Very well explained on what p/e is –
http://stalwartvalue.com/obsession-with-pe-multiple/
Fiscal deficit and GDP
Fiscal deficit – It is made of 2 words. Fiscal and Deficit. Fiscal means financial and Deficit means “shortage” or “short fall”.
Lets say in your house that has 2 members, you are the sole bread winner. You work for some private firm and bring some money at home as part of your earnings or salary. You need money to run the daily chores of your house. The expenses could be anything like paying grocery bills, electric bill, internet bill, Home EMI , money you pay to watch movie or eat any some upmarket restaurant or buy fancy gadgets . These expenses becomes your expenditures. The salary your bring home becomes your revenue receipt or income. Now if your expenses are more than your income meaning you earn 100 Rs and you spend 110 Rs, then it means there is a deficit or more precisely “Fiscal Deficit”. There is a short fall of 10 Rs. You might need to borrow from your friend or family to plug this deficit of 10 Rs.
GDP (Gross domestic product) – It can be said as measure to gauge the well being of your economic condition. Just as economic well-being of a family is reflect by the total income of a family similarly the Economist measured the well-being of a country by calculating its GDP. It is defined as value of goods and services at the current market price produced in a given period. Yeah, but which good and services ?? The answer is, only those goods and services that are produced within the territorial boundary of the country are considered.
Relation between Fiscal deficit and GDP.
So lets say there are 2 person A and B . A earns 20 Rs and B earns 100 Rs. If both apply for loan at bank, then bank will certainly prefer giving loan to Mr. B as his earning power is more. Naturally he has more capacity to pay back the loan or there is less risk that Mr. B goes default. Bank will not be bothered about disbursing the loan (that is the primary business of bank) . But it will be certainly bothered about its repayment.
This same logic applies to nations. Fiscal deficit is measured as a % (percentage) of GDP because a nation’s deficit is less important than its ability to repay the debt that’s incurred due to deficit. A nation with large GDP have greater ability to raise the revenue through taxation. So any bank or investor will be willing to provide loan or lend money to such nations.
As explained on Quora –
Fiscal deficit is the difference between the total expenditures and total revenues that a government generates in a financial year. (deficit occurs only when expenditures are more than the revenue, otherwise its fiscal surplus).
The main reason it is scaled with the GDP is to measure the impact of expenditures on growth. For instance, if fiscal deficit for FY’14 was 4.5% (of GDP) and the next year it comes down to 4.2 %, it will affirm fiscal discipline exercised by the government.
Otherwise, say if we express it in terms of numbers:
In FY’14 it was $ 90 billion, and in FY’15 it becomes $ 92 billion, one will accuse government of fiscal mismanagement. But these numbers could be understood better if we look at how GDP had grown in the same time period. If GDP in FY’14 was $ 2000 billion and in FY’15 it becomes $ 2200 billion, then the fiscal deficit in FY’14 (as percentage of GDP) would be 4.5 % and fiscal deficit in FY’15 would be 4.18 %, which means our deficit is better than the previous financial year.
In the above example, we can clearly see that the decline in the fiscal deficit could not be expressed prudently in the numbers. The numbers and the percentage of GDP expression are showing opposite trends. So as public expenditure is important for growth of any country, if the country is growing faster than it is spending, then the rise in expenditure is seen as a good thing. Otherwise it is seen as a bad thing. So expressing in terms of GDP gives us the bigger picture.
Know about Financial year
Financial year defined – The financial year (FY) is the year in which you earn an income. This is different than assessment year (AY). The assessment year is the year following financial year in which the earned income is evaluated
Assessment year comes after Financial year. Both Assessment and Financial year begin on the 1st of April and end on the 31st of March. Income is earned in Financial year and taxes on that income is paid in Assessment year
| Dates | Financial Year | Assessment Year |
|---|---|---|
| 1 April 2016 to 31 March 2017 | 2016-17 | 2017-18 |
| 1 April 2017 to 31 March 2018 | 2017-18 | 2018-19 |
| 1 April 2018 to 31 March 2019 | 2018-19 | 2019-20 |
What is the difference between AY and FY?
For example, if your financial year is from 1 April 2016 to 31 March 2017, then it is known as FY2016-17. The assessment year for income earned during FY16-17 period would begin after the financial year ends–that is on 1 April 2016 till 31 March 2017. Hence, the assessment year would be AY2016-17.
Protected: GDP Explained
On Investing
An expert from one of the book on Investing – worth paying attention !!!
“In my experience in the Indian markets, companies that generate high returns on equity with little or no debt and generate cash from operations in excess of earnings consistently do very well over time. I have a preference for companies that are cash-generating machines and those that pay taxes. Companies that grow rapidly but that continuously need external sources of funding or those that require increasing amounts of working capital and generate less cash from operations than their reported earnings often have aggressive promoters and managements and often overstate the underlying realities of they businesses. Such companies face significant challenges in times of financial and economic stress.”
Protected: Book Value of a Share
Tools to evaluate Mutual Funds
Ok, these are parameters that can be used to evaluate the performance of Mutual Fund (As explained in The Economic Times Wealth Edition)
1. Standard Deviation – It is a measure of a mutual fund’s volatility
How to Interpret it – It measures the degree to which a fund’s return fluctuates in relation to its average return over a period of time. The higher the Standard Deviation, the more volatile the fund and hence more risky as the fund’s performance will rise and fall drastically in a short period of time.
