Thursday, June 18, 2015

Checklist for women who take financial decisions

He is against generalising any form of investment for any age or category of people. He prefers it being specific and personalised to each individual, be it men or women.

He advises against putting all your eggs into one basket, irrespective of how good a particular asset class might look. Based on individual profile, investment profile, time horizon and the goals, an investor needs to make an asset allocation plan wherein he or she decides how much funds will go into equities, how much into debt and how much into any other say real estate or precious stones, he says.

According to him, the idea is to make that kind of an asset allocation plan and allocate money based on that plan, and not as per the timing of the market.

Below is the verbatim transcript of Harshvardhan Roongta's interview on CNBC-TV18

Q: Do you think women are perhaps better placed to be making financial decisions and are you seeing a lot more women come to you for queries, I don't want to say anything but perhaps we are just intrinsically better organisers of finances?

A: Women otherwise are known to be better organised then men. I am not getting into comparing the habits of people but generally I would say that since women have multiple roles, they work, manage their house and office as well. So, the idea is in recent times we are seeing women coming forward to take charge of the finances.

Earlier it was all left on their husbands to do it or their parents to take charge of the finances, but recently we have seen that paradigm shift wherein women want to take charge. They are trying to take keen interest in their own finances so that they can be independent and they can take decisions on their own. So, answering your query yes we see that kind of awareness being created these days and hopefully it will only increase as days go by.

Q: Are the rules for women investing different from that of men and secondly just classifying them into three buckets say one single working women, secondly married and working and thirdly married with a family but not working. Most of the women would perhaps fall in one of these three, so what is the advice for each of them?

A: When you talk about personal finance, the requirements and what you do with your money is completely dependent on your current situation. So, if there is a woman who is single there are different goals that she has, there are different requirements that she has so there is a different thing that she does with her money.

So, similarly if there is a woman who is married without children there are different kind of set of investments and if a woman is independent and has a child as well there are different kinds of schemes for them.

So, it will be very difficult to generalise that all women who are not married need to do a particular set of things. All 35 year olds cannot have a simple and a straight forward blanket investment pattern. If a person has some liabilities in the short-term, he needs to make provisions for that vis-à-vis another person who has no liabilities in the short-term makes different set of investments. So, I would say let us not generalise any form of investment for any age or a category of people, let it be very specific and personalised to each individual, be it men or women.

Caller Q: I have some investment in public provident fund (PPF) and my trade period is approaching very soon. I want to invest that money, approximately Rs 7 lakh, in stocks like Reliance Industries ( RIL ), Hindustan Unilever ( HUL ), ITC , Tata Consultancy Services ( TCS ), Infosys , Sun Pharma , Lupin , etc. Is it worth entering maybe via mutual fund or direct equity now to get more returns?

A: The first thing would be that there is a general rule you do not put all your eggs into one basket. So, irrespective of what the market situation or what the conditions currently are you want to take benefits of the market being at lows and there is rupee depreciation. So, if you are considering these things then considering equity because of that reason I would say no, do not do that.

Understand there is a risk in every investment that you make. Like for instance in a bank fixed deposits (FD) there is a risk of inflation, though the capital is safe there is a risk of inflation. In equities there is a risk of capital, but inflation risk is taken care of. So, the idea is irrespective of however good a particular asset class looks at any given point in time you do not put all your eggs into one basket.

Based on each individuals profile, the investment profile, time horizon and the goals you need to make an asset allocation plan wherein you decide how much funds will go into equities, how much into debt, how much into any other say real estate or precious stones.

So, the idea is you need to make that kind of an asset allocation plan for yourself and allocate money based on that plan not as per timing of the market. So, I would suggest if you can take high risk you may chose to allocate more into equity, but not everything into equity. So, answering your query, no I would not suggest that you shift from PPF only because market conditions are favouring equities. You make an asset allocation plan and divide your money and invest accordingly.

Q: Is there a thumb rule on diversification because the caller has her money in fixed deposits, how much of that portfolio should she shift into equity?

A: First parameter of choosing an asset allocation plan, one of the primary factors is age, the other is goals. If a person is young but if she requires the money after two years then she certainly cannot invest into equities irrespective of age being on her side. So, general thumb rule then whatever is her age that much money gets invested into debt. Therefore, whatever her age is, probably that much could be in debt and the rest could be in equities provided she has no short-term requirements with those funds.

Caller Q: Which mutual fund should I invest in?

