Prajna Capital - An Investment Guide

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...

Consumers have been feeling the heat of rising inflation for the last few months. Though the number seem to have come down marginally to 12.14 per cent (for week ended Sep 26), there seems to be little respite. Such times force the individual to take a relook at their savings strategy and monthly budgets. The basic idea is to do things smartly to save on costs. Of course, there is a rising interest burden as well that makes things worse. In such uncertain times, your investments need to deliver higher returns to break even. For instance, if the inflation is touching 12 per cent, you will have to earn 17-18 per cent pre-tax (for the highest income bracket) so that there is no capital loss. While keeping idle cash in banks may seem like a safe and secure strategy, it can never protect the purchasing power of your money and will lead to wealth erosion. But cash certainly has its uses. It can be used to retire or reduce high-cost loans. Also, make long-term investments in gold and equities...

INDIA, like many other economies, has embarked on a long, difficult road to check runaway prices. It’s now evident that policymakers will hike interest rates till it hurts and pulls down demand. The central bank as well as the government are willing to sacrifice a bit of growth to douse inflation — an issue that has captured the collective imagination. On Tuesday, the Reserve Bank of India hiked the benchmark short-term rate by 50 basis points, about 25 bps more than what the market had expected. Bonds and equities reacted sharply. Soon, home loan seekers and corporate borrowers will feel the pinch, since borrowing money will now be far more costly. RBI has not only raised the benchmark repo rate — the rate at which banks borrow from the RBI — from 8.5% to 9% with immediate effect, but has also hiked the cash reserve ratio ( CRR ) for banks by 25 bps — a measure that will drain Rs 9,000 crore from the banking system. Given the outright hawkish policy stance, it’s clear that RBI will no...

How you can fight back Review your emergency fund requirement . Keep six months' expenses as emergency funds, mostly in short-term debt funds such as inflation- and tax-efficient FMPs. Examine your health and life cover . With costs going up, you need to bump up your life and health covers. Go for low-cost, high-cover term plans and floating health covers to bridge the gap. avoid large idle savings and bank balances. Invest in short-term debt funds like FMPs. Defer large loan-based purchases. Avoid large EMIs that will stretch your finances more. Go for your first home if you can afford the down payment and EMI. Prepay high-cost loans. Start with your floating rate home loan. Remember, no investment option will provide guaranteed returns that equal the higher interest payout. Seek capital gains and dividend instead of interest. Interest income gets taxed at your income tax rate. Long-term capital gains and dividends from equity and equity MFs are tax-free, but taxed at 10 per ce...

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...

Prices on fire Why inflation rose to a record high... Rising oil prices . At an all-time high of $140 per barrel, oil prices have more than doubled from $64 a barrel in April 2007, fuelling inflation. Rising food prices . A global shortage of food grains, such as wheat and rice, has made the food prices index shoot up by about 10 per cent, pushing up inflation. High commodity prices. High prices of commodities such as steel and cement due to their less-than-adequate supply has made industrial production, housing, roads, airports and other crucial infrastructure more expensive. High cost of funds. To combat inflation, the central bank is sucking out excess money from the economy by increasing cash-reserve ratio and increasing repo rates so that less money chases the limited supply of goods and services. This, however, is also driving up the cost of existing funds, that is interest rates, adding to inflation. Rupee's eroding purchasing power. Rising prices are eroding the value of...