Financing your child’s overseas education through ESOPs

ESOPs are a priceless tool for attracting and retaining talent at start-ups and MNCs. Many of us working here get ESOPs in overseas companies. Since the Indian Rupee has depreciated against other currencies like the dollar over the years, overseas investments may be a good option to help reduce currency risk. And with strategic planning, parents can secure their child’s overseas educational dreams through ESOP benefits. The lumpsum that ESOPs provide, could be suitable to fund the large investments required.

If your company’s ESOPs are overseas, it would help to reduce the currency risk. A lumpsum gain from your domestic ESOPs could also help fund education.

Multiple factors must be considered while signing up for ESOPs. They may not be good for the risk-averse as they are linked to the volatile stock markets. They may also not suit someone looking for liquidity in the near term. Sure, stocks can be volatile. This is why it is important to time the sale of ESOPs. 

The decision to sell the shares acquired under ESOP is like any other investment decision. You need to take into account the capital gains implication as well as the need for liquidity for arriving at the decision. Moreover, whether and when to sell will also depend on the prospects of the company and how the stock is performing.

So, before you decide to liquidate the amount, take note of your three options:

When stocks are performing well.

Sell when the stock is performing well. If your child’s education is a few years away and the stock price of your company is already faring well, it is best you exit the plan and park it in debt options.  

When you expect a better performance in the future.

Alternatively, you may also choose a staggered exit at a few higher prices. But take note of your risk appetite if you decide to do so. Since stocks can be volatile, don’t keep these investments for the last minute.

When stocks are performing poorly.

If the company’s stocks have seen better days, you might as well take a loan to finance your child’s education. When your ESOPs begin to look up, you may exit and square off the loan.

ESOPs can be very successful when implemented in the right situation. They can be a good way to fund your child’s education. They allow their owners to create sustainable and transferable value and a well-prepared and successful exit. However, keep in mind that they can also be volatile. Take heed that you exit it in advance when the stock price is doing well and move it to non-market-linked options. That way you guarantee yourself good returns at an optimal time.

Yes, there’s a better way to spend your Diwali bonus!

Security beats uncertainty. Light triumphs darkness. Hope prevails over fear. And that is the reason for this season. We at Right Horizons are inspired by the human propensity for security and peace. Investments, when done right, are made up of such timeless themes.

Calendar 2020 has made trivial pursuits seem all too trivial. Savings, investments, and security are taking center stage. 

Here are 5 learning on how to navigate this bear market.

  • The science of security: Invest in what counts

Security is both a feeling and a reality. And the two are not the same. To guarantee security for real, it is important to gauge the market flows and sentiment. Lights, clothes, and other festive gifts are all cute. And holidays aren’t happening until we have a vaccine that works. What is comfortable is rarely profitable in investing. Don’t you think sparking off a new plan with your Diwali bonus might do some good? Invest your time into doing a financial plan if you have not done it already. This would be the best Diwali gift for you and your family.

  • The better way: Pay yourself first

If you stripped investments of the jargon, it’s pretty simple. Like Warren Buffet maintains: Pay yourself first. This may mean taking time off for a meaningful chat with your mutual fund’s planner and educating yourself first. If you’re already savvy, go on right ahead to invest in plans that resonate with your goals. Try your hand at debt and equity mutual funds, and if you have a larger capital, look at other options like portfolio management schemes. 

  • The death of decision anxiety: Asset allocation

Global studies have shown that asset allocation has a higher impact on portfolio performance. This removes the decision anxiety of shopping and gives you a more balanced, risk-free, and data-driven approach to spending your disposable income.  There are multiple competitive discounts on gold. Make your Dhanteras-Diwali extra special this year. Start investing in gold funds, especially if you’re expecting to plan for your children’s weddings.

  • Lifestyle changes are welcome: Investing as a way of life

In the wake of the pandemic, everyone is forced to make massive lifestyle changes. Pumping up your existing investments is a great way to use your bonus or even lower expenses on account of the pandemic impact. It could be as simple as boosting your SIP to reach your investment goals faster.

