Friday, September 17, 2010


After along time most middle class investors are smiling again. The flood gates of telephone calls have started pouring in from our readers. “What should I do? I have doubled the amount. Should I redeem it or keep the money invested”? My reply to young investors was to stay invested if they do not want the money for next four years. There would be correction but again the market would go up. For seniors, whose risk appetite are low, they need to switch money to liquid fund and park the money for a while to invest when market correct after sometime. Another gentleman asked “Can I redeem the money and keep it in debt fund for a while and reinvest when market goes down”? It is a good idea no doubt, but if money is kept invested in Debt fund you cannot shift to another fund within one year without paying exit load. So if you redeem it now keep in saving bank or in liquid fund so that you can switch moment market goes down. The pessimism in the investment community is understandable as markets are nowhere near being called cheap. The price to earnings (PE) ratios are well over 22-23 and the continued fund flows has made sure the selling pressures from domestic fund houses hasn't been a deterrent for bulls. The new action on rep rate by RBI would also hit the Mutual Fund market, Debt funds and MIPs, which in turn would affect the senior citizens.

According to mutual fund industry sources, the selling pressures from domestic institutions have been on account of redemption pressures from individual investors.

In fact, individual investor behaviour has been that of caution in the last two years. Having been caught on the wrong foot in 2008, the small investor is in no mood to think long-term . As a result, during every uptrend many have been quick to encash profits or cut down losses (those who built portfolio in 2007-08 ). In the process, they failed to ride on the good market mood of the last few years.

The Bombay Stock Exchange (BSE) Sensex and the National Stock Exchange Nifty crossed a landmark each during the early session of trading on Monday. While the Sensex breached the 19,500 level, the Nifty crossed 5,800 marks on strong industrial output numbers from Asian and the US economies. But keep it in Mind that P/E ratio is not as high as it was during January 2008. At that time P/E ratio was 28. So there is actually still steam there and market may go up further. The market is sure to correct as soon as liquidity would come down.
At 11 am on Monday, the Sensex was 288 points up at 19,088, while the Nifty was 85 point up at 5,725. Banking stocks showed the sharpest jump in the early session as BSE Bankex and Bank Nifty had risen by close 3 per cent at 11 am. The small and mid cap stocks, however, lagged both the Nifty and the Sensex.

This rally is liquidity driven and is not fundamental driven alone. The participation from retail investors of the country is minimal. They remained hesitant even now to invest. Of course, there is a strong possibility of a deep correction at any time fro 10 to 20% at any time. So our advice to hesitant lot is to keep away from equity mutual fund. Perhaps they can invest in Long term MIPs where return is around 9 to 12% from time to time. There are three good funds in this segment according to value research, Birla sunlife MIP .5, Reliance MIP and HDFC MIP. These funds have got 5 to 25% equity and balance is in debt. My personal favourites are HDFC and Reliance MIP for retired person. HDFC MIP has paid in 71 times dividend in 77 months. The average annual dividends for last six years are around 11%, much more than bank FD, Company FD and SCSS but with little risk.

My sincere advice to our readers is not to invest any more once the sensex reaches 20,000 marks or little lower. That would be time to redeem the investment if they have earned good profit and have completed at least one year or more. Keep your money handy to invest when market goes down. There is a strong possibility of correction. Invest all the money when correction set in. People who have done STP or SIP do not have to worry at all. They should keep on investing while share market goes down. The long term investors should not be afraid of. They would surely make money.
Dinesh Thakkar, chairman and managing director, Angel Broking said: “Strong IIP numbers, better than expected month of July 2010 fired the bourse, which inched up to cross the 19,000 mark. Going forward, with the Agriculture growth accelerating on back of good monsoons, which along with the robust growth in the manufacturing and the services sector should aid Indian economy to deliver an 8.5 per cent GDP growth in FY2011.”
We need to understand that share market is a risky field and correction is inevitable. Warren buffet makes money because the share market is a volatile field and he enters the market when others fly away. He invests in companies whose functioning he understand well. It is impossible for common people to understand so it would be wise to depend on their personal financial advisers always. Investors need to study well the money magazine and business pages of news papers and form their own opinion. On the flip side the key concern area inflation is also likely to moderate as we go forward, resulting in most of the monetary tightening measures being front ended. This along with the strong earnings growth momentum, wherein the Sensex earnings are expected to grow at a 18 per cent CAGR over FY2010-12, the Indian equities would continue to be sweet spot and continue to gradually move upwards in the long run. It short and medium term there could be correction.
It is necessary for senior citizen to understand that they need not invest all the money in equity related instrument . They can invest only 20 to 30% money in equity. The balance money could be kept invested in PPF, SCSS and Banks FD and long term debt fund. While investing in equity they should invest mostly in balanced fund like HDFC prudence or Reliance balanced fund. They can invest also in MIP of HDFC and Reliance or in Birla.
Younger readers can take risk and can invest a larger amount in equity. But they too need not put all the eggs in one basket. The good diversified funds are IDFC premier equity, HDFC equity and top 200 beside Reliance growth and Birla Dividend yield.

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