Should I invest in stocks now?

Well, this is the thought I’m trying to answer myself now-a-days, looking at the mirror every morning

First question: Why is the economy slowing down? Well, my one line answer to it – it’s the fear among people that’s slowing down the economy, rather than the virus itself. I’m not going to write about these things and “hows” and “whys” related to it (there are ample amount of media articles floating in the internet), but I’ll come straight to the point

Should I invest in stocks now? How should I invest?

In my opinion, this is the right time to review my investment portfolio and evaluate the stocks I always wanted to invest in

  1. I’ll choose stocks across sectors. Warren Buffet says, “One should never put all one’s eggs in one basket”. This is a golden rule now. I’ll read about the sector(s) before I invest in it. I should be able to gauge “Why would this sector do well?” I always choose that sector which is going to grow for the next 5 years. (i) Research reports, (ii) Analyst reports, (iii) investors say about the sector, (iv) what Mutual Fund Managers are investing in, etc. can be a good start to understand the chosen sector
  2. Large-cap stocks / blue chip companies across sectors are the ones for me now. I’ve been eyeing such stocks for a long time, but didn’t invest in them because they were expensive. Now is the time these stocks gives me the opportunity to earn profits
  3. If I’m fearful of losing money, I’d invest in staggered fashion. For example, if I want to invest INR 1,00,000 in a banking stock, for example, I’d invest in it in a equated installment, say INR 25,000, over a four-month period, or INR 12,500 every 15 days till I reach INR 1,00,000. In this way, I invest through the ups and downs of the stock market
  4. I keep a “sell” target before I buy a stock. I hold the stock for a period and book profits once it reaches its target price. I keep a variation of 15% in the absolute price
  5. I’d start small, if I’m new to an industry. To make a safe bet, I’ll capitalize on the expertise of a Mutual Fund Manager, who invest in my chosen sector, and see how the return came up for him/her in the last 5 years. I’ll, then, try my hands on the direct equity route
  6. I invest in a stock for at least 3 years. Equity is not for short-term investment (one year or less), nor is it for parking the money
  7. I do not borrow money from individuals or financial institution(s) to invest in stocks. While sophisticated investors do so, I recommend retail investors to stay away from such a strategy, even if there is substantial upside in stocks. I’d liquidate my term deposits and invests in stocks

In a nutshell, I’m holding cash to explore how the market volatility turns up. I know many Fund Managers who are waiting to see how low the stock markets go, so that they can buy good stocks at cheaper price. If you are a first time investor in direct equity, taking the expertise of a good fund manager, by investing through 100% equity mutual funds, is a great way to learn the fundamentals of equity investing and achieve long-term capital appreciation.

Warren Buffet says, “Fearful when others are greedy and greedy when others are fearful.” This is the time to realize this statement. Fingers crossed!


Why should you consider Singapore for your company registration?

singaporeLast week, one of my e-Commerce Clients in the B2C segment asked me this question: “Where can I register my company, other than in India? Is Singapore a good option?”

This is a common question every Indian startup Entrepreneur explores, keeping in the mind the FDI and taxation policies that Indian government has. So, let’s take a close look at why you should consider Singapore as your destination while exploring foreign company registration

FDI Policy

The Government of India recently introduced Foreign Direct Investment (FDI) policy did not permit FDI in the multi-branded retail (B2C segment). As such, foreign venture capitalists have restrictions while funding an Indian online retail operation.

Take the example of Flipkart, India’s largest e-commerce private company. When the Indian Government turned down the proposal for allowing FDI in the retail sector, investors of Flipkart were left with 2 options: (i) sell the company at the best price or (ii) sell the risky part of the business (logistics and delivery) and move the profitable part to a country with more relaxed regulations. It’s very obvious for the Bansals (Sachin Bansal and Binny Bansal, the Co-founders of Flipkart) to agree to the second option; they registered their company in Singapore. Flipkart’s investors now can infuse the capital in the parent company, and can direct the funds to its India arm

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Demonetization in India: The Bigger Picture

demonetizeDemonetization is a buzzword in India today; tune in to an India news and I will probably hear the word “demonetization” about a 100 times in 15 minutes, followed by rumors, comments and suggestions. So, today, in this article, I’m presenting my views on this topic and trying to portray a bigger picture in front of you by dwelling a little bit into the history of India. I welcome your views and thoughts on it.

4 decades ago, in 1969, Mrs. Indira Gandhi, the then Prime Minister of India, indiragandhidecided to nationalize the Indian private banks. Following this move, critics attacked her, calling her approach pro-poor and anti-rich. When the after-effects, similar to today’s cash crunch, erupted after the bank nationalization move, critics criticized her, saying bank nationalization should have been planned better; bank nationalization should have been restructured to have one/two central banks and several regional banks.

