Sectors to Watch

In the earlier articles, I had mentioned that you should track sectors and select stocks from sectors which you feel would go up and sell of stocks from sectors which are not likely to do well. The experts say the economic conditions have changed and the conditions are improving.

The stock market index in creeping up, but has not yet touched the highs it had touched. So the time is right to invest and as I had said earlier, look out for sectors which will help us reach our goal of making money when the market is growing. The money inflow in the market has been increasing and as recovery picks up, more money will flow.

As more money flows in the market index will rise. But there would be other factors which are driven by nature and one of them is the monsoon. Monsoon will play a significant impact on the economy. So we have to track the monsoon. As markets rise, every stock with good fundamentals will rise.

But if the sectors in which these stocks are are on the growth path, the prices of these stocks will rise faster than the other stocks. Let us look at some of the sectors:

Information Technology (IT)

As the economic conditions improve this sector has the potential to do well. They would do well more in the domestic sector with the government taking up a lot’s of IT initiatives. One of the big ones would be the UID project. The major revenue of most of the companies is from International project.

That means billing in dollars. So we should also keep a track of the currency rate movement. If the rupee gets strong the profitability of the company with major exposure in dollar billing will see an impact on its bottom line.

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As the economic condition improves, so will the salaries. This means more disposable income, leading to better lifestyle. As lifestyle improves people go in for cars, those who already have cars, want better or bigger or new cars. To take care of this, companies will be launching newer and better models to increase sales.

Though interest rates are expected to go up, it would not have a major impact on this sector as the amount required per car would be small. The stock prices in this sector are already seeing an upward trend, so fresh small purchases should be made with every dip in the market.

Pharma

This sector is most likely expected to grow, thanks to the US signing the healthcare bill, which plans to make healthcare affordable. This would increase the sales of medicines.

Infrastructure

This is one sector which has a good growth potential. Our economy is growing and with that the government is also spending more on improving the country’s infrastructure.  As you must be aware most of the infrastructure projects have a long gestation period. So only investors, with a long term view should look at this sector.

Banking

This is one sector which has been growing for some time. With infrastructure improving banks will start moving into areas which were not being serviced properly.  With interest rates on the rise, this sector will benefit the most. Whenever there is a rise in the interest rates, the loan terms are reprised immediately.

You must have experienced this with your loan. But when it comes to raising the interest rates on deposits, it happens slowly. The interest rate of fixed deposits is not revised, you have to break the fixed deposit and apply again, where again you lose, but the bank profits and if that happens the stock price will rise.

Having looked at some of the sectors, now start looking at stocks within these sectors.

Time to be selfish

Late 30’s and early 40’s is that time in our life when our expenses just outrun our income or our income is just enough to meet our expenses. This is a time when we would have got married some years earlier, spent a lot of money on the marriage. Then purchased a house and you are still paying off your loans.

You have children who have started growing and would just be going to school and their school fees and expenses. Not to forget socializing, with your family and friends growing. Your spouse’s family included. Add to all this your parents. Yes, parents. They took care of us and they would be either reaching their retirement age or would have retired.

It has become your moral duty to take care of them. Not to forget sometimes it would become your moral duty to contribute towards your in-laws as well. If your parents and in-laws have retired and managed to create a good retirement corpus, good for you. Even then this would be an age (of your parents) when they would be very careful of spending their money.

So you would still contribute some amount to help them. It’s not easy for them as well. What with expenses going up and the biggest expense, which does not come cheap is medical expenses. What you could do is take a medical insurance policy for them. This way they will be a little reassured.

Taking a medical policy in your parents name is beneficial to you too. You get income tax deductions and also the satisfaction that your funds will not be touched, in case they fall sick. If they are close to retirement, then start retirement planning for them, so that the burden on you would be reduced when they retire.

If your parents stay in their own house and you are really hard pressed for money, look at reverse mortgage as an option (refer to this article for details). This would help give them monthly income and when things ease a bit you can start building a corpus to repay the loan.

As you plan to start building a corpus to repay the reverse mortgage loan don’t forget to start building some other corpus’s as well. Some to them are Children’s higher education and your own retirement. You don’t want to be dependent on your children, right.

Time to enter the market

When the market went down over a year back, we were scared to enter the market. After that slowly the market started moving up and it kept going up. Today it is still going up. The assessment of most of the market experts is that we have come out of recession and should serously think of entering the stock market.

