Decisive Week Ahead

The Markets gave up almost all their gains on Friday and closed up only 0.4 pc for the week. The next week is crucial because the RBI policy is on Friday which will give further directions to the market.

1. If we take the rally from 4720 to 5169, retracement levels come to 4997. 4944 and 4891. Only a close below 4891 will indicate fresh new lows.

2. There could be 2 possibilities of this corrective up move. 1 is that the entire up move is done and we are on a fresh leg down. The other is A-B-C up move and only the A leg is done. B downwards till 4891 max and a final rally up to 5232 or 5350.

3. The rupee has weakened to 46.57 which is way above its high of 44. What this means is that the FIIs are losing money. To take out dollars, they have to convert rupees into dollars. They need to convert more rupees to get same amount of dollars they put in.

4. Crude Oil imports cost goes up and also price of Gold increases in INR terms.

5. The NCDs have mopped up almost a billion dollars of worth and there are no further prospectus lined up. Later during the year, we have NTPC ad NHPC coming up with NCDs with 10 year maturity.

6. Gold has held up very well. It has bounced up after every fall. In rupee terms we are almost trading at all time highs. Gold continues to be buy on dips.

7. The Obama Job plan has nothing concrete in it. In US, thanks partly due to technology jobs continue to be lost and they are not going to come back. For the Eurozone worries also, nothing concrete is in place and that is why the markets keep falling after bounces.

8. Elliot gives 2 possibilities. Of C wave down from 5944, the current rally is the 4th wave of the 3rd down. This means after a fall to 4500-4700 we have a rally till 5300-5400 and then a final fall to maybe 4000 on the Nifty.
It could also be that the current up move is the 4th wave of C and then we shall have 5th wave till about 4300 - 4500.

Whatever the possibilities, upside seems limited and downsides still appear to be about 20-30 pc.

9. The Earnings of the Nifty have gone up by 31 pc in the 3 years since we hit the bottom in 2008. Equivalent bottom of 2008 comes to 2952 on the Nifty or 9832 on the Sensex. If we consider the closing low, it comes to 3276 on the Nifty.
Hence 3300 to about 30 pc above 4300 represents a buying band.
The range between 3300-4300 on the Nifty represents absolute value. In P/E terms this comes 12-15.5.
Strategy could be deploy 20 pc funds at 4300 and 20 pc at every 200 points below it. Which means 4100, 3900, 3700 and 3500. This is just a rough guideline. If the markets rebound, then one could also buy a bit higher.

For those interested in stock picking in the downturn, I am enclosing the link of Lakshmi,

I am enclosing the link of Lakshmi for those who are interested in bottom fishing of stocks.
http://vipreetinvestments.blogspot.com/2011/09/wanna-shop-with-me_10.html

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