Saturday, August 22, 2009


Indian stock market recommendations as of 22 August 2009

The Indian projections in the short and medium term (6 months) for the stock market are in a bit of a flux. The US recession has been declared to be on its last legs by the Fed Chairman, Bernanke; however the facts on the ground are a bit uncertain. The housing market (where the entire problems started) seem to be looking up, but the same is certainly not true for the jobs market where the joblessness claims in the US have only gone up in the last couple of months, confounding experts who expected that signs of a recovery would come with fewer jobs getting lost.
Even other critical parameters such as consumer purchasing (critical for an economy like the US) are not delivering on the promise of a improved recovery. In addition, there is some real bad news coming out from China where the market has reacted pretty adversely, giving jitters to the market overall. However, and this is the most confusing part, it would seem that the markets worldwide (especially in the US and India) seem to be fore-casting a recovery in the next 6 months to 1 year.
In India, there are some reasons to be cautious about such a recovery, even though India never went into a recession; the growth got reduced, sentiment was very badly hurt, and the stock market had a literal collapse. Right now, the drought has complicated matters, and both the drought combined with the still increasing swine flu will knock a couple of points off the growth rate and cause severe jitters to the Government.
The time is not bad to make investments in some stocks, and here are some stocks that I am tracking:
Whirlpool - With more Indians entering the middle class, the growth rate of consumer appliances is only likely to go up in the long term, and Whirlpool is poised to join in that growth
Bartronics - The company had shown a lot of promise in the year 1998, but the crash had crushed any positive news of the company. However, now reports are increasing the prospects of the company being able to gain from projected boon in RFID usage
Companies in the infra-structure area will increase as the rate of GDP growth increases, even though there remain concerns about stretching themselves thin, and having working capital problems. Companies in this area include Gayathri Projects, Core Projects, Kalindi Rail, Hindustan Contstruction, Gujrat Apollo, Jaihind Projects, JMC Projects
I am also starting to evaluate more risky areas, such as when companies are seen as potential targets, and you get multiple companies fighting for these. There is some good short term money to be made if you can identify.

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Wednesday, August 19, 2009


Individual finances: How to manage when loans are killing you

I read an article that took a situation where a person was in real trouble financially, and what the person can do in such a situation that could help. The situation was one that many of us can relate to - in times of good money and a good job, your finances and projections for the future are good, and you decide to invest for the future. You take a loan for the house that will be an asset for the future, you invest the remaining money in stocks (after all, equity is the way to grow your money for the future), and you get a car to travel in comfort along with your family. And then disaster strikes - your house loan amount was high (higher as a percentage of monthly take home salary that you would like - should not be more than 40% of take home after taxes and other deductions), and it got higher as interest rates went up, the stock market collapsed, and then the worst of all, you lost your job. So, what do you do ? (link to article - read it till the end, the situation may not be exactly the same, but there will be similarities)

He decided to approach a debt counseling centre for his financial hassles. They showed him the right way to manage his finances. They also mediated between him and his bank. He also obtained written consent from the bank that he would resume repaying his loan once he got a job. In such situations banks do oblige you if you manage to repay most of the money or part of the money if not all as it was a better deal than no money at all.
1. Try to lower your interest rate. Negotiate with your bank. One other way is to convert your credit card debt into a personal loan debt. It will definitely be lesser than the credit card interest rate.
2. Calculate your net worth and see if any of your investments could help you prepay a part of your loans.

More tips are there in the article. The main point is that you should be careful of your finances rather than falling in this trap, and if you do, then get help, speak to the bank and explore other means of financing (except for high-interest loans).

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Sunday, August 09, 2009


Mistakes commonly made by equity investors

Everybody makes mistakes in the equity market, so one cannot blame retail investors for making many mistakes. Even acclaimed mutual fund and hedge fund investors have made mistakes over the years, but that does not excuse the retail investors from trying to learn about the mistakes that they keep on making so that they reduce the number of mistakes they make in the future. At the minimum, investors should learn about these mistakes so that they can try and learn from these mistakes. Some of these mistakes are:
1. Investors typically join the herd. So, when the stock market crashes, people run to liquidate their holdings, even at a loss. For example, when the market was really down in October, companies that were fundamentally sound were picked up by people who believed in the long term.
2. People look at tips, and even do investment based on tips even if they know nothing about the company or stock.
3. People do not read about the fundamentals of the companies that they are investing in. Typically, company valuations follow the projections of the sectors that these companies belong to, and after that, the company performance also plays a role. However, people do not bother finding out these facts.
4. People invest and forget. There are a number of people who invest in companies or mutual funds and do not re-evaluate the nature of their investments and the performance over a regular period, say every 6 months or every year
5. Diversify your portfolio: Do not invest everything you have in the stock market. Invest in mutual funds, some in debt funds, some in PPF, some in realty, and so on. Make sure that you are properly diversifying your investments, at the same time, make sure that you invest only where are you comfortable in your level of knowledge. Even consider things such as investments in gold and art.
6. Don't get caught up in greed. When people lost out in January 2008 after markets had climbed to record highs, people were not willing to consider that the market could go down. People were not willing to take some of their investments out of the market, and lock that money in safer investments.
7. Invest for the long term. Don't get scared by short term movements. Even while tracking them, make sure that if you have invested based on fundamentals, and for the long term, you don't lose patience.
8. Don't get tricked by other people. You will always hear people say that they made incredible amounts of money in investing in the stock market, and there is a feeling of being left behind. Remember, you only hear the stories that are positive, and you should never let such stories guide your actions.

