High Networth Portfolio Management

Posted on May 28, 2019Categories Short term programmes   Leave a comment on High Networth Portfolio Management

Most of us spend our lives wondering when and how our money gets spent! Every month end, we promise to save more and build our bank balance from the coming month, but somehow, the expenses just keep piling up!

A trait of most financially successful people is that they first save, invest what they save and then spend what’s left of it – month after month. For many of us who find that challenging, hiring a financial advisor is the key. For HNIs, who have over Rs.25 lakhs of disposable funds available, having a Portfolio Manager is the best way ahead.

What does the portfolio manager do? What is portfolio management?

Let’s take a quick look.

What is Portfolio Management?

As discussed above, Portfolio Managers can manage funds of HNIs and also those of large financial institutions such as Mutual Funds.

Portfolio management is the art and science of making sound financial decisions. These decisions are generally made about the investment mix and policy, matching investments to your long term financial objectives, asset allocation and balancing risk against performance. Portfolio Managers determine the strengths, weaknesses, opportunities and threats of each and every investment that is made.

Fund investing is done keeping in mind the following parameters:

Debt vs Equity, Domestic vs International, Growth vs Safety and many other trade-offs which are encountered in the attempt to maximize returns and reduce risks.

Portfolio Management can be active or passive. Active fund managers attempt to beat the market returns by actively investing in stocks or investments of their choice. They take investment decisions based on research and their own rich experience.

Passive management simply tracks a market index (NSE/ BSE), which is commonly known as indexing or index investing. A fund indexed to BSE could be investing only and only in top 50 stocks of BSE that influence the BSE. If any stock falls out of these 50 the fund is also compelled to sell that articular stock.

What does a Portfolio Manager do?

Portfolio managers are responsible for investing an investor’s or a fund’s assets by overseeing proper investment strategy and carrying out day to day trading.

A portfolio manager is usually an experienced broker, investor, fund manager or a trader with a lot of industry knowledge and a proven record of performance. They often have a specific investment approach.

Portfolio Management Services (PMS):

Investors who invest in a PMS need to invest at least Rs.25 lakhs. They can also give shares worth Rs.25 lakhs to the fund manager, who can then invest those shares as per his discretion.

These services are offered by brokerages and mutual funds who are registered with the SEBI. There are two types of PMS:

  • Discretionary

Here, the fund manager takes all investment decisions on behalf of the investor.

  • Non-Discretionary

Here, the fund manager can only suggest investment ideas, while the decisions will be taken by the investor.

 

The biggest similarity between a PMS and a Mutual Fund is that the manager handles the money on behalf of his clients. In case of Mutual Funds, the investor gets units that represent the stocks. In a PMS, the investors hold stocks in a demat account owned by him, but the fund manager has the power to operate it.

Most portfolio managers share a username and a password where their customers use their website and see their portfolio statements. As per SEBI’s instructions, a portfolio manager is required to provide an in-detail performance report to their clients every 6 months.

To learn more about portfolio management or to be a portfolio manager, opt for BSE Institute Limited’s short-term online course on Portfolio Management. This course helps you learn and excel at the portfolio management practices that can help you get good returns on investment.

 

Why do we have trade wars?

Posted on May 28, 2019Categories Executive Courses   Leave a comment on Why do we have trade wars?

“A trade war would be a disaster for the world”

– Jack Ma

A major trade war is currently underway between the two biggest economies of the World – USA and China. The imbalance of trade is said to be a reason for this trade war, which began in 2017, but it seems to be much more than what meets the eye.

Many businesses across the world which wish to do business or are currently doing business in China have been complaining of unfair treatment at the hands of the government. These companies cannot sell their products without tying up with a local Chinese partner.

Foreign companies are forced to transfer their proprietary technology to the local partner, in order to manufacture and sell their products. This has allowed the Chinese to gain access to superior manufacturing and other product technologies at practically no cost. It lets them use this knowledge to start other businesses and compete with the same companies globally.

