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Issue Detail:
Issue Open: Mar 8, 2017 – Mar 10, 2017
Issue Type: Book Built Issue IPO
Issue Size: 62,393,631 Equity Shares of Rs 10 aggregating up to Rs 1,865.57 Cr
Face Value: Rs 10 Per Equity Share
Issue Price: Rs. 295 – Rs. 299 Per Equity Share
Market Lot: 50 Shares
Minimum Order Quantity: 50 Shares
Listing At: BSE, NSE

D’mart (Avenues Supermarket), which is in the retail business with 118 stores, selling products such as food and groceries (55 per cent of revenues), home and personal care products (20 per cent of revenues) and general merchandise, such as crockery, furniture, garments, footwear, and home appliances (25 per cent of revenues), has clearly come at a time where the global view on equities has turned positive, and volatility in equities is at record lows. IPOs like Snapchat in the US have created significant short term gains for investors, and Indian investors are seeking a repeat.  The fact that D’mart is associated with Radhakrishan Damani, believed to be one of the sharpest long term investors in India, has only added to the frenzy. The penetration and development of retail businesses in India have been a much discussed opportunity over the last decade, and the shift from unorganised to organised, and from offline to online, continue to be much talked about.

Whilst there is no doubt that this shift has begun and is only likely to increase significantly going forward,  as individuals and families gain more and more comfort with these formats and decide which one works best for themselves, one needs to keep in mind that margins in most retail businesses tend to be very slim, and thus investors will need to be very patient with these businesses, as they scale and maintain/try to grow margins simultaneously, in spite of significant competition. Customer loyalty across these formats will also be tested , as consumers do tend to be very price sensitive in most retail segments.

Whilst revenue and earnings growth for the business have been very decent at 35 – 40% CAGR  over the last few years, and the profit margins and other numbers are better than competition, with further scope to possibly expand through the use of private labels, one will need to remember that businesses of this type will create wealth for investors if they are truly thinking very long term. At a P/E of 36 times, even though cheaper than other players in the retail space, and with a model that is very efficient with use of capital, real estate and its supply chain, this IPO is  not cheap.

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With expectations of significant listing gains pushing investors to try to get a share of the pie, and the issue size being only about Rs 1870 crores, most investors in the retail segment are not likely to get any shares at all, or even if they do, the net impact on their portfolio is likely to be minimal due to the small holding that they will get. For high net worth investors taking leveraged positions, a very high over subscription rate could essentially mean that their interest costs are also likely to be very significant.

With an uncertain global environment on the back of a possible US rate hike coming up, this issue is appropriate only for investors with a high risk appetite, or investors taking a very long term view of their portfolio in our view.

Just like Retail is all about detail, stock investing is all about earnings so keep your eyes focussed there and see how retail businesses continue to grow their earnings going forward, and deal with significant competition pressures.

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I absolutely love summer, despite the intense heat in India. There are two reasons for this – firstly, summer vacation for kids which makes them so much happier ( I’m not sure if it’s the vacations or the mangoes that brings a broader smile on their face though), and secondly, unlimited ice cream to keep oneself cool and refreshed. A recent afternoon out with friends and family allowed me a double delight – having icecream with kids. Whilst each of us made our selection of ice cream, I realized that it had taken us the better part of an hour for four adults and four children to decide which ice cream flavor we wanted. The decision making process involved multiple criteria from the way of the ice cream looked to the sweetness of the ice cream, flavor, mood, etc . As I stood there and watched, I realized how personal each decision was in terms of the ice cream that was selected.
This seemed to be in sharp contrast to the way many investors take buying/selling decisions on their finances. When gold fell sharply last month, investors flocked to jewelers to buy gold, irrespective of the gold that they already have in their lockers and homes. When stock markets fall sharply, everyone looks for the exit door before it falls further, even if all they have left in their stock portfolios over the last few years is only a small percentage of their overall wealth. The boom in real estate has made selling a piece of real estate look stupid unless it was traded for a bigger piece of real estate. As investors become aware of the benefits of buying term insurance, everyone wants to have some of it in their portfolio, so what if they are old enough or wealthy enough not to need term insurance any more.
In my view, there really is no one size fits all strategy for your finances. What’s good for your closest friend with a salaried income, may be terrible for you as a self employed professional? What seems like a perfect investment strategy for your parents who are retired in India could be terrible for the money that you are sending to India to take care of your retirement 20 years later?
Blog imageThe moot question is – Do you have a financial plan that is for you or is it someone else’s plan/ product/ suggestion that you are following? To me, following someone else’s plan sounds a lot like going to a pharmacy, to buy a drug on the basis of the doctor’s prescription for your uncle.
Your personal financial plan needs to be about you – your vision for your ideal retirement destination, your vision for your retirement lifestyle, your vision for the quality of education for your children, your vision of how you would like your family to be taken care of in case something happened to you or your spouse, your vision of how you would like to be treated medically in case something happened to you. Basis your thoughts on each of these, your financial plan should incorporate your ideas and desires, which can get you where you want to be.
Whilst you enjoy time with your children and ice cream this summer, please take some time off to think if your finances are about you and your thoughts and ideas. If not, it’s time to use the summer break to think and draw up your personal financial plan, a plan that’s about you.

