Wednesday, October 20, 2010


The sensex went below Twenty thousand mark again on 20th October,2010. People have become apprehensive of the market behaviour. But to us it is a very significant sign.During September,after a long time, most middle class investors were smiling.The smile vanished as soon as the market hit the 19,995 mark after Durga Puja . The share market did touch twenty thousand mark during September 2010 after January 2008. Many asked us if it was the beginning of a bull market after a breather ? The flood gates of telephone calls 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.

There is a strong possibility of 10% to 15% correction of market post Dewali. But investors need not worry . By 2011 it would jump back to new height. Be prepared. Save money and sooner market corrects invest immediately.

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.

Asian equity markets also rose in September on the back of strong economic data in China and the United States . The news on agreement among global banking regulators to implement stricter Basel III norms also stoked positive sentiments in the market.

Japan’s benchmark Nikkei average rose 1.4 per cent, while the MSCI index of Asian shares outside Japan was up 1.6 per cent as strong economic numbers boosted investors’ confidence. India growth story is taking shape and this is the time our readers should take advantage of the share market of the country. One thing must be kept in mind that patience is the most r4quired skill if investors wants make money. Be a long term player always. Redeem your funds whenever you make more than 30% return. Keep it aside for sometime to re invest when market goes down. Rakesh Jhunjunwals said he enjoys when market goes down because then only he would be able to make money in future.



Gold is powerful asset from time immemorial. Even the world’s monetary system revolves around the Gold. The Gold standard has been the key for devising the monetary system of the world. The currency of individual country revolves around the Gold Standard. Yet Gold is not the best asset class though generally it is considered as the safe bet. In last 20 years the best asset class has been art forms and equity ranks next to it. In effect the gold is below equity next only to real estate. However, the Gold ETF had occupies a position higher than equity in last three years. But we need to keep it in mind that long term the position of Gold ETF would be behind Equity only.

Gold prices today seem unstoppable. They’ve reached levels that would have been unimaginable a few years ago and gold cheerleaders say they are on their way to levels that are unimaginable today.

When investors go and look for information on whether gold is still a good bet, there are experts who loudly proclaim that Gold is the only commodity which will save the financial crisis of the world. They recommend buying of Gold ETF or Gold ornaments so that during the financial deluge they would survive better than their neighbours. Many experts do advocate well-reasoned arguments supporting as to why the yellow metal prices would continue to move northwards. Gold is generally accepted by all. Hence demad of Gold is unending. There are shortages of Gold in the market and demand moves up as more and more countries would like to hoard it. There are many variations to these arguments, but basically, they all boil down to the age old theory of ‘safe haven’ t, viz. that investors are scared of the bleak future of stocks, bonds, currencies and all other kinds of financial investment. They are absolutely scared that there would be another financial crisis. To survive such financial catastrophe it would be desirable to act smart now itself and need to rush in to acquire an asset type that has a historical reputation of crating and protecting wealth in worst times.

Now a days it is not just the financial experts, but even the print and electronic media also carries stories and articles recommending gold as a significant chunk of the individual’s investment portfolio. They now days declared that the time has arrived when Gold needs to be considered as the savior during financial disaster. According to those experts days of Gold as a mainstream financial investment, have arrived .But we do not think so. We would like to forewarn our readers that gold is of course a valuable metal but cannot be considered as the savior of life during financial deluge. Or is it a hype only ? Will gold live up to the hype created by some of the fiscal experts? I do not think so .According Dhirendra Kumar, an honest and sincere expert on the field “the hype has now reached impressive levels. On the internet, it’s not difficult to find apparently sane analysts who say that gold could rise to four times today’s price in five years.” But does he believe it? I do not I am sure Dhirendra Kumar too does not believe.

Projections of two to three times today’s price levels in a year or two are commonplace. Is this a bubble? The gold of today is not the gold of old — a largely physical asset that was a safe haven in troubled times. The has turned into a commodity and is a paper asset too, with highly liquid and highly leveraged markets where derived proxies of gold trade in much larger quantities than any underlying demand. This bubble is likely to burst as was the case of Liquid Black Gold. The crude oil also crated a bubble few years back. Over the past few years, oil, copper, nickel, wheat took its turn in creating buble.We think this the turn of yellow metal to create bubble. We need to be aware of such a situation and try to salvage our own position before the Gold bubble is burst.

