Global Portfolio Allocation- A Few Humble Efforts

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Abstract:

The negative impact of recession, in course of time, proves to be positive if looked through the eyes of an investor. The bleak failing across the board cast a magic spell. If a comparison is drawn in between pre and post recession, certain things will sparkle to register their positivity into an investors mind. Irrespective of sector the global market traded in overbought zone. A market punter can only smell the presence of a cat in the overbought zone. Now, it won’t be justified to say whether or not the market could escape the bear hug till date, but positivity is there. According to some market watchers, the market across the globe is trading in the no man’s land in between bull and bear territory. Even if the market slips down from here, we know the last bottom it made. In that case, the market is likely to provide more opportunity in the hands of an investor. At this point in time, the investor should not rush his funds as it were taking that there won’t be any market on tomorrow. Hence, it’s appreciable to invest only 10 – 25 percent of the total money should be invested at this point in time. Better to let the rest 75 percent money in your bank account. This article of ours tried its best to make some portfolio allocation with the note there is nothing absolute in this universe.

 

Capital Market

In the wake of recession benchmark indices across the globe tanked down violating each support level of the so-called market analysts. Each one expected the event called ‘death cat jumping’ to take place sooner or later – but to no avail. Each morning, as the opening bell chimed, across the board selling, seemed to be the order of the day. At times, it is found either the spurt or the dwindling becomes stock specific or sector specific, but each day the bears across the globe engulfed what they could into their mighty hug. It might seem to be a wild goose chase while commenting on a global investment portfolio. There’s no denying the fact that in an emerging economy the capital market alone represents almost 60 percent of a country’s GDP. Hence, the capital market should evidently attract the lion’s share of the discussion. However, the brighter side of recession lies in the fact that endowed us to think as well as forward our investment right from the word scratch. In other words, it had given each one a chance for investment and creates a new portfolio through value buying.

 

New Look Real Estate

Sub-prime crisis shook the very core of real estate in Europe and America. The tremor was palpable even in those countries which had been far away both geographically and economically from the lands of FTSE, CAC, DAX, NASDAQ, etc. If we let our home truths to speak, it will unanimously show you how our realty giants like DLF, Unitech, Parasnath, Akurti City, etc. bleed on the bourses. Capital market had been the most relevant and sincere mirror to reflect the moves on Indian streets. In Indian metropolis, the price of houses came down at least by 40 percent. Even in Kolkata where the realty prices didn’t shoot up like other metropolis, real estate companies had to compromise on the rate front. In Kolkata, a 2 BHK flat came down from an eye-popping 17 lacs to a meager 13 lacs. People who had already taken HDL from banks began to count themselves and fool of the first water. This is a global phenomenon without any exception. Only with respect to time, space and culture, the reactions came in various ways in the aspect of Europe and America, retail HDL borrowers preferred to declare themselves bankrupt to paying the banking EMIs.  Thus that mean the aspiration to own a little roof overhead die down? Even a dry old stick will answer in negative. This new bottom-lines once more fueled that ever lasting aspiration to own a house once more. Thanks to the sub-prime crisis and recession they have virtually opened the portal of new avenues of real estate investment.

 

Banks to Bank on

There had been a sea change in banking scenario. Just before banking stocks went up, as it were, the sky is the limit. Sub-prime crisis along with recession made those fat melt that they were grounded like creeper as an aftermath of a storm. Again (make no mistake here we are talking about countries not about USA) to keep the chin above water the apex banks of each country tried their best to carry on with financial disciplines like repo rate, reverse repo rate etc. These played havoc with the health of banking sector. Needless to say stimulus packages came almost from each government to rejuvenate the native industries and to set them at par with the corresponding industries overseas. Banking was no exception. In India, where banking industries had a very little exposure to sub-prime crisis, channelize this stimulus packages to do away with the dark spots made with NPAs. Now they have got enough creditability for any overseas loans through ADR, GDR, and FCCB. However, the fate on either side of Atlantic Ocean made a very sad reading. Some of them incurred losses of 75 billion US dollars in a single quarter. Whatever, T&C gets applied; life goes on in its own sweet will. In Europe and America, credit growth zooped down into negative territory. But that was not the end of the road of banking industries. These days paid a loan are doing all the rounds in US and Europe. There’s no denying the fact big ticket retail credit market dimmed down but small ticket retail loans little by little seem to be compensating that already dwindled credit growth. Once more USA is emerging. As the credit growth gets back to the rails and getting ready for take-off there will be ample opportunities to invest in the banking sector. Here the investor must feel the pulse which countries banking sector assures him the maximum return of his investment.