Before we enter the stock market we should do some assessment of our own. First we should check what the market up’s and down have done to our current holdings. We should verify if the stocks in our current portfolios are worth what they were over a year back and also the outlook of the sectors in which we hold stocks.

If the stocks in your current portfolio are good and their sectors have a good outlook, but the stocks are being traded below the purchase price, on every fall in the market start buying in small quantities and bring down the average purchase price. But if the company’s fundamentals have changed or the outlook is not good then start getting rid of the stocks with every rise.

Also check your risk profile as of today, can you afford another fall in the portfolio value. If not think twice before investing more money in the market and get rid of the riskier stocks. Reassess you goals and decide the reason for investing in stocks and the period for which you plan to invest.

Managing equity investments is not easy, especially if we did not look at the portfolio for the past year or so. However, you should be prepared to reenter the stock market and give yourself a chance to recover from the shock. The time is ripe to juggle your portfolio and make money.

Invest in Equity

We all have an aspiration to make money. As we all know more the risk more the returns. We see around us that many persons have made money in the stock market. We have also seen many people lose money, but not many say or talk about losses. We know that people lose money and we don’t like taking risks.

What if we do a study and the risk reduces, would you still not invest. If the answer is no, then stop reading further. If your answer is yes, let us see how we can reduce our risks and build a good portfolio. 

First thing to remember, investing in equity should always be with a long term view.

If you are looking at short term and you don’t have a good knowledge of the market stay away. Have a realistic expectation. It is realistic to expect around 15% return, but if you are thinking bigger, go to an expert. One more thing is don’t just think equity; look at other avenues as well.

Equity could form a major part of your portfolio. Usual percentage to invest in equity would be 100 less your current age. This would give you a rough idea of the percentage you should have in equity. The reason is, as you grow older assured returns should increase.

Again the percentage would depend on financial background, earning visibility and stability, family background, etc. Once you have arrived at the percentage, start looking at sectors you would want to invest. Study the economic environment as see which sector would be growing or would give better returns than the market.

Sectors keep changing from time to time; narrow down to 2 or 3 sectors depending on the outlook of the sector. Now within the sectors look at companies. The different ways of narrowing down on companies would be past performance of the stock with respect to market indices, management guideline for the future on business/earnings visibility etc.

You can also perform some basic calculations to build their own opinion on picking the stocks. For example, find the PE (Price to earnings) ratio analysis of a stock and compare it with its own historic PE ratio and the PE ratios of its peers. Keep a lookout for Market tips.

Study the profile and judge the chances of the company share price going up. Here also look at least 2 to 3 companies in each sector. 

Keep an eye on the market development and keep shuffling your portfolio depending on the circumstances.

If you find all this a little time consuming or you feel you might not be able to cope with this pressure for long, invest in good diversified mutual funds. The fund manager would take care on sectors and companies. Look at the track record of the fund manager before investing

Planning for a holiday

Final exams of schools are coming closer and soon after that schools would be closed for 2 long months. Throughout the year you and your family have been busy, and you feel that with the children also having a break, this is the best time to have a holiday. There is another reason as well, not only you have worked had, the children have also worked hard and feel they need to be rewarded and what better reward than to take them for a holiday.

But did you plan for the holiday? Most of us don’t. We wait and say there are many uncertain circumstances. But are they actually uncertain or we have chosen to make them uncertain. The main reason things remain uncertain is because we do not plan. Yes, do get a thrill when things go fine and within budget when things are not planned and we get disappointed when we plan and things don’t go as planned.

We should work on getting the thrill and still avoiding the disappointment. What we usually do is last minute planning. We book our lodging at the last minute and also the tickets at the last minutes. Which hits our budget, leading to cut a on other luxuries and entertainment. We still have time, so let’s see how we can work on making this and every other holiday special.

 The most important thing is make a budget. Usually the planning should start at least a year in advance. I mean budget planning. This way, you start putting certain funds aside every month for a holiday. Once the funds are allocated, a big problem is solved. Now if this money is invested in say a mutual fund using SIP or a recurring deposit with a bank. You would have some extra money which would be a bonus.

Now that you have committed your funds, you wait for the uncertainties to fall into place. Say around 6 months in advance, plan for the destination. The reason is now you would know how much leave you have and also taking into account the other circumstances, it would become easier.

