Thoughts on the current uncertainty

The American markets crashed badly today, and the past few days have seen stock markets fall globally. The talks of another recession are gaining currency, and I think this atmosphere of uncertainty gives a good context to revisit some things that I have written here earlier, and will be easier to relate to now than they were when I originally wrote them.

In July last year – I wrote if you remember the crash of 2008.

People were talking about when a new high will be made, and not if a new high will be made. The constant up move had lulled people into thinking that markets move in only one direction, and they were ignoring the volatility and ups and downs that are inherent in the market.

This is what I wrote then:

Now, the market is doing well, and people are getting back in the game. There is nothing wrong with investing in equities, but you need to be aware of the fact that the market can be really volatile in the short run, and can give you extreme heart-ache with very little warning.

A lot of retail investors who trade talk about getting out when the tide turns, but that’s seldom possible because the market changes direction very fast and without warning. I’ve seen an unbearably large number of people lament the downturn of the past few days. The truth is — it was a known – unknown, and if you thought it was an unknown – unknown, then just learn your lesson and get on with it.

Then in September last year on the day when the market rose by 400 points, I wrote how are you preparing for the crash?

That post was prompted by a lot of people getting interested in penny stocks, IPO listing gains, buying recommendations to sell in month or so etc. Essentially, everything that goes against the principles of long term investing and diversification.

This is what I wrote then:

During the peak of the recession, and much afterwards there was a lot of talk about protecting your portfolio from a crash, looking out for the next bubble, the Greek crisis,  and generally stuffing your money in your pillows, but all that is slowly receding now.

As the tide turns people are looking to get more adventurous, looking for that penny stock that will rise 10 times, the IPO that will scorch on listing, and the gold bar that’ll surely triple in three months.

The market moves in cycles, so don’t let its positive momentum numb your senses and make you throw caution out of the window.

What goes up eventually comes down. Of course, I don’t know when the crash will come, but I do know that a lot of people will be blinded by it when it eventually does.

I think the events of the past few days have shown how fast and ferocious market turns can be, and the only way to protect yourself from these downturns is to prepare in advance because when they happen they don’t give you any opportunity at all.

How can you be prepared in advance?

Diversification is an excellent way to do it, and investing in the share market systematically and staying invested for the long term is another. There is nothing new or complicated about this, and if short term trading, betting on penny stocks, and going after hot IPOs have not worked for you – you might want to give it a shot.

Shriram City Union NCD

NCDs are getting increasingly popular in the Indian market these days, and soon after I wrote about the India Infoline NCD – I came across the NCD of another NBFC  (Non Banking Finance Company) – Shriram City Union.

Shriram City Union is part of the Shriram group of companies, and its primary business is lending in the small loan segment of Rs. 1 – 10 lakhs. This is the second NCD from this group as you will probably remember the NCD from Shriram Transport Finance in June this year.

The company had revenues of Rs. 1320.91 crores and a net profit of Rs. 240.58 crores in the last fiscal, a decent profit margin of 18.2%, and in the last 5 years the net income has grown at a CAGR of 40%, and profits have grown at a CAGR of 47%. They have a NPA (Non Performing Loans) to Net Asset Ratio of 0.43%. Their CAR (Capital Adequacy Ratio) was 20.53% against a RBI mandated 12.00%, and just for reference, the IIFL NCD that I recently reviewed showed that their CAR was 29.95%.

Like the IIFL NBFC, the Shriram City Union NBFC also draws on the brand and the ecosystem of their parent to grow their customer base. The promoters hold 53% of their stock.

The company lends to various segments, and it’s portfolio mix from the various segments is as follows.

Shriram City Union Finance Portfolio
Shriram City Union Finance Portfolio

As you can see, the company’s income streams are pretty well diversified. Shiriram City Union Finance has a business model of serving the under – banked community. They use the outlets and know – how of their group companies to get a target customer base, and then lend to them. One example is lending to the customers of Shriram Chits, who then keep the chit money as collateral. Looking at the large number percentage of vehicle finance – I think there should be a similar setup with Shriram Transport Finance as well.

