The Rally that Left Manpasand Behind

Friday, Sept 20th, 2019 will hopefully go down in Indian financial markets as the day the economic boom for the country got re-started. The markets zoomed over 1,900 points or 5.3% for their biggest gain in a decade. The fuse was lit by the Finance Minister Nirmala Sitharaman when she announced several economic measures that should help companies. The theory is that by helping companies they will invest and create more jobs which the economy sorely needs.

One company that completely missed this rally was Manpasand. In fact, it fell below Rs. 10 for the first time ever which is also it’s par value or face value.

I’ve been tracking this stock for a couple of years now. And I got to watch it go up and down and so glad I never invested a single Rupee in it.

The company has been around for 30 years and is a Gujarat-based juice manufacturing company. In 2011, it got private equity money from SAIF Partners a well-respected PE fund. (SAIF is a acronym for Softbank Asia Infrastructure Fund). Then in early 2015 it started a roadshow to build up enthusiasm for its upcoming Initial Public Offering (IPO). You can read the Red Herring prospectus here (PDF) to see how they pitched their offering. What is a Red Herring prospectus? click here.

In mid 2015, Manpasand finally got listed on the National Stock Exchange (NSE) at Rs. 150 a share. All was good and it looked like another example where PE money helped a company grow and everyone benefitted.

Then in May 2018, the wheels fell off when the auditor on record – Deloitte Haskin & Sells resigned. It’s pretty clear from the above chart where the stock ended after this revelation. The brokerage firm Motilal Oswal quickly issued a statement (PDF) saying it’s recommendation for the stock was “under review”. Let me be clear, when the auditor bails on a company that’s a very clear indicator you need to bail on the stock.

Had you sold when the auditor resigned, then at the worst you would have broken even from it’s IPO price. But, if you held on thinking the auditor resigned because they didn’t like the Gujurati food while auditing the client, then that’s on you.

Jio is Unstoppable

Reliance Industries (RIL) this past week held its 42nd Annual General Meeting (AGM) in Nariman Point. Mukesh Ambani broke the meeting into 3 parts:
1. Oil & Chemicals
2. Jio
3. Reliance Retail

The Oil & Chemicals division is the money maker that allows Reliance to expand into new unrelated markets like Jio.

Jio was the star of this AGM and rightfully so, they have 350 million paid connections and on a growth path to 500 million connections. Their GigaFiber service is what everyone is waiting for. I’m on their free GigaFiber trial service and it’s been an absolute delight – 100Mbps download AND uploads. Because of GigaFiber we have cancelled our traditional coaxial cable connection and now watch everything via OTT apps like Amazon Prime, Netflix and YouTube.

When I used to work at Cisco Systems 20 years ago we talked about the Triple Play – Voice, Video and Data over the same connection. Here we are in 2019 and Jio is finally delivering the holy grail of connections. The connection speed will be upto 1Gbps to allow for the large amount of data that is required for broadcast quality high definition TV. The amount of traffic that is taken up by a single voice call is next to nothing and hence Jio is willing to say voice calls are free for life.

The Indian telecom industry has been completely decimated because of Jio. Idea had to merge with Vodafone and many of the smaller players had to merge as well. Airtel is still the largest wireless company but I’m sure will soon be eclipsed by Jio. It’s clear Jio has become what it is because of Mukesh Ambani and Reliance, their on-the-ground execution is unmatched. If they want something done, they figure out a way to clear the decks to make the policy match their goals – not a bad way to work!

What’s unclear is how much money they have spent on building out the infrastructure and the overall cost of getting Jio up and running. But that has always been the style of Reliance, don’t ask too many questions and just watch the stock price continue to go north. Jai Jio!

During the AGM they did several demos of new technology and they were quite cool. The only funny part it is when they did a video conference to someone in New Jersey where it was 2am in the morning yet it was a bright as hell – maybe some new virtual reality stuff!!

Index Funds Finally Get Some Love in India

I must say, I was pleased to see the headline in the Economic Times talking about investing in index funds (article link). And really shocked they mentioned an allocation of 25% to passive index funds. When people ask me for investment advice, I usually roll out the passive index fund speech and literally with 14 seconds people just tune out. Why? Because passive index funds (or ETFs) are boring to talk about.

