FINANCE TALKS

ELSS is one of the options for investors to save taxes under Section 80 C of the Income Tax Act.  They also offer the perfect way to participate in the growth of the capital market, having a lock-in-period of three years. Besides, ELSS has the potential to give better returns than any traditional tax savings instrument. Moreover, by investing in an ELSS through a Systematic Investment Plan (SIP), one can not only  avoid the problem of investing a lump sum towards the end of the year but also take advantage of “averaging”.

Hedging is an act of taking position in the financial transactions to offset potential  losses that may be incurred by another position. A hedge can be constructed from many types of financial instruments, including insurance, forward/futures contracts, swaps, options etc. A hedged position limits loss as well as gains, since appreciation in one position is squared-off by depreciation in the other position and vice versa.

Margin of Safety is the term popularized by Mr. Benjamin Graham (known as "the father of value investing") and his followers, most notably Mr. Warren Buffett. In simple words, margin of safety refers to the difference between value and prices, when securities are bought at a price significantly below their intrinsic value. Higher the difference between value and price (i.e., value higher than price), higher the margin of safety.  While Margin of safety allows an investment to be made with minimal downside risk, it doesn't guarantee a successful investment. However, it does provide room for error/cushion against an analyst's judgment on valuation of securities. Determining a company's "true" worth (its intrinsic value) is anyway highly subjective. There is no universal standard to determine how wide the "margin" in margin of safety should  be. Each investor must come up with his or her own number.

Several businesses operate as a cluster/bundle of businesses rather than one business. For example, ITC, L&T and other corporations have different business under one umbrella.The best way to value these businesses is to value each business separately and then do the sum of those valuations. This method of valuing a company by parts and then adding them up is known as Sum-Of-The-Parts (SOTP) valuation .

Embedded value refers to the present value of the expected net future cash flow (adjusted for probability) of a life insurer from the policies that are currently in force. Embedded value is a critical metric for life insurers and is popularly used to value insurance firms across the world.                             LIC's Embedded Value as on 30th Sept, 2021 Hence in case of Life insurance business Price to Embedded value ratio is preferred more than the Price to Earnings ratio. It is calculated as:  (Price/Embedded value). Note: The upcoming LIC IPO is also going to be valued on its Embedded value.

Compounded Annual Growth Rate (CAGR) is a measure of an investment's annual growth rate over time, with compounding. It assumes that any dividend/income/rent declared by the investment is re-invested in the same investment on that day's market price. The compound interest formula to determine a CAGR between opening and closing wealth is as follows: CAGR = [(A/P)^(1/t)-1]   Where, 'A' is the closing wealth 'P' is the opening wealth and 't' is the time period in years. Let's understand this with an example. The Profit after Tax (PAT) of a company (in Rs. crores) from F.Y. ending 2017 till F.Y. ending 2021 is 2608, 2059, 2327, 2865 and 3234 respectively. Now from the above information let's calculate the company's CAGR Profit after Tax during last 5 years. It will be calculated as follows: CAGR = [(3234/2608)^(1/4)-1] Here, t=4 should be considered since the data is presented as year end data, but we have only four completed years. After solving...

These are industries that create products and services that have low income elasticity i.e., a fall or rise in income does not affect the demand significantly. Therefore, these industries experience minimal impact on account of economic cycles. Rather, their business prospects are affected only by secular trends. Food, agricultural inputs, healthcare and pharmaceutical are some of the industries that come under this category. The defensiveness of this industry is the reason why analysts generally suggest to shift to the defensives during a equity market correction.

Background It is the largest sports and athleisure footwear brand in India in terms of value and volume in Fiscal 2021. It was incorporated in 2005 and is a lifestyle-oriented sports and athleisure footwear company that offers a diverse product portfolio for the entire family. It offers multiple choices across styles, color palettes, price points and an attractive product value proposition. It has over 425 plus distributors across 28 states and 664 cities. It has 19,200 Geo-tagged retail touch points out of which 11,300 are covered by 152 internal sales team and 7,900 through distributor “Feet on Street” initiative.   ·        Strengths Ø   Largest sports and athleisure footwear brand in India, both in terms of value and volume in Fiscal 2021. Ø   Fastest growing scaled sports and athleisure footwear brand (scaled brands being brands with over ₹ 2 billion of revenue in Fiscal 2019) in India over Fiscal 2019 to Fiscal 2021. Ø  ...

A Stock Split is a corporate action where the face value of the existing shares is reduced in a defined ratio. A stock split of 1:5 means split of an existing share into 5 shares. Accordingly, face value of shares will go down to 1/5th of the original face value. For example, if an investor holds 100 shares of a company with a face value of Rs.10 each, a stock split in the ratio of 1:5 will increase the number of shares held by him to 500 but the face value of each share will go down to Rs. 2. From the company’s perspective, there is no change in its share capital since an increase in the number of shares is offset by a fall in the face value and resultant multiplier of face value and outstanding no. Of shares remains the same. Companies consider splitting their shares if prices of their shares in the secondary market are seen to be very high restricting the participation by investors. As price per share comes down post-split, share split leads to greater liquidity in the market. Simil...

Central Depository Services (India) Limited (CDSL) is very good stock to hold for long-term investors and I am presenting a thesis on it which is as follows: ·        Its fundamentals are very strong and impressive which can be understood from the following points:   Ø   It is a debt free company. Ø   It has delivered a good profit growth of 24.10% CAGR over last 5 years. Ø   It has been maintaining a healthy dividend payout ratio of 42.69%. Ø   It has a healthy Cash from Operations. Ø   It has a healthy ROE and ROCE of more than 20%. Ø   It has a very healthy Operating and PAT Margins of 75.51% and 58.55% respectively as per the financials of F.Y. 2020-21. ·       The penetration to equity markets in India is still very low as roughly about 3% of India’s population invests in equity markets as compared to 55% in US, which suggests that there’s lots of headroom for India’s stock marketplace p...