Most of the categories are pretty self explanatory, but I wasn’t so sure what product finance meant. I looked it up and was surprised to see that product finance comprised of two – wheelers, electrical appliances, and other white and brown goods. The average yield for this category is a pretty good 24%, and that is true for other categories as well with yields over 20% in them.

Having looked at the business of Shriram City Union, let’s take a look at this NCD in particular now.

Shriram City Union Finance NCD Terms

Shriram City Union is going to open for subscription on August 11th 2011, and will close on August 27th 2011. CARE has rated this issue CARE AA, which according to them indicates a high degree of safety. CRISIL has also rated it AA – or stable, which indicates the same thing as CARE’s rating.

This is a secured debt issue which means that the debt that the company issues, which can be up to Rs. 750 crores, will be backed by some collateral. It doesn’t mean that your money is guaranteed. It simply means that if the company were to go bankrupt, they will sell off the assets that were earmarked to pay this debt, and pay you with them. The same assets will be earmarked for other debt, or they may not recover as much as they expect to and in that case you will not get all of your money back. Bankruptcy for this company will be an exception rather than the norm, but it is a possibility and one that you should keep in mind while investing in Shriram City Union NCD, or in fact any NCD at all.

Here are the important terms and conditions for this NCD. The interest rate is shown for the reserved portion of retail individual investors, and those will be the ones who apply for less than Rs. 5 lakhs.

The call and put option for the 60 month series means that at the end of 48 months, either you or the company can decide that you no longer want to continue the NCD and then redeem it at that time, instead of waiting 12 more months.

Here are the other conditions.

Shriram City Union NCD Terms

Given, that the other NCDs have over – subscribed in the recent past, I won’t be surprised if this one oversubscribes too, so if you do want to invest in them, then you should subscribe to them as quickly as possible.

I have covered the topic of what a NCD is in quite a bit of detail in this post, so I won’t get into that here, and my post about how to buy a NCD describes that process so I won’t get into that as well. If you have any other questions, then please leave a comment, and I will try to answer them.

Facebook puzzles for the week ending 7th August 2011

Here are the puzzles from the OneMint Facebook page this week. I got an email about publishing a separate post for the answers, but I feel that publishing a post just for the answers is not worth the effort. You can check out this post, and comment on it with your answers, and I’ll respond to them there.

Also, all of these have already been solved on the Facebook page, that’s why you see some people leaving a comment saying that they have seen the answers (I got a note about that as well).

With that said, here are this week’s puzzles.

1. Can you guess the missing number:














2. “Are your readers enjoying the puzzles?”, my friend asked. “They must be because the number of Likes that OneMint gets in a month grew by 60% in July, and the total likes at the end of the month stood at 390.”

“Ah, you got 15 additional Likes in July then”, he said.

How many total Likes would the OneMint Facebook page have had at the end of July if I hadn’t started the puzzles?

3. “Are you feeling old?”, I asked my grandpa, “You are six times the age of your youngest grand – daughter now.”

“On the contrary, I feel a lot younger today than I did 10 years ago, when I was 16 times her age.”, he said.

Wow! That’s one way of looking at it! How old is my grandpa, and how old is his youngest grand – daughter?

4. “You know I’ve always preferred an education to ignorance, and precaution to carelessness”, said my grandpa.

“That should tell you whether I want an automobile or a holiday for my birthday.”

What should I gift him and why?

5. There are two words hidden here. You can make the words by going sideways or up and down.

This was a phrase written on a book in large friendly letters, and is from an extremely popular book.












6. What is this 4 digit number?

My fourth digit is twice the second. The second digit is two third my first. And my third digit is the same as the fourth.

7. This is the first line of a very famous novel. The vowels from the words have been removed, and the words are jumbled.

Can you guess the line, and which novel it belongs to?

fmly nhppy re ll lk; vry Hppy unhppy s n ts wn wy fmls.

About these

If you missed my earlier post about them, and are wondering what these are then I started writing some puzzles a couple of weeks ago, and since they are not big enough for a full post I publish one every day on OneMint’s Facebook page, and then try to publish a week’s worth on Sunday here. There are no prizes for correct guesses, just the pleasure of getting them right.

