Is this the right time to invest in equity market?

A famous saying in the financial market says, "Time in the market is more important than timing the market". I don't doubt this for a moment. An investor can get fabulous returns by staying invested in an a equity mutual fund scheme, unmindful of market ups and downs. At the same time no one can deny that timing is not important. Between buying at a high price and buying at a low price I will prefer buying at a low price. So how can I decide whether the current valuation of the Indian equity market is high or low? As a financial advisor I must have an answer. As a student of value investing answering this question is quest for holy grail.

I keep a keen eye in P/E, P/BV and Dividend Yield of Nifty ( The Nifty website gives easy and free access to all this information and I think is miles ahead of NYSE website. Try finding historic P/E for Dow Jones). Now as we all know a high P/E ratio means stock/index is expensive. The current P/E ratio of Nifty is 22.7 (High by historic standards. The highest P/E was 28.47 for NIFTY). 

I am a always a bit wary of using P/E ratio as the primary indicator of value. This is because earnings can be manipulated. However dividend cannot be manipulated. So Dividend yield of Nifty can be used to examine how expensive Nifty has become. The chart below plots the Dividend Yield of Nifty since January 1, 1999.

Aishwarya Rai Clueless About CSR and Environment policy of Longine

Longines is a 175 year old company and is the world's oldest registered trademark. The company is in the business of making luxury watches for ladies and gentlemen. I plan to own one when I have money. Aishwarya Rai is the brand ambassador of this company for the last 10 years.

Today Longines launched its new watch collection at the Taj Palace hotel new Delhi. Before the lady with green eyes made her appearance on the ramp, it was set ablaze by a galaxy of super thin models wearing exotic dresses and Longines watches. I had the good fortune to be a witness.

After walking around the ramp a few times Aishwarya Rai stood still as center of attraction. The Q&A session was thrown open. A media person sitting in the second row from the ramp asked a question. While Aishwarya was answering her, I gathered the courage to speak in front of a packed five star hotel basement. My question was something like "Aishwarya I know this is slightly off the track but can you tell me about the CSR (Corporate Social Responsibility) policy and environment policy of your company (Longines)?. To this Aishwarya answered something like "Yes you are right, this is a off track question. Mr so and so (the gora boss) will be able to answer this." And the lady has been the brand ambassador for the last ten years. The list of other celebrities endorsing the brand can be found on this page.

The next question someone asked Aishwarya was about her forthcoming film. Aishwarya took her sweet time to answer this question. No, the question on her acting career is not off track, because it gives free publicity. The following conclusions can be drawn.

1. Longines the company with the world's oldest registered trademark has no CSR policy and it does not have a policy on our environment either.

2. Aishwarya Rai is in it only for the moolah. Knowledge about Longines, what it stands for and how it cares for the environment and how it gives back to the society can go to hell.

3. Such questions should not be asked

No one approached me after the event. Mr So and So (the gora boss) and the country head got busy with their retail distributors. After all their salaries and bonuses will come from sales these distributors generate not by answering a no name blogger. The entire event was recorded on camera and I am going to put the Q&A part on youtube tomorrow. So as they say watch this space.

Daily SIP - Much Ado About Nothing

Financial tsunami hit the Indian stock market sometime in month of January 2008. Even as share prices started their dive towards the ocean floor, optimism persisted for some time in Indian mutual fund industry. Investment gurus and fund managers predicted a quick recovery and pointed to the southward trip of prices as a buying opportunity. The markets behaved like a monkey on a slippery rope, going up then slipping down. Unlike the monkey in Shakuntala Devi’s puzzles this monkey slipped more than it climbed, until it touched the Mariana Trench sometime near Diwali last year.

By October 2008 investors had become as cold as dark side of moon. Revenue of mutual funds was drying up faster than water table of Delhi. A solution was needed to set cash registers ringing again. And a solution was found. Make that two solutions.

