After a long hiatus

My dad always said that investing in the capital markets is a mug's game. Recent trends point to his being right. The market has been meandering with no discernable trend in the last few months. Various crises from Libya, Syria, Eurozone, local slowdown to Japanese economic blips have hit the market hard. Even gold is going nowhere after a spectacular run.

One wonders if fixed income is the place to be for 2011. May not be a bad option after all...

Buy or wait ?

The markets have reacted spectacularly to the NDA's good performance in the Loksabha polls which should herald a stable government. The question is - how long and how much can the markets go up? I feel that considering the short to medium term economic outlook and adding in the global situation, the markets should go up another 1-2000 points and then stabilize or correct slightly. In the long term i.e. over the next 1 year or so, I expect that we should see a 20-30% further upside since the government would be able to translate some of the expectations into results.

If one hasnt yet invested, the strategy would be to buy around 20% now, and add the remaining 80% of the target amount over the next 3-4 months.

Mutual Fund investing - Know Your Customer acknowledgement

Here's a simple way to check your KYC compliance

If you wish to invest in excess of 50,000/- in mutual fund (MF), you need to be Know Your Client (KYC) compliant. Download the form from www.amfiinidia.com and submit, along with relevant documents (refer the form to know more about it) at any of the 250 terminals across India. Get a list of such terminals from Amfi website. Within a week or 10 days, you will receive your KYC acknowledgement confirming your KYC compliance. Submit a carbon copy of this acknowledgement every time you invest in a MF, along with your MF application form. 

However, if you misplace your original acknowledgement of KYC, or wish to check the status of your KYC compliance if you have carried out the procedures long time back but aren't sure of that now, visit http://www.cvlindia.com/ and click on the link on the site's home page that says 'Inquiry on KYC'. Type your PAN card number and you will get your KYC acknowledgment. Take a printout and simply, submit this. This way of getting your KYC acknowledgment is only possible if you have originally submitted PAN card copy as one of the supporting documents. 

When is the next wave?

Is it really over? Or is the next wave around the corner? I am talking sub prime here. Yes, the damn thing isnt yet done with us. There are still plenty of unexploded grenades sitting out there in balance sheets of financial institutions in the US. It looks like the economies of the world are going to flounder for some more time.

Meanwhile the US dollar is balancing precariously on the back of the massive US fiscal deficit. With oil prices falling, less petro dollars are going into the coffers of the sheikhs and consequently less money flowing into traditional safe investment havens - US treasury bonds. With less demand for dollars to buy oil, there should be a fall of the dollar versus more stable currencies. However, given the economic scenario of avoiding risk at all costs, there is no equity market worth its salt now. In that scenario, money flows to the perceived safest investment in this climate, which historically is US treasury bonds. So the dollar might be stable because of this balance. Till the time that US fiscal imprudence crosses all boundaries and the pathetic fiscal situation causes a collapse in the dollar. Then we might well see a new world order in currency. In 2009? or 2010?

Debt equity ratios

The plan now has to be a judicious mix of equity and debt in one's portfolio, plus a good element of real estate if not already there. You have to insure against capital erosion and give yourself a steady income with some element of debt in your portfolio. Bank FDs are offering 10+% now and FMPs are around the same, though with the potential for tax savings. However, FMPs carry some risk these days since you dont know the quality of corporate debt, but what doesnt carry risk :P

For the equity component, fresh investments have to be staggered over the next few months among Nifty Bees ETF and frontline stocks like L&T, NTPC, ITC, RIL, SBI, HDFC Bank, Bharti and maybe Jaiprakash.

At any given time, ensure that six months' salary is in Bank FD for emergency usage or if you get fired :-)

Benchmark Nifty BeES

With equity markets tumbling, one of the best and probably also one of the safest things to buy in stock market today is Nifty BeES. This is an exchange-traded fund (ETF) by Benchmark MF. It tracks the Nifty. No fund managerial risk involved here since ETFs are passively-managed funds, and the least tracking error amongst all ETFs / index funds. It also comes from the house of Benchmark MF- a MF that managed and specialises only in ETFs. Cost structure is also low here. 

This is a long-term product, so avoid it if you have a time horizon for a year or so. But if you're in for a long haul, Nifty BeES provides an excellent opportunity.

Where is the Market heading

You can never time the bottom. The market is a few steps ahead than us. No body expected the downfall of the Investment banks of the stature of Lehman Brothers, Merril Lynch,WAMU,AIG ,Morgan Stanley and so on. They are institutions built over a period of several decades. The worst seems to be over. The latest bank in the casualty list is Wachovia bank. The Financial turmoil has an impact in the world market. The Funds have dried up and the cost of capital has shot up. The banks are extremely scary to lend. They have invoked the Bank guarantees and Stand by letter of credit issued by various US banks. The banks have also freezed the drawing power limits to various company's. This will certainly impact the performance of the various corporates. The YOY growth in EPS and Profits during the current year will be lot lower. The average Corporate growth should be in the range of about 15%. The inflation and higher interest rate will definitely have an impact on the corporate results.The Stock market seems to have factored this in the price correction. The Forward PE's based on trailing quarters will definitely be a lot lower. The Economic indicators still looks fine inspite of the fact that the Trade deficit has widened. The focus on infrastructure and Power projects looks really encouraging. Anything to do with power and infrastructure should do well.
My advice for investors with strong heart will be :Pick stocks with a longer time horizon.
Invest in diversified portfolio.
ETF(Exchange Traded funds) seems like a good bet. Invest in Gold funds on a monthly basis with a time horizon of a minimum period of 5 years.
FMP's(I am not a fan of it). The funds normally invests in un-secured papers and the returns are not so great. Mutual fund investments is lot preferred than FMP's. However, the nature of your investment will be purely based on your risk appetite.
Investment in Land also seems like an attactive proposition. However the liquidity is not so great. Investment in land can be looked into with a time horizon of 3+ years. Any land investment over a period of 3 years qualify under long term capital gains.

Personally, I am big fan of Stock market. The market will do good in long run and you can earn high returns only in Stock market. Picking diversified stock meticulously will never let you down.Do your own stock picking rather than relying on Mutual funds.

Blue chip stocks which can be considered investing into:

Tata Steel : The stock has fallen below 400
Tata motors: Can correct to 300 level. Good long term pick. Hold for a minimum period of 2 years where the company will start reeping benefits out of its overseas acquistions.
NTPC
Sesa Goa
Seimens Ltd
Reliance Industries
IT stocks (Infosys,TCS and Wipro)
ONGC
Tata Power
Godrej industries(Good chemical stock and land bank)
United Phosporous.
Dabur and Marico industries(FMCG company's) available at a song....
SBI

Disclaimer: These are recommendations based on my personal research. However, please exercise your reasonable deligence before your decide to invest.