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Prime Retail Debt - Alternate Investment Opportunity
1. What is Peer to Peer (P2P) Lending:
Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. The development of financial technologies, or fintech, by integrating banking processes with information technology has enabled the creation of financial products and services that can be delivered to consumers at scale, and at a fraction of the cost incurred by conventional banks and NBFCs. Since P2P lending companies operate online, they can run with lower overheads and provide the service more cheaply than traditional financial institutions. As a result, lenders can earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates.
2. Global P2P Businesses:
The research report published by Transparency Market Research states that the opportunity in the Global P2P lending market was worth US$26.16 bn in 2015 & analysts have predicted that the market valuation will reach US$897.85 bn by 2024, as it expands at a significant CAGR of 48.2% from 2016 to 2024. In a report in 2015, Morgan Stanley also predicted that marketplace lending would grow to USD 490 billion globally by 2020. The new loan volume for USA alone in 2018 is expected to be $38.9 billion, a year on year increase of 46%. By 2050, the overall P2P lending value is expected to be close to 1 trillion U.S. dollars.
3. Indian P2P Landscape:
P2P lending service providers have been in business in India since early 2014, but until last year, there was no regulation around it. In September 2017, RBI notified that these will be registered as non-banking financial companies (NBFCs) and came out with guidelines for P2P lending platforms a month later i.e. in October 2017.
Fed paused rate hikes in their last FOMC meet. Inflation is reducing. Markets are taking a cue from this and getting back to Risk On mode. Wall Street has been publishing scores of bulilish stock market out look for 2024. Analysts expect lower inflation, lower interest rates, resilient consumers and strong returns for big Tech. So far, we have seen disinflation, mainly driven by supply side with a big post pandemic rebound in production and productivity. What will be a worry in 2024 is demand side story – which is not as rosy as what people are expecting. And that is bad disinflation.
I had posted a Tweet a few days back, wherein I had suggested that FY 2024 same 3 Asset Classes will do well which did well in FY 2023 as well viz. Gold, Debt and Asset Allocation: My Reasons for the same:
We have been listening to the narratives of how Indian markets are more resilient than other global markets. How Indian Equity markets have fallen the least among other emerging markets as well as the strength of INR vis a vis other global currencies v/s Dollars. Is it prudent to think that India will be insulated from Global deteriorating Macro and Geo-Political factors and carve a different path of its own? Click above to read more
I had penned 3 articles on the captioned subject and done innumerable Social Media interactions through Twitter and LinkedIn and given my thoughts, observations and suggestions – only keeping in mind the best interests of the Investors at heart. What I had said on the very first day post winding up, how things panned out a year later and finally showcasing on how – what I had predicted in terms of outcomes – have all come true: It was a very difficult chapter in the history of Mutual Fund Industry. Not only from the Investors point of view – whose funds were stuck when they needed them the most during lock down due to COVID but also for various different reasons as well.
Now let me talk about the lessons learnt in point format first and then elaborate on each of the points: 1. Do not Panic 2. Apply Common Sense and Logic 3. Do not get swayed by negativity 4. Be consistent in your Message 5. Have Patience 6. Show solidarity and unity among the Market participants; especially among AMCs and MFDs 7. Trust the pedigree of the AMC and the Fund Manager in question Now let me elaborate on each point:
As I am writing this note, NIFTY has scaled 17,857 and Sensex has scaled 59,985 (as on October 28'2021). No one in their wildest imagination would have thought of such stupendous rallies in some of the Asset Classes since the outbreak of COVID19 in March 2020. March 2020 was a month of Doom and Gloom and most experts had predicted very long recession from thereon. October 2021 is the time to relook at your Asset Allocation with a magnifying glass and look to reallocate some of your client investments to align with current market valuations in different asset classes. Multi Asset theme which has started becoming popular is the way going forward as well.
