Dubai Crisis - Impact on Indian Companies

In Globilization, the problem in one corner of the world would affect the other side of the world. That is what precisely happened in Dubai. All companies which had business relationships with Dubai are now in problem. In line with that attahced list of comapanies in India have business interest in Dubai. Though we donot know the exact impact of these companies out of this problem, they are likely to have some impact. So let us thread cautiously

Disinvestment - Public and Private Co.

Government seems to be firm on disinvesting some portion of governments share holding : partly to raise cash and partly to realize their full value. It has been proposed to divest upto 25% of total shareholding to public. Infact it is going to be compulsory for all listed companies - be it government or private.

Many investors call us to check which are such companies which could see a FPO in near future. Kindly click the attached article to read more.

Dubai comes Crashing

Markets around the world including India found themselves lashed on Thursday by fears of fresh financial trouble, this time with its epicentre near home in Dubai, threatening to derail an incipient global recovery and holding huge ramifications for India.

Dubai’s attempts to reschedule its debt has cast a shadow on a world only just emerging from the worst economic crisis since the 1930s, knocking markets from Sydney to Sao Paulo.

For India, which has tens of thousands of its citizens living and working in the emirate, the concerns are more direct: thousands of its expats staring at job losses and the economy, sharply reduced trade.

India, which gets nearly a quarter of the remittances from the United Arab Emirates and has lakhs of labourers working in the region, could be worse off than most other nations if the crisis escalates into a full-blown one like the Russian or Argentinean crises of the past. India’s exports to the UAE stood at $23.92 billion in FY09.

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the global recession. Home prices fell 50% from their 2008 peak.

Banks around the world have written off more than $1.7 trillion as the credit crisis trashed the value of their assets.

Dubai World’s lenders are said to include Credit Suisse Group, HSBC Holdings, Barclays, Lloyds Banking Group and Royal Bank of Scotland Group, all of which saw their shares fall. Credit Suisse fell 3.3% in Zurich, HSBC slid 4.3%, Lloyds sank 3.9% and RBS retreated 4.2% in London, where a trading glitch halted trading in many stocks.

Mutual Funds to be Traded on NSE

From November 30, investors will be able to transact in mutual funds units via the National Stock Exchange’s fully automated online system. The exchange has issued elaborate guidelines in this regard.

Investors can place subscription and redemption orders online through their demat account as they currently do while trading in the secondary market for equities. Investors not having demat account can place orders in the physical mode through an AMFI certified broker by providing specific KYC documents.

In the case of physical mode of placing order, investors are required to submit redemption request stating the folio number and PAN card.

The system :
-----------

Investors can connect to the NSE’s trading platform through brokers’ telecom network.

“A fully automated online order collection system called National Exchange Automated Trading-Mutual Fund Service System (MFSS) will be provided to the participants (brokers).

The settlement of the units will be through the depository in the demat mode for the demat account holders whose designated bank account will be debited/credited for the order placed on T (trading day) + 1 day.

In case an order is placed through the physical mode, the Registrar and Transfer Agent (RTA) will provide final redemption information to the exchange on T+1 day; the payout, however, will happen according to the scheme’s provisions and within the timelines.

The new MFSS will operate on all business days of the capital market segment between 9 a.m. and 3 p.m.

To start with, depository settlement will be available only for DP account holders in NSDL.

The value for a single transaction, according to NSE, should be less than Rs 1 crore.

http://www.thehindubusinessline.com/2009/11/26/stories/2009112652130100.htm

97% mutual fund schemes touch 52-week high

97% mutual fund schemes touch 52-week high since October 2009.

The past six weeks have seen an overwhelming majority of diversified mutual funds
rise to their highest levels in a year, far outpacing individual stocks.

Out of a total of 291 diversified mutual fund schemes, 281, or 97%, rose to their 52-week high during the past month and a half. On the other hand, only 46% of stocks managed to do so: out of 1,281 stocks that were traded on November 20 on the NSE, only 608 reached their highest level in a year.

