Prajna Capital - An Investment Guide

With the stock market showing little sign of any serious recovery, and inflation high, some of you are likely to be considering investing in gold. If you are, you need to know the pros and cons. Experts differ widely on the matter. Some feel this is just not the right time to invest in gold, considering the commodity's price has risen sharply, and may soon do what the stock market did under similar circumstances --crash. The price of gold is already at its peak and even a gain of 5% at this level seems quite difficult. Investment is not advisable at this price. But there are others who feel just the opposite. This is the right time to get into gold as forecasts suggest that the price is set to touch Rs 15,000 or more. Wealth managers feel an investment portfolio with an allocation to gold improves the consistency of portfolio performance during both stable and unstable periods. It's also liquid in nature and can be easily converted into hard currency. Since gold is likely to do...

RETURNS ON GOLD & ITS ETF’s RISE WHILE most of the popular asset classes are going through bad times, the yellow metal shines on. In fact, in the last one year, gold has given a return of more than 25% and currently trades at Rs 14,695 per 10 gm. Even gold exchange traded funds ( ETFs ) have appreciated substantially. Gold Gold Benchmark Exchange Traded Scheme ( BeES ) and Kotak Gold ETF have given more than 25% returns each in the last three months. Even as the equity markets have taken a hit with the Sensex losing around 46% in the last one year and real estate prices also witness a correction, investors’ preference has shifted to safe havens such as gold. On an average, most of the diversified equity mutual funds have fallen and real estate developers are offering discounts. Thus gold remains the safest bet. The appreciation in the gold prices is mainly due to its safe haven status. The key reason for gold to go up is lack of other investment opportunity. There is also a risk in...

The macroeconomic factors world-wide have been quite shaky over the last couple of quarters. As a result, the stock markets have been quite volatile with a negative bias all over the world. In line with market conditions, the performance of equity based instruments remained quite subdued. As uncertainty prevails in stock markets, investors are not keen on putting their money in equity-based instruments. The meltdown in the equity markets started with the slowdown in some countries. This coupled with several other negative developments like a sharp rise and fall in commodity prices (crude oil, metals, food items etc), fall in the global inflation rate and meltdown of some of the large financial houses kept triggering negative sentiments in the markets. Analysts believe the negative sentiments will continue in the stock markets for a few more quarters, and therefore, the stock markets will remain volatile in the medium term. Therefore, it will be risky to invest in equity-based ins...

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...

Year 2008 has been an action packed one in all respects. It started off with stock market correction in mid January, later it turned out to be a bear market and eroded Billons of dollars of investor money. By then sleeping giant was awaken, the sub prime. It had cascading effect all walks of the economy only in US nut all across the world. Then came the big investment bank failures. Fed has to Bail out leading mortgage lenders of the country Fannie Me, Freddie Mac. But, worst was yet to come, Lemon Brothers, a hundred year old investment bank went bankrupt. It was the situation with Merrill Lynch and Morgan Stanley as well. Goldman Sachs was also taken a beating but was slightly better off. Merrill Lynch was acquired by Bank of America. Wachovia acquired by Wells Fargo, Washington Mutual (WaMu ) acquired by JP Morgan. Both Goldman and Morgan were converted to conventional banks. Meanwhile, Warren Buffet, greatest investor that the world has seen also showed confidence in Goldman. On th...

It's time to visit your portfolio and weed out investments whose inflation-adjusted returns is low or negative On June 4, the central government announced a price hike of Rs 6 per litre of petrol, Rs 3 on diesel and Rs 50 per LPG cylinder, together with customs and excise duty cuts in an attempt to save the oil marketing companies from bankruptcy. Oil marketing companies buy crude oil from the international markets and distribute it in India. India imports 73 percent of its petroleum needs as the production of crude oil here is very little. The price of crude oil in the international markets has nearly doubled from a low of $60 per barrel in May 2007 to $130 a barrel in May 2008. The retail price of crude in India, administered by the government, has not been raised since 2004. Hence, these oil marketing companies have been running a very unprofitable business of buying crude at high prices and selling it to domestic consumers at low prices. In this process, they have accumulated m...

