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The Signal: The Week Highlights

The Signal: The Week Highlights week

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1. COVID cries amplify as global economies shrink

Global powerhouses report catastrophic numbers as US economy suffers worst quarter since WWII as GDP, shrinking by 32.9%; UK hit by worst contraction in 41 years, shrinking by 2.2%. Germany sees deepest decline on record, shrinking by 10.1%.

The long-awaited outcome of the pandemic is here, and it’s created history! – For the wrong reasons. Like with a trampoline, economies have to press down first to jump higher. As worlds come to terms with “new normal”, green-shoots are being sowed by central banks today for a better tomorrow

 

2. India’s Magnetic Macros
India forex reserves climbed $1.27 Bn to record peak of $518 Bn! helping India’s CA turn a surplus after 12 years at $0.6 Bn! Falling imports, crude prices, and waning consumer demand has provided cushion to India, as global currencies like Dollar are on path to record their worst month in the last decade!

Amidst a corona- filled year, distraught with lockdowns and recessionary fears, India finds temporary comfort in its resilient macros. As economies open up, this trend may soon reverse, which is not necessarily a bad thing! Why? For it augurs an economy growing cause of higher demand, not one, growing cause of conservatism.

 

3. Steady SIPs for the steady investors

MF industry AUM garnered over ₹50,000 Cr in H1CY20, up 3% on Y-o-Y basis. Equity AUM rises 21% to Rs 7 lakh Cr, as SIPs remain resilient in Q1FY2, averaging ₹8,350 crore in the past 6 months. At folio count of 3.23 Cr SIPs, flows are expected to become stronger as economy picks up.

SIP continues to be the investment flavor fir the umpteenth time in a row! Touted as active investing for the passive investor, SIP propels disciplined cost-averaging investing, as markets continue to soar, recovering 45%+ from march lows.

 

4. “Go Gold Go” mantra continues to enchant investors
With COVID figures finally out, investors continue to find comfort in commodities. Gold & Silver continue to be investors’ choice of poison, recording newer all-time highs at 50K and 60K levels! Sentiments have followed suit outside domestic boundaries too, as the yellow metal hits a 9-year high, while the world’s currency – US Dollar, weakens! 

As coronavirus headlines convert to numbers, investors sideline their investment growth prospects, to limit wealth erosion. This trend may not only continue, but also amplify, if the hype around vaccines fails to deliver.

 

5. Learn, Re-Learn, and then Learn some more!
After 34 years, India puts their education system under a knife, coming out with bold and forward-looking structure. Dissolving the divide between different streams, and re-organizing the HRD ministry as “Ministry of Education”, the new policy can be added to bouquet of products and services, attracting foreign eyes.

India gave birth to “Byju’s”, the largest e-learning platform in the world, valued at $10+ billion. And now, it is adopting global standards to do the same the offline platform as well (augmenting budget announcement). Education is the tree which branches economic prosperity. As India embarks on this journey of awarding meritocracy, so does it strengthen it’s position of being the manufacturer of more products and services in the global community

The Signal: Critics vs. Believers: The Game Nobody Won At!

Critics vs. Believers: The Game Nobody Won At!

It was 23rd March 2020 and major Indian indices gave way. The darling duo – NIFTY & SENSEX managed to hold itself still only after a free-fall of almost 40%. 

Cut to today, the duo has managed to recover a lot of lost ground. In fact, to put a number to it, it has managed to trek upwards by almost 50% from its low four months back.

While the slump, as well as the uptick, have made for equally sensational headlines, the unfortunate part is that it has left investors more puzzled than before. 

I have spent the last couple of months speaking with more investors than I did in all of last year. Most retail investors (excluding the outliers) can be grouped into two basis their opinion on recent index performance. 

1. The Critic: There’s irrational liquidity flowing into the market. The index is a façade. The market is due for another round of correction.

Now may not be a good time to invest in equity mutual funds.

2. The Believer: The Indian economy is showing signs of recovery, maybe that’s what the indices have already priced in. Guess it’s too late.

Now may not be a good time to invest in equity mutual funds.

Isn’t it funny how two completely contrasting opinions could result in the same conclusion?

At this juncture, my opinion on the most popular opinions is going to be just another opinion. So, let me comment on the conclusion instead.