MNCs are not in a position to fight these policies as they desperately need access to Chinese markets. Most MNCs are publicly traded and by not selling their products in Chinese markets they miss out on a large chunk of revenue which is huge, considering China is the 2nd largest economy of the world.

This has had many consequences globally:

  1. Chinese companies are now market leaders in a host of industries. Due to economies of scales and superior technology, many companies are now facing stiff competition from China.
  2. Chinese giants are acquiring many leading American and European companies. Many industrial giants across the globe are now being acquired by Chinese companies. This is providing more technology and economies of scale to Chinese companies. Many countries are afraid that all the jobs will be shipped back to China.
  3. Chinese companies depend heavily on government subsidies. This is why, many Chinese companies are able to sell products at rates that are much lower than other MNCs. This is looked upon as unfair competition (meddling by the Chinese government) by governments across the world.

These have given rise to Chinese industrial giants, which are dominating their respective industries and leave little scope for other competitors to grow. Huawei is a clear example of this.

With a global revenue of $108 billion, and a year on year growth of 20%, Huawei is one company every western government is wary of. Huawei is today angling to revamp the 5G telecom infrastructure on every continent. 5G is said to be the technology that will support the next generation of mobile and smart devices.

Huawei is also in the business of laying undersea cables, which carry over 95% of all global internet traffic.

The best example is United Kingdom (UK). It started by laying undersea cables between UK and France and proceeded to lay cables and telegraphs in all the countries it ruled. This allowed UK to be a hub for all important communications and finance industry. The UK is still an important node for all global finance and telecom infrastructure.

With companies like Huawei, China threatens to dethrone western countries from their dominant position and be the most important economy of the world. This would have been fair game if all the technology was built on its own, but with accusations of spying and technology theft – governments are unwilling to let Huawei operate on its shores.

This is believed to be the real reason behind the current trade wars. Western countries believe that China is using the wrong means to get ahead and be the largest economy. In order to stymie their progress, governments are fining Chinese companies with tariffs – in the hope of preventing another global giant like Huawei.

This is turning out to be difficult as Huawei has today developed technology that is far superior than most of its competitors. Ex: Nokia- Siemens, which is said to be the next leader in telecom equipment and networks, is said to be years behind Huawei. Without this technology, countries can expect their businesses to fall far behind other countries which have Huawei’s technology. It has put many countries in a tough spot as they are worried about security and do not wish to let Huawei go scot-free.

Our guess? The well prepared always win! Countries like USA and Germany invest heavily in research and innovation and are quite well prepared to take on the Chinese threat. They continue to have well established MNCs which can take on the Chinese threat head on. Before taking on an adversary, they seem to have planned about the repercussions well in advance.

However, not all countries are prepared to take this threat head on and hence are unable to take any concrete steps.

Effective risk management is one of the most important task which many leaders have to carry out. Without proper planning and contingencies in place, a company can face heavy losses and may lose its dominant position in the industry.

BSE Institute offers an executive program on Risk Management, which helps professionals prepare themselves for a competitive global market. It is offers executives a chance to learn under senior industry professionals. In a world where the rules of trade can change rapidly, being prepared is a basic thing to do. Let’s be prepared, to stay on top! Cheers!

 

Machines can forecast the future

Posted on May 20, 2019Categories Short term programmes   Leave a comment on Machines can forecast the future

“The key to making a good forecast is to not limit yourself to quantitative information.”

– Nate Silver

Decades after World War II was fought and won by the Allied Powers, people believed that the biggest victor was the rule of law and the liberal way of life which is enjoyed by us today. While this is true, it is easy to forget the biggest advantages which were acquired after the war – advanced German technology, that was now available for everyone in the world.

A lot of battles have been fought for money, greed and power- but today, it’s all about who has the better technology to outfox their competition. Many governments complain that China forces companies to divulge patented technological details and which allows Chinese companies to get information, it otherwise had no access to.  

