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Wednesday 31 December, 2008

HAPPY NEW YEAR.....

PAISAPOWER WISHING YOU THE VERY BEST IN
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¤ø„¸¨°º¤ø„¸ ¸„ø¤º°¨¸„ø¤º°¨
¨°º¤ø„¸ HaPpY ¸„ø¤º°¨
¸„ø¤º°¨ NeW yEaR``°º¤ø„¸
¸„ø¤º ``°º¤ø„¸ ¤ø„¸¨°º¤ø„

Tuesday 30 December, 2008

Are we lesser by the day....?

21st Century.... We are becoming lesser by the day

Our communication - Wireless
Our telephone - Cordless
Our cooking - Fireless
Our youth - Jobless
Our food - Fatless
Our labour - Effortless
Our conduct - Worthless
Our relation - Loveless
Our attitude - Careless
Our feelings - Heartless
Our politics - Shameless
Our education - Valueless
Our follies - Countless
Our arguments - Baseless
Our job - Thankless

Wednesday 24 December, 2008

Merry Christmas

அன்பென்ற மழையிலே அகிலங்கள் நனையவே...
அதிரூபன் தோன்றினானே...
வைக்கோலின் மேல் ஒரு வைரமாய் வைரமாய்...
வந்தவன் தோன்றினானே...
வின்மீண்கள் கண் பார்க்க சூரியன் தோன்றுமோ...
புகழ்மைந்தன் தோன்றினானே...
கண்ணீரின் காயத்தை செந்நீரில் ஆற்றவே...
சிசுபாலன் தோன்றினானே...

இனிய கிருஸ்த்துமஸ் திருநாள் வாழ்த்துகள்....

-சரவணக்குமார்.

Friday 14 November, 2008

STOP LOSS - A PUZZLE OR....

There is a big difference between investor and trader.Investor buy and sleep,he never bother for stop.whereas trader can not survive without stop loss.

Stop lose is like bullet-proof for trader.

In simple words 'stop-loss is a squaring-off order for a trade that is going in wrong direction'.so that the loss on the wrong trade could be minimized or limited.

Stop mental or physical.......I will not go in detail here and directly comes on point......the trade should be not placed without stop. No mental stop please.......because there are only few people who are capable to control themselves else 90% of peoples who use mental stop normally hesitate to cut the position........
but before placing the trade or stop It is better to understand where the stop should be used and where hedge......

Normally.....in an established market stop works well......if stop hit .....reimburse the trade or forget.....and look for other target......but in volatile market stop become suicidal point......it hurts....so better to hedge the position.

My personal opinion......use the stop with stocks......and hedge the position while trading Index.

Now.....what should be the level of stop......?

Well......few peoples use a certain percentage......some peoples use a fix stop like 5 rs 10 rs......few other use support based stop......

Operators.....normally try every trick....and drive in crazy way....some time stop hit the bottom/top go little lower/higher and return.......false break-outs/break-downs.... these are the basic problems......there is no solution.....so in my view a Volatility based stop is much better than other types......and that can be calculated on hourly or 30 minuets time frame......formula is.......

Range calculation ....high-low/previous day's close*100 = VS%

now divide the VS% by a suitable number (2,4,5......)

and now .....hourly support or stock price -VS%

this formula is for long........for short we add the % VS to hourly high or nearest resistance.

here is a small example.....BHEL (Today's first hour)high 1760 low 1743 , previous close 1760.25.....so use the stop at 1742 or calculate......

Range = High- Low , 1760-1743 = 17
divided by previous day's close 1760.25 = .96%

Now this .96% can either be used as stop or divided it by a suitable number for example .......divide it by 2= .48%or say .5%

Now if the trader is buying 1748 levels.....stop should be at 1748-9 (1748*.5%)=1739. So if the stop hit at 1739.......forget or go short.

VIA - Tu Daal Dal Main Paat Pat

Saturday 8 November, 2008

TOP 40 SCRIPES...




Monday 27 October, 2008

Compact-15 Diwali pick of 2008-A.K.Prabhakar

Saturday 18 October, 2008

Stocks below Book Value

Monday 13 October, 2008

India Plans to Increase Liquidity, Driving Stock, Rupee Gains

Finance Minister Palaniappan Chidambaram said India plans to increase the amount of cash in the financial system, lifting the rupee from a record low and shares after the biggest drop in 18 years last week.

``The root cause of the present uncertainty is liquidity and not any dramatic change in the fundamentals of the economy,'' Chidambaram said in New Delhi today. ``We are working on more measures that will infuse liquidity and increase the confidence of depositors and investors.''

India's central bank may further cut the amount of cash banks need to set aside as reserves as the tightest credit crunch in 19 months threatens to stall economic growth. Indian stocks led by ICICI Bank Ltd. mirrored gains across Asia today as Australia guaranteed bank deposits while European leaders agreed to support lenders in an effort to restore investor confidence.

``There has to be a sustained effort to calm markets because these are very unusual times,'' said Sujan Hajra, chief economist at Anand Rathi Securities Pvt. in Mumbai. ``A deeper cut in the cash reserve ratio is most likely in India, where the problem is one of liquidity.''

The government, the Reserve Bank of India and the Securities & Exchange Board of India are working on more steps, Chidambaram said, without elaborating. ``We hope to be able to announce them shortly,'' the finance minister said in a televised briefing before the stock market opened.

Markets Rally

India's benchmark Bombay Stock Exchange Sensitive Index, or Sensex, surged 6.3 percent to 11,186.35 after a 16 percent plunge last week. ICICI Bank climbed by a record, reversing its biggest ever drop on Oct. 10, after Chief Executive Officer K.V. Kamath said the nation's second-biggest lender had sufficient funds.

