My investment plans for next FY

The last day of the financial year is normally a good time to take stock on the investments of the year gone by and also to plan for the next FY. For me the current FY investments had gone pretty much as expected. I did not really sell much and, even though there were some redemption, I invested in similar avenues through the year.

There were 3 main issues that characterised my investments of the current FY:-

  1. I invested in several IPOs but got allotted only 3 of these.
  2. A lot of my FMP got redeemed and, unlike other years, this time I invested the principal proceeds in mostly hybrid products – Equity Savings Funds, MIP, Dual Advantage funds etc. I also put some money in Balanced funds. PPF was continued as an investment.
  3. I invested in MF selectively and not as much as I would really have liked to. This was due to the generally rising indices levels. I could have put a lot more money in December than I did – truth be told, I did not anticipate the strong rally from January onward.

So, given this backdrop, what are the investment plans for the next FY? As some of the readers will know my passive income from interest, dividends, house rental are enough to take care of my regular expenses. The expenses for my college going children are quite high but these are catered for separately. My active income from being a Consultant is reasonable – it is probably only about 40 % of what I could potentially earn as a full time CXO, but as I do it with only 20 % of my time, I am quite happy about it. Much of this money is used in equity investing – some for MF and the rest in stocks, IPO or otherwise. The rest is to be used for discretionary expenses, last year we replaced most of our household furniture. This year the plan is to change the laptop and also buy a new desktop. We are also planning a trip to Italy in May.

Finally, without further ado, this is my investment plan for the next FY:-

  • PPF investment of 3 lacs for both me and my wife.
  • Investment in select IPO to the tune of 2 lacs through the year.
  • Investment in stocks to the tune of another 2 – 3 lacs.
  • MF investment of average 40,000 per month, to be bought at the right times.
  • My FMP redemption will be to the tune of 20 lacs or so in this year. I plan to use the capital gains for my expenditure and use the principal for investing in:-
    • Equity Savings fund
    • Balanced funds
    • Monthly Income Plans
    • Arbitrage funds
    • Dual advantage plans
    • Capital protection plans
    • Short term debt funds
    • Gilt funds

A lot of my investments are market linked, so I will look at the Nifty and other indices closely through the year. While stock purchases do not always depend on index levels, I am keen to buy MF only at the right time. If the time does not come I just do not buy, as was the case for much of the first 3 months of 2017.

I am happy with the above plan and just hope that some of the better IPO allotments happen !!

How will the Nifty perform now and in 2017?

As expected the Nifty levels hit a fresh high as a result of the positive sentiments emanating from the election results. The market players like stability and after the results there was renewed FII buying. However, it was not a runaway rally as many had predicted for 2 reasons. Firstly, a lot of the possible BJP victory in UP had already been factored in. Secondly, there are some serious factors which will come into play in the medium term.

So to address the first issue, where does one see the Nifty in the next week or so? Given that the March expiry is next week both transactions and medium term fundamentals will be pertinent. From all technical analysis the Nifty has serious resistance levels at both 9180 and 9220. If it is able to cross both these points then it is likely to rally for a couple of hundred points more. However, in terms of probability that is rather unlikely and like this week, the markets will probably be range bound. On the down side Nifty has strong support at 9050 and again at 8975 levels. In case both of these break there is every possibility of a deeper correction in April. Again, in probabilistic terms this scenario is also not very likely and therefore, we will probably be in a range of 9050 through 9200 for most part in the week.

What about 2017 then? Well, many analysts believe that an overall growth of Nifty by 15-25 % in the year is possible. So, given that we started 2017 at levels of 8000, we should be able to get close to the 10000 mark. As usual, there are many factors that can make this happen or prevent it from happening. Here are some of the key ones.

  • GST implementation from July 1st
  • Monsoon performance and whether the EL Nino effect is a serious one
  • US Fed rate hikes and impact of it on FII buying in our markets
  • Earning growth showing positive signs finally in this FY
  • Infrastructure spending by government to increase in the next 2 years or so

What is my call on the Nifty? Well, I think we may well get close to 10000 by the end of this FY but the path will obviously not be a linear one. There is a possibility of a sharp correction of about 10 % and that may well happen in the months of May and June, especially if the monsoon predictions turn negative and the GDP and IIP numbers show an unexpected decline. The route Nifty will take from 9100 now can well be as follows, though predictions are hazardous : 9100-9250-8700-8500-9000-9400-9200-9500-9700-10000. Each of the ranges may last for several weeks or months. While the route is tough to predict with any real degree of accuracy, I do think Nifty will end with 9700 plus by the end of this FY and may very likely get to 10000.

What does this mean for your investments this year and how should you plan them. Let me get back to this in another post.

Building an MF portfolio in 2017? Try this one

In my last post I had outlined an MF portfolio that can be quite ideal for people who are willing to take some risks for the prospect of significant growth. However, most investors are really not of the type who can take extra risks. Many have told me that being in equity itself entails a certain amount of risk for their investments and they would rather not take any steps that enhance this further.