Too emotional, too many stars and far too many jams

Since the crash is on everyone’s mind, let’s start with two posts with one of the most sensible commentator on the stock markets around.

I’ve linked to Roger Nusbaum several times earlier, and I was looking forward to his thoughts on yesterday’s crash as soon as the market closed.

In his typical calm and no – nonsense manner he laid out what I think is one of the sanest posts I’ve read since yesterday.

I think the single most important takeaway from that post is avoiding an emotional reaction to these events, but there are other pretty good points too.

As a follow – up to his post yesterday – he wrote one today about people’s reactions to his post yesterday. My first and only reaction to that was some people just don’t get it. They will blame the government, blame their boss, their adviser, anyone and everyone but themselves. That’s just how the world is, and the only thing you can do is to avoid being that someone.

I can’t find a link to this but there is a new thing I learned from Thursday’s crash. As the market fell, I was amazed to see how even Silver crashed 7.5% and gold was marginally lower.

I was a bit surprised to see silver fall so much, and then I read a WSJ piece that said that hedge funds and other investors who got margin calls had to sell off some part of their silver and gold to come up with cash, and that’s at least partly the cause behind the silver fall.  I have never thought or heard anyone talk about this relation before so that was interesting to hear.

Enough about the crash, now let’s get to some other links.

A brilliant star studded night in the Himalayas. Easily, the most beautiful thing I’ve seen all week. I hope I get to see such a sky for real some day.

Another insightful post from the Psy – Fi blog about how people are affected when they have too many choices, and how having too many options may not be the best idea.

Reuters on a new breed of short sellers who are essentially one person shops researching Chinese stocks, and then selling them short based on their research. It’s a fascinating read.

Ranjan Varma on a MLM scheme that he was offered during a train ride.

Finally, while people in India are wondering when they will start getting 12.00% interest rate on  their fixed deposits – negative interest rates have already become a reality for at least some customers in one US bank. FT Alphaville reports that BNY Mellon has told customers who have more than $50 million lying in their account that they will be charged a fee for that.

That’s right – forget interest, they will have to pay money to the bank!

That’s it for this week – enjoy your weekend!

Tracking and Exiting Non Performing Funds

Nargis posted a very interesting comment on the Suggest a Topic page a few days ago, and that triggered a lot of thoughts in my head which I’m going to share in this post. I think the crash today makes it a bit more relevant than it otherwise would have been.

First, her comment:

I enjoy your informative posts and have learned a lot. I am a MF investor and have done lump sum & SIP in various schemes. I understand that we must track these investments at regular intervals and exit the non-performing funds. I really do not know how to go about it. Please do a post this topic specially covering SIP investments.

I see the question in two parts  – how to track mutual funds; how to identify the ones that you need to exit, and then when should you exit them.

Let’s tackle the easier question of how to track mutual funds first.

Track your investments: First thing you need to do is track your investments. You need to be easily able to pull up how many mutual funds you own, at what price, and when you bought them. If you’ve bought these mutual funds using a portal like ICICI Direct then you have the information right there, and you can easily track it. If you’ve bought these units offline or have bought them in a manner that doesn’t allow you to track them online then you need to use another tool to track them. MoneySights is a great site that I’ve reviewed in the past here. You can create an account there for free, and monitor your mutual funds. There are several other sites like Rediff Money, Moneycontrol or Value Research Online which offer similar tools, and you can check them out too.

What you decide is up to you, but the idea is that after you are done – you should have one place where you can track your investments easily. Without this, you will be stuck and won’t be able to proceed much further.

Now, that you have a place to track your mutual funds, let’s take a look at tracking and exiting. I’ve seen far too many people exit at exactly the wrong time, so first I will address that.

Generally, not a good idea to sell in panic: When the market is up, and things are going fine people generally don’t think about selling. It’s only when the market has crashed, or is low do people think about selling. In general, I’d say this is not a good idea. Stock markets move in cycles, and you will generally be able to get more for your investments if you wait out a year or two for the market to recover and then sell it rather than selling when the market is crashing, and there is panic all around.

The one exception I would make here is to get rid of hot stocks and penny stocks in times of crash. This is not so much applicable to mutual funds, but if you were holding a sector fund, and you see the whole sector implode, then it might be a good idea to cut your losses and say good riddance to the investment.