Of late I have noticed that NIFTY50 has been scaling new highs but its PE (Consolidated Trailing 12 months) has come off significantly. It is also reflecting in my Algo number and the Equity band it recommends - from 0% in Equity, it is now showing 30% equity allocation in Equity in rising markets. This got me thinking and did my own research with inputs from an explanatory note circulated by DSP Mutual Fund (when Market PEs were changed from Stand Alone basis to Consolidated basis -will write more on this as well) and inputs from Mr. Manuj Jain, Senior Product Specialist at ICICI Prudential Mutual Fund.
Today, I wish to go down the memory lane of this past 1 year and put things in perspective – this entire saga for the benefit of not only the affected Investors; but for all in the Mutual Fund Industry. This can then work as a guide for the Mutual Fund Industry at large.
Those following Asset Allocation can only stare at erosion going forward - be it in Debt or in Equity. One strategy and scheme which is well poised to take advantage of current situation is : Axis Banking & PSU Debt Fund - which follows Constantly Rolling Down strategy. Treat it as an alternative to Liquid schemes and earn better returns than pure Liquid schemes with no Credit or Interest Rate Risk (if held till maturity) and avoid Reinvestment Risk as well. Please read on my thoughts on this Scheme
PaSt couple of days, there were lots of WhatsApp forwards on how most of the Credit Scheme redemptions are met by transferring them to other schemes of the same AMC. Some concalls were also made by AMCs to quell these doubts and/or give explanations for the same. All the WhatsApp groups were only abuzz with these stories throughout the day with lot of agitated to and fro among the group members
Investors are wary of investing even in Liquid schemes or Ultra Short-Term Bond funds due to all the various events and circumstances. Many have in fact, redeemed out of these schemes; thereby showing extreme risk aversion to investing. Equity market corrections and COVID issue has also added fuel to fire. In such circumstances, there is one Asset Class which is capable of fulfilling the investment needs and criteria of suck risk averse investors. Ideal for investment horizons upwards of 3 months plus. This Asset Class is Arbitrage Schemes. This fits the bill for all such risk averse Investors.
This note may sound like I am trying to defend the indefensible. I am only trying to bring in a very different and a dispassionate view to this entire saga and its implications and repercussions. What has happened has already happened; what we can salvage and communicate with our Investors will make all the difference. Otherwise, entire Credit space and with that Debt schemes of entire Mutual Fund Industry will have existential crisis. We will lose faith and confidence of Investors with huge credibility issues going forward. Hence, all I am trying to do is Control the Controllable and not concentrate on what is already done and not in our hands. Those who know me, know that I have always found some positive message in any times of crisis be it JSPL, Amtek Auto fiasco, 2013 Income Fund fiasco or 2019 FMP fiasco due to delay by Essel group.
Advisors can build their entire Mutual Fund practice by embracing only Dynamic Asset Allocation Funds (DAAF) instead of investing in Market Cap Bias schemes like Large Cap, Mid Cap, Small Cap or by investing in Sectoral Funds like Pharma, Infrastructure, etc. Many were not even aware of this category only when Markets turn volatile, bearish, uncertain is the time when talk of this category gets noticed and talked about. Most media â€“ print and television have started highlighting virtues of this Category and become proponents of the same. However, those who follow me, read my articles, attended my lectures or Webinars or seen my Workshop videos are aware of my thoughts on this category since past 8-10 years. I have always treated this category as ALL SEASONS STRATEGY which can work well in any Market conditions and also deliver happy investing experience.
Today I am going to write about a scheme about which I was skeptical for quite some time. This scheme just does the opposite of what I believe in, which is invest/disinvest based on Market valuations. Those who know me and follow me will be witness to my thought processes of moving away from Traditional Mantras of Buy & Hold, SIP Karo Bhool Jao and Do Not Time the Markets. I have been a great believer and proponent (my own Mantras) of a) Downside Protection and b) be in the right Asset Class at Right Valuations. I have always believed that Investors are like Abhimanyu â€“ stuck in Equity Chakravyuha â€“ not knowing how or when to Exit.
Most experts were predicting S&P Sensex to be above 42500 and NIFTY 50 above 13000 levels by March 2020. With this back ground, let me start my narrative of this article and my own thoughts on where we went wrong, what should have been our role as Advisors, should we have only listened to the Experts and not applied Logic and Common Sense to our Advisory practice and finally should we have continued to believe in the old adages like Buy and Hold, SIP Karo Bhool Jao and Do Not Time the Markets?
