“A to Z for First Time Investor” – Book Review

Title: A to Z for First Time Investor
Author: Ankur Kapur, CFA
Publisher: Plutus Capital (2017)
M.R.P: Rs. 199
Pages: 120
Reviewed By: Shivani Chopra, CFA


“A to Z for First Time Investor” is a personal finance book written in a simple yet effective manner. The title of the book is very apt as it attempts to exclusively focus on people just starting their investment journey. It compiles the most important questions such investors would have and offers advice for this long term financial journey to be a smooth one.

The author of the book, Mr. Ankur Kapur, CFA is the founder and managing partner of Plutus Capital, an investment advisory firm and has over 15 years of experience in the financial services space. He has dedicated the book to improving financial literacy and ending mis-selling of financial products. Using his rich personal experience and expertise, the advice has been written in easy to understand bite-size pieces.

The book is divided in seven sections including the basics, planning, options for investing, designing the investment portfolio, taking action, etc. As it assumes little to no prior knowledge of finance, an explanation has been provided for basic terms like inflation, shares, bonds, SIP, etc. The knowledge presented will empower the readers to plan their expenses and savings and make them understand the importance of investing the savings instead of letting them sit idle. It will also help them to achieve their key milestones in life and finally to be able to ask relevant questions before purchasing any financial product.

Ankur’s undivided attention goes to a disciplined approach towards Saving to Invest- “As one starts their careers, one should try and save at least 20% of their monthly income and increase it as their income rises over the years”. This disciplined approach will help the money to grow in order to accumulate a large amount of wealth. Planning for both short term and long term financial requirements is the key. Steps have been outlined to determine how much money will be needed for different goals like purchasing the first home, children’s education, retirement, etc. For example, an ’10 x 10’ formula has been illustrated for retiring rich. An investment of 10% of monthly income in a retirement fund and subsequent increase of 10% every year, can lead to a comfortable retirement. The book then goes on to discuss the various vehicles available to park money and spells out details for all the financial products available under growth asset classes and income asset classes. The growth asset class includes investments such as equity, real estate, alternative investments, etc. Income asset classes include FDs, bonds, PF/PPF, etc. While mutual funds are highlighted to be one of the most viable products, it has been recommended not to mix insurance products like ULIPs as an investment option. New products like ETFs, REITs, etc. are slowly gaining popularity in India, so these are the ones to watch out for.

To meet one’s desired goals, it is important to understand the portfolio construction process which combines the growth and income asset classes depending upon the relevance and suitability. The essence of designing your investment portfolio is compared to a balanced diet for a human being – “Just as your food diet plans contain a diversified mix of different types of foods, so should your financial portfolio contains a diversified mix of different types of asset classes for overall growth of your money in a safe manner”. While structuring a portfolio, one should have a long and short term focus, consider the impact of inflation and determine risk tolerance. Monitoring and rebalancing are equally important activities to stay on track. Ankur also discusses the absolutely essential stuff which everyone should be aware of – emergency fund, different types of insurance, saving taxes, etc. as well as other stuff one should know. Readers will learn more about SIP, STP, SWP, how to select the right mutual funds, things to do before retirement and utilizing bonus amount in the right way. The last section covers age based investment guidance. How should investors in their 20s,30s…50s should invest.

Overall, the book will definitely act as a guide for first-time investors and help them in securing their financial health. Although the investors jobs’ will just start as being apprised about the various investment products is not enough, they should be in a comfortable position to perform due diligence on new financial advisors or other agents.

Ankur Kapur deserves a special mention as he is amongst a very few Indian CFA charter holders to have written a book. When asked about the motivation behind authoring a book, he mentioned , “I believe in growing by sharing knowledge than by charging for information asymmetry”. Indeed a noble thought put firmly into action! CFA Society India would like to congratulate Ankur and wish him the very best for future endeavours.