As we rapidly adopt new technologies, there is a need to go beyond just the simple tasks. There is the need to develop adaptive technologies which can help us perform complex tasks. This would strengthen some of our most critical and interdependent operational processes.

Market forecasting has proven to be one of the most challenging project for decision makers across the world. This is because there are many complex variables which are involved in market forecasting. Some of them are physical factors, market behavior, economic factors, natural calamities, external events, internal events, the nature of data sets and many more. Each variable adds a different level of difficulty to the forecasting process.

It is because of these reasons that market forecasting can go horribly wrong. Investors who invest in stocks/ securities, startups or lend to companies based on these forecasts can lose billions of Dollars if these reports are wrong.

However, as it is with statistics, using a set method/ process for predicting market trends can be written in a software and executed using Machine Learning. This eliminates the chances of human emotions/ errors interfering in it, thus reducing the chances of errors creeping in.

How does a Traditional Forecasting Model work?

Every company develops its own forecast models to estimate their future performance or the performance of their industry/ economy, etc. Each entity needs to set some specific targets which the company needs to meet before the next financial year. These are set using previous models, data, industry information, peer performance and keeping investor expectations in mind.

With these goals set, there are many different types of forecasts which can be done at various time intervals. Depending on the size of the company, scope and nature, companies spend a significant amount of resources in the need to develop these traditional market forecasts.

In spite of all the growing investments in traditional market models, forecasting still proves to be a tiresome, expensive, ineffective and sometimes is considered as an outdated process across many nations. Why is the traditional market forecasting a complex task for decision makers? And why is it ineffective?

This is mainly because decision makers face complicated challenges to develop forecasting models. As there is a lack of standard tools and a common set of assumptions. Therefore, consistently producing correct results using traditional forecasting models has become a very complex challenge for all decision makers.

How Machine Learning models help in predicting forecasts?

The ability of machine learning models to apply complex mathematical calculations to public and private data has become very important. In a world where everything has become digitalized, the ability to get real-time intelligence for decision-making is now a fundamental requirement.

Individual and collective advances in big data, computational processing techniques, cloud computing and data storage is quickly advancing machine learning capabilities.

The ability of softwares to complete many tedious and menial tasks in a record amount of time allows data scientists to work on other important tasks such as strategy. This allows them to design better and direct the software which collates and analyzes the data.

As a result, now it is also possible to automate this forecasting and data forecasting models for analyzing data. This can help deliver reliable and accurate results as compared to the traditional models.

These machine learning algorithms will be easy to use and shall be much more accurate than the older methods.

Conclusion:

Every reward has risks associated with it. With that being said, education continues to be the best investment, with minimum risk involved. Machine learning is now poised to replace many menial jobs that were otherwise labour and time intensive. With technology, a lot of capital can be saved and production timelines can be shortened. Get ahead of your competition with machine learning.

BSE Institute Limited offers a great course to begin your career in machine learning with live examples and case studies based training. It provides a short-term online course on Machine Learning which is available on bsevarsity.com.

 

Airline loses Airtime!

Posted on May 20, 2019Categories Executive Courses   Leave a comment on Airline loses Airtime!

“You will never appreciate the value of financial literacy until the price of ignorance overwhelms you.”

– Mac Duke

Lack of proper financial planning has grounded many large businesses in India and the world. The latest entrant to this infamous club is Jet Airways, one of India’s best international private airline. This will be the second major Indian airline after Kingfisher which suspended its operations due to financial difficulties. Kingfisher Airlines grounded all its flights in October 2012 after running out of money to pay its creditors, employees and to keep its operations running. The shocking question for industry analysts is how did an established airline such as Jet Airways join this dubious list?

The endgame of Jet Airways was much faster than expected by most industry analyst and experts. There was always a doubt about the airline folding up due to the confidence the markets had in its charismatic founder Mr. Naresh Goyal. The underlying assumption was that India is one of the fastest growing aviation market of the world and having Naresh Goyal at the helm, Jet would find a way out of its current mess.