It’s more exciting to talk about some hot-shot fund manager that someone has found that can outperform the markets. Remember Prashant Jain of HDFC who had the HDFC Top 200? Years ago, he WAS the talk of the town and basically was the hot shot who ran one of the best performing mutual funds. But, it was renamed Top 100 and the fund is still struggling with performance. The reason is because as a fund gets bigger and bigger they need to deploy that money and finding opportunities that outperform the general market are tougher to find.

I remember an investment professional once told me that index funds don’t work in emerging markets like India. That is absolutely garage. Most financial advisors and anyone on CNBC-TV18 will never talk about index funds or ETFs because the commissions are so low. Did you know the largest mutual fund in India is the SBI – ETF Nifty 50 at over Rs. 51,800 Cr. and the expense ratio is only 7 bps that is friggin’ crazy talk.

The tide is turning and more people are looking at these passive index funds because if you are not actively tracking the market then these instruments are great. Investing in a passive index fund is a general bet that the market/economy will do well and that’s pretty much the future of India.

ETFs in India

WhatsApp Image 2018-09-05 at 2.01.32 PM

A cousin of mine who is pretty savvy with the stock market sent the above WhatsApp message to me. I was a bit surprised he had no idea about index ETFs, then it dawned on me. ETFs are like the stepchild of the Indian investing world…no one wants to talk about them.

First of all, ETF is an acronym for exchange-traded funds. So what is an ETF? I’ll let Investopedia explain:

An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange.

Think of it as a basket of stocks that trade throughout the day. Mutual funds are similar but they only trade at the end of the day.

I personally think ETFs are a great investment vehicle for people that want exposure to the equity markets but have no clue. Even when you pick a mutual fund, you need to know about the fund house, the manager, the investment thesis, etc… By picking one of the Nifty or Sensex ETFs you are essentially saying I want to participate in the equity markets and I’m betting on the growth of the India story.

For the longest time, the mutual fund of choice was the HDFC Top 200 managed by Prashant Jain. It recently got renamed to the HDFC Top 100 with total AUM (assets under management) of around Rs. 16,000 cr (USD 2.4 billion). HDFC Top 100 and Prashant Jain were like the Fidelity Magellan fund in the US and Peter Lynch, they could do no wrong. But over time they stumbled and started to lose their sheen. That’s where an index ETF instrument is great because you are not betting on a sector, company, region, etc…you are betting on the entire country. If you don’t believe in India, then you got bigger problems.

The ETF fund I always recommend to people is the SBI Nifty ETF, as the name implies it tracks the Nifty index. The fund has about Rs. 41,000 cr (USD 5.9 billion) in assets and it’s the largest ETF or mutual fund in India by AUM. More important than AUM, is the total expense ratio (TER) of the fund and this one is 0.06%, which is very, very low. Compare that to the HDFC Top 100 which has a TER of 2.21% (almost 37 times of the SBI Nifty ETF).

ETFs by design have a low TER and it’s one of the reasons you will never hear about ETFs on CNBC-18…there is not enough money to be made if you are an advisor. Just look at the numbers above comparing the TERs of the SBI Nifty ETF to the HDFC Top 100 fund. It’s similar to fixed deposits (FDs), your financial advisor or wealth advisor will NEVER talk about FDs because they make no money on them and in fact that money is blocked from investing in other products.

I would highly encourage anyone that is looking to diversify their portfolio to look at index ETFs as a simple and inexpensive way to access the Indian equity markets. Then as you gain confidence in the equity markets you can look at investing in mutual funds and then finally move to picking stocks based on your own research. Just start.

 

“Hello, World!’ for Quant Traders

high-frequency-tradingThis is the second blog post on my journey to learn Machine Learning. My first blog post talked about setting up the infrastructure. Now that the infrastructure is up and running, I’m able to get to the business of writing Python code.

Whenever you start to learn ANY programming language the first lesson is usually titled “Hello, World!“. It’s something of a tradition to teach the person the basics of the programming language to output something to the screen which is usually – “Hello, World!”