Now is a good time to invest in equity mutual funds.

I know, you almost saw that coming. But I also know that you’re still inquisitive about what is it that ‘The Believer’ as well as ‘The Critic’ missed!

Here’s what you know, and probably don’t.

Indian capital markets are home to over 5,000 listed entities. 

The NIFTY represents 50 stocks – which is < 1% of the listed entities. (SENSEX represents 30 stocks)

Now, these are the bluest of all blue chips that the bellwether indices represent.

Taking a step closer, you will notice that every stock on the index has a different weightage assigned. Considering NIFTY; for instance, Reliance Industries constitute 12.45%, HDFC Bank constitutes 10.65% and so on till the sum of weightages assigned to the 50 stocks sum up to 100%.

The index performance is an average of how every stock on the index has performed. Weighted average – in line with what per cent does the stock represent on the index.

Here is a brief illustration of how index performance works:

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This brings me to my next point.

Continuing the example illustrated above. 

  1. How do you think will the index returns move if Stock A’s performance is increased by 20 percentage points to 50%? The overall returns will move up to 33%
  2. How do you think will the index returns move if Stock C’s performance is increased to 50% instead? The overall returns will move up to 31%

You would have noticed that though both stocks A and C were considered to deliver a higher return – 50%, the index moved higher when Stock A delivered the uptick and not as much when Stock C delivered the uptick.

This is how weightages and performance of individual stocks matter. For the untrained eye, it may seem like the index has done well when, in fact, it is just the heavy-weighted stocks doing well.

Getting to NIFTY.

Here’s a representation of what happened since the dreadful drop towards the end of March’20:

details

As can be observed, ~60% of the uptick in the NIFTY was delivered only because the top five stocks in the index performed extremely well. In fact, >75% of the uptick can be attributed only to the top 15 stocks in NIFTY.

Trivia: Reliance Industries Ltd. made headlines for raising a huge round of capital funded by large global investors. The effect was seen in the stock price as it soared by ~125% in the period illustrated above

Remember, there are at 5,000+ listed entities in the Indian capital markets out of which Indian mutual funds invest in shares of ~1,500 companies. This includes the 50 companies listed on NIFTY. NIFTY’s performance has been driven largely by the performance of 5 companies.

Are you a critic? Do you still think that the broader market has peaked?

Are you a believer? Do you still think that the market has completely priced in/reflects the impending economic recovery?

Why don’t you write to us and share your thoughts on how do you perceive the index’s recent performance? We would be glad to hear you out!

The Signal: The Week Highlights

The Signal: The Week Highlights week 3

Details

1. “Invest in India” has successfully distanced itself from COVID cries

Indian economy set to welcome good times, as economy is expected to see its first shine of rebound in H2FY21. Catching the tide early, FIIs are betting big on the country with USD 20 billion in recent weeks, thus crossing the +USD 40 billion in CY21.

India continues to be the promise land for the foreseeable future, as is signaled by foreign interests including the likes of Facebook, Amazon, and Foxconn. With green-shoots gaining visibility, largest working age population, and business-friendly regulatory environment, India can itself doubles the economy ($5 Tn target) in this decade!

 

2. The Commodity Craze Continues

As central banks unfurl massive packages to stabilize economy, investors find comfort in commodities. Gold & Silver record their new all-time highs for the 6th day in a row crossing 50K and 60K levels respectively! Sentiments have followed suit outside domestic boundaries too, as the yellow metal hit a 9-year high!

Half year into the new decade, coronavirus continues to drive headlines. As Govt’s scramble for temporary solutions, investors sideline investment growth, limiting wealth erosion prospects. This trend may not only continue, but also amplify, if the hype around vaccines fails to deliver. 

 

3. India Curb-stomps China investments

As India grows to be an investment heart-throb, it has exercised sanctions against china monies. Department of economic affairs (DEA) is lobbying to limit beneficial ownership of china interests in India and its output to 25%. Moreover, any coming in from north-east neighbors shall be subject to scrutiny from the Indian govt. bodies.

