SHOULD YOU BOOK SOME PROFIT FROM MARKET NOW

Prashant Mahesh suggests profit booking in some outperforming sectors and stocks as the market has climbed 13% in under three months

The stock market never stops surprising investors. Just when many were busy writing obituary of the equity cult, market barometer BSE Sensex moved up 2,000 points in just three months — from 15,749 in early June to 17,783, a gain of 12.91%. 

Needless to say, most investors are surprised by the sharp upward move, as both news flows and economic data have not shown any sign of improvement during this period. If anything, it got worse. Brent crude has risen to $115 a barrel from $90. The government has not been able to raise prices of administered petroleum products like diesel, LPG and kerosene and is losing . 14 on every litre of diesel sold. The fiscal situation has deteriorated, with S&P threatening to downgrade India’s rating. Policy paralysis continues with no announcement on reforms or FDI in retail and aviation. Rainfall too has been poor so far this year, with a drought-like situation in some states. 

Even on the global front, the debate continues over the exit of Greece from the Eurozone and the consequent financial implications it could have. Yet, despite these negatives, the market surged ahead. 

“Investors have expected the ECB to start buying troubled bonds and there is hope of a QE3 (quantitative easing) soon. This, along with liquidity, is driving the markets up,” says Sadanand Shetty, VP and fund manager at Taurus Mutual Fund. The most obvious question an investor would be asking: is it time to take profits? 

“Certain sectors like FMCG and pharma have seen a sharp rise in stock prices over the last one year. You can book profits selectively in these sectors and enter at lower levels,” says Madhumita Ghosh, head of research at Unicon Financial Intermediaries. 

BOOK PROFIT SELECTIVELY IN PHARMA & FMCG 

Since the rally is liquidity driven with foreign institutional investors (FIIs) pumping in more than . 13,000 crore since July 2012, experts feel the broader market will be range bound. “For the next six months the markets are likely to be range bound and the Nifty will trade between 4,750 and 5,500,” says Sandeep Raichura, business head at Castanea Wealth Management. Since the Nifty is at 5,400, it may make sense to book profits in stocks which have run up. Certain stocks in the FMCG and pharma spaces have seen a sharp runup in their prices. For example, Hindustan Unilever has moved up from . 320 to . 518, a rise of 62% over the last one year, and now quotes at a PE of 34. Similarly, Godrej Consumer Products has moved up from . 416 to . 652, a rise of 57%, and is quoting at a PE of 46. 

In the pharma space, Wockhardt has moved up from . 389 to . 1,266 a jump of 225%, while Strides Arcolab has moved up from . 288 to . 854, a jump of 195%. “It makes sense to take partial profits in cases where the stock prices have run up fast,” advises Madhumita Ghosh. 

DEPLOY CASH INTO STOCK BASKETS 

Now there are a couple of ways in which investors can utilise the cash generated from booking profits. Conservative investors could hold on to their cash and wait for declines and invest again. “Investors, who wish to remain fully invested, could invest in a basket of stocks to generate some extra returns. You could invest up to 10-15% of your equity portfolio in such baskets,” says Rajesh Cheruvu, chief investment officer, RBS Private Banking India. 

For example, in the current environment he recommends a policy reforms basket of five stocks — HPCL, IDFC, IRB Infra, Spicejet and Pantaloon Retail. Any change in policy be it in FDI in aviation or retail, hike in diesel prices or increase in infrastructure activities will benefit this basket and generate extra return for the portfolio. 

Similarly, longer-term investors can play the delisting theme basket, which will pan out over the next 12 months. “In the delisting theme, buy into those stocks which have a higher return on equity than their parents,” says Cheruvu. 

Some stocks that you can buy here are Oracle Financial Services, BOC India and Thomas Cook. Similarly, to take advantage of the currency depreciation, investors are advised to buy the Hang Seng ETF listed on the NSE. “The Hang Seng ETF is available at a steep discount to its historical average and at valuations cheaper thantheIndian Nifty, making it a good investment,” says Cheruvu.

Source : The Economic Times – 27/8/2012

HOW TO CALCULATE QUARTERLY AVERAGE BALANCE

Do you understand what is the meaning of Minimum Quarterly Average Balance in your saving account? When you say “Quarterly Average Balance of your saving bank account is Rs 10,000″ , what does it mean exactly? A lot of people feel that their balance in saving bank account should not go below Rs 10,000 on any given day, otherwise there will be penalty charges and they make sure that they have a buffer of Rs 10,000 in their saving bank account all the time. This means that their account always have that much surplus. However the way quarterly average balance is calculated is different and very simple.

Meaning of Quarterly Average Balance ?

It simply means the average of the all the closing day balance in a given quarter. So given a quarter, add up all the closing day balance and then divide it by the number of days in the quarter. If you have to put it as formula it would be

QAB = (Total of all the EOD closing balance)/(number of days in quarter)

Let me show you an example . Let us say the quarter we are talking about is Apr-June . Now your balance in the start of the quarter (Apr 1) is Rs 20,000 . You withdraw 15,000 on 15th Apr and then Deposit 8,000 on 12th June. What will be the quarterly average balance for the Apr – June Quarter ?