ICICI Bank is being targeted by short sellers who have spread rumors that the bank may struggle to refund depositors, Kamath told NDTV Profit news channel today. India should consider a ban on short sales, he said. Short sellers borrow stock and sell it, hoping to buy it back at a lower price.

The rebound in the markets came after the Reserve Bank of India reduced the cash reserve ratio, or the amount of money lenders need to keep aside as reserves, to 7.5 percent from 9 percent starting Oct. 11. The cut was the sharpest since 2001.

The rupee rose 0.7 percent to 48.10 per dollar, snapping a five-day losing streak, while bond yields on the key 10-year bonds declined 5 basis points to 7.74 percent. Overnight money markets rates fell to 9.85 percent today from 16 percent on Oct. 10, the highest since March 2007. A basis point is 0.01 percentage point.

`Nothing to Fear'

Indian banks are ready to provide credit, are safe and depositors have nothing to fear, Chidambaram said, adding he may make another statement today if needed. A panel set up by the finance ministry panel on liquidity will meet at 3:30 p.m.

Still, Indian real-estate developers will continue to face a shortage of funds even after the central bank cut the amount of cash banks need to hold to ease credit, Macquarie Research said in a note to clients today.

``The capital crunch has hit the sector very hard,'' Macquarie analysts Unmesh Sharma and Bharat Rathi said. ``We believe the tightness will continue for a few more months, given the difficulty in raising capital through bank debt, equity markets and (more recently) private equity.''

The tight money market conditions have emerged at a time when India's industrial output growth has slumped to the weakest pace in at least 14 years. Output at factories, utilities and mines rose 1.3 percent in August from a year earlier after a revised 7.4 percent gain in July, as rising borrowing costs since 2004 to contain inflation sapped consumer demand.

The central bank has increased its key repurchase rate by 3 percentage points to 9 percent since 2004 and the cash reserve ratio by 4 percentage points since December 2006, before last week's cuts in the reserve ratio.

Slowing Growth

The $1.2 trillion economy may slow to 7.9 percent in 2008 and slide further to 6.9 percent in 2009, the International Monetary Fund said this month, as it described the world economy as being ``on the cusp'' of a recession. The IMF estimates India's economy grew 9.3 percent in 2007.

``There is a need to switch the monetary policy stance towards growth because inflation is ebbing,'' said Suresh D. Tendulkar, chairman of the panel of economic advisers to Prime Minister Manmohan Singh. Tendulkar also called for easing restrictions on local companies raising funds overseas.

Inflation in the nation may ease from the current 15-week low with prices of crude oil, wheat and other commodities tumbling as the world economy heads toward a recession.

India's key wholesale price inflation rate fell to 11.80 percent in the week to Sept. 27, the government said Oct. 10, slower than economists expected. Chidambaram said the drop in prices of metal and oil, currently near a 13 month low of $77.7 a barrel, will have a ``beneficial'' effect on inflation.

Sunday 12 October, 2008

`Swift' Steps to Boost Liquidity - Subbarao

Indian central bank Governor Duvvuri Subbarao said he's prepared to take ``effective'' steps to maintain liquidity in the nation's credit markets and repeated the bank's policy of smoothing swings in the currency.

We ``stand ready to take appropriate, effective and swift action'' to provide liquidity, he told reporters yesterday in Washington, where he was attending a meeting of Group of 20 finance ministers and central bankers. He said India's economy is ``strong'' and its banks are ``sound'' and ``well capitalized.''

India yesterday made the steepest cut since 2001 in the amount of cash lenders must set aside as reserves to kick-start the $1.2 trillion economy, as the rupee plunged to an all-time low and overseas investors dumped emerging-market stocks. The drop in the cash-reserve ratio followed a reduction on Oct. 6.

Subbarao, 59, declined to comment on interest-rate policy, saying that ``all variables are up for review'' at the Reserve Bank of India's Oct. 24 policy meeting. While the latest figures on inflation are ``quite comforting,'' it is ``still too early to let the vigil slip'' on prices, he said.

India's inflation has slowed to a 15-week low of 11.8 percent, according to the latest government figures, though it is still more than double the central bank's target.

Steps taken so far to improve liquidity in the Indian financial system amount to as much as $22 billion, Subbarao said.

The governor also said that in the medium term, India's rupee ``should be determined by market fundamentals.'' The RBI's policy, to ``manage exchange-rate volatility'' rather than take a view on its level, ``should continue to serve us well,'' he said.

`Knock-On Effect'

Indian markets are experiencing a ``knock-on effect'' from the global financial crisis, because the country's banks have no direct exposure to U.S. sub-prime mortgages, Subbarao said. The RBI's priorities include ``managing inflation while maintaining the growth momentum,'' and financial stability has become another objective over the last three months, he said.

Subbarao this week rushed to free up cash after money-market rates surged to an 18-month high and financial stocks slumped. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, dropped by a record on Oct. 10, forcing the bank to reiterate it had sufficient funds.

Some economists predict the RBI may follow central banks worldwide and cut interest rates as inflation pressures ease and the worsening global crisis begins to weaken economic growth.

``India has been cautious in its reaction until now,'' Swaminathan Aiyar, a Cato Institute research fellow with a focus on Asia, said in Washington. ``Subbarao clearly believes in balance'' between the policy objectives of growth and inflation. ``A rate cut is coming.''

Rescue Plans

Subbarao, who took over as RBI governor a month ago, said the problems and perspectives of countries directly affected by the global financial crisis are ``quite different'' from those of nations like India that are affected indirectly.

Relief and rescue plans announced by advanced countries so far don't include components in which peripheral countries such as India could participate, he said.

Still, India would ``hope to be included and involved in the design and implementation'' of such an effort, should there be a need, he said.

Tuesday 16 September, 2008

Why Lehman Bros went bust; what it means for you

Lehman Brothers is no more. Merrill Lynch has gone down the Bank of America maw. AIG too could go belly up. With a doubt, these developments in America are the most shocking events to have hit global financial markets. So where did it all begin? And what does it mean for the Indian stock markets? Find out. . .

