Cryptocurrency

Cryptocurrencies - Investor’s Dilemma  !!!

Since last 2 years either everyday or alternate day you see an article on Cryporcurrenies in one of the leading business newspapers, discussion about it on news channels and people talking about it being the future who hardly know about the same. Many people have invested considering they are investing in Blockchain technology. Many people have now invested their savings in various Cryptocurrencies and high fluctuations have bought them into Dilemma - have they invested rightly or not, is their investment safe ? I will try to address most of these questions in this article.

Current Scenario of Cryptocurrencies:

There are more than over a thousand Cryptocurrencies active globally. The total market capitalization of all the crypto currencies has reached $500BN in December 2017 (equivalent to daily turover of Currency Markets Globally), a 10x increase in just 12 months. The top 5 traded being Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin. NEO, Stellar, EOS and Dash are other few most traded Cryptocurrencies.

(Source: https://coinmarketcap.com/ )

I believe that the following factors to be understood for taking a call on Cryptocurrency Investment:

1. Cryptocurrencies use as Currency/ Mode of Transaction: The objective of any currency is that it must be used as mode of transaction/ payment. This is the biggest challenge for the growth of Cryptocurrencies, with the presence of central currencies of each Country and organised market for equivalence of currencies of other countries , the change of mode of transaction from normal currency to digital currency is very tough. The objective of the currency is to be used for mode of transaction and not trading, Cryptocurrencies are traders and speculators favourite. There are green spots where few countries have allowed to transact with the use of Cryptocurrencies with the equivalence of the local currency- the challenge here is the volatility in Cryptocurrency , a trader sells a TV for X Bitcoin on 23.2.2018 and on 24.2.2018 the currency is down by 15% and vice versa. A person who has X Bitcoin on 23.2.2018 can buy 1 car from the same but if the markets go up within a week , he may buy 2 cars in same Bitcoins. So even if the governments will all the transactions the Cryptocurrencies will not be used widely.

2. Underlying Asset into Investment : There are various investment options available in the market from Physical Assets like Real Estate, Precious Gems, Metals, Crude, Commodities, Energy, Liquor, Forex, Stock Markets and so on - the common in all is an underlying asset which determines the value of the asset. In case of the market price being even zero you still have the asset with you. In Cryptocurrencies there is no underlying asset, each Cryptocurrency have a cap of the currency to be issued in life time. The price is purely based on trading of the Cryptocurrencies, no underlying asset, which make the investment highly risky. Even as there is no use of Cryptocurrency it become difficult to do a valuation of them, the trend of trading is the only data avalable for analysis.

3. Volatility : The Cryptocurrencies are very sensitive to information  and the volatility is high. Which can be learnt from the price volatility of the highest traded Cryptocurrency Bitcoin. To understand further i have taken data from the Cryptocurrencies Index - CCI30 (this is an index of the 30 most traded Cryptocurrencies and these 30 have market cap of more than 90%). The below data explains it all. In just 2 months Bitcoin value have come down more than 50%. Investors must be prepared for such volatility.

Index Real Time (23.2.2018)	10,157.10
52 Week High	20,796.64
52 Week Low	365.22

4. Legality : This is a big confusion when it comes to Cryptocurrencies. They are not considered as legal tender in any country of the world. The central banks of majority of the countries have raised a red flag against the Cryptocurrencies. No country will allow the Cryptocurrency to be a legal tener when the Currency issues by the the country is in place for very strong reasons. Few countries have allowed to be used to buy or sell products or services, but it is very limited. The Indian Finance Minister during the Budget speech also raise a stern warning recently. The Cryptocurrency is not issued by the Central Banks so they cannot even control them.

5. Taxation : As majority of the countries do not consider Cryptocurrencies as Legal Tender, there is also confusion on the taxation applicable to the investments in Cryptocurrencies. They consider it as an instrument which is being traded and majority countries have imposed Capital Gains of the same. The Capital Gains are from 10% -40% in various countries. In India the Government have not yet taken a call on the taxation of Cryptocurrencies but it is rumored that the tax will be 30% of Cryptocurrencies.

Hope this article will help you to take an informed and logical decision on investing in Cryptocurrencies. Would like to end with a famous quote of Great Warren Buffet:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

You can reach the author on japan@jmsadvisory.in/ Twitter - @japanshah

Private Banks- An Market Overview

Indian Equity Markets are on a dream run and just climbing the hill, discovering new heights from one session to another one. The investors both domestic and international seem to have lot of faith in the Indian Equity Markets and are buying the Indian Growth Story. We have as a nation also gone through some historic changes-Demonetization and GST being the pioneer of those changes.

