Capitalmind Podcast

The year 2019 has been quite eventful for the Indian markets! Right from corporate governance issues popping up almost every month, the collapse of NBFCs such IL&FS and DHFL, then the shady practices in scheduled banks such as the PMC Bank and now comes the Karvy fiasco. Read transcripts here: https://www.capitalmind.in/2019/11/podcast-the-strange-happenings-at-karvy-ep-15/ Deepak Shenoy (CEO) and Aditya Jaiswal (Analyst) discuss in detail how the Karvy fiasco unraveled followed by series of questions such as: What is a pool account and are brokers using it as means to fund themselves? Can brokers misuse the power of attorney signed by their clients? Is it safer to have demat accounts with banks? What should the existing clients of Karvy do? What happens to the banks/NBFCs who have lent money to Karvy?

We often hear that "Mutual Funds Sahi Hai". But none of the experts answer, "Konsa Mutual Fund Sahi Hai?" Host Deepak Shenoy (CEO) and Aditya Jaiswal bring you another Podcast where they simplify mutual funds, allocation (debt-equity), SIP vs lump sum debate, the myth regarding Star ratings, ELSS funds, expense ratios, Sectoral funds and a lot more! Transcripts: capitalmind.in/2019/11/how-to-buy-a-mutual-fund-ep-14/

Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss a bunch of interesting things in this podcast including, whether it makes sense to buy a house in the Uber economy, the mother-in-law economics, the financial implications of having a portfolio of properties, and the outlook for the property prices in the near term. Read full transcript: https://www.capitalmind.in/2019/10/podcast-should-you-buy-a-house-ep-13/    

Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss about Yes Bank – The “Kohinoor” of Rana Kapoor, pledging of shares by ZEE and deferred tax assets (DTAs) in the books of private and public sector banks. Deepak’s thoughts on Yes Bank (1:35) Cockroaches in Zee’s Books? (5:45) Deferred tax assets in the books of private and public sector banks (10:00) Read full transcript: https://www.capitalmind.in/2019/10/yes-banks-fall-zees-fall-and-deferred-tax-assets-ep-12/   Excerpts: 1. Deepak's thoughts on Yes Bank: Why should people continue to retain deposits with the Yes bank? The answer to this is two things First of all, the bank accounts itself don't show us the kind of panic that people seem to have in their heads the deposits seem relatively safe. And to that extent, you know, if you look at the numbers that they have their INR 58,000 crores in government bonds are the 2 lakh Crore in govt deposits, that's 25% straightaway or 30% early and then they have loans worth INR 2,30,000 crores, they have another you know 10,000 crores of cash with RBI they have another INR 5000 somewhere else. So, there is essentially about 75,000 crores of very, very liquid assets that they have. They have also told us that, you know we've still seeing certain amount of rationalization in their in their loans. Even if all the BB loans were to go to zero and their current NPAs are all supposed to go to zero, they would lose roughly 20-25,000 crores this would take you know eight quarters because RBI way gives them already quarters write them down, in those eight quarters they will generate INR12-13,000 crores of profits because they have other loans which are good, there is a potential another fund raise that will come up so, at max I think even if they were to take this extreme step of where all these loans go bad, the capital ratios will still be okay... "I don't think it's a great time for anybody to buy Yes bank stock, it's a lottery! But the chances of winning substantial amounts are very low. So I'm not really interested in the stock. I am, however, of the opinion that the deposits are safe." 2. Cockroaches in Zee's Books? (5:45) If you look at the FII holding of ZEE, about 47% of ZEE is held by FIIs, out of which the big guys that is anybody who owns more than 1% of Zee add up to only only 19%. So, the remaining 30% of ZEE holding (held by FIIs), is held by a lot of FIIs who have less than 1% shares. Who are these FIIs? Why are there so many of them? And how come they all own these tiny little percentages of ZEE? We don't know the answer to that... 3. Deferred tax assets in the books of private and public sector banks If you take the 22% tax regime, you can't use the deferred tax assets. Whenever you take an asset and say that as it is worthless now, because I'm going to the 22% tax regime and that tax regime does not allow me to take the deferred tax asset, I am immediately going to lose that amount...

Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss the corporate tax cut and it's impact on the economy and most importantly, on our portfolios. Read full transcript: https://www.capitalmind.in/2019/10/podcast-will-corporate-tax-cuts-fix-indias-bruised-economy-ep-11/   We discussed seven questions: Corporate tax cuts are fine but why aren’t we talking about the consumption demand? (1:26) Why corporate tax cuts why not cut personal taxes? (9:15) How will the government bell the fiscal Cat? (13:00) Will India finally become the factory to the world? (16:58) Will the improving profitability lead to re-rating of the Indian market? (21:26) Why are the Megacaps rallying? (28:30) Are the good times back for the portfolios? (32:33)

Deepak Shenoy and Shray Chandra discuss in detail about the troubles at the Punjab and Maharashtra Cooperative (PMC) Bank, the role of RBI and what options do PMC bank's depositors have. Read full transcript: https://www.capitalmind.in/2019/09/podcast-the-pmc-bank-debacle-episode-10/  

We discussed five broad questions: 1) Should India borrow abroad, if yes, then why? (10 mins) 2) Domestic liquidity issues and crowding out effect (8 minutes) 3) Why are experts (Ex- RBI governors) against this move? (3 mins) 4) What are risks o going overboard with overseas borrowing? (4 mins) 5) Risks of borrowing abroad (15 mins) Below is an excerpt of the podcast with time stamps of important sections! Read full transcript: https://www.capitalmind.in/2019/09/podcast-should-the-indian-government-borrow-from-abroad-episode-9/   1.Should India borrow abroad, if yes, then why? (2:00) The government borrows roughly INR5 lakh crores net per year. In the next year, the estimate of revenue that we want to collect just taxes, Indians will collect about 16 lakh gross, the government will pay 6.5 lakh crores in debt interest payment. About 40% percent of all of money that you're paying as a tax, is going not to build infrastructure, not to feed the hungry, not to pay farmers for food. It's going towards interest payments on the debt they borrowed in the past. Why would this be a problem? because we borrow debt at extremely high rates part. And here's the important thing, India's own companies that borrow abroad (ONGC for an example) has a bond issued in euros and euro denominated debt... 2. Domestic liquidity issues and crowding out effect (10:40) You know, this is interesting, because what some of the economists have put across is or you know, what Indian Government is borrowing 3.3% and 2.2% is by states and some 4% is something else. And therefore, India's gross financial savings, which is about 10% of GDP out of which about 8% of GDP is borrowed by the government, my answer to that is that's not true! 3. Why are experts (Ex- RBI governors) against this move? (18:00) About 1% of GDP is about 2 lakh crores. I think it's too small. I think in any given year, you can say don't borrow more than 1% of GDP. That's fine. I don't think India will see appetite for more than 10 billion euros at this point, which is about 70-75,000 crores thousand crores. I don't think any more appetite exists right now because everybody wants to wait and watch. And I think this is a good start. If there is an appetite, of course, we can look at more, I think you know, go and give more and buy a bottle more, especially if they're going to give it to you at negative rates, just go and borrow as much as you can, up to say 10% of the total debt... 4. What are risks o going overboard with overseas borrowing? (21:00) The problem is that, what if another government is in power, right?. What if the same government is in power? Your problem is this, you're creating debt, it could be a poison- poisoning the well phenomenon. And the idea is that poisoning the well is like, you know, when, when people used to attack another country, these two are another place which will which had a fort, the idea was to throw poisoned frogs, rags, with darts and arrows. Some of them could fall inside a well which would then get poisoned, then nobody would have any source of water and everybody would die. Poisoning the well is to say to the next person that comes here, he will not enjoy that place because the water will be poisoned, they won't be able to drink the water. If you poison a well, you too can't come back! 5. Risks of borrowing abroad (24:50) I think the point is if we borrow $100 at 70 rupees, we get 7,000. We may get it at 0.45%, but three years later rupees or 100. And then we return the hundred dollars and we return 10,000 rupees.

