Tag Archives: contra thinking

Taking stock

Picture an old-school person like your grandfather. Try and reminisce how he dealt with money. Money would be kept in a steel Safe-locker and he always knew exactly how much money he had in it. In the good Old days, bank deposits were the only investments for the middle class. The bank deposits would all be tabulated neatly in the order of their renewal dates. Monitoring would be perfect. Everything worked like clockwork and money would be in a very orderly way. Discipline and caution were the buzz words and things were always kept simple in the way they handled money.

Contrast this with how money is handled in the present. We invest in several products like Stocks, Mutual funds, ULIP’s and bonds besides the traditional bank deposits. On the one hand, we invest in several options for the purpose of saving on taxes. On the other hand we borrow to spend on credit cards. We even buy homes with home loans so that we can save on taxes. Clearly, the way in which we deal with money is far more complicated that they were in the good old days. When we borrow and lend at the same time, we need to balance our finances and constantly keep watch so that they are within limits.

With so many product options and multiple financial goals like life insurance, health insurance, tax savings, home buys and equity investments we have clearly complicated our handling of money. As different times call for different approaches, we are left with limited options but to create a wider basket of financial products. That has given rise to a portfolio. Your portfolio includes all the financial products you have bought and maintain on a running basis.

But, do we really know what we own and manage our portfolio in a methodical way? In the race for time and against it, we hardly find the time to devote to financial matters. We mostly rush to fulfill specific needs at the last hour and forget about them after that. More importantly, we do not have the big picture nor do we routinely tabulate, monitor or review our money matters. The portfolio itself is only in our memory and hardly organized and tabulated. This clearly leads to lapses, oversight and loss of opportunity.

This is where the old school approach of Taking Stock will make a big difference to the way we handle money. If you have a way of arranging your finances, you are actually preparing yourself for bigger things. Wealth creation happens only when we arrange, manage and take stock of our finances periodically. Taking stock of your wealth gives you a deeper understanding of what you assets you need to own, how you need to grow your money and also the risks you are taking to achieve your financial goals.

Today, most of us are simply letting things be. We are hoping for some random decision to work miracles for us. Miracles with money are a rarity. The richest investors are the most systematic people. They constantly take stock of their decisions and finances and tailor them to achieve their goals. While each of us have our own finances and make our own decisions, we should start taking stock regularly. Start tabulating your portfolio and take stock of it regularly. Wealth will soon follow.

Happy investing!

ithought – Market strategy for 2011.


The markets have corrected after a sustained rise. Retail Investors have been waiting in the wings expecting a correction. Now , the retail investor needs to decide if he should enter the markets now or wait longer for a sharper fall . The dilemma of the investors who were left out of the rally of the NIFTY from 5000 to the recent peak continues.

The investor’s strategy have so far centered around three things.
1. They have redeemed from equity funds or sold stocks at every rise.
2. They have focussed on IPO’s and
3. They have held higher levels of cash.

Now that the markets have shown some signs of correcting , it is time to re-examine the merits of this strategy.
The bountiful monsoons , the stable growth in different sectors of the economy and the sustained interest in Indian equities from FII’s are factors that augur well for Indian equity markets. These factors will ensure that any correction in prices will be used as a opportunity by serious investors.

China is showing signs of tightening interest rates and changing its orientation towards consolidating global commodity markets. The intent of China seems to be to soften global commodity prices and stabilize them. Towards achieving this China will probably allow interest rates to rise gradually along with the calibrated appreciation of the yuan . This essentially means that the speculation in global commodities will definitely soften as China shows its intent of moving away from its earlier strategy which pushed prices up.

This augurs well for India which is a major consumer of commodities after China. Businesses which add value to commodities will see softer raw material prices and export oriented businesses will also show an improvement. The leadership of the Indian stock market which centered around banking may become more broad based .