  • The reason for the season: Legacy and dynamic themes

You’ve revisited your portfolio and re-shuffled your investments. Given the global atmosphere, you can also add more value to your gifting choices. It’s time to show your loved ones that you care, more so if they’re far away. Pass your learnings on to your children and pay it forward. And remind them of the reason for this season: light, love, and life. 

Go on, make the right choice. We’ve got you. Both you and yours.

FAQs on EMI Moratorium – Most questions answered

The EMI Holiday package announced by RBI on account of CoVID19 has raised many questions with respect to applicability, coverage, eligibility, and impact.   We answer the basic questions through the FAQs that are put together which cover most of the doubts regarding these. 

  • Is moratorium compulsory or optional; what loans are it applicable to?

The moratorium is optional both for the borrower and the financial institution(lender).  ie The lender can choose to offer this option to its clients. The borrower can also choose to avail of the option if it is offered by the lender from whom the loan is taken.  

This is applicable for all kinds of credit facilities such as retail loans, Home Loans, Business Loans, Cards and Farmer Loans, term loans, and working capital loans of any size and duration and applicable both for individuals and businesses.

  • What is meant by moratorium?

A moratorium is temporary postponement of payment of interest/ principal/installments (and is not a waiver) for the period from Mar 01, 2020, to May 31, 2020. Interest will continue to be payable on all amount(s) for which payment is being postponed pursuant to the Moratorium.

  • For what period can the moratorium be granted?

A moratorium may be granted up to a period of three months for all amounts falling due between Mar 01 and May 31, 2020.

  • Is the moratorium on principal or interest or both?

The moratorium can be offered for below payments due during the moratorium period:

  1. Principal and/or interest component
  2. Bullet repayment
  3. Equated Monthly Instalments ( EMIs)
  4. Credit Card dues
  • Will the interest accrue during the moratorium period?

Yes, lenders will charge interest during the moratorium period as per the relevant terms and conditions of the loan agreement between the lender and borrower/s.   

  • How can you opt for the moratorium?

For most PSU lenders, there is blanket access to the moratorium, and it applies to all loans irrespective of size/category/sector. For private lenders, it would be prudent to get in touch with the respective client relationship manager/branch/phone banking/mobile banking/internet banking etc. and communicate your preference since this is NOT a default option and needs to be availed categorically. Failing which, there is a chance that the deduction of EMI would go through on the scheduled date set.

  • What is the interest charging mechanism for retail term loans such as Home Loans, Personal Loans, Consumer Durable Loans, Two-Wheeler Loans, Auto Loans?

The accrued interest would be added to the principal amount which will increase the residual tenure of the loan except in cases where extension of tenure is not possible in which case the EMI amount will increase. Please refer to the terms and conditions in the loan agreement for further details.

Illustration: Mr Ravi availed of a home mortgage on Mar 01, 2020 amounting to Rs one crore with a loan tenure of 240 months at an interest rate of 7.5%. If Mr. Ravi wants to avail of a moratorium of installment of Rs 89,972 which is due on Apr 01, 2020, then the interest for the month of March amounting to Rs 75,000 will be added to the principal amount and the outstanding principal amount on Apr 01, 2020, will become Rs 10,075,000. The interest will be computed on an outstanding principal. Similarly, the interest for the month of April which is payable on May 01, 2020, of Rs 75,562 will be added to the opening principal on May 01, 2020, which will be Rs 10,150,562. The interest will again be computed on the outstanding principal. In this case Mr Ravi’s tenure will increase from 240 months to 250 months considering the unchanged rate of interest and installment amount during this period.  To reduce this, Mr Ravi can choose to prepay part of the loan when normalcy returns to his cash flows, based on the prepayment clauses in his agreement.

  • How will interest be charged and recovered for SME / MSME / Businesses which use cash credit/ overdraft facilities? 

The accrued interest will be due and payable immediately after the end of the moratorium, and interest keeps accruing for this moratorium period.

  • Will there be late payment charges/ default interest/ additional interest for the deferred installments during the moratorium period?

No late payment charges/ default interest/ additional interest shall be levied during the moratorium period has to be charged during this period as specified by RBI.