Keep in Mind – Usually, as a Standard Deviation increases, so does the return due to the risk-return trade-off. But if two funds with same investment objectives delivers similar returns, the one with the lower deviation is a better choice as it maximizes the returns for the given risk level. So, while HSBC Equity and DWS Alpha Equity aim at capital growth from diversified stocks and have performed similarly, the latter has a higher deviation.
| Fund | 3-year return(%) | Standard deviation |
| HSBC Equity | 4.3 | 24.41 |
| DWS Alpha Equity | 4.25 | 25.44 |
2. Sharpe Ratio – The ratio explains whether the fund returns are due to intelligent investment decisions or the result of excessive risk taken by the fund manager.
How to interpret it – It is measured by subtracting the risk-free return from the fund’s return and dividing the result by the standard deviation of its return. The risk-free return in India is considered either to be the bond rate or 181-day treasury bill rate. The higher the ratio, the better is the fund’s risk-adjusted performance.
Keep in Mind – A fund may fetch higher returns than its peers, but it’s usually a good option only if it doesn’t tale too much risk in doing so. Take Reliance Equity Opportunities and BNP Paribas Dividend Yield. The former multicap find has earned higher returns, but it also has a lower Sharper ratio.
| Fund | 3-year return(%) | Sharpe ratio |
| BNP Paribas Dividend Yield | 17.73 | 0.63 |
| Reliance Equity Opportunities | 18.74 | 0.55 |
3. Beta – It’s also a measure of volatility and tells how risky a fund is in comparison to the market.
How to interpret it : It measures the sensitivity of a fund’s return to swings in the market. The market’s beta is always 1. Th index funds’ beta value is equal to that of the market. If the beta is less than 1, it indicates less volatility than the market, and vice-versa .
Keep in mind : Conservative investors whose focus is capital preservation should look at fund with low betas as their values are less likely to decline than those of the benchmark index in a bear phase. The table shows the performance of two funds relative to their benchmark (S&P CNX Nifty) during the bear phase-9 January 2008 to 5 March 2009. Birla Sun Life Asset Allocation Aggressive has a lower beta and fell less than the benchmark.
| Fund | Returns (%) | Beta |
| Birla Sun Life Asset Allocation Aggressive | -39.35 | 0.64 |
| Reliance Equity Opportunities | -63.21 | 1.22 |
| BNP Paribas Dividend Yield | -52.93 | 1 |
4. R-Squared : The ration explains how closley a fund’s performance correlates with the performance of the overall market.
How to interpret it: It measures the percentage of a fund portfolios movement that can be explained by the movement of the benchmark index. R-squared values range from 0 to 1, where 0 indicates no correlation, while 1 indicates perfect correlation.
Keep in mind: Avoid investing in the actively managed funds that have higher expense ratios and are still perfectly correlated with the index as it will be better to invest in an index fund. In the example, ING Large Cap Equity has the same R-squared as an index fund. The 3-year returns of the fund are only 0.5% higher than the index fund, while there is differential of 1.5% in the expense ratio.
| Fund | Expense ratio | R-squared | 3-year return (%) |
| ING Large Cap Equity | 25 | 21 | 4.2 |
| Franklin India Index NSE Nifty | 1 | 1 | 4.7 |
5.Alpha – It quantifies what the fund manager brings or takes away from the return of an investment, which is based on his skill and value addition that he provides.
How to interpret it – It is a measure of performance on as risk-adjusted basis. Alpha considers the price volatility on the fund and compares its risk-adjusted performance with that of benchmark index. The excess returns of the fund relative to the benchmark index is called Alpha. A positive alpha of 1 means that the fund has outperformed its benchmark index by 1%, and similar negative alpha indicates an under-performance of 1%.
Keep in Mind- Funds with negative alpha are not good options as it means the fund manager is not generating any value-added return in excess of the market. The more positive an alpha, the better it is. In reality, few fund managers create a meaningful alpha that negates the expenses of the scheme. The table below shows that HDFC Top 200 has generated significant alpha, while UTI Contra has not, and JM equity has created a negative alpha.
| Fund | Expense ratio | Alpha |
| HDFC Top 200 | 1.78 | 7.88 |
| UTI Contra | 1.8 | 0.25 |
| JM Equity | 2.5 | -7.45 |
Happy New Year
Wish you all a happy and prosperous New year. I sincerely hope that this new year brings tons of joy in your life and mine as well :). 
Fetching Option or Radio Button worksheet form control from an excel file using POI
I was recently working on a task where I wanted to read an excel file that had some radio button (also know as Option button in excel terminology). I was using Apache’s POI framework. The objective of the task was to read/write the state of a radio button (state meaning if radio button is selected or deselected). Since I was new to POI, I went through the documentation but couldn’t find any useful stuff on how to deal with Worksheet form controls (Option buttons are type of form control). Googling on this issue wasn’t so helpful. All I could gather was that, POI does provide a Class that represents Option button, but does not provide any API to interact with it. I am using POI version 3.6, and the class that represents this Option button is called as CommonObjectDataSubRecord . This class is sub-class of SubRecord .
Unfortunately I couldn’t find any sample code that parses and excel file and fetches the Option button, so I have to hand-craft it (was bit painful, but looking at error stack traces on various POI forums and reading actual POI source code helped me). So it here goes…might be helpful for others
Hope this helps you
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