Most of our clients are not really happy with us. Not because we have lost their money but because we have not answered their questions earlier and asked them to have patience as most of them are sitting on good amount of cash. Sometimes it pays for doing nothing and keeping calm, today we are experiencing such a phase in the world of investments. However a point to note that when we say do nothing, we do not meant to say kill your time. We mean to say just have a look at yourself and your portfolio.
In the last month of the year 2007 we advised caution and got out of most of our short term trading bets. Though the first week of January made us rethink if we had made a mistake, it was the next few months that helped us with many pats and thanks from our valued investors.
Though the stocks have corrected in the range of 30% to 90%, many of our earlier recommendations still hold good. Those who missed these recommendations at that time, can now accumulate the same stocks at slightly above the originally recommended price, unless otherwise mentioned in the mean time.
The update is not aimed at giving which stocks to be picked, but at understanding some of the long term variables that may impact our financial goals. If we have stopped till the confidence vote of Manmohan government in India why not we should stop till the credit policy is out. For us it is matters less.
Most of us have come to know that the days have gone long back when sitting in 10, Janapath, you could manage the economic output of India. At the same time, we have seen how the reckless tightening of monetary policy could not cap inflation in India. The American counterpart of YV Reddy, the Helicopter Bernanke could not pull out the US economy out of inflation despite making the greenback virtually free. Like in India, in most parts of the world that matter, the real interest rates are negative. And most central bankers are still pushing their level best to boost their economies. However nothing is baring fruits. The money printing machines are operational in USA to the maximum possible capacity to make the money fall in American hands and encourage spending. But no way, it is working.
At this moment of time, there seems to be some positive signs in the Indian capital market as we see some political stability resulting into the nuclear pact going through. The crude is also falling and the rains coming back to MP, AP and Maharashtra. All this is kind of a cool environment in the Indian capital markets on the back of growing corporate earnings in line with expectations. But the picture is not that great.
The political stability and the nuclear pact wont change the things overnight. The fruits of the nuclear deal will take their own time to fall in India's laps. Also note that the deal may go through but the set of beneficiaries are still not identifiable. So no point making hurry taking bets in the air, if we keep aside obvious players such as Larsen & Toubro.
More so, the oil is also not really going down. Our economy is yet not seen the real impact of rise in oil prices. The administered price mechanism is yet in action and as it goes out at some time or the other the corporate earnings may not remain. Most of our friends are arguing that the Indian retail petrol and diesel prices wont go up as we are heading for inflation. But the impact is already very much visible with rising import bill. The worsening trade deficit is invariably not good for the economy as a whole. This certainly kills the domestic currency and the purchasing power of the nationals here.
Reforms as a whole wont catch up just because there is a stable government. The support from Samajvadi Party to the Congress government is a marriage based on temporary need and no agenda. The things wont go long as there are Parliamentary elections next year and no politicians wont take any bold step towards reforms. So those who are accumulating banking index hoping for a quick buck, may not yield anything. Though from the point of view of valuations and long term India growth story we are upbeat on banking sector. Now where to put the money. Some of our old recommendations still hold good. But for those who do not want to trouble their heads, consider Benchmark Banking Sector Exchange Traded Fund.
The famine conditions are yet not improved. Rains as of now in the regions such as AP, MP and Maharashtra can offer some solace in the short term. But a point to note that this need not necessarily improve crop output. Do not jump guns that the things are out of dark. We are still midst of a large desert and a site of water need not necessarily an oasis. Take a breath and just see for the details.
Commodity prices are still continuing their upward move. However no point blindly chasing commodity stocks. Thanks to the government intervention and other local factors such as lack of efficient and transparent markets along with inefficient management the game becomes tough. Some of our friends are recommending Mirae AMC's Global Commodity Companies Fund. But a word of caution, the things are not really that easy in the commodity business and makes more sense to buy commodities than the commodity manufacturing companies.
Here we come across two commodity ideas. Gold and Oil. Gold becomes a real game for us. Our investors have thanked us for our call on gold at Rs 8200 per 10 gram of gold last year. Most of our customers are still holding the Benchmark Gold ETF units. We maintain our bullish stance on gold. We expect gold to cross USD 1500 per ounce by 2010 translating into 40% returns over the next two years, thanks to global inflation and worsening US scenario resulting into global slowdown. Even at the current level a gold investment is good. But mind well, invest with a five year horizon.
Oil is not just a commodity. It is the engine of growth. At a time when China is aggressively bidding the global oil reserves and ensuring energy security, there is little done by Indian government. Barring few attempts by ONGC (which are always slow owing to red tape), we have little to talk about. It becomes imperative that individual Indians build a position on oil. The upcoming Benchmark ETF ( fund of fund) investing in oil is a good way of taking exposure to oil.
We still maintain bullish stance on Indian equities. The massive correction in valuations of Indian equities made us think of them rather seriously. However we restrict our stance to only two strategies. First, buying the Nifty index and leaving the rest for the market. Given the volatility in the market it makes more sense to be with the market as outperformance may not be a trick for all on the street. In the second strategy we prefer companies where there is a clear earning growth visible at a reasonable valuation and minimal debt. We prefer to lay hands on a large cap like Larsen & Toubro. In the other cases, we maintain our bullish stance on Micro Technologies, ICSA, Hikal, JRG Securities, Shri Lakshmi Cotsyn. This list is indicative and not exhaustive. We also welcome concept stocks such as Network 18 Fincap, Financial Technologies. An exposure to recently launched ING Latin America Fund can also be considered by those who are risk lovers. This offers you an exposure to the less correlated markets such as Brazil, Peru and Mexico among the other Latin American countries.
We are wary of real estate. Though we are positive on Century Textiles. Given the developments in the real estate sector, we have advised caution to our clients when it comes to real estate purchases and advocated selling the real estate exposures in May 2008 as summers are best to exit given the good demand scenario compared to other months of the year. Though a point to note, the price realised by our clients were lower than the prices in the month of February- April in most cases, connoting some kind of lethargy in the real estate market. New purchases can be postponed till November, if possible. An absolute no to new investment purchases, if you don't have a very long term in mind.
The times are tougher for the pensioner community. Fixed deposits are offering negative interest rates and hence an absolute no. Those who want assured returns can consider fixed maturity plans as the yields are better than the fixed deposits. Some of our clients came asking about the recent avatar of fixed maturity plans. We are advising caution on these products, as there are serious concerns when it comes to disclosures. The equity participating debenture issuers are not disclosing their investments which may actually lead to mass destruction of value. This is primarily because there has to be some element of leverage that is being employed using derivatives. Overseas, it is found that exotic options are tried out in the market. A point to note that the products though not have come out with large sized problems as of now, one cannot rule out the possibility of any such incidence in the future. And hence when in doubt remain out.
We are tracking an opportunity in the long term government securities as of now. Post the credit policy, on can consider a very small exposure to Birla Gilt Fund-long term option. If the interest rates decide to recede this is a place to be. Though this is a game of risk and patience both.
To sum up, the times have long gone when anybody and everybody would make money. It is the time when you buy something with conviction and sit tight on it. The old wisdom still prevails.
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