Skip to main content

Checklist for equity investors to safeguard equity portfolio

 


   The first quarter's results for the financial year 2011-12 released so far have left many investors jittery. This is exemplified by their reactions to the results. Bad results are punished quickly. The sudden decline in performance of some the blue-chip companies have indeed been unsettling. After the results, some of them have lost nearly a third of their market value.


   For the first time, there are cracks in the confidence levels reposed by investors in domestic companies. The opinion that they are good in managing the macroeconomic challenges has lost some sheen. The sudden drop in the price of a share can cause substantial damage to a portfolio. A question that then arises is what is the remedy for such a catastrophic impact on a portfolio after the results, and whom should an investor trust for a stock recommendation.


   The ideal answer would be nobody. Self analysis is the best strategy for picking stocks, that will help a portfolio grow. But today's investors do not have time to research a stock to invest in. Further, research is a continuous process that requires time and effort. On the other hand, a portfolio's exposure to stocks either directly or through mutual funds is necessary to achieve higher returns. One way of solving this dilemma would be to invest in companies that are well-researched.


   Usually, company research reports are generated by three segments of analysts. In-house research teams of mutual funds generate research reports for their exclusive use, brokerages issue reports on companies free of cost for their clients and independent research companies provide research reports for a fee.


   The reports of mutual funds are technically called buy-side reports and are expected to be more accurate as the analyst's earnings are pegged to the performance of the stocks they recommended. Reports generated by brokerages are called sell-side reports and are expected to be bullish with the aim of inducing investors to buy. Independent research reports are expected to be unbiased.

As most individual investors have access only to the second and third categories of reports, they can use them to construct their investment portfolios. However, a preliminary check on the given recommendations is imperative to remove any bias that may have crept into the report.


Some checks that can go a long way in protecting a portfolio:


Browse to check if there are any adverse news reports on the company.

Check whether the recommendation is for trading or investing. Trading stocks are recommended for an upside of a few percentage points and come with a strict stop-loss trigger. They may not be suitable for investing.


The costs of frequent trading can be a huge drag on performance over time. It makes sense to buy stocks as an investment and hold on to them for the long term.


Read the report closely to check if the projections are too optimistic.

Check the P/E ratio of the company to ensure it is at reasonable levels. Unusually high P/E companies may correct sharply when the tide turns against them.

Ask two questions before investing - is this a high-quality company, and is its stock priced attractively.

Check if there are any immediate triggers that can make the stock attractive.

This checklist can give you reasonable protection from sharp falls in security prices. But there could still be a surprise or two where despite taking all the precautions the stock price tanks due to unsavoury acts by the management.
 
 

Popular posts from this blog

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now