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Advanced Modelling and Valuation Workshop in Delhi

Contributed By- Shivani Chopra, CFA


CFA Society India and EY LLP jointly organised a two day workshop in Delhi on Aug 4th and 5th on the topic – “Advanced Modelling and Valuation”. Similar workshops were conducted in Mumbai (2016) and Bengaluru (Feb 2017). The event in Delhi was equally successful with around 50 attendees learning one of the crucial skills to strive for excellence in valuation related roles. Designed by industry experts, the program combined core concepts with applied tools for participants. Star speakers included Mr. Navin Vohra (Partner, Ernst & Young) & his team, from CFA Institute- Mr. Robert Gowen, CFA (Head, Product Solutions, CFA Institute) and Mr. Shreenivas Kunte (Director, Continuing Education and Advocacy, India, CFA Institute), Sampath Reddy(CIO, Bajaj Allianz Life Insurance), Anil Joshi (Founder and Managing Partner, Unicorn India Ventures and S G Badrinath (Visiting Faculty at IIM Bangalore).

Investment banking analysts and associates are expected to be able to build three-statement operating models as part of their day-to-day responsibilities. The three statements referred to are income statement, balance sheet and cash flow statement. The program contents were designed to help participants develop complete and comprehensive three-statement models using various supporting schedules.

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During the first day, the trainers shared the fundamentals of spreadsheet modelling. The golden rules of modelling are- readability, transparency, consistency, integrity and simplicity. Various examples were presented on excel sheets. The trainees were given a bad spreadsheet to review, identify errors and discuss in teams. Next, it was discussed how to analyse financial statements for valuation. One should look at the contents of the annual report and pay attention to key focus areas like segment reporting, revenue drivers, profitability, capex, working capital, operating vs non-operating, minority interest, etc. It is important to read MD&A and auditor’s report as well. A refresher was provided on various valuation methodologies like market approach, income approach and asset approach. These have been discussed in great details in CFA Level 1 and Level 2 learning objective statements. But as the aim of the course was to go beyond textbooks and present an opportunity for participants to practice best in-class valuation practitioner concepts, real life case studies were given. Trainees practiced on actual and most current financial data of leading Indian FMCG company to learn from.

On Day 2 , the discussion around various valuation approaches was continued. Topics discussed included key drivers of valuation, sensitivity of ratios to the valuation, PE ratings, business cyclicality and management quality. A brief was given on Sum of Parts (SOTP) valuation. A presentation was shared on the valuation of start-ups/VC funding which included topics like pre/post money definitions, different valuation methodologies application to young companies, scorecard valuation method and venture capital method. Behavioural Finance, an area rapidly gaining acceptance got its fair share in the agenda too. Practice on real life case studies from Pharma and mining industries kept the program more constructive.

The two day workshop was indeed very rigorous with 8-10 hours of training each day. The participants now have to put their shoulders to the wheel and continue practice on the stuff learnt. Going forward, the course will be offered for other chapters and would encourage members/candidates to keep an eye on this wonderful opportunity.


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How to Smell a Rat? An Introduction to Financial Shenanigans

Contributed by: Ashok M , CFA


Saurabh Mukherjea, CFA enthralled the audience with his presentation on Forensic Accounting, at the IAIP event in Bangalore, held on 03rd August, 2017.

How many of us knew that misreporting or fictitious accounting can be found even among companies that are part of the Nifty Index? This put the audience on notice! Among BSE 500 index constituents he put the comparable number at 150.

Ambit has studied and catalogued companies according to its accounting quality. Investment return chases accounting quality. Their study shows that over a 5 year period, the top decile companies in terms of accounting quality outperform the bottom decile companies by 10% on an average.

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Good quality stocks outperform bad quality stocks in the long run. Barring exceptional periods, good quality stocks perform well even in the short term. It is a myth that traders make money in the short term at the expense of long term investors. The opposite is true.

The best analogy that most of us understand well is Cricket. Saurabh brought out a little known trivia relating to the scores of the ‘Wall’ Rahul Dravid, and the ‘Legend’ Virendra Sehwag. In the longer version of the game, Dravid averages 55, while his counterpart’s is at 49. In the shortest form the game as well, the ‘Wall’ outperforms the ‘Legend’! While Saurabh didn’t give out detailed statistics, I did go back and check. To my pleasant surprise both in ODIs and T20s the averages are in favour of the more consistent Rahul Dravid. This is one analogy that many wouldn’t forget for a long time.