For quant/algo traders the equivalent of “Hello, World!” is calculating a simple daily moving average (DMA) and building some logic to buy or sell a security based on the DMA parameter.

Below is my “Hello, World!” Will this strategy make you money? Absolutely not. Will it help you build other strategies? Absolutely.

The Future of Payments

Fintegrate_2017
Earlier this month I had a chance to be on a panel discussing User Experience (UX) for payments. The panel was part of the Fintegrate Zone 2017 event located at the BSE Building in Bombay hosted by the Zone Startups.

The panel was moderated by Harsimran Julka @HarsimranJulka an editor for the Economic Times. The panel included:
Anurag Sinha, Co-Founder, Walnut App
Deepak Agarwal, CDO, Barclays Wealth
Sohini Rajola, @RajolaSohini, RVP, Western Union
Tina Singh, @tinasinghj, CDO, Mahindra Finance
Malcolm Anthony, Head of User Experience Design, PayPal
Nitin Vyakaranam, @vnitinb Founder & CEO, ArthaYantra

As with any recent discussion involving the Indian financial markets half the time was devoted to talking about Modi’s demonetization. It was more about who benefited from it and who struggled with it, as a whole most fintech startups all benefited from it.

Although we touched on the overall user experience of payments and had much to debate about, I still feel most of the world is struggling with a seamless payment experience. Part of the issue is that people are used to physical cash and it’s been around for ages. People are familiar with it and how to use it, kids from a very young age are taught about physical money and many have piggy banks with some of that loot! Basically, cash is convenient, intuitive and effortless.

But as with everything else, we need to move forward and electronic payments are the future and most governments are behind it as a way to tackle the black money and counterfeit money. Credit/debit cards are a hybrid instrument, although the card is physical in nature it connects to an electronic platform to authorize, clear and settle the payments. Credit cards are prone to fraud since someone can steal your card, go to an online store and enter your card details and buy stuff.

This is where a whole new generation of solutions are entering the marketplace under the banner of mobile proximity payments (MPP), this includes near field communications (NFC) and quick response (QR) codes. NFC is the technology behind Apply Pay, Google Pay, Visa payWave and MasterCard contactless,  it’s a communications protocol that works with devices that are within inches of each other. With Apple Pay when you are ready to checkout, the retailers point of sale (POS) system will “talk” to your phone and then you use Touch ID to authenticate and enable the payment. That really is the way to do it. The problem with NFC is that the phone has to have an NFC chip and so does the retailers POS system. I don’t see this gaining much traction in India as many of the phones are fairly inexpensive and won’t include an NFC chip for years.

How-to-get-paytm-QR-code-175x300
Surprisingly, because of India’s demonetization the use of QR codes has gone from a niche type of application to full mainstream usage. Demonetization was a stroke of luck for Paytm and they turned it into gold. Overnight people needed to send money and many people quickly downloaded the Paytm app and started to transact.

A couple weeks ago, I used the QR code functionality to pay for parking at Phoenix Mills and it was pretty seamless. Since all smartphones have a camera they can scan this QR code and submit a payment to an individual or retailer. I really see this taking off and becoming the standard in India, it’s a low tech solution but sometimes that’s required to get high (mass) adoption in India.

BharatQR, Another Payment Option?

It’s another day and yet another payment option/technology was launched in India. The newest one to the party is called BharatQR, it’s being launched by the Government of India. BharatQR is like Paytm except instead of using e-wallets, you just need a bank account. It’s pretty clear the Indian government is hell bent on getting most people to transact online. With the explosive growth of Paytm, I’m guessing the government decided it needed it’s own QR-code offering.

I think this is a great move but I think the average user will be even more confused now. Below is a list of electronic payment options that I have compiled in alphabetical order:

  1. Aadhar Enabled Payment Service (AEPS)
  2. BharatQR
  3. BHIM
  4. Apple Pay and Android Pay (coming soon…)
  5. Credit/debit card
  6. E-wallets – Paytm, Mobikwik, etc…
  7. IMPS
  8. NEFT
  9. RTGS
  10. RuPay
  11. UPI
  12. USSD

Yeah, even the most tech savvy person would get confused. I think the government should just wrap AEPS, BharatQR and BHIM into a single app and make that the defacto standard.