Prajna Capital - An Investment Guide

THE impending realignment of NSE indices on the basis of free-float market capitalisation has put index funds and exchange traded funds in a spot of bother. According to mutual fund analysts, the exchange-proposed changes in stock weightages will result in widening of tracking error in index funds. Index funds are passively-managed funds wherein the fund manager attempts to mirror the performance of a benchmark index, by investing the corpus in the index components in proportion to their weightage in the index. Tracking error is the difference between returns from the index fund to that of the index. Lower the tracking error, closer are the returns of the fund to that of the target index. Funds with tracking error lower than 1% are good performers, according to mutual fund analysts. The NSE-proposed shift in stock weightages could deviate fund returns (from index returns) in the range of 6-10%, industry sources said. There could be some tracking error as weightage realignment ...

Asset management companies ( AMCs ), which invest the pooled funds of retail investors in securities, are said to provide more diversification, liquidity, and professional management than individual investors can themselves manage. But a look at the stocks held by 28 asset management companies show that one-third of their assets is invested in only 10 stocks. Their favourite 10 being: RIL, SBI, Bharti, ONGC, ICICI Bank, Infosys, Bhel, L&T, HDFC Bank and HDFC. AMCs of fund-houses such as Morgan Stanley Investment Management, Benchmark Asset Management, Deutsche Asset Management and LIC Mutual Fund Asset Management have invested funds to the tune of Rs 200 crore to Rs 1,100 crore in these 10 stocks. This means that this type of top-heavy form of AMCs' equity portfolio could be affected by a swing in just a few stocks. As per latest data, AMCs held maximum assets in form of shares in RIL (Rs 4,592 crore), followed by SBI (Rs 3,855 crore), Bharti (Rs 3,508 crore), ONGC (Rs 2,995...

Often under-rated and out of radar, deep value stocks can do wonders to your equity portfolio. THEY are believed to carry hidden treasure on Dalal Street. While investors call them the low-lying unpolished gems of the stock market, brokers say there are big bucks to be made if you can identify these stocks early. No prizes for guessing this, we are talking about deep value stocks which can do wonders to one’s portfolio when market re-assesses them. According to analysts, a deep value stock can be defined as something which is low priced in relation to the margin of safety the stock provides, to limit losses when a mistake is made. Lets get some insight into how to identify these stocks, what should be your ideal portfolio allocation and reasons behind their low valuations in the market. SLEEPING GIANTS They are like any other stock traded on the exchange, but there is no hypothetical understanding of them. A section of traders on the Bombay Stock Exchange even call these stocks as ‘ s...