What is (or was) Lehman Brothers?

America's fourth-largest investment bank Lehman Brothers Holdings Inc has filed the biggest bankruptcy petition known to mankind.

The 158-year-old firm was founded by brothers Henry, Emanuel and Mayer Lehman, Jewish immigrants to the US from Germany, in 1850. Henry set up a general store in Alabama in 1844 and was later joined by his brothers. In 1850 they set up the merchant bank in New York after having made money in railway bonds. So what went wrong?

Lehman Bros, which till June 2008 had not reported a quarterly loss even once, had earlier survived many an economic crises, like railroad bankruptcies of the 1800s, the Great Depression in the 1930s, and the collapse of Long-Term Capital Management in the 1990s.

Thus the collapse of the giant investment bank came as a major shock for the entire world markets that plunged after Lehman filed a Chapter 11 petition with US Bankruptcy Court in Manhattan.

The $613 billion (some estimates put the size at $639 billion) bankruptcy thus throws up the question: why did the Wall Street giant go bust? Here's why. . .

Why did Lehman Brothers go bankrupt?

The giant investment bank succumbed to the sub-prime mortgage crisis that has rocked the United States and the global economy. Lehman was strangled by a massive credit crisis and fast plummeting real estate prices.

The gargantuan $60 billion loss in bad real estate loans forced the bank to file for bankruptcy.

However, the fall of the 158-year-year institution that started cotton trade in US before the American Civil War and financed the railroad that built a nation, got hit by a large dose of bad luck, pride, arrogance and greed. Primarily, the pride of its chief executive office Richard Fuld.

But there were more reason. Check out what they were. . .

Lehman's collapse was also triggered by the refusal of other banks to do business with it because of its complex and, at times, opaque ways of trading. Housing loans made by the bank to people with little support made these loans very risky, and when interest rates rose, these borrowers could no more repay Lehman. This led to huge losses, the extent of which is not yet clear.

Thus other banks stopped trading with Lehman. This led to it losing almost all business and triggered its fall.

The final straw for Lehman was the fact that both Barclays Plc of the United Kingdom and Bank of America Corp pulled out of takeover talks. BofA bought out Merrill Lynch for $50 billion.

However, Barclays has now said that it is in discussions with Lehman Brothers about buying certain assets of the stricken US investment bank.

"Barclays confirms that it is discussing with Lehman Brothers the possible acquisition of certain Lehman Brothers assets on terms that would be attractive to Barclay's shareholders," Britain's third largest bank said in a statement.

When other banks do not want to buy Lehman, why is Barclays interested?

Barclays wanted to buy Lehman out at a discount, so to speak. But when Lehman CEO Fuld decided that his bank was worth much more than what Barclays had apparently offered, Barclays stepped back.

Now that Lehman has filed for bankruptcy, its assets are available fairly cheap. However, the biggest problem is to take on Lehman's enormous liabilities.

How far is the CEO of the company responsible for Lehman's fall?

Wall Street analysts believe that it was the 'hubris' of Richard Fuld, the 62-year-old CEO of Lehman, who did not take the telltale signs of impending doom very seriously. Fuld, nicknamed The Gorilla for his foul temper, intimidating presence and tough talk, rejected many bids to save Lehman because he thought that the sinking giant was much bigger than Wall Street was giving it credit for, and wanted to get more price for the sale of the company.

Analysts say if the bank was sold just a week before it went kaput, it could have been saved the ignominy of a bankruptcy, but Fuld was far too adamant to see reason. Result: the end of a 158-year-old financial giant.

Could the United States government helped, like it helped Bear Stearns in May this year, and Fannie Mae and Freddie Mac earlier this month?

The US government could have helped, but US Treasury Secretary Henry Paulson said that it would not use up any more taxpayer dollars to bail out Lehman Brothers as it would lead to investment banks getting away with their gambling ways. Paulson had bailed out Fannie Mae, Freddie Mac and Bear Stearns, saying that if the government had not done so, the US housing loan market would have collapsed leading to gigantic losses for hundreds of banks all over the globe that have invested in US property.

Paulson, however, believes that a brokerage major like Lehman, which does not have a direct connection with ordinary people who have taken on home loans, need not be bailed out as it would not cause any systemic damage to the US economy.

Will everyone in Lehman lose their jobs?

The bankruptcy administrators, PricewaterhouseCoopers, feels that as Lehman's operations were essentially centralized at New York, the folding up of the investment banker in the US will have a telling impact on all its operations globally.

Over 5,000 employees in the UK have already lost their jobs, while about 20,000 in the US might as well forget going back to their work stations. About 2,500 Lehman employees in India too face the axe.

Will the whole bank be liquidated?

Unlikely, at least for now. The US Chapter 11 that deals with bankruptcy says that PwC, the administrators, can go about taking its time to find good offers and buyers for Lehman's 'least affected businesses.'

The entire exercise can take months before all of Lehman's assets are sold, given the complexities linked to the bankruptcy.

What about the Bank of America and Merrill Lynch deal?

Merrill Lynch's buy out by Bank of America is also a shocking development. ML, saw the writing on the wall once it guessed that Lehman was going bust, and decided to sell out before it actually has to file a bankruptcy petition..

What about the insurance giant AIG?

The world's largest insurer, American International Group, has been downgraded by credit rating agencies and is racing against time to find a multi billion dollar infusion to stay afloat. US Federal Reserve officials and two leading banks, JPMorgan Chase and Goldman Sachs, were negotiating to put together $75 billion package to save the insurance giant to stave off crisis.

AIG has sought $40 billion in bridge loan to stave off the crisis. But the Fed rebuffed the request. AIG's ills came to fore, when three leading credit rating agencies - Standard and Poor's Moody's and Fitch - lowered the company's credit scores.

