Tuesday, June 29, 2010

Decision Making in Volatile Market

The stock markets have gone up significantly over the last few quarters. The markets have been volatile during this run-up phase and had a couple of profit booking correction phases. Profit booking (or exit) is a very sensitive factor and the decision to book profits is personal to an investor. Many investors are sentimental about their investments and therefore miss an opportunity to book profits (or cut loss) at the appropriate time.

These are some strategies for investors to book profits and avoid missing out on opportunities: Set target and phase exit Booking profits at regular stages is one of the most basic strategies. Wealth managers suggest maintaining a 'book profits' and 'cut loss' target on investments and keeping track of them. However, many investors do not follow it or lose track of the targets.

It is therefore advisable to keep booking profits regularly, whenever the price moves significantly. Smaller milestones can be set in steps of 10 to 20 percent price movements.

Regular selling and booking profits enables investors to average out the opportunities and use them in a systematic manner.

Identify sell signals:

Identifying sell signals is a bit more difficult. This takes time and investors need to keep tracking developments around their sectors and markets in general.

These are some of the basic but important factors that investors can track to identify signals for profit booking: Quarterly results Investors can track the quarterly results of companies.

Sometimes, the results clearly indicate the business conditions and challenges, which indicate a clear-cut sell signal. At other times, investors should research deeper to figure out a way forward from the management interviews, analysts' views, etc.

Market trends:

The market is divided into various sectors. These sectors have well-defined trends based on past data. The general performances of stocks from various sectors vary according to the market conditions.

For example, FMCG and pharma are treated as defensive sectors. These stocks perform well in negative market conditions whereas they under-perform during good market conditions.

Similarly, there are different tendencies for different sectors, and investors can take a decision based on the general market and sectoral conditions.

Sharp run-up:

If a stock runs up significantly in the short term, it can be treated as a signal for profit booking. Most of the time, investors do not book profits (or exit) due to their sentimental attachment to a stock and lose an opportunity.

In case an investor can't make an exit decision, he should look at opportunities to book part profits at least. This helps in making best use of an opportunity.

Be objective:

Investors should be careful while investing in equity-related instruments, especially if they are investing in stocks themselves. It is important to put emotions and sentiments out of the way while taking decisions (especially exit decisions) related to investments.

Sometimes, in case of bad investments, the investor should be ready to take a cut and make a loss exit. This hard move enables him to protect the capital which can be reinvested in stocks or instruments with better prospects of growth, rather than losing the entire capital in a bad investment.


Reliance Life Insurance introduces Mobinsure

Reliance Life Insurance has announced the launch of unique mobile-based insurance initiative — ‘Mobinsure’ — a mobile portal offering a range of insurance related services on mobile phones. This service would make it easier for the policyholders to track their policies and premiums, do fund switches, pay insurance premium and resolve policy-related queries instantly using their web-enabled mobile handsets. It would be available both on CDMA and GSM platforms, the insurance company said in a statement.

Customers can log on to their Reliance Life Insurance accounts on their mobile handsets and get important information on policies, applications, funds, profile, advisors and also activate online transactions, including premium payments, future allocations and change of address, free of cost. Customers are required to register first time and key in their policy and personal details which will be validated against customer details submitted at the time of new business for security reasons.

Monday, June 28, 2010

Reliance and RNRL pact.........

MUMBAI -- India's Reliance Industries Ltd. and Reliance Natural Resources Ltd. Friday signed a revised gas supply pact, a month after an apex court order settled a five-year dispute between two of the country's biggest corporate houses.

Reliance Natural will now ask the federal government to allocate natural gas in a step towards implementing the pact, it said in a regulatory filing.

The gas supply master agreement complies with the Gas Utilization Policy and EGOM (empowered group of ministers) decisions, Reliance Industries said in a statement.

India's highest court on May 7--while ruling on a dispute between the two companies on a gas supply agreement--asked them to start negotiations in eight weeks' time on a pact within the framework of government policy regarding price, quantity and tenure for the supply of gas.

The talks had to be completed within six weeks of their commencement.

The Supreme Court of India ruled that a private natural gas supply agreement between the billionaire Ambani brothers wasn't binding and that the two companies had to agree to a state-set price.

The ruling allowed the Mukesh Ambani-controlled Reliance Industries, India's largest company by value, to sell natural gas from the D6 block in the Krishna Godavari basin off India's eastern coast at $4.20 per million British thermal units--as set earlier by a federal government panel.

Anil Ambani's Reliance Natural wanted to pay $2.34, citing a family agreement signed in June 2005 when the brothers divided the petrochemicals-to-telecommunications empire of their late father, Dhirubhai Ambani.