"Under normal circumstances, merging PSUs would have been impossible, had the government tried it 5 years ago, there would been riot on the street, today there is not even a murmur. They were able to do that because the slowdown is obvious!" - Deepak Shenoy Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss about the economic slowdown witnessed in the Indian economy. Read Full transcript: https://www.capitalmind.in/2019/09/podcast-how-slow-is-the-indian-economy-episode-8/   The Podcast was divided into three broad sections: a) Macro indicators (20 mins) b) Recent federal regulations (8 minutes) c) Few sectors which are currently facing a slowdown (30 mins)   Below is an excerpt of the podcast with time stamps of important sections! 1) Macro-indicators 1:40-  GDP growth: We have had 5 consecutive quarters of decelerating GDP numbers, right from 8.2% in Q1 18 to 5% in Q1 19, this was the slowest growth in 25 quarters. How bad the situation is and is the worst behind us? Or should we expect a couple of more tepid quarters? 3:20- Inflation: Inflation has been under control, it has been consistently falling for 6 straight months since Jan 2019, when inflation is under control, why is the GDP falling?, does this reflect weakening demand ultimately cooling off growth? Weakening of demand is concerning because we recently heard two big biscuit manufacturers going on record to say that people are not buying even 5-rupee packet biscuits. 8:07- Unemployment: Unemployment in FY18 stood at 6.1%, a 45 year high, now with big manufacturing units announcing massive job cuts, auto alone has seen 2.3 lakh people losing jobs, where do you see unemployment situation going in the near term? 11:02- Private consumption: Private consumption which constitutes about 58-59% of the GDP has been slowing down. Urban wage growth has stagnated, white collar wages have been slowing and rural consumption has also fallen on back of collapse on food prices and job cuts by manufacturing units, where do you see this going? 15:00- Investments: We looked at the GDP growth, inflation, unemployment and consumption, let's talk about investments. The gross capital formation has fallen from 34% in 2011 to 29% in 2018. Do you believe that we are stuck in a low growth cycle (Falling wages- falling savings, falling investments and low GDP growth)? 2) Recent federal regulations 20:30- Impact of GST and Demonetization on the economy About 30% of the Indian economy is completely informal and employs a chunk of the population. In 2014-15, late Arun Jaitley had made a statement, the informal sector doesn’t want to operate in shadows, neither they are corrupt, rather it was a failure on the part of the federal governments that even after six decades of independence, we couldn’t integrate them with the formal economy” In the pursuit of this integration, the government went ahead with the vision of cashless economy, demonetization and GST. Do you believe that demonetization and GST have actually hit the informal sector really hard? Do you think, somewhere, it turned out to be a shock therapy for the unorganized sector? 3) Sectors 28:18- Real Estate Residential real estate which was mostly fueled by black money is really not moving except the affordable housing part. Now that black money is hiding in may be gold! How will that come back into the economy? Where do you see the sector going? 33:09- Automobiles Now, we all know that there is a crisis in the Indian auto industry,  all big manufacturers are reporting double digit falls in volumes. TVS chairman made a big statement, that this slowdown is the worst in 3 decades and spread across sectors. Auto stocks recently witnessed buying interest in the anticipation of a GST cut, do you believe that a GST cut can change the fortunes of the sector? 41:28- Automobile replacement cycle A lot of existing car owners have started using Ola/Uber/Quick ride and this has led to postponement new car purchase, where do you see the replacement cycle going forward? 45:23- FMCG Parle-G and Britannia went on record to say that people are not buying even INR5 rupee packet biscuits. But FMCG stocks still command relatively high premium, why is that? Do you see optimism in investors, that among autos, infra, discretionary, real estate, financials, FMCG will be resilient. 50:50- Final thoughts! You can also listen to our podcasts on our app: www.capitalmind.in/podcast

Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss investor queries in a new show - The Investor Wants to Know. Topics discussed include passive investing, current NBFC scenario, slowdown in the auto sector, cooking up of books by companies, fundamental analysis, global recession, surge in gold prices, aviation industry. Read Full transcript: https://www.capitalmind.in/2019/09/podcast-the-investor-wants-to-know-episode-7/   Notes: How do you see the investment horizon for different categories of MFs? If you are looking for a horizon for investing, then it's not investing, it's a trade! Asset allocation metrics (large, mid and small caps) can shift, but horizon should be long term. Stay invested as long as you don't need the money! What are your views on passive investing? Is it advisable to invest in small cap index funds as most of good performing stocks will become midcaps and non-performing midcaps will become large caps which might pull the returns down? In India, one should look at the large caps because that is where the index funds will benefit the most. If you invest in small cap index, your best stocks are going to move out. Rather, one may look at the stocks which are actually leaving the small cap index. How bad is the NBFC scenario? Many of the NBFC's may lose their current structure- few will be taken over, few will be cut up into pieces and sold. Global P/E players are also keen on buying assets on discounts. None of NBFCs will go bust, since they have valuable assets. It will take another year for clarity to emerge. How to find out if a company is cooking up it's books? It is very difficult for a retail investor to dig up gold plated numbers, there is no one way. Retail investors should diversify, do not put more than 5-10% in one stock. It's not worth losing sleep over your investments! What are your views on auto sector? We are going through a time when people are not buying cars, at the same time, India is not at a stage where people who aspire to buy cars or bikes, have bought enough of them. China sells 16x more vehicles than India. This is not an unending cycle or death of auto industry. You can also listen to our podcasts on our app: www.capitalmind.in/podcast

