Episodes
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The idea that finance companies want to do everything from payments to lending to broking to investments is strange - why not just be good at one thing?
It’s a simple explanation, it turns out. Find out more about the business of money in a language you can easily understand, through the words of Deepak Shenoy and Shray Chandra.
Capitalmind manages Rs. 1700+ cr. as a SEBI-registered PMS, and has quantitative investing strategies that use extensively tested factor data to invest into stocks. Our flagship Adaptive Momentum strategy has outperformed the market indices over 5+ years.
References:
00:00 Introduction
00:17 Why does every company do everything in financial services?
12:41 Why aren’t banks more aggressive in growing and pricing things lower?
26:40 Discussion on the success of Bajaj Finance and arbitrage between Banks and NBFCs
36:46 Why aren't banks aggressive on lending ? What's the issue with lending?
56:49 Deepak explains the Indian Bankruptcy code
01:07:13 What can we do to fix this?
More about us: https://cm.social/pms
Schedule a call with us: https://cm.social/pms-connect
Deepak’s Twitter: @deepakshenoy
Shray’s Twitter: @shraychandra
Capitalmind Twitter: @capitalmind_in
Deepak's first book: http://amzn.to/3CgkGea
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Ever wondered why circuits are in place?
It all started on Black Monday in 1987, where a 25% market correction prompted the introduction of market-wide circuit breakers in the US. These limits aimed to ensure market maker solvency and prevent panic-induced trading.
Fast forward to 2001, and India also introduced circuits to handle intraday market volatility. From the Nifty's inception to the imposition of index-level circuit filters, the Indian market landscape has witnessed a steady evolution in its approach to market regulation.
In this episode, we delve deeper into the concept of circuits, with real life stories and understand how they help the market.
We also discuss, should circuits continue to exist in their current form? or is it time to explore alternatives that foster greater transparency and resilience?
Show Notes & References
00:00 Introduction and Disclaimer
01:24 Background on limits or circuit breakers.
06:38 When did India implement the circuit breaker?
09:20 What are the current rules for circuits in India?
15:58 Why are circuits interesting in the first place?
19:07 What would happen if circuits weren’t there?
24:38 Some interesting stories on circuits in the stock market
36:34 What is a better way to manage circuits?
40:47 Will circuits continue to exit?
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Missing episodes?
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In today's episode, we delve deep into the recent actions taken by the Reserve Bank of India (RBI) towards the end of 2023 and the ensuing ripple effects they've set off.
The RBI, often the silent architect of our financial landscape, has made strategic manoeuvres that reshape the terrain for banks, non-banking financial companies (NBFCs), and borrowers.
Discover how these regulatory shifts could impact financial decisions and the broader economic landscape. From the nuances of risk weights to the implications for personal loan growth, this episode promises to demystify the complex world of financial regulations in a digestible and engaging format.
Here is a quick overview of what we talk about:
We unpack the RBI's directives regarding risk weights and the restrictions placed on simultaneous lending and investing activities by financial institutions. Dive into how startups offering digital lending products, like CRED and Paytm, are affected and the challenges they face under the new regulations. Explore why your credit card limits might be scrutinised and how conflict of interest rules reshape lending dynamics. Understand why the RBI's focus on Alternative Investment Funds (AIFs) matters and how it impacts investors' portfolios. Debate whether these measures reflect a proportionate response from the RBI and what they suggest about the current state of our economy. Timestamps00:00 Introduction and Disclaimer
01:34 Deepak demystifies the two new regulations by RBI on Banks and NBFC
05:37 What’s the impact of these new regulations? Why should we care?
16:05 Why is RBI more concerned about personal loans?
24:54 Why aren’t you positive about the RBI action here? What’s wrong with the slowing loan growth?
32:20 If Startups are ready to take the risk, why is RBI stopping them?
45:14 Even after this bull run, why isn’t there lending against securities?
52:11 RBI has a new rule prohibiting Banks and NBFCs from evergreening loans through AIFs.
