I bought two mutual funds

Last week I bought following two mutual funds.

1. ICICI Pru Infrastructure Fund.
This is primarily a large cap fund, so I get a exposure to quite a few index stocks.
More details about the fund can be found at ICICIPRU

2. DSP ML India T.I.G.E.R Fund.
This fund has good exposure to banking sector.
Details about the holding are at DSPML.

This is what I am doing

This is my strategy for investment in stock market (especially in uncertain period).

I have target of investing of Rs 48000(48K) every year(at least for next 10 yrs).
48000 is just an example. I have divided 48k into 4 parts. For 2 parts i.e. 24K,
I have bought 2 SIP of Rs 1K each of Fidelity Equity Fund and HDFC Top 200 Fund.
Remaining is 24K. I have divided this 24K into parts of 12K each. I invest first 12K when markets crash by at least 15% and next 12K I invest when there is extreme pessimism all around.
This strategy in not full proof and some time I have to be patient for long long time before I get opportunity to invest. But then, I am not in hurry.

Quote from book Art of War

It does not take much strength to lift a hair, it does not take sharp eyes to see the sun and moon, it does not take sharp ears to hear a thunderclap.

What to do ?

Yesterday, my friend asked me that with risk of US Recession looming large, what to do in Indian stock market? Is it time to sell or buy or to do nothing?

Before giving my views on the above question let me give some background.

US sub-prime crisis fear impacted US and world wide stock markets in Aug 2007 and consequently BSE also fell to 14000 in Aug 07. However, BSE bounced back and touched an all time high of 21206.80 on Jan 10, 2008. As of today (Feb 08,2008) BSE is at 17526.93 , that means a drop of around 17.5% from peak. Drop of 17.5% is misleading as majority of the stocks have corrected more than 30%.

What has changed in last 1 month that has triggered this stock market correction/crash?
Many factors, few of them are

1. Heavy speculation was going in market. Companies with no fundamentals or profits were hitting new highs everyday. One of such example is Reliance Petroleum. At 52 week high price of Rs 294, it had market cap of Rs 130,000 Crs. Amazing isn't. A company with no profits and assets under construction was valued so high.

2. US economy has slowed down for sure and there is divided opinion that US is already in recession . Meaning business in US has tough present and future(for some time at least).

3. Growth rate in India has been revised downwards. Refer to this BBC link.

All this means that profit growth rate for Indian Companies will slow down.


Coming back to the original question, what should a investor do?
Again, before answering let me say something more.

There are two types of retail investors in Indian stock market.

First type are the ones who want to make quick money in market. They want to follow every move of the market and are largely driven by the news around. They do not have perspective beyond few months or at max 1-2 years. (Majority falls in this type)

Second type are the ones who are in market for long haul (5-10 years or more). They do not follow market much , but they invest consistently for years. The whole idea of the market for them is long term wealth creation. They know market behave erratically in short term but logically in long term. They do not panic when their portfolio is down by 20 -30%.
They treat stock market investment just like a PF or a recurring bank deposit. Most important, they realize that big money in stock market can be made by remaining invested and it is impossible to time the market. However, they do churn their portfolio from time to time.

Ask your self what type of investor you are or what type you want to be and you'll get the answer of the question asked in this post.

Recession come and recession go, that is the nature of economy but stock market remains and thus remains the money making opportunity.
One more thing, in stock market optimism is max at top and pessimism is max at bottom.

KEC International

KEC Buy Report from economic times

KEC International
CMP: Rs 730.15
Target price: Rs 870

HSBC has reiterated an ‘overweight’ recommendation on KEC International due to factors like strong order backlog and improvement in EBITDA margin. “KEC International has a Rs 50.5-billion order backlog with international orders contributing 68%, which includes the Middle East, Africa, and Commonwealth of Independent States (CIS),” says the report.

The foreign brokerage has increased its EBITDA margin forecast to 13% for FY08E and FY09E after the company reported an improvement in EBITDA margin for the first nine months of the current fiscal. However, an increase in interest costs has led to a marginal impact on net profit, it adds. The brokerage also notes that the high court has given its approval for the merger between the two group companies, RPG Transmission and NITEL. HSBC believes that the company has continuously improved its EBITDA margin and is currently either above or in line with peers. “Thus, we expect the valuation discount to peers like Jyoti Structures and Kalpataru Power to narrow,” it adds.

You can see this report at ET
too.

Arbritrage opportunity in RPG Trans and KEC

RPG Transmission is getting merged into KEC international.
Swap Ratio is 4 shares of KEC for every 9 shares of RPG Trans.
CMP of KEC is 700 and of RPG is 280.
Going by swap ratio if you buy 9 shares of RPG @ 280 the you'll get 4 shares of KEC and effective price of KEC per share will come to 9*280/4 = 650, that is almost 8 % discount to current market price of KEC. Assuming whole process takes 2 months and KEC price remains stable , you can get neat 8 % return in two months. More over KEC has declared good 3rd quarter results and this stock will remain in demand.

So accumulate RPG Transmission at every opportunity.