Of the 10 mutual fund schemes which did not touch a 52-week high in October, seven did so in September, for three of them the milestone was reached in June.

Analysts feel that foremost reason is the kind of portfolio that a particular MF scheme has. The stocks that a fund holds may not be the ones hitting their one-year high. The net asset value of a fund depends on many things such as the price at which the stocks are bought and the time of exit. That is one major reason why an actively managed fund outperforms and index fund, particularly in a developed market

GOLD - Actual Facts:

Good information to know

History of gold prices (in rupees):
1930: 180 per 10 gram
1940: 360 per 10 gram
1950: 1000 per 10 gram
1960: 1110 per 10 gram
1970: 1840 per 10 gram
1975: 5,400 per 10 gram
2000: 3,000 per 10 gram
2006: 5,400 per 10 gram
2009: 15,700 per 10 gram.


Gold surprisingly gave 300% returns from 1970 to 1975 when world suffered worst ever recession after great Depression. Will the history repeat? That is the reason behind current "Mad Gold rush". But if you invested in the Gold in 1975, your investment gave negative returns for the next 25 years.

Remember 2 things:

1. Gold generally trades in the lower range around March and July. Generally, it is the best time to buy gold and marriage season is the best time to sell God.

2. Below 11,000, Gold is a safe investment but above 15,000- it is only for traders but not for investors.

Future of Gold:

When stock markets are in down turn in 2002, Gold was at Rs 5,400 per 10 gram. Don't forget that Gold traded below 9,000 per 10 gram till 2007 means you might have got routine returns from Gold investment.But investors who made investments in gold in mid-2007 are now making 70% returns in just 20 months. But I don't know what will happen to gold investors who bought it at above 15,000 but they remain inlosses even after 3 years. Why? Gold will recede to 11,000 levels once equities make comeback. What happened to crude oil will repeat in case of gold also. Don't forget that Gold is not even an essential commodity. But Gold is a less volatile investment.

Message forwarded by
Mr. N. Sridharan
DSP Blackrock Mutual Fund
Coimbatore.

Mutual Fund Investments Made EASY

The way Mutual Fund Investments were made has gone through drastic changes over the past couple of Months. Revamping Mutual Funds Industry should have been a Himalayan task for the Market Regulator. Though they stopped Entry Load which resulted in some unrest, atlast SEBI has got its points right. The recent developments are:

-----(1). All Mutual Fund Schemes can be bought and sold through Stock Broking Terminals. Stock Brokers will be eleigible to be considered as official point of acceptance with effect from 11-Oct-2009.
-----(2). The Stock Exchange would provide the same convenience and comfort to MF investors, as that being offered to share investors.
-----(3). You can DEMAT your existing Physical MF Units into dematerialized form.

Gainers out of this development:
-----(1). Investors in the first place. They can transact in the same way like shares.
-----(2). Convenience: No need to maintain pile of account statements. All investments are in single sheet of paper.
-----(3). Stock Brokers: This would streamline the Invesmtent Industry. As a result, only people who are serious into this industry would continue to exist. All Back-packers need to find some other green pastures.
-----(4). AMC's: It would reduce lots of costs : no need for huge marketing force, no need for individul offices, no need to pass fat comissions to distributors. As a result only those fund houses who are genuinely interested, genuinely qualified would survive. All others would be --- washed out.
-----(5). As a result, there would be forced consolidation. Lots of AMC's who are not interested in growth - rather not confident of themselves and the industry would be forced to sell their MF's, as a result Investors need not get confused with 32 AMC's.
-----(6). Above all - say a BIG Good Bye to New Fund Offers (NFO's). Lots of AMCs were surviving purely on NFO's. The huge agent force was hard pushing NFO's in particular. As a result we see lots of investors 'dumped' with unwanted investments. This new move would discourage NFO's.

Unanswered questions:
.....(1). Time tested concepts like SIP's and TRIGGERS existence or continuance is in question. Since units are purchased thro stock market, IS IT POSSIBLE TO LEAVE STANDING INSTRUCTIONS? SEBI circular is not clear on this.
.....(2). Will Physical transactions (like the present form) co-exist with Demat form. Or are we migrating to demat once for all.
.....(3). Will local transacting offices - like CAMS or Karvy or AMC's office exist.