01:03:51 Is this a warning, a sign that the economy is over-heating? -
Join us on Capitalmind Podcast, where we demystify the world of finance without the jargon. In today’s episode, talk about the asset management industry in India and what’s in store for the future.
Now get this - Mutual Funds own only 8% of Indian companies, while retail investors own 9%.
Let’s rewind. In 2005, despite impressive returns, MFs didn’t gain much attention due to high fees and the lack of tax advantages. Fast forward to 2018, capital gains and dividend tax changes sparked a surge in MF investments, increasing their ownership to 8%.
Explore the shift in India’s financial landscape – changing disposable incomes and tax adjustments have made MFs more attractive. The “MF Sahi Hai” mantra and the success of Systematic Investment Plans (SIPs) further contribute to their rise.
Regulatory improvements play a role, but we also discuss other investment vehicles – MFs, Portfolio Management Services (PMS), Alternative Investment Funds (AIFs), and more. Understand the evolving dynamics and where your money might fit best.
We dive into comparing investment vehicles and their equivalents in the US. Spoiler alert: India’s investment culture is rising, embracing the expertise needed to manage money with relatively low costs and instant liquidity.
Is passive investing becoming the norm? Not quite yet. We need more institutional capital for that shift.
We end the episode trying to connect the dots and see what the future of this industry may look like.
References
00:00 Introduction and Disclaimer
01:15 How is the money divided among different vehicles in the asset management industry?
06:36 Why do Mutual Funds have a lower ownership in Indian companies (8%) compared to retail investors who own 9%?
20:21 What are the downsides of investing in Gold and Real Estate?
27:40 Are we just one crash away from everyone turning away from equity?
34:38 Given that we have a savings culture, will investing grow faster in the future?
40:42 Which type of investment is good for whom?
44:53 Mutual Fund Vs Direct Stock Investing: How are things different in India and the US?
01:02:46 The future of the Asset Management industry in India. -
Ever wondered about the whole money thing – how it's made, where it comes from? Well, in this podcast episode, we're breaking it all down, and without using any jargons.
We also promise that this podcast will not remind you about an economics class. Because, it's not a lecture on economic theories. Nope. It's more like your friend explaining things in a way that just clicks. You'll walk away with a bunch of useful insights to help understand the concept of money a little better.
Make sense of those tricky concepts you read about in newspapers or on business channels. You know, the stuff that usually leaves you feeling a bit puzzled.
Write to us at [email protected] if you have feedback or ideas. We read and reply to all emails.
References
00:00 Introduction
01:36 How is money created? How does it grow?
12:41 Money printed is not the same as money spent.
32:16 How do banks create money by lending?
40:59 How does money flow between banks and RBI?
43:53 How do banks make money?
48:40 More ways to create money
53:59 Wealth effect: People often assess their wealth without accounting for the impact of taxes.
59:41 The central bank isn't the one creating inflation. It's the people.
1:02:53 Economies create wealth by moving up the value chain -
If you are even a little active on social media, especially Twitter, you would have witnessed the exponential increase in tweets related to options trading. Today, we are are going to talk about that - Indian's going gaga over options trading.
Deepak & Shray, take a detailed look at this fascinating phenomenon and tell you all that you need to know - except telling you about an options strategy that always makes money no matter where the market goes.
In this episode, we delve into the history of options, the factors driving their growth, and the potential risks and rewards.
From the earlier days of Badla to the scaling of options trading post-2006, we witness a significant shift in the landscape. What was once a predominantly institutional activity has evolved into a market dominated by retail and proprietary investors.
Several factors contribute to the surge in options trading, including simplified Securities Transaction Tax (STT) structures, technological advancements, flat-rate brokerages, and increased retail participation. The introduction of weekly options has especially transformed the game, turning it into a more accessible yet speculative arena.
But, all this is not without risks of ruin. Deepak raises valid concerns about the potential downsides of increased options trading. He shares real stories and lessons, through real-life examples, about the impact of options trading on individuals.
We realise that this is the time when the fine line between responsible investing and excessive risk-taking becomes apparent, emphasising the need for education and awareness.