I feel this is really important and I’ve addressed this in a full post earlier as well, so you might want to read that as well.

Sell too much of the same thing: If you have too many sector funds focused on the same thing like too many mutual funds in the small cap space, or too many infrastructure funds then you can think about getting rid of some of the ones who are not performing well. This is because there is generally a lot of overlap between the stocks these mutual funds own, and by owning too many mutual funds of the same type you are not diversifying or getting any other benefit.

Sell your mistakes: Recently, Greenlight Capital’s famous hedge fund manager – David Einhorn sold all his Yahoo! stock at a loss due to a dispute between Yahoo! and their Chinese subsidiary. Einhorn’s rationale was very clear – he said that they had bought Yahoo! for its considerable Chinese assets, and when they saw that Yahoo! doesn’t control the Chinese assets as tightly as they should – they sold it.

Another famous hedge fund manager John Paulson recently sold all his Sino Forest stock after there were fraud allegations on Sino Forest. It is said that he had a much bigger loss.

If these highly successful money managers make mistakes, then it is very likely that you and I will make mistakes. It’s best to accept our mistakes and cut our losses. Maybe the mutual fund that you chose doesn’t really track the asset like you thought it would, or the sector isn’t as hot as you thought it would. Maybe the fund was sold to you and some things were not clear to you at the time when it was sold which are clear now, and that makes it less appealing.

If your original thesis is getting proved wrong – admit it and move on.

For your reading pleasure – here is one example of my mistake (of which there are far too many).

Sell the bad performers: Sites like Value Research and MoneySights rank mutual funds according to performance, and you can see that several mutual funds have never done well. Keep an eye on the poor performers in any category, and see what kind of history they have. Have they done badly for a long time, do they have too short a history. If they have been duds for too long then you are better off selling the non-performers.


I haven’t mentioned how often you should do this kind of assessment because I don’t think there is any way to say that you should do it every 3 months or 6 months or 1 year. You live and you learn, and every day will bring up something new for you that will shape your ideas and thoughts. I think it’s just better to keep a tab on current events, and as you learn that something is different from what you originally thought it to be – take action on that. Don’t fret over it too frequently, and don’t go to check your portfolio every day, and at the same time don’t let it lie for a year and forget all about it.

Investing through SIPs is a great way to build positions and get in the market, and if your goal is building wealth in the long term and getting equity returns by staying invested in for 15 – 20 years then this is a very good way to do it. These pointers should help you prune your investments, and hopefully get more out of your investments than you otherwise would have had.

Profiles: Furqan Qureshi, Financial Advisor

Regular readers know that I’m trying to create a directory of financial services provider here, and from time to time I invite financial advisers who have been answering questions on the comments section sincerely to create a profile for themselves. There are presently just 2 profiles on the site, and Furqan is the third one.

This number is so low  because the profiles are invitation only, and the only way to get an invitation is to answer questions sincerely in the comments section.

With that said, here is Furqan Qureshi’s profile.


Furqan Qureshi has over 20 years experience in the field of Investment and taxation.  He was a practicing Tax Consultant from 1989 till 1994 when he shifted focus to investment advisory.

In 1995 he founded a SEBI registered firm viz FURQAN INVESTMENTS. The object was and is to help clients gain more through various investment avenues that opened up with the liberalization of Indian economy.  In this endeavor his immediate future goal is to equip himself with CFP qualification.

He is a Founder Member of Financial Advisors Association of India (FAAIDA)

An association Financial Advisors formed under the guidance of Mr S Swaminathan of the popular financial portal  The objective of the association is to enhance the knowledge and skills of its members. Faaida members are committed to a high level of ethics and professional standards.

He is also a Founder Member of Rahmatiya Educational Trust

A Trust registered in 2005 under the Registrar of Trusts, Thane, Mumbai.

This trust provides educational material and monetary help to poor students.