Inspite of unanswered questions, Let us hope MF industry gets redefined as we move forward.

Where is your Mutual Fund Ranked ?

Every Investor wants to invest in the best scheme. Ironically, they imagine the scheme they have invested is THE BEST. But to really find the 'status' of your scheme, you need to figure it out in the attached file, where funds are ranked as Platinum, Gold, Silver, Bronze and Lead. These grades or ranks are by consistency in returns, risk optimization, portfolio quality, investment ethics and transparency levels. Hence a Platinum fund needs to score the best in all these categories and NOT purely on raking up higher returns by taking higher risk. It is ideal to move up the ladder and remain invested in the Top Funds.

Is Market Mirroring itself

Chartists would be very happy and delighted to see this picture.

Starting from Jan 2008, when market fell from 21000 to low of 8000+ in Oct'08 to Mar'08. From then on market started inching itself. Now at 17000 points, if we look at the over all trend, you could see the market has more or less recovered in the same pattern in which it fell.

We request you to kindly spend some time in observing it. The reason being : If the past track record (mirroring) holds good, what could happen after the present situation? Observe itself for yourself and enjoy.

Performance of Equity Vs Gold :

The surge of Gold Price to astronomical level in the recent past has made many investors assume that Gold is The Best form of Investment. The belief has become much stronger with the recent market crash from 21000 in Jan 2008 to 8000 by March 2009. With markets bouncing back to 17000 levels by October 2009, I often wonder which is the asset class that out performs over a long period. Hence, this Sunday when it was already 8PM IST, we did a small excercise ... and at the end we got some clarity. Hope this analysis is of some sense to you too.

This analyis includes following asset class:
(1) The NSE Index itself : comprising of first 50 stocks by size.
(2) BSE 200 : Comprising of first 200 stocks listed on BSE by size.
(3) BSE Small Cap Index : comprisiong of small companies ( less than 50 Cr by Share capital)
(4) HDFC Top 200 Fund : We picked this MF as sample fund since it is adequately diversified and it can be a suitable reflector of the Mutual Fund Ideology.
(5) Gold : This is the asset that is luring lots of investors recently. Many wonder if they should have invested in Gold, some 10 years back itself. There is a wide spread consensus that Gold is The Best investment option for investors.

Methodology:
We assume that we invested Rs.100 in each of these 5 assets six months back and we found its current value. We plotted the results in graph : showing the actual trend of each of the five assets. Similarly we did analsis for various time horizons.

We did analysis for investments made:
(1) 6 Months Before : (May 2009 to October 2009): This made sense, since stock markets made a monster run after the General Elections in May 2009.
(2) 1 year before : (Oct 2008 to Oct 2009) : October 2008 was the time when market actually started a second melt down. Octo 2008 was the time when Lehman Brothers went burst in USA. That triggered further fall in the already battered index.
(3) 2 years before: We can call this period from Oct 2007 to Oct 2009 as a full cycle. October 2007 was the time when BSE index started gaining 1000 points almost every week. Markets went crazy and were severly over valued.
(4) 3 years before:
(5) 5 years before: This can be considered as a medium term for investment.
(6) 10 years before: 10 years is One Decade. It could ideally be called as a long term.

Many assets which perform well in the short duration, may not do well in the long term. Ultimately, good return over long run is the one that makes your portfolio grow.