While options trading has its drawbacks, Deepak acknowledges its positive aspects, such as providing liquidity and offering potential returns for those well-versed in risk management. He emphasises the importance of using options wisely and understanding the odds.
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Timestamps
00:00 Introduction and Disclaimer
01:26 History and growth of Options trading in India
07:55 What has contributed to this massive growth in Options trading?
27:17 Is there a problem with increasing Options volume? Will the government come in and do what it did to all those gaming firms?
35:16 How do people lose money in options?
48:33 Isn’t SEBI systematically reducing leverage?
50:30 How to not get suckered while trading Options in India?
1:02:11 What are the good uses of Options?
1:14:15 Where do you think Options trading will go from here?
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Welcome back to the Capitalmind Podcast – a place where we dissect the nuances of finance and investing, in a world that never stops changing. Your hosts, Deepak & Shray, are here to de-clutter yet another topic in their lucid and candid style.
In today's episode, we're zooming in on Portfolio Management Services (PMSes), a vehicle for your long-term wealth management. Here's a glimpse of what's on our financial canvas today:
PMS Demystified: We're going to peel back the layers on Portfolio Management Services – both the legalese and the real-world implications – to answer the quintessential question: "Does it make sense for you to invest?" The Art of Timing: We'll delve into the art and science of choosing the right time horizon for your investments and why it's the secret sauce behind successful wealth building. The 50 Lakh Question: At point of your investment journey should you consider investing in a PMS? What's the PMS magic?: What can it do that traditional investment avenues can't? Specifically, does it offer any edge against Mutual Funds? (Spoiler alert: It does) The Ideal PMS Investor: We'll introduce you to different archetypes of investors who stand to gain the most from embracing PMS offerings from our experience of managing 1200+ crores.Time Stamps:
00:00 Introduction and Disclaimer
01:30 What is a Portfolio Management Service and what’s it good for or what’s the point?
05:05 Who should invest in a PMS? And what should be the tenure of your investment?
08:53 Where to invest for short term needs?
13:27 The issues with investing in a mutual fund.
27:53 What does a PMS offer? What are the benefits of a PMS?
36:23 Once you cross a 50 Lakh mark, should you move from MFs to PMS?
42:36 What can a PMS do differently?
46:51 What about the returns of PMS and is it worth it vs Nifty?
52:15 Who shouldn’t invest in a PMS?
58:27 Who should invest in a PMS?
If what you hear today intrigues you, head over to Capitalmind Wealth to explore how our PMS services might align seamlessly with your financial aspirations. Our fee structure, ranging from 0.25% to 1%, keeps it straightforward, with no hidden performance fees.
Schedule a call
Alternatively, shoot us an email at [email protected], and we'll be more than happy to provide you with additional insights about our PMS offerings.
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You've tuned in to another episode of The Capitalmind Podcast, where we tackle a question that's been on your mind: "There's a lumpsum in hand, what's your next move?"
In a world where SIPs are all the rage, we're steering the ship towards understanding how to strategically deploy a substantial lumpsum amount.
Deepak & Shray walk you through these aspects of managing, deploying and even spending that lumpsum gain. They discuss:
Deciphering tax implications: The financial realm is fraught with complexities, especially when it comes to taxes. We delve into the intricacies, figuring out how you can harness the power of tax efficiency to maximise returns. Debt management strategies: From housing loans to high-interest obligations, every debt carries a unique weight. We share insights that empower you to navigate this terrain with finesse and help you to make informed choices Securing education and retirement: As the custodian of your financial future, you'll need strategies to earmark funds for your children's education and seamlessly transition into a well-funded retirement. Planning is key, and Deepak has you covered. The art of consumption and experience: Beyond investments, the episode delves into the delicate balance between material consumption and meaningful experiences. The discussion prompts you to curate a life that blends financial prudence with personal fulfilment.Lastly, for those who've experienced an ESOP exit or find themselves grappling with a lump sum, our website capitalmindwealth.com offers tailored services designed to cater to portfolios exceeding 50 lakhs. For feedback and podcast ideas, write to us at [email protected].