Who could be the next to fall?

Some Wall Street analysts, reports The Guardian, name Washington Mutual as the next financial major to 'find itself in serious trouble.'

However, the even bigger worry is whether the world's largest securities firms, Goldman Sachs and Morgan Stanley, would be able to survive this brutal financial crisis. But many say that these two gaints will not melt down as they have 'done a better job of spreading their bets across world markets and are also more diversified, less leveraged and have managed such risks much better.'

What do Indian markets fear?

The fall of two global financial behemoths -- Lehman Brothers and Merrill Lynch -- is expected to dent India Inc's ability to raise resources via the equity route.

Experts feel that such events significantly increase the risk perception, which in turn will put all future investments by institutional investors such as pension or endowment funds, on the back burner.

While the public issue market has already dried up, the private equity funds are also becoming conservative in terms of pricing. This is resulting in either inordinate delays in concluding deals or transactions being called off.

There are many instances of private equity fund managers refusing to go ahead with deals after signing the term sheet. Sources said that a leading fund conducted due diligence on two companies in the last fortnight but did not close either deal primarily because of the developments in the US, their home country.

The crisis faced by Merrill Lynch and Lehman Brothers is expected to have a cascading effect on PE firms too.

Will it hit the Indian growth story?

The ongoing financial sector crisis in the United States and its repercussions on developed markets worldwide will result in lower capital inflows into emerging markets like India, economists and government officials said today.

At the same time, they called for the government to make it easier for Indian companies to borrow overseas by easing the restrictions that have been imposed in the past to reduce excessive liquidity in the system and control inflation.

This will, in turn, lead to a slowing in investment growth in the months ahead. As lending gets tighter and investment flows dry, corporate India will find it more difficult to raise both equity and debt.

Technology firms are shivering

Lehman Brothers' bankruptcy filing may well prove to be the last straw for Indian IT firms, which were expecting the second half of FY09 to be better. As a result of the US financial market crisis, analysts do not expect Indian IT firms to sign any significant contracts in the banking, financial services and insurance (BFSI) space in the months to come.

While IT firms do not disclose client-specific details, it's estimated that Lehman Brothers has outsourced deals amounting to anywhere between Rs 550 crore and Rs 700 crore (annually) to numerous IT firms, including majors like Tata Consultancy Services, Satyam Computer Services and Wipro. Lehman Brothers, say sources, works with 14 services providers in India - Wipro and TCS being the largest. It also has investments in a few IT firms. It's not clear if these holdings will be liquidated to raise funds.

Moreover, the sources add that Lehman Brothers' unit in India has issued termination letters to a majority of its 2,500 employees.

What kind of investment does Lehman have in India?

Lehman does not have direct large holding in the Indian stock markets. These holdings are estimated at around $200 million, including Participatory Notes. This figure is not enough to cripple the Indian stock markets.

But Lehman has exposure to the Indian stock market through special purpose vehicles. This exposure to real estate stocks is said to be of about $1.5 billion, enough to shake up the markets.

Sunday 31 August, 2008

Elliott Waves Theory Basics

he Elliott Wave Theory is named after Ralph Nelson Elliott. Inspired by the Dow Theory and by observations found throughout nature, Elliott concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves. In fact, Elliott believed that all of man's activities, not just the stock market, were influenced by these identifiable series of waves.


Elliott based part his work on the Dow Theory, which also defines price movement in terms of waves, but Elliott discovered the fractal nature of market action. Thus Elliott was able to analyze markets in greater depth, identifying the specific characteristics of wave patterns and making detailed market predictions based on the patterns had identified.


Definition of Elliott Waves

In the 1930s, Ralph Nelson Elliott found that the markets exhibited certain repeated patterns. His primary research was with stock market data for the Dow Jones Industrial Average. This research identified patterns or waves that recur in the markets. Very simply, in the direction of the trend, expect five waves. Any corrections against the trend are in three waves. Three wave corrections are lettered as "a, b, c." These patterns can be seen in long-term as well as in short-term charts. Ideally, smaller patterns can be identified within bigger patterns. In this sense, Elliott Waves are like a piece of broccoli, where the smaller piece, if broken off from the bigger piece, does, in fact, look like the big piece. This information (about smaller patterns fitting into bigger patterns), coupled with the Fibonacci relationships between the waves, offers the trader a level of anticipation and/or prediction when searching for and identifying trading opportunities with solid reward/risk ratios.


There have been many theories about the origin and the meaning of the patterns that Elliott discovered, including human behavior and harmony in nature. These rules, though, as applied to technical analysis of the markets (stocks, commodities, futures, etc.), can be very useful regardless of their meaning and origin.

Simplifying Elliott Wave Analysis

Elliott Wave analysis is a collection of complex techniques. Approximately 60 percent of these techniques are clear and easy to use. The other 40 are difficult to identify, especially for the beginner. The practical and conservative approach is to use the 60 percent that are clear.
When the analysis is not clear, why not find another market conforming to an Elliott Wave pattern that is easier to identify?

From years of fighting this battle, we have come up with the following practical approach to using Elliott Wave principles in trading.

Impulse patterns

Corrective patterns

Elliott Wave Basics — Impulse Patterns

The impulse pattern consists of five waves. The five waves can be in either direction, up or down. Some examples are shown to the right and below.The first wave is usually a weak rally with only a small percentage of the traders participating. Once Wave 1 is over, they sell the market on Wave 2. The sell-off in Wave 2 is very vicious. Wave 2 will finally end without making new lows and the market will start to turn around for another rally.
http://www.tradersedgeindia.com/images/ew2.gif
http://www.tradersedgeindia.com/images/ew3.gif

The initial stages of the Wave 3 rally are slow, and it finally makes it to the top of the previous rally (the top of Wave 1).