The domestic markets will recover if there is a drop in oil prices. The volatility seen these days is expected to continue for some more time Watch for: Crude oil prices Global cues Policy Action Political scenario The stock markets are in a bear phase. In fact, the markets are witnessing one of the worst phases in the recent past. Last week, on Monday, the bourses were in the red by $50 billion. The markets lost all the gains of the current year in market value with a depreciation of close to $50 billion on that day, amidst a fall of over 500 points in the benchmark Sensex . The Sensex plunged 506 points to close at 15,066 points - it's the lowest in the current fiscal. The cumulative market capitalisation of all the listed companies fell below the Rs 50 trillion mark. Out of this, nearly half the loss, amounting to about Rs 1 trillion, was contributed by the 30 biggest blue chips, which constitute the Sensex. The Sensex has also shed close to 6,200 points from its all-time high o...

Why oil prices fluctuate and result in volatility in the stock markets Crude oil is one of the most basic global commodities . Fluctuation in the crude oil prices has both direct and indirect impact on the global economy. Therefore, the prices of crude oil are tracked very closely by investors the world over. Crude oil prices have gone up to record levels of USD 100 per bbl after reaching a high of USD 145 per bbl (rise of around 70 percent from previous year's levels). The price variation in crude oil impacts the sentiments and hence the volatility in stock markets all over the world. The rise in crude oil prices is not good for the global economy. Price rise in crude oil virtually impacts industries and businesses across the board. Higher crude oil prices mean higher energy prices, which can cause a ripple effect on virtually all business aspects that are dependent on energy (directly or indirectly). There are many factors that influence the global crude oil prices including tech...

Some global factors that have a bearing on the domestic economy The sharp rise in oil prices was the last straw for the market that was trying to cope with lower GDP growth, higher inflation and flight of foreign institutional investor ( FII ) funds. Indeed one can wonder whether the economic scenario can get any gloomier than what it is today. Oil prices remain high It all started with the oil prices shooting up. They touched all-time highs of $145 per barrel. Crude oil prices had corrected to $100per barrel only to go back to higher levels. There are several theories attributed to this recent increase in the crude oil prices. Some say that cost of production has increased while others say that more speculative money is invested in crude for quick speculative returns. Usually, investors buy commodities such as oil as a hedge against inflation when the dollar falls. A weak dollar makes oil less expensive to investors dealing in other currencies. Hence, analysts are of the opinion that ...

CRUDE oil prices in recent times threatened to breach the $150 per barrel mark, and later fell to $123 levels, clocking an appreciation of almost 30% in the year. In fact, higher oil prices have been sending shivers down the stock markets worldwide, as if the recent global financial crisis was not enough to unnerve them. Back home, Indian stocks are down by around 30% in the current year. Inflation has already reached double digits at 11.98% and is showing no signs of respite, adding fuel to the fire. I would start with an interesting conversation I heard recently. I happened to be at an oil trader’s dealing room. I asked the chief dealer, “What’s happening to oil? It is down 20% from its peak. Will you buy now?” He answered: “Oil’s down due to speculative unwinding of long positions and a growth scare in developed countries, which might result in lower demand for the scarce commodity.” He then called someone in Iran, a member of OPEC , an association which controls around 40% of the g...

Inflation is part and parcel of any economy. High growth economies usually have high inflation. So what is inflation and how it fluctuates and what causes this variation. Here is a small note on that. Inflation Inflation is a measure of rise in general price levels of goods and services. Inflation is measured by taking a set of goods and services, and then the prices of the items in the set are compared to prices one time period ago. In India, inflation is measured based on the wholesale price index ( WPI ) which measures the change in prices of a selection of goods at wholesale prices. Types of Inflation Inflation is primarily of two types - inflation due to cost push and inflation due to demand pull (supply side). Cost push inflation is due to rise in costs of input materials or labor, whereas demand pull inflation is due to increase in demand beyond installed capacity. Controlled inflation is good for the economy as it increases motivation levels of people. The government, in co...

It is better to plan for the long term and buy potential stocks at every fall There have been major corrections in the stock markets all over the world. All major markets have corrected significantly from their peak levels. Major indices in the domestic market - Sensex and Nifty - also saw large corrections over the last couple of months and are currently trading below their 200-day moving averages. The Sensex is at around 16,000 and the Nifty is at around 4,800 levels - more than 20 percent lower than their peak levels. The mid-cap and small-cap stocks are the worst hit in this market correction and this is reflected in the performance of mid-cap and small-cap indices. There are a series of events/factors that resulted in this global meltdown of stock markets . Here are some of the more significant factors that had a negative impact on the domestic markets. US sub-prime issue The meltdown in the markets world over triggered by the US sub-prime news is one. The meltdown worsened thank...