Who are we?

Wealth First is an Independent Investment Advisory Firm directed by senior level partners. The Group’s philosophy is to provide personal senior level service to enable clients visualize and achieve their long term goals

Wealth First Group has gained broad experience, considerable industry knowledge and expertise working with leading financial intermediaries, large conglomerates and Investment banks.

The Senior Team’s capital markets experience aggregates 250+ years

Client Trust is the most important facet of our Business. As such, staying Independent and Client focused have been our primary objectives. More than 90% of our HNI clients are provided Investment advice on their entire Portfolio.

ESG Investing – is it the future?

What gave birth to ESG considerations?

Many risks associate with Financial Investments, some of them are relatively difficult to quantify. One of them is “Climate risk” (CR). In simple terms, CR is the measure of “carbon footprint” on nature because of activities carried out by businesses.

What are ESG Considerations?

ESG consideration are non-financial performance indicators. The following constitute major considerations:

  • Environmental risks – business activities that have actual or potential negative impact on air, land, water, ecosystems, and human health.
  • Social risks – business impact on society. Considers attributes of health and safety, labor-management relations, protecting human rights, and integrity.
  • Governance risks – concern the way businesses are run. Addresses corporate independence and diversity, corporate risk management culture, accountability of the board, protecting shareholders and their rights.

What entails ESG Investing?

ESG investing seeks not only financial returns but the impact the investments have on the global issues such as global warming. Millennials are particularly attracted to investing in companies that adhere to ESG norms. They are conscious about their role in environmental and social responsibility and are looking to invest in companies that adopt environment friendly policies or bring in products or practices that influence society positively.

Future of ESG Investing world & India!

Global assets under management (AUM) with ESG portfolios hit a high of US$1.2 trillion in October 20 – a quantum increase from $530 million five years ago. Bloomberg reports state that there were 17 ESG exchange traded funds rolled out so far in 2020, compared with 10 in all of 2019.        

In India however, ESG investments are still at a nascent stage. While there are 3500+ Global ESG funds, In India we have only 8 funds with 6 funds rolled out in Year 2020.   It is expected that in future, foreign inflows into companies adhering to ESG considerations would be manifold as already witnessed in Global markets.

ESG Investing options in India.

ESG investments would become the trend in coming days. Investors can look at this theme as it gives them the satisfaction of contributing to the ESG cause while getting a decent return on their investments. Appending the list of ESG funds in India.

Please note that the above should not be construed as an advice from us. Our company is in the business of distribution of suitable Financial Products to investors describing product specifications, material facts and the associated risk factors. We are acting as a Distributor for these products and facilitating transactions.

Small Exporters – Hedging Dollar Receivables through Currency Futures

Though Indian Rupee depreciated over a period of time against USD ($), on careful consideration, It DOES NOT (depreciate) to the extent of what gets priced in the futures contract. Since last 2 decades (Jan 2000), Indian Rupee (INR) has depreciated against $ to the tune 2.6% annually till November 2020. Ever since INR was freed from $ peg in 1994-95, INR depreciation has happened where $ spikes drastically and then cools off over longer time span. This gives incentive for exporters to hedge respective $ receivables.

Value for exporters comes from:

  • Fact that INR depreciated 2.6%, less than the forward premium of ~ 4% – 5% pa (interest rate differential between India and U.S)
  • Forward USD selling against INR is a positive carry game
  • Cost wise – hedging through futures is economical compared to bank (Commission & Margin cost of funding)

Assume that a Pvt. Ltd entity has approx. $ 1 million receivable every month and it followed the strategy of hedging USD receivables through one month Futures. By simply hedging through 1 month futures, entity would’ve made cumulative gain of about Rs.14 per USD for the period Sept 08 to Nov 20 (As per $ futures data availability on investing.com). This amounts to generating higher revenue to the extent ~ 2% – 3% pa that adds to entity’s top and bottom line.

Following is the cumulative gains / losses chart for hedging $ receivable by 1 month futures for above specified time frame (Sept 08 – Nov 20).

