Important Update & Next Picks - 22 Jan 2008

Friends,

So we have just seen a Mega drop in the markets. I believe this is nothing to worry about. All the stocks that we picked on this blog are still in profits.

Additionally this is a right time to BUY as the growth story has not gone away.

As expected the markets went through a good level of correction, possibly leaving some of your investments in the RED.

I believe that the markets should now bounce back from this level. I do not see a lot of downside left (at the most there might be another slow correction) in the market. The fact that the US might have a Fed rate cut to boost their economy will only bear good impact on our markets plus the strength of our economy is contact.

I am inclined to enter the market at the current levels and suggest to increase your portfolio size by at least 20% at this stage (if your portofilo size today is 1 lac then buy into the market with another 20K).

Next Pick
1. ICICI Bank - At current levels of INR 1173.
This is a long term story. Just buy it and forget it for more than a year. The reasons that justify this are that it's ICICI Direct business is looking at value unlocking by offering 15% of the companies stocks as an IPO later this year (ICICI Bank will continue to hold the remaining 85% of ICICI Direct post IPO). They might then look private equity placements which will only increase the value for ICICI Bank. It must not be forgotten that their Insurance business (Prudential ICICI) is still unlisted where they hold a 74% stake and the ICICI Financial Services business.

2. Reliance Petroleum - At current levels of INR 171.
This a good opportunity for you to increase your stake in the company, if you have held some since lower levels. For new investors this can serve as an entry level as well, the stock must see good levels later this year.

3. In fact I do not mind adding some more of ISPAT at this level (INR 43.80), as my entry price is low and the story in ISPAT is still intact.

Important Note
I will now change the frequency of postings from frequent to in-frequent to ensure that this remains a pure long term picks only blog.

There will be no more short term pick calls on this blog but as and when there is a good long term story that I find it will be notified on this blog. The only thing I can say is that investing larger sums for longer terms has proved to be more beneficial than small amounts for shorter terms, especially for people like us who have a full time job to do.

Final word
I would repeat that 'do not let **ALL** your money rot in the bank. Risk it to give it a chance to grow' and 'do not sit on profits endlessly expecting to see them going in only in UPWARD direction', book profits whenever you have made a 20% profit to some percentage of the holding.

Cheers
Tarun

P.S
I hope once we tide over the current fall, you will ensure that the 5% of profits you made from this blog is put to a good cause before the end of this financial year.

General/Performance update - 08 Jan 2008

Friends,

The markets seem to be taking a breather and I feel that it had all warmed up a little too much recently. There might be a correction due on the cards.

Crude Oil above $100 will hit us all very badly. I guess the fuel prices are going up in India, although the government is doing it's best to keep the rise low owing to the general elections.

Energy needs across the globe are going up much faster than the growth in supply. In fact the demand is much higher than the supply and thus driving the prices towards the roof. This is why you are noticing so much hum-drum around energy companies. The growing infrastructure in India will only widen the gap between supply and demand. Which means the energy sector will remain in favor for a few years to come. 

Performance Update
FORTIS Healthcare is on the run. GTL Infrastructure has already yielded more than 70%. ISPAT is taking a breather at 450% return. SUPREME Petrochem is having a breather as well at 54% return. UNITECH is at 92% return and KEC is picking up. MERCATOR is going strong. POWERGRID is stagnant at 150 levels.

Strategy ahead
As part of wise inestment strategy, all of us should know our personal targets. DO NOT sit on profits endlessly assuming that the stocks will keep going up endlessly. Review your portfolio every week/fortnight/month and book profits as you feel comfortable.

I personally attempt freeing up my capital as soon as the stock has given me more than 50% profits as that means the 50%-60%stocks remaining after freeing up my capital are at no cost to me.

I would be inclined to book partial profits (25%-40%) in Supreme Petrochem. Booking profits frees up money to invest in more lucrative opportunities.

Planning for Kids/Family members
When you realise a need for lumpsum money at a future date a few years ahead, the easiest trap in the Indian markets are insurance products that give you cashback. In turn these products invest the money in markets and other instruments to give the money promised but the return given to you is much lower than what you could make on your own.

A good option would be to regularly buy mutual funds. Assuming a INR 2000 investment per month for 20 years (20 x 12 x 2000 = 4,80,000), you could easily be sitting on over Rs. 1 Crore by that time. Can any of the Insurance products beat that? No, none that I know.

So go ahead and start making sense of Mutual Funds, as they are just the right thing for low risk investment with lucrative returns. 

I will attempt to post a note on the basics of mutual funds in future to help you understand their working.

Finally, just to re-iterate ** DO NOT sit on profits endlessly assuming that the stocks will keep going up endlessly **.

Cheers
Tarun

Reliance Power IPO

Friends,

Another important one, this is the mother of all IPO's type IPO, a decent way to come under the Reliance umbrella. This is India's biggest IPO ever.

Do not miss applying for the upcoming Reliance Power IPO, details below.

Tentative details
Price band     : Rs. 405 to Rs. 450
Our limit       : Rs. 1 Lac (application limit for retail investors)
Dates            : Jan 15 - Jan 18 (Year 2008)
5% discount   : The Company might add a 5% discount for retail investors over final price

Reliance Power is developing 13 power projects over the next 5 years. The first one among them will start operations towards the end of 2009.

It is interesting to note that a staggered payment option is probably being offered as well. You can read more details here.

Recommendation
Put in as many applications as possible at Cut-off price (the limit being 1 Lac per head).

I hope we do get allotted some in this IPO.

Cheers
Tarun