CAPITAL LETTER

Volume 3

December 08, 2011

Issue 12

Keep your head while all about you are losing theirs
Greetings from FundsIndia!
November was not a happy month for the equity market in India. The indices gave back all the gains of
October and then some during this past month. In fact, there have been only three positive return months
of the 11 months this year. And, as I write this, the year-to-date losses of both Sensex and Nifty are more
than 17%.
Out here in FundsIndia, no advisory call that we field is without a question regarding the markets, and what would be
the right strategy to adopt given these market conditions. It always makes me smile a bit since the word strategy
should be properly used in the context of long-term planning, and if ones strategy keeps changing with market conditions, it is not much of a strategy to begin with. :-)
However, although the market is volatile, I am glad that our investors have been consistently investing using our
platform through SIPs as well as bulk investments. Our AUM has been growing at 12% month on month even in
these market conditions. It is heartening to note that we have a large number of goal oriented investors who are
planning for the long term.
Analysts and prognosticators from across the land have cited reasons for the market downturn and have predictions
for when/how things will turn around etc. For my moneys worth, the constant voice of stable reason amidst all this
chatter has been the relentlessly steady tone adopted by Value Researchs Dhirendra Kumar. His advice in summary
has been to use the current attractive debt market returns for the short term and to not lose faith in the equity markets for the long term.
This issue carries a full essay by him in this regard. Please read it if, as Kipling said, youd like to keep your head
while all about you are losing theirs.
A couple of quick programming notes from us
1.
2.

Two infra bonds, from IDFC and L&T, both with attractive post-tax yields are on offer on our platform currently till probably till the end of this month. Of course, a full palate of tax saving mutual funds are always
available!
Our referral incentive program met with fantastic reception from many of you, and we are happy to inform
you that we have extended it till December 31st.

Merry Christmas, Happy New year, and, of course, Happy Investing!

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Get upto Rs.1,20,000 exempted from your Income-tax when

You invest in ELSS Mutual Fund schemes and Infrastructure Bonds!
Why tax saving mutual funds?
1. Get upto Rs.1,00,000 exempted from tax under section 80cc.
2. Lowest lock-in period - just 3 years - of all tax saving investments.
3. 100% equity market exposure - best return potential of all investment classes
4. Easy and free - no demat account required, no entry load, no transaction fees to invest
So, tax saving mutual funds are easy to invest in, offer the best return potential, and has the lowest lock-in period of all tax saving investments!
For example, if you had invested Rs. 20,000 in HDFC Tax Saver fund (one of our current recommended funds)
in the year 2008, not only would you have saved upto Rs. 6000 in taxes in the same year, your investments
would have grown to Rs. 30,592 now (*as of September 22, 2011) - an annual return of 15.22%! . What's
more, the profit of Rs. 10,592 would be tax free as well!
Why infrastructure bonds?

1. Get an additional Rs.20,000 exempted from your income-tax (under section 80ccf)
2. Attractive interest rates
3. Can be acquired in physical form or by using your existing demat account
Click here to start investing now! -

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method=showTaxSaverLanding&from=home

Deposits from Top rated Companies

Company Name

Rating

1 Year

2 Year

3 year

HDFC LIMITED

FAAAA

9.5%

9.65%

9.75%

ICICI HOME FINANCE COMPANY LIMITED

MAAA

8.25%

8.75%

8.75%

LIC HOUSING FINANACE LTD

FAAA

7.0%

7.4%

7.65%

MAHINDRA AND MAHINDRA

FAA

9.5%

10%

10.25%

SHRIRAM TRANSPORT FINANCE CO.LTD

TAA

9.25%

9.75%

10.75%

DHFL

AA+

10.25%

10.25%

10.25%

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

Advertisement

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

The Silver Debt Lining

BY DHIRENDRA KUMAR

From the investors perspective, its a noisy time right now. Trying to make sense
of the investment environment right now is like being in a room with five or six
people, all talking simultaneously. One is concerned about interest rates, another
with the falling rupee, and another with Europe. Theres someone whos obsessed
with political paralysis and someone else with the governments revenue shortfalls
and its fiscal woes. Another one is shouting at the top of his voice that all of Indias
problems would be over if only Walmart were allowed to open stores here.
If you are looking to formulate an equation which will give you the solution for
what for inputs to understand whats happening, then it would have far too many
variables to solve. However, theres no need to do all that. As far as the equity markets are concerned, theres one master variable that overrides everything else and can tell you whether its
time for a sustained and secular equity rally; and thats interest rates. We could see plenty little mood
swings that depending on which side of the bed Angela Merkel got up from, but if you want the excitement
to be sustained, then wait for a time when business across the board can get much cheaper money. If that
doesnt happen for five years, then thats that.
Meanwhile, its best for investors to focus on the silver lining of this high-interest cloud, and thats the return you are getting from fixed-income investments. From fixed deposits to post office to NSCs to PPF liquid funds, everything is fetching returns that look very attractive compared to the prospects of an equitybacked investment strategy. Deep believers in long-term equity can continue with their SIPs with a five or
ten year perspective, but everyone else will see the value in knowing what their money will earn, safely.

-Syndicated from Value Research Online

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

What Should your Strategy be?

MOHAMMED EKRAMUL HAQUE

The global economy could well be on the brink of another crisis owing to the state of affairs in US and
Europe. As has been witnessed during past crises, sentiments have taken a knocking. Investors (including
FIIs) have begun pulling money out of high-risk investments such as equities and moving to lower-risk
assets (such as cash). Yet, one must remember that markets do bounce back in due course. Says Anup
Maheshwari of DSP Blackrock Investment Managers: As we have seen in previous crises the Russian
default or the Asian crisis eventually markets come back strongly. That is the view we are going with. If
you view the current crisis from this standpoint, then the current state of the markets presents a buying
opportunity to investors who have a long-term horizon of three to five years.
Besides the many valuation tools used to decide whether to buy a stock price to earnings ratio and price
to book value, discounted cash flow method, and so on one fail-safe indicator of equities being available
at attractive valuations is insider buying. Company insiders tend to raise their stakes in their companies
only when valuations are dirt cheap. And insiders are buying now. This is a good sign, says Maheshwari.
This signal works well over a six-month to one-year period.
Consensus opinion holds that Sensex earnings will grow at 12-13 per cent this year to close FY12 at the
`1,180-1,200 level. If one goes by this estimate, then the Sensex is currently trading at 14 times FY12 earnings. This is an attractive valuation compared to the uber-optimistic 20x level that it was trading at prior
to the 2008 crisis.
According to Sivasubramanian KN, chief investment officer, Franklin Templeton Investments, Indian
equity valuations are currently below their long-term averages and look attractive vis--vis long-term fundamentals. Echoes Navneet Munot, chief investment officer, SBI Mutual Fund: At present valuations are
favourable with the Sensex P/E at about 14x.
All eyes are currently glued to Q2 corporate results, which will provide an inkling of how companies are
likely to perform this year. One thing is for sure: the years of very high revenue and profit growth are out.
In fact, according to some pundits, profit growth in this quarter could be at the lowest level seen in the last
six-seven years. High commodity prices and high interest rates are expected to take a heavy toll on corporate bottomlines.
Sector-wise performances are likely to vary. While FMCG, IT and auto are expected to do well, PSU banks,
oil marketing companies, construction and non-ferrous metals and mining may perform below par. According to Sivasubramanian, A key factor to watch out for is the extent of escalation in interest costs due
to the recent rate hikes.
-Syndicated from Value Research Online

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Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.