The Results:
6 Months: Many investors assume Gold performing very well in recent times. Being a recovery period, NSE delivered 38% return against 10% return by Gold. And the real surprising outperformance came from BSE Small Cap followed by HDFC Top 200 Fund
1 Year: Again all index outperformed Gold
2 Years: That is a beautiful chart. When global stocks melt down, money flew towards safer investments : Gold being one. Gold apperciated constantly and it delivered The Best Return. Watch gold appreciating indices were range bound after a steep fall. To put is simply "TINA" factor works here {TINA stands for There is No other Alternative}. Gold delivered 68% absolute return over 2 years against a paltry 3% by NSE Nifty. Interestingly HDFC Top 200 fund is the second best performer, delivering 28% return against its own benchmark BSE 200 which delivered 2.72%. Kindly note BSE Small cap delivering negative return of -14% resulting in capital erosion.
3 Years: Again Gold out performed followed by HDFC Top 200 Fund.
5 Years: HDFC Top 200 fund outperforms. BSE Small cap is the underperformer, running last in the race. Gold comes 3rd.
10 Years : That is Real Long Term. Had I invested 1,00,000 in 1999 in HDFC Top 200 fund, it would be Rs.10,36,300 plus today. That is a clear 10 Bagger in 10 years. BSE Small cap ( which we call as high risk - high return sector ) comes second. Similar fund invested in NSE Nifty would be worth Rs.3,59,000 : And in BSE 200, it would be Rs.3,78,000. The chart says, Gold has come last : 1,00,000 investment in 1999 would be Rs.2,59,000 today.

The conclusion:
(1) Over a long term, Equities outperform.
(2) More than that, over Long term, well diversified, well managed Mutual funds outperforms even better.
(3) Rather than taking high risk in Small cap, it makes lots of sense to stick to optimally diversified, preferably largecap and upper midcap oriented stock selection.
(4) Rather than breaking your head, which stocks to buy, what allocation to be followed, it is prudent to invest in good Mutual Funds : like
----(a) HDFC Top 200,
----(b) DSP Top 100,
----(c) Templeton Equity Income,
----(d) Reliance Regular Savings,
----(e) Kotak Opportunities,
----(f) Sundaram Smile,
----(g) IDFC Premier Equity,
----(h) Birla Midcap,
----(i) Deutsche Investment Opportunity,
----(j) ICICI Discovery Fund
(4) No doubt, Gold gives stability to portfolio by fluctuation less and appreciating gradually. But, one can have small allocation of portfolio ( 10% to 15%) to Gold. Donot count on recent outperformance of Gold to continue.
(5) If we are right, Gold appreciates proportional to Inflation. If Inflation falls, Gold would stop appreciation.

TATA Capital NCD - update

Many of our investors are enjoying 12% interest from TATA Capital Non Convertible Debentures. And they would continue to enjoy this interest for the next 4 years. This is really good, since the ruling interest rate offered by Banks, companies is only 8% : Hence TATA NCD's are offering 50% more.

Recently, the company sent a circular indicating when the interests have been credited / would be credited into the investors bank account. We are attaching the same for the benefit of these investors.

Categories of shares

Often you would have heard of TV channels talking about A group shares, T group shares etc. And we ignore what ever they may mean and keep moving forward. Though not very important, it is ideal to know to which group a share belongs. Let us understand the basis of grouping.

Share grouping is currently offered by BSE only. There are six group of shares. A detailed article on this subject has recently appeared on an Business News paper and it is attached here with. Do click the attachment and know more.

Stocks to Buy now : Super Six

The Best Time to Buy Stocks is when everyone sells. But often the reverse happens: People 'LIKE' to buy stocks when everyone buys.

No doubt, the recent fall in stock market after diwali on 17th October 2009 has taken everyone by surprise. Almost all stock brokers, all investors were LONG on Stock market but market went crashing. That is precisely what we call us "Expected Never Happens". After its fall from 17500 on BSE to 15400 on 3rd November (1900 pts fall), everyone panics. Indeed it is the right time to pick some stocks at attractive price. If you watch stock markets closely, you would find the best returns ( say 30% Return on Investment ) are usually obtained on investments made in times of crisis of confidence. Investors can consider such times as a suitable opportunity.

When market panics, just like chicken, people run Helter-Shelter. Hence, they need to be reminded on the stocks they already know. They need reassurance. Hence, to start with, we have suggested just six stocks which can deliver good returns (20% to 30%) going forward. Do Make Money out of them.