According to the pact between Mukesh--the world's fourth-richest man--and younger brother Anil, Reliance Industries was to supply 28 million metric standard cubic meters a day of gas from the D6 block at $2.34 per mBtu to Reliance Natural for 17 years.

Shares of Reliance Natural jumped after the news, while Reliance Industries shares stayed neutral.

"It is positive for RNRL as this pact makes it certain that their power plants will receive gas. However, for Reliance Industries, it does not make any difference," said Saeed Jaffery, analyst at Ambit Capital.

Friday, June 25, 2010

IMF proposes global bank tax plans

The International Monetary Fund has proposed two new global taxes on banks and other financial institutions to cover the cost of future bailouts, the BBC reported.
The measures would see all institutions pay a bank levy as well as a further tax on profits and pay, which would aim to protect against future financial meltdown, said the broadcaster Tuesday, citing a leaked IMF report.

Governments of the Group of 20 advanced and developing countries -- which account for more than 85 percent of the global economy -- received the documents Tuesday, said the BBC.

Finance ministers would discuss the proposals this weekend, it added.
Insurers, hedge funds and other financial institutions would also be required to pay the taxes under the IMF proposals, despite the fact they were less implicated in the recent financial crisis.

This was to prevent banks reclassifying activities they currently carry out as other services -- such as insurance or hedge-fund services -- in an effort to avoid the levy.

The general levy, called the "financial stability contribution," would start at a flat rate but would eventually be changed so businesses judged to be riskier paid more, said the broadcaster.
Several proposals have been put forward by different governments to cover the costs of future economic rescue packages, including a tax on financial transactions.

But many have been reluctant to unilaterally introduce taxes to pay for future bailouts, believing coordinated action is the only option.

If governments acted alone, it is feared that institutions would simply move their operations to places with less stringent financial regulation.
The IMF report, which will form the basis of a submission to the G20 summit in June, states international cooperation in the introduction of the new levies would be "beneficial".

"Countries' experiences in the recent crisis differ widely and so do their priorities as they emerge from it. But none is immune from the risk of a future -- and inevitably global -- financial crisis," it said.
"Unilateral actions by governments risk being undermined by tax and regulatory arbitrage."

Britain has been pressing for the introduction of a global bank tax, and Finance Minister Alistair Darling welcomed the contents of the leaked IMF proposals.
"The recognition that banks should make a contribution to the society in which they operate is right," he said.
Prime Minister Gordon Brown told the Financial Times newspaper earlier this month that the large economies were getting closer to a deal.

Britain, France and Germany were broadly agreed on the need for a levy, Brown told the paper, adding he hoped the United States would join them.
The leader said he wanted a deal to be struck at the G20 summit in Seoul in November.

Thursday, June 24, 2010

Is Spain A Dead Economy Walking

Barring an economic bailout of mammoth proportions, the economy of Spain is completely and totally doomed. The socialist government of Spain is drowning in debt, unemployment is running rampant and everywhere you turn there are major economic problems. So will Spain be the next Greece? No. When the economy of Spain implodes it is going to be a whole lot worse for the world economy. The economy of Spain is more than four times the size of the economy of Greece.
Spain accounts for 11.5 percent of eurozone GDP while Greece only accounts for approximately 2.5 percent. Spain is the 4th largest economy in the 16 nation eurozone and it is the 10th largest economy in the world. If the economy of Spain fails it will cause a shockwave that will be felt in every corner of the globe. In fact, there are quite a few analysts that believe if Spain defaults it would ultimately lead to the breakup of the eurozone.

So will the EU step up and bail out Spain? Well, there are rumors that EU officials have begun work on a bailout package for Spain which is likely to run into the hundreds of billions of dollars, but on Monday the European Commission, the Spanish government and the German government all denied that the European Union was preparing a bailout for the Spanish economy.

Of course we all know that politicians don’t always tell us the truth.
So who knows what is going on over there right now.
But the reality is that the economy of Spain is not going to make it much longer without serious help, and some EU officials are already using apocalyptic language to describe what an economic collapse in Spain would mean.

For example, EU Commission President Jose Manuel Barroso recently warned that democracy could completely collapse in Greece, Spain and Portugal unless urgent action is taken to tackle the burgeoning European debt crisis.'

So could democracy actually fail in those nations?

Well, considering the fact that Greece, Spain and Portugal only became democracies in the 1970s, and that all three of those countries have a history of military coups, such a scenario is not that far-fetched.
Without a doubt there would be serious public unrest in those nations if public services collapsed because their governments ran out of money.
So are there signs that the economy of Spain is about to collapse?
Well, yes, there are quite a few of them.