References00:00 Introduction
01:30 ESOPs taxation and Whats the right way to allocate large lumpsum amount?
18:43 Which option is more preferable: Paying off housing loans sooner or investing in the market.
29:50 How to plan for your kids education?
34:57 Whats the simple rule of thumb for retirement planning?
40:21 If you have a large sum to invest should invest it via SIP or Lumpsum?
49:45 Don't fall for the products that assures you low risk and high returns.
59:36 Say no to angel investing
01:04:04 Consumption - all the things you wanted to do, make that list and do these
01:12:24 Types of windfalls: End year bonus vs exit from some ESOPs or synthetic ESOPs
01:20:43 Charity and Philanthropy
Liked the episode? Just tweet to us at @capitalmind_in and let us know. That's all we need to keep going!
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Our latest podcast episode is here, and it's all about exploring the different ways investors make money in the market.
From thrilling arbitrage strategies to the art of short-term trading, we'll cover it all in a language that even your neighbour's fish could understand (well, almost!).
But that's not all—our experts will take you on a journey through long-term fundamental investing and quantitative approaches too.
Expect some fascinating stories, like the infamous LTCM blow-up, and how best investors (& trades) made their fortunes. We'll also unravel the logic behind the elusive VC's hunt for 50x returns and how even "value stocks" need a dash of momentum.
So, whether you're an investing enthusiast or just curious about the market's mysterious ways, you won't want to miss this one.
References00:38 What do you think about the new all-time high? How do you view different types of investing strategies in the market and how to make money from these strategies?
24:27 The problem with peoples expectations: When I say stock markets do 12%, people expect this to be linear.
27:00 Concept of Expectancy
33:29 Problem in arbitrage is competition, so you need to lever yourself up
38:21 Option volatility trading - sell options expiring in 2 days and make the decay
46:32 When VC wins they need to win huge
49:50 Nifty monthly returns - how do quant strategies do?
56:52 We have just hit all time high. Based on the past data, how long can this good time potentially last? Which one is your favourite investing strategy?
Liked the episode?
Just tweet to us at @capitalmind_in and let us know. That's all we need to keep going!
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Welcome back to another episode of our podcast, where we dive deep into the world of finance and investment. In today's episode, we will be exploring the fascinating realm of mutual fund costs and SEBI's recent proposals to bring them down.
As the saying goes, "The devil is in the details," and when it comes to investing, understanding the various expenses involved is crucial for making informed decisions.
In this captivating episode, we will dissect SEBI's latest discussion paper on Mutual Fund TER (Total Expense Ratio), which shed light on the inner workings of mutual fund costs and the need for change. We'll embark on a journey led by our expert hosts, Deepak & Shray, who will unravel the complexities of the system and explore the potential implications of SEBI's proposals.
Get ready to gain valuable insights and answers to burning questions.
What is the Total Expense Ratio (TER) of a mutual fund, and what does it include and exclude? Why does SEBI propose changes in TER, and how will it affect mutual fund investors? How do large distributors exploit the system, and what measures can be taken to address this issue? Can tweaking TERs alone make the mutual fund industry 10x bigger, or are there other critical factors to consider? What innovative avenues could mutual funds explore to earn higher TER while providing value to investors?Tell us on twitter @capitalmind_in on how did you like this episode. Your feedback means the world to us!
Show Notes & References02:00 Thoughts on the recent discussion paper by SEBI on Mutual Fund TERs
10:30 SEBI is saying "You are making too much money", reduce fees
19:25 Largest India equity scheme is charging the maximum fees possible
31:30 Limited Purpose Trading membership for AMCs to trade directly on the exchange
43:00 Why should a big fund house have the ability to charge more on a new scheme?
48:00 Performance based AUM through sandbox
53:00 How do you make the mutual fund industry 10X bigger?
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"If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck", goes the saying. Arbitrage mutual funds are actually taxed as equity funds but they actually behave as debt funds.