Author – Vishal Dhawan

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From our experience of interactions with nonresident investors, we have found that a significant number of investments by NRIs tend to be made during their short visits to India.

During that period, when they visit their bank or speak to relatives/ friends, they get a broad view on what is happening to various asset classes – be it real estate, stock markets, or bank deposit interest rates. Between the various social obligations, time with family, and other things to do in their action packed agenda, quick investment decisions tend to be made, a large number of which tend to be long term commitments through investments in long term insurance policies/ real estate investments. Unfortunately, a large number of these investment decisions are not necessarily aligned to long term financial goals of the NRI and his family. Once NRIs return back to their home overseas, they then tend to wonder if it was the right investment decision or whether haste made waste, especially as they now get time to think about it. They wonder whether these investments fit in case they wish to return to India at a latter point in their lives or in case they wish to use these investments for children’s education or their own retirement, or to support their family members back in India.

In addition to the alignment to financial goals for self and family, it is critical to ensure that the investment products chosen allow non residents to invest in them, the repatriation restrictions (if any) on the principal amount and the gains, as well as the taxation of the gains in both India as well as the overseas location of the NRI. A lot of these answers can only be obtained when there is clarity in terms of what role the investment is expected to play for the NRI in his portfolio.

It is therefore critical to ensure that the focus on working to a financial plan is given the same degree of importance, irrespective of whether the individual is a resident or a non resident. In fact, working to a plan tends to be even more critical for a non resident than a resident, due to a legacy holdings and finances that they may have from their days in India.

A very large number of NRIs tend to leave India during a phase of their life when they have already begun their financial life – they have probably opened regular savings bank accounts in their names, bought investment products like stocks/mutual funds/insurance products/PPF accounts, or even made a real estate investment. Since there is a tendency to leave India on an overseas assignment/project, a higher education and then decide to settle down overseas, the starting point for a financial plan is to get your existing portfolio of investments in order.

 

The following steps need to be taken to ensure that the existing finances are aligned to the needs of a non resident

1. Close all resident bank accounts or convert them to nonresident ordinary (NRO) accounts. These NRO accounts can be used to credit amounts from investments that may have been made earlier, for example, dividends from stocks, rental income, amongst others.

2. Ensure that the tax returns in India have been filed. Whilst filing a tax return is not mandatory if the income is less than the taxable limit, it is important to be sure that the total income is less than the taxable limit.

3. Review your demat accounts so that they can be converted to nonresident demat accounts.

4. Change your mutual fund portfolios (if any) to a non resident status and link your NRO bank accounts to these investments.

Once the legacy portfolio of investments have been put into order, it is crucial to begin the process of setting up your financial goals through a financial plan. Whilst a financial plan may sound rather complex, it is simply a roadmap that allows you to think about what you want to achieve with your life goals and how your finances will allow you to get there.

Let me illustrate this with an example. Let’s say one of your life goals is to have your child study at a particular post graduate program. How would you design your financial plan towards this life goal?

1. Establish the current cost of the education that you want to plan for – The costs for higher education vary significantly depending on the type of college, country of education, type of program and number of years of education. The total costs of education should be established including the costs of living and travel and not just education costs.

2. Understand the impact of inflation on current costs – Inflation rates on education may vary significantly depending on whether you wish to plan an education in India or overseas. You need to establish the corpus required for the education after adjusting for inflation.

3. Choose the appropriate asset mix to achieve your target – It is critical to establish the right balance of stocks and fixed income exposure so that you understand the returns and associated risks that you will take on the portfolio in order to reach your target.

4. Choose the appropriate product/products to achieve this targeted amount – Once the above steps have been undertaken, you can move to the product selection stage where you can look at the merits/demerits of using deposits, mutual funds, insurance plans , stocks or other options to achieve your target.