The current government have been focusing their policies on pro poor and middle class, aspiring youth, re energizing the sick units, infrastructure development, housing for all, power for all, healthcare affordability, focus on skill development and many other positives.

In all this noise , they are swiftly working on merging of PSU banks and NPA reduction of Indian Banking System with some good regulations. The banks have a big NPA of the UPA 2 regime due to many projects not taking off, Coal Scam and many infrastructure projects been stuck due to bureaucratic issues. This government have actively been working on resolving the said issues and we can see improvement in Asset Quality of the leading banks.

The private banks in India have always been conservative and strict in their credit policy and result of which they have a very healthy balance sheet. They have quality assets and they have seen realizations coming in from stressed sectors. The private banks are the most to benefit from the steps taken by government. With the growth coming back in economy and business growing, we can see huge growth in banking transactions. The demonetization and digitization push will be benefiting the private banks as they have already invested in the technology and have the infrastructure required. Also they are aggressive in the same, Kotak Bank's 811 is an ideal example of the same.

The private banks have given an average of 80% of returns since last 3 years.

Bank Nifty	1 Year	3 years
Return	26.90%	65.20%

Bank Name	Market Cap (in Cr.)	No of Branches	Employee	NPA	Return in 1 year	3 years
YES Bank	71605.92	1000	20215	1%	33.87%	194.15%
Indusind Bank	94211.53	1200	25314	1%	41.12%	191.79%
DCB Bank	6216.95	262	4979	1%	92.17%	152.69%
Kotak Bank	185972	1369	44000	1%	25.18%	124.24%
HDFC Bank	431161.22	4520	87555	1%	40%	103%
Axis Bank	122986.5	3304	56617	2%	-8.38%	35.20%
ICICI Bank	191080	4850	81129	5%	22.22%	17.61%
AU Bank	16991.1	300	NA	NA	90%	NA
RBL Bank	20384.56	239	4902	1%	80.84%	NA

What can be learnt that the smaller banks have been able to outperform the big private bank, HDFC is the only big private bank to give 100% plus returns in 3 years. The smaller banks have added branches at double the pace of large private banks. Their asset quality is also good as they do not get into big ticket loans. Indusind Bank, Yes Bank, Kotak Bank and ICICI Bank are expected to outperform their competitors in the coming years. DCB, RBL and AU Finance can be the next multi baggers in coming decade.

India has the largest young population in the world, if we understand they will be the highest working, earning and spending population. This age group is educated and will have access to all the banking services and will also use most of all the services offered. This will take banking to next level and will have more digital transactions, less physical presence- which will hugely impact the profitability and reduction in cost.

The investors have been turning away from FMCG, Pharma and IT due to muted or slow growth of sub 10%, the FII and DII are investing huge in the private banks as there is the potential to grow 20-25% YoY. The private banks are yet to move aggressively in Tier II and Tier III towns, these are majorly having huge PSU Bank presence.

I personally strongly believe that these banks can give best returns in the coming decade.

Sensex @ 90,000+ in 2020...

The Indian equity markets have already give more than 20% in just 3 months of the newly elected Modi government. The Modi government is bringing fresh interest of overseas investors in India, with a strong mandate and a stable government, it is expected that the decisions will be faster and there will be focused approach to development in areas of Manufacturing, infrastructure , ports , power sector, education and healthcare.

The world has started to come closer to India. Japan, China, Vietnam, Russia, UK, Australia and even the US, every country wants special relations with India. US recently decided to send an Indian as an ambassador to India. With billion dollars of investments already announced by these countries in India, the GDP is set to break the double digit figures soon and is expected to stay in the range above.

The global investors confidence has increased in India , which is evident with the FII flow in the last 3 months of Modi government. The Indian retail investor is yet to participate.

The million dollar question is where will the Sensex end ? Few have already started estimating it at 100000 in 2020, few speculating 50000 in 2016, but is there enough steam in the Indian indices, can it really reach at these levels ?

The answer is YES it can, i did a small analysis of the returns given by BSE SENSEX, NSE NIFTY since 1990. Indian equity markets have a small history, so have also studied the returns given by the DOW JONES INDUSTRIAL AVERAGE INDEX since 1920, and the results are astonishing as below:

RETURN OF DOW JONES INDUSTRIAL AVERAGE

Year	DOW JONES	Absolute Return (%)
1920	100	Base Index
1940	150	150%
1960	680	453.33%
1980	1000	147%
1990	3000	300%
2000	11500	383.33%

Avergare Return Till Date:

287%

If we assume the average return DOW JONES will be around 33,000 in 2020.