A: Mutual fund has schemes which suit all types of investors. So, what you have referred to is an asset class which is equity. So, there are different kinds of schemes in equities such as you have funds which invest only into large cap companies, some will invest into mid caps, a combination of them. There are some sector funds which invest only in a particular sector such as banking or pharmaceutical or technology. So, within the equity category there are different kinds of options available within debt - there are investments, there are schemes which allow investors to invest money for couple of days and going up to couple of years.

I do not want to throw up names to you. I want to throw up categories and one of the safest ways to invest into equities is to begin with index funds. So, in case you do not have an index fund in your portfolio, you can choose to invest in an index fund or if you want to start investing into equities again then there is another option available which is a balanced fund, a part of the money that you give, goes into debt and a part into equities. So, to begin with these are the options available.

As you progress into investing and you get comfortable with equity investing, you can choose schemes which are actively managed; you can choose a large cap fund and then going down a midcap and a small cap and then last would be sector fund. So, if you wish to know names in equity schemes then Franklin India Index Fund is one fund you can start with or you can start with an equity aggressive balanced fund, which is in HDFC Prudence Fund and if you want debt aggressive balanced fund then HDFC Monthly Income Plan (MIP) would be a scheme to start with.

Wednesday, June 17, 2015

How Are Q2 Earnings Shaping Up? - Ahead of Wall Street

Monday, July 22, 2013

The Q2 earnings season takes the spotlight with almost one-third of all S&P 500 members reporting results this week and little in terms of the Fed and other economic data distractions. We will know more about the broader earnings picture at the end of this week, but having seen results from almost one-third of the total market capitalization of the S&P 500 index by this morning, we have a representative enough sample with which to judge the results thus far.

Total earnings appear on track to reach a new all-time quarterly record in Q2, surpassing the level reached in 2013 Q1. On conventional metrics of earnings season performance like aggregate growth rates, beat ratios, and guidance, the Q2 season thus far is tracking what we saw in Q1. We should keep in mind, however, that this not-so-bad picture may be misleading as strength in the Finance sector is helping hide a lot of weakness elsewhere.

We will know more this week as many non-financial companies report Q2 results, but this morning's disappointing numbers from McDonald's (MCD) and last week's soft results from Google (GOOG), Microsoft (MSFT) and others are likely pointing towards an enduring trend - the earnings picture outside of Finance is fairly weak.

The Q2 Scorecard for the broader S&P 500 as of this morning (July 22) shows results from 107 S&P 500 companies or 21.4% of the index's total membership that combined account for 32.4% of its total market capitalization. Total earnings for these 107 companies are up +7.9%, with 61.7% beating earnings expectations. On the revenue side, we have a growth rate of +4.5%, with 49.5% coming ahead of top-line expectations. The earnings and revenue growth rates and the revenue beat ratio seen thus far are broadly in-line with what we saw from the same group of 107 companies in Q1, while the earnings beat ratio is modestly on the lower side.

Strong results from the Finance sector are playing a big role in keeping the agg! regate Q2 data for the S&P 500 thus far in the "not-so-bad" category. It is very hard to be satisfied with the aggregate numbers once Finance is excluded. Total earnings for the Finance sector are up +34.1% on +10.7% higher revenues, with beat ratios of 76% for earnings and 68% for revenues. Strip out Finance from the reports that have come out already and total earnings growth turn negative – down -2.9%. This is weaker than what these same companies reported in Q1. There are few positive surprises outside of Finance as well, with the earnings and revenue beat ratios outside of Finance tracking below Q1's levels.

The composite Q2 growth rate, where we combine the results for the 107 that have come out with the 393 still to come, is for +1.2% total earnings growth on +0.1% higher revenues. Excluding Finance, the composite earnings growth rate drops to a decline of -4.1%. Bottom line, the earnings picture outside of Finance is very weak in Q2, but expectations for the second half of the year reflect a meaningful recovery.

Current consensus estimates for Q3 reflect total earnings growth rate of +4.3% and +10.9% in Q4, followed by +11.1% growth in 2014 as a whole. Hard to envision these growth rates holding up given the overall negative tone of company guidance thus far. The question is whether investors will continue to shrug the resulting negative estimate revisions or will finally start paying attention to the underwhelming earnings growth picture? We will have to wait a few more weeks to find out. But if past performance is any guide on that front, then we probably don't need to lose much sleep over it.

Sheraz Mian
Director of Research

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