However, markets can be unfair to serious investors. Investor’s who sift through tons of annual reports and market research can sometimes see their efforts go unrewarded for particular durations in the market. The last 12 months in one such time period. The bottom decile, low quality, ‘rubbish’ stocks have run up quite a bit.

How does one detect fraudulent accounting? Few of the drivers for misreporting are

  • Hiding the damage caused by pursuing unviable mergers and acquisitions
  • Exaggerating Revenues
  • Theft by Promoters
  • Extortion by powerful third parties.

Saurabh briefly touched upon the macro environment in the context of accounting. He persuaded us to see the disconnect between economic realities, such as low plant load factors, falling occupancies in luxury hotels and juxtaposed this with the exuberance in the financial markets.

The speaker again drilled down in the audience minds that some of the largest companies (part of the Nifty index), have patently false balance sheets. Some of the management commentaries, in the eyes of the seasoned analyst, are worthy of laughter. Some of the balance sheets are so asset-heavy that they hesitate to write-down unworthy assets. A write-down would trigger loan default and the company would collapse like a house of cards. To keep the charade going, the management would weave new stories and figures in its annual reports each year.

The Nifty complex is crowded with companies that derive mileage by its proximity to the government. About 70% of Nifty companies operate in traditional sectors which are monopolised by the government in terms of licenses and access. For instance, companies in power, infrastructure or financial services. It is an indication that these companies are under great pressure to manipulate the presentation of facts and figures.

As a test experiment, one can look at the quarterly results in the run up to a QIP or IPOs. Revenues and profits would be boosted. Once the IPO/QIPs materialised, the result in the following quarters would fall precipitously – as the unwinding of inflated figures takes place.

Another illuminating finding is that IPOs have barely made money for Indian investors. Yet, the frenzy around IPOs hardly abate. As per Ambit research, barely 15% of IPOs, makes inflation adjusted return. Nevertheless, the public chases IPOs with a frenzy that is unwarranted.

How do you spot cooking the books?

There are four approaches to spot cooking of books

  • Profit and Loss Misstatement
  • Balance Sheet Misstatements
  • Pilferage of cash
  • Audit quality checks

CFO/EBITDA is a helpful ratio to detect overstatement of profit figure in the P&L statement. A unitary result is ideal. Less than unitary points to profit overstatement.

Provision for doubtful debts / Debtors greater than 6 months is another ratio to test overstatement of Sales and overstatement of current assets. The speaker showed real examples of companies which have very low provision rates but carry a disproportionate amount of debtors greater than 6 months.

Sometimes it is possible to game cashflows as well. The company could move cash to the balance sheet from a related entity closer to year end. To detect this, a clever test could be to calculate cash yield percentage. If the yields are lesser than money market rates, then quite likely cash has come into the balance sheet towards the close of the year.

Entries directly made into ‘Changes in Equity/Reserves’  instead of routing through the Profit and Loss Statement need to scrutinized. Saurabh cited the example of a prominent FMCG company that amortised the intangible value of the brands that it acquired directly in the ‘Changes in Reserves’ statement instead of the Profit and Loss Account.

To guard against gaming of CFO, by routing certain outflow transactions through CFI, one could look combining CFO and CFI and dividing the same by Revenue to check free cash flow accrual.

A healthy discussion took place on the topic of auditor remuneration. Saurabh showed some of the metrics that one could use to detect compromise in audit quality or collusion between auditor and management. He asked us to keep an eye on audit remuneration increase compared to sales, audit fee as a percentage of revenues. However, care should be taken to compare companies of like industry and like quality.

To check antecedents of directors on Board a useful site is watchoutinvestors.com

What are some of the Red flags that one usually comes across

  • Unusual volatility in depreciation
  • Low proportion of independent directors
  • Intermittent spike in travelling and business promotion expenses

Saurabh showed us a real life case of a wrong classification of Capital Reserves and Securities Premium Accounts in the capital structure of a company in one year and how the rectification took place a year later with a concomitant increase in auditor fees!