At this time, there are a lot of stops above the top of Wave 1.

http://www.tradersedgeindia.com/images/ew4.gif


Traders are not convinced of the upward trend and are using this rally to add more shorts. For their analysis to be correct, the market should not take the top of the previous rally.

Therefore, many stops are placed above the top of Wave 1.

http://www.tradersedgeindia.com/images/ew5.gif

The Wave 3 rally picks up steam and takes the top of Wave 1. As soon as the Wave 1 high is exceeded, the stops are taken out. Depending on the number of stops, gaps are left open. Gaps are a good indication of a Wave 3 in progress. After taking the stops out, the Wave 3 rally has caught the attention of traders.

The next sequence of events are as follows: Traders who were initially long from the bottom finally have something to cheer about. They might even decide to add positions.
http://www.tradersedgeindia.com/images/ew6.gif
http://www.tradersedgeindia.com/images/ew7.gif

The traders who were stopped out (after being upset for a while) decide the trend is up, and they decide to buy into the rally. All this sudden interest fuels the Wave 3 rally.

This is the time when the majority of the traders have decided that the trend is up.

Finally, all the buying frenzy dies down; Wave 3 comes to a halt.

Profit taking now begins to set in. Traders who were long from the lows decide to take profits. They have a good trade and start to protect profits.This causes a pullback in the prices that is called Wave 4.

Wave 2 was a vicious sell-off; Wave 4 is an orderly profit-taking decline.

While profit-taking is in progress, the majority of traders are still convinced the trend is up. They were either late in getting in on this rally, or they have been on the sideline.

They consider this profit-taking decline an excellent place to buy in and get even.

http://www.tradersedgeindia.com/images/ew8.gif

On the end of Wave 4, more buying sets in and the prices start to rally again.

The Wave 5 rally lacks the huge enthusiasm and strength found in the Wave 3 rally. The Wave 5 advance is caused by a small group of traders.

Although the prices make a new high above the top of Wave 3, the rate of power, or strength, inside the Wave 5 advance is very small when compared to the Wave 3 advance.

Finally, when this lackluster buying interest dies out, the market tops out and enters a new phase.

Elliott Wave Basics — Corrective Patterns

Corrections are very hard to master. Most Elliott traders make money during an impulse pattern and then lose it back during the corrective phase.

An impulse pattern consists of five waves. With the exception of the triangle, corrective patterns consist of 3 waves. An impulse pattern is always followed by a corrective pattern. Corrective patterns can be grouped into two different categories:

Simple Correction (Zig-Zag)

Complex Corrections (Flat, Irregular, Triangle)

Simple Correction (Zig-Zag)

There is only one pattern in a simple correction. This pattern is called a Zig-Zag correction. A Zig-Zag correction is a three-wave pattern where the Wave B does not retrace more than 75 percent of Wave A. Wave C will make new lows below the end of Wave A. The Wave A of a Zig-Zag correction always has a five-wave pattern. In the other two types of corrections (Flat and Irregular), Wave A has a three-wave pattern. Thus, if you can identify a five-wave pattern inside Wave A of any correction, you can then expect the correction to turn out as a Zig-Zag formation.

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Fibonacci Ratios inside a Zig-Zag Correction
http://www.tradersedgeindia.com/images/ew10.gif

Wave B

Usually 50% of Wave A
Should not exceed 75% of Wave A

Wave C

either 1 x Wave A
or 1.62 x Wave A
or 2.62 x Wave A

A simple correction is commonly called a Zig-Zag
http://www.tradersedgeindia.com/images/ew11.gif
Correction

Complex Corrections (Flat, Irregular, Triangle)

The complex correction group consists of 3 patterns:

Flat

Irregular

Triangle

Flat Correction

In a Flat correction, the length of each wave is identical. After a five-wave impulse pattern, the market drops in Wave A. It then rallies in a Wave B to the previous high. Finally, the market drops one last time in Wave C to the previous Wave A low.

http://www.tradersedgeindia.com/images/ew16.gif
http://www.tradersedgeindia.com/images/ew17.gif
http://www.tradersedgeindia.com/images/ew18.gif

Irregular Correction

In this type of correction, Wave B makes a new high. The final Wave C may drop to the beginning of Wave A, or below it.

http://www.tradersedgeindia.com/images/ew14.gif
http://www.tradersedgeindia.com/images/ew13.gif

Fibonacci Ratios in
an Irregular Wave

Wave B = either 1.15 x
Wave A or 1.25 x Wave A

Wave C = either 1.62 x
Wave A or 2.62 x Wave A

Triangle Correction

In addition to the three-wave correction patterns, there is another pattern that appears time and time again. It is called the Triangle pattern. Unlike other triangle studies, the Elliott Wave Triangle approach designates five sub-waves of a triangle as A, B, C, D and E in sequence.

http://www.tradersedgeindia.com/images/ew19.gif
Triangles, by far, most commonly occur as fourth waves. One can sometimes see a triangle as the Wave B of a three-wave correction. Triangles are very tricky and confusing. One must study the pattern very carefully prior to taking action. Prices tend to shoot out of the triangle formation in a swift thrust. http://www.tradersedgeindia.com/images/ew20.gif
http://www.tradersedgeindia.com/images/ew21.gif

When triangles occur in the fourth wave, the market thrusts out of the triangle in the same direction as Wave 3. When triangles occur in Wave Bs, the market thrusts out of the triangle in the same direction as the Wave A.

Alteration Rule

If Wave Two is a simple correction, expect
Wave Four to be a complex correction.
If Wave Two is a complex correction,
expect Wave Four to be a simple correction.

