Reliance MF announces FFO of CPSE ETF
Reliance Nippon Life Asset Management Ltd announced the third further fund offer (FFO 3) of its Central Public Sector Enterprises (CPSE) exchange-traded fund (ETF) to raise Rs.8000 crore as a part of the government’s overall divestment programme. An upfront discount of 4.5% is offered to all investors. The offer will open for anchor investors on 27 November 2018 and for other investors during 28-30 November 2018. CPSE ETF’s new fund offer (NFO), FFO and FFO 2 raised Rs.3000 crore, Rs.6000 crore and Rs.2500 crore respectively.
“Risk comes from not knowing what you are doing” – Warren Buffet, Investment guru
In 1993, when a student at Columbia University Business School in New York asked Buffet how he evaluated investments and risks, Buffett gave the example of the Washington Post Company as a safe investment in 1973. He pointed out that the company’s market value at that time was underestimated as it was substantially lower than the value of the properties it owned. Since it was run by honest and able people who had a significant part of their net worth in the business, it wouldn’t have bothered him to put his entire net worth in it. But the ‘The Washington Post’ and other newspapers and media organizations turned risky because of the internet induced media turmoil. Amazon boss, Jeff Bezos, purchased the paper in 2013.
A growing trend in today's inconsistent financial times is self-research and planning. Taking control and planning your own financial future has become increasingly important because it has been proved that research and fundamental analysis alone creates wealth for investors.
What is fundamental analysis? Many investors assume that fundamental analysis is analyzing the financial position of a company and check its valuations. While this is partially true, fundamental analysis goes far beyond this. It analyses a company’s quantitative and qualitative factors that help identify its current business stature and future business potential. And understanding the business imperatives of a company is as important as its financials. But peer comparison is equally important. Thus, there are a few points that investors should think about before investing - What is its market position today and what is it going to be tomorrow? Is the company in a strong position to beat its competitors in future? Who are its competitors? What are the future prospects of its products? What are the macro and micro parameters that affect its business? What is its promoter and management background? How much debt does it carry and can it service the debt easily? How are the cash flows? Is there growth in earnings? How significant is the promoter holding? Is it rising or declining, etc.
Once you get the answers to these questions, it is easier to determine whether the company is undervalued, fairly valued or overvalued in the market. Stock research is important because the financial history of companies gives investors a better sense of the future. Of course no one can assure the trend of a stock but evaluating the past performance of a company can help determine the trend and the best way to obtain such information is from the Annual Reports.
Why is fundamental analysis essential? This is because stock prices are determined by sentiments in the short run due to various reasons such as news, future outlook, stock market conditions, micro and macro-economic and political factors, etc.
As a result, stock prices often deviate from their true value due to such external factors. However, fundamentals always prevail in the long term and stock prices eventually reflect the true fundamental value. Thus, fundamental analysis of a company is really important in order to fetch good returns in the long term. What is the difference between a great business and a great investment? The answer is - price. If you pay a very high price even for the best stock in the world, you will not get a good return on your investment. Hence, a great investment bet need not have a high price. The price that you pay for a stock matters. It is the most important factor for good returns. Thus, analyzing the fundamentals of a company thoroughly is very important before investing. When you put your hard-earned money into a stock, you need to research it thoroughly and consider various factors like the company’s investments, debt status, cash flows, clientele and whether the stock trades at a reasonable market valuation.
Many traders often ignore fundamental analysis and rely on technical analysis or just market intuition. They feel that fundamental analysis is primarily for the long-term and does not help in short-term trading. But a trader wishing to trade next year, is a long-term investor and there is little disparity in their horizon. The real problem people have with fundamental analysis is that it involves subjective judgments and does not give clear ‘buy’ or ‘sell’ signal generally received through technical analysis. Technical analysis is heavily based on market sentiments in the near term, which is risky as they change quickly. Therefore, one needs to track the sentiment in the stock regularly, which requires high degree of time commitment and calls for higher risk. But in fundamental analysis, there is virtually no ‘sell’ signal required if the stock is fundamentally good. Investment guru Warren Buffet believes that the holding period should be forever and that makes a long-term investor who believes in fundamental analysis, free of short-term sentiment volatility giving peace of mind in investments.
Summary: In today’s times, investors do not believe in stock research but solely rely on the ‘tips’ that they receive either from friends, family or other sources. This is certainly injurious to financial health. Stock analysis is crucial for spotting the right stocks that can create wealth than any other form of saving or any other asset class. One must understand that in the short-term, stock price movements are influenced by market sentiments but in the long run, the market price of a stock tends to move towards its intrinsic value, which is the true value of a company calculated by fundamental analysis. Hence, analyzing the fundamentals of a company is very important for reaping good returns.