Suggested Books for reading:

Terry Smith: Accounting for Growth

Howard Schmidt: Financial Shenanigans

To an audience question of an instance of good accounting practise, Saurabh referred to Tata UK’s pension accounting methods following UK GAAP as a fine example of transparent accounting. But such practise is not pervasive across the group. Tata Motors, for instance, capitalises its R&D expenses, which is not the practise with other global auto motive majors.

Again, the myth to be busted is that small companies are infested with fraudulent accounting while the larger counterparts have pristine reporting practises.

In final, Saurabh referred to the cyclicality and predictability of irrational exuberances, the scandals, the pains that investors go through. Yet, lessons learn are little and the process repeats itself. He referred to the low yield in the Commercial Paper market (about 6%) because of excess funds to be loaned out. The rating agencies have liberally assigned highest rating to 90% of the issues. The Bond funds have been receiving healthy inflows as investors shift savings from bank deposits and other non financial savings to financial savings.

The discussion concluded with some reference to regulatory frictions such as the ban on short-sale and restriction on security lending by mutual funds, and lack of institutional strength in other parts of the market (such as auditor supervision, rating agency remuneration issue). Some of which, if corrected can go a long way in improving the integrity of capital markets.


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Debt-funding dreams/nightmares and the SME sector

Contributed by: Meera Siva, CFA


Friday, August 4, 2017, Chennai

Credit growth fuels economic growth but lending is a sober business where the upside is capped and risks are uncertain. IAS Balamurugan, Managing Partner, Anicut Capital LLP, a SME-focused debt fund, introspectively looked at the issues in the credit business in India, based on his over two decades of banking experience at ICICI, UBS and Citibank. Bala is also the Co-founder of Metis Family Office Services, in Chennai and handles HNI investments.

Skip nostalgia

A banker’s problems in lending – to individuals and small companies – has changed for the better over the last two decades. Lending was an occupational hazard in the past as there was no concept of Know Your Customer. There were cases where the borrower will skip town and these skip cases made lending a nightmare for the banker in the 1990s.

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After the fall of the twin towers, the risks in lending – loss of capital – was considered manageable compared with the risk of letting a wrong person open an account – terrorism or money laundering. With strict KYC and now eKYC in place, people are more traceable and life is that much simpler for lenders.

Online lenders such as LendingKart (in which Anicut Capital has invested) complete the loan process online, thanks to online data and identity being established with Aadhar etc. There is a lot of efficiency and credit is available faster and at lower operational cost. But, it does not mean lending rates will go down. There may be a tendency to take more risks in lending to reach scale and this may push up defaults, and hence rates may go end up higher.

Hidden risks

Often credit risks seem obvious in hindsight but at the time of lending, the idea looks too safe and fail-proof. For example, SMEs that supply to foreign clients – Nike, Tesco – were considered good bets in lending as there was a pipeline of orders from these safe customers. But after 9/11, all orders were cancelled and suppliers were left without a recourse and the loans became non performing assets.

It would have been wise to diversify across sectors and geography but an event of that scale was not thought of in any model or analysis. And the reality is that rare events occur regularly. The take-away for lenders is that events are unavoidable and must be dealt with calmly. Bala takes it a step further and says that Anicut Capital bets on events – buyout of PE holding by promoter, equity fund raise, asset sale – to lend to smaller companies.

Many C’s of Credit

When deciding whether a SME is credit worthy, Bala advises looking at the character of the promoter first. Unlike a corporate, a SME is dependent on the founder and if the person is not rock solid, other positives do not matter. It is an art to assess character and reliance on online often kills this fine art of judging a person.

The second C to look at is the capability of the founder. This is to ascertain if the person has the capacity to grow the business and hence repay the loan. Here again, too much safety in judging may let you miss opportunities; that is still a smaller issue compared with taking a bad call and losing capital.

