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Monday,
December 16, 2002, Chandigarh, India  
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10 Commandments for success in market
Invest in diversified portfolio
Pick Tisco, Telco, L&T for long term |
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Rebate
Thefts on train: who is responsible?
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10 Commandments for success in market EQUITIES stand out as an attractive option for investment — no lock-in period, huge liquidity, low transaction costs and good returns. Investors invest in equities on the ill advice of brokers, accountants and middlemen. Every body can tell them to buy but nobody tells them to make exits. They go on "buying and holding" stocks, missing out every opportunity to make profits and in the process pile up huge losses. Equity instruments require regular monitoring with active participation to generate superior returns. Any time the index enters a bull phase, it retraces all gains in the bear phase. This has happened five times in a span of just 10 years. A person who enters at the start of the bull phase, but is unable to exit with reasonable gains, finds himself in loss in the bear phase. Technical analysis of the BSE Index shows that 2700 to 2800 levels provide buying opportunity, and the exit levels lie beyond 4500 levels. This entry and exit can be done through active monitoring and maximum returns can be generated by precise timing. Buying and selling opportunities can be captured only by active monitoring by specialists. Stick to only A group stocks: Investors must stick to companies which are market leaders in their fields e.g. Reliance Industries in petrochemicals, Infosys in software services, Grasim in cement, Larsen and Toubro in engineering, Ranbaxy in domestic pharmaceuticals, Glaxo in MNC pharmaceuticals, Telco in automobiles, Tisco in steels, HDFC in housing finance, HPCL in oil and the like. These stocks have deep financial muscles, excellent management, adaptability to changing market conditions and enjoy massive liquidity on the bourses. The entry and exit levels of the Index works best for these A group stocks. Keep close tab on events influencing A group stocks: Keep a tab on day-to-day developments taking place in the economic environment in which the companies comprising your portfolio are operating. An investor must exit from his investment in a particular company the moment he receives and analyses the repercussions of a particular event on that company. For example investors must have exited from hotel stocks and airline stocks the moment the news of terrorist attack on Twin Towers in America flashed on Reuters terminals. Similarly an investor must accumulate stocks of a company after carefully analysing the beneficial impact of a particular event influencing that company. Investor must have accumulated HDFC in his portfolio way back when the news of lowering the interest rates started trickling in along with tax concessions for the housing sector announced in Budgets of 2000-01 and 2001-02. See the performance of stocks viz-a-viz Index: The stocks present in a portfolio must outperform the Index to deliver superior returns. Certain events directly influencing the company present in the portfolio are known to the privileged few called "insiders" whose activities can best be captured through technical analysis of that company. The analysis will help us in finding out whether the scrip is underperforming or outperforming the market. Investor can make an exit or augment the scrip accordingly. Exit when the company is in the pink of its health: When the company’s performance is in full bloom to the extent that the growth of momentum is lagging the momentum of the index and all positive news has been discounted in its price and that further good news is unable to prop up the price of the stock, one must exit. Buy a good company when it is in dire straits: Buy a company which has excellent management but is suffering because of the industry in which it is operating is passing through the trough of the business cycle. The negative news of that particular company is still trickling but its stock does not fall to the extent of the Index since every negative news is getting discounted. Reduce commitment to stocks as we near the broader exit levels: Generally an investor enters a stock, a good stock, but at a height after exiting from another stock after harnessing good gain. He does not realise that the market is at height and exiting from one stock and entering another will lead back to square one with no gains in net. Hence keep on making exits in trenches even if the price is rising and reduce your commitment to stocks and accumulate cash. Increase exposure to stocks as we near the broader entry levels: Start building up stocks when they are near their historic support levels or when there is pessimism all around to the extent that the people shun equities and there is widespread panic in the investing community. The Index chart amply reflects such type of sentiments at 2700-2800 levels. Capability and capacity to offload the entire portfolio: Though difficult to execute because of inertia to sell among investors, this is an important aspect of active monitoring. When economic and industry risks systematically affect the entire portfolio on a broader front, investor should have the capability and capacity to offload his entire portfolio of stocks and shift to short term fixed deposits hoping to re-enter at lower levels. Tools: Active monitoring requires considerable time, access to timely reliable sources of information, deep sense of commitment, judgement and analysis, quick and alert mind to execute entry and exit decisions. Use stop loss: Investors know that the market is declining and as a result their stocks are also declining but they do not sell as they do not want to take actual small loss. Ultimately they end up sitting on huge losses, which seems unrecoverable. To avoid such huge losses, investors must exit by using stop loss to take small losses. Similarly they must use
trailing stop loss to lock in actual gains. This strategy will give
small frequent losses but real big gains ultimately. Most importantly
investors would save themselves from any big downslide or crash.
