SEBI changes norms for FII and Buyback of Shares

Sebi, India’s capital market regulator on Tuesday tightened the norms for share buybacks, moving to arrest suspected misuse of stock repurchases by listed companies in recent years.

Companies would have to ensure they spend at least 50% of the money earmarked for buybacks, the Securities and Exchange Board of India (Sebi) said after a board meeting. That doubles the current minimum of 25%.

Sebi’s new rules will require companies opting to buy back shares to create an escrow account in which they would need to keep at least 25% of the amount earmarked for the repurchases.

Should they fail to meet the 50% target, they would forfeit a sum equivalent to 2.5% of the amount allotted for the buybacks.

In a buyback, a company repurchases shares from securities holders, employees or on the open market, primarily to return surplus cash to shareholders, support the stock price during market weakness, or increase the value of underlying shares.

On 2 January, Sebi issued a discussion paper on tightening buyback norms to prevent misuse of the route.

Of the 75 buybacks through open market purchases in the three financial years to 2010, companies spent an average 49.91% of the money they had allocated. According to Mint research in January, during 2011 and 2012, out of 54 buyback announcements by listed firms, only 18 actually took place.

Typically, when a company announces a share buyback, investors tend to push up its stock to get a higher price. Sebi suspected that some companies were announcing share repurchases merely to push up their market value.

What is Asset/Instrument? What is Asset Allocation ? Ideal Asset Allocation:

What is the meaning of asset/instrument?

While talking of investments we will use word asset and instrument almost in similar sense. Suppose, I want to invest in equity share of ABC LTD, then I will purchase it’s shares from stock exchange. Here equity share is an asset, an equity asset class, while similarly the listed equity share is instrument as well. Many times instrument are multiple then the asset class. For e.g. I want to invest into gold, so here gold is asset class (we will include gold into a broader commodities asset class, then say gold as an independent non-umbrella standalone asset). But there I can invest in gold via, gold futures, gold etf, gold mutual fund and physical as well; so here all these four are instrument, different instruments. However we will not complicate and use both words as mostly meaning same, as it is not of much importance for our fundamental understanding.

Main types of asset classes:

Main Head	Equities	Debt	Commodities/Real Assets	Real Estate
Includes	Equity shares, DVRs, Warrants, Depository Receipts, Equities of Foreign Country listed cos, Equity index etfs, Equity mutual funds.	Bond, Bank FD, Company FD, Government bonds, Corporate Papers, mortgage backed securities, debt mutual funds	Metals like gold silver copper etc. Energy commodities like crude oil, natural gas etc. Livestock like cattle etc. Agricultural commodities.	Real Estate Land, Rental property, listed real estate investment trusts REITs

IMPORTANT NOTE:

We have not included derivatives. So weather derivatives, carbon trading, and power/electricity trading are not included. Derivatives are not an asset class. They are hedging, arbitraging and speculating instruments.

Cash can also be an asset; however it does not incur any return and does not fall into any of 4 investment objective criteria, so not included.

It is not possible to write all possible asset names. We have put some names. There are hundreds of commodities trades. And variety of instruments in debt asset class as well (However one should beware and make strong distinction between actual debt instrument and a derivative of debt instrument).

Also if some mutual fund says it is investing in only ‘real estate companies’ then also it is an equity asset instrument. Similarly if any mutual fund/investment vehicle says it invests only in ‘commodities companies’, then it is also an equity asset instrument.

What is asset allocation?

Now, as we have understood what an asset is and also known different asset classes; we will go ahead.

Basic: Asset allocation is nothing but answering the question to: “What % of investible amount you will invest in each asset class?”

Advance: After answering the question no.1. You will decide which instrument to select in each asset class. You will also decide on monitoring these asset allocated portfolio and make changes to allocations as per your strategy based on pre-determined strategy or based on light of new facts and so on.

IDEAL ASSET ALLOCATION across all asset classes: (Ideally what % of investible should you invest in each asset class)

EQUITIES	DEBT	COMMODITIES	REAL ESTATE	Total
50%	25%	25%	0	100%

*Here we have assumed the investor to be of age 25 and so investment in debt is kept at 25%. We advise investment in debt as much as the age. I.e if you age is 30 you should invest 30% in debt and 70% in equities and so on.

*This allocation strategy is for average investors.

*For large sized portfolios mandated to be managed with asset allocation strategy and diversification (running into several crores and millions) we advocate investment into real estate at 20% which will be reduced from equities investment part.

*Many times the benefit of investing in commodities is inherent in investing in equities. However, direct investment in commodities are increasing and the return on commodities are decoupling day by day as has been emerging as a standalone and sustained long term asset class. Before one decade there was no such thing as commodities investment.

IDEAL ASSET ALLOCATION in Equities Only: (Ideally what % of investible should you invest in Equity Market Classification?)

Large cap, Front line	Midcap	Smallcap	Penny stock	Sectoral classification	International Equities
·         Top 100 market capitalization stocks	·         Top 201-300th list market capitalization stocks	·         Stocks in market capitalization list of 300th and above	·         Stocks having market price of rupees 10 and less.	·         For e.g., if you have provided for certain % to be invested in real estate stocks only then you are said to be investing in a sectoral classification.	·         Investment into foreign stock market must be classified separately as we are addressing average indigenous investor here
50%	20%	10%	10%	None	10%

*You will find many other classifications such as micro cap,

*Please find different article explaining better all these classification within Equities.