RETURN OF NSE NIFTY 50

Year	Nifty	Return (%)
1994	1000	Base
2000	2100	210%
2010	6200	295.23%

If on a conservative basis we take the average return of NSE NIFTY, it will be 18,400 in 2020.

RETURN OF BSE SENSEX

Year	SENSEX	Returns (%)
1990	1000	Base Index
2000	6000	600%
2010	20000	333.33%

On a conservative basis , with the average return, SENSEX will be around 90,000 in 2020.

India is best placed as an economy and stable government as compared to the period between year 2000-2010, the markets can be in the best of the bull phases of Indian history. 

Investing in right sectors and right stocks will surely give the best returns, start investing. 

How to invest in High Markets ?

As the equity market is touching new highs there are more and more people who are finding themselves interested in the markets. The obvious reason behind this new interest is the amount of returns that other people are getting from the markets and the temptation getting buildup in the mind of others who are not getting the same. This is not a new thing every time the market goes up there are people who come in. They are the ones who become the buyers for those who are already in. These new buyers buy shares at high prices and when they go to sell these shares there is no one to buy these shares, Result? Markest crashes. These new people in such cases get out and book losses. These are the only people who spread a bad word for the market and start saying that the market is a gamble. If you are entering the market like these people please read ahead.
Markets are still very highly valued. So the possibilities of market crash are higher. So if you are planning to invest at these levels study the stock well first. But frankly it is not possible for everyone. so there are two way outs.

1)Intra day trading: Many people think it as a gamble. But it is not so. In case of gamble there is no logic for winning. but in trading there are many logical considerations if you understand at least a few of them you can find out the best stock for that day put your money on it. The best thing for intraday is that you can buy up to 15 times of your actual capacity(depending upon the margin provided by you broker) whereas in case of delivery based you can buy only as much as the funds available with you. So in intraday trading your broker invests more money on your behalf hence you are liable to pay only the loss if the same occurs if your call is correct and you gain, you are not required to pay even a singly paisa on the contrary the market pays you the entire profit. Another best thing about the Intra day trading is that you can sell the shares first and buy them in the evening. This is commonly called as shortselling, which is not allowed for Delivery basis. Again there are some other benefits like less brokerage etc.
Only drawback of intra day trading is that you have to give a lot of time to it and need to have some qualities like general information about current afairs, loss bearing capacity etc.

2)Mutual Funds:The second option is divert your money in the form of Systematic Investment Plan(SIP) to professional fund managers through Mutual Funds. Due to SIP you will get the benefit of falling and will be able to get the advantage of Falling Markets by reducing your average price,
So both the ways are available. Now the choice is yours.

Rgds.,
Japan Shah

RBI Monetary Policy- 31-07-2007

RBI monetary policy-
Focus on liquidity
Reserve Bank of India (RBI) delivered the first review of the monetary policy for the FY 2007-08 with a focus on liquidity management and status quo on interest rates.
Surging liquidity and the resultant steep fall in the money market rates prompted the RBI to raise the Cash reserve ratio and remove the cap of Rs 3000 crores imposed on the reserve repo amount under LAF.
The overall monetary policy stance continues to remain unchanged with a focus on price stability, re-emphasis on credit quality and orderly conditions in
financial markets. While the RBI in its policy acknowledged that non food credit growth has moved in the targeted range, the acceleration in money supply and reserve money may warrant an appropriate response.

Monetary measures

• Repo rate and reverse repo rate under the LAF has been kept unchanged at 7.75%
and 6.00% respectively
• The cash reserve ratio (CRR) of scheduled commercial banks (SCBs), is being
increased by 50 basis points to 7.00% with effect from 4th August 2007
• In view of the current macroeconomic and overall monetary and liquidity
conditions, it has been decided to withdraw the ceiling of Rs. 3,000 crores on
daily reverse repo under the LAF with effect from Monday, August 6, 2007


Impact on Debt market

􀀹 The increase in the CRR, will lead to an outflow of approximately Rs 15000
crores from the banking system.
􀀹 RBI’s measures is targeted towards balancing domestic liquidity and prevent a
liquidity related credit boom
􀀹 Yields on long term government bonds may continue to remain supportive on
account of status quo on interest rates and surplus liquidity. The 10-year
benchmark yield may trade in a broad range of 7.50%-8.00% till the next credit
policy review
􀀹 The short end of the curve will correct in view of the removal of the cap on the
reverse repo amount under LAF and the CRR hike. However, strong inflows in
the system on account of government spending and capital flow may cap any
sharp rise in the money market rates. Call rates are likely to stabilize between the
repo and reverse corridor
􀀹 Higher short term rates may encourage arbitrage related flows in the country
which may lead to further appreciation in the rupee.