Reliance Industries:
This stock came under severe selling pressure afters it passive Quarter 2 results and on the news that its book of expenses would be audited. Investors and Media expect to catch some big fish here. But the history of Reliance is known to India. They have been 'handling' accounts issues since the days of its founder Mr.Dhirubhai Ambani. After all the audit, this stock can give a real run. Apart form that, RIL has announced Bonus. Hence if you buy this stock, it could be worth the risk. Price as on 3rd November 2009 is Rs.1818. Price Target could be Rs.2500.

Cairn India:
Another Oil company, which came under selling pressure due to the news of Audit Panel. But this MNC Oil Explonation company is expected to do very well going forward. Remember, Oil is also called as Liquid Gold.
This company is set to emerge as one of India's leading Petro Producter and possibly the largest onshore producer by Fin Year 2012. Going forward, the profits are likely to show astonishing returns on YOY basis.

TATA Steel

It is one of the top 10 steel producers in the world. Its steel plants are present in various countries thro diversified investments ni Cores, Millennium Steel and Natsteel Holdings. It has a well established marketing in over 50 countries. The demand for steel is likely to be strong globally and domestically. In the recent fall, the stock price has come down by more than 20%.

ICICI Bank

Atlast this aggressive bank has implemented a decisive strategy of cost reduction and margin improvement. At the same time, it plans to open huge number of branches andmaintain large captial adequacy. This is positioning th ebank for imminent upturn in GDP growth, even though the near term performance is likely to remain under pressure on account of RBI's recent monetary policy. At its current price, (which is at 20% discount), you can expect a price target of Rs.1047.

PUNJ LLOYD Ltd

This steel manufacturer cum Infrastructure devoloper was recently hit after below average Quarter 2 results. This company has business in Dubai and in Malaysia : Two key Infrastructuer hungry countries. This stock has come down from it price of Rs.300 Rs.199. That is a 30% discount. But the opportunity for long term investors are still intact. You can invest in this stock with a price target of Rs.270.

TAJ GVK Hotels & Resorts Ltd:

Hotel stocks do well, if there is lots of tourists inflow. With the world recession, nearly over Foreigners inflow is likely to be at its peak during christmas. All hotel stocks are expected to do well this year.
This hotel has dominant position in Hyderabad and it is on track on its expansion plans. It is likely to benefit out of the industry revival. You can Buy this stock at its current price of Rs.116 for a price target of Rs.180.

We request investors not to miss this opportunity. But it is always advisable to buy in portions. Say you can buy 30% of your investible amount now and add the balance later, if the prices come down. Best Wishes from EASY Invesments.

Disclaimer: The author holds all these stocks in his portfolio.

Meet Mr. Christopher Wood

Christopher Wood, the chief strategist at CLSA is well known in the world of Global Equity Research as the No.1 Equity Analyst. He is the one who rightly predicted the US subprime crisis and India’s previous bull run, sees a temporary setback in Indian stocks with the central bank’s bias towards higher rates and due to stretched valuations, but says it would be an opportunity for long-term investors.

“I am always going to be overweight on India unless there is a real dramatic problem here,” Wood told The Economic Times Newspaper in an interview.

The 52-year-old former journalist with The Economist presided over the most celebrated research reports on Indian equity investments way back in 2003 called ‘The Indian Paradox’. Many at that time did not believe the report, which talked about demography-driven domestic demand in the country. But now, Wood and his team’s research is much sought after by investors.

Wood, who publishes a weekly newsletter called Greed & Fear, said while he believed there was “room for pullback and a correction” in Indian stocks after the recent rally that had created “a lot of profit on the table”, the infrastructure story will compel investors to return.

“Taking a five-year view, India is always going to trade at a premium multiple in the Asian context. India is unique in Asian equities. It is the only domestic demand-driven economy in Asia at a time when you are worried about Western growth. That is a big positive,” he said, urging investors with a long-term view not to sell Indian equities.

