightly worsened, ROE down from FY22 peak but still >15% excluding commodities (+300 bps vs. FY19) Read here

• Big Tech and the costs of “Dreamy Business”– Meta has spent approximately $56B on its Reality Labs division since 2012 and through Q2 2023. As Amazon Fouder Bezos wrote “ “As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle.”  Read here.

• India’s capital-output ratio is among the most efficient in the World. A lower capital-output ratio is desirable as it shows capital efficiency. India has the lowest capital-output ratios compared to most emerging/developed economies. As a result, India has consistently created vast amounts of profit pools in every industry over many years. The importance of such sustainability in growth, re-investment, and development cannot be overestimated. Read here

• Prashant Jain talks about what it takes to consistently beat the market – We are all limited by our understanding of the future. But when you find good quality companies which are unreasonably expensive, the discipline is to just not participate. Read here

Economy

• India’s CPI Inflation Falls To 25-Month Low in May – The consumer price index-based inflation stood at 4.25% in May, as compared with 4.7% in April. Read here

• Inflation seems to be the best determinant of bond yield movement. – The rise in bond yields since 2020 has been in line with the inflation rise in most Asian countries. Read here.

• Apple May Shift Nearly 18% Of iPhone Production To India By 2025: BofA Securities – iPhone manufacturing in India was nil before the PLI scheme was introduced in 2020 and stood at 7% in the fiscal ended March 31, 2023, according to a BofA Securities report Read here.

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Check out CAGRwealth smallcase portfolios here.

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That’s it from our side. Have a great weekend ahead!

If you have any feedback that you would like to share, simply reply to this email.

The content of this newsletter is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information outlined in this newsletter unless mentioned explicitly. The writer may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated in this newsletter.