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Pick Tisco, Telco, L&T for long term THERE are clear indications that the stock market will continue to move upward during this fortnight. The industrial production was up at 6.3 per cent in October, 2002, which is 3 per cent higher than it was in the corresponding period last year. The CII’s 2nd-half survey indicates that around 51 per cent respondents felt that general business prospects for their company would improve over the next six months, while 41 per cent said the same trend would continue. Around 54 per cent were planning fresh capital investments in their existing business units. The Finance Ministry in its Mid-Year review on December 3, while noting that due to drought conditions in 14 states, the economy has been hit but it also stated that there were some plus points, exports were up by 13.5 per cent in dollar terms, foreign exchange reserves have improved and industrial production has picked-up. Gujarat election results have yet to be officially announced but all exit-poll results indicate that the BJP will return to power with comfortable majority. This news itself has a bullish ting. A defeat for the BJP would have been a negative factor for the
NDA-coalition government. The stock market has welcomed the news. Exit polls have boosted Gujarat PSU stocks. GSFC’s share has moved up by 18.13 per cent to Rs 26.50. GNFC is up by 10.29 per cent at Rs 32.70. Gujarat Alkali has gained a 10 per cent rise in the market price from Rs 27.20 to Rs 30.10. The news that Tata Sons plans to buy back its shares up to 10 per cent from its share holders has raised the price of Tisco, Telco, Tata Chemicals, Tata Powers, Indian Hotels, Tata Tea and Tata Investment Corporation which hold Tata Sons’ shares in their portfolios. The Mid-term Economic Survey indicated that the interest rates have to be further lowered and subsidies will have to pruned to stabilise the economy. Even though, it was indicated by the Finance Secretary on the next day that these changes may come only in the next Budget, it is clear that the interest rates will be scaled down. It is a well-known rule that when the interest rates are lowered, investment tends to move away from banks to the stock market. I expect a robust stock market in the next financial year. Already, the trading volumes on stock exchanges are improving almost every week and there is considerable evidence that delivery-based investment is also picking-up. The financial year 2003-04 is crucial for all political parties particularly for the NDA which holds power at the Centre. Elections to Parliament are expected to be held in February, 2004. The budget for the next financial year is likely to be soft for the stock market even though many of the tax exemption available at present under Section 80 and 88 etc. may go, the basic taxable income exemption of Rs 50,000 may be doubled. It is also expected that the dividend income in the hands of shareholders may be tax-free and the older system of collecting tax on dividends from companies may be restored. All this indicates that the stock market indices are likely to move up considerably during the next two months or so. The shareholders should not only retain their holding for the present but also make fresh investments for mid-term and long-term periods, but these investments must be made only in companies which have excellent managements, good growth prospectus and are leaders in their sectors of industry. Tisco, Telco, Larsen & Toubro and multinational pharma companies appear to be good investments at the present rates. The UTI will hold a meeting on December 23 to consider the proposal to make Master Share an open-ended scheme. Atlas Copco has announced that it will purchase its shares at Rs 230 per share its shareholders. |
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by R.N. Lakhotia Rebate Q: I am a Central Government employee working with the Railways. After deducting the standard deduction of Rs 25,000 from my gross income, my income for the current financial year will be around Rs 1,75,000. I have taken housing loan on which interest will be charged Rs 45,000 for this financial year. After deducting this, my income will be Rs 1,30,000. Please inform whether I will get 20 per cent rebate on LIC, PPF, infrastructure bonds or get 15 per cent rebate considering my income more than Rs 1,50,000. Narinder Oberoi, Jalandhar Ans: You will be eligible to claim tax rebate of 20 per cent for the current financial year on your investment because your net taxable income after deducting the housing loan will be less than Rs 1,50,000.
Housing loan Q: We both husband and wife are government employees and are co-borrower of a housing loan from a bank. Title deed of the property is in my name. You have advised me to treat payments by my wife as loan for taking full rebate on housing loan. Kindly advise me how to treat my wife’s payments towards principal and interest as loan to me? — Shakti K. Mahindru, Banga Ans: As the title deed of the property is exclusively in your name, no tax benefits can be availed by your wife. However, from your facts it is seen that your wife has made certain payments towards principal and interest. The payments so made by your wife can be treated as loan to you for which you can get deduction while computing your income.