  • Can the borrower make payments in between the Moratorium period?

This option to defer payments on loans is a relief granted to borrowers due to disruption caused due to the unprecedented outbreak of COVID-19. However, the borrower has the option to continue scheduled payments during this moratorium; or avail of the benefit of the Moratorium.

  • Will the seeking of Moratorium by the borrower have an impact on their credit/bureau score?

The moratorium on payments will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies (CICs)/credit bureau by the Bank. Hence, there will be no adverse impact on the credit history of the borrowers. This is specifically for this moratorium period only.

  • If the borrowers have enough balance in the accounts and installment is due, will the lender debit the EMI during this period?

Yes, if you have NOT opted in for the moratorium, then the normal EMI dates would apply and the deduction would occur as per the loan schedule.  It may be noted that some banks are offering moratorium as a default, hence, it is advisable to check with the communication from the bank. However, if one has opted for the moratorium, then the EMI would not be deducted even if there is sufficient balance for the EMI. 

  • Does the borrower need to submit any documents for availing this Moratorium? 

For PSU lenders the default option is the borrowers would get this moratorium irrespective of which category he belongs to. For borrowers of private lenders, the borrowers would get instructions from his/her respective lender on what needs to be done. Currently, the paperwork is limited to communicating the choice of option to the lender via – email /phone banking/internet banking or branch banking.

  • Does it make sense to continue to pay the EMIs rather than availing of the moratorium? 

Yes, if there is NO pressing need or shortage of cash flow then it makes sense to continue to pay as per schedule. This way you save on the additional interest that would be charged on the amount outstanding.

  • What happens to payments due and made or defaulted in March 2020 

If the payment has been made during the 1st March 2020 – 31st March 2020 period, then the borrower will effectively get two months of the moratorium period. If there has been a default due to cash flow issues or any other reason, then you would now get protection against any penalty/charges that might be due or have been deducted. And effectively such borrower would get the 3-month moratorium period. 

  • What happens to loans/credit facility started in March or April 2020?

The borrowers of all classes, old and new are eligible to avail of this moratorium; however, different lenders might have different rules, so it might be good to check with your lender on their policy with respect to the same.

  • If the borrower has multiple borrowing facilities within the same lender of different lenders, can he/she get a blanket moratorium? 

The borrower needs to specifically select and mention every facility that he/she has availed from the lender or in case of multiple lenders, then the borrower will need to communicate/opt with all such lenders.

EMI Loan Calculator and Impact Assessment

Your Checklist On Taxes For The Financial Year End!

We are just a few days to go before this financial year (2019-20) comes to a close. Though you have time till July 31st, 2020 to file your income tax returns, there are a number of activities that you need to do by March 31st, 2020 to claim the benefits in this assessment year (AY 2020 – 21). The finance minister came out with a series of extensions in dates till June 30th, 2020; but this is restricted mainly to tax saving investments.   Thus, you may have a bit of a breather on your tax saving investments.  Here is a checklist of items that you should go through to make sure that you have availed all the tax benefits available under different provisions of the Income Tax Act.

 