It has been a turmoil filled 2019-2020 as far as debt markets are concerned. What was 2008-2009 for Equity markets has turned out to be 2018 onwards in Debt market space since IL&FS defaults and downgrades and thereafter many more defaults by well known names like DHFL, Essel Group, Cox & Kings, and many more. How to approach it as a need and a solution click on the article to read more.
I am sure by now most readers are aware of what Bharat Bond ETF is and what are its salient features. I have seen and read many notes on the same. Surprisingly, all are repeating the same i.e. what is ETF, how this Product has transparency, liquidity, visibility of returns, tax efficiency etc. However, none have so far highlighted the NEED-SOLUTION approach for Investors to look at and take an investment decision based on that. If we sell this as another debt scheme or a product, there will be less traction; but if we sell this as a NEED and a SOLUTION approach, we will get better Mind Share and Wallet Share of the Investors. Also, I will explain in detail the Concept of Constantly Rolling Down and how does it benefit the Investors.
I am sure by now most readers are aware of what Bharat Bond ETF is and what are its salient features. I have seen and read many notes on the same. Surprisingly, all are repeating the same i.e. what is ETF, how this Product has transparency, liquidity, visibility of returns, tax efficiency etc. However, none have so far highlighted the NEED-SOLUTION approach for Investors to look at and take an investment decision based on that. If you see this as another debt scheme or a product, there will be less traction; but if you see this as a NEED and a SOLUTION approach, you will get better perspective as to why you should look to invest in the scheme . Also, I will explain in detail the Concept of Constantly Rolling Down and how does it benefit the Investors.
Generally, you will not see my notes or recommendations on Equity Schemes. But here I am making an exception and writing about one specific Equity scheme from the stable of PPFAS Mutual Fund viz. PPFAS Long Term Equity scheme. While playing golf with Neil Parikh, one of the Founders of the Fund House, we got to talking about his Scheme performance and philosophy of investment. That conversation intrigued me and on my return to my office, I started doing my own bit of analysis of the said scheme on different parameters. What came to light was nothing short of pleasant shock and surprise. I tried analyzing this scheme from all conceivable angles to find some weakness, some faults, some negative surprises. From all angles I was left disappointed that nothing untoward or negative came out of my research (actually I was happy that this scheme passed all my filters and tests).
Through Larissa of Morningstar, I received following queries of an Investor. I was asked to give my views on the same. I requested her to let me write a piece on these queries instead of taking my quotes in bits and pieces and reproducing them. I personally felt that these are queries on minds of most Investors in the current market situation and felt the urge for writing the entire article for benefit of all readers. I wish to thank Larissa for giving me this opportunity.
MisterBond's take on current crisis in debt markets due to Mutual Fund Exposure to Essel Group with exposure to Zee shares as Collaterals
Please understand the choices MFs had on debt given to Essel group against Zee shares. Let us act maturely, stay calm, think logically, not panic and hand hold investors during such trying times instead of adding fuel to fire which is being done by Media on a daily basis. Our job as advisors is not to be part of the Herd bit be outside the Herd and guide the investors on the right path. Just my thoughts - take them or ignore them.
Many may not know that my GURU in the debt markets from whom I have learnt a lot through many personal interactions, telephonic and mail conversations is none other than Santosh Kamath. I think he joined FT in 2006 and my initial interactions were few and far between. But first real interaction happened when one of his schemes viz Short Term Income plan delivered close to his captured YTM returns over one year period even in the year when 1 year CD rates went up by 400 bps (4%).
There is huge opportunity for all IFAs to start providing solution for retirement cash flow requirements & move funds from traditional mindset. Also, this strategy helps 2 generations of investors viz. a) retired senior citizens to meet their daily cash flow requirements during their lifetime alongwith an opportunity to grow their corpus (v/s eroding the same in terms of purchasing power due to impact of inflation â€“ as explained in my first note) & enjoy their GOLDEN YEARS & b) benefit the beneficiaries by letting investments grow over a period of time.