India has seen souring of its socio-economic relation with china in recent times for misbehavior at the border. Disguising punishment as banning popular applications, to limiting investment trust, India can now dwell as the new manufacturing hub of the world, thereby promoting its newfound ideologies of “AatmaNirbhar” and “Vocal for Local”

 

4. India misses to catch the FY21 Budget bus

7 months in, half the year has passed, but only half the work done, courtesy the severest worldwide lockdown. Constant monitoring of key economic indicators is signaling short-term pain. Short-changed tax collections, poor manufacturing data and expanding deficit, makes this a forgettable year, economically. Eyes are now set on the V-shaped recovery in next fiscal.

A half-cooked contingent relief package, coupled with inefficient execution has marred India into a year of learnings. With consumption at heart, and new normal normalizing, seeds for a sharp recovery are being sown, which is reflected in better-than-expected company results. Principles of market moat stand true even today.

 

5. Jio 5G aspirations – Make Local – Go Global

The future is here and it’s a “Made in India” product. Jio has joined giants such as Telstra (Australia) and Rakuten (Japan) and Verizon (USA) to broaden their broadband services, by welcoming the 5G network. As users become more pocket-pinched, Jio is in unique position to enable this shift. The opportunity also marks a rare coming together of company strategy, with geopolitical and macroeconomic tailwinds.

Jio has been an investor hotspot over the last 3 months, because of their ability to digitize and connect India. Onboarding investors such as Facebook, Google and Microsoft, can certainly catapult Jio into defining the technologies of the future. It can be said with optimism, that, Jio will play a key role in promoting India’s tech abilities.

Excerpts from: Rich Dad, Poor Dad

Robert Kiyosaki

There is a difference between being poor and being broke. Broke is temporary and Poor is eternal.

~Robert Kiyosaki

While you may console yourself with the fact that for your friend, it was a sheer ‘stroke of luck’, the truth behind his success and your current status is much more profound – the truth is though your friend is being the ‘rich dad’, you may not be making adequate efforts to move out of the ‘poor dad’ zone.

Here are five reasons why it is taking you so long to be the ‘rich dad’ and why many like you are unable to break out of the ‘middle-class’.

1. Create multiple sources of income
Millionaires, on an average, have at least seven sources of income. While extracting more juice out of a single source may not be an easy task, the easier way to get more juice is by increasing the number of sources. Sources of income other than your regular salary can include income from mutual funds, freelancing and similar.

2. Make your money work for you
While the middle-class always strive and work extremely hard to ‘earn’ money, the rich make every penny work for them. While the middle-class slog for typically nine hours a day, five days a week to earn a nominal salary only to later squander it over ‘liabilities’. At the same time, the rich ensure that every penny that they hold is invested well enough to fetch returns for their fortune – investments are not just limited to financial products; investing an amount to upgrade knowledge is also a prudent investment.

3. Failures inspire winners and defeat losers
Every failure should be taken up as an opportunity to introspect and learn from the experience. Mistakes and failure do not make you a loser but failing to learn from the experience is a sure way to lose.

4. Risk is to be managed, not avoided
At the cost of sounding cliché, risk and returns move in the same direction. Risk is different from uncertainty – risk can be managed and calculated to certain degree. Risk emanates from one’s lack of knowledge and awareness and not because of the system per se. As Kiyosaki puts it – “I have never met a rich person who has never lost money. But I have met a lot of poor people who have never lost a dime…investing, that is.”

5. Stop buying liabilities assuming them to be assets
It is important to understand what an asset is, and then buy more of it. Although many feel that it is simple to identify an asset from a liability, many tend to repeat the same mistake – buying liabilities, assuming them to be assets. 

An asset is something that can yield economic benefits for the owner in future while a liability is something that needs consistent expenses.
A car, for example, may seem to be an asset but in reality, it is a liability – you need to pay for maintenance, insurance and other ad-hoc expenses while the value of the car is continuously depreciating.

Pride says, “impossible”
Reason says, “pointless”
Experience says, “impractical”
Doers ask, “When do we start?”

You will never be as young as you are today; the best day is today, and best time is now.

If you continue being the average middle-class guy, it is only because you chose to be that guy.

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The Signal: Green Shoots of Recovery

The Signal green shots of recovery

“Indian Economy has started seeing ‘green shoots’ of recovery and that the country remains one of the most open economies in the world.”