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Leveraged Buyout (LBO): Economics and Return Analysis

EconomicsIn this part, the Part 4 of my article on LBO, I’m going to run you through its economics – the metrics used to judge an LBO candidate and how it generates returns. But before reading further, you may want to take a glimpse of my previous articles on LBO through the following links so that we’re on the same page.

Part1: Leveraged Buyout – An Overview

Part2: Leveraged Buyout – What Makes a Strong LBO Candidate?

Part3: Leveraged Buyout – Key Participants

Metrics Used To Judge An LBO Candidate

There are two metrics that defines the attractiveness of an LBO candidate – (1) Internal Rate of Return (IRR), and (2) Cash Returns.

IRR is the primary metric that measures the total return on the sponsor’s equity investment (which includes additional capital infused or dividends received) during the investment period. For everybody’s benefit, an IRR is the discount rate at which NPV of all the cash flows (inflow and outflow) becomes zero.

The drivers that affect IRR are:

  • target’s financial performance
  • acquisition price
  • financing structure, especially the equity contribution made
  • exit multiple, and
  • holding period.

As mentioned in my first article – LBO: An Overview –, a sponsor seeks a minimum of 20% return on their investment over their holding period of five years. So, it’s obvious (looking at the drivers of IRR) that minimizing the equity contribution and acquisition price, while exiting at a higher valuation by boosting the financial performance of the target, fetches handsome returns.

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Leveraged Buyout (LBO): Key Participants

ParticipantToday, let’s discuss the key participants involved in an LBO transaction and the role they play in leading the LBO to its success. But before proceeding further, you may want to take a glance at the following parts that highlight my previous write-ups on LBO.

Part1: Leveraged Buyout: An Overview

Part2: Leveraged Buyout: What makes a Strong LBO Candidate?

I’ll start this article with the financial sponsors and investment bankers, and offer insights in detail, followed by a note on investors and target’s management. As you read through it, you will unearth each of the stakeholder’s activities and how they look at the transaction. You will also discover that the sponsor, I-Banker and target management drive the deal.

(1) Financial Sponsors are the private equity firms (PE), merchant banking divisions of investment banks, hedge funds, venture capital (VC) funds and special purpose acquisition companies (SPACs). PE firms, hedge funds, and VC funds raise majority of their investment capital from third-party investors such as pension funds, insurance companies, endowments and wealthy families / individuals (also known as HNI).

This raised capital is organized into funds that are usually established as limited partnerships, in which the General Partner (GP) – the sponsor – manages the day-to-day activities of the fund and are compensated with 1-2% of the committed fund as management fee, besides 20% “carry” on the investment profit.

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Cost Cutting: A Case Study

CostCuttingThis is an extension of my previous article on cost cutting. I thought of publishing it to offer my insights on how I arrived at the precautions (in my previous article), especially the three of the four thoughts I presented under “Precautions”. I’ve also provided the hyperlink to each of these two articles so that readers can easily steer and read them one after the other. Read my previous article on “Cost Cutting: Steps, Strategies and Precautions” here.

Precaution #1: If the CEO is not leading the project, it’s not worth pursuing it

In the past 2 years, I have helped organizations (up to US$ 50 million) improve performance, execute growth strategy and maximize their business value. In one of my assignments in India, I had the opportunity to serve one of my clients in the IT sector which had concerns with declining sales and operating margins. The President and CEO of this $33 million organization made a strategic move to expand their business to cloud computing, focusing on SME, USA. He made a directive to his Finance Manger to lead the cost cutting initiative and give him the updates on the progress such that he can concentrate on his business expansion project. Unfortunately, the Finance Head resigned to pursue opportunities outside the company, thereby forcing the Owner, President and CEO to delegate the cost-cutting project to his oldest employee, the next Finance Head. Being new to the job, the new Finance Head showed enthusiasm, commanding his team to meet the expectations of his new boss. But he committed mistakes on various lines, leading to a situation which the entire organization suffered.

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Leveraged Buyout: What Makes A Strong LBO Candidate?

In this article, I’ll discuss the characteristics that define a strong LBO candidate, but before proceeding further, you may want to review my previous article on “Leveraged Buyout: An Overview”.

During the due diligence process, the financial sponsor evaluates the characteristics of an LBO candidate (including its strengths and risks). Most of the time, an LBO candidate will be one or combination of the following, but irrespective of the situation, the target becomes a LBO opportunity only if it can be acquired at a price and using a financing structure that generates acceptable returns with a viable exit strategy.

  • Non-core or under-performing business unit of a large enterprise
  • Distressed company with a turnaround potential
  • A public company that is perceived as undervalued
  • A public company that is considered as a high growth potential but not being exploited by its current management
  • A solid performing company with a compelling business model, defensible competitive position and strong growth potential. This may also tally with the above point
  • Companies in fragmented markets that can be consolidated into a single entity with higher size, scale and efficiency. This is called roll-up strategy.

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