Prajna Capital - An Investment Guide

The stock market has been staying below its 200-day moving average and forming lower tops and lower bottoms, confirming that it has tanked out THE debate on whether we are in a bear market or not should be over, as it now feels and seems like a bear market, says brokerage house Morgan Stanley, in its India strategy report titled ‘How Long Will This Bear Market Last?’. A key indicator has been the market staying below its 200-day moving average ( DMA ), and forming successive lower tops and lower bottoms. In the three bear markets of the last 20 peak, Indian benchmarks have already fallen close to 40% from their record highs seen in January this year. But the moot question here, according to Morgan Stanley, is how long this bear phase will last, and not how much further prices are going to fall. This bear market has averaged 1.3% in the 25 weeks that it has fallen since its January top—slightly higher than the average of 1.1% in the first 25 weeks of the previous three bear markets. Mor...

If you have lost money, then have a hard look at your holdings. It is time to be patient ULTIMATELY, you cannot really lose money in the stock market! If you have, then either you have not been in the stock market long enough or you are in the process of getting the most expensive education. In the last 15 years, I have portfolios earning about Rs 5 lakh from share dividends alone against others who started with Rs 5 lakh and today owe the broker about Rs 3 lakh. When the markets, Sensex moved from 4,000 to 7,000 points, people thought it was a bubble and many sold out by the time it reached 12,000 points. A huge majority lost the run from 9k to 16k. Seeing their folly, many entered around 17-18k levels and in two months, saw their portfolios doubling. Greed peaked, speculation peaked and the fall shattered millions of dreams. Is there someone sitting on profits today? The answer is a resounding yes! Here are examples. HDFC was quoting at Rs 300 in 1999 and touched about Rs 3,000 earl...

Prime Lending Rate (PLR) PLR or prime lending rate is a benchmark against which the lender sets his rate of interest. Cash Reserve Ratio (CRR) This is the portion of funds that banks have to retain with the Reserve Bank of India ( RBI ). When the RBI increases this percentage, the amount actually available with the commercial banks comes down. The RBI increases the CRR to draw out excessive money from the banking system and thus checks increase in prices. Bank Rate This is the rate at which the RBI lends to other banks. If the RBI increases its lending rate, the ripple effect will be felt across all the other banks that will hike lending rates to continue making profits. Repo Rate If banks face any shortfalls in funds they borrow from the central bank. Repo rate is the rate at which banks borrow money from the RBI. If the RBI reduces the repo rate, it will be cheaper for banks to borrow money. On the other hand, if the repo rate goes up, borrowing becomes expensive. Reverse Repo Rate T...

You can use the correction phases to build your portfolio with value picks. Volatility is a basic nature of stock markets. Stock markets are driven by investor sentiments and expectations of corporate earnings. Usually, markets react sharply to negative or positive news developments. The volatility this year is due to a negative bias. There are many factors that contribute to negative investor sentiments. For example, a persistent high inflation rate (especially the core inflation rate that is driven by basic commodities), rising commodity prices in global markets, slow down in global economy and no visible signs of improvement etc. Global investors who were pumping money into emerging markets are exiting. Large foreign investors are bearish on the global growth potential and expect the global economy to deteriorate. Since the stock markets are in a sideway movement and not doing very well, equity funds are also not delivering good returns. In fact, most of them delivered negative perf...

It’s that time of the year when your salary is supposed to look fatter — after all, the financial year has ended. And the New Year brings cheer with pay hikes and lump sum performance bonus, if any. Pay off bad and ugly loan It’s better that you pay off your ‘bad and ugly loans’ with it. These could be your high interest-paying credit card bills, personal loans or car loan. Any loan that costs above 14% should be paid off. Never miss the wood for the trees and ensure that any investment is directed towards the ultimate financial goal, experts say. The idea is that you should see your money grow to meet your financial targets. Safe instruments If you want to use the money for medium-term needs, say 3-4 years, consider safe instruments like debt. This could be debt funds or even arbitrage funds. Arbitrage funds generate fixed income by taking advantage of price differentials between the cash and the futures market. Advise would be not to invest this bonus in aggressive instruments as thi...