“India and China frankly could end up trading at two or even three times the multiple of the S&P’s 500. I can see Chinese and Indian equities trading up to 20-30 times earnings because the world is going to pay a premium to get growth when the world has got a shortage of growth and the Western world is in a deflationary funk.”

Indian shares are trading at 19 times their earnings forecast for the fiscal year ending March 2010. But he cautions that there could be disappointment if the government does not deliver on infrastructure. “To me, there is clearly a massive need for infrastructure,” said Wood, adding, “I am hoping, I mean if they do not, that would be a big disappointment and negative for the Indian story.”

Although the Reserve Bank of India (RBI), which according to Wood is “actually the best central bank in the world”, is set to raise borrowing costs proactively, it may not hurt investment into the sector despite the hit to banks’ profitability, he said.

Terrific Tuesday: Logic behind Markets fall on 3rd Nov 2009

The BSE 30-share Sensex lost 491.34 points or 3.09%. The S&P CNX Nifty slipped 147.8 points or 3.14% to 4,563.90.

The BSE Sensex has shed 1405.87 points or 8.36% in six trading days from 16,810.81 on 23 October 2009. From a 17-month closing high of 17,326.01 on 17 October 2009, the Sensex has lost 1921.07 points or 11.08%.

Major Reasons for Todays Panic Sell off::
1. Weakness in European markets and US index futures weighed on investor sentiment.
2. Risk aversion rose after the UK Treasury today, 3 November 2009, announced a shake-up of British banks, which raised concerns about its financial system. Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds ($51 billion) in a second bailout from the UK taxpayer in return for putting a cap on bonuses. The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide.
3. The sell-off on the domestic bourses in the latter part of the trading session was partly due to selling by European funds. Some European funds could be selling to get the cash they need to take up their shares in Lloyds.
4. Profit taking ahead of the year-end (December) has pulled world markets off their recent highs.
5. Earlier, the Reserve Bank of India (RBI) at its monetary policy review on 27 October 2009 left its key rates unchanged, but raised the wholesale price-based inflation projection for end-March 2010 sharply to 6.5% with an upward bias, from 5 % earlier.
6. India's largest firm by market capitalisation and oil refiner Reliance Industries (RIL) slumped 6.23% to Rs 1811 on reports the Comptroller and Auditor General of India (CAG) will soon audit RIL books of accounts. Earlier, the director general of hydrocarbons has been accused by Reliance Natural Resources (RNRL), controlled by Mukesh Ambani's estranged brother Anil Ambani, of approving an increase in RIL's capital expenditure on the D6 exploration block from $2.4 billion (Rs11,280 crore) to $8.8 billion. This block is where RIL made one of the biggest discoveries of natural gas in India. Meanwhile, RIL reported a 6.4% fall in net profit at Rs 3,852 crore despite 6% rise in total income to Rs 47,476 crore in Q2 September 2009 over Q2 September 2008. Refining margins more than halved to $6 a barrel from $13.3 a barrel a year earlier.
7. India's largest private sector aluminium maker by sales Hindalco Industries tumbled 10.21% to Rs 109.50 after net profit declined 52.2% to Rs 344.05 crore on a 13.2% decline in sales to Rs 4892.56 crore in Q2 September 2009 over Q2 September 2008. It was the top loser from the Sensex pack.
8. Rate sensitive realty shares declined, extending a recent sharp fall, after the RBI in its monetary policy review meet on 27 October 2009 raised the provisioning requirements for loans to commercial real estate from 0.4% to 1%. DLF (down 7.97%), Unitech (down 9.06%), HDIL (down 6.51%), Indiabulls Real Estate (down 14.73%), and Parsvnath Developers (down 6.13%), declined.
9. India's largest engineering & construction firm by sales Larsen & Toubro rose shed 2.75% to Rs 1524.10. The stock had surged to day's high of Rs 1600 after the company said it won an order worth Rs 6897 crore from Maharashtra State Power Generation Company.
10. IRB Infrastructure Developers rose 1.56% after consolidated net profit soared 71.9% to Rs 70.82 crore on a 76.5% spurt in consolidated sales to Rs 355.90 crore in Q2 September 2009 over Q2 September 2008.
12. Suzlon Energy tumbled 13.75% after reporting a net loss of Rs 184.91 crore in Q2 September 2009 compared with a net profit of Rs 16.98 crore in Q2 September 2008. Also the sales fell by 78% in Q2.
13. However India's largest cellular services provider by sales Bharti Airtel surged 2.14% to Rs 298.40, on news that Singapore Telecommunications has bought additional 1.52% stake in Bharti Airtel and will pay up to Rs 3008.4 crore in three installments ranging over 18 months.
14. Sugar maker Balrampur Chini Mills shed 9.58% after it today, 3 November 2009 said it has not entered into any stake sale agreement with rival Bajaj Hindusthan. The company held some talks with Bajaj Hindusthan to discuss future business strategies, it said in a letter to the stock exchange. Bajaj Hindusthan rose 0.46%.