Market leadership becoming more broad based would mean that we could see the rally once again consolidating for further moves. The investor should identify the businesses which will contribute to market performance in the future. Investors need to identify the new frontline as we will see a reconstruction of the performing basket of stocks in the NIFTY / SENSEX . The reconstitution of the index to include Coal India is likely and the question really is only `when’ and not `if’. This is a move that will be significant for the future. The investor needs to also look at other index heavyweights in the energy space which have clearly not participated in this rally like NTPC, RIL etc. These companies are in investment mode and are likely to show resilient growth in the years ahead. As the markets leave 2010 behind and move on to the next year , it may start looking at the performance of the subsequent years and discounting the earnings gains of the future. The timing of this re rating is however dependent on the sustainability of the global trends. Indian Telecom is seen as troubled waters to fish in. But, with the rough weather likely to recede and with better policy management in 2G and the implementation of the 3G roll out in 2011 , telecom will once again start showing greater traction and rebound strongly. Telecom sector is another sector which will regain its place among the index frontline and key stocks will once again start delivering.

While i advise re entering the markets , investors will do well to use every sharp fall to invest a part of his cash . It will not be prudent to rush in and invest all the money in one go. A phased approach will work well in volatile markets. The mutual fund strategy should be fund specific and scheme- specific. The investors must closely study the performance of their mutual funds. The fund managers have shied away from investing aggressively and are unlikely to reverse this trend anytime soon. This could impact their performance going forward as they have failed to assemble a line up of future performers in their schemes. Several schemes have more weightage of the companies which have already delivered. This could mean that investors must scrutinize each scheme and take decisions of holding or switching based on whether the fund manager is having adequate objectivity to his approach.

The cash levels can be maintained at comfortable levels within a band of 10- 25% . This should depend upon the risk appetite of the individual investors and according to the buying opportunities that the market corrections present to investors.

Happy investing!

ithought – time to be sober & selective.

The influx of FII money into India doesnt seem like ebbing. The index is close to 6200 at the time of writing. As you read this , the markets may well be trading at an all time high. You must be wondering what you should do in the stock markets. If you sold out early , then the feeling of being left out must be troubling you no end. To the investor caught out of the markets , the IPO rush seems to be enticing. If you are still holding stocks , it is time to decide when to sell.

Decision making always works well when the macro environment and the investment sentiment is sized up properly. Let us try and run through the various factors that will drive the markets in the near term.
The markets will be completely fund flow driven in the near future. FII’s continue to invest in India and the rush of money is increasingly concentrated on index stocks. This is mainly on account of a trend among overseas investors to prefer India centric ETF’s ( exchange traded funds ). This has resulted in the valuations of the Index becoming a tad stretched and we do see PE multiples in excess of 25 in several index stocks. The overall index multiple is lower only on account of the under performance of RIL , our index bell weather stock. It is a matter of time before RIL also performs in line with the other stocks and one will see this happen in the near term. When the underperforming scrips in an Index also deliver and align with the rest of the Index, the overall PE of the index will hit all time highs. At that level , i expect money to again start chasing value in mid caps and in the oncoming IPO’s. Their valuations will need close scrutiny and considered evaluation on a case to case basis.

The timing of several large IPO’s during the festive season clearly indicates that we are going to see strong participation in them. Most of those left out of this boom will seek out the IPO’s to get back into the markets. Clearly sentiment will favour IPO. But, i will advice caution and selectivity in choosing issues. Valuations of IPO’s seem stretched and issue pricing already factors in good performance by the issuing companies. The prices discount FY 12 earnings at healthy multiples. Therefore , it is imperative for the investor to be selective while investing in IPO’s. It certainly is time to be very cautious.

Mid caps continue to perform well and business fundamentals are robust in several sectors like auto ancillaries, engineering , consumer durables etc. But, one should appreciate that in several midcaps the valuations are quite steep and already factor in good performance. Therefore , one must book profits where the valuations have run way ahead of earnings. In mid caps which are trading at multiples in excess of 20, it maybe a safe strategy to sell and go into cash.

Overall , you must now be building your cash chest . Selectivity is critical in choosing new investment ideas. The liquidity driven rise of the market will ultimately turn when flows slow down or when the inflows do not match the capital requirement of the issuing companies. I believe that the never ending appetite of Indian companies to raise money will ultimately lead to a correction. The money that FII’s are putting in will get quickly absorbed and any reversal of FII flows will ultimately lead to a sharp crash in Indian stock markets. Clearly, sobriety is the need of the hour.