The first route to salvation was an early gift by Mr. Santa Clause. As the risk appetite of investors fell like rock money started moving towards safer government bonds. The central banker worried about the impending death of our glorious economy (which any fund manager worth his salt never stops praising) had started cutting interest rate in the economy. This created an opportunity to make money in bond market. All mutual funds started selling debt and gilt schemes like never before. At the peak of this hysteria every mutual fund was trying to outdo the other by claiming to be the fastest bus (or should I say donkey) to El Dorado. That the investors lost money like they never had it is a subject of another post. I must add that few fund managers like Mr. Shah of ICICI Prudential AMC were able to identify the opportunity to make money by taking interest rate calls well ahead of others. However at the end of the day most investors lost money because they did not get out of the schemes in time (time in the market is more important than timing in the market? Does not look like the case here now does it? Investors please remember that when investing in debt/ bond schemes timing is most important. Time is very important when investing in equity mutual funds)

The second way of getting investors to put their hard earned money into mutual funds at time of such distress was invented by the fledgling Bharti AXA Investment Managers. This company was trying to sell its first equity NFO (New Fund Offer) in the market in the month of September. This was one of the worst times for a new fund house to sell equity NFO. But Bharti AXA had something which the competition did not have, Daily SIP. Daily SIP is just like a monthly or a weekly SIP, but the investment is made daily in the selected scheme. If the reader remembers around same time last year equity market was very volatile, which means it was going up and down very fast and very unpredictably. Daily SIP was touted as volatility killer, and was supposed to give better return than a lowly monthly or weekly SIP. So what has been the result one year down the line? I have summarized the result of investing in Bharti AXA Equity Fund – Monthly SIP and Bharti AXA Equity Fund – Daily SIP in the table given below. Daily SIP has given lower return than monthly SIP.





It is evident that a daily SIP is in no way superior to monthly SIP. Daily SIP is just a sales stunt. The same exercise can be done for other mutual fund schemes for different time horizons. The results will be similar. There is not much difference between a monthly SIP and a daily SIP. The trouble to monitoring a daily SIP is not worth the reward.


Investors should stay clear of shenanigans and tomfoolery of mutual fund companies.


Excel sheet for the above table is stored at google docs and can be accessed here

An Analysis of JM Financial Mutual Fund

JM Financial Mutual Fund is the 17th largest AMC (Asset Management Company). Its total AUM (Assets Under Management) on last working day of October 2009 was approximately Rs 8800 crores (1 crore = 10millions). Over the next few posts I would do an analysis of schemes and investment philosophy of this fund house.

There are 37 mutual fund companies doing business in this country. Many others are lined up to enter the market. For a common investor it becomes very difficult to evaluate a fund house or a scheme. This can happen due to many reasons. I am listing some of them below.

1. A common investor may not be qualified enough to analyze a fund house and mutual fund schemes

2. If she is qualified and has some background of having studied the mathematical tools and financial models required for this type of analysis,  she may not find the time to do it

3. Due to the above two reasons a common retail investors depends upon an expert (like a financial planner, financial advisor, life insurance agent, banker), a magazine or a website, or an expert on TV. However all of them may have their axes to grind and nests to feather. Financial planners, financial advisors, bankers can be lured by AMC through aggressive marketing. After all many AMCs are known to reward advisors and bankers for meeting sales targets by paying them a higher brokerage, gifting white goods, or worse sponsoring trips to flesh pots of South East Asian countries (yes you read correctly). Bankers are known to be prone to sales target and sales pressure which leads to a sub optimal outcome for the investor.

Magazines and websites which claim to be neutral and pro investor draw their sustenance from advertisement revenue generated from mutual fund companies (visit any popular site which rates and analyzes mutual fund schemes and count the number of ads). The so called experts who appear on TV are usually owners of mutual fund magazines and earn their daily bread by writing good things about their paymaster mutual funds (whose bread I eat his song I sing). I recently visited a very popular website on mutual funds. The landing page of the website has an ad by an insurance company (why is this messiah of retail investor and pro mutual fund movement taking money from an insurance company which fleece their customers by charging astronomical fees. Oh, I get it he must be doing it free of cost). The home page has ad by at least 5 mutual funds. A banner on the top advertises a electronics goods company. Then there are ads by Google on the home page. Once inside the site you will also find a matrimonial site selling its wares and other mutual fund companies tom tomming their schemes. I am confused whose bread is this guy eating and whose song is he singing. But then he must have turned senile by appearing too much on TV.

As unfortunate as it may be, you cannot depend upon the majority of people I have listed above for as simple a thing as honest mutual fund advisory.