And this tax arbitrage of arbitrage funds is what the regulators may be looking to fix.
In light of this, we have our latest episode of the Capitalmind Podcast, where we dive into the intriguing world of arbitrage mutual funds, also known as arb funds.
In this shorter episode, our hosts, Deepak and Shray, explores the role these funds play in your investment portfolio and delves into the impact of recent changes in debt mutual fund taxation on arbitrage funds.
Here's a sneak peek of what you can expect from this episode
The Role of Arbitrage Funds: Discover the peculiar position these funds hold, being described as equity funds but offering debt-like returns. Taxation Changes and Their Effects: Explore how the recent changes in the income tax code could potentially affect arbitrage funds. Deepak shares his insights on the first and second-order effects of these tax changes and highlights the potential short-term buying opportunities that may arise. Risk-Free and Low-Risk Investment Options: Understand the investment landscape going forward in the likely new tax environment. Discover what alternative options exist for risk-free or low-risk investments in light of these changes.Here are five key questions that will be answered in this episode
What role do arbitrage funds play in your investment portfolio? How will recent changes in debt mutual fund taxation impact arbitrage funds? What are the first and second-order effects of tax changes on arb funds? What risk-free or low-risk investment options are available in the likely new tax environment? How significant is the presence of arbitrage funds in the stock market, and what does it mean for overall market volumes?Join us as we unravel the complexities of arbitrage mutual funds and gain a deeper understanding of their implications for your investment strategy.
Show Notes & References01:00 What do arbitrage funds (arb funds) do and where they fit in your investment portfolio?
08:30 Why didn’t arb funds become the FD replacement?
12:30 How big are arbitrage funds and what does that mean as a percentage of total volumes/positions on the stock market?
18:45 Arbitrage Funds are a huge part of our market and it's a problem. Why?
21:30 First and Second order effects of taxing arb funds like debt
34:00 What are the advice or takeaways?
If you have any feedback, ideas for future topics, or questions, we'd love to hear from you. Send us an email at podcast[at]capitalmind[dot]in.
For those seeking professional wealth management services for portfolios exceeding 50 lakh, visit Capitalmind Wealth.
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"Taxation is the price we pay for civilisation," as the saying goes. But what happens when the price tag keeps going up?
You may have thought you understood the friendly taxation system, until a new rule comes up that leaves you feeling like you've been sucker-punched. That's what recently happened when the government took away the tax efficiency of debt mutual funds and increased taxation. Suddenly, investors were left wondering how this would impact their investments and whether they needed to change their strategies.
In this episode of our podcast, Deepak and Shray delve into the conversation around the new taxation rules for debt funds. They ask the tough questions that many investors are likely asking themselves such as:
whether taxation should be a factor when investing in equities, what to do with existing debt funds, whether foreign investing is still exciting after all the taxes.But it's not all doom and gloom. They also explore other investment options such as MLDs, Gold, Real Estate, Startups, AIFs, and ETFs.
Taxes are indeed taxing. But who knows, maybe someday Pink Floyd will come up with a new hit single titled "We don't need no TAXES." Until then, tune in to our podcast to stay informed and keep your investing game strong.
Don't miss out on the show notes and references for this episode, where you'll find timestamps for each topic covered. So grab a drink, relax, and join us as we explore the fascinating and ever-changing world of investing and taxation.
Show Notes & ReferencesClick here for the Google Sheet
8:50 Now all debt instruments are taxed similarly, isn't it now a fair system?
18:45 What should I do with my existing debt funds?
27:00 Should taxation be a factor while investing in equities?
33:00 In stocks, should you sell underperforming stocks and move to other stocks?
36:00 What about MLDs, Gold & Real Estate.
53:00 How investments in startups are taxed?
56:00 What about AIFs and ETFs?
1:05:30 Is foreign investing still exciting after all the taxes?