Cash credit ac Q: Any firm cannot make cash payment to anyone or to those whose accounts debts exceed than 20,000. But in a bank’s “cash credit limit account” the firm contains more than 20,000 in debit. Is it possible to pay cash to the bank? If, yes then what is Section-269SS & Section 269T?” — Manoj Kumar, Kaithal Ans: Under the provisions of the income-tax Act, 1961, there is no problem in making cash payment exceeding Rs 20,000 in a bank-cash credit limit account. The provisions of cash payment will not apply to payments made to a bank. |
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by Pushpa Girimaji Thefts on train: who is responsible? ONCE upon a time, train journeys led to lasting friendships. But today, friendships
on trains could well leave a traveller poorer by a few thousand rupees, if that friend happens to be a pickpocket. Instances of passengers' pockets being picked while on board are no longer rare. In fact increasing thefts on trains have robbed the passenger of the pleasure of rail travel. And thanks to reports of passengers being drugged during journey by thieves masquerading as co-passengers and offering food to eat, rail travellers today are increasingly wary of their fellow-passengers. Worst affected are the long distance travellers, who dared a good night sleep, lest gangs known to systematically remove baggage from compartments take away their
belongings. The lock and chain used by passengers to secure their luggage to the seat do not seem to act as a deterrent either in all cases. Locks have been opened with ease and the goods carried away without much trouble. Earlier Rajdhani and Shatabdi Express were more or less free of such thefts, but not anymore. Unfortunately, passengers' attempts at holding the Railways liable for the loss of their belongings during rail travel have not met with much success. In the case of S.Palaniaswamy vs General Manager, Southern Railway for example, the Tamil Nadu State Commission held that the Railways cannot be asked to pay compensation for the theft of baggage in the custody of the passenger and dismissed the passengers' plea for compensation for lost baggage. In fact Mr Palaniaswamy's case is typical. He was travelling from Chennai to Khammam by G.T Express and being a careful traveler, he did not want to take any chances with his baggage and kept his briefcase right underneath his head while going to sleep. It must have been an uncomfortable posture, but Palaniaswamy preferred that to losing his baggage. But obviously, even that precaution did not help because when he woke up from a deep sleep suddenly at around 2 am, he found the brief case gone. Distressed, he lodged a complaint with the police, but the briefcase was not traced at all. Eventually, he filed a complaint before the consumer court, alleging deficiency and negligence on the part of the Railways in failing to take adequate measure to protect and safeguard the belongings of passengers. Taking into consideration the contents of the briefcase, he sought a compensation of Rs 1.9 lakh. The Railways of course would not hear of it and argued that they could not be held liable for the loss of baggage which was in the custody of the passenger. Keeping it safe was the responsibility of the ticket holder . Besides, the railway administration had undertaken to transport the consumer or the passenger safely to his or her destination. And its service was restricted to this and did not extend to the baggage in the passengers possession, the Railways argued. If you look up Section 100 under the Railways Act, it says the Railways is not responsible for the loss, destruction, damage, deterioration or non-delivery of any luggage, unless a railway staff has booked the luggage and given a receipt for it. In the case of luggage carried by passengers , the Railways would be responsible only if it was proved that the loss, destruction, damage or deterioration was due to negligence or misconduct on the part of the Railways or any of its staff. Referring to this, the State Commission said the Railways was not liable to pay for the loss of the passenger's baggage. In fact in cases of loss of passengers' baggage on buses too, consumer courts at the state level have held that the transport company is responsible only for baggage entrusted to its care and where passengers' luggage kept on the top of the bus or in its luggage compartment is lost or misplaced, the transporter is liable to make good the loss to the passenger. However, in so far as goods kept in the custody of the passengers are concerned, the transporter is not liable for any loss or damage. So it's time the railway passengers demanded better safety and security measures on trains so that not only the passengers, but also their belongings are transported safely. By preventing the entry of unauthorised persons, the Railways can, to a certain extent, bring down the incidence of thefts on trains. But more important, the Railways should provide at the end or beginning of each compartment, an enclosed area, where passengers can deposit their belongings at the beginning of the journey and collect them at the end. Such enclosures can be guarded by the Railway Police and the Railways can even charge a nominal amount and issue a separate ticket for it, when the passenger deposits the baggage. Such a move will ensure a hassle-free journey for passengers and ensure the safety of their baggage. Once their luggage is in the safe custody of the Railways, rail passengers can enjoy their journey and have a good night's sleep too. |
Reliably yours World Cup fever Benchmark litigation Budget signals |
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Inflation down FII net buyers Haryana first |
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