Most investors want to play safe in turbulent times, yet expect reasonable returns on investments. Below is the list of five themes to help you come out unscathed DARE to bare your wisdom in the current market situation? You better shelve the idea if you have the faintest clue of the factors behind the negative sentiment. In fact, over the last six months, weak global market cues, skyrocketing commodity prices, particularly crude oil, high inflation, suspense over signing of the nuclear deal and political uncertainty have all cast a pall of gloom over the markets and made even the best laid-out investment plans go awry. And if you are a first time investor, this can’t be a more inappropriate time. All, however, is not lost yet. Out five investment themes which may help you to beat the market blues over the next six months. DEFENSIVE POSITIONING No investor likes a range-bound, highly volatile market, marked by spikes and falls at regular intervals. And if you believe industry analysts,...

Market Regulator SEBI Allows Repricing Of ESOP, this is due to market conditions as Exercise Price Becomes Less Than Market Price making ESOP less attractive. THE bloodbath in the stock market has forced some firms to restructure their employee stock option programmes ( ESOP ) to assuage employees who are seeing a large portion of their ‘ wealth’ disappear. Thanks to the market correction early this year, a number of Esop schemes have become redundant or gone “ underwater ”. This means the current market price of the stock has fallen below the Esop exercise price. This is true of most firms that issued Esops over the past one-and-half years when the markets were high and bullish. There are many firms which started Esops last year, particularly those which got listed in 2007. All firms who have a vesting period of one year would either have to reprice the options or see it as a worthless option at the hand of the employee which won’t be exercised. Employees who got Esops before the mar...

MAJOR emerging market fund groups recorded outflows during the fourth week of August with EMEA (Europe, Middle-East, Africa) equity funds hit the hardest in percentage terms, according to Emerging Markets Portfolio Funds Research. Investors pulled money out of the diversified Global Emerging Markets ( GEM ) Equity Funds for a fifth-straight week and extended Latin America Equity Funds’ losing run to 12 weeks and $4.1 billion. Since the second week of June, EPFR Global-tracked Emerging Market Funds have surrendered a net $23.1 billion, the note said. Appetite for exposure to emerging markets has been eroded by a sharp correction in commodity prices during the current quarter, a string of downward revisions to economic growth forecasts and painfully high inflation rates in several key markets including Russia, India, South Africa and Argentina. Investors still have appetite for direct exposure to China, although the $175 million they committed to China equity funds was more than offset b...

DURING the past six months, the financial and economic scenario has undergone a sea change due to high inflation of nearly 12%, softening property prices after reaching astronomically high levels, reduction in gross domestic product ( GDP ) forecasts and consequent slower growth rate of the economy, political uncertainty, sub-prime financial crisis and slowdown in the US. In view of the above, let us review what investment strategies one can adopt. STOCKS The stock market is a reflection of psychology as well as earnings, dividends and asset value. The BSE Sensex is currently at 15,000 level, implying a price to-earnings ( P/E ) ratio of about 18 (with EPS of say Rs 850) and an earnings yield of nearly 6%. So, is this the time to buy, hold or sell stocks? This is definitely a difficult question to answer as no one can accurately predict the future direction of stock markets. Historically, a P/E ratio of 15 for the stock market is considered fair, implying a BSE Sensex of 12,750. Alth...

Inflation , is an economic concept. If you really thing about it, inflation makes the worth of money reduce. the prices of everything goes up over time and this phenomenon is called inflation. The question is: By how much do the prices go up? At what rate do the prices do up? The rate at which the prices of everything go up is called the " rate of inflation ". My family's monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses? The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense. Formula : Required amt.=Present amt. *(1+inflation) ^no. of years Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount. Also used for: Calculating maturity value on an investment.

It is advisable to start investing early in life towards a retirement plan. Here are some tips: Retirement planning should be an essential element of everyone's financial planning. Individuals should start planning for their retirement funds as early as possible in their life. If we look at the way our society is shaping (increase in average lifespan, nuclear families etc), it becomes even more important to plan carefully so that you are totally independent in your golden years. Planning for retirement is a comprehensive process for determining how much money you will need at the time of retirement. Some people feel that retirement planning is important when you cross 40 years of age. It then becomes difficult to build a good corpus within the next few years and eventually these people end up investing in risky investment instruments. They invest their hard-earned money in risky stocks, where the returns are generally not certain. There are many insurance instruments available in...