 

Say IT Again

On the ravages of Harshad Mehta, one IT solution company Infosys Technology built up an empire that only served the organization, but also helped Indian bourses see light at the end of the tunnel. Two decades had past since then. Now IT and ITES have been a household name not only in India but also in the so called third world countries that once past through the darkness of colonial oppression. With the advent of dotcom industries outsourcing has been the part and parcel of so called developed countries. It had been a win-win situation both for the company belonging to the developed country as well as for the companies that served them from this horizon. Evidently, the client base of Tech companies mostly belongs to US and Europe. The evil days of recession not only had eaten the benefits of IT industries but also reflected their poor shadows on the bourses across the globe. Genpact which had once been the largest BPO in this downtrend came down from an eye popping $65 to $13 on NASDAQ. The recession, however, had a positive impact too. Now the IT and the ITES companies have once more came down within the tangible limit even of a retail investor. Again the global downtrend imparted a lesson to the captains of IT and ITES companies. From now onwards they not only take US and Europe as their clients but also explored new avenues to market their product and services to the horizon they belong to. In this persuasion their earning is likely to get bountiful as they virtually integrate both the horizons east and west by rendering services. Hence, investment at this point in IT sector won’t let one grooping in the dark. Another dawn is about to dawn!

 

Time to Anchor

Baltic drive index in the wake of recession and global slowdown virtually left an empty space in their order book. The financial year for 2008-09, 09-10, and to some extent 10-11 basically saw the shipping industries on high seas. As the dust clouds of recession settle down little by little the VLCCs (Very Large Crude Containers) are once more on the spree of horizontal integration. Apart from that, so many shipping companies have already inked a JV with other companies to provide logistics. L&M (the second highest steel maker in the globe) in a bid to beat down his freight charges across the globe inked a JV with SCI. Varun Shipping, despite restructuring their service portfolio, had secured an order from GOI as the sole vehicle to import hydrocarbons in India. Now GE shipping has virtually split into two Great Off-shore’s Ltd. and GE Shipping. Both these entities are engaged to ink JV with petroleum companies, so once more the blank spaces of the order book of these shipping companies get filled with orders from across the globe. This is one of the best investment opportunities to invest in the shipping sector. If looked through the eyes of Indian bourses, Varun Shipping with 20 fleets under their command had already registered an appreciation in terms of value of 30% in a single month.

 

Oil your own machine

The butterfly remains beautiful before and after the war. This metaphor has direct implication when we speak of oil. Despite the global attempt of cost cutting, we wonder, how much brake was engineered to narrow down the oil consumption! There’s no denying the fact that one point in time oil prices came from the zenith of 150 dollars a barrel to a pitifully small amount of 29 dollars a barrel. Dear me, it was a chicken feed amount! However, these up and down of prices have so many ingredients to contribute: the price of gold, the price of base metals, the purchasing capacity of dollars, political unrest, etc. As the global economy crawled down from ICU to general bed the oil companies across the globe went on gaga.

 

Ample opportunities are here to invest both in OMCs (Oil Marketing Companies) as well as refineries. Of let, one of the blocks of KG (Krishna Godavari) basin had been auctioned and the numbers of International Oil Companies participating in the auction are of awe inspiring. There were Petrobas of Brazil, Ixxon Mobile of USA, BP of England, Total of France, CNPC of China, and Saudi Aramco of Saudi Arabia. Again there had been Indian entities like ONGC, OVL, IOCL, HPCL, BPCL etc. Now if the oil companies can lock their horns with one another for some MMBTUs of gas, no need to elaborate how much money can be involved and again what the turnover should be like.