Our online presence:

We are:

  • SEBI Authorised Investment Advisors.                (SEBI Regn # INS013434514)
  • AMFI Registered Mutual Fund Advisors             (AMFI Regn # 022-002020C)
  • IRDA Approved Insurance Advisors                   (IRDA License # 60013046)

 Our Associates:

  • Sushil Financial Services Pvt Ltd    (SFSPL)
  • UTI  Technology Services Ltd        (UTITSL)

We offer:

Investment Advisory Services:

  • Mutual Funds
  • Share Broking                                   (Thru SFSPL)
  • Authorised PAN Card Services     (Thru UTITSL)
  • Portfolio Management Services    (Thru SFSPL)

91 Day T Bills on NSE

This is another post from the Suggest a Topic page, and we’re going to look at the recently introduced 91 Day T – Bill (Treasury Bill) on NSE this time.

This is an interest rate derivative which means that the price of the contract depends on interest rate movements. Globally interest rate derivatives are a much bigger market than equity derivatives, and as the Indian financial markets develop we will see more such products launched in India as well.

The 91 Day T Bill futures are probably of a lot more interest to institutional investors than retail investors because I don’t see that many retail investors taking a position on interest rate movements. And of course, there have been news reports that say that most of the current trading is being done by PSUs, private banks, and corporate clients.

That said, there is a huge segment of retail investors who are interested in speculation, and a futures contract with relatively low margin requirements is as good a tool as any for speculative purposes.

Like any derivative, this Interest Rate Future (IRF) also has an underlying which is the 91 Day GOI T – Bill, so to understand this product better, let’s first understand the underlying of this product.

The Underlying or the 91 Day T Bill itself

91 Day T – Bills are issued by the Government of India to finance their short term funding requirements. They mature in 91 days, which is 13 weeks or about 3 months, and these are not interest bearing securities.

This means that they don’t pay interest, but are instead issued at a discount, and then mature at par value, so that’s why investors buy them even though they don’t get any interest.

RBI issues these T- Bills in auctions where market dealers can bid for these securities, and that’s how the price is determined. RBI announces these auctions, and the next one is going to happen on August 3rd 2011. The results of these auctions are announced the same day as well. The last auction was done on July 27th 2011, and both these auctions were for 91 Day T Bills worth Rs. 7,000 crores or Rs. 70 billion.

Now, let’s take a look at the T – Bill Future itself.

NSE T – Bill Future

There are 4 series of T – Bill Futures currently being traded on the NSE. Three of them are monthly series, and the fourth one is a quarterly series.

Right now the following series are trading:

  1. 91DTB300811 – The August Series
  2. 91DTB280911 – The September Series
  3. 91DTB251011 – The October Series
  4. 91DTB281211 – The December Series (Quarterly Series)

Every contract will expire on the last Wednesday of the month, but I see not all these series mentioned here are dated on the last Wednesday. For October, this series expires a day earlier because 26th is Diwali, and the same thing happens for August as well, because 31st is Ramzan Id.

From the NSE website I see that the near dated Future which is the August series has the maximum volumes right now.

Each contract will be worth 2,000 units, and the SEBI circular about NSE T Bills explains the pricing as follows:

Daily Contract Settlement value
2000 * (100 – 0.25 * yw)

(Here yw is weighted average futures yield of last half an hour). In the absence of last half an hour trading, theoretical futures yield would be considered for computation of Daily Contract Settlement Value.

2,000 because that’s the number of units, 100 because that’s the face value, 0.25 because you are taking the annual yield and the maturity of this instrument is a quarter.

So based on that – a move of one percentage point will translate into a change of Rs. 500

Suppose yield moved from 5% to 6%.

2000 * (100 – 0.25 x 5) = 197,500

2000 * (100 – 0.25 x 6) = 197,000

But, yield doesn’t move that much. Here is a chart of the daily settlement price movements of the 91DTB 270711

NSE T Bill July Daily Settlement Price
NSE T Bill July Daily Settlement Price

So, as far as this is concerned – you need to keep in mind that movement of a basis point results in change of Rs. 5 because the change in yield movements is small.

Bond yields and prices are inversely proportional which means if the interest rates increase then the price decreases and vice – versa. This means if you are betting for an interest rate increase then you should go and short the future, and vice – versa.

This is also cash settled, which means that you will either pay up or get paid at the expiry of the contract. It doesn’t have Securities Transaction Tax (STT) either.

