My year end investment audit for 2018

Every year I try to take stock of my life and my finances on the last day of the year. It serves two major purposes – firstly, it shows me where I am and what do I need to do in order to get to my desired state and secondly, it gives me an idea as to whether I am doing the right things by my money. 

Any way we look at it, 2018 was a bad year from a financial or investment viewpoint. In the beginning it had not appeared so, especially after the stellar 2017 we had for our markets. January was a good month, corporate earning was looking like turning the corner and politics was largely stable, BJP having won Gujarat despite some hiccups. It was unfortunately to go wrong very soon, the first blow being the equity taxation in the budget. This has been talked about in every budget over the past few years but the markets clearly did not think it would actually happen. Once it did a domino effect of bad news and sentiment followed which has damaged equity portfolios through the year. I will not go into a detailed commentary here but crude oil prices, withdrawal of FII money, BJP losing Karnataka and then the Hindi heartland states, corporate earning being rather flat all played a role to ensure that our markets did very poorly. Even when there was some recovery, it was seen only in the large cap stocks, the mid caps and the small caps have been battered out of shape.

The news was not much better on the Debt front either. The ILFS fiasco affected several debt funds poorly and the returns for this year will be well below par. Short term accrual funds, normally considered the safest bets, also had fairly bad cuts. Redemption from debt funds was sustained over the year and the fund houses were saved by the continuing SIP inflow into equity MF schemes. So, while it was good to see that the Indian retail investor had gained some financial maturity, from a portfolio return perspective there were hardly any financial instruments that you could rely on.

With this backdrop, let us see how my investments have done in 2018 :-

  • My direct stock portfolio suffered in a big way early on, recovered somewhat in July/August period and then went down after that. The large cap stocks are not doing badly now but the mid cap and small caps have tanked quite a bit. On the whole the portfolio would have hardly made any returns after adjusting for inflation, I suspect there may be some losses too.
  • Similarly my Equity MF portfolio has suffered too, more in the mid cap and small cap space while holding on in the large cap space.
  • Thankfully, since both of these portfolios are long term, they are still doing well in the overall sense. Also, given the fact that I do not really have any need to redeem any of my investments, I can wait and hope for things to turn around.
  • The markets and stocks tanking also presented a buying opportunity. I have started a secondary portfolio of stocks which I want to run for 10 years. My plan is to invest about 10 lacs in it and so far I have done about 7 lacs. There are some posts in my blog on this and you can go through those for more details.
  • I do have a few open ended debt funds and they have not done well. During the year some of my FMP schemes had matured and I invested the principal amounts into hybrid schemes such as Balanced funds and Equity Savings funds.
  • My fixed income instruments were the savior for 2018. The Tax free bonds, InvIT funds, PPF, POMIS performed as expected and generated the expected cash flows.
  • With the rise of the US Dollar, I sold off some Dollars that I had over the years. I used this money to kick start my secondary stock portfolio.
  • I also received the maturity proceeds of an old LIC policy and this was also used in my secondary stock portfolio.

So what is the overall verdict? This was a year of bad returns and high expenditure due to our travels which included trips to Bali and Mauritius. As I said in yesterday’s post my active income was also not as expected. Despite all of these issues, my cash flows were comfortable and I was even able to invest in a secondary stock portfolio. This gives me the confidence that my asset base is capable of supporting my financial independent state with some leeway. Hopefully next year will get better and the asset base will increase to an even more comfortable state.

What are my cash flow plans for 2019 and how will I plan to invest next year? These will be the subjects of my next 2 posts.

Wishing all my readers a very happy and successful 2019.

 

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2018 in perspective – life and finances

What with one thing and another, I have not written any blog post for quite a while now. At such times, when I feel lazy to pen down something, it is invariably the responses from the readers that gets me going again. Human ego is an amazing thing and just the feeling there are enough people to read your post is itself quite gratifying in many ways!!

2018 has been a very interesting year and I was looking at it in different perspectives in the last week. As I have written in several of my blog posts, one must look at life events and lifestyle choices in a holistic manner and plan for them – finance is a way to support these events and choices, so it necessarily plays a supporting role and not a determining one. In simpler words, availability of money and investing for the same is important but the key issue is what you are needing it for. It is this need for money that is unique to each individual, yet we often disregard this fundamental aspect. Viewed in this context, it makes sense to review the major life situations first and then look at the finances next.

To begin with, professionally the year was not really a very satisfying one for me. I had begun an assignment with an SME company under certain understanding but the owner of the company did not stick to his part of the deal. While I am sure these things happen from time to time, it was a first for me and to that extent a disappointing experience. A good learning will be to choose engagements more carefully next year. In terms of the venture idea I have been toying with, I did manage to get some ideas formulated and it is in a good spot to move ahead now, lot to be done next year. Overall though, both in terms of the activities and active income generation the year was not as good as I had hoped it would be.

On the personal front however, a lot of good things happened in 2018 and it was probably one of the best years for our family. At our stage in life a lot gets defined by how well the children are doing and this year both of them have excelled in their careers. My daughter Rinki completed her MBA from XLRI and has joined a company of her choice, where she is doing rather well. My son Ronju is in his last internship as part of his course work in BITS and he has already got a job offer. In effect, both of them are financially independent and do not need my financial support any longer. As a family, we were also staying together after a long time as both my children worked in Hyderabad for the past few months. 

