Kotak India Daily: Updates - Coal India, Sterlite Industries, Mindtree, Banks, Industrials

Coal India: FY2014 may be relatively modest unless e-auctions revive

l After volume-led growth in FY2013, growth in the current year seems to be a challenge l Operating leverage a twin-edged sword - wage bill will rise, revenue growth or otherwise l CMP factors no-growth multiple, rich dividend yield on extant earnings

Sterlite Industries: Government stake sale to sort out cash fungibility

l Media reports: Legal hurdles are behind for Government stake sale of Hindustan Zinc and Balco l Multiple challenges towards deal execution

Mindtree: Geared for sustainable growth

l Making the right bets to drive profitable growth l BFSI - focus on property and casualty insurance, corporate lending, asset management l Consistent growth in IT services expected to continue

Sector alerts

Banks/Financial Institutions: RBI... to the rescue

l A bailout that should protect banks in the short term l How does it impact banks? l Expect some relief rally - broader issues have not passed

Industrials: Braving the storm

l L&T: (ADD; TP: Rs925) Adequate protection against near-term earnings disappointments l BHEL (SELL, TP: Rs100): We may be only at the beginning; possible loss on stringent assumptions l Cummins (REDUCE, TP: Rs400): Cautious on weak capex outlook, full valuations; elusive exports l Other stock calls: Crompton (ADD, TP: Rs105), Voltas (BUY, TP: Rs100), Thermax (REDUCE TP: Rs540)

Money mantras for the elderly :: Business Line

Why we love gold, real estate :: Business Line

If you are a typical individual, you will have investments in land and gold, but not necessarily in equity. This is because you do not perceive land to be risky, and believe gold is less risky, if at all, than equity. The truth is that land and gold are riskier than you think. What drives your risk perception on these assets?

UNDERSTANDING BIAS

Our perception of risk is driven by our biases. And two such biases are illusion of control and exposure effect. Suppose you want to buy a lottery ticket and are offered two choices — either the store manager can randomly pick a ticket for you or you can pick your own ticket. Which would you prefer?

You believe that you can increase your chance of winning by selecting a ticket yourself. You may, for instance, pick the fifth ticket from the pile if 5 is your lucky number.

If you believe that picking a ticket yourself will improve your chances of success, you are suffering from illusion of control.

It turns out that this illusion of control can lower your risk perception. But why should you suffer from illusion of control when it comes to investing in land and gold?

MISGUIDED BELIEF

Land and gold are both consumption and investment assets. You can use land to build a house, either for yourself or for your children. It is, therefore, a consumption asset. Or you can sell the land at a higher price and use the proceeds for your consumption needs. It, therefore, becomes an investment asset. Gold is no different. You can consume gold as jewellery, gift it to your children on their wedding or sell it. This choice of either selling or consuming the assets leads you to believe that you have ‘control’ over your investments. And that belief could substantially reduce your risk perception.

Your upbringing adds to this belief. If your childhood and early adulthood were typical, you would have matured in an environment where the obvious investment choices were real estate and gold. This could have created a sense of familiarity. Your brain is calm when it encounters what is familiar and reacts with fear when it faces the unknown. We are all, therefore, biased towards the familiar. Psychologists call this bias, the exposure effect — this bias prompts you to perceive the familiar (gold and real estate) as safer than the unfamiliar (equity).

All of us have to overcome several psychological biases to explore investment choices beyond real estate and gold. Will you?