The latest numbers show that India has had double-digit growth in domestic air passenger traffic for 54 consecutive months. So what could be the reason for this catastrophe? Was Jet a victim of bad governance or any other deeper structural issue responsible for India’s oldest private airline to come crashing down?

Jet’s troubles are said to have begun with the acquisition of Air Sahara in January 2006 for a staggering $500 million. The airline was purchased in haste, without proper due diligence, with the aim of keeping billionaire Vijay Mallya’s Kingfisher Airlines at bay. It was speculated that Mallya planned to buy Air Sahara in order to get its routes and market share. In an attempt to keep him at bay, Jet purchased Air Sahara at a very high valuation, along with the debt that came with it.

The airline sector in the world is internationally divided between no-fuss, low-cost airlines and full-service airlines. India also has a similar classification where full-service airlines compete against low-cost airlines to attract the same passengers.

The Chairman and Managing Director (CMD) of Air India, Mr. Ashwin Lohani shared an interesting observation in a social media post to highlight the reasons for airline failures. Airlines globally and especially in India have been known to offer ridiculously low ticket prices to undercut competitors and gain customers. This is a strategy that starts hurting the entire industry immediately – especially when volatile oil and Dollar valuations, hurt their balance sheets.

By selling tickets at cost or below cost prices, airlines have to depend on debt to stay afloat – which is in itself not a sound financial strategy.

For domestic flights and in shorter routes, where the average journey time is between 60-120 minutes, very few passengers are interested in being served food and they would happily sacrifice it for a lower fare in exchange. This makes it tough for a full service carrier like Jet Airways to compete with low cost airlines like Spice Jet or Indigo Airlines.

For long haul flights, Jet Airways would have first class seats on its planes – a practice not followed by many full service carriers. While other full service carriers would fly 400 passengers/carrier, Jet would fly only 308, .i.e. just 75% of the total capacity as first class seats are much larger than normal seats and they take up a lot more space and weight. Another disadvantage of this strategy was an increase in fuel consumption due to the heavier seats, which hurt profitability per flight.

Their situation became worse when their competition expanded with the entry of low-cost airlines such as SpiceJet and IndiGo. That’s when the management of Jet realized the only way towards faster growth is by renting their aircraft to these low-cost airlines.

A major reason for the downfall is the use of many types of aircrafts, which increased to the cost of operations. Low-cost airlines like Spice Jet preferred only one type of aircraft (the Boeing 737) before it added Bombardier to its fleet. Whereas, Jet Airways has Boeing planes and Airbus aircrafts, which increased their cost of personnel significantly.

India imposes the highest rate of taxation on fuel and other airport facilities. India is become one of the most expensive places to operate an airline. With volatile oil prices and foreign currency fluctuations, the cost of running an airline, is extremely high, with little or no profits.

Although all lenders have converted some part of their debt into equity, a halt in operations complicates things. With the airline trying to sell off equity, it’s quite an uphill task to expect an investor to invest in an airline that is currently not operational. Without any business operations, how does one get their money back?

The biggest losers in this case will be the Indian taxpayers, .i.e. the actual owners of PSBs who have lent to Jet Airways. The key takeaway here is that banks have been raising an alarm about Jet’s finances for over 9 months. The bankers actually foresaw this situation, but the management did not take the necessary steps needed to ward off the crisis.

Financial planning and risk management are necessary for every sector, especially the ones with numerous variables. Taking calculative risks can help one generate high profits, but people need to be excellent at executing their vision in order to thrive and not just survive.

BSE Institute Limited, a 100% subsidiary of BSE India helps professionals and students gain information on topics related to finance by offering a wide variety of courses in an easy to learn atmosphere. It provides an Executive Program for Risk Management which helps one mitigate risks by sound capital allocation and sensible financial planning.