 

– PM Narendra Modi at India Global Week 2020

The brightest minds and costliest resources have been dedicated to the fight against the pandemic. At the same time, persistent attempts are being made to keep the economies buoyant. India seems to be managing both fronts better than most global counterparts.

The same is reflected in the increasing number of patients recovering from covid-19 as well as maintaining lowest death rates in among countries with 1 million+ total cases, India is fighting the covid-19 battle in an admirable way. 

The country has not only restricted itself to curbing virus effect on the health of its citizens, it has also curbed the effects on the economy. On the economic front, despite most lockdown restrictions still being In force in many cities, the macroeconomic indicators reflect resilience.

Here are a couple of green shoots visible at the moment.

Green Shoot 1: Industrial/ Construction activity, though largely in contractionary phase, has started looking up.

Source: HIS Markit – GOI

Green Shoot 2: Uptick in high-frequency indicators; will take time for a complete rebound

railway fraight

Green Shoot 3: Rainfall Pattern in subdivisionsGood monsoon progress; A sigh of relief for rural consumers

Rainfall Pattern in subdivision

Out of 36 sub-divisions, nearly 82% of the sub-divisions have reported a higher-than-average monsoon.

Bottom line:

Though numbers may not have reached pre-covid levels, there’s merit in acknowledging that the uptick is in the face of continued (but diminishing) adversity. Unlock 1.0 has resulted in visible green shoots spurting out of the slump. As the world progresses in its fight against the pandemic, India looks promisingly strong in terms of public health & investor wealth

It is almost imperative that investors utilize times like now as opportunities to buy through systematic routes like Systematic Investment Plans & Systematic Transfer Plans.

Food for Thought: India on track to be among the top three economies in the world

food for thought

 

The Signal: The Week Highlights

The Signal: The Week Highlights week 3

News headlines

Google commits $10 billion to hasten India’s digitization: 

Google will invest close to $10 billion (approximately INR 75,000 crore) over the next five to seven years through equity investments and tie-ups. 

This investment reflects the confidence in the digital economy and future of India. India has taken a centre stage for global tech giants like Facebook, Amazon and Google as India emerges as the country having largest number of internet users. The investment will focus on enabling affordable access & information for every Indian citizen.

CPI inflation came down from 6.3% in May to 6.1% in June: 

Consumer Price Index-based inflation rose slightly above the RBI’s target band of 4 percent (with a margin of -/+2). The rise in headline inflation was mainly on account of increase in food inflation.

The CPI data send the mixed signals for MPC. It may open scope for one more rate cut as we expect government to support growth. The question is whether lowering interest rates further can do much to induce borrowers to borrow and lenders to lend.

Google invests $4.5 billion in Jio platform:

With the latest investment Jio platform has raised INR 1.53 trillion, selling 32.97 percent stake to investors including Facebook, private equity firms and sovereign wealth funds in the process. This $4.5 billion investment is a part of the $10 billion fund mentioned above. 

RIL so far has raised a raised a total of INR 2.13 trillion through the combined investments in Jio platforms, right issue, and investment by BP global. This capital raised is significantly more than INR 1.61 trillion net debt for FY20. Reliance has now become a zero net debt company ahead of its target.

India becomes net exporter after nearly two decades:

The country witnessed a minor trade surplus in June eves a merchandise exports continue to shrink for 4th month in a row.

Significant slowdown in domestic economic activity due to lockdown imposed to prevent the spread of Covid-19 has significantly curtailed imports and this trend is expected further going ahead in FY21.

However, a sharp contraction in imports, an indicator of domestic demand raised concerns. 

How to Choose the right mutual fund: for beginners?

How to Choose the right mutual fund for beginners

Invest choices differ based on goals and risk capacities. A new investor tends to attract towards safer investment, like traditional savings instruments but a balanced portfolio demands diversification. Although equity as an asset class can generate far better reasonable returns, not all investors have knowledge or time to invest in the equity markets. This is where mutual funds come into the picture.

A mutual fund combines funds coming in from different investors in diversified securities like equities, government securities, corporate bonds etc. A professional fund manager takes calls so that investors do not have to take extra time and effort to monitor the market. Generally, a well-managed fund generates relatively better returns than fixed-income securities.