  • Set off your capital gains for the year with the losses:  If you do have capital gains for the year upto January 2020 when markets were relatively buoyant, you would have a number of stocks or even mutual funds that would be showing losses.  You can book some losses and set off the capital gains. You would want to optimise your capital gains in a difficult year. Do check if you have exit loads on your mutual funds before booking the losses.  This needs to be executed by March 31 for one to avail of the benefit.
  • Section 80C: You can claim deduction of up to Rs 1.5 lakhs from your gross taxable income by investing in schemes eligible u/s 80C. These schemes are EPF, VPF, PPF, NSC, tax saver bank FDs, life insurance premiums, mutual fund ELSS etc. Tax payers who are not getting a salaried income and not having PF and other tax saving investments must make sure that they avail maximum benefits. Senior citizens and parents of girl children can claim deductions by investing in Senior Citizens Savings Scheme and Sukanya Samruddhi Yojana subject to the overall Rs 1.5 lakhs 80C limit. Investors paying home loan EMIs can claim deduction for principal payments made during the financial year. Benefit extended till June 30th.
  • Section 80D (Medical insurance): You can claim Rs 25,000 of additional deduction for medical insurance premiums for yourself and your family (seni or citizens can claim up to Rs 50,000). You can claim a further deduction of Rs 25,000 for medical insurance premiums of dependent parents (Rs 30,000 if your parents are senior citizens).  Benefit extended till June 30th.
  • Section 80CCD (NPS): You claim additional Rs 50,000 deduction, over and above Section 80C limit of Rs 1.5 lakhs, by investing in National Pension Scheme. You can claim total deduction of Rs 2 lakhs by investing Rs 1.5 lakhs u/s 80C and Rs 50,000 in NPS. Benefit extended till June 30th.
  • Section 24 (Interest payment on home loan): You can claim up to Rs 2 lakhs deduction for interest payments in your home loan EMI for self-occupied house. If you are paying home loan EMIs for a let out house, the loss is restricted to Rs 2 lakhs in a financial year.
  • Section 80E (Interest payment on higher education loan): If you have taken loan for your, spouse or children’s higher education, then the entire interest payment can be claimed as deduction from your gross taxable income.
  • Section 80G (donations to charities): Donation made to tax exempt charities is allowed to be claimed as deduction at the rate of 50% or 100% (of the contributed amount) depending on the charity and as per approval granted by prescribed income tax authorities.

 

  • Check your surcharge bracket:  You maybe able to claim exemptions/deductions and set off your losses to reduce your net income to below the surcharge brackets (Rs 50 lakh / 1 Cr / 2 Cr / 5 Cr) if your income is on the border.  Plan before March 31st, because only tax saving investments are extended till June 30th.

 

  • Pay Advance Tax by March 31st: Tax payers who have income from other sources (e.g. rent, FD interest, capital gains etc) should make sure that they pay advance tax by March 31st, 2020. If you have worked in two different companies, you are likely to have to pay additional taxes for the year when you consolidate the two form 16s. If do not pay Advance Tax on time, you will have to pay interest @ of 0.75% per month of delayed tax payment (reduced from 1% per month for the period upto June 30th), even if you file your IT returns on time. For example, if your tax obligation over and above tax deducted at source (TDS) on March 31st is Rs 5 lakhs, you will have to pay Rs 16,250 as interest if you are filing your ITR and paying tax on July 31st

Summary

You can save a lot of money in taxes by availing the benefits available under different provisions of Income Tax Act. In this article, we have shared with you a checklist of items that you should review and make sure that you get maximum benefits. In addition to the tax savings avenues shared in this article, there may be other depending on your specific situations. If you need help with your tax planning feel free to email us at contactus@righthorizons.com .

What is the ideal retirement corpus one should have?

ideal retirement image


What is the ideal retirement corpus one should have?
– The retirement corpus that you require at retirement would differ from person to person.
– The corpus required would depend on several factors. It would depend on what is the monthly income that you need at retirement. We have clients whom we support with Rs 50K a month and we have customers whom we support with an income of Rs 5 lakh a month. One way to do it is to look at your current monthly expenses and adjust that for inflation.
– The other factors that go into computing your required retirement corpus is the tenure to retirement. Some of us may want to retire early, and if the tenure for which you require monthly income goes up, it again increases the corpus required. Many clients of ours choose to retire early to either pursue their interest which could range from entrepreneurship to working for social impact.
– There are other assumptions like inflation rate and the rate of return that would impact your inflation. What most people miss out is the impact of inflation post inflation. If you need Rs 1 lakh per month as of today, in the next 8 years that is likely to be Rs 2 lakh per month. At the 16th year, it is a staggering 4 lakh a month.
– Let me give you an example- a 40 year old person looking to retire at 60 years would require about Rs 3.5 to 4 crore.
– Since most of the time, this is a long term plan with many assumptions, we normally review where we stand against our goal every 2-3 year. As we come closer to the need, this helps us refine our assumptions.

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The Ultimate Secret Of FINANCIAL PLANNING

We all knows the game called Kahn Banger Crorepati 

Show Host – Amithab bachan !  