The other C’s are cashflow, collateral, credit rating and many more which are part of the detailed analysis that is done if the first two are met. When SMEs transfer asset to the next generation, there may be risks a lender should be aware of and assess. The style of operation of the inherited promoter and focus may differ from that of the earlier generation entrepreneur. The transitions call for re-evaluation of the two important C’s as they would have changed substantially. 

Other risks

Bala says that over-reliance on collateral by lenders is not a good thing as it is not easy to recover capital. Also, one must look at the financial asset and operational assets differently. An alarm clock making plant is not a good operational asset as it may not produce revenue or profit. But a good business in some financial trouble may be salvageable.

Often, the biggest risks to a business come from the government. The case in point is Nokia factory near Chennai. The factory asset could have been better transferred and jobs could have been saved. It also impacts smaller businesses in that area who rely on a larger manufacturer.

All said, high growth, high inflation country such as India is credit starved and lending is a good business that will do well. Bala advises that one can close their eyes and open an NBFC.

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In conversation with – Kenneth Andrade…

Contributed by: Shravan Kumar Sreenivasula, CFA, IAIP and Birla Sun Life AMC

Kenneth Andrade is known by the moniker “Midcap Moghul”. It is a very apt description of a fund manager who likes to be benchmark agnostic and aims to pick stocks that are wealth creators for his investors. He currently runs his own PMS by the name of Old Bridge Capital Management with a corpus of USD 150 mn. In a conversation with the very inquisitive Sonia Gandhi on a Friday evening in front of IAIP members, Kenneth covered from topics ranging from his role models, his market view, lucrative market opportunity he is sighting and his philosophy of investing. He always makes investing look simple and yet he picks up differentiated bets which run up to be multi-baggers.

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Here are some of the key take-aways for me and hope it will be helpful for others who may have missed it.

  • On his view of the markets, he mentioned that the P/E ratio across the global markets is high. Investors have been looking for “E”. It is like looking for a corner in a room that has no corner. The reason why the P/E is high is due to lower bond yields and liquidity chasing assets that have atleast some yield. Infact, more liquidity is chasing equities as interest rates are increased by central banks leading to rise in bond yields (and hence capital losses)
  • On what could cause the most waited corrected, he warned that it is always an unknown and unexpected event which could bring down the valuations across the world. Today, it is difficult to point out which one
  • He cautioned that one has to take note that this decade has by far been the calmest in past many decades. There was the Global financial crisis in the previous decade, dot come crisis & Asian financial crisis in the previous one, junk bond crisis in the previous one and so on and so forth
  • He believes that the private capex is some time away as there seems to be no equity being put into companies which would typically lever it up to kick start the capex cycle. He has missed out on the recent financials rally and would be glad to be out of it going forward as well as he is wary of such high valuations for private banks and NBFCs
  • On his investment philosophy, he looks at companies which are distressed in an industry that is making money and pick those which are earning (ROCE) better than hurdle rate. He further mentioned that those companies that are garnering market share in the down cycle could be good investment bets as they are the ones to bounce back faster incase of up cycle. He has reiterated his guideline of liking companies that respect capital because equities is about buying efficient capital. He advised that most important point to note is to buy at right valuations
  • On an audience question as to how to evaluate corporate governance of a company, he mentioned that he would look how the four stake holders of the company are treated – Customer, Employee, Bond holders and Share holders. The customer through the kind of products offered and constant improvement of the same. The employee by way of compensation, opportunities and retention plan. The bond holders through the timely payment of coupons. The share holders through the efficient use of capital and payment of dividends. This should objectively measure the corporate governance of the company
  • He is most bullish on the entire value chain of the farmer. The focus of the government on rural (particularly farmer), increasing in MSP prices, soil health cards, crop insurance, direct fertilizer subsidies etc. augur well for the farmers. Government is paying 7:1 for crop insurance and farmer literally has downside protection incase of crop failure. The overall farm waiver could be 2.15 lakh crore rupees in three years which is 15% stimulus to the farmers. So, the entire farm value chain from seeds – fertilizers – mechanization etc. would get benefitted atleast for the next 2-3 years


  • SKS
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Demystifying Early Stage Startup Investing – The Opportunities & Challenges