My aim is to dispassionately analyze schemes of one AMC at a time. Choosing which AMC to begin with was a choice to be made and I asked my random number generator to make this difficult choice for me. Mr. Random Number Generator told me to begin with JM Financial Mutual Fund.

Scope of this analysis is bounded by statistical tools and mathematical finance. I will not give credit to gut feeling the fund managers might have voiced in the past or to their conversations with angles sitting on their shoulders, although both of these affect the performance of the fund and in turn the investors.

Analyzing a fund house performance is a major project and will take time. Your constructive feedback is valuable. Kindly refrain from making remarks of hindsight and passion.

Sandip Sabharwal - Where Art Thou?

Sandip Sabharwal, the 'star' fund manager of JM Financial Mutual Fund has vanished into oblivion. Not much has been heard about this ex poster boy of the Indian mutual fund industry. News channels and print media started discussing Sandip Sabharwal in August 2006, not because of his fund management abilities. His name made an appearance on national television because CBI filed a chargesheet against him for his alleged involvement in a scam when he was working for SBI mutual fund. (Read Dalal Street story here http://www.dalalstreet.biz/2006/08/cbi-chargesheets-sbi-fund-managers-in.html)

CBI in its chargesheet had accused Sandip Sabharwal to be hand in gloves with the Big Bull Keten Parikh. Sandip misused his authority as a SBI Mutual Fund manager to fraudulently approve the proposal for purchase of shares of a shady company called Padmini Technologies. The greedy promoters of this company had changed the name of this company form Padmini Polymers to Padmini Technologies.

By the time chargesheet was filed by CBI in August 2006 against Sandip Sabharwal, he had been lured away by Lotus Mutual Fund, a new entrant in the market. The reason why Sandip Sabharwal moved from an established and respected AMC like SBI to Lotus Mutual Fund was probably the greed of higher salary and ESOPs. Lotus Mutual Fund has since closed its shop and its schemes have been acquired by Religare Mutual Fund.

After the chargesheet was filed against Sandip Sabharwal (a man coming from a respected middle class family. His father was a doctor in the Indian Army) Lotus Mutual Fund dropped him like a hot potato. Sandip Sabharwal career in the Indian mutual fund industry seemed over. However he was dangled a lifeline by none other than Nimesh Kampani (who is a investment banker and a billionaire). Nimesh Kampani hired Sandip Sabharwal to run the show at JM Mutual Fund (which is a second rate Indian asset management company or mutual fund). Since then Nimesh Kampany has also come under the cloud. In January 2009 Andhra Pradesh government issued a lookout notice for alleged defrauding of customers in Nagarjuna Finance Limited. Kampani challenged the Andhra high court ruling in Supreme Court. The honorable Supreme Court dismissed his petition.

Sandip Sabharwal did not mend his naughty ways and continued his punting behavior putting investors' money at risk. JM Mutual fund launched a series on NFO to cash on Sandip Sabharwal's name. The schemes were marketed by paying high commissions to mutual fund brokers. The brokers were lured by foreign trips to places like Bangkok and Pataya in Thailand. Crores of rupees was mobilised on back of such aggressive marketing.

The mutual fund portfolios created by Sandip Sabharwal had no substance. He had thrown caution to the winds. The judgement day came in January 2008 when Indian stocks started taking a beating on back of global financial meltdown. Sandip Sabharwal had nowhere to hide as the NAV (Net Asset Value) of the schemes managed by him started falling like a rock.

One fateful day the name of Sandip Sabharwal disappeared from the rolls of JM Mutual Fund. That name has since then resurfaced in Prabhudas Liladhar Pvt Ltd, a brokerage firm of no great standing in the market. Sandip is an example of the kind of trouble a man is suit is capable of creating. He has lost a great amount of wealth for his investors. The pain is especially more for the retail investor who trusted him.

Sandip Sabharwal has a dishonorable past and he plays with investors' money with gay abandon. It is best for investors to avoid him like plague.

What is Looking Glass

Looking glass is an apparatus used to search the river bed for coins. Similarly this blog attempts to make things related to investments and finance like mutual funds, stocks, insurance etc transparent and easy to understand. The views posted in this blog are my own. This blog is not an advise for investing in any investment vehicle or scheme. The reader is advised to consult a qualified financial advisor before investing.