The following are reasons why Spain is a dead economy walking….

1) Even before this most recent crisis, unemployment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren’t working they can’t pay taxes and they can’t provide for their families.

2) In an effort to stimulate the economy, Spain’s socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.

3) The total of all public and private debt in Spain has now reached 270 percent of GDP.

4) The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can’t afford to pay more interest on their debt.

5) There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.

6) The new “green economy” in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a “green economy” would result in a flood of “green jobs”. But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the “green economy” has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new “green economy” in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.

7) Spain’s national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a “no win” situation.

8) But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain’s economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.

9) The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain’s two main unions are calling for a major one day general strike to protest the government’s planned reforms of the country’s labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain’s socialist government will be forced to call early elections.

So what is going to happen in Spain?

The truth is that nobody can predict for sure how things are going to play out over the coming weeks and months.
But what everyone can agree on is that the stakes are incredibly high.
Speaking at the World Economic Forum in Davos, Switzerland, world famous economist Nouriel Roubini put it this way: “If Greece goes under, that’s a problem for the eurozone. If Spain goes under, it’s a disaster.”
But right now the entire population of Spain (along with much of the rest of the world) is completely distracted by the World Cup. As long as the Spanish team does well, that is likely to keep the Spanish population sedated. But if the Spanish team gets knocked out of the tournament early that will put the entire Spanish population in a really, really bad mood and that could mean a really chaotic summer for the nation of Spain.

Tuesday, June 22, 2010

IRDA to raise risk cover , ULIPs all set to offer guaranteed returns

India’s insurance regulator—the Insurance Regulatory and Development Authority (IRDA)—boosted by a clear mandate from the government to regulate unit-linked insurance plans (ULIPs), will unveil new rules soon to raise the risk cover and to lower charges to make this product more attractive to investors.

In what could potentially be a game changer, ULIPs are set to offer guaranteed maturity benefits to protect policyholders even when markets crash, said a senior official in the regulator’s office.
The aim is to encourage long-term savings and help policyholders build a nest egg to cater to their needs as they grow old. Insurers now offer guaranteed returns only on pension policies that are not sold on a unit-linked platform.

“We will revise the guidelines for ULIPs to make it attractive for investors. Insurers will also be given more time to redesign these products,” IRDA chairman J Hari Narayan told ET. Over the weekend, the government promulgated an ordinance to bring ULIPs under the regulatory purview of IRDA.

“It is best to give customers the option because if a guarantee is provided, the risks will be lower and hence returns will also be lower,” said GV Nageshwara Rao, CEO of IDBI Fortis Life Insurance. Pension plans will now have to be bundled with a life cover or a health cover or annuities. Insurers can offer all three, but at least one will be mandatory. IRDA is also planning to prescribe the minimum health cover for policyholders.

For pension plans, the insurer has to convert the accumulated fund value into an annuity at maturity. The policyholder or the insured will have the option to commute up to a maximum of one-third of the accumulated value as lump sum on maturity. If the policy is surrendered, the policyholder will get only a third of the surrender value. Further, the policy holder will have to buy an annuity for the remaining amount.

Who wins and who loses with new yuan

China’s signal that it will let its currency appreciate is a boost to consumer firms, airlines and insurers, but may dampen the outlook for exporters and commodity producers.

The immediate winners from a yuan revaluation would be companies that buy raw materials and other inputs overseas, such as airlines purchasing jet fuel and automakers sourcing parts.

Chinese exporters are likely to be the hardest hit. A relatively mild yuan appreciation against the U.S. dollar of about 5% would cause losses at these companies, says a Reuters poll conducted at China’s top trade fair in April. Following is a list of some likely winners and losers from any yuan appreciation.


China’s three top carriers, Air China, China Eastern Airlines and China Southern Airlines, which borrow in foreign currencies to pay for their aircraft but generate revenue in yuan, could benefit the most. Airlines also use dollars to buy fuel.

Deutsche Bank estimates a 1% yuan appreciation would boost Air China’s 2010 net profit by more than 10%, China Eastern Air’s by 15% and China Southern Air’s by 20.6%.


Foreign automakers which sell cars in the world’s largest vehicle market, such as BMW, Volkswagen, General Motors, PSA Peugeot Citroen, the Renault-Nissan alliance and Fiat, should also gain.

BMW would benefit the most if the yuan continues to rise against the euro — an outcome that’s far from certain — as its auto manufacturing joint venture with Brilliance China imports about half its parts, mainly from Germany.