Tuesday 26 August, 2008

Difference between Focusing on Problems and Focusing on Solutions

Difference between Focusing on Problems and Focusing on Solutions

Case 1

When NASA began the launch of astronauts into space, they found out that the pens wouldn't work at zero gravity (ink won't flow down to the writing surface). To solve this problem, it took them one decade and $12 million. They developed a pen that worked at zero gravity, upside down, underwater, in practically any surface including crystal and in a temperature range from below freezing to over 300 degrees C.

And what did the Russians do...??

They used a pencil.

Case 2

One of the most memorable case studies on Japanese management was the case of the empty soapbox, which happened in one of Japan 's biggest cosmetics companies. The company received a complaint that a consumer had bought a soapbox that was empty.

Immediately the authorities isolated the problem to the assembly line, which transported all the packaged boxes of soap to the delivery department. For some reason, one soapbox went through the assembly line empty.

Management asked its engineers to solve the problem. Post-haste, the engineers worked hard to devise an X-ray machine with high-resolution monitors manned by two people to watch all the soapboxes that passed through the line to make sure they were not empty. No doubt, they worked hard and they worked fast but they spent a whoopee amount to do so.

But when a rank-and-file employee in a small company was posed with the same problem, he did not get into complications of X-rays, etc., but instead came out with another solution. He bought a strong industrial electric fan and pointed it at the assembly line. He switched the fan on, and as each soapbox passed the fan, it simply blew the empty boxes out of the line.


Moral: Always look for simple solutions..
Always focus on solutions & not on problems.

So at the end of the day the thing that really matters is HOW ONE LOOKED INTO THE PROBLEM, mere perceptions can solve tough problems....

Wednesday 16 July, 2008

Filing taxes? 20 FAQs answered

Here are answers to twenty questions that crop up frequently in the taxpayer's mind:

1. Heard of New Year. What are financial year, previous year and assessment year?

A financial year (FY) is a period of 12 months commencing on 1 April of a year and ending on 31 March the next year. An assessment year is the year immediately following an FY.

For the purpose of calculating income tax, FY is the period during which the income has been earned. The income earned in a FY is assessed in the following year, that is, the assessment year.

For example, income earned in FY 2007-08 (1 April 2007 to 31 March 2008) will be assessed for tax in the year 2008-09. The year preceding the assessment year is the previous year.

2. What if I have not received my Form 16?

Employers are supposed to hand over Form 16 within 30 days of the end of a financial year, that is, by 30 April. Ask your employer to issue Form 16 immediately so that you don't miss the 31 July deadline for filing return for salaried employees.

If you think that your employer might not issue the form in time, you can write a registered letter to him on the issue and send a copy of this to your assessing officer. The employer can be penalised for not issuing the form in time.

If no tax was deducted at source, you can ask your employer for a salary certificate on his letterhead stating your salary during the financial year. This certificate can be used to file a return.

3. Can I use my investment in ELSS this year to reduce last year�s tax liability?

No. But if you had not claimed any deductions in your previous year�s return, you may file a revised return to claim a refund, if eligible. However, fresh investments would not be eligible for deductions from last year's income.

4. Taxes get deducted from my salary every month. Do I need to file income tax return?

Yes. Filing of tax is compulsory for every person whose gross total income, that is, the income under the five heads before allowing for any deduction such as insurance premium, exceeds the basic exemption limit. For financial year 2007-08 (assessment year 2008-09), this exemption limit was Rs 145,000 for women below the age of 65, Rs 195,000 for persons above 65, and Rs 110,000 for any other individual.

Every person falling in the tax bracket should file a return, even if his tax liabilities have been taken care of by the employer through tax deducted at source.

Persons whose salaries have been subjected to TDS are also required to file return because they may have earned from sources other than salary.

5. I have earned under two heads�salary and capital gains. Which form should I use to file my return? How will my tax be assessed?

As an individual assessee, if you have earned income from capital gains in addition to your salary, you will have to file your return in form ITR-2. For taxation, you will have to first segregate capital gains into short-term and long-term.

Any gain from selling shares held for more than a year is termed long-term. Gain from sale of shares held for a year or less is called short-term. If you have paid the securities transaction tax on all share trading, LTCG will be exempt from tax and STCG will be taxed at 10 per cent for FY 2007-08.

Your gross tax outlay will depend on your salary income, income from capital gains, income from other sources like interest on bank deposits, and the deductions you are entitled to.

6. I was in two jobs. How should I file return?

The aggregated income from both your employers will be considered while calculating your tax. Ideally, both companies should give you Form 16 for salary earned during the relevant period. Try to get a salary certificate from your previous employer if you cannot get Form 16 from him. Submit this estimate and a declaration in Form 12B to your current employer who will then incorporate these details in the Form 16 that he issues.

7. What if I miss the deadline of July 31?

If there are no balance taxes to be paid, no interest or penalty will be levied if you file your return before 31 March 2009. However, there is a penalty of Rs 5,000 if you fail to file by that date. In case there are tax arrears, a penalty of 1 per cent per month will be charged as interest on the taxes due.

8. I took up a job in Bengaluru recently. My IT return was filed in Delhi till now. Where should I file it now?

You can file your IT return either in the city you are residing in at present, or in the city where your office is located. Since you have joined a company based in Bengaluru and also shifted your residence there, you will be required to file your return at Bengaluru.

You should write a letter about the change of your address to your current assessing officer and mark a copy of the same to your assessing officer in Delhi. You should also write to the IT Department to get your address changed in its PAN records.

It would be best if you enclose a copy of your previous year's return while filing your return at Bengaluru. This will serve as a ready reference for your current assessing officer.

9. I have misplaced my insurance receipt. Is it necessary to attach it and other relevant documents with the tax return?

No attachments are needed with the current ITR forms as the forms themselves capture most of the required information. You don't even need to attach the computation sheet with the form. After you submit the form, the IT department cross-references the TDS details using Oltas (Online Tax Accounting System). However, make sure to carry the photocopies of all the relevant documents to the income tax office.

