Saturday, September 20, 2008

Time to invest...

After a week of extra-ordinary events that put the global financial market into a tailspin, it is time to think rationally, be a bit greedy now than be consumed with fear. The perfectionist in this art is showing the way. Whether it is a turning point or more bad news coming in few more months, in the long run the return will be satisfactory. Taking the plunge during these troubled times is better than buying during a bull market when you wait for correction to happen or worse buy at a higher value than a stock is worth.
This week I bought RIL, sesa goa, aban offshore, infosys.
Banking stocks may be contrarian pick now.

Other references:
How to Weather Market Panics
4 Steps to Protect Your Portfolio From the Financial Crisis

Thursday, September 18, 2008

Be a man, buy now

There is no guarantee that the markets wont go lower, that there wont be more financial institution failures. But I feel this is the bottom, or maybe 10% away from it at worst. So am starting to buy some good stocks now. Reliance, Infosys, Sesa Goa, JP Associates, Kalindee Rail Nirmaan, McDowell Holdings.

Saturday, September 13, 2008

My New picks

I added Both UB Holdings and Mcdowell holdings,Premier Explosives,IFB Agro,Rohit ferro,Adhunik Metals,Austin Engineer.
Both UB holdings and Mcdowell holdings have corrected by over 80% in the last 7 months.
The intrinsic value of Mcdowell holdings is about Rs.300. The stock is trading at Rs.120/-. This is a debt free company with a small capital base of 12 crores. The margin of safety at the current price is at 60%. The downward risk is low. They hold sizable chunks in United Breweries ltd, UB engineering and UB holdings ltd.
UB holdings is the holding company for United Spirits, United breweries,Kingfisher Airlines,etc. This stock is also attractively priced.
Both are value stocks. United Spirits is in recent news. They plan to dispose their treasury stocks and the market buzz is that the company is expecting in the range of Rs.1750+ for the stocks. UB has over 50% of market share in India .
Both Rohit Ferro and Adhunik metals do enjoy iron ore mining rights. The upside on the mining business is not fully factored in the pricing.Rohit ferro is available at an attractive PE of 3.
Austin engineers manufactures gears for the various huge machineries used in Sugar,Power and other infrastructure industries. The share is available at an attractive PE of 5.
My picks are basically for long term. If you are willing to hold on for a period of 18-24 months, the expected returns on CAGR basis will be in the range of 25%.

Wednesday, September 10, 2008


Unlike regular open-ended or closed-end mutual fund (MF) schemes that are open in their 'New Fund Offer' (NFO) period for around 20 to 21 days - or sometimes even for a month - fixed maturity plans (FMP) are open for a few days only. Companies require money for their daily needs on a regular basis, hence they tap various sources like banks and MFs, regularly. Hence, to keep the money supply going, and at the same time to tap the prevailing high interest rates as soon as possible, FMPs are launched in quick succession. 

It is also rare that your agent will push FMPs to you because FMPs are low-margin products. Unlike equity funds where agents earn as much as 2.25 per cent front-end commission (and trailing fees of up to 0.50 per cent for as long as you stay invested), FMPs have a very low cost structure. MFs earn only upto 0.50 to 0.75 per cent or so from your FMP, out of which they have to pay agents commission. Online brokerages also sell FMPs selectively. Kotak bank (online broker) and do not, to the best of my knowledge. does; it has a special FMP section on its internet trading website.  

So how do you buy an FMP then?
It's best to keep checking with your broker. He gets information of all the on-going FMPs. You have to take the initiative, because FMPs come and go very quickly. He may not want to go out of his way to sell you FMPs, but if you take the initiative and ask him, there are more chances of you coming to know. 

Scout MF websites. All MFs have details and application forms of on-going FMPs on their websites. Download the forms, fill them up (make sure you write 'DIRECT' in the agent's code box on the top part of your application form) and visit your nearest MF's office or its registrar & transfer agents' and submit the form. To get a list of 'point of acceptance', check out your MF's websites. 

If you are investing more than Rs 50,000, make sure your KYC is done. Also, ensure that you carry a copy of your PAN card. If you can carry your original PAN card, better. 

Where do we invest now?

Stocks are floundering with the global economic situation still very murky and massive financial messes still to be cleaned up in most US financial institutions' balance sheets (or not, since most are 'off the books' ;-)

Fixed income is far less than inflation, but it still looks like the best medium term place to park money :(

Sunday, September 7, 2008


...but watch out for the credit risk

With interest rates on the higher side, thanks to a host of factors like inflation, high oil prices, etc., fixed maturity plans (FMP) are offering attractive yields. FMPs are debt mutual fund (MF) schemes that come in duration of 1-month, 3-month, 6-month or a little over than a year to around a year and 18 months. These are closed-end schemes that invest in fixed-return instruments and then stay invested in them till maturity. They usually buy into instruments that mature a few days before the FMP itself matures. Since they stay invested in their underlying instruments and do not trade (unlike active bond funds), they eliminate the interest rate risk.

Although the market regulator, the securities and exchange board of India (Sebi), has banned MFs from assuring any return, most FMPs will tell you in advance (strictly off-the-record and through MF distributors) the indicative yield. This is the yield you are most likely to earn, but you need to stay invested till maturity. 

But in a run to be ahead of competition and thereby offer a higher yield, some FMPs invest in lower-rated instruments. A lower-rated instrument will offer a higher yield to the lender (FMP; since FMPs invest their money in these instruments) to compensate the FMP for taking on added risk. In the course of my work (I am a journalist by profession, with Outlook Money - a personal finance fortnightly) , I came to know about a prominent MF whose one FMP got into trouble recently. One of the debt papers in which it had invested, defaulted. The MF's parent company - itself a major financial powerhouse in India - had to step in, I am told, and make good the shortfall. The bad debt was then transferred to another FMP and thus rolled over. 

Typically, higher the indicative yield, better is an FMP. But don't just go for high-yielding FMPs. Look also at the MF's pedigree. An FMP, if selected well, offers better and tax-efficient returns than a bank fixed deposit. And the only way to keep apprised of the latest FMPs that are open in the market, is to get in touch with your distributor.