Please note that the above should not be construed as an advice from us. Our company is in the business of distribution of suitable Financial Products to investors describing product specifications, material facts and the associated risk factors. We are acting as a Distributor for these products and facilitating transactions.

REITs – Alternative for Real Estate investment ?!

Looking to invest in commercial real estate (CRE) ? How about “Nariman Point” area of Mumbai?! To give a perspective, average cost of CRE in Nariman point varies between Rs.40,000 to Rs.60,000 per Sq. ft.  Hypothetically, a 1000 sq. ft. (carpet area ~ 650 Sq. ft.) office would dent pockets by over Rs.5 Crores! Obviously, a retail investor should overlook the idea of owning or co-owning this property, right? Well Not exactly.

“REITs” lets you “co-own” projects like above. A real estate investment trust “REIT” is a company that owns, operates, or finances income-producing real estate. REIT works like ETFs wherein they pool funds from individual investors and buy commercial and/or residential properties or mortgages.

Why REITs –

  • Regular Income & Capital Growth
  • Real Estate Investment without the hassle of managing the property.
  • Easy liquidity as these are publicly traded on exchanges
  • Portfolio Diversification
  • Inflation Hedge.

Embassy Office Parks is one such REIT which got listed in India in April 2019. Embassy Office Parks owns and operates about 33.3 million square feet of commercial property (including Grade A office space, hotels, and solar park) of which 26.2 million square feet is completed with 92.8% occupancy. Tenant base has over 160 blue chip tenants including several multinationals. The primary source of operational revenue for the REIT is the rental income followed by common area service charges. The office spaces are usually leased out for 9 to 15 years with rent escalation of 10% to 15% every 3 years. There are 11 Commercial office complexes with 78 buildings. These properties are primarily in Bengaluru (57% share), Mumbai (17%), Pune (15%) and Noida (11%). In terms of office type, commercial office takes the largest share at 92%.

In order to facilitate a comparison between owning a REIT unit vis-à-vis CRE , we have put some numbers in perspective (REITs data as on September 2020):

  • Against per unit cost of acquisition of Rs.10,719, current value of property stands at Rs.11,585 ~ Gain of 8%
  • Against the current NAV of 365, current market price of 355 (IPO price of 300) implies price movement is in line with NAV

Other aspects:

  • In the near term, around 7 million + square feet space is under construction and is going to be available starting FY 22-23.
  • As per REIT regulations, minimum 90% of distributable income (DI) must be paid to unitholders. Embassy REIT distributed 99.9% of DI since inception.
  • Currently, the distributions are under 3-line items.
  • Interest – received on loans made to SPVs, taxed as per Slab rate
  • Dividend – from the SPVs incomes, Tax free
  • Amortization of Debt to SPVs – Principal repayments from the SPV Loan, Tax free
  • Capital Gains tax applies on sale of units of REIT. A 15% Short Term capital gains tax is payable for units held for less than 3 years. Units held for more than 3 years attract a long- term capital gains tax of 10% for gains above Rs.1 lakh. Surcharge on tax is extra.
  • Since there are contractual Tenancy agreements, there is little scope for losses on account of nonpayment of rents. Also, since rentals are diversified across large tenants, the risk of not receiving rentals during COVID like stressed situations is much lower than that of a self-owned CRE.

Summary:

  • Current yields (Cash flow) of REIT are better than self- owned CRE
  • Time & Resources investment in self-owned CRE is a major burden
  • Non occupancy losses in Self owned CRE are high
  • Tenants vulnerability to unprecedented stressed situations
  • High liquidity of REITs compared to physical property

Above factors render REITs good alternative option against Self owned Commercial real estate.

Please note that the above should not be construed as an advice from us. Our company is in the business of distribution of suitable Financial Products to investors describing product specifications, material facts and the associated risk factors.

We are acting as a Distributor for these products and facilitating transactions.

Polarized Financial Markets

Overview of how Global financial markets performed during 2020 !