10. Last minute planning can hurt. How do I prepare myself for next year?

This financial year (2008-09) would be better than the previous one as Budget 2008 has already brought a minimum of Rs 4,000 as tax savings for all the taxpayers. There is a gamut of instruments that can be used to avail deductions under Section 80C.

The mix taken usually depends on the safety, liquidity and term of the various instruments. However, most taxpayers generally forget to factor in whether the income generated by the instrument is subject to tax. It is at the fag end of the financial year that most salaried employees wake up to the need to save taxes through investments.

And in this last minute commotion and confusion, a lot investment happens in assets that are low on return, high on risk, or unsuited to the long-term financial objectives of the investor. As in life, it is always better to be an early riser in tax planning too and begin right at the dawn of a financial year, in April.

A deduction of up to Rs 100,000 is allowed from income every year on specified investments, expenses or payments.

Among these are bank deposits with a minimum period of five years, life insurance premiums, Employees' Provident Fund, Public Provident Fund, repayment of the principal amount on housing loans, tuition fees, National Savings Certificate and equity-linked saving schemes. Link tax saving investments to long-term goals. Gauge Section 80C instruments as tax savers and wealth creators by looking at their post-tax return.

11. Where do I file my return?

The filing process has been centralised, so you can file your return anywhere in the country, at IT offices and even post offices. If a person has relocated, he just needs to intimate the change of address and file his return at the new location. Filing can also be done through the Internet. The help of authorised intermediaries can also be taken.

12. TDS is nil on my income. Do I have to file return?

You may skip filing return if your taxable income was below the exempted limit. However, if your gross total income exceeds the basic exemption limit, then you have to file a tax return even if no tax was deducted at source.

13. I do not have enough money to pay off my tax dues. What is the best way out? Should I sell off some of my equity investments?

A tax amount may be due to the government after you factor in the income from various sources like salary and capital gains. To settle this due, you may seek a loan from friends or relatives or raise a personal loan from a bank. If that does not work out, you may sell some of your low-yielding shares or mutual funds.

If that does not suffice, you can use your credit card to raise funds. Arrange for the funds in the quickest possible time and try to pay off any debt you run while raising the funds as soon as possible.

14. I bought shares worth Rs 1.25 lakh last year. Do I have to disclose that and other transactions?

Certain disclosures are mandatory while filing an income tax return. Among these are investments above a specified amount in bank deposits, mutual funds, shares and property in the financial year for which the return is being filed, 2007-08 in this case. The cut-off amount of investment from where disclosure should be made is: Rs 100,000 or more for shares, Rs 200,000 for credit card payments, up to Rs 10 lakh (Rs 1 million) for deposits in one bank during the year, Rs 200,000 for mutual funds, Rs 500,000 or more for bonds or debentures issued by a company, Rs 5 lakh or more for RBI bonds and Rs 30 lakh (Rs 3 million) or more for the purchase or from the sale of immovable property.

15. My wife earns Rs 10,000 per month from part-time coaching classes at an institute. Is she required to declare her income and file tax return?

For FY 2007-08, the basic exemption limit for not filing return for females is Rs 145,000 per annum. Your wife is earning Rs 120,000 per annum, which is below the taxable limit.

Therefore, it is not mandatory for her to file her income tax return at this stage. The exemption limit has been increased to Rs 180,000 per year from FY 2008-09. Filing of return will be required once her income crosses this limit. Also, she will need a PAN card to file returns then.

16. I incurred losses last year while trading in shares. Can gains from other sources set these off?

Short-term capital losses can be set off against long-term (LTCG) or short-term capital gains (STCG), but long-term capital losses can only be set off against LTCG. Loss from trading in shares cannot, however, be set off against gains from 'other incomes'. A loss that is not wholly set off in the financial year in which it is incurred can be carried forward to eight succeeding assessment years.

17. I don't have a PAN card. How do I file my return?

The Permanent Account Number (PAN) is a compulsory entry in the tax return form. If you have lost the card and forgotten the number too, get your PAN number and also a new copy of your card by giving your personal information to the Income Tax Department.

The tax return form needs only the number, so you can file return if you get that in time. If you have not obtained a PAN card till now, you should apply for one. Act fast as the last date for filing returns is very close.

18. My minor child is earning an income. Should I file a separate return on her behalf?

It depends on the source of income. In case the child has earned income using her talent, it will be assessed in her hands and you will have to file return as the guardian of the child. However, if the resources from where income has arisen belong to you, it will be clubbed with your income.

19. I am a salaried employee. I don't know whether I am liable to pay advance tax. If I am, is there a penalty if I don't pay?

Payment of tax in advance on the income of the current financial year is compulsory for every person liable to pay tax in India. However, there is no need to pay advance tax if the total tax payable for the year is less than Rs 5,000 or if the employer has deducted tax from the salary as TDS. Non-payment or short payment of advance tax will attract penal interest.

20. My brother is abroad and will return after 31 July. How can he file his return?

If your brother had left India without signing on the ITR form, offline filing of return is not possible. The only way for him to file his return in that case is to log on to a computer and let technology work for him. He can do this from anywhere in the world. He will need to use his digital signature.

via Rediff.com

Tuesday 15 July, 2008

Oil Price History and Analysis

Monday 7 July, 2008

CAMRILLA EQUATION

Wednesday 2 July, 2008

Bollinger Bands

Wednesday 25 June, 2008

Using Pivot Points for Targets

When calculating pivot points, the pivot point itself is the primary Support/resistance.This means the largest price movement is expected to occur at this price.The other support and resistance levels are less influential, but may still generate significant price movements.

To Calculate Pivots in MS Excel:.