And crorepati cheque has taken by only one women in India I.e Binita Jain

She won final cheque in episode and is planning to utilise the winning amount to set up a dental clinic for her son.

Do You know KBC ?

KBC( Kaun Banega Carorepati)   was launched for the first time in July,2000. It is a  show which provides  healthy entertainment and also helps in enhancing knowledge. 

Every one loves to be their in hot seat and try to ans all the Questions and get the big cheque from the hands of film star

Now let u also know this one more person who withdrawn Rs 2.3Cr   with a small investment like 1 lakh now his bank got 230 times more from what he just invested.


Review Your Portfolio Before Investment Decisions In A Bear Market

Vinay’s portfolio has taken quite a beating. He had purchased YES Bank at a price of around Rs. 450 per share about 8-9 months back. Today the share is hovering around Rs. 168. Sintex Plastics, which he had purchased in December 2017, has lost about 60% of its value. His portfolios largely comprised of midcap stocks, have lost 40-60% value from their peak. His stock portfolio was doing very well at one point, based on which he significantly increased his investments into stocks. Now, he is unsure as to what to do. Should he buy more of the stocks that he has so that his costs can be averaged?

The stock market has seen quite a few crashes this year. It is highly volatile these days and in a bear phase. The mid and small cap indices lost between 25-35% in a short period. In a bear market, confidence is low and stock prices are not rangebound. They can swing wildly.

In case you are in such a dilemma, here are some action points to bear in mind before making a random or emotional decision –

Review and Adjust Your Portfolio

Its ideal to book profits on your portfolio and hold some cash for deployment on market falls.  You may still want to review the stocks and equity mutual funds in your portfolio so as to remove the duds. You might want to let go of the duds in your portfolio by taking advantage of bear market rallies.

If you have stocks that were bought because of tips, recommendations or just to make quick profits, review them and sell off those that do not seem to have the potential for giving good returns in the long run.  Look to buy good stocks that can gain strongly on a market recovery.

Avoid Panic Selling

Some of us panic and sell off stocks the moment we see that they are losing value. That may not be the best course of action for all stocks. It is not a good idea to exit quality stocks with a good long-term record and good cash flow, , especially at points when they have fallen sharply and their valuations become attractive again.

Don’t Miss Out On Buying Low

Averaging is a smart investment strategy, especially for diversified mutual funds and exchange-traded funds. Systematic Transfer Plans are good to supplement your SIPs when markets have fallen; and you are unable to predict the bottom of markets, but you know it is somewhere around the corner.

Most investors become too fearful on large market falls and miss out the opportunity of buying stocks at their best prices.  Keep in mind that the news flow is likely to very negative at such points.  At the same time, don’t fall into the trap of getting in too early. You can add more of blue chip stocks, high quality funds and ETFs when the prices are down.

Be Practical

If you don’t have the time or find it difficult to track individual stock and the market environment, stick to mutual funds. Seek professional advice if required.  Understand your portfolio, risk tolerance and risk capacity, so that you do not make any hasty decisions that you might regret later on. Work on a disciplined investment style that suits you.

It is difficult to time the market. So investors have to be patient and keep the right investment perspective before making decisions.

In the current market scenario, the prices have fallen quite a bit. It may be time to take some positions slowly. For example, one can invest in blue chip equity funds such as Mirae India Equity and Aditya Birla Sunlife Frontline funds in a phased manner, especially on corrections. One can use a combination of lump sum investment and SIPs to average the costs. When the markets move upward, they can sell off some positions and use that money to invest in debt instruments.

Key Takeaways

    • Understand your risk tolerance; Use an investment style that suits you
    • When markets are volatile, review your portfolio and sell off the bad quality stocks
    • Don’t Panic . Take advantage of market volatility
    • Stay Invested for the long term in fundamentally good stocks, mutual funds and ETFs. Increase allocations on lareger market falls.