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Finance: Safety vs. risk in terms of investments

One typically hears of cases where people have invested money in dubious investment schemes run by scheming and smooth investment gurus who actually end up duping people of their hard-earned money. These smooth operators typically get caught, but this is no consolation for those people who lose their money in these schemes. Similarly, people end up losing their money when they invest in stocks and mutual funds, either if the entire market collapses or if they invest in very risky stocks. So does this mean that people should invest in risk free investments ? No, because there is a ratio between risk and return. It is for every individual to decide their risk - return paradigm based on their comfort levels, and their ability to take risks. Read this article to learn more:

The rating scale starts with AAA (lowest credit risk) and ends at D (default grade, highest credit risk). Going by the normal yardstick, one should always go for the best. So, should all the investors invest only in AAA rated issues? To fathom this paradigm, we have to understand the riskreturn relationship. Risk-return & risk aversion. It is because of the relationship between risk and return — higher the risk, greater has to be the expected return on that investment and vice versa. An investor hoping for higher returns has to embrace the risks that are attached to it.
But how does an investor decide how much risk to be taken? In reality, there is nothing like optimal risk-return trade off. It is often a derivative of various factors like time horizon, liquidity, and some investor specific circumstances. The risk-return trade off is extendable to equities as an asset class also. The relative safety of investing in blue chips may not result in highest returns. In case of IPOs also, the IPO grading is an opinion on the relative fundamentals of the company. The investor decision is guided to a large extent by the valuation and risk tolerance.

So, as they say, the ability of a person to take some risk in their investment is guided by multiple factors. The only thing one should do is to ensure that one has thought through the investment carefully.

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Obtaining duplicate copy of documents

People encounter this problem once in a while. You have invested money in a Fixed Deposit, or in Mutual Funds, or some other such investment method (including investing in a private company). Suddenly you find that you cannot locate the proof of such an investment (you could have lost it, it could have got destroyed in a fire or similar accident, or any other such reason). Panic sets in, after all, what do you do now ? Visions of losing your money come to mind.
The best method to prevent such an occurrence from happening is to make a copy of all your important finance documents and keep them in a safe location so that you have a backup. However, what happens when you have not taken this precaution ? Read this article to learn more (link to article):

To make sure you don’t have to dig deep in such a situation, here’s a guide on the process you can follow to get a duplicate copy of key documents such as NSC, FD, Form 16, Pan Card, mutual fund scheme, insurance policy and home loan papers. “If the papers, however, cannot be traced after reasonable efforts and you suspect they may have been stolen, a report at the nearest police station must be filed immediately,” advises Amitabh Singh, partner — tax & regulatory services at Ernst & Young.
To ensure there is no misuse, instantly inform the respective departments about the loss of original papers/document/policy. The next procedure should be to apply for a duplicate. As a policy, most financial schemes allow for issuance of duplicates on payment of a nominal fee. According to post office regulations, you can get a duplicate certificate issued if loss of the certificate has arisen out of theft, mutilation, defacement. You would be required to send an application to the post office where the NSC was issued.

Similarly, for Mutual Funds, you should contact the AMC. The advantage for Mutual Funds is that they issue statements every few months as per their pattern, and those are equally valid. As recommended, make sure that you keep a duplicate copy beforehand. To get a copy later takes more effort and running around multiple locations, but it is possible and something you should work through.

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Tuesday, August 04, 2009


Indian stock market update as of 4th August 2009

The market is behaving a bit unpredictably, with sudden ups or downs, even though the fundamentals have remained roughly the same. Many people would argue that this is exactly how the market behaved in the last few years, so this up and down is actually consistent. One needs to consider the different factors involved in taking the market up or down:
1. World wide market moves
2. Indicators of the recession worldwide and in India
3. Macro economic situation in India, such as whether monsoons will be good or deficient, whether the Government is hoping for a improvement in growth, changes in overall economic mood
4. Policy measures by the RBI or by the Government, such as interest rate movements, monetary and fiscal policies, disinvestment and reform, or the blocking of such reforms
5. Overall political scenario, where the Government is seen as stable, or too dependent on its allies and hence prone to instability
6. Influence of the Communists and Leftists
7. Overall sentiment, such as if the market has moved too much in the recent past, time for a correction, or vice versa
And so on, but these are the chief reason for the movement of the stock index.

Now, what is the current position. India is not in a recession, but growth is very sluggish and the monsoon shows every chance of being deficient in the northern states, leading to an effect on the economy. At the same time, the Government keeps on stirring up the path of policy reform from time to time, even when it is pumping huge amounts of money into poverty alleviation schemes, but without proper oversight (and hence spending more than it should normally do).
The market has moved up a bit, to almost 16K, and there are 2 contradictory advices coming in; one is that there are no fundamental reasons for the market to rise, and the other mentions that overall economy is looking better, realty is improving, production seems to be on an upward jump.
From my side, the mantra remains to be cautious, and look for opportunities. I have invested in the following for the past few weeks, and would be investing more from time to time:
KLG System
JMC Projects
Bharti Airtel
Ashhiana Housing
DLF (this and Unitech are dependent on housing market looking up)
Satyam Computers (riskier than the others)
Supreme Industries

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