Thursday, December 29, 2016

What Stock to buy on 30th December 2016?

Author is wishing his audience Happy New year 2017
Wish You a Happy and Prosperous New year
Dear Friend!
Sorry, I am not a day trader or margin trader. I am a value investor. Therefore I cannot give advice what stocks to buy for a single day. The stocks that I buy and advise others to buy are meant to be held for lifetimes. However market conditions often make such stocks expensive and therefore I advise people to buy a few at times when they are expensive and desist from buying when they become expensive. Such advices generally hold good for a month or at least for a quarter. Thus I had already advised my audience to but three stock in December 2016. Perhaps they will be useful to you. So kindly read my post on my blog at “4 Stocks to Invest in December 2016.”
I do not know whether you indulge in day trading/ margin trading, but let me caution you that trading in stocks, commodities and currencies is not investing but dangerous speculation.
Thank you.
Picture shows a shocked margin trader staring at losses
Shocked margin trader staring at losses
I wish you, your family and friends a Happy and Prosperous New Year 2017.
With Best Regards
Anand

Suggested Further Reading:

How Repo Rate Affects Debt Funds?

Reserve Bank of India logo and repo rate visual
Picture depicts RBI's logo and Repo Rate Visual

Actual Question:

How does RBI repo rate affect the performance of debt mutual funds?

Answer:

Dear Friend!
Reserve Bank of India’s (RBI’s) ‘Repo Rate’ strongly influences the lending rates of commercial banks. If the repo rate is cut, the lending rates fall. On the other hand if repo rate is increased, the cost of borrowings go up.
How RBI’s repo rates will affect the performance of debt mutual funds is difficult to predict. One simple logical expectation is that if repo rates go up, the floating lending rates will go op and will positively impact the banks and other lending institutions and therefore, indirectly, the prospects debt mutual funds. But fixed interest rate loans are not affected. Mostly bonds, government securities, treasury notes are fixed interest rate instruments and debt mutual funds predominantly invest in such loans. In such a scenario there are no gains or losses in the short and medium terms.
Yet another argument could be that a fall in repo rate and consequently commercial lending rates to spur overall quantum of borrowings and therefore the prospects of debt mutual funds could brighten.
Predicting the consequences of events like changes in repo rates is not only difficult but fraught with huge risks. Therefore one should never make investment decisions based on such events/ actions. One should make good assessment about the fund, invest and simply leave it.
Anyway, friend, what are the special reasons for your interest in debt mutual funds? Debt funds do not make the investor rich or wealthy. There is no scope for increase in either recurring income or for capital appreciation. Debt funds are suitable only for those who have a large corpus of investible funds out of which one expects a regular income like charitable foundations, universities, pension funds, rich individuals and generally not for a majority salaried and middle income individuals. For them only well-diversified growth funds or exchange traded funds are suitable to create wealth in the long term.

Suggested Further Reading:


Thank you,
With Best Regards

Anand

Wednesday, December 28, 2016

What are the Best Tyre Stocks?

Actual Question:

Which is the better stock in tyre stocks for 1 year time horizon?


Answer:

Picture of tyre
Automobile tyre
Dear Friend!

I have evaluated tyre companies and could not find a single one suitable. The operating profit margins are low across the board. If profitability is good the liquidity and solvency ratios are poor. 

See the comparative study of four tyre companies:

Tyres
APPOLLO TYRES
MRF
PTL Enterprises
Operating Margin %
12.61%
14.60%
88.43%
Gross Profit Margin
9.76%
11.40%
86.92%
Net Profit Margin
5.03%
6.76%
42.81%
ROI
16.23%
19.87%
21.69%
Return on Long Term Funds
27.04%
27.47%
28.72%
Long terb debt/ equity
0.26
0.26
0.53
Total Debt Equity
0.32
0.40
0.53
Current Ratio
0.87
1.34
0.44
Quick Ratio
0.35
0.82
0.40
COMPANY PERFORMANCE (FOR FURTHER STUDY)
REJECTED
REJECTED
REJECTED

Finally the big question arises that when you can buy excellent companies with 50% PAT margins from other sectors at very reasonable valuations, why should one invest in tyre companies struggling with PAT margins below 10%? 

As far as your next point of investment horizon is concerned, one year is nothing. A good investor does not buy shares for one year but for the lifetime. Purchasing even a single share is like owing the business 100%. Will anybody start a new business with a time horizon of one year?
Please read the book “The Intelligent Investor” by Benjamin Graham. Learn value investing. Become rich and wealthy slowly and safely over a long time.
Suggested Further Reading:


Thank you,
With Best Regards
Anand