Different types of Mutual Funds

For novice investors, it is imperative to understand the distinction among a multitude of mutual fund types. Mutual funds differ based on structure, asset class, risk levels, goals, investment horizon.

For example, equity mutual funds tend to invest in company stocks. The returns of these funds are relatively better than others, but they could also be riskier than others. Debt mutual funds invest in fixed income securities like corporate bonds, commercial papers, g-sec, etc., providing relatively stable but lower returns. The third type of funds which are hybrid funds that seek to combine the best of both asset classes, i.e. equity and debt.

Another type of mutual funds can be ELSS or Equity Linked Savings Scheme, which are considered tax savers. ELSS funds are eligible for tax deduction under section 80C of the Income Tax Act, 1961. They have a lock-in period of 3 years.

Understanding the differences in mutual funds can help you choose the right mutual fund to invest.

How to choose a mutual fund?

Over 44 AMCs are registered in India offering more than 1100 open-ended schemes. This is huge to pool to choose from, and the paradox of choice may confuse many. 

How does an investor pick the right mutual fund? Investors sometimes rely on ongoing market trends or take advice from friends or relatives. This is not the right way to choose a fund.

Before you choose a mutual fund to invest, ask yourself these three questions:

1. What is your financial goal?

Define your financial goal. Clearly defined targets or goals make investment tracking easier. Your goal may be to go on a world tour, save for retirement or buy a house. You can estimate the amount you will require to reach your goal and start investing accordingly.

2. What is the time you want to dedicate to achieve this goal?

A long-term investment horizon means you can take more risks. Retirement can be a long term goal. Equity mutual funds are a good option, but if you have lesser time save 3-5 years, then your risk-taking ability will be lower for this you can choose debt or conservative equity funds like equity savings or balanced advantage funds.

3. Is your goal negotiable?

There are some goals which are time-bound. For example, you may be able to pushback buying a house by a few years. However, a child’s education cannot be compromised. If your goal is non-negotiable, you can think about investing in low-risk fund.

How to invest in mutual funds?

After arriving at your financial goal, risk capacity, and investment horizon, you are in a better position to decide on the type of fund you want to invest.

If you want more clarity on choosing the right mutual fund simple drop a mail at ask@fisdom.com and our team will help you with the right product.

Conclusion:

Mutual funds are convenient and effective investment vehicles that can fulfill several financial goals. The key to making the right choice is to understand your individual needs and make a decision accordingly.

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The Signal: Stay Safe, Do NOT Touch Your Face & Portfolio

Do not touch your face and portfolio

Have you ever tried planting a seed? You would notice that the more you touch, move or turn the seed before it germinates, higher are the chances that it will not grow well – in extreme cases, will not even sprout.

Like the process of growing a plant, even investing in equities is about nurturing, watching but not touching the seed/investment for a very long time. Your job should be restricted to offering it the right conditions, right nutrition and letting it grow the way it wants to – this is perhaps the best way to have a beautiful plant and investment corpus over a period.

Below is an illustration of how wealth compounds over different periods. The assumption here is that equities grow at 15% annually. Now, do not focus on the 15% – honestly, it is simply an arbitrary choice of number – what is more interesting is the nature of compounding. If you notice, as more time elapses, the line indicating wealth creation grows in a steeper fashion – over a period, if you let investments in equity compound, you’ll notice it compounding in an exponential fashion rather than linear like most traditional investment products.

wealth creation over years

But, times like now make it difficult to take a step back and look at the bigger picture. The shorter-term volatility is unnerving enough to distract, and understandably so. Obviously, the growth of your portfolio would not be looking as smooth as the chart above, but the idea is that zig-zags look sharp when they’re zoomed into – when multiple zig-zags are cramped into the same frame to cover a longer period, it tends to reflect the larger trend while smoothening baby volatility.

Wealth creation in different prespective

 

The Signal: The Week Highlights

Signal week highlight july 2nd week

Weekly highlight

Cipla’s Remdesivir Cipremi launched in India to cost INR. 4,000: 

Cipla has launched the generic version of Covid-19 treatment drug Remdesivir at price which is among the lowest globally, Remdesivir is the only approved USFDA for Emergency Use Authorization (EUA) treatment for confirmed Covid-19 infections.