How to be tax-free with Income up to Rs 10 lakh

 

The Interim Budget 2019 may not have directly touched the income tax slab rates, but a small tweak in income tax rebate is virtually doing the job for many. Salaried employees earning up to Rs 10 lakh in a year can escape paying tax if they use some of the investment and expense related deductions available. In the same breath, non-salaried individuals earning Rs 9.5 lakh do not have to pay a single paisa in income tax. All this is possible because full tax rebate has been given for taxpayers having taxable income of Rs 5 lakh. This means if your total income is more than Rs 5 lakh, all you have to do is to claim deductions so as to bring the taxable income to Rs 5 lakh or below. Read on to know more.

No more taxes

Apart from hiking standard deduction to Rs 50,000 a year, The government has not made any extra income tax deduction related announcements in Interim Budget 2019. By smartly using the norms, all of your income can be made tax-free. Of course, some might argue that claiming Rs 5 lakh as deductions out of Rs 10 lakh income is difficult. Dear friends, life is an art of possibilities. If you know there is a way, you can always succeed.

Before the Budget, taxable income up to Rs 2.5 lakh attracted no tax while taxable income falling between RS 2.5 lakh to Rs 5 lakh attracted 5% tax. In simple terms this means that if your taxable income was Rs 5 lakh, you paid tax on the Rs 2.5 lakh beyond the zero-tax income.

This 5% of Rs 2.5 lakh translated into Rs 12500 and was your income tax liability. The Interim Budget 2019 has given 100% rebate on up to Rs 12500 amount. So, there will be no tax liability for you.

How do individuals earning more than Rs 5 lakh take advantage of the situation? It is easy. If you have a salary income of Rs 10 lakh, you need to claim deductions worth Rs 5 lakh and bring your taxable income part to Rs 5 lakh.

Deduction game

Assume your salary income is Rs 10 lakh. You can make a deduction of up to Rs 2 lakh for interest paid on housing loan for self-occupied property under Section 24. This will reduce your taxable income from Rs 10 lakh to Rs 8 lakh.

Then, there is maximum Rs 1.5 lakh deduction for investments made under Section 80C (like principal paid on housing loan, insurance premium, ELSS, PPF etc.). This brings your taxable income from Rs 8 lakh to Rs 6.5 lakh.

The Interim Budget 2019 has increased the standard deduction for salaried persons to Rs 50,000 (increased from Rs 40,000 earlier). Using this standard deduction, your taxable income falls from Rs 6.5 lakh to Rs 6 lakh.

To encourage National Pension System (NPS), the income tax norms allow us to claim a maximum and separate deduction under Section 80CCD(1B) for additional investment in NPS of Rs 50,000. This when claimed will bring your taxable income from Rs 6 lakh to Rs 5.5 lakh.

Each and every nook

Lastly, you can claim Rs 25,000 medical insurance premium for self & spouse and Rs 25,000 mediclaim premium for your dependent parents. The combined Rs 50,000 premium (under Section 80D)when deduced from your taxable income of Rs 5.5 lakh brings it to the magic figure of Rs 5 lakh.

The process will be similar for non-salaried persons but they will not able to claim the Rs 50,000 standard deduction (available for salaried only). Thus, non-salaried with Rs 9.5 lakh in the above example will pay zero tax.

Below is a a table that shows your example of a salaried person (below 60 years of age).

A) Gross Income – Rs 10,00,000

B) Deductions

i) Deduction for Interest on Housing loan for self-occupied property – sec 24        – Rs 200,000

ii) Deduction – Section 80C (Insurance premium /Principal on housing loan / ELSS / NPS /) – Rs 150,000

iii) Standard Deduction for salaried – Rs 50,000

iv) Deduction under Section 80CCD(1B) – Additional investment in NPS – Rs 50,000

v) Deduction under Section 80D – Mediclaim – Rs 25,000

vi) Deduction for parents (senior citizens Mediclaim) – Rs 25,000

C) Taxable income (A minus B) – Rs 500,000

D) Income tax payable (5% of amount between Rs 2.5 lakh to Rs 5 lakh) – Rs 12500

E) Rebate under section 87A – Rs 12500

F) Net tax payable- Rs 0 (zero)

Do remember that many salaried and non salaried persons can also other deductions available under the Income Tax Act. For instance, interest paid during a financial year on an education loan is allowed as deduction for individuals from the total income under Section 80E. The deduction is provided only for the interest part of the EMI. There is no limit on the maximum amount that is allowed as deduction. If you are paying education loan interest, you can claim the maximum amount per financial year. If the amount is Rs 5 lakh per year, you will not have to do any other investments to come to zero-tax club.