This is an interesting product, and has already done much better in volumes than the other IRFs introduced in India. I’ll be keeping an eye on it and learning more about this as time goes because so far my knowledge about this is very theoretical – just based on the SEBI circular, and the NSE note it. There are many gaps in my knowledge that I’d like to plug, and understand them better not only because of the T – Bill trading itself, but also because the bond market is developing very rapidly in India, and I think the bond market landscape five or ten years from now will look completely different from what it is now.


India Infoline NCD Review

This is another post from the Suggest a Topic page, and today we’re going to take a look at the India Infoline Investment Services Ltd. NCD (Non Convertible Debenture), which is going to open shortly.

The first thing to note about this NCD is that it is not the NCD of India Infoline, but of their wholly owned NBFC (Non Banking Financial Company) called India Infoline Investment Services Ltd.

IIFL owns 76.74% in this NBFC, and while India Infoline Investment Services (the NBFC) source a lot of their clients and draw on the goodwill of the parent company, this is a different company from the parent. The remaining stock is also owned by another IIFL subsidiary called India Infoline Marketing Services.

For simplicity sake I’ll use India Infoline to describe the NBFC in this post.

India Infoline is going to issue NCDs worth Rs. 3,750 million, with a green-shoe option of another Rs. 3,750 million, and that makes it a reasonably large NCD issue compared to the size of the company. The issue will open on August 4th 2011, and will close on August 12th 2011.

As a NBFC, their primary business is lending, and their total income for the fiscal 2011 was Rs. 4,697.76 million and profit after tax was Rs. 922.48 million, which is a pretty decent profit margin of 19.2%. 99% of the loans are secured, and they have a CAR (Capital Adequacy Ratio) of 29.95%.

Their primary business is lending in these 4 segments:

  1. Mortgage loans: Housing loans and loans against property. This forms 60% of their loan book.
  2. Capital Market Finance: Loans against shares, promoter funding, margin funding IPO financing etc. and this forms 35% of their loan book.
  3. Gold loans: Loans given against gold jewelery. This is about 4% of their business.
  4. Healthcare Finance: This is a new segment, and it looks like it doesn’t contribute a lot to their business currently.

Here is a break – up of their total loan book for fiscal 2011.

India Infoline Loan Breakup 2011
India Infoline Loan Breakup 2011

When you look at these segments you realize that while almost all their loans are secured, they are secured against assets that have volatile prices. Stocks are very volatile, and with the current Greater Noida issue going on – you can’t be too sure of property either.

The issue has been rated AA- or Stable by ICRA, and CARE AA- by CARE.

The prospectus says that while a cover of 1.10 is needed to be made on this issue as this is a secured debt issue, there will be other creditors who will have pari passu charge over the security that they provide. This means that other creditors may also have equal rights on the security provided by the company for this issue, and that’s a definite risk.

So, you see the good thing going on for them are good profit margin and good Capital Adequacy Ratio. What takes away from this is the fact that the sectors that they lend to are inherently volatile and risky.

Now, let’s take a look at the issue itself.

India Infoline NCD Issue

The India Infoline NCD will have three options for investors with different maturities and rate of interests. Two of them will pay interest every year, while a third will pay a lump – sum at the end of the maturity period.

Here are the details of the three options.

India Infoline NCD Details
India Infoline NCD Details

All these series will list on NSE, and BSE shortly after the issue is closed, and the allotment will be made on first – come first serve basis.

The last NCD issues have been over subscribed by quite a bit, but they were graded higher by the credit rating agencies, and had more attractive yields as well.

If you look at these yields then they are not that much more than some of the best interest rates given by fixed deposits these days. A lot of banks give within 2% of these yields, and a fixed deposit in a bank is comparatively safer as well. In fact the last big NCD issue – Shriram Transport Finance was giving 11.60% interest, and they were rated CARE AA+ which is higher than this issue.

So overall, while evaluating the issue, you should really consider how much money you are going to put in this, how much extra interest can that earn you, and whether that’s enough for you, or if you’d rather wait for another NCD issue to come because a lot of companies do seem to be interested in issuing them this year.