5. Evaluate the progress towards your goal at regular intervals – It is important to review the progress of your financial plan to ensure that you are on track to achieve your financial goals. However, it is important that you give your products adequate time to deliver as per their designed objectives. A review once a year should be adequate.

A financial plan can be developed for all your life goals accordingly. You may need to take the help of a financial planner to integrate all your goals into a plan so that your overall finances can be aligned to all your goals. For example, your retirement plan could vary depending on whether you wish to finally settle down in India or continue to live overseas once you retire.

In addition to each of planning for your financial goals, you need your financial plan to cover:

1. Taxation of these investments in your home country – Tax treatment of investment products in the home country may be different from those in India. For example whilst there is no long term capital gains tax on equities or equity mutual funds in India, capital gains tax may be chargeable on these investments in the country that you live in. It is therefore critical to understand the tax implications at both levels as a part of your financial plan. You may need to seek the help of a tax advisor in both India and your home country, so that there is complete clarity on the same. In addition, there may be double tax avoidance treaties in place that allow you to set off the taxes you pay at in one country against taxes due in India, so that you are not taxed twice on the same amount. Your tax advisor should be able to help you on this.

2. Succession planning – Inheritance laws tend to vary from country to country. In addition, whilst India does not currently have any estate duties and taxes, a large number of countries have an inheritance tax. Since you could end up inheriting assets from your parents/ other family members and also having your assets transferred to your family members on death, it is critical to ensure that succession planning documents like wills are created keeping the inheritance laws of both countries in mind.

Once you are clear about your financial goals, taxation and succession laws, you will be in a position to pick your investment products far more easily and can focus on tracking how your investment products are taking you closer to your financial goals.

 

This article was written by Vishal Dhawan, CFPCM 

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“Jadoo ki Jhappi” gained popularity after its clever use and depiction in the blockbuster Munnabhai MBBS. Medically the benefits of a hug have been well known for a long time with a simple hug helping to lower blood pressure, reduce heart rates and improve blood circulation, amongst other benefits. Just like a hug, some of the simplest things are likely to be the most beneficial for your health-eating well balanced meals in moderation, eating on time, getting adequate sleep, daily exercise and a daily dose of meditation. In much the same way, your financial health can also be well taken care of through the use of some simple steps. These include:

  • Having a contingency/emergency fund of at least three months of expenses to take care of unforeseen job losses/medical emergencies
  • A well controlled expense to income ratio ( ideally less than 65%) and loan to income ratio ( ideally less than 40%).
  • Adequate life insurance to protect your family’s lifestyle in case something was to happen to the primary bread earner
  • Health coverage for yourself and your dependents so that a medical emergency does not derail both physical health and financial health.
  • Insurance for your home that is likely to be your most valuable asset
  • A well diversified portfolio that consists of a combination of investments that have traditionally beaten inflation like real estate and equities, and assets that have fairly predictable rates of return like deposits and bonds.
  • A small portion of your portfolio in gold to act as a protection for the rest of your portfolio.
  • Clearly defined goals for what you want your money to do for you – education for your children, an independent retirement for yourself and your spouse, a larger home,etc
  • A well thought out tax saving strategy that is aligned to your financial goals
  • Undertaking an annual financial health checkup. If you believe you need professional help for this, do not hesitate to seek it.
  • Avoid using products that are too complex and you do not understand
  • Avoid putting all your money into a single investment type or asset class just because it has given the best rate of return in the recent past.

 

To conclude, the simple things in life are often the most effective and make the most difference, so keep your finances simple and your hug handy. Simplicity should keep you in great physical and financial health.

This article was written by Vishal Dhawan, CFPCM 

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“For every action, there is an equal and opposite reaction“. As I sat with my son running him through Newton’s law for his science lesson, it got me thinking about how much this universally accepted law of physics tended to get  applied in investment portfolios as well.

The extreme volatility that we have seen over the last few weeks with sharp swings on the downside for stock markets globally and sharp increases in gold prices have left a large number of investors wondering what they need to do now. Whether it is TV show callers that we respond to or investors that we speak to, the two questions most commonly posed to us currently are ” Should I be selling equities now?” or ” Should I be buying gold now?”

Whilst it is very natural to be concerned about all the news flow from a stock market point of view, especially since a large amount of it is negative, investors need to take a balanced view. Similarly, with gold prices hitting record highs each day, there is a natural tendency to want to buy gold at this point.

