Four money making opportunities in the market

The Nifty has rallied a full 50% since the current NDA government assumed power in 2014. But the real action has been oriented around stocks, themes and sectors. Here we look at four such stories that can become money making opportunities for you.

Jun 25, 2018 06:06 IST India Infoline News Service

The Nifty has rallied a full 50% since the current NDA government assumed power in 2014. But the real action has been oriented around stocks, themes and sectors. Here we look at four such stories that can become money making opportunities for you. Of course, do consult with your financial advisor before taking a final view on the suggestions.
 
Buy consumption related stocks
To say that the Indian consumption story is looking robust is almost looking like a cliché. If you are surprised why FMCG companies with large market caps have appreciated over 40% in the last year, then here is the answer. After a very long time, the consumer stocks find themselves in a very sweet spot. There are three key reasons for the same. Firstly, the GST has been a big boon for the FMCG stocks. While lower GST on food products has triggered a major demand surge, there is a larger benefit for FMCG companies from GST. The GST gets rid of state and local levies and replaces it with a centralized GST. This enables these companies to re-orient their logistics on efficiency lines than on tax lines. Secondly, government has pumped a lot of money into urban India through the Finance Commission payouts and the OROP for army personnel. This is a big trigger for the consumption story. Thirdly, the big trigger comes from the rural landscape. A mix of rural spending and rural infrastructure investments are leading to higher rural income levels. As farmer look to double incomes by 2022, this is a big boost for consumption stocks. So buying consumption stocks surely looks like an obvious opportunity.
 
Take a contrarian view on PSU Banks
If someone looks at the depreciation of market value in PSU banking stocks, it could actually be disheartening. But, the good news is that the worst may be over. With the success of Bhushan Steel at NCLT, other sticky cases like Essar Steel, Electrosteel Steels and Binani Cement could get pushed through. The entire NCLT exercise is likely to result in write backs to the tune of Rs100,000cr for PSU banks. That would more than compensate for the Rs50,000cr that PSU banks have reported as losses in the March 2018 quarter. PSU banks have been central to the India growth story and private banks are already richly priced. For the more aggressive investor, PSU banks may be a good money making opportunity.
 
Create strangles on the Nifty
What do we understand by a strangle strategy on the Nifty? A strangle strategy entails the buying of a higher strike call option and a lower strike put option on the same stock or index. For example, with the Nifty at around 10,600 levels, you can create a Strangle by buying a 10,700 Nifty call and simultaneously buying a 10,500 Nifty put option. This strategy works very well when the markets are volatile. This is how a Strangle on the Nifty works:
 
Particulars Buy 10500 Nifty Put Buy 10700 Nifty Call Pay off on Strategy
Premium 17.25 17.50 Rs.34.75 (Total Cost)
Breakeven Lesser than
10,465.25
 Higher than 10,734.75
 
In the above case, the total cost of the Strangle for the month of May is Rs34.75. That is because there is just one week left for expiry. If you go for June expiry, then your cost will be much higher. You are profitable on this strategy either if Nifty goes above 10,734.75 or below 10,465.25. Better still, if you see a rise in volatility in the markets, then you will be profitable as the premiums of calls and puts will go up automatically. You need to repeat this exercise month after month but the Strangle only works in volatile times.
 
Do an equity mutual fund SIP and forget about it
Is a mutual fund SIP actually a money making opportunity. Well, if you do it the right way it surely is. Remember two things. Firstly, ensure that you are invested in a diversified equity fund. Secondly, ensure that you are in it for the long term. Here is how higher returns and longer time period make a big difference to returns on your Mutual Fund SIP.
 
Value of SIP of Rs.10,000 per month for different returns and different time periods
SIP in Equity Fund 10 Years 15 Years 20 Years 25 Years
10% CAGR Rs20.65 lakh Rs41.79 lakh Rs76.57 lakh Rs1.34cr
13% CAGR Rs24.67 lakh Rs55.57 lakh Rs1.15cr Rs2.27cr
15% CAGR Rs27.87 lakh Rs67.69 lakh Rs1.52cr Rs3.28cr
18% CAGR Rs33.63 lakh Rs91.92 lakh Rs2.34cr Rs5.82cr
 
As you can see from the above table, time works more than timing. When you are holding for 25 years, change in percentage returns makes a big difference. That is your easiest ticket to making money.

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