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.

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

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.

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%.

HOW TO BUY AN FMP?

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 www.icicidirect.com do not, to the best of my knowledge. www.sharekhan.com 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 :(

FMPs ARE GOOD....

...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.  

Where is the bottom?

Is the bottom around 12700? Or if the government falls next week and Oil goes to $200 I think we might see 9000... or who knows these days :)

But realistically, its a good time to look at your portfolio and keep cash ready for buying over the next few months.

It might be a good idea to buy some good MFs that are invested in a portfolio heavy with stocks you like. Its tough to decide which specific stocks to buy, so I am going the MF way, after making a few investments in some old favourites like Sesa, Aban, RIL etc.

Texmaco & Reliance

Seems to be a good bet in the rail space. They manufacture wagons for Indian Railways and have a good order book. Recent results (Q4 Mar 2008) were superb and sales have doubled over the financial year 2007. At Rs 1550 the stock offers a good opportunity to counter rising oil prices and could be accumulated at every decline (about Rs 1400 would be a good rate to BUY).

Another stock to watch and buy on major corrections in the market is Reliance Industries. Its gas projects will come onstream in a few months and contribute to the top and bottom lines.

Real opportunities

The next destination for investment in the real estate space around Bangalore is definitely Bidadi.

1. BMRDA township project awarded to DLF and its expected that in 3-4 years we will see something come up.
2. Industries already exist in the vicinity
3. Bangalore Metro

Plots are in the range of Rs 700/sqft at present. For a holding period of around 5 years, returns could be quite good.

Watch out for the next correction

The next correction is round the corner. Prepare your buying lists and get ready to pick up some great stocks at bargain prices. This could likely be the market bottom, so it may be offer open while stocks last ;-)

Why do liquor company stocks do well in bear markets ?

Because investors who have lost money need to drown their sorrows :-)

Bunch of overpaid jokers

Why do these so called equity analysts and fund managers have jobs? They are employed using our money to tell us when is the best time to enter or exit the market or make such calls on our behalf. AMCs charge a whopping 2+% per annum in management fees for equity mutual funds which go into the salaries and perks of these characters.

And what do they do to earn this money? Parrot the line that everyone in the market who is worth their salt knows anyway. Recommend infrastructure stocks when they are at PEs of 20-30 and paanwaalas and their aunties have already bought them. Say that the market is strong and will do well in 2008 when the subprime crisis was looming in global markets. Put out research reports on over-researched companies like L&T and NTPC. Do they deserve the money they are gobbling up?

Medium term strategy

There is unlikely to be any spectacular recovery in the markets. On every bit of bad news, there is likely to be severe correction which might take the Sensex down to 12000 or below levels. However, volumes are thin and it means that shares are moving from weaker to stronger hands.

The strategy for the long term investor is to identify a list of good stocks (might be some from the existing portfolio which are beaten down) and buy in small quantities on major falls in the market. My sense is that this phase will last atleast till July and post that, we could see some signs of recovery.