Commodity prices jumped to a five-week high after China, the world’s third-biggest economy, eased its currency peg to the dollar, spurring bets that global demand for energy, industrial metals and crops will increase.

The reason is simple: A stronger yuan increases buying power.

Ending the currency peg will help curb inflation and shift investment toward service industries from exports and manufacturing, the People’s Bank of China said. The country is the world’s biggest consumer of copper, soybeans, pork and cotton and the second-largest user of corn and sugar.


U.S. firms such as General Electric and Proctor & Gamble are likely to make currency-exchange gains when their China profits are converted into U.S. dollars.

A spokeswoman for GE, which makes many of the products it sells in China in that country, said the U.S. conglomerate does not expect “any material impact” to its earnings from the change.

U.S. furniture retailer Ethan Allen Interiors Inc. believes the move will be either neutral or positive, chief executive Farooq Kathwari said at the Reuters Global Retail Summit in New York.

Yum Brands Inc., which owns the KFC and Pizza Hut fast-food chains and generates more than one-third of its profits from its 3,500 locations in China, regards the move as good news, said spokesman Jonathan Blum.

China represents our No. 1 growth opportunity and we expect this to be a very positive development over the long-term,” Mr. Blum said.


The world’s largest maker of earth-moving equipment, Caterpillar Inc., could be a major winner. The U.S. machinery giant sells billions of dollars worth of machinery and products to China each year. Its group president said on Saturday that Beijing’s move would help lift U.S. exports.

Second-ranked Komatsu said that every 1% rise in the yuan would boost its operating profit by ¥1.1-billion (US$12.1-million).


A firmer yuan would likely boost other Asian currencies as a strong yuan is seen by investors as a pledge of confidence for Asia’s growth. That should help luxury goods makers, whose imported products will be cheaper across the region, just as more Asians benefit from increased wealth.

At the top of the list are those luxury goods companies for whom Asia is a key market, such as Tiffany & Co., Bulgari SpA, Hermes International SCA and LVMH Moet Hennessy Louis Vuitton.


Chinese insurance companies such as China Life and Ping An Insurance should benefit as a yuan revaluation is expected to boost China’s domestic A-share stocks, which account for a large chunk of their investment portfolios.

Chinese insurers can put up to 25% of their total investable assets into stocks, but most keep it below that level.


Big retailers that source from Asia, such as Hennes & Mauritz, Target and Wal-Mart Stores Inc., would see a firmer yuan push up their production costs.

It could also hit Walt Disney Co., which has signed a memorandum of understanding to build an amusement park in Shanghai, as it would have to spend more in U.S. dollars to fund investments.

Aeon Co Ltd. said yuan appreciation would have an impact as Japan’s second-biggest retailer imports a large percentage of its products from China. Spokesman Eiichi Yamatani said Aeon would continue to diversify its product manufacturing base due to rising labor costs in China.


China’s commodity producers could be hardest hit over the longer term.

Companies such as Aluminum Corp. of China, Zijin Mining and PetroChina face dollar-linked prices for their output, but their costs are in yuan.

If the yuan does strengthen, these firms would find their revenues falling while their costs remain steady.

Monday, June 14, 2010

Reliance Industries buys 95% stake in Infotel Broadband for Rs 4,800 cr

Mukesh Ambani owned Reliance Industries has bought 95% stake in Infotel Broadband for Rs 4,800 crore. Infotel Broadband will now be a subsidary of Reliance Industries. Shares of RIL have been buzzing of late on rumours of foray in the telecom sector.

Unlisted Infotel Broadband Services is the only firm to win broadband spectrum in all 22 zones in India in an auction that ended on Friday. The firm is paying Rs 12,848 crore ($2.7 billion) for the spectrum, the government said. Announcement of the deal came within hours of Infotel emerging as the sole winner of broadband spectrum for the entire country. Reliance would pay this fee, a source direct knowledge of the matter told Reuters on Friday.

This marks Mukesh Ambani group's entry into telecom sector in less than a month of he and his younger brother Anil reaching a truce by ending all the no-compete agreements to enable each other an opportunity to enter and invest in areas hitherto barred under the family settlement reached in 2005 for division of Reliance empire.

RIL will invest Rs 4,800 crore by way of subscription to fresh equity capital at par to be issued by Infotel Broadband, the company said in a statement.

The share prices of both HFCL (promoted by Mahendra Nahata) and HFCL Infotel (promoted by son Anant Nahata) today rose by the maximum limit and closed at Rs 11.39 and Rs 10.14 a share respectively. RIL's shares also surged over three per cent to close at Rs 1,046.25 a share.


