Financial Economics

For investment purpose, everybody need to dig deeper and keep their mind open for all ideas. It will help to forget past choices of all Investments as well as succeed in the future.

Your aim must be to identify best businesses and not stocks. Equities are always for long term horizon. So, three things which are most important to keep in mind for investing into equities are:

Industry Attractiveness

* Industries which are regulated by government, pricing and profitability are also controlled by the government itself. These aren’t as predictable as compared to industries which are not regulated by government. for example- FMCG, IT, PAINTS etc

* Capital efficiency is also important for industries. Capex requirements always remain high in capital goods sector whereas capital is only required to do branding, distribution for consumer staples, consumer discretionary. Better ROCE will generate better returns on equity.

Management Quality

* Better accounting system automatically leads to better performance in company’s stock.

* Capital allocation is very important for adding shareholders value. Return on capital must be greater than cost of capital.

* Companies which uses cash flows from operations to fund it’s business growth are superior than companies which raises funds via debt.

Competitive Advantage

* Brands and reputation are extremely expensive to build, maintain and sustain. However, once built, they are powerful source of competitive advantage.

* A company’s ROCE is a broad measure for competitive advantage. Generally, better ROCE over industry’s average ROCE is likely have sustainable competitive advantage.

These three are the key points for investing in equities. Read annual reports, promoters interviews and news that focuses on economy as well as industries. This will help to get better understanding of industries and companies.

India is in the middle of lockdown which is hurting Indian economy badly. Earlier during 21 days of lockdown, it costs $4.5 billion into the economy every single day. Lockdown pulls down GDP growth sharply as IMF predicts India to grow at 1.9% in FY21.

Measures:

State and centre have to come together to help poor and lower middle class for food, healthcare and shelter. Government already announced 1.7 lakh crores as direct benefit transfer, cash transfers to poor people but it must be implemented in an effective manner so that every individual can get the share of it which will allow needy households to sustain.

After announcing Rs. 20 lakh crore package India’s Fiscal Deficit likely to be 7.9% in FY 21, according to SBI research. Government also announced an additional borrowings of Rs. 4.2 lakh crores i.e 2.1% of GDP. Government must check debt-to-gdp ratio because higher debt levels will put pressure on Indian Sovereign Bonds and upper limits of debt will not push growth for the economy.

Without proper development of healthcare system, India cannot reboot the economy. Further across India, a total of 586 hospitals have been dedicated to Covid-19. In addition to this, Government need to ramp up health education and upgrade technologies as well as facilities with Public Private Partnership Strategy.

MSMEs are the biggest hit due to Covid-19 pandemic. MSME contributes 30% to the Indian GDP through manufacturing and exports. MSME sector is being supported by government through different measures in the last week. But all the measures for MSME till now going to increase debt liability and there is nothing to create improvement for demand.

India is giving best to fight for Covid-19 situation. And most importantly we don’t know when it will end. Still,government need to take steps against this issues mentioned over so that post Covid-19 recovery will come at a reasonable pace.

It’s very difficult to predict the crashes in the capital markets but we can sometimes predict the headwinds for near term and longer-term. People are having misconception that stock market runs on only with the money itself. Yes, money is the one through which you can either buy or sell. But there are different factors which drives the movement of stock market. Some of the crucial factors are:

* Country’s growth: This is why many of the investors invest in a particular market. India, China, Brazil, Indonesia. This are emerging markets which means this market is having a good potential to grow in the future with the developments. Country which grows better in the future, market of that country advances with the growth and provides a better returns to the investments on that markets.

* Companies Earnings: Better economy will lead to better growth in sector which ultimately helps in improving earnings. Companies revenues, profits and losses creates a better picture for investors. These things also gets reflected on the company’s prices for valuation.

*Management of the company: Better investors who knows business well they always believe in good financials. Financials are crucial part of the company and management is responsible for carrying on their own shoulders. Trust and Honesty with proper ethics will always give company a better image in the market.

Investment in the stock market is not simple and is not so hard. What we need to understand is the basic knowledge which helps to invest freely without any fear.

“Risk comes from not knowing what you are doing”- Warren Buffet..

Thanks for joining me!

Good company in a journey makes the way seem shorter. — Izaak Walton