Sriram Transport Non Convertible Debenture

As the Equity markets go in a sideways to a downward kind of move, its time to look at other investment avenues. Sriram Transport is coming up with non-convertible debentures offering upto 11.60 % interest.

What are non convertible debentures?
They are debt instruments offered by the company which offer you an annual interest of 11.60% payable annually. These bonds are traded on the NSE and which means you can sell them if you need the money immediately.

How safe are they?
The company is rated as AA by Rating agencies which means the company is pretty stable. The Debt is secured which means if the company goes bankrupt you will be ahead in the queue of people who get their money. This is better than Fixed Deposits.

What is the downside to investing in these NCDs?
Sriram Transport is a middle of the road company not as well known as Tata Capital or L&T Finance. Those NCDs are trading at a yield of 10 pc.

What should one do?
If one has no exposure to NCDs, then one should first look at L&T Finance NCD which gives an yield of 10 pc. One should restrict themselves to a small quantity of Sriram Transport NCD to get the higher yield. This is a risk worth taking if one allocates say 5 pc of one's Debt portfolio max to this offering.

Point worth noting:
This is on a first come first saved basis offering. The issue opens on Monday and closes on 9th July. If interested, please apply early.

The Details of this issue are available at below link:
http://content.icicidirect.com/mailimages/Shriram%20Transport%20Finance-Table.html

Gold Presentation

A few days back, Taran Marwah and myself had prepared a presentation on Gold purely looking at the charts. I am adding the presentation below.
The link is as below:
http://groups.google.com/group/nav-files/t/a6e139b52f7dfc1?hl=en

Pointers to a slowdown

The Economic Times had a couple of articles over the week which caught my eye. These certainly were pointers to a slowdown last time around. Lets have a look at them.

1. The ET had an article how many Real Estate agents had gone under and had shut shop. These folks had moved to other professions. The Real Estate Market was down in the dumps. Related to Realty 1 more transaction caught my eye.NCPA Apartments arguably the most prized address in Mumbai where people like Ratan Tata and Uday Kotak stay, a flat was sold for Rs 85000 per square feet.I remember very clearly that flats here had gone for as high as Rs 1.05 lakh a square foot a few years back. If a up market flat goes for 20 pc less, then that means other flats should be at least cheaper by 25 pc. The NCPA Apartment has a premium because hardly any flats come up for sale and to have Uday Kotak and Rata Tata as neighbors means one had arrived in life in Mumbai.

2. I have been bombarded by SmSes the last week by Realtor having property for sale.Signs of increasing desperation?

3. The RBI hikes mean for those who bought flats a 3 years back the repayment tenure has gone up from 20 years to close to 40 years. Now, banks calculate the working life of a person when factoring in EMIs. This means they will soon ask borrowers for part pre-payment.

4. Brokerage houses have started laying off people. This again is from the ET. During the last recession also layoff were maximum in the Brokerage Houses. Volumes have dried up in the stock market.

5. This latest Rate Hike is definitely not the last one coming. 10 year yields are already at 8.3 pc whereas 1 year T Bill is also at 8.30 pc which points to a situation of almost inverted yield curve. Typical long term T-Bills should get higher rates.

6. The Housing Market will hold up as long as builders have money to prop up assets for which there are no buyers. They can hold on to the artificially swollen property prices till they can finance their projects.

7. The Technical Indicators point out at the last supports between 5300-5330 after which may head to 4800. There is nothing much for the markets to rise and all rallies can be used a shorting opportunities.

Options Strategy for Sideways Markets

What do we do if the markets are sideways. Here is a guest post I had written for Subhankar a few days back.
http://investmentsfordummieslikeme.blogspot.com/2011/06/how-to-short-strangle-sideways-market.html

Technicals for the Week

It was a range bound trading week with a slight negative bias. The trading range is narrowing and a break is imminent. This should give a move of 200-300 points.

1. The coming week has the Inflation Data on June 14th, Advance Tax data on June 15th and the RBI Meet on June 16th where I expect key rates to be hiked by 25 basis points.

2. The short term stochastic which are leading indicators and the MACD have given short term sell signals.

3. The 61.8 % retracement of rally from 5329 to 5605 comes at 5434 which is a key level. This is a good level to book some shorts and re-enter at 5385.

4. The Bollinger Bands hint at a bottom at 5348 as first target.

All in all, nothing much has changed.Levels on the downside are 5434 - 5384- 5328. On the upside are 5514-5550-5576.

QE 3 Coming: What it means to the Layman

The US Government has been printing dollars and pumping in money to keep its economy afloat. We had Quantitative Easing 1, 2 and 3 may be on its way. What would be the implications for Global Markets?

1. QE-2 ends on June 30th. This means no more pumping of dollars and the Fed Balance Sheet begins to shrink. If there is no QE-3 expect the US market to collapse at least 20 pc and treasury yields to rise. The Dollar would strengthen and Gold and other commodities like Oil would flatten or have a slight dip

2. There is a delay in announcing QE-3. Markets first dip and then there would be a rise on the announcement. I feel this would be the most likely scenario.

3. QE-3 announcement comes through. Asset inflation goes on. US Dollar crashes, Crude jumps. If QE-3 comes through, within a year crude should hit 200 dollars a barrel, Gold 3000 USD an ounce and the US Dollar toilet paper.

How do we play the scenarios?

Right now, wait and do nothing. Technically wait for Gold to close 1570 dollars an ounce and then buy gold or wait for the announcement.
Equities are a no-no for the simple reason too many negatives. Inflation, rupee weakening are just a few negatives now.
If QE-3 comes and Equity markets do rise, I would still prefer Gold as US Dollar is a certainty then and Equities will just have small (maybe a few months) boost. QE-3 would likely set the road map for the next year or so for the world.

Chart of the Day

5600 has been key level many times, resistance and support and 200 EMA, expect some correction here.