SBI PSU Fund, an open ended equity fund, would invest in the stocks of Public Sector Undertakings, whose strong presence in high growth trajectory sectors viz; financial services, Oil & Gas, engineering and capital goods space offers you an opportunity to participate in these sectors and benefit over long term.

Investment Strategy of SBI PSUThe primary strategy of the scheme would be to invest in the stocks of the PSU companies. The scheme would endeavor to identify market opportunities and at the same time would sufficiently diversify its equity portfolio and control liquidity risks and non-systematic risks by selecting well researched stocks which have growth prospects on a long and mid-term basis in order to provide stability and possibility of returns in the scheme.

Investment in equities would be done through primary as well as secondary market, private placement / QIP, preferential/firm allotments or any other mode as may be prescribed/ available from time to time

Who should invest ?

■Investors interested in the long term value unlocking in PSUs.
■Investors looking for diversification in their portfolio.

Why should I invest in SBI PSU Fund?
PSUs are the wealth creators of the nation, with strong fundamentals and moreover they are available at attractive valuations compared to broader markets. There may arise several disinvestment opportunities too which shall lead to unlocking of value in these companies.

Wealth Creators
Out of the 30 companies which constitute the BSE Sensex, 4 companies with a combined weightage of 13.54 % are from the PSU space (BHEL, NTPC, ONGC, and SBI). As the graph shows, BSE PSU index outperforms the BSE Sensex index over the years by a substantial margin.
(Source: ICRA MFI explorer. Data as on 30th April 2010. Past performance may or may not be sustained in future).

Attractive valuations

As the table suggests, currently PSU companies are attractively placed in terms of valuations vis-à-vis the broader market indices and the BSE Sensex. BSE PSU Index is trading at relatively attractive trailing P/E multiple of 14.26 as against 17.16 P/E of Sensex companies, with better earning growth rate than the Sensex. Valuations as measured by P/B multiple also suggest that PSUs are better placed than the Sensex companies.
(Source: Bloomberg. Past performance may or may not be sustained in future)

Divestment Opportunity - Unlocking Value

The stage is being set for all listed companies to mandatorily have minimum public holding of at least 25%. Thus PSUs having stake above 75% will have to dilute their holding to that extent. Disinvestment is high on the government’s agenda to increase the threshold limit for non-promoter public shareholding for the private sector as well as public sector companies. PSU companies, other than the listed ones lined up for disinvestment could include Coal India, LIC India, BSNL, Nuclear Power Corporation etc. SBI PSU Fund would also identify investment opportunities in IPOs of these companies. Privatisation has brought out significant value unlocking and greater efficiencies in the past, which lead to re-rating of those companies and eventually leading to wealth creation.

(Source: Bloomberg Past performance may or may not be sustainable in future)

Resilient During Downturn

Historically, we can see that PSUs are less prone to downturns in the markets as compared to broader indices. When the market fell in 2008, the PSU index did not fall as much as the BSE Sensex.

(Source: Bloomberg; Data as on April 2010. Past performance may or may not be sustained in future)

strong Dividend Payouts

While the growth potential clearly exists, there is another aspect that adds to the need to look at PSU companies closely; that is they have a strong dividend payout history.

(Source:Prowess. Past performance may or may not be sustained in future)
Low Debt to Equity Ratio
PSU Companies have very less borrowing as compared to their private peers. They are also having better cash reserves, which makes their debt equity ratio lower, and more attractive for investors.
(Source:CMIE, IIFL. Data: As on 31st March, 2010 Past performance may or may not be sustained in future)

Thursday, June 10, 2010

Strategies For Day Trading

 Picking stocks for day trading is an art. To be successful in day trading the most important thing is proper selection of stocks. Most traders fail in day trading because of improper selection of stocks.
There are some rules that will assist you in selecting a proper stock for day trading. These rules can help you in overcoming the obstacles that are encountered in day trading.
These are
  • Trade liquid stocks
  • Avoid unpredictable (chaotic) stocks
  • Trade stocks with good correlation
  • Move with the trend
  • Research  
1. Trade liquid stocks  

If a stock has a high average trading volumes then it is known as liquid stock. It is advised to the traders to trade in liquid i.e. high volume stocks as traders can easily buy or sell stocks without any difficulty. Liquid stocks can also observe rapid price change, so there is more opportunity for traders to buy stocks on dips and sell at high.
There is no such rule for how much the liquidity should be for a particular stock. It mostly depends on the quantity of shares to be brought. Suppose, if we are to buy 100 shares for a particular stock then an average trading volume of 50000 is enough.
Some of the examples most liquid stocks include Reliance Industries, SBI, Infosys, ONGC etc. 