For virtually all other products, there is a tendency to want to buy products that are offered at a discounted price and a tendency to buy lesser of products that are more expensive. Stock markets are however treated very differently wherein investors tend to buy much more when they are becoming more expensive and much lesser when they become cheaper. Most investors will vividly remember 2007 when they were willing to commit large chunks of monies as stock markets kept going higher each day, and the bottoms of 2009 wherein no one was willing to buy. Most investors in 2007 are yet to recover their principal, whilst investors in 2009 have doubled their money in spite of the recent volatility. Against a long term average return of 17% pa from equities, the five year returns from equities are in the region of 7% pa probably indicating that there is potential for attractive returns from equities over the next 5 years.

Similarly investors who bought gold 10 years ago have seen their money grow five times over this period. However, for 20 years before that, gold gave a negative rate of return.

Our recommendation therefore is that if you follow Newtons third law closely, you would end up buying when others are selling and end uo selling when others are buying. Following this law could end up doing your portfolio a lot of good.

This article was written by Vishal Dhawan, CFPCM and appeared in the EXIM INDIA newsletter on 9th September 2011 .

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With the India-England series having ended with a 4-0 whitewash for India, a significant amount of time is now being spent by experts and commentators to understand what went wrong with the same Indian team that won the World Cup just a few months ago and was the number 1 rated test team before the series started.

In just a few weeks, a captain who could do no wrong has been criticised for not talking enough to his bowlers, reputations of senior players with significant experience have been severely hit and India has been relegated to third place in the world rankings.

We believe that there are significant lessons for investors with regard to their investment portfolio from this test series loss that India faced.

1. The past should not be looked at as a prediction of the future

Investors would recollect that there were significant inflows into equity mutual funds, stocks, IPOs and NFOs (New Fund Offerings) on the basis of approximately 40 per cent annualised return over the previous 5 years till 2007.

Investors expected this to repeat over the next 5 years as well. Those who invested during that period are still seeing returns that are either negative or sub-optimal today. Similarly, investors are looking at equity returns over the last 5 years today and shunning equities as the last 5 years returns on the Sensex are below 8 per cent per annum. They should avoid looking into the rear view mirror to predict the future. In the same way, just because this same Indian team won the World Cup earlier this year and had performed well in the past in test series both in India and overseas, it does not make it an automatic qualification to continue to do well in the future.

2. Build a strong foundation

The Indian cricket team made some fundamental mistakes in England like dropping catches and carrying injured players who were unable to even play full matches, forget playing to their potential. In the same way, investors tend to make some fundamental mistakes like not planning for a contingency fund of 4-6 months that may be required in case of a job loss or medical emergency or not having adequate life insurance cover to provide for their family in case of an unfortunate event. There is a tendency to focus on investments excessively, without taking care of the basics.

3. Experience matters

Rahul Dravid was the only batsman who redeemed himself in the star-studded Indian batting line-up that failed so miserably. His rich experience of playing in English conditions surely helped him. In the same way, money managers with experience of handling money during both positive and negative economic environments can be critical, as they can tailor their responses accordingly and use their experience to their advantage.

4. Build a well-balanced portfolio

There were times where it looked like the Indian team did not have the right blend of experience and youth to cope with the conditions. In the same way, your investment portfolio needs to have a good balance of different asset classes like equities, fixed income, commodities and real estate rather than having only one of them that is significantly overweight like real estate or gold.

5. Don’t focus only on the stars, track the universe of portfolio managers

The England team that beat India so comprehensively had also done extremely well over the last few years and was already the world no. 2 before the series began. In the same way, you need to look at your portfolio managers carefully and you will find that there is not just one manager who delivers all the time. There will be portfolio managers who are probably doing nearly as well as the ones who are ranked at the highest level and you need to track them as well. In case you find that difficult, you may need to use the services of a professional advisor who tracks portfolio managers more closely.

6. Worry about the silent killers

A large number of players, though apparently fit, were obviously not so and were silent about it. They thus failed to deliver when required. In much the same way, inflation is a silent killer on your portfolio. Whilst fixed income may give you a lot of comfort and help you avoid any fluctuations on your portfolio, it is unable to match inflation most of the time and is thus unable to deliver when required for your goal.

Whilst I am sure there are multiple other lessons that can be learnt from this series loss, we believe investors should look closely at some of the above lessons in case they have not done so already.

This article was written by Vishal Dhawan, CFPCM and appeared in the EXIM INDIA newsletter on 26th September 2011 .

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