"VIP" Vs "SIP"

We started by advocating that SIP is an excellent investment option over One shot investment plan. Any Investor who opted for an SIP from January 2008, when index was at 21000, would have definitely been profited. Now, it is time to learn again. VIP appears to be much better than an SIP.

To start with, SIP stands for Systematic Investment Plan, where as VIP Stands for Value averaging Invesment Plan.

SIP is an organized way of investing constant amount in a Recurring manner for a definite duration. Indian Investors (atleast MF investors) are familiar with this concept. SIP is widely accepted as a disciplined investment option, irrespective of the market conditions, resulting in Rupee Cost Averaging.

VIP is method of investment developed by former Havard University professor Mr.Michael E. Edleson. It is similar to SIP except for the fact the amount invested every month varies depending on the current market value of the investment. As a result, when the market declines, the investor contributes more and when the market goes up, the investor contributes less. As a result, VIP takes care of capturing market volatility in a much more sensible way.

This is in contrast to SIPs based on Rupee Cost averaging which mandates that a fixed amount of money be invested at each period.

How does it work:
=================
(1) For instance, you intend to invest Rs.10000 every month for the next 12 months.
(2) A total investment of Rs.120000 is planned for an year (Rs.10000*12 months)
(3) If the NAV in the first month is Rs.10, you would have got 1000 units ( Rs.10000 / 10)
(4) In the next month, if the NAV rises to Rs.11, the current value of 1st months units ( 1000 U) would have been Rs.11000.
(5) Hence for the second month, the investment to be made is Rs.9000 only, to make up the total investment for the second month to Rs.20,000 (Rs.11000+Rs.9000).
(6) As a result only 409 units are allotted. Thus at Higher NAV you invested less (Rs.9000 instead of Rs.10000)
(7) Similarly, in the 3rd month if the NAV falls to Rs.9, then the value of the current investments (1st two months : 1000 U+818 U = 1818 U * Rs.9 = Rs. 16362).
(8) Hence you would invest Rs.13638 (Rs.30000-Rs.16362) for the 3rd month at Rs.9 getting 1515 Units.

Advantages of VIP
We checked VIP’s performance on various funds against SIP’s performance over a period of 22 months : From January 2008 to October 2009. (See Attachment) The finding are:
1. Higher returns: No doubt, VIP generates higher time weighted and money weighted returns compared to SIP in a volatile market. because the investor invests less when markets are high and more when markets are low.
2. Lower acquisition cost: In most cases, VIP offers lower acquisition cost compared to SIP.
Disadvantages of VIP:
• The biggest draw back of VIP is : Monthly investment amounts are variable. Many investors would find it difficult to maintain accounts and keep track of what they are investing.
• Except Benchmark CNX 500 fund, no other fund has got automatic VIP facility.
• However, you can do a VIP through other MFs by working out the numbers manually. Though this may look tedious, we at EASY Investments have developed dedicated softwares to assist you in this process.
• If the market moves in one direction i.e. either up or down, VIP may generate less return compared to SIP.
If the NAV of the scheme continuously decreases, the absolute loss to the investor would be more than what the investor would have incurred by investing in SIP.
• In a VIP, you may need to invest more when markets drop. So, you need to have the necessary funds during slumps.
• When market falls, you need better understanding on the concept of investing more (as per VIP). There has been frequent occurrence of investors stopping even SIP’s (constant amount) during a falling market. When a simple SIP concept can be so difficult to follow, to practice VIP, you need sound knowledge of the underlying strategy and remain committed, once the investment starts. Otherwise, it could backfire.