1:09:00 Final thoughts
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“A market without bears would be like a nation without a free press. There would be no one to criticize and restrain the false optimism that always leads to disaster”
- Bernard Baruch
Short selling is mostly misunderstood and often demonized. Quite understandable, it's difficult to put your head around a concept that involves selling something that you don’t already own. But, it’s not as sinister as it is made out to be. Markets have enough checks and balances to accommodate short sellers and maintain their balance.
Recently, we saw Adani group stocks come under attack by a US-based short seller which resulted in the marketcap of the group falling more than 50% within a month.
This sparked a discussion on the concept of short selling. We're not going to talk about the specifics of this short by Hindebug. Instead, in this episode, we will talk about the nuances of short selling, their impact on the market, and dive deeper into how the whole thing works.
Join, Deepak & Shray, as they talk about:
How does short selling work? Is short selling always to bring down a stock? The operational aspects of short selling in India and the US? Examples of different short trades & how they played out Which market players, except short sellers, also short stocks? Show Notes & References1:10 What is short selling
5:15 Why people would do short selling?
11:30 Are HFTs also market makers? Or speculators?
13:30 Paul Tudor Jones and the 80s crash
19:30 How do Indians short a stock?
23:00 How do US traders generally short a stock?
33:00 NSEL fiasco
42:00 Do arbitrage mutual funds also short sells stocks?
45:00 How does a foreign fund short an Indian stock?
47:00 Should short selling be illegal?
49:00 Can a PMS (like us) go short and benefit from such trades?
54:30 The thing called "short squeeze" and stories from far & recent past
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Things escalate and hit the fan very quickly in banking. It's fascinating to see how banks go belly-up for the same fundamental reasons but in an entirely unique way each time.
It's like being served the same romantic comedy story again and again with different actors, locations, and songs. But, these banking crisis stories are not as enjoyable and they hurt real people financially and emotionally.
In this episode, we discuss the crisis at Silicon Valley Bank.
How this seemingly robust, conservative, bank with $180 billion in deposits tumbled down in just a couple of days. All was good with the Silicon Valley Bank until, one day, it wasn't.
NO, there was no accounting scam. This isn't like Enron.
NO, there wasn't any irresponsible speculative betting. This isn't like Lehman.
This time it's a different story. But, with the same result.
Listen in as Deepak and Shray tell you everything you need to know about the Silicon Valley Bank crisis:
What actually happened? What could SVB have done differently starting a year ago? Understand how rising interest rates affect the business of banking What is going to happen next? Lessons for the futureIf you enjoy Capitalmind Podcast, tweet to us @capitalmind_in and let us know. It doesn't take more than 2 minutes and is the fuel that keeps us going.
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Anyone who thinks financial accounting is boring hasn't seen the creativity in some of the financial statements. Not just in India but across the world.
In this podcast, Deepak and Shray discuss the shenanigans of financial accounting while referencing various case studies from the business world. This discussion is important because "new age" businesses in India have started reporting "adjusted" accounting statements along with standard reports.
While we do understand the need for "adjusted" metrics to gauge the health of a business. Especially when the nature of business is unconventional and may not be represented well by the existing reporting system. But more often than not, such adjustments are used for misguiding investors.
Listen in to figure out:
Why do businesses need to report adjusted earnings? How cheques, affiliates, GMVs, and ESOPs are used for creative accounting? If such reporting is legal, why should investors care? How do you recognize whether adjustments are real or not?Show notes and time stamps
1:50 - What’s the big issue with showing adjusted revenues?
10:20 - Shenanigans of adjusting revenues go back to the days of AOL (1990s)
13:45 - Argument of using the contribution margin
23:00 - How do “adjusted” numbers mislead stakeholders?
27:30 - Examples of creatively using metrics to manipulate numbers?
52:40 - VCs & Investors want “adjusted” metrics to understand business performance
1:00:00 - How to recognize if adjustments are real or not?
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Stockbroking is a unique business enabling millions of people to trade billions of dollars of stocks with unknown counterparties. All trades, in this highly regulated ecosystem, are executed seamlessly, settled correctly, and recorded meticulously.