Detailed Notes from Episode 6 Episode 6 - Momentum: The Anomaly that Persist Fri Aug 23, 2019 Host Deepak Shenoy (CEO) interviewing Prashanth Krishna (Trading, Momentum Portfolio) on the Momentum Strategy and why it’s the anomaly that persists. Capitalmind offers the Momentum Portfolio as part of Capitalmind Premium (subscription service) in Wealth and as part of our Wealth Management Service.  Read full transcript: https://www.capitalmind.in/2019/08/podcast-momentum-the-anomaly-that-persists/   What’s the Definition of Momentum Stocks moving in one direction continue to do so. Speculation? No, Momentum is a factor identifying a stock that is going up and that continues to do so.  As part of Momentum, we are not asking why - we’re just identifying when this trend is happening and when it’s stopped. Same exercise on the way down as well. We are betting on the trend of the market, not taking a contrarian view.   Why does Momentum work? We have research going back decades (generally in the US and other developed markets) that clearly shows that momentum works.  We can show the persistence and impact of momentum but the reasons aren’t very convincing (Rory Sutherland anecdote on knowing something works but not having the exact reason why).  One of the best reasons I’ve come across attributes this to behavioral factors. Investors underestimate at beginning and over-estimate at the end.  Another is asymmetric information - if you know or have figured out something about a stock you will start to acquire more and more shares. As information trickles in, people will jump on the bandwagon and others will replicate. The stock goes from under-information to over-participation driven by FOMO and greed. Isaac Newton story about the South Sea Company, He got in, made 100%, got out, but jumped in once again on peer pressure and then eventually lost everything. Momentum has an end too   How Long do you hold a stock for and what are the Portfolio Construction Strategy, Diversification criteria: We don’t buy for life like Buffett. The average holding period is a couple of months. We know something about the stock but simply not enough to make long term hold decisions Price is the key, price action is the trigger for our investment and exit choices. We don’t want a low liquidity stock We would rather not have a high volatility stock either that keeps hitting upper and/or lower circuits. The best fit is a stock that goes up steadily without making waves So avoid the parabolic rise? Yes, HEG is an example that after it hit all time highs it was subject to indefinite growth style justifications. You can’t start with momentum and then transition to fundamentals. 25-30 stocks is an optimal choice. Even a 50% fall in Vakrangee where couldn’t get out.only caused a drop of 1-2% of your overall capital which is still manageable.   How do you Rebalance? Rebalancing is meaningful - selling and buying has costs, taxes and slippage. Monthly is a sensible level. Let it ride for a month unless there is extreme news. At the next month, re-visit is the stock still worth holding.   What do you do in times like these (months leading up to Aug 2019) when there’s not enough momentum   In Bear runs like the current environment, we stay in cash if we can’t find 30 stocks.    If we only find 20 stocks (instead of 30), we have 33% in cash.    Momentum is often viewed as a negative because of the dangers of manipulation (promoters and operators driving prices). Since you don’t have filters that can track manipulation - how do you deal with this? Manipulation happens at every level, at accounting, price, balance sheet - even an analysis of fundamentals have risk from misleading or false financial statements. Manipulation is easier in a low volume stock. If you filter on high volume, it’s tougher to get caught in a pump and dump.  Between filters and diversification, we avoid mistakes or avoid mistakes that we can’t recover from. In Vakrangee - we rode the stock on the way up and then down as well! Once the lower circuit hits, you can’t exit no matter what your back test claims.   Do you get time to exit? We’re scared of parabolic charts - they become waterfall when the stock comes down. The lower circuits often kick in (unless it’s an F&O stock) so it’s not easy to get out. Fortunately, momentum normally exhausts over time so it gives you down to exit.  It’s the series of small waterfalls kills an investor in a stock.   Pitfalls or Things to Watch out for   How will you build your version of Momentum? If you’re not looking at volume filters - that’s a big risk.  What’s the universe? Momentum today would be say 50% in large and 50% mid cap. Outside of a wholesale fraud, you should have regular market risk. When there’s a drawdown, will you have the conviction to exit the stock like your model tells you to or will you be loss averse? Alpha comes from behavior rather than the genius of the strategy. Have faith in the strategy. The biggest failure point is us.    What are the returns like? Return of this strategy is linked to the market. This isn’t a contrarian portfolio, In a bear market you don’t do great either. Above Nifty returns are achievable based on the track record. During the bull market days you could easily hit the higher end of this range and the numbers looked abnormally great in the short term. However, drawdowns are similar to Nifty. Your portfolio make-up changes from small to mid caps in the bull runs to larger companies in the bear market. You’ll know this is working when Momentum falls in line with Nifty even on the downside but has beats it during the upside.   This has played out in foreign markets as well? Yes, in US like markets we have some data going back nearly a century and this very much works. Low volatility strategies don’t always prosper but Momentum is an anomaly the persists.  Just buying small cap stocks looks great in bull markets but risk adjusted doesn’t really do better than large cap. Momentum gives alpha even after adjusting for risk.   Next Steps: If you’re interested in learning and doing this yourself Capitalmind Premium articles on Momentum (we have a smallcase) https://www.capitalmind.in/momentum-portfolio/   And if you would like us to invest for you, we offer the Momentum to our Capitalmind Wealth customers (Wealth Management/PMS) as well.