Learnings & Tips

·         Keeping Rs 30,000 in a bank account for 1 full month , is same as keeping 10,000 for full 3 months (30k * 30 days = 10k * 90 days)

·         If you want to keep ZERO balance in your account for most of the time, then the best thing would be to put a big amount like 90,000 for first 10 days of a quarter Q1 and then do a FD for 5 months , and then once it matures, you will be in Q2 end , and then you can put it for another 10 days , this way you will meet quarterly balance for both Q1 and Q2 .

PSU Banks vs Private Banks

A lot of PSU banks like SBI bank, Bank of India , Allahabad bank generally have a lowerQuarterly Average Balance to be maintained in saving bank account, it average limit is upto Rs 500 in most of the banks and non-Maintenance Charges are very low around Rs 50-100 only. However Private banks like ICICI Banks, HDFC bank, Axis Bank etc have quarterly balance as high as Rs 10,000 and high charges as penalty for not maintaining it , It some times can be as high as Rs 750 . Note that ICICI Bank has recently moved to Monthly Average Balance (which I came to learn when I was writing this article and thanks to everyone that I knew it as I have my account in ICICI bank only)

Did you knew how the minimum average balance is calculated ? Now will this information impact your banking in any way ? Will you keep less money in your bank account because you now understand that quarterly average balance is calculated in a different way than you thought?

Source – www.jagoinvestor.com

WHEN GROUP COVER FALLS SHORT, TRY VOLUNTARY TOP UPS

How to bridge the gap with some extra health cover when the group insurance offered by your company falls short of requirements

Voluntary top-up covers, which allow employees to add extra health cover to their group insurance policy offered by employers, are fast becoming popular. Many companies, which were forced to trim their group health benefit packages in the past three years due to rising premium costs and a slowdown in the economy, are encouraging their employees to use this route to buy adequate health cover for themselves and their family. And employees, it seems, are happy to pay the additional premium for the add-on cover. Financial experts also approve of it as they believe that the average group cover is inadequate to take care of the hospital bills of most people. 

“Almost 66% organisations have made changes to their benefit plan in the past two years to combat the rising cost of medical insurance. This trend is likely to continue. However, considering that a ‘benefit cut’ does not really lower the employees’ risks or needs; organisations have now started offering voluntary topup plans,” said Sanjay Kedia, country head and CEO of insurance broking firm Marsh India. “According to our 2011-12 survey, 67% of employees said they would like to buy such top-up plans.” 

“Top-up schemes linked to group covers are increasingly gaining prominence. We have seen good demand for such offerings and it is a viable proposition for us,” said Amit Bhandari, vice-president, health underwriting and product, ICICI Lombard General Insurance. 

According to insurance experts, the average cover of . 2-3 lakh offered by group insurance schemes may not be adequate to take care of the medical expenses of employees and their families. This will become crucial in future because medical inflation has been growing at 12-18% per year. This would surely mean that most employees won’t be able to take care of their future hospital bills if they or their family members have to undergo treatment for any major illness. This apart, group covers could come with sublimits on room rents and treatment of certain ailments. Parental coverage has also been at the receiving end in the last two years. Many companies have either scrapped or scaled down the cover offered to employees’ parents. Some companies extend cover to parents only if the employee agrees to fund the premium. 

Given the dynamics at play, it is clear that group covers fall short of employees’ requirements. This is where top-up covers can be used to bridge the gap, feel experts. 

Typically, the size of such add-on covers ranges from . 2 lakh to . 10 lakh. They kick in when the hospitalisation expenses breach the base group policy limit. The premium for the additional cover is usually deducted from the employees’ salary. It is eligible for tax deductions under Section 80D. The annual premium for a 40-year-old individual opting for a top-up of . 5-lakh may work out to around . 1,500-2,000. They can enroll for the top-up policy through employers’ existing IT infrastructure, say, the intranet platform. Usually, the insurance company provides a link that enables the employees to complete the process online. They can enter the relevant details asked for and buy the top-up cover. 

“For an employee, the advantage is that the cost is lower than that of an independent top-up plan. Moreover, they can immediately avail of the pre-existing diseases (PED) cover here, unlike individual policies that prescribe waiting periods for the same,” said Bhandari. Also, since these top-ups are offered as part of corporate policies, they will come with a wider range of benefits. 

“For specific corporate customers, we may customise the top-up cover so that all benefits that apply in the current policy can be offered on top-up basis, too,” said Amarnath Ananthanarayanan, managing director & CEO, Bharti-AXA General Insurance. 

Finally, it is always better to have an individual health cover or a family floater plan, as the group health cover ceases the moment you leave the job. Even some topup covers added to the group health cover may lapse if you leave the job. You have to check this aspect with the insurer before buying a top-up cover. 

Also, you can consider buying an independent top-up plan if you already have a health insurance cover, instead of holding multiple health insurance policies. Such add-on policies are cheaper than standard hospitalisation policies by almost 40%. “From a customer’s perspective, one has to see if he/she is able to get a significant price advantage as compared to individual top-up plans available in the market,” said TA Ramalingam, head, underwriting, at Bajaj Allianz General Insurance. 

Souce – Preeti Kulkarni – The Economic Times – 10/08/2012