FM delivers what was expected

Yes our FM has delivered what was expected and that is a populist budget. With the assembly elections looming ahead, the timing couldn’t be more apt and he is right on cue to please the Indian populace by raising the income tax limits to Rs. 180, 000 and Rs. 150, 000 for women and men respectively. Or maybe, he could have raised the tax exemption limit from Rs. 100, 000 to Rs. 150, 000 to encourage savings. This is open for debate.

The one thing that definitely doesn’t make sense is the raising of Short Term gains tax from 10% to 15%. This can have two fallouts; either it doesn’t encourage day traders and a lot of people who are new to the stock markets to book profits early and periodically or a lot of people who book handsome gains but would shy away from actually disclosing their profits to avoid tax.

Yes one might argue this would do well to cultivate and inculcate values of long term investing which is free from any tax. The Great Indian middle class who is slowly waking up to virtues of investing in the stock markets would be wary of these kinds of taxes. It’s generally seen these tax structures are a big deterrent to a layman who has never invested in the markets and such news would certainly add to the confusion. The recently listed Reliance Power IPO has also dented many a first time investor’s confidence. Also it’s a little harsh on the day trader who handsomely contributes to the volumes in the stock markets and lends liquidity.

Meanwhile let’s celebrate, after all our wallets are going to a little heavier this year J

Mutual Funds in Volatile Markets

The past 3 months at the stock market have been very volatile to say the least. At times like this can we trust the experts to conjure up a decent rate of return for us? Let say instead of investing in the equities directly and we hand over this task over to the experts i.e. invest in a Mutual Fund, to be specific an Equity Diversified Fund (EDF).

Analysis shows this may not be a good idea after all. Almost none of the EDF have given positive returns, at times when a common man would have found the going tough in the markets. Only one EDF, Reliance Regular Savings Fund has given a return of about 7.5%. The performance of some of the Gold Funds has been better, with some of them giving up to 18% returns. One may choose selectively going further then.

Meanwhile in a panel of speakers hosted by the The Economic Times, Tata Mutual MD Ved Prakash Chaturvedi is of the opinion that the market will be at 18000 levels on December 31, 2008. But still feels the mutual fund managers can beat that and deliver positive returns for the investors.

Here’s a light excerpt from one of the related articles.

After Albert Einstein died and reached the gates of heaven, St Peter asked him to temporarily share lodgings with three others till he was alloted space. St Peter introduced the room-mates by their IQ levels. As two of them had IQs of over 200, Einstein decided to discuss his theory of relativity and global warming. St Peter then pointed to the third person and apologetically said he had an IQ of just 60. “No problem,” said Einstein, “We can discuss where the stock market is headed.”

DISCLOSURE: All investments are subject to markets risks and should only be done after through consultation with a registered financial planner.

REC: Is the Retail Investor Missing Out

Before the Reliance Power IPO a lot of investors seemed to be sitting out of IPOs for some totally different reason; to avoid the anguish of not getting allotment. But post the Reliance Power IPO, the same investors are staying away from the fear of getting an allotment and a volatile market.

It seems like the retail investor is missing out on a decently priced issue. As of the 3^rd day it has been subscribed only 0.78 times in the retail section. Also the PE of the stock is quite lower than that of the currently listed Power Finance Corporation (PFC). The lending exposure of REC has also improved with a 27% share of power generation projects in its portfolio. With a strong thrust on Power related projects on which India’s future depends this seems like a decent stock if not one of those star performers.

Download the Prospectus.

DISCLOSURE: All investment decisions have to be taken only after sound advice from a registered financial consultant. This blog is in no way responsible for any investment decisions and exposure to the stock markets.

Plan Ahead. Get Organized.

Well with many of us running around to meet deadlines to avail various tax benefits, can we plan and have a better year the next time around. Here are some suggestions to get in shape financially.

1) Early bird gets the interest.

With our income levels rising and many of us having some surplus cash to invest, invest early. Many of us must be owning a PPF Account (Guys, if you don't have one yet get one fast.) instead waiting for the fiscal year to end, invest by 1st week of April. This amount with your earlier invested amount is going to earn you a whole year's interest.

2) Get a contingency fund.

Many of us living a fast life and several dependants to take care of you never know what is going to strike you. Plan and park a decent amount of money in a risk free account (ideally a FD) to take care of those unwanted surprises.

3) Get a Life Insurance Policy.