2. Avoid unpredictable (chaotic) stocks  

Generally it is seen that stocks with low average trading volume tend to behave in an un unpredictable manner. Sometime even after a news release which could be either good or bad, the stock tends to show very little variation. Traders/ investors are advised to avoid this kind of stocks.
Some of the midcap stocks and most of the stocks in S,T and Z group trade with low volumes. So it is advised to avoid these kind of stocks.


3. Trade stocks with good correlation  

It is advised to trade in stocks which are in correlation with their respective sectors. That is to pick a stock which is moving along with the sector it belongs to.Thus the stock becomes more predictable and if the sector is growing then the stock will also rise, making it easy for traders to invest and vise versa. 
For instance, if the Indian rupee strengthens against the US dollar then all IT companies depending on US markets get adversely affected.
A stronger rupee reduces the export earnings for these IT companies. Conversely if rupee weakens against the dollar the IT companies will earn more from their exports.  

4. Move with the trend  

It is always easier to drive downhill than uphill. This thing should be remembered while day trading.
If we are in a bull run then it is advisable to trade in sectors which are bullish along with the market. Similarly, in a bearish phase it is important to invest in sectors which are going to dip rather than searching for stock which are going to rise.

5. Research

Proper research before investing is always important. Most of the day traders start trading blindly. Analyze the stocks technically by studying graphs daily, drawing trend lines, channels etc. and predict the range of the stock for the next day and also the key levels of support and resistance.
Also before trading for a particular stock, have proper research of the fundamentals of the stock, try to know about the quarterly results of the stock.

Wednesday, June 9, 2010

ELSS mutual fund

ELSS mutual fund
Most of the tax saving instruments that fall under Section 80C is saving oriented with returns after adjusting for inflation. The exceptions are the ULIPs (Life and pension funds) and the ELSS (Equity linked savings scheme) mutual funds.
The basic advantage of opting for ELSS as compared to the ULIPs is the frequency—mostly a single investment or a monthly investment for a year—and term for investment, for getting good returns.

1. What is an ELSS?

ELSS is a mutual fund that has to invest a minimum of 80 per cent in equity shares. The balance 20 per cent can be in debt, money market instruments, cash or even more equity.
There is a 3 year lock-in period for the ELSS mutual funds. Post the 36 months, the funds remain invested and work like any other open-ended mutual fund.


It is an established fact that in the long run equity gives a much higher inflation adjusted returns when compared to any other investment (except for maybe real estate). The top 5 ELSS funds have given returns from 22 per cent to 26 per cent compounded annually over the past 5 years. This is again higher than the market (Nifty) returns over the past 5 years which is at 19 per cent.
ELSS is part of the Section 80C instruments which are cumulatively eligible for a deduction from income up to Rs.1 Lakh. This gives the tax payers benefits from 10 per cent to 30 per cent (excluding the educational cess) based on their current tax slab.
The return (maturity and the dividend [if opted for]) from the ELSS is also tax free under the present EEE (Exempt–Exempt–Exempt) regime.
The 3 year lock-in period ensures that you don’t withdraw your investments. Generally in a normal mutual fund the tendency to withdraw in case of any monetary requirement is more.
The lock-in period also helps the fund managers to plan their investments better and also to hold on to valuable investments as they do not have to worry about sudden redemption pressures.
The returns achieved by an ELSS fund have consistently been higher as compared to the market returns. Only some sector based mutual funds have given better returns than the ELSS fund in the past 5 years.

Picking the right one

If you are on a tight budget, opting for a monthly investment (SIP using ECS) makes complete sense. The automatic investment from the bank through ECS makes it an easy way to invest.
In case if you are looking for an income in between, you can opt for the dividend option. This is particularly suitable for senior citizens. Also, the ELSS gives a tax free return compared to a bank or company deposit, which is taxable.


The investment in an ELSS cannot be switched or closed before the 3 years are completed from the date of investment. During market downturns, this becomes a limitation as you can't do anything much except watch the funds go down. You do have the option of averaging when the market goes down, but an investment to save tax may not be required when the market is on a downslide.
The lock-in works negatively for the monthly investment as well. Since the lock-in period is calculated from the date of the investment and not from the date the scheme was started, the 12th month’s investment can be withdrawn only on the 48th month. This is a disadvantage compared to ULIPs, where the lock-in is from the date of start of the scheme.