Why did Markets fall by end of October 2009:

All major markets the world over fell like a set of bowling pins this week. India too was not spared, and in fact headed the list of losers. The BSE Sensex fell 5.4% during the week.

A host of reasons led this fall:
• Weakness in commodity prices,
• Poor results by some large companies,
• Skepticism about the liquidity driven rally,
• Fears about the stimulus packages being withdrawn,
• Rising inflation,
• Expectations of an impending exit by the government of its loose fiscal stimulus were some overshadowing factors,
• Above all, with F&O Expiry on 29th October, there was severe Long Unwinding resulting in serious fall

Markets in the rest of the world had a similar story to tell. Apart from India, Germany (down 5.7%), Brazil (down 5.4%), and France (down 5.3%) led the fall. The US ended the week lower by 2.6%, while China fell by 3.6%. Some disappointing results from large companies like PetroChina and National Australian Bank weighed down on Asian markets, further fueling concerns that markets may have gotten ahead of fundamentals and that stocks may have risen faster than the pace at which earnings will perhaps rise going forward

Though all Sectoral indices in India ended up in loss during the week, the BSE Realty index led this fall with a miserable 15.4% decline. Realty stocks were hit by the RBI’s decision to make loans to commercial property developers difficult. The RBI indicated in its mid-term monetary policy review note - "In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets." The RBI increased the provisioning requirement for advances to the commercial real estate sector from 0.4% to 1%. This is surely going to hit realty companies that are looking to borrow from the banks to fund their commercial real estate development plans. Hence all Real Estate stocks fell.

Next, Metal stocks took a major beating falling by 9.6% during the week, due to lower Q2 sales and fall in profits by 50%. The next was the BSE Banking index which fell 8.8%. The central bank's decision to raise SLR (statutory liquidity ratio) requirement to 25%, from 24% currently, has had its impact on all banking stocks. Going by the RBI's upward revision of target inflation by March 2010 end to 6.5%, from 5% earlier, it seems clear that the bank's next step will be towards higher interest rates.

Finally, as expected, telecom major Bharti announced its 2QFY10 numbers. The company's sales grew by 19% YoY during 1HFY10 and 16% YoY during 2QFY10. During the quarter, its average revenue per user (ARPU) declined by 24% YoY and by 9% QoQ. Further, average minutes of usage (MOU) declined by 15% YoY and 6% QoQ. On the brighter side, operating margins remained stable at around 40.7%. Also, net profits grew by 28% YoY during 1HFY10. This growth in bottomline was mainly on the back of a stable operating performance as also interest income. Though the results weren't all that bad, the markets don't seem to be all that happy as the stock saw another trashing post announcement of the results.

As if all the other negatives werenot enough, higher inflation numbers too spooked the markets towards the end of the week. Inflation stood at 1.51% for the week ended October 17, as compared to 1.21% in the previous week. This clearly vindicated the RBI’s concerns that inflation is rearing its head again, and that the economy must get ready for higher interest rates in the future.

For a liquidity driven market, which has doubled in matter of seven months, many investors though happy with the recovery, were practically uncomfortable with the kind of run up. Markets were waiting to fall. With the compounding effect of all the negative factors mentioned above, markets ultimately fell. Now many investors may wonder it has fallen too fast ( by the same way it had risen ).

Those investors who missed up the earlier rally (starting April 2009), the current fall could be a beautiful opportunity. To buy stocks cheap, negative news must be there. Hence donot run away along with the crowd. Make a sensible analysis of the prevailing situations and make prudent inestment decisions. At EASY Investments, we are always available to assist you in your Wealth Creation Process.