While most of the Financial markets have emerged strong post Pandemic, there are still some laggards.

Equity markets – Sectors do matter !

Past couple of months India witnessed robust foreign monies flowing into markets – for Oct ~ 14,537 Cr, Nov (month to date) ~ 33,232 Cr.

While flooded liquidity aided broad Indices recover fully and attain new highs – Huge divergences can be seen in the performance of various sectors. While Pharma has gained 47.6% from previous high, there are many sectors that are way below pre Covid levels. PSU index is still 26% below its peak and Realty at 13.6%,

COVID not only created huge volatility on main Indices, but also brought a major change in the sector preferences of investors. It’s time for investors to take note of this phenomenon of sectoral performance and act accordingly.

Please note that the above should not be construed as an advice from us.

Our company is in the business of distribution of suitable Financial Products to investors describing product specifications, material facts and the associated risk factors.

We are acting as a Distributor for these products and facilitating transactions.

Top performing Mutual Funds & PMS

While it is considered that Investing through mutual funds/PMS is a better way to participate in equity markets, investors should note that selecting the right fund/scheme is more important. From the data below, one would observe that proper selection of fund would enhance the returns considerably.

Mutual funds may be “Sahi Hai” but not each and every one !

Highlighting top performing MF & PMS for past 1 & 3 years respectively.

Mutual Funds (Category wise)

Portfolio Management Services (Diversified)

PMS existing over 3 years are considered

Benchmark Indices performance (XIRR)

Mutual Fund Source : Money control, returns as on 30/10/2020

PMS Source : PMS Bazaar, returns as on 30/09/2020

Disclaimer –

Please note that the above should not be construed as an advice from us.

Our company is in the business of distribution of suitable Financial Products to investors describing product specifications, material facts and the associated risk factors.

We are acting as a Distributor for these products and facilitating transactions.

Equity Opportunity – Post U.S Election

U.S. Presidential elections are one of the major events impacting Global markets.

Performance of S&P 500 Index (a bellwether index of US Markets), post US elections, throws some interesting points.

  • Data highlights that Presidential elections have generally acted as a catalyst to U.S. Markets.
  • U S markets on an average moved by 6.5% in a six-month period post elections.
  • One year move post-elections is even more impressive with average returns at 15.4%
  • But for the dot com bubble in 2000 and sub-prime crises during 2008, US markets generally rewarded investors post elections.

The following table highlights the absolute dollar returns of S&P 500 index post US elections.

Depreciating Rupee to further enhance returns –

Indian Rupee on an average depreciated by about 2.5% annually against USD over the past 20 years.  Incremental returns to investors in rupee terms may be higher if this phenomenon continues.   

Exposure to U.S markets via international ETFs / Indexed funds may be an opportunity for domestic investors over the next 1 year.  

Disclaimer: We are in the business of distribution of suitable Financial Products to investors describing product specifications, material facts and the associated risk factors. We are acting as a Distributor for MF and other financial products and facilitating transactions. This article is for information purpose only and should not be construed as an investment advice from us. Investors should consult their Investment advisors about the appropriateness and suitability of the products before investing.

Term Insurance for Seniors – as Wealth transfer tool

Term (Life) Insurance as we know is a pure risk cover and is generally expensive for seniors. This is passé if we look at new Bajaj Special Protection Goal policy.

They introduced a new policy wherein seniors (up to 65 years) can get themselves insured till 99 years of age !

Premiums are also quite attractive in terms of cost benefit analysis. This policy proves to be good risk cover till senior age and works as wealth transfer eventually.

Please find illustration of premium paid and returns calculated in case of eventuality at various stages of life during the life of the policy.

Following table is illustration for policy of Rs. One Crore with a coverage up to 85 years, Premium payment for 10 years with different age groups and the returns there on

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Kindly feel free to contact us for any query or information on the same.

Need for Diversification – Overseas Investments.

Rationale for international exposure through funds:

  • Diversification: Different geographies have different risks. Also, the correlation in equity market movements are not perfect.