 

Go Going

As the global economy is getting back to the rails, par capita consumption is gaining grounds. Even during recession there haven’t been any cut in the number of vehicles plying on the road. Only difference that was visible is a quantum drop in manufacturing and sales. But in the 2011-12 F.Y. the Y-on-Y report speaks of robust growth not only in the space of manufacturing but also in sales. Although the prime target has been pointed to making the cars most fuel efficient and low maintenance. One stunning fact that came to light is the growth of manufacturing and sales of sedan class cars. At this point in time, B segment cars almost maintain the lead but there has been a little less growth as predicted. This void is filled with sedan and luxury cars. Again for the growing demand of new models car manufacturers had been bound to cater more variant of the same model. Nevertheless there had been a looking back of the old model. For instance, SX 4 is the new incarnation of esteem; Ecco is looking back the Versa model. Speaking of variant in the same model finds ample example of MUV (Multi Utility Vehicle) called SUMO, belonging to TATA motors stable. With the inclusion of JLR, TATA Motors truly demonstrated its true genre to belong to the club of GM, Volkswagen, and Mitsubishi etc. Apart from these desi boys going overseas, international players in the auto universe explore not only India but also other so called third world countries. And their existence speaks of entry level to high end products. Once the Sport Utility Vehicle from TATA stable (TATA Safari) today had so many close cousins in the same segment. With the introduction of sports car like Jaguar Landrover, Indian roads got a facelift with the flood of sports cars too. Needless to comment on the potency of turnover in this field. Not to forget, the two wheel movements in the form of Hero Motorcom, Bajaj, Honda, Suzuki, Dukatis, etc have made their presence felt. With the innovation of Nano, people with major income across the globe went crazy for this lakhtakia car. They inspired Renault, the French car maker, had already inked a JV with Bajaj to manufacture cars belonging to the same standing. Now its time for the investors to sit down and think what an investment opportunity is just ahead in the form of auto segment.

 

Yellow metal is melting

Speaking of gold, history has witnessed the price of gold with respect to silver as 7:1. Only in the late 90’s of the twentieth century the price of gold went on galloping like anything. Fueled by the slowdown of other sectors gold surged up to 1200 dollars in International market. Now as the flicker of hope once more threw a crescent smile across copper, nickel, lead, steel, etc. that glitter of gold somehow seems to be little down to earth. Now as the market across the globe goes from strength to strength the investment in gold may not carry the autumn fruit it was suppose to produce in the last few financial years. For the time being it would be rather advisable to cool an investor’s heels before venturing into the golden arena in search of golden future. However, this soft price of gold can be encashed in investing in jewellery – both in the aspect of physical and in the aspect of buying jewellery shares. Gitanjali gems, Vaibhav gems, etc. have not only strong domestic market, but also inked JV with the retail chain giants of UK and USA. Apart from that, MMTC the one and only importer of gold in this country can witness a more than expected appreciation in the time to come on the bourses.

 

From A to B and then from B to A

So far the ravage of downturn economy, derivative sector according to the pages of trading, seems to be a recession proof avenue. In the hour of crisis, almost each IT Company as well as private and PSU banks went thronging into the traffic in this avenue. The hedging started in between gold and dollars. Theory teaches: buy dollar when it is weak in lieu of gold and in the adverse situation just reverse the process. As we all know that there is always a gap in between the cup and the lip, there’s a gulf of difference between theory and application. Unfortunately this caution fell on the deaf ears of the management of several IT companies. Instead of gain they have lost much ground and their profit margin had to bell them out. Dear me!

There are hedge funds across this globe who often jumbles among gold-dollar equity. And a good number of those hedge funds could manage to keep their chin above water even in this hour of crisis.