This post is about a more well rounded MF portfolio for the long term. The idea will be to invest regularly in these funds over a long period of time. Most of my readers know that I dislike SIP a lot, as it is the quintessential wrong way to buy equity. What you will need to do is fix your annual allocation in these funds and put in the money 3-4 times a year, based on the level of the index corresponding to the fund. There are several posts in my blog where you can get more details of the approach and techniques.

The recommended portfolio is again suggested in one CNBC program, though I have made slight changes to it and I do not agree with the SIP mechanism of buying. The funds are as follows with a brief rationale of their selection:-

  1. BSL Frontline Equity fund : A great large cap fund which has stood the test of time. Provides stability of Blue chip stocks to the portfolio.
  2. ICICI Value Discovery fund : An atypical multi cap fund where the focus is on stock selection. Expect it to do really well in Bull markets.
  3. DSP Small and Mid cap fund : With fresh investments in Micro cap fund stopped, this is possibly the best option in this segment. Expect to see volatility but the stock picks of the Fund Manager are mostly successful and long term returns should be worth it.
  4. ICICI Balanced Advantage fund : This is an interesting Balanced fund due to the asset allocation mechanism it follows. Expect fairly stable returns from it.
  5. Reliance Small cap fund : This has been a stellar performer even though the next couple of years may be volatile. Excellent returns are likely over the next 10-15 years.

What kind of returns can you then expect from such a portfolio? Predictions are really hazardous over the long term in equity and for the purposes of planning I do not ever recommend you work with anything more than 12 % XIRR. However, if things go right with the Indian economy, this one can easily give you an XIRR od 18 % plus.

That will of course mean you keep investing regularly as well as buy your units at the right time. Mindless SIP where you put the same amount of monthly money even when markets are at their peak, can only give you sub optimal returns, even with the best of portfolios.

An aggressive MF portfolio for 2017

Last year I had posted a few MF portfolios based on the risk taking ability of individual investors. With the changing political situation in the country, India is likely to be looked at favourably by the FII brigade once more as it offers the best growth possibility among the Emerging market economies. Chinese market offers better valuation right now but the focus is currently on growth and this is provided by India.

If you are an investor who is willing to take some risks in order to get higher rewards, the following MF portfolio may be the right one for you. This is suggested by an Analyst in the TV program of CNBC. The reason I am writing this post is because I agree with the choice of the funds. This portfolio will be specifically suited for goals in the next 10 years or so, though any greater duration will obviously work too.

The funds along with a short reason for selection are as follows:-

  • Birla Sun Life Equity fund : It is a steady large cap fund and has done quite well over the years. This fund provides stability to the portfolio.
  • Kotak Select Focus fund : Great stock picking ability of the fund manager over time.
  • DSP Small & Mid cap Fund : Stellar returns over long period and the potential of such stocks doing well going forward.
  • L & T Infrastructure Fund : Though Infra stocks have been poor performers this is all set to change based on the budget and development agenda. A risk worth taking.
  • ICICI Banking & Financial Services fund : Clear growth industry of the future.

Once again, evaluate your risk taking profile before investing in these funds. However, the rewards can potentially be great and you may reach your goal much sooner than you have planned. If possible, buy these using market levels of Indices but, if you are uncomfortable doing so, do it through the plain vanilla SIP.

I will write a post on another MF portfolio with lower levels of risk soon.

Top B school salaries – What and Why

In one of my posts recently, I had touched upon the issue of salaries in the top IIMs and there were quite a few responses to it. Most of the responses were unfortunately not correct and some of them went the political way rather than a reasoned discussion. In this post let me try and address this issue in a more structured manner.

To begin with my top B schools will be as follows and this post is about these. There are several other good B schools but I am not talking about them here. In order of merit these are IIM ABC, IIML/XLRI/FMS, IIM KI / SP Jain / Bajaj etc. My focus in this post will be for IIM ABC as they are really what we are talking about.

So what companies come to these institutions and what salaries do they offer? Firstly we need to understand that there are several companies, specifically in the areas of Consulting and Investment banking to name a few, that come only to specific institutes and not to others. So if one is looking at an initial job in Boston Consulting Group ( BCG ) then it is almost impossible to get through unless you are in these institutes. Some companies like Accenture do go to several other Technology and Management institutes but they look for a different profile there and not Strategy roles.

Secondly, the top IIMs and other B schools get most of the top companies in the different areas. These companies come here for they are absolutely clear they will not get such quality of people anywhere else. If you look at the recruiters from these top companies, many of them have been Alumni of these institutes themselves, so it is very natural for them to pick people from their Alma Mater.