Around 3 months before the holiday, start looking for deals. Another reason to start looking for 3 months in advance is depending on the circumstances you can change your plans as well.

Planned well, seen some deals, around 2 months in advance start booking. But before you book, if you are going abroad, get your visa’s done. If it does not come through or something changes you can change your plans.

Once the Visa is done start bargaining for deals, you will be surprised you could get some good deals over and above what has been publicized, when you talk to the representative.

Once your bookings are done, all that is left is to do your packing. Start making a list of what you might need at least 2 weeks in advance and packing a week in advance. This will help you have all your basic stuff and you do not have to buy or search for basic stuff in a foreign place. Buying basic stuff could also hit you budget, because of costs.

Currently you can start with bookings and not wait till the last minute. But next time plan.

Protect Capital increase returns

Whenever we invest, we want to play safe. We would like to have big returns but would not like to lose the capital. But as it is said, low risk low return. So what should you do if you want good returns with low risks or no risks?

Some investment options are Bank Fixed Deposits, Company Deposits, Fixed Maturity plans, Mutual fund based Monthly Income plans, post office Monthly Income scheme, etc.

Do all of them guarantee return of capital or just try to protect capital. Most of them just try to protect capital other than Bank Fixed Deposits and Post Office Monthly Income Scheme which guarantee return of capital.

Let’s assume that you invest in a mutual fund which promises protection of capital. What does the mutual fund do? It invests your capital in such a way that your will be intact on maturity date. How is it done? If you invest Rs.1000/- in a 5 year mutual fund which promises to protect your money, the mutual fund will invest your capital in such a way that they will get Rs.1000/- at the end of 5 years.

How? If a government bond is giving a return of 7.5% compounded yearly for 5 years, the mutual fund will invest Rs.700/- in the government bond and the balance in Equity, which will help increase the return.

So can you also replicate what the Mutual Funds do? Yes. As we had stated earlier, high risk high return. So we will first protect our capital. We will invest the whole amount in Post Office monthly income scheme. So every month we will get some return. This return we will use to deposit in a good equity fund through SIP (Systematic Investment Plan). 

Why SIP? By SIP you are investing regularly over a period of time taking advantage of the up’s and downs of the market price (NAV – Net Asset Value, since mutual funds are purchased at NAV). Basically averaging the cost of purchase, so you get the best price over a period of time, also you are compounding your investment.

By following this process you do not have to regularly keep track of your investment and you would be your own boss. Since you decide the fund in which you would like to invest. Another option would be to take yearly SIP in different funds i.e. this year in one fund next year another depending on how the mutual fund is doing. This way we take decisions based on the current market situation as well as diversify our risks and last but not the least, our capital is intact. 

Money Saved is money earned

The budget is out and as usual every individual looks at how it impacts his bottom line. In this budget, with the change in tax slabs, the outgo in terms of tax deduction would decrease. That means more money in hand. If your income is above eight lakhs, it is substantial i.e. Rs. 50,000/- plus, but it would be less depending on the tax slab you were in. 

The amount is not small. If we assume that our income was the same, the additional saving would come to around Rs.4,200/- per month. Let us look at what we can do with a sum of around Rs. 4,000/- per month.

All of us have a dream, a short term dream or a long term dream. This amount could be kept aside on a monthly basis to meet this dream.

Till date we have seen that once the income tax slabs and rates are announced they have always been honored.  So our first assumption would be that the finance minister would keep his word and in that case we should start planning we have around 2 months to do it.

There are many of us who are not able to save because of some commitments. Therefore we are not even able to do our investment of Rs. 1 lakh. If you are in this bracket, then start investing in tax saving schemes, using the tax saved per month for investment. With this the tax saving would increase giving you more money in your hands.

Now if you have been taking care of the Rs. 1 lakh in Sec. 80C, then you should go for some investment which would help you create a good corpus. Go in for SIP’s in some good Equity mutual fund.  Other options would be to go for a pension plan. No harm in planning for your retirement, right?

If your dream is a short term dream, go for a recurring deposit.

Another way of increasing the money in your hand would be to pay off some old debts or credit card dues. You will save on interest and financial charges. Increasing your EMI amount could also help you get debt free sooner.

In this budget the finance minister has also announced an addition deduction of Rs.20,000/- in long term infrastructure bonds. Details are not clear, but then it would still be a saving for the long term with an additional saving on tax.