Travel has been a constant theme for both Lipi and me, this year was no different. We started off with a trip to Khajuraho in February, went to Goa for a week in March with our children, visited Purulia in West Bengal for two short trips, had a family vacation to Bali in May, celebrated our silver anniversary with a Mauritius trip in September and wound up the year with an absolutely delightful trip to MP in December. As you can well imagine, all of this were rather expensive and my travel budget shot through the roof. Be that as it may, all the travel was great fun and I will do it again if I get half the chance !!

On that note, let me transition to my finances for the year. Despite my relative shortfall in active income, the cushion I had with my passive income was good enough for all my expenditure. The bulk of my cash inflows came from the below sources :-

  • Interest from Tax free bonds, InvIT funds and POMIS.
  • Dividends from Stocks and Equity Mutual funds.
  • Capital Gains made through maturity of FMP schemes.
  • Maturity proceeds of an LIC policy.
  • Rental income from my Chennai apartment.

Of course, there were other passive income such as from PPF and Debt funds but I have just let them grow as usual. Unless absolutely needed I do not want to utilize any of these for the next decade or so. For this year my passive income from part of my portfolio was enough to take care of my expenses with enhanced travel and even let me do some new investments in a secondary portfolio of stocks.

So far so good then, but what about the 2019 plans and beyond? Well, let me write about it in my next post.

Society, Economy, Politics -how will markets react now ?

India of 2018 is a very interesting case study of contradictions in many ways. We have a government that was taken to be long term, at least till 2024, but with the election results this week it is clearly under siege. We have an opposition buoyed and flush with the recent electoral success but pulling in too many directions that may militate against it mounting an effective challenge. We are the fastest growing large economy in the world but our GDP growth rate is again under pressure. With so many things happening in the society, economy and politics, how are our markets likely to react?

Let us take society first – it is easy to see that we live in deeply divided times. The fault lines between different parts of our society is very clear. In terms of religion, the division is wide among Hindus and Muslims with both feeling they are hard done by. The non decision by the courts on the Ram temple issue has clearly caused a deeper divide and is like a festering wound that is now taking a heavy toll on communal harmony. The cow slaughter issue is central to a lot of disharmony and is not being handled properly by the governments. People today lack faith in law and order and are increasing taking the law into their own hands as evidenced by the spate of lynchings across the country, the latest being the sad death of a policeman. Religion is only one side of the coin though, caste is the other. Even today the dalits are treated atrociously in India and that is a great shame. As they get better educated and relatively improve their economic state, they are becoming more assertive, obviously to the chagrin of the upper castes. In general the society is also high on aspiration, education and jobs being the prime drivers. Sadly there is a clear disconnect between them and a lot of educated youth are not finding any avenues to use that education. Changes must be brought through an entrepreneurial revolution but even with government financing the success here is mixed as yet. This is leading to increased demand of more and more reservations, which obviously is not a solution. The societal disparities are also staggering and while the overall per-capita income and living standards rise have reduced poverty, the difference in how the various classes of society lives is mind boggling. All of these create a society in constant tension, reflected by so many unsavory incidents we get to hear of almost daily.

Coming to the economy, agrarian distress is definitely a cause for great concern. A lot of people even today depend on agriculture in our country and the reality is it is virtually impossible to make a living out of it, unless things are changed drastically. Elimination of middlemen and focusing on streamlining of the supply chain is the need of the hour but the vested interests are way too strong for it to get done easily. The focus therefore wrongly shifts to loan waivers which is akin to applying balm when you really need surgery. GST has been a much needed tax reform but the implications of it are that people need to pay taxes honestly after declaring their incomes – again something that most Indians are wont to do. It has to be accepted now that demonetization had a lot of short term pain for the economy and people, it unfortunately was also not followed up properly to get the tax windfall that was quite possible to achieve. Our GDP growth could easily have hit 8 % but for this step and the country is paying a heavy price for it. The tax system has really had no reforms other than the GST and compliance, though improved, have not really led to any game changing tax collection buoyancy. Finally, corporate earnings are still languishing and do not enthuse the markets. So if you had to evaluate the overall economy over the last 4 years, you will probably see a lot of long term initiatives but no great short term performance.

What of politics then? Well, about a year back BJP pretty much ruled most of India and it was a foregone conclusion that they will come back to power in 2019. However, the scene has changed rather dramatically in the last few months culminating in the Congress win of 3 states. BJP or NDA might still come back to power but it will be a tough battle and one they may well lose too. In democracy that is not an issue but the two opposing sides are so bitterly opposed to each other that any change of government will create a fair bit of upheaval throughout the country. Turbulent times ahead as the opposition will seek to hammer home the advantage they have got and BJP will try to take initiatives to win back the goodwill of people.

How will the markets take in all this? To begin with the markets have taken the BJP losses rather well as they were probably factored in. Over the last year the indices have not really gone anywhere, the mid caps and the small caps having taken the biggest hits. FII participation has been lukewarm at best and looks to continue in the same vein with other markets looking more attractive than India. SIP money coming in regularly into the markets courtesy retail participation has been a saving grace for the markets this year and this may well continue. As I see it the markets will take a pause for now and Nifty will be range bound between 10400 and 10800, maybe touching 11000 on the upper end. By the time we get into the budget exercise the markets will react one way or the other. BJP will be forced to take populist measures and this may cause markets to react negatively. My sense is that Nifty can get down to 9500 or so at the lower end and is unlikely to cross 11000 at the upper end. This will hold true till May, unless the budget is significantly positive for corporate India. The other aspect is of course the annual results and earning growth which is unlikely to be very enthusing. Beyond the May 2019 elections, markets will rise as long as there is a stable government.

So what should you do about your investments then? I will write about it in the next post.