Investment Ideas for October 2010
Sensex is at 20,000+ and Nifty is at 6000+. Is it right time to invest ?
Just now, Sachin just scored 49th century and crossed 14,000 Test runs in Bangalore test. No one doubts whether Sachin is at peak and no one think he is going to go down after crossing these milestones.
Well, that is not convincing you to invest, right ?
Look at these stats. Last time when Sensex made 20,873 in Jan 8,2008, PE was at 28.51. Currently the PE is around 24.x. Valuation were really high then. Now it is slightly higher than the historical average but not something to say overvalued. It is because in these 30 months, the earning has caught up with prices. So, there is no reason to change our monthly investment plan.
Due to recent inflow from foreign institutional investors, the indexes have gone up. Further we read the domestic mutual funds have not participated in the rally and some mutual funds are sitting out. So, there are still lot of money in sidelines to come in. Even if FII decides to pull money, these money will enter the market.
What an investor need to do ?
1. Check your AAP. If you have benefited from recent run up and if your equity-debt allocation is out of balance, balance it.
2. Even though the indexes have gone up, not all stock prices have gone up. FII usually select stocks based on liquidity and invest. So, some big name stocks, blue chips have benefited from FII investments. The participation is not entire and cover all stocks. So, some one with good stock picking skills can still find some undervalued stocks and invest. For example the last 6 months run up has benefited bank stocks and auto stocks. Many investors were betting on Infra and power sectors. As industry Pharma and Engineering has some room to catch up with valuations. L&T, ABB, Siemens, Cipla, Dr Reddy, Lupin, Pfizer, Glaxo are some names I can think off.
3. Buying Nifty Index Put is another option.
4. For an investor who has full time job, I recommend well diversified equity portfolio with good track record.
5. Continue your monthly investment plan.
We are going to be hit with several IPO in coming months. I recommend staying from any IPO in general. If I find any compelling buy, I will inform through this newsletter to you. Most of these IPO are coming out with high valuations. Easy money ??. There is no guarantee all investors will make money on IPO. It is sort of gamble. Some make money and some don’t. Instead buy a lottery ticket and try your luck. Let these IPO hit the market and go through price discovery for few days and you can decide to invest, if you love the company.
Infrastructure Bonds & 80CCF benefits :
80CCF is a new section introduced this year. All high income earners will benefit by this new clause.
Using 80C, one can avail only 1 Lakh income deduction. In addition to this one lakh, each tax payer can benefit by saving another Rs.20,000 in Infra bonds. This will result in saving of Rs.6000/- at 30% tax rate.
In first round IFCI has distributed infra bonds. Currently IDFC Infra bonds are open for subscription.
Please note: You need demat account to hold these bonds. NRI are not eligible.
Next L&T is coming out with Infra bonds. Please see the file attached. L&T bonds don’t require demat account. You can hold these bonds in certificate form.
Update from last investment ideas:
1. Reliance Small Cap fund NAV is 10.133, a small gain of 1.3% in one month.
2. Best Fixed deposit – Several Banks have increased the interest on fixed deposit for longer term by 0.5%. Shriram Unathi still remains best fixed deposit option. I still recommend NCD as another option that one should consider if you have demat account. Currently NCD are trading at 9%+ YTM, but they offer immediate liquidity without any penalty. Also there are no TDS on NCD interest. Good option for High Networth investors.
3. ICICI Prulife has introduced a new Single premium ULIP called Life Link Wealth. With good fund choices, ATS ( automatic monthly transfer ), single premium without regular payment commitment seems to be a good option in the murky world of ULIPs now. Further with 5X coverage one can avail 10(10D) benefit- full exemption of fund proceeds at exit. Yes, 80C tax advantage is also available. If any one is interested or need more information, send an email to me or call me.
4. iProtect continue to be the cheapest term insurance available in India. You can buy this online. It is not available for NRI or offline purchase.
Franklin Templeton AMC investors:
Franklin Templeton has informed Funds India asking them not to allow US citizens and green card holders to buy their funds. They are prohibited by SEC regulation to offer their funds.
Please consider this when you are making future portfolio decisions. Since Franklin is not offering load-free exit, I don’t see a reason to sell equity funds before completion of one year. But debt funds can be sold. Also refrain from making additional purchases to these funds.