Saturday, July 29, 2017

Can Investment in Corporate Bonds be made in India through Online Trading Account?

Can Investment in Corporate Bonds be made in India through Online Trading Account

Actual Question:

Why are corporate bonds still traded OTC and not electronically?


Dear Mr.Marcos Jaramillo
A number of value investors, including myself, are keen to make bond investments in India, and always wonder whether one can invest in corporate bonds be made in India through an online trading account. In the US and other financially mature countries buying bonds online is easy and widespread. However, Indian bond market is still in a very nascent and under developed stage. There is a lot of discussion in the official and media circles about the need for the development of bond markets but progress on the ground is negligible.
It appears that online bond trading does take place in a limited way. I too have explored the possibility a few times but did not find any attractive capital appreciation opportunities, and therefore did not pursue the matter any further.
Since I do not have any direct personal experience of buying bonds electronically, I cannot say for sure whether the possibility exists, but a cursory glance at the following web pages does indicate it is possible:
  1. I had seen corporate bonds being listed on the websites. Please see this link of bonds listed on BSE/ NSE. If bonds are listed on the stock exchange, I presume they are available for online trading. Here is the link:
  2. NSE lists bonds traded on the exchange as well as OTC Trades in two different pages, indicating that indeed it is possible to electronically trade bonds on the stock exchange. Here is the link:
  3. My online trading account with Kotak Securities shows a menu option for bonds investment. Please see the screenshot below: 

Can Investment in Corporate Bonds be made in India through Online Trading Account

Related Articles:

Markets in India for corporate bonds lack both the breadth and depth, and are still in the nascent stage of development, providing little opportunity for meaningful bonds investment. Even though I have not personally made bonds investment, more because of a lack of an attractive investment in corporate bonds, it appears that it is feasible for buying bonds electronically through the online trading account.
Thank you,
With Best Regards

Tuesday, July 18, 2017

How to Navigate Turbulent Stock Markets?

How to Navigate Turbulent Stock Markets? by long term investment through systematic investment plan (SIP)

Volatility is inherent to the stock markets; the question that often bothers investor is, “how to navigate turbulent stock markets?” Fortunately those value investors who make long term investment through systematic investment plan (SIP) can easily weather the financial crisis created by market turbulence. They need not fear the volatility index or the VIX index and call FRM or financial risk management experts.

When market turbulence is playing havoc and ruining the prospects of thousands, how can value investors remain unaffected?

Reasons Behind Value Investor's Calm

The relative peace and calm enjoyed by value investors, even amidst severe market volatility emanates from the sound knowledge they posses about:

  1. Estimating the Intrinsic Value of Shares: Every thing in this world, including a stock has an inherent or intrinsic value. Knowing or estimating is the key.
  2. Fix the Fair Price of the Stock: Once you know the intrinsic value it is easy to fix the fair value of a share -it has to be below or at par or at a tiny premium to the intrinsic value.
  3. Margin of Safety: stock should not be bough at high valuations - even those of excellent companies
  4. Mastery over Control of Emotions: Investors are driven by two powerful emotions, greed and fear. Value Investors develop the sound mental framework to keep these two demons under check.

Warren Buffett's Bank of America Investment

Let us take a practical example. Post Lehman Brothers' market crash markets were in disarray - investor were fleeing the markets in panic. Warren Buffett made a huge investment of US$ 5.00 billion in Bank of America (BoA) in the year 2011 - in 700 million share warrants that could be converted into equity shares at a price of US$ 7.14 a piece. On 30th June 2017 the value of that investment stood at US$ 17.00 billion, a clear profit of US$ 12 billion. How could he do it? Could he crystal gaze the future? Absolutely no. Even though the stock market was in paranoia he simply knew the real worth of Bank of America shares!

Two Extreme Market Conditions

How to Navigate Turbulent Stock Markets? by long term investment through systematic investment plan (SIP)
Stock markets are constantly in motion like a pendulum, between extreme pessimism and unjustified optimism. Individual stock prices tend to reflect the general market trend or mood. Still an astute investor will be able to spot attractive opportunities. For the intelligent investor, extreme stock market volatility is not a foe but a true friend. With practical examples let us examine how sane and profitable investment decisions can me made amidst extreme stock market volatility.

What to Do When Markets Are Extremely Bullish?

Stock markets globally are at their peak, like today (18th July, 2017):
  • Dow Jone Industrial Average: Over 21,500
  • S&P BSE Sensex: Around 32,000
  • NIFTY 50: 9,900 level

Such a market condition generally drives up prices of stock across the board. There are two broad ways to act under such conditions:

  1. Move to Bonds
  2. Identify stocks neglected by the market
Let us examine these two options closely.

Investment in Bonds

Bonds behave right opposite to stocks. When stocks become expensive, bonds become cheap. A sharp investor can find bond issues of rock solid companies trading at prices below their par value or face value. Prudent investments in such bonds can provide good interest income as well as capital appreciation. 

However, profitable bond market investments are possible only in financially mature and developed markets like the US and Europe. Indian bond market is still in early stages of development, lacking necessary  depth and access.

Stocks Neglected by the Market

Contrary to the popular belief, stock markets are neither perfect nor rational. Market players tend to become prejudicial towards certain stock and neglect them. Such neglect or error in judgement helps the value investor who is able to identify wonderful opportunities. 

Today, when the stock markets around the world are at their historical highs, shares of following wonderful companies are still trading at attractive valuations:

Serial Number
PE x P2BV Ratio
Dividend Yield

Recom-mended <1.5
Recom-mended <15
Recom-mended <22.50
> 2.50%
Neyveli Lignite

Handling the Bear market

While many innocent and uninformed investors fear the bear markets, there cannot be a better opportunity to create significant long-term wealth than a bear market. Have we not already become wiser from Warren Buffett's BoA case study?

When you know the real worth of a share and during a great market crash the share is available at a throwaway price will you celebrate or flee the market?

A-la Warren Buffett, I too made investments during the massive market plunge post Lehman Brothers incident. The invest I used to make used to get eroded by 25-50% on the market next day. But I was not scared - I went on making further investments in the same stock - sometimes doubling the investments. Believe me, I was nervous but not scared.

As with Buffett's investments, mine too recovered and gained 250-300% in a span of about six to twelve months. 

Suggested Further Study:


Stock market swings are natural and beneficial. There is a sure and safe answer to the question, “how to navigate turbulent stock markets?” Value investors who make long term investment through systematic investment plan (SIP) can overcome the financial crisis created by market turbulence. There is absolutely no fear of the volatility index or the VIX index or call FRM or financial risk management experts. Investors can safely and gainfully navigate stock market turbulence.