It’s fascinating to see how far India has come in making this ecosystem world-class and in some cases, the best in the world.
In this podcast, Deepak and Shray discuss the nuances of stock broking and how proposed regulations will impact the stock broking industry. They discuss, in detail, the role of stock brokers, regulators (SEBI), clearing corporations, exchanges, and investors.
As an investor, how brokers are regulated doesn’t impact you directly. Yet, it is important to figure out what happens to your money when you click that buy/sell button on your app.
Listen in as we talk about:
How does stock broking work in its present form? What are the new regulations proposed? How will these regulations impact the stock brokers? How will it benefit the investors?Timestamps:
02:10 - How trades are settled by your broker and exchange? Earlier and Now?
14:15 - Moving from t+2 to t+1 in settling share transactions
16:20 - Now clearing corporation holds the transactions before settlement. Is it safe?
21:15 - The practice of commingling (shares & money) and regulations around it
40:00 - Drying up float income and the new role of a broker?
44:00 - How much does “no float income” hurt the broker?
52:30 - Will these regulations, meant to protect investors, actually lead to an increase in brokerage charges?
55:10 - Can these regulations prove to be counterproductive?
1:03:00 - Closing remarks
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Forecasting is a very difficult business, like selecting lottery tickets. No one could have predicted 2022 as a year in which there was geopolitical war, worldwide inflation, a massive hike in interest rates worldwide, and the US S&P 500 down about 20%, and yet, the Indian markets ended up 4%. If anyone got this spot on, they could still be terribly wrong for 2023.
That’s why we don’t predict, we react.
So, what’s going to happen in 2023?
We can almost hear this question, despite all the data that says prediction is a waste of time. But then, much about the markets is an entertainment business, which means it’s great to see people make crazy zany predictions, and maybe some of them will win. So we’ll participate mildly in what should purely be entertainment, even if at some point it appears to have deep investing insights.
Show Notes and References
1:55 Where should we invest in 2023 and some random predictions
3:00 Four ways this decade will be different from the last one
8:30 Return of Volatility in the markets
14:00 The peril of high interest rates
Podcast: Investing in a world with high interest rates
17:00 Return of inflation and higher yields
23:00 Putting Indian inflation in perspective
34:20 Geopolitical turmoil & the return of asset-heavy
39:40 ChatGPT, role of AI & Predicting how humans will react
47:00 Tactically where do I invest my money now?
51:00 Sectors that are positioned well for the current macroeconomic scenario
59:45 Will emerging markets outshine US markets?
How did you like the podcast? – Tweet to use at @capitalmind_in
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In this conversation with Shray, Deepak shares why he feels now is the time for India's concept of a Retirement Account - he calls it the MERA account. This account should help improve investment opportunities for retail customers, create a longer-term investment horizon and push people to save for their retirements.
Listen in as we discuss:
The concept of a retirement account Impact on the economy and people Imagining a retirement account scheme that works for India The operational aspect of such an account Who would oppose such a thing?Show notes and references
2:00 - Seven consecutive years of positive market returns for India
4:00 Seize the opportunity of India story with retirement accounts
Read: My Empowered Retirement Account (MERA)
8:30 Where do LIC and EPFO invest retirement money
"We're giving asset managers our retirement money and asking them to do great things for the next 20 - 30 years... But, they're not doing great things... They are conservative.. not letting me realize my larger risk appetite."
14:30 ELSS equity funds hold money for a longer period of time. Can't they act as retirement funds?
17:00 The peril of investing for retirement with post-tax money
25:00 Deepak introduces his idea of MERA - My Empowered Retirement Account (MERA)
33:00 Why does this matter so much at the national policy level?
41:20 Who are the people who would feel this is not a good idea?
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Of late, we have been discussing macro trends that affect the stock markets, the economy, and as an extension, the world. We have been zooming out to capture the big picture painted by investors, regulators, and the invisible hand of Mr. Market.
In this episode, Deepak & Shray break from the trend and do something different. Rather than zooming out, we zoom in. We discuss two companies that are going through fascinating developments and make for an interesting discussion.
