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Neil Borate

@ActusDei

Feb 24

@IDFCMF

It takes one 'killer idea' to make history. Next month, @IDFCMF is all set to unveil one such idea - India's first US bond fund. Why is it so revolutionary? 3 reasons.

First, when the US Fed hikes rates, everything (stocks, bonds, gold) goes down. Only the yields on US treasuries go up. But for Indians there was no straightforward way to benefit from rising treasury yields. From next month, there will be.

The IDFC feeder fund will feed into a JP Morgan fund which invests in US treasuries of 0-1 year maturity. US treasuries have historically high yields, close to 5%. If you add another 3-4% rupee depreciation to it, you have a respectable 8-9% return in rupee terms.

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Neil Borate

@ActusDei

Feb 18

Why don't Indians invest in municipal bonds? Municipalities collect property tax and have projects to finance. Our lives are also a lot more affected by municipalities rather than the Union govt. It is they who collect garbage, supply water and keep the roads clean (in theory).

Quite simply, until Indore Municipality came out with a public issue on Feb 14th 2023, municipal bond issues were few and far between. They were also 'privately placed' - offered to select investors. The minimum face value (until Oct 2022) for private placement was Rs 10 lakh.

Indore Municipality's issue is path breaking. Coupon (interest rate) of 8.5% and minimum investment of Rs 10,000 and to be listed on exchanges. If more municipal corporations follow suit, we might one day have a thriving muni bond market.

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Neil Borate

@ActusDei

Feb 17

Why are savings rates stuck at 3.5%? Despite being deregulated in Oct 2011, banks have stuck to 3.5-4% over the past decade. Some exceptions existed such as Kotak Mahindra's 811 account which offered 6% in 2017 and 5% from 2018-2020. But these have also disappeared over time.

In today's era of rising rates, this is a free lunch for banks. The lunch was a tiny snack in 2020-21 when rates were cut. Moving money to an FD wasn't that rewarding. You got maybe 1-2% more. Today, that free lunch is a buffet. Savings rates are half of FD rates of even 1 year.

The same gap exists with returns of money market funds. In both cases you give up some liquidity. In case of FDs, a sudden need for money will mean breaking it and losing interest (note sweep-in sweep-out FDs can sort this out).

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Neil Borate

@ActusDei

Feb 15

@getStockal

In 2019, fintechs such as @getStockal , @Vested_finance and @INDmoneyApp spotted a gap. They realized Indians wanted to participate in the US tech story by buying stocks like Apple and Alphabet. @Shiprasorout's story today talks about what the 20% TCS means for them.

Indian market was in doldrums after the 2018 IL&FS meltdown while the Nasdaq was booming. So the fintechs used tech to democratize investing through India's Liberalized Remittance Scheme (LRS). Middle class investors were now able to enter a domain of the rich - global investing

The Indian government however, concerned about tax leakage slapped a 5% tax collected at source (TCS) on LRS remittances above Rs 7 lakh in 2020. In the recently passed 2023 budget, this was raised dramatically to 20% and the Rs 7 lakh threshold was removed.

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Neil Borate

@ActusDei

Feb 13

@jashkriplani

Today @jashkriplani writes about the train-wreck that is the Nifty Next 50 after the #HindenbergResearch report on #Adani. The Nifty Next 50 collapsed last month. Even 5 year returns are just 5.4% CAGR. As much as 14% of the Nifty Next 50 is in the Adani Group

Nifty Next 50 is 'waiting room' index. It consists of the 50 largest companies just below the top 50. Logically, investing in it should be more rewarding than investing in the main Nifty index. But that's not how returns have played out.

What failed? If the #hindenberg allegations are true, free float in Adani stocks is an illusion. Then they should not have made it to the Next 50 in the first place. Indexing did not fail, the Indexer did. MSCI recently revised its own free float weighting. What is NSE doing?

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Neil Borate

@ActusDei

Feb 11

@hdfcmf

A goliath is about to enter India's start-up space - @hdfcmf. It is launching its first AIF with a size of around Rs 3,000 crore (including greenshoe option). This is an FoF meaning that it will invest in other funds (which will in turn be investing in startups/unlisted cos)

HDFC AMC has already started accepting money and expects to close sometime in March. The fund will have a life of 11+2 years - the additional 2 years can be used after approval from investors. The fund will charge a 2% management fee and 20% performance fee for direct investors.

So what are the benefits? HDFC AMC has expertise in the financial markets and will deploy it while picking AIFs. These VC/PE funds in turn will probably pick good start ups. The power of size means that HDFC can probably secure good deals.

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