Thirdly for the people who debate as to whether a general candidate from a top IIM is actually one of the best that the country has, let me state what it really takes to get into a top IIM today:-

  • 95 % and above in X and XII board exams. These are normalised in case of IIM B, so getting 99 % etc in a weaker board will not help.
  • CGPA of 8 and above from a good Engineering college, 9 plus will be more like it.
  • 99.5 percentile and above in CAT. About 2 lac people take the exam so you will need to be in the top 1000 people.

The above is just to get a call, and rejection rates after that is also 80 % and more. So you can easily understand what we are talking about here.

So, given all this what are the salaries offered there? Let me give some data points rather than go by isolated figures:-

  • At the topmost tier will be jobs outside India where we get to hear of crores of Rs as salaries. These are very few in numbers and can be only secured by the top few people in every year. For all practical purposes these are statistical anomalies.
  • Highest domestic salaries are typically in the range of 50-60 lacs nowadays.
  • Average salaries are in the range of 20 lacs plus.
  • Median salaries are also in the range of 20 lacs plus – this means half the students in any batch ( 240 out of 480 ) get this salary.
  • The minimum salaries are still in the range of 10 lacs plus and this is normally for people in the reserved categories – even for these people the change in them is quite extraordinary once they go through the 2 year program.

Are these salaries justified? Well, ultimately all salaries are based on market demand and supply, so companies pay for the skills and potential of the people they are taking. The debate about others not getting the same salaries even after several years is not logical. An IT developer with 5 years experience will probably get about 10 lacs but the pressure and accountability he has to face in the job is significantly less compared to an MBA in the first 2 years of his career.

So if you are in the first 2-3 years of your working life and looking for doing something different, you can consider this as an option. Of course, you will need to be really good to get through a top B school.

In today’s India I do not think there are any better opportunities than this.

Is a B school education worth it?

March is that time of the year when B school fever is at it’s peak. Most of them have had their placement season’s, leaving some outgoing students ecstatic and others rather forlorn with the job options they have landed. Throughout the country, a lot of activities are going on with the new admissions. Finally, the first year students are looking forward to the summer internships – their first exposure to significant money in corporate world.

To several students and their parents, B school education is like a holy grail that promises a lucrative career like nothing else does. The type of admission seekers we have to the B schools can be roughly divided into the following categories:-

  1. Students just graduating from college who are looking forward to earning more qualifications that will lead to better job options.
  2. Young people in the first 1-2 years of their careers and not liking it much.
  3. People in their careers for 4 plus years who are not able to see much career growth in the future – this is especially true for IT professionals.

If we simply go by available data then there is no doubt that an MBA degree from a B school of pedigree will definitely help in terms of getting the kind of initial breaks like no other alternative. People in all 3 categories listed above will see significant benefits to their careers and exceptions are rarely there. However, there are a few caveats which these people will need to keep in mind:-

  1. Selection of the right set of B schools and your ability to get into one of these are important considerations. Remember, the top 20-30 B schools will give wings to your career, the rest may not be so hot.
  2. Irrespective of which B school you get admitted to, you have to evolve as a professional manager and present yourself well in corporate life, both at the time of interviews as well as thereafter.
  3. Learning is a lifelong activity, a good B school will set you on the path but you have to traverse it through your career.

So if we broadly agree on the efficacy of doing an MBA from a leading B school, the question is where do you do it from? Let me try to answer it by a ranking hierarchy I have for the B schools when I advise students and others who seek my counsel.

  • IIM Ahmedabad, IIM Bangalore, IIM Calcutta.
  • IIM Lucknow, XLRI, FMS
  • IIM Kozhikode, IIM Indore, SP Jain, MDI, IIFT
  • IIT B schools, IIM Shillong, Other IIM’s
  • Newest IIM’s, Good private B schools

If you are able to get your MBA done from any of these you should be fine. Any other places can also be OK but then you are depending more on your ability as an individual to do well and not so much on the institution’s brand power to get you started.

How much will all this cost? Well, the figures can range from 10 lacs to 25 lacs for a 2 year education. FMS is the cheapest among the lot and XLRI is currently the most expensive. Fortunately, this is not too much of a problem as there are many banks which will give you loans covering the entire cost of education. The pay back will really not be a problem even if you are able to get a reasonable paying job and, for most people, the loan can be squared off in the first 3 years of their careers or so.

How much does one earn? The range can be quite wide and is obviously depend on which B school are you from. For the top B schools an average or median salary can be around 20 lacs per year in India. The highest domestic salaries can go upto 50 lacs or so and the salaries outside India can be 1 crore and above. More importantly, even the lowest salaries in a good B school will rarely be less than 10 lacs a year.

So, if you have the aptitude and the ability to get into one of the top notch B schools of the country, it is always a good idea to try for it. Remember, it is hugely competitive and ,unless you are blessed with the benefit of reservation, the elimination process is rather brutal. I was just in an IIMC panel the other day and we could recommend only 3 out of the 20 general category candidates we interviewed. This was after all of them had scored more than 99.5 percentile in CAT.

But that is life for you – to get the best you have to be the best too, more often than not.