Most fund houses start an ELSS regular investment at Rs.500/- per month. Single investments start generally at Rs.5000/-. This makes ELSS accessible to all tax payers. With the compulsory lock-in giving better returns than other investments, even the most risk averse can look at an exposure to the ELSS fund for their tax benefits.

Basics of MICR,IFSC,NEFT & RTGS systems


The Indian Financial System Code is a code for identifying the bank and branch which an account is held. The IFSC code is used both by the RTGS and NEFTfinance transfer systems
IFSC stands for Indian Financial System Code . In the Structured Financial Messaging System (SFMS), the Indian Financial System Code (IFSC) is being used as the addressing code in user-to-user message transmission. The Payment System Applications such as RTGS, CFMS and NEFT developed by the Reserve Bank of India use these codes.

The code consists of 11 Characters - First 4 charactersrepresent the entity; Fifth position has been defaulted with a '0' (Zero) for future use; and the Last 6 characterdenotes the branch identity. IFSC is being identified by the RBI as the code to be used for various payment system projects within the country, and it would, in due course, cover all networked branches in the country. In due course, when all bank branches participate in electronic payment systems, they would need to have a single identifiable unique code and IFSC would serve the purpose effectively.


Magnetic Ink Character Recognition or MICR, is a character recognition technology used primarily by the banking industry to facilitate the processing of cheques. The technology allows computers to read information (such as account numbers) off of printed documents. Unlike barcodes or similar technologies, however, MICR codes can be easily read by humans.
MICR characters are printed in special typefaces with a magnetic ink or toner, usually containing iron oxide. As a machine decodes the MICR text, it first magnetizes the characters in the plane of the paper. Then the characters are passed over a MICR read head, a device similar to the playback head of a tape recorder. As each character passes over the head it produces a uniquewaveform that can be easily identified by the system.
The use of magnetic printing allows the characters to be read reliably even if they have been overprinted or obscured by other marks, such as cancellation stamps. The error rate for the magnetic scanning of a typical check is smaller than with optical character recognitionsystems. For well printed MICR documents, the "can't read" rate is usually less than 1% while the substitution rate (misread rate) is in the order of 1 per 100,000 characters.

MICR is standardized by ISO 1004:1995.

MICR code number consisting of nine digits followed by a delimiter. The first three digits represent the city, the next three indicate the bank and the last three digits signify the branch. The nine digit sort code is unique for any bank branch in the country. This MICR code is used in RBI clearing process to identify the branch and bank for clearing processes.

.Real Time Gross Settlement(RTGS):

Ø RTGS System:

The acronym “RTGS” stands for Real Time Gross Settlement. RTGS system is a
funds transfer mechanism where transfer of money takes place from one bank to
another on a “real time” and on “gross” basis. This is the fastest possible money
transfer system through the banking channel. Settlement in “real time” means
payment transaction is not subjected to any waiting period. The transactions are
settled as soon as they are processed. “Gross settlement” means the transaction is
settled on one to one basis without bunching with any other transaction. Considering
that money transfer takes place in the books of the Reserve Bank of India, the
payment is taken as final and irrevocable.
Under normal circumstances the beneficiary branches are expected to receive the
funds in real time as soon as funds are transferred by the remitting bank. The
beneficiary bank has to credit the beneficiary's account within two hours of receiving
the funds transfer message.
The remitting bank receives a message from the Reserve Bank that money has been
credited to the receiving bank. Based on this the remitting bank can advise the
remitting customer that money has been delivered to the receiving bank.
If the money cannot be credited for any reason, the receiving bank would
have to return the money to the remitting bank within 2 hours. Once the money is
received back by the remitting bank, the original debit entry in the customer's
account is reversed.
all the bank branches in India are not RTGS enabled. As on January 31, 2007
more than 26,000 bank branches are RTGS enabled.
Ø Difference between RTGS and Electronic Fund Transfer System (EFT) or National
Electronics Funds Transfer System (NEFT):

EFT and NEFT are electronic fund transfer modes that operate on a deferred net
settlement (DNS) basis which settles transactions in batches. In DNS, the settlement
takes place at a particular point of time. All transactions are held up till that time.
For example, NEFT settlement takes place 6 times a day during the week days (9.30 am,
10.30 am, 12.00 noon. 1.00 pm, 3.00 pm and 4.00 pm) and 3 times during Saturdays
(9.30 am, 10.30 am and 12.00 noon). Any transaction initiated after a designated
settlement time would have to wait till the next designated settlement time. Contrary
to this, in RTGS, transactions are processed continuously throughout the RTGS
business hours.
The RTGS service window for customer's transactions is available from 9.00 hours
to 15.00 hours on week days and from 9.00 hours to 12.00 noon on Saturdays i.e. to
accept the customer transactions for settlement at the RBI during 9.00 hours to
15.00 hours on week days and between 9.00 hours and 12.00 noon on Saturday.