LIC is a recently listed insurer that has a gigantic balance sheet and is a household name in our country of 1.4 billion. It operates in a market that is expanding wider as well as penetrating deeper. Yet, the company seems to be valued poorly by the markets. What’s happening here?
HDFC and HDFC Bank announced that they will merge at the start of this financial year. The merger is progressing rapidly, getting through from one regulatory approval to another, without much drama. But, this merger is causing drama at unrelated places that have nothing to do with the business or the merger (well, not directly at least). Will this merger make index funds do crazy rebalances?
Listen In.
Timestamps and highlights2:00 - LIC has fallen 30% from its IPO. What’s going on?
4:25 - Cultural shift to maximize shareholder value
5:00 - Participating and Non-Participating Policy
“.. This quarter, LIC said, you know what we have 15000 crores of profit.. which we didn’t know we can take.. it turns out that they can and they did.. ”
11:15 - 100% of the profit from the Non-Participating Pool should have come to shareholders
19:30 - What happens to LIC, due to its high equity holdings, what happens if markets don’t do anything for the next 10 years?
25:30 - Why isn’t the market not enthusiastic about LIC if this is such a fantastic opportunity to buy?
30:15 - HDFC merger and the opportunity with Index Constitution
41:30 - The worrying thing about Index funds
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As we slowly settle into the post-pandemic era, one of the hallmarks of this period has been higher inflation than we have seen in the recent past. In response to rising inflation, central banks across the world have responded with a fierce interest rate hiking excursion.
As a consequence, neither of the asset classes–stocks, or bonds, have performed well recently. It raises an essential question: how should we look at allocating our savings?
That’s precisely what Deepak and Shray are here to talk about, among intriguing followup questions one may have when it comes to Investing in a world with high interest rates, including which pockets to consider in financial and real assets. Listen in.
Timestamps and highlights01:30 — To an average investor, is debt coming back as a relevant asset class?
“If you have multiple periods of high and low interest rates, you might actually get very good returns on certain corporate, or even government bonds.”
“[…] It’s coming to a point where debt might actually start to become an interesting investment, simply because interest rates across the world have gone up. This is not the time to look backward, but to look forward and say going forward, returns might actually be quite good from here.”
09:40 — Looking forward, how should one look at asset allocation? And, when is the right time to look at the debt markets?
“You might actually want to position yourself at the outer end of the spectrum in government bonds when the RBI switches its stance. But, until then, I think it’s a waste of time because you may see interest rates go up substantially. And we don’t even know how long they’ll go up.”
“Debt is a very boring instrument. What happens in equity markets in ten days, happens in six months in the bond market. It happens slowly over time, it’s excruciatingly painful, and people rejoice over 1% returns. […] But, I think the value in looking at a bond market as an equity-esque investment, only happens when interest rates start to come down.”
25:09 — Will high interest rates emanate an opportunity in gold?
“It is not inflation that drives gold prices, it’s the fear of inflation that drives it.”
26:49 — What about opportunities in equity markets?
“If in a low interest rate environment, the biggest beneficiaries happen to be zero debt service companies, then from an intuitive perspective, the beneficiaries in a high interest rate environment are companies with very high levels of debt, but whose competitors need the same levels of debt, but can’t acquire it because they don’t have the same standing in debt markets.”
40:03 — Are there repercussions on the startup ecosystem?
“The unfortunate problem of startups is that they come from the concept of needing capital to burn.”
50:05 — How long do interest rate regimes last?
“We have had a very long period of very low rates. Can that mean that we will have a longer period of high rates? The answer will come from how much damage there will be to the economy before the central banks blink.”
52:10 — How would we know when there's a pivot?
“Interest rate cycles don’t change overnight, they take a long time. Watching an interest rate cycle change is like watching paint dry. Six to eight months, something will happen, and suddenly the cycle would have changed.”
57:30 — What makes Deepak optimistic about investing in the current landscape?
“If you don’t deploy in an uncertain world, when do you deploy?”
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