Likewise, taxpayers can use the Section 80G of the Indian Income Tax Act that allows you tax deduction on donations made to any charitable organization. The various donations specified in section 80G are eligible for a deduction of up to either 100% or 50% with or without restriction, as provided in Section 80G.

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Market: 2k18 “The year gone by”..

2018 was one of the most difficult year for investors as benchmark Nifty gave only 3.2% whereas broader markets like Mid cap and Small caps where down by 15.3% and 23.6% each  respectively. Only Bankex, FMCG and IT are closed on a positive note, while rest all indices closed lower. The markets also witnessed major events like NPA clean-up, NBFC re-financing issues, RBI Governor exit, that could fundamentally change the structure of the economy. It is however important to highlight that the government proactively acted on the above issues.

Where do we stand today:

Data throws up a mixed bag when we look at valuations and compare it with December 2007, closer to the previous market peak.  On Price/Earnings for Nifty 50, we are valued similar to the last peak at 26.6 in Dec 07 Vs 26.4 in Dec 18, but when we look at other valuation parameters like Market Cap/GDP, we are much lower.

As pointed by Warren Buffett, the percentage of total market cap (TMC) relative to the US GNP is “probably the best single measure of where valuations stand at any given moment.”

//(GDP & GNP Definition and the difference

GDP is the total market value of goods and services produced within the borders of a country.

GNP is the total market value of goods and services produced by the residents of a country, even if they’re living abroad. So, if a U.S. resident earns money from an investment overseas, that value would be included in GNP (but not GDP).

Further, markets have steep falls when they run up significantly and the economy is overheated.  Despite the fact that markets have moved up over the last couple of years, this is much muted compared to what you normally see in a bull market.  Economic parameters are also muted.

Various Indicators- Current Vs Dec 07

US Markets take a tumble

US markets have seen a large correction since October 2018 with the DowJones was down by 18.8% before recovering some of the losses. Though the US markets have been one of the best performers, we are relatively bearish on US stocks vis-à-vis Indian stocks. In the case of the US, both market and economic performances have been strong over the past few years and we believe US stocks/ESOPs could be impacted over the next year.

 

The General Elections in India to pave the way forward

Every general elections year is always a volatile year as you get huge moves in Index on both the sides and 2019 is not going to be different, as we step into general elections.

The election result may impact the economy’s road map ahead. In Jan 2018, many experts were cautious because of high valuations in mid and small caps without having earning growth.

The whole matrix has changed in 2019 as stocks have given significant corrections and earnings growth also picked up in 2018. We expect 2019 to be a year of net positive investment for both FII’s and DII’s, unlike 2018 where only DII’s were supporting Indian markets.

This is not the year for light-hearted investors who get worried when they see 10%- 15% down move in the Index. Past data shows that those who stayed invested in these volatile period were the biggest beneficiaries including in years of coalition governments.

If we analyze last 5 general election data, Nifty has never given negative return in an election year. In 1999, 2004, 2009 and 2014 Nifty has given 51%, 18%, 80% and 39% each respectively. Equity markets always ride on fear and hope and this year would be no different.

Everywhere we are hearing that central elections are there and markets will be volatile, but holding on to your investments at these times might reward you significantly. The recently concluded State elections resulted in BJP losing in all 3 major states. Now markets have given big thumbs up to the result and up by more than 5%.

This signifies value buying is emerging and we should be invested at these time irrespective of any party takes control of government with majority mandate.

Historical Calendar Year returns in an election Year

Past data shows that we may have a pre-election rally.

Keeping in mind the above data points, we believe that while markets are likely to be volatile, it would end the year on a positive note.  Subsequently, I expect both economic parameters and markets to gather momentum.