Indian pharmaceutical industry has taken centre stage as it houses the largest manufacturing capability among global pharma peers while having the ability to accelerate in its research efforts as well. India is among the key contenders as the world enters a race to develop the first vaccine against the epidemic. The Prime Minister, in the ‘India Global Week 2020’ summit, highlighted how Indian pharmaceutical industry continues to be an asset to the world. 

Banks sanction about INR. 1.14 lakh crore loans to MSMEs: FM Sitharaman: 

The MSME sector is reeling under the economic slowdown cause by Covid-19. This was under Emergency Credit Line Scheme (ECLGS) for the MSME sector.

The scheme is the biggest component of the INR 20 lakh crore package announced under ‘Atmanirbhar Bharat Abhiyan’ by Modi government. The liquidity infusion is expected to release some of the pressure MSMEs are reeling under.

Government to announce measures to boost demand; Fiscal, Monetary headroom available:

Asserting the economic activity is steadily coming back on track, Principal Economic Adviser Sanjeev Sanyal said that government will undertake measures to boost demand and there is both monetary and fiscal headroom available. 

A new set of measures announcement after opening up of the economy is expected to ensure a transmission more effective than the measures launched in during lockdown. As the Indian economy reveals green shoots of recovery, government aid could prove to be the much-needed catalyst to expedite the process

SIPs and The Butterfly Effect

SIPs & the Butterfly effect

“Don’t Count the Days; Make the Days Count.”

Muhammad Ali, The Soul of a Butterfly: Reflections on Life’s Journey

There is a method to the madness and this method also keeps changing and evolving in world finance. When we refer ‘to the butterfly effect’, we are generally related to this theory:

It has been said that something as small as the flutter of a butterfly’s wing can ultimately cause a typhoon halfway around the world.” ~ Chaos Theory

While there have been books and movies based on this theory that a very small action you take lead to something as big as a hurricane, in the form of science-fiction movies and autobiographies, it boils down to the fact that one small effort today can create something amazing tomorrow. SIPs are the best example of this theory, because you can start with a small investment and end up with something amazing over time.

Float like a butterfly but be patient with SIPs

An SIP (Systematic Investment Plan) is an ideal way of investing in mutual funds. It allows you to invest in regular intervals. It is also called the “planned way of investing.” It helps investors to cultivate a habit of saving and accomplish the goal of wealth creation. 

The current times are very testing considering that a lot of new investors get shaken by volatility and choose to step out of the markets instead of riding the tides till they reach their goals. Statistically, an investor can expect failure 100% of the times he invests without thinking it through. 

Asset allocation and financial planning are key to being profitable and building wealth. Let’s say you start exercising to get fit – you have a planned schedule, workout routine and diet plan. While planning, you knew it would take at least 8 months of perseverance before you achieve your target body. Now, what happens if you follow the regime regularly but don’t see much of an impact in one month? Would you stop? If you stop, you know who is to blame when eight months have passed, summer has begun, and you can’t get into your summer outfit on the beach.

It is extremely important that you plan well, keep reviewing and make situational alterations – not a revamp. This is how every effort that you make when maintaining an SIP will count, to make your efforts count at the end of the day to create a typhoon of wealth.

‘The Butterfly Effect’ of SIPs with Time

The best part about mutual funds is the fact of how the power compounding as against regular interest rate calculation is worth noting. However, time plays a very crucial role when it comes to mutual funds. Here is an example of how delaying your investments can also diffuse the butterfly effect.

If you started investing at the age of 25 If you start investing at the age of 35
Extended internal rate of return(XIRR) @ 20.90%* Extended internal rate of return(XIRR) @ 13.60%*
Total investment: ₹30,000 Total Investment: ₹18,000
Investment period – 25 years (until the age of 50) Investment period – 15 years (until the age of 50)
Future Value: ₹7,32,423* Future Value: ₹54,073*
You can miss out ₹6,78,350 just because you delayed your investments by 10 years. 

 

Disclaimer: *based on HDFC Equity Fund(G) data for last 10 years

By investing early, you expose your investments to a long-term investment strategy which can handle typhoons as well as the flutters of a butterfly.

The best part is that SIPs are extremely easy to maintain on our app and you can track your plan 24×7 with real-time tracking and much more by clicking here.

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