Conclusion

The Reserve Bank will continue its policy of active management of liquidity through
appropriate use of CRR stipulations and open market operations (OMO) including the
MSS and LAF, thus exploring monetary instruments at its disposal flexibly, as and
when the situation warrants. Expectations of a surprise monetary tightening and
RBI’s bias towards tight liquidity conditions will prevent any kind of immediate
softening in interest rates. On the fund side we maintain our view for investors to
remain on the shorter end of the curve that is liquid fund, liquid plus fund and shortterm fund categories. Investors who have term money for 3 months, 6 months and 1
year can look at Fixed Maturity Plans for stable returns.

Rgds.,
Japan Shah

Do's and Dont's in Intra-Day Trading...

It seemingly looks to be the simplest and the most rewarding. But in intraday trading one has to be very fast and quick and have to be on your toes always, so there are certain rules which one has to keep in mind.
If index is in positive from yesterday and the share you are holding is in minus then it should be cut and if intraday trend of index is in buy then one should buy a stock in which is in plus.

If index is in minus then one should look to short stocks which are minus and not stocks which are in plus.

It is not necessary that a stock which is weak today during intraday trading might be weak tomorrow also, simultaneously if a stock is strong today might not be strong tomorrow.

If US Markets have gone up overnight, the markets here in all probability will open strong, so one should be quite careful when buying stocks as the general psychology of public is to buy when good news is there.

Being a contrarians is very important while trading intraday.
Stop loss is a must while trading intraday.

Always trade in very liquid stocks i.e. which have very high volume because as entry and exit can be very fast in such stocks.

Do paper trading before you actually start trading so that when you start making paper profits, then shift to actual trading.

Keep your volume constant e.g.: if you trade in five lots of nifty future then trade in five lots only. This position can be increased only when you are satisfied with your trading for a month. It should not be that one day you buy five lots and next day you trade in ten lots and third day you get a loss and stop trading for two days.

Fear and Greed are at maximum levels while trading intraday so always have less position when you are new to intraday trading as otherwise you will be mostly under tension.

Rgds.,
Japan Shah
japan.shah@aol.in

Nomura, Japan's firm eyes Indian Equity Business

Japan's biggest broker, Nomura Holdings, may consider acquisitions as a possible route to enter India's booming stockbroking business, an executive said on Tuesday.

Hiromasa Yamazaki, head of Nomura's global equities business, said the firm wants to build a cash equities and derivatives business in India, Asia's third-biggest economy, either from its own resources or through acquisition.

"We want to enter India just simply because of the huge growth potential there. Anything is possible for Nomura," Yamazaki said in an interview.

He said Nomura hopes to double its profit from equity business outside Japan in about five years.

Indian newspapers reported last month that Tokyo-based Nomura may buy a 35 percent stake in unlisted financial services group Enam for 14 billion rupees ($340 million).

Yamazaki declined to comment on those reports, but said Nomura wants to develop its equities operation as well as other businesses in India.

Other foreign players such as Citigroup, Merrill Lynch and BNP Paribas have invested in India's fast-growing brokers as the local stock market booms.

India's main stock index rose 73 percent in 2003, 13 percent in 2004, 42 percent in 2005 and 47 percent last year. So far this year it is up 7.4 percent.

Yamazaki said Nomura Securities is also looking at other Asian emerging markets such as Indonesia and Vietnam to build its equities business and, beyond Asia, to expanding into Russia.

Nomura Holdings and Daiwa Securities Group are trying to expand business beyond their home market to catch up with rivals such as Goldman Sachs and UBS.

Daiwa Securities SMBC, Japan's second-biggest broker, aims to more than double profits from its foreign businesses by 2012 as its parent announced a 100 billion yen ($807 million) Asia investment plan, the brokerage firm's president Shin Yoshidome told Reuters last month.

Yamazaki said Nomura's international equity business -- which excludes investment banking -- contributes around a quarter of the securities firm's profits, which he wants to double in five years to 50 percent. He said the expansion would also see revenue from its international business grow to 50 percent over the next 2-3 years.

Yamazaki said Nomura plans to focus on derivatives, options trading, futures and a specialized business for hedge funds called "synthetic prime brokerage", which helps funds use share swaps to structure trades.

He said the synthetic prime brokerage will be one of the key products for global hedge funds seeking access to the Japanese market and Asia.

Yamazaki said one reason why Japanese brokerage firms are looking beyond their home market is that Japanese investors want to diversify their investment portfolios.

rgds.,
Japan Shah
japan.shah@gmail.com