By: Chetan G. Shah, CFA, Director, IAIP

The Indian Private Equity and Venture Capital industry has become sizeable over the last few years in terms of funds raised annually. Around 33 funds raised $4.9bn for investments in Indian start-ups in CY16 compared to 21 funds amounting to $4.5bn the previous calendar year as per Venture Intelligence. Compare this with around $7.0bn net inflows witnessed in the local mutual funds industry in CY16. Looking at the interests in this industry and the start-ups, IAIP organized a timely panel discussion on the opportunities and challenges faced by the industry. It invited Anil Joshi, Managing Partner, Unicorn India Ventures, Nikhil Vora, Founder & CEO, Sixth Sense Ventures Advisors and Vikram Gupta, Founder & Managing Partner at IvyCap Ventures Advisors. Akshay Mittal, CFA, an angel investor himself, moderated the session.

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Apart from sharing their experiences & journeys, hits & misses, the panelists provided interesting insights on valuations. With little to look at in the past in a start-up, one as to make assessment of its products or services, size of the opportunity, founders’ vision & track record, management team and potential value it can create for the investors over 3 to 4 years. Valuations can become murkier if the industry the investee company is catering to is suddenly in demand like e-commerce, or taxi aggregation or foodtech, each one of which was the flavor of the month. The greater fool’s theory is at work at such times. The investors too have different objectives with some capturing value as a strategic fit with their other businesses and others having clear mandate & exit timeline to manage. Hence valuation initially is sort of negotiation between the founders and private investors. Sometimes too much value is captured by the investors and sometimes by the founders. Neither is helpful in the long term.

As far as involvement in the operations of the investee companies are concerned they were frank that ultimately they are banking on the founders and their teams for executing the plans. However, they help management in getting customers, investors, provide insights on competing technologies or processes, and provide access to alumni network especially for B2B companies. Some of them have started and institutionalized mentorship programs. Overall the business works a lot on trust, relationships and alumni network.

  • CGS


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Investing vs Trading: An analogy with Cricket…

By: Sitaraman Iyer, CFA

I believe the world of sports and investments have a lot in common. Being an Indian, I will take theliberty of drawing comparisons between cricket and investments. Over the next few weeks,I will try to cover some themes that are common to these two professions.

Are you a Trader or an Investor?

For me, this is most important question one has to ask before indulging in any form of investing because if you are not certain, it could be detrimental. The ability to cut losses and not turn into an investor when you are a trader, or the ability to not cash out early and turn into a trader when you are an investor goes a long way in defining your success in the field of investment.

For me, the equivalent of short-term trading and long-term investing would be batting in T20 and test cricket, respectively. Both disciplines require completely different skills and mindsets.Very few people have been successful in juggling both the fields.



No matter how boring a player looks while playing test cricket, it is his ability to leave deliveries (avoid bad stocks and be patient), play risk-free cricket (stick to one’s core competencies),and adapt to different situations(identify optimistic/pessimistic market conditions) that stands him in good stead. Test cricket, like investing, is about planning, analysing, and utilising all information around before taking a decision.

In T20 cricket,you have to be restless, attack (quick churn), make impactful contributions (quick gains), and have the ability to ride your luck when the momentum (directional trading) is right. You also have to quickly assess a good score for a particular pitch to plan your innings (identify market pulse in order to time your exit). T20 cricket, like trading, is about predicting short-term flows and taking decisions without the luxury of having all the data points.

Definition of Success

Just as a T20 player scoring a quick-fire 30 will be as valuable as a player scoring a patient 150 in test cricket, gaining 3-4% in a day while trading would be as valuable as doubling your returns over 2-3 years while investing.

I have a confession to make: just as a novice gets attracted to T20 cricket because of the glitz and glamour associated with it, I too was attracted to the markets because of the stories that floated around during the famous bull run of 2003 and 2008.

However, my investment philosophies have evolved over time. I have realised that short-term investing/trading is not my cup of tea. With all due respect, the stalwarts of the markets, just like in cricket, are those who have done well over the long term.


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