One Financial experts did say “in fact, gold is even more of a bubble because it is an inherently useless material, earning no dividends or interest. There’s no industrial consumption story like copper or nickel here, and unlike oil, there isn’t any danger of ‘peak gold’ laying waste to the world economy. Gold is the purest of all bubbles—where even the story being told by its proponents is that they expect its price to rise because everyone expects it to rise”. We do believe that Gold is valuable metal but do not believe that Gold can act the savior of humanity. It has never saved humanity during even great depression it would not save even now. Yes we can buy Gold metal for our ceremonies of future . We can at best invest in Gold surely only up to 10 percent of our total investing asset.

Of course the present bubble will continue, and brave persons can find this opportunity to milk yellow cow for all it is worth. Bubbles are, by definition, irrational and emotional. Due to psychological effect and due to trick of the traders gold’s price might go up phenomenally within a few years. But It is not worth taking the risk unless you are either fool or too intelligent to exit just before the bubble is burst. A few readers asked us whether it is worth taking the risk? My reply would be similar to an up country Economist who said “ if you invest in it today, have no illusions that you are putting away money for a rainy day”. Buying Gold more than your own needs would be actually a speculation. The buying of the yellow metal in large volume is only a madness of th4 market. And this madness may continue for a while. A day is not far off when this madness will end suddenly, and then the experts on yellow metal shall have to run away never to return back to the market. Our advice to our readers are be vigilant invest in Gold in moderation. It is a valuable product but it would neither make you super rich nor support you as the savior during financial deluge. Your portfolio should surely consist of Gold and Gold ETF but not more than 10% to 15% of your total asset.



Country's largest lender State Bank of India's first retail bond issue of Rs. 1,000 crore was subscribed over 17 times on the opening day, showing enthused participation from investors. Many of our readers have enquired whether it would be prudent to subscribe to the bonds as it is a long term saving proposal.
We would like to reassure our readers that the bond issue of
SBI is one of the finest saving proposal for common people as well as for high net worth people who would like to have extreme safety and security of their money . In many years to come such high rate of interest from any fixed income securities may not be available. In spite of the fact that there would be no income tax concession on the product it is a good saving option, according to most economists. The return is even better than Senior citizen’s Saving scheme. The SCSS has 9% return whereas the SBI bond has return limit of 9.25 % to 9.50% return depending on the length of the saving period. The best Saving option is PPF. This is issue next best option for all risk averse investors.
I would like to recommend risk averse senior citizens as well as young investors to subscribe to the bond issue. My only apprehension was that many of the applicants may not be able to get the desired number of bonds as the issue is bound to be heavily oversubscribed.
The issue, which opened for subscription yesterday, was supposed to remain open till October 25. Market sources said that in the bond sale, the portion reserved for wealthy individuals (High Net worth Individuals) was subscribed by over 16 times, while that reserved for retail investors was oversubscribed 6.4 times already.

The offering comprises issue of bonds worth Rs. 500 crore, with an option to raise it further upto Rs. 500 crore by issuing additional bonds, with the total aggregating to Rs. 1,000 crore.
Our readers need not worry if they miss the bond issue because the issue is going to be listed in the stock market later.
This listing arrangement would provide an opportunity to all investors to buy the bond from open market if they miss the issue now. The bond may be available in premium or in discount below the issue price depending on the trend of bank interest. If the bank interest goes up the cost of the bond would go down and if the rate of bank interest goes down the bond would be available in premium. There is a strong possibility of bank interest going up in near future hence investors who miss the opportunity now may be getting the the same bond in discount and so actual interest return would be higher.

The bonds would offer an interest of 9.25 per cent for 10 years and 9.5 per cent for 15 years. Citigroup, Kotak Mahindra Capital and SBI Capital Markets are the managers for the issue. The bonds are proposed to be listed on the National Stock Exchange of India (NSE).

The bonds would be allotted to all categories on “first come first serve basis” based on the date of application. So It would be prudent to rush to the bank and subscribe the issue since according to us this is one of the best option for safe and quality saving procedure