 

Metal Mania

As this article has tried to feel the pulse of health of economy across the globe, new dawn seems to get lit after this black night called recession. We must remember although the economy is just out of ICU, it is yet to walk out of the hospital. With real estate coming back little by little to normalcy the demand of steel grows. Again auto industry is an excellent consumer of not only steel but also other metals. Naturally, more cars mean more car batteries mean more lead consumption. The downtrend of the base metals have made so many bottoms layer after layer. No option is left for them, but to go up. Indexes may extend a percentage of their total portfolio in this segment too. One thing is to be kept in mind spot metal is always better than the gamble prone, finicky future market. If an investor is to allocate 10 units of his portfolio in this segment, it is advisable to go for in a 6:4 ratio, where the former is for spot and the latter for future.

 

Portfolio Allocation

Although it seems the most beaten down sector should surge up first, it may not be translated into practice. For an almost sinking patient may survive, but the recovery may or may not be mathematical. Hence, the most beaten down sector (real estate) may recover, but the speed cannot be predicted. There’s no denying the fact investment in this sector, in course of time will prove to be true value for money. Only the investment should be on long – term basis (say 3 to 5 years). An investor can allocate 15% of his total portfolio in this sector. The nature of investment should be on the basis of ‘buying on each dip’.

Next comes the question of banking. This sector not only had undergone through tsunami, but also feels the tremor till date. The supply line henceforth became the stimulus packages. Remember, this government allocations are to be refunded in course of time – adding to the pressure of profit margin. Again the apex bank whip of hiking the repo rate always looms large, suppose to give knee jerk in the gain front of the banks. From the global perspective, credit growth is yet to contribute to the country’s GDP. An investor should take a cautious stand in this field. Despite taking a call on the time, an investor should carry on trade or invest in short term basis. As gains from this sector come, book it, leave it and forget it should be the best strategy. An investor should not allocate more than 10% of his total portfolio.

Telecom is a sector which grows at the rate of 10% p.a. Although migration from post-paid to pre - paid is on, the number of mobile service providers as well as the number of subscribers is increasing day by day. It seems the world is running through a perfect competition of mobile service provider. And the impact is really palpable through the eyes of a so called third world countries, where saturation is yet to take place and mobile had been a part and parcel of life style. With the advent of advanced technologies like 3-G, 4-G, etc. the competition had been cut throat. Since there lays the market guarantee an investor can invest up to 25% of his total portfolio in this field on short term and long term basis.

So far Baltic Index goes; the investment should be scrip specific. For instance SCI have got good prospect, we have already discussed. Both GE and GOL have already got healthy number of orders in their order book. Apart from that Essar shipping, Varun shipping, etc. can appreciate up to 500 percent of the present level within a span of 3 to 5 years. But there are certain entities in these segments which could be termed as operators’ scrip’s – better be avoided. However, 5% of an investor portfolio should be allocated in this segment.

Power consumption will be growing in the time to come. Hence, power generating companies across the globe assures bountiful returns of the investment. This is an assured ground. One caution is this: before investing into Power Company please check out the minute details of the company else the invested money can even kiss the dust. However, government sector is rather a green avenue here. With the growing environmental awareness, so many power generating technologies had been dumped into the folds of yesterday. At the same time new technology doesn’t necessarily mean nuclear technology! An investor might go euphoric just with the name of nuclear technology, but it’s advisable nuclear technology is not at all a cherished thing, it is suppose to face unwanted agitation against it in the time to come. Better to invest in natural sources of energy like wind power, water turbines, solar energy could be given chances. On the whole the portfolio allocation in this segment can go up to 25%.

Speaking of pharma counter an investor should keep it in mind that whenever some crisis emerges in economic ocean, the pharma counters are thought to be the live-boats. When everything is on the even kill and the sea is calm and quite and the trade wind goes on breezing, life-boats are to be kept in the folds of the ship. But the Active Pharmaceutical Ingredients (API) makers will have their demands to produce generic products. Better to keep an eye on the Chinese entities for investment. They are the greatest supplier of API called Pen – G. If an investor thinks twice it will be clear in front of his eyes that a to and fro movement in between pharma counters and IT sector cam simply beget his wealth. 10% of the person’s portfolio can be utilized for this hedge in between pharma and IT.

Rest 10% can be allocated only for trading purpose and that too in futures.

Posted by: Soumendra Roy. in Finance | Date: 04/04/2016

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