A lot of us already must be having Life Insurances Policies already but is it really enough for your family? Well check out Term life insurance policies where you can get insured yourself for a larger sum for a smaller premium. Generally you won't get your premiums paid at the end of the term but there are some policies which will. Ask your insurance agent for this.

4) Invest regularly. Understand compounding.

Discipline yourself to save a portion of your money monthly. To achieve this check out various SIP schemes of successful Mutual Fund houses. Look out for a good history and a good track record. You will find loads of information. One good place to start is here.

If you are risk averse get a monthly Recurring Deposit account in a bank.

And yes most importantly understand Compounding. That's why getting a PPF account makes sense.

5) Get a home.

Though not easy but this is a great option for anyone who can avail of a home loan or with some surplus amount of money. While on the home loan front you can avail of attractive tax benefits. On the other it can become one of your assets. It can be a great little getaway when you want to retire. Happy Investing.

Mint – Organize your finances

For readers in the US here's a useful site that will be able to help you out to manage finances smartly. This is a web application wherein you can find all your finances at one place. Also they provide tracking tools to see where your money is being spent through friendly charts, track your bills and plan your budgets.

Here's a link to some first impressions by Paul Stamatiou.

Or else visit the website directly Mint.

Indian Economy Slowing . . .

With our markets turning the tide over the past few days not all confidence is back. With the Sensex putting a good show many wonder with glee of getting back into the market. Key economic data made available this week throws caution to the wind.

Industrial production for December '07 has fallen to 7.6% compared to 13.4% in December '06. Also the Core sector growth , comprising of crude oil, steel, cement, electricity, coal and refinery was 4% in Decemeber '07 as opposed to 9% in the corresponding month in the previous year. One might argue this is just a sign of the economy slowing in line with the global economy especially since our exports are hit hard due to a strong rupee. Our GDP too has been expected to grow at a rate of 8.7%

This does raise concerns over India's competitive relationship with China. Though China's GDP is slowing too; it is still growing at a rate faster than India's. To catch up or atleast maintain a healthy gap between India and China so as to not China get away with the cake we need to continuously clock growth rates higher than currently forecasted. As they say - We live in interesting times. Hope our FM comes up with his magic potion for the economy soon.

 

Reliance Power and a frivolous excuse

Reliance Power today came out saying that global factors were to blame for it's IPO listing so terribly. Is it really so? It seems that the promoters have gone too far with their optimistic pricing and have been victims of their own game. Deep analysis shows that promoters after all have made money already and retail investors are left in the lurch.

By going through some reports about their current and projected capacities, NTPC seems to be available at a really cheap market price. How does one justify the excuse given as "global factors" when all of them or atleast most of the future projects are going to be based in India. So it seems not only they factored reasons core to their future plans but buoyancy in our capital markets rake in some moolah. Surely lot of the investors got allured by the Reliance brand name and especially a lot of them who got their demat accounts opened only for this IPO. This will not go well with the first time investors and create a general negative sentiment regarding the Reliance pack among these people.

Are the promoters only to blame for this? Reliance Power has for sure consulted the bankers before coming out with this issue. It depends upon the bankers to come up with a fair price for the Reliance Power IPO. Do they really feel that was a fair price band based on the company's growth prospectus keeping in mind the domestic focus, then why blame global factors.

Credit has to be given to the promoters about marketing the issue well for the retail investors. A discount on the upper limit and full payment not being required at the time of subscription. Oh yeah, that's sweet, it was for me too.

One hard truth is, a lot of investors have lost money and hopefully the ADAG group gives us some reasons to cheer in the future.

Markets searching for Leadership?

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) for quite sometime are showing a flip-flop behaviour triggered by global events more importantly worries of a US recession. This being the fact that the US Fed has cut interest rates repeatedly, which usually is a reason for our markets to cheer.

Should we really look for external factors before believing our own domestic story? Or is it the case of the domestic story hinging upon global factors upon which it bound to slow down in the times to come. Surely the consumerism shown by the present Indian middle class can vouch for a strong growth momentum being maintained on the domestic front.

Stocks like RNRL, RPL, India Infoline etc. had sky rocketed based on factors other than their current intrinsic values. Now the same people who had bet on their positive outlook for the future seem to have lost their belief for reasons unknown. Are we waiting for the FIIs to show us the way? Or is the time right to have the ball rolling for a year bigger than 2007.