Ø Essential requirements to be furnished:

The remitting customer has to furnish the following information to a bank for effecting
a RTGS remittance:

1. Amount to be remitted
2. His account number which is to be debited
3. Name of the beneficiary bank
4. Name of the beneficiary customer
5. Account number of the beneficiary customer
6. Sender to receiver information, if any
7. The IFSC code of the receiving branch

Ø minimum / maximum amount stipulation for RTGS transactions :

The RTGS system is primarily for large value transactions. The minimum amount to
be remitted through RTGS is Rs.1 lakh. There is no upper ceiling for RTGS
transactions. No minimum or maximum stipulation has been fixed for EFT and NEFT
On a typical day, RTGS handles about 14000 transactions a day for an approximate
value of Rs.1,50,000 crore.

Ø Processing Charges:

While RBI has waived its processing charges for all electronic payment products till
March 31, 2008, levy of service charges by banks is left to the discretion of the
respective banks. The bank-wise details of charges levied are available on the RBI
website – www.rbi.org.in.


National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates individuals to electronically transfer funds from any bank branch to any other bank branch in the country.

For being part of the NEFT funds transfer network a bank branch has to be NEFT-enabled. As at end-November 2009 as many as 62,000 branches / offices of 94 banks in the country (out of around 75,000 bank branches) are NEFT-enabled. Steps are being taken to further widen the coverage both in terms of banks and branches.
The list of bank branches participating in the NEFT system is available on the website of Reserve Bank of India.
Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals, firms or corporates who do not have a bank account (walk in customers) can also deposit cash at the branch with instructions to transfer funds using NEFT. A separate Transaction Code (No. 50) has been allotted in the NEFT system to facilitate walk-in customers to deposit cash and transfer funds to a beneficiary. Such customers have to furnish full details including complete address, telephone number etc.NEFT, thus, facilitates originators or remitters to initiate funds transfer transactions even without the need for having a bank account.
Presently, NEFT operates in batches from 9 a.m to 5 p.m. There are six settlements at 9 a.m, 11 a.m, 12 noon, 1 p.m, 3 p.m and 5 p.m on week days and three settlements at 9 a.m, 11 a.m and 12 noon on Saturdays.

Ø Working Of NEFT System:

Step-1 : An individual / firm / corporate intending to originate or transfer funds through NEFT has to fill an application form giving details of the beneficiary (like, name of the beneficiary, name of the bank branch where the beneficiary has an account, IFSC of the beneficiary bank branch, account type and account number). The application form will be available at the originating bank branch. The originator authorises the branch to debit his account and remit the specified amount to the beneficiary. Customers enjoying net banking facility offered by their bankers can initiate the funds transfer request online. Some banks offer the NEFT facility even through the ATMs. Walk-in customers will, however, have to give their contact details (complete address and telephone no. etc.,) to the branch. This will help the branch to refund the money to the customer in case credit could not be afforded to the beneficiary’s bank account or the transaction is rejected / returned for any reason.
Step-2 : The originating bank branch prepares a message and sends the message to its pooling centre (also called the NEFT Service Centre).Step-3 : The pooling centre forwards the message to the NEFT Clearing Centre (operated by National Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch.Step-4 : The Clearing Centre sorts the funds transfer transactions destination bank-wise and prepares accounting entries to receive funds from (debit) the originating banks and give the funds to (credit) the destination banks. Thereafter, bank-wise remittance messages are forwarded to the destination banks through their pooling centre (NEFT Service Centre).Step-5 : The destination banks receive the remittance messages received from the Clearing Centre and pass on the credit to the beneficiary accounts.

Ø Processing charges:

Reserve Bank of India has waived the processing or service charges for member banks till March 31, 2010. Accordingly, member banks participating in NEFT need not pay any processing or service charges to Reserve Bank of India. Further, processing or service charges to be levied by the member banks from their customers have also been rationalised by Reserve Bank of India as under: –
a) Inward transactions at destination bank branches (for credit to beneficiary accounts)

– Free, no charges to be levied from beneficiaries

b) Outward transactions at originating bank branches (charges for the remitter)
 For transactions up to Rs. 1 lakh  Charges not exceeding Rs. 5. For transactions of Rs. 1 lakh and above – Charges not exceeding Rs. 25.