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  • Hedge against the dollar: International exposure helps as a buffer to the long term trend of INR Depreciation.

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  • Resilience displayed by Developed markets: Performance comparison – panic fall from peak in 2020 due to Covid19 and recovery from bottom till date after various stability measures are announced.

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  • Capital outflow risk in emerging markets: In the recent equity market sell off, there has been an outflow of more than $90 Billion from emerging markets. Similar outflows were observed during panic situations in 2000, 2008, 2013, etc. These create pressure on asset classes, currencies and also, sovereign ratings of the emerging market economies.
  • Investment limit of $2,50,000 p.a. under LRS (Liberalized Remittance Scheme, governed by RBI) does not apply to domestically available international funds.
  • Low transaction costs and ease of execution to create international assets

Observations:

As a risk mitigation, some % of equity allocation (10% -15%) to international exposure especially developed markets is desirable. This is a long term investment proposition to be built through SIPs. Some of the schemes available are as follows:

PGIM India Global Equity Opportunities Fund

  • Fund of fund – fully invests into PGIM Jennison Global Equity Opps $ I Acc (since 17th October 2018) – active fund which is country and sector agnostic. No cash calls.
  • Number of stocks: 35 – 45, Average position size: 1.5% to 4%
  • Smallest company allowed in portfolio: Market cap $1 billion
  • Exit Load: 1% up to 365 days. AUM – Rs 69 Cr

US Index Funds: 

The US has 25% share in world GDP, 54% share in global listed market cap and a long track record. Many US companies are global leaders and the businesses have 40% revenue (approx.) from oversees.

Motilal Oswal S&P 500 index Fund:

  • Invests in top 500 US listed companies (80% of total market cap). (Exit Load: 1% up to 3 months)

Motilal Oswal Nasdaq 100 Fund:

  • Includes top 100 non-financial companies.
  • AUM – Rs 298 crore, Exit Load – NIL
  • Please note: while S&P 500 is a diversified index, this is focused on technology oriented companies (46% of index). Also, there is stock concentration – Top 2 stocks make about 22% of index.

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Indian Pharma – huge relief for investors

Material impact of the COVID – 19 pandemic and National lock-down has been catastrophic for Financial Markets. Sector wise / Industry Business impact though apparent can be better gauged once the lock down clears. Meanwhile we contrasted various sectors current valuations with past data. While many sectors have corrected sharply, with better suited macros and torn down competition from China for intermediates and APIs, Pharma sector valuations stand affirmative for Investment opportunity:

Pharma 1

Strengths v/s Weakness

Strengths:

  1. Some windfall gains expected due to export of Covid 19 related medicine and currency depreciation (ease in international regulatory issues, at least temporarily).
  2. No meaningful earnings impact due to Covid 19 disruption.
  3. Given the pandemic, Government policy focus and allocations are expected for the sector – structural long-term boost to the sector.

Weakness:

  1. Reduced labor availability due to lock down.
  2. Raw material scarcity if Covid 19 resurfaces and leads to supply disruption.

Pharma (~ 13%) has substantially outperformed Nifty 50, (~ – 25.8%) since Jan 2020 and should continue to grow at a handsome rate given valuations & positive outlook for the sector.

Observations:

Most Fund Managers have reduced ‘underweight stance’ on the sector and are now equal or overweight. In a portfolio of diversified equity Mutual Funds, expect around 4% to 6% of pharma weight currently. Given the weak economic outlook and comfort for this sector (both valuation and business wise), one may look at an additional 5% (of equity allocation) exposure to pharma funds for the near term.

Funds to look at:

  1. Nippon India Pharma Fund – FM Shailesh Raj Bhan has been managing this fund for over 10 years and has delivered more consistent performance amongst peers. Current portfolio focus is on domestic oriented companies.
  2. DSP Healthcare Fund – FM Aditya Khemka – 13 years of experience of working in Pharma companies and also, as a pharma analyst add to comfort. This fund is aggressively positioned with higher exposure to mid / small pharma companies and some international companies as well.