*There are at least more than 3 different definitions of large cap, mid cap and small cap stocks. According to one definition large cap=those stocks which are in the top 100 market cap list (market cap/market capitalisation= no of paid up equity shares x current market price of the share); while mid cap is those stocks which comes in 101 to 300^th list in terms of market capitalization, while all other i.e stocks that come in list of 301^st and ahead comes under list of small cap group of stocks. This is not a universal definition. Many people define differently. However we will go with this definition and classify stocks in this fashion for our purpose.

*Some people also put classification of ‘micro cap’. These companies are those whose market cap is very very low. However, we have let it out purposefully as it is not necessary to separately classify and increase complexity.

*Classification of Stocks into further any classifications will add only into complexity than utility.

*Separate provision for sectoral is not required due to the fact that when one is focusing on sectoral specific investing, one is indeed making a saperat portfolio itself. Also, the stocks in this sectoral portfolio will be included in calculating weightage under large cap, mid cap, small cap and penny stocks genres.

At this point it is important to note that ACROSS ASSET CLASS CLASSIFICATION includes Debt, Commodities and Real Estate separately while ACROSS EQUITIES CLASS CLASSIFICATION does not include them.

So, the point is that you have to decide while allocating (1) lump sum money, or (2) SIP money, that you are investing for which type.

We will emphasize mainly on ACROSS EQUITIES CLASS ALLOCATION, however if any investor want to include Debt, and Commodities also then we will devise portfolio accordingly.

What is Investment? Why Invest? Why Invest in Stocks ?

WHAT IS INVESTMENT?

Investment is nothing but parking your income/cash somewhere with an expectation or assurance of interest/dividend or capital appreciation or both (an instrument, of asset class). If you have cash piled up in a locker it is not an investment, it is merely currency or cash amount. Your bank savings account also doesn't come under instruments as it gives only 3-4% return and meant for primarily parking your cash rather than investment.
(However recently some banks have started giving 5-6% interest on savings bank account as well however their minimum criterion is to keep a minimum balance of 1 lack and above)

INVESTMENT OBJECTIVES:

Investment is done for following objectives,

• 1.    Beating rate of inflation
• 2.    Gaining return on money in access of over and above rate of inflation
• 3.    Gaining capital gains
• 4.    Specific Goals (fulfillment of financial planning goals etc.)

DEVASTATING EFFECT OF INFLATION ON YOUR MONEY:

This is how increases your expenses every year and how value of your money declines every year. You can see in the image how inflation rate of 5% increases the amount of your same expenses every year and decreases the value/purchasing power of your savings if not invested.

We have calculated only 5% rate of inflation but as you know the inflation rates are soaring above 7% to 10% many times in this globalized world and due to rising crude oil and commodities prices.

  

WHY INVEST? AND WHY INVEST IN STOCKS?

So, from the above image you can clearly see how Sensex/Stocks have outperformed inflation, which is the first objective of any investment, and given higher return over and above inflation and Bank Fixed Deposite or so called risk free investment instrument as well. This calculation is for over 30 years. But if you look at the history of entire stock market all over the world, equities have always outperformed inflation and debt instruments.

So, it is clear now that one must have investments into equities.

  

THE POWER OF COMPOUNDING RATE OF RETURN:

Just see the difference of investing 5 years more and 3 lakhs rupees more. It is a whopping 71.04 lakh rupees. You can calculate yourself to make sure!

You can also relate this to understand that Mr. B started investing 5 years earlier than Mr. A and look at the difference. So this also signifies the important of starting investing as early as possible.

Below you can see, the same calculation showing power of compounding rate of interest if rate of interest is 15%.

Now we will see below what happens to your investments if the rate of return is 20% on compounding basis.

What is a Stock or Share? What is a Stock Exchange?

What is a Stock or Share?

A stock or Share can be simply defined as a share or ownership into a business which has been formed under a legal registered company.

It is an ownership part. For example ABC Industries Ltd has 1 lakh equity shares.  Suppose Mr.A owns this shares are the owner of the company and so its profit and loss. 

A share is also known as ‘equity’, ‘stock’, ‘scrip’, ‘counter’ also in stock market parlance.

What is a Stock Exchange?

A stock exchange or Share Market is nothing but a place or platform where companies’ shares are listed (listed means –the company has completed formality so that everyday buy and sale can be allowed of its shares on the stock exchange)

In India there are mainly 2 stock exchanges. One is NSE and another is BSE. Notably BSE is world’s 2^nd oldest and Asia’s oldest stock exchange. This shows that Indians were one of the pioneers in investments in the world.

I don’t know much, I don’t have a demat or trading account yet?

No problem. Simply contact us and we will guide you through opening a demat account and trading account and explain you how stock investing works, the important Dos and Don’ts. 

Trading Opportunity in HCL TECHNO

HCL TECHNO=
This stock is currently ruling at 746. 
You can see the triangle on the daily charts. It can anytime break the triangle above 10-20 bucks and rise further. There could be sharp rises of 5% also.

Contact us OR Become member to get accurate TGT, SL level and HOLDING DURATION.

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Technical analysis and stock movements as well recommendations are subject to changes in market condition and news flow of company and the economy. So please remain updated with us. Or contact us directly in case of any query on info@meghainvestments.com or 09377008708