How you can invest in stock markets outside India and some risks involved Indian citizens had the ability to invest abroad as early as 2003. Investments in mutual funds up to $25,000 in a calendar year were allowed. Since then, the Reserve Bank of India (RBI) has raised the limit to $2,00,000. This has opened up many investment categories for Indian investors. You can invest in stocks, mutual funds, foreign currencies, real estate and insurance policies anywhere in the globe. You could also invest this amount in hedge funds, currencies and currency derivatives. So, the global markets, with its glittering array of financial products, are now just a click away. Why invest abroad? For some of you would are interested in equities, there are thousands of shares listed in global equity markets to choose from. But first and foremost, you must be clear on why you want invest abroad. There are many good reasons for investing in equities abroad. For example, as a risk-averse investor, you may si...

It’s more than just the money. For many emerging companies, Private Equity investors provide invaluable advice and the right perspective, when it matters most ARBURG PINCUS’ dalliance with Bharti Tele-Ventures from 1999 to 2005 is still remembered as one of corporate India’s most famous relationships. When it ended, the international private equity giant walked away with a cool 450% return on its investment. Bharti, too, has grown since then in leaps and bounds to become India’s largest mobile network service provider. However, the saga continues to live on and many consider the deal to be India’s first truly fruitful partnership between a corporation and a private investor. Not because of the sheer volume of money the former injected into the latter back then, but also because Warburg set a new precedent in taking a company with great potential and hand-holding it all the way to success. This deal and others like it (such as Pantaloons’ transformation assisted by ICICI Venture) helped...

MANY of us like to believe that we have a robust financial portfolio that would take care of our future. Interestingly, the plan would work only if funding the plan is regular. What happens if the funding suddenly stops? When it comes to investing in insurance, many of us mistreat it as a pure tax-saving tool. With the advent of ULIP and many innovative products in the market, thanks to privatisation of the industry, insurance is also being looked at as an ‘investment’ option that is expected to pay dividends/ returns, along with securing one’s future. Irrespective of our motivation to buy insurance, we often grope in the dark to determine the right approach for buying insurance products and assessing if we have an adequate insurance cover. NEED-BASED APPROACH Life insurance has moved from protecting life to protecting lifestyle . Today, there is a choice of innovative products that meet financial needs at each of one’s life stages — be it marriage when one assumes responsibility to pr...

Inflation , is an economic concept. What the cause of inflation is, is not important to us from the point of view of this article. What is important to us is the effect of inflation! The effect of inflation is the prices of everything going up over the years. A movie ticket was for a few paise in my dad’s time. Now it is worth Rs.50. My dads first salary for the month was Rs.400 and over he years it has now become Rs.75,000. This is what inflation is, the price of everything goes up. Because the price goes up, the salaries go up. If you really thing about it, inflation makes the worth of money reduce. What you could buy in my dad’s time for Rs.10, now a days you will not be able to buy for Rs.400 also. The worth of money has reduced! If this is still not clear consider this, when my father was a kid, he used to get 50paise pocket money. He used to use this money to go and watch a movie (At that time you could watch a movie for 50paise!) Now, just for the sake of understanding assume th...

Goldman Sachs Asset Management L.P. ( GSAM ), has received regulatory approval from the Securities and Exchange Board of India (SEBI) to start a wholly-owned asset management and mutual fund business in India. The senior management team appointed to spearhead the asset management operations of Goldman Sachs Asset Management in India is led by Mr. Adam Broder as Chief Executive Officer and Mr. Prashant Khemka as Chief Investment Officer. Mr. Khemka said, “It is our goal to emerge as a world class asset manager in India, by drawing synergies from our global expertise and combining them with our proven risk management techniques to deliver strong and consistent results for our investing clients. India is amongst the fastest growing economies in the world, with a robust and growing savings and investment pool.” Added Mr. Broder, “We are delighted to have received the Mutual Fund approval from SEBI so promptly. India is one of the most important countries to our Asian business and we have a...

It is all about balancing growth and inflation. Like the Finance Minister said recently, " Inflation-control measures like drawing excess money out of the economy and the robust GDP growth cannot go hand-in-hand ". The matter, as it stands today, is how much growth should we forego to control inflation? The Finance minister is of the opinion that the government would not mind sacrificing GDP growth to some extent for controlling inflation. Hence, the focus of domestic and global policy makers has shifted from GDP growth or recession to fighting inflation. Global phenomenon Actually, this situation was forecast many months ago. It was a problem waiting to happen when the US Fed kept cutting benchmark rates repeatedly in the last nine months. Inflation has now become one of the biggest global issues. Soaring inflation, particularly in food prices, has moved to the top of the agenda for policymakers. The European inflation rate accelerated to 3.6 percent last month, the highest ...