Column, values to enter, formulas U have to enter

A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
*Volume is not required in calculation of pivots

F = Pivot Number = (High+Close +Low )/3 [u can also include "Open" Value also so it will be = (Open+High+Close+Low)/4],so formula is =(C2+D2+E2)/3

normal trading range
G= Resistance 1 = 2*Pivot number-Low,so formula is =(2*F2)-D2

H= Support 1 = 2*Pivot-High ,so formula is =(2*F2)-C2

for volatile trading range:
I= Resistance 2 = Pivot+(Resistance1-Support1),so formula is =F2+(G2-H2)

J= Support 2 = Pivot-(Resistance1-Support1),so formula is =F2-(G2-H2)

for extreme trading range:
K= Resistance 3 = High+2*(Pivot-Low),so formula is =C2+2*(F2-D2)

L= Support 3 = Low-2*(High-Pivot),so formula is =D2-2*(C2-F2)

Target for next trading day
M= Resistance 2,so formula = I1 (previous days Resistance2)

Support for next trading day
O= Support 1,so formula = J1 (previous days Support1)

Tips to use in Intraday-Trade:
for bulls:
if a stock goes above R1 then he can buy above the R1 with stoploss at S1
if a stock falls below S1 (and finds support there),then he can buy above the S1 with stoploss at S2

for bears:
if a stock falls below S1 then he can Short sell with stoploss at R1
if a stock goes above R1 (and finds Resistance there),then he can Short sell with stoploss at R2

Using Pivot Points for Targets
When calculating pivot points, the pivot point itself is the primary Support/resistance.This means the largest price movement is expected to occur at this price.The other support and resistance levels are less influential, but may still generate significant price movements.

To Calculate Pivots in MS Excel:.

Column, values to enter, formulas U have to enter

A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
*Volume is not required in calculation of pivots

F = Pivot Number = (High+Close +Low )/3 [u can also include "Open" Value also so it will be = (Open+High+Close+Low)/4],so formula is =(C2+D2+E2)/3

normal trading range
G= Resistance 1 = 2*Pivot number-Low,so formula is =(2*F2)-D2

H= Support 1 = 2*Pivot-High ,so formula is =(2*F2)-C2

for volatile trading range:
I= Resistance 2 = Pivot+(Resistance1-Support1),so formula is =F2+(G2-H2)

J= Support 2 = Pivot-(Resistance1-Support1),so formula is =F2-(G2-H2)

for extreme trading range:
K= Resistance 3 = High+2*(Pivot-Low),so formula is =C2+2*(F2-D2)

L= Support 3 = Low-2*(High-Pivot),so formula is =D2-2*(C2-F2)

Target for next trading day
M= Resistance 2,so formula = I1 (previous days Resistance2)

Support for next trading day
O= Support 1,so formula = J1 (previous days Support1)

Tips to use in Intraday-Trade:
for bulls:
if a stock goes above R1 then he can buy above the R1 with stoploss at S1
if a stock falls below S1 (and finds support there),then he can buy above the S1 with stoploss at S2

for bears:
if a stock falls below S1 then he can Short sell with stoploss at R1
if a stock goes above R1 (and finds Resistance there),then he can Short sell with stoploss at R2

Tuesday 24 June, 2008

Glossary of Technical Indicators

Glossary of Technical Indicators

Absolute Breadth Index

Absolute Price Oscillator (APO)

Accumulation Distribution Line

Accumulation Swing Index

Adaptive Moving Average (AMA)

Advance-Decline Line

Advancing Declining Issues

Andrew's Pitchfork

Arms Index -TRIN

Aroon Indicator

Aroon Oscillator

Average Directional Index (ADX)

Average Directional Index Rating (ADXR)

Average True Range (ATR)

Awesome Oscillator (AO)

Beta2

Beta Coefficient

Bollinger Bands

Breadth Thrust Indicator

Chaikin Money Flow (CMF)

Chaikin Oscillator

Chaikin Volatility Indicator

Commodity Channel Index (CCI)

Comparative Relative Strength

Directional Movement Indicator (DMI)

Displaced Moving Average

Exponential Moving Average (EMA)

Fibonacci Arcs

Fibonacci Fans

Fibonacci Numbers

Fibonacci Retracements

Fibonacci Time Zones

Ichimoku Kinko Hyo

Jensen's Alpha

Keltner Channels

Linear Regression Channel

Linear Regression Trendline

MACD Histogram

McClellan Oscillator

McClellan Summation Index

Moving Average Convergence/Divergence (MACD)

Negative Volume Index

On Balance Volume (OBV)

Open-10 TRIN

Overbought/Oversold Indicator

Parabolic SAR

Price Action Indicator (PAIN)

Price and Volume Trend

Price Channel

Price Oscillator

Projection Bands

Projection Oscillator

QStick

Range Indicator

Rate of Change

Relative Momentum Index (RMI)

Relative Strength, Comparative

Relative Strength Index (RSI)

Relative Volatility Index

Simple Moving Average

Standard Deviation Channel

Standard Deviation (Chart)

STIX

Stochastics, Double Smoothed

Stochastic, Fast

Stochastic, Full

Stochastic Momentum Index

Stochastic RSI

Stochastic, Slow

TD Moving Average

TD Range Expansion Index

TD Range Projections

Time Series Forecast

True Strength Index

Typical Price Function

Ultimate Oscillator

Upside/Downside Ratio

Upside/Downside Volume

Vertical Horizontal Filter

Volume Accumulation Oscillator

Volume Oscillator

Volume ROC (Rate of Change)

Weighted Close Indicator

Wilder's RSI

Wilder's Smoothing

Wilder's Volatility Index

Williams %R

Williams' Accumulation/Distribution

Zig Zag Indicator

Five Fibonacci Tricks

Five Fibonacci Tricks

by Alan Farley

Fibonacci jumped into the technical mainstream late in the bull market. Futures traders had it all to themselves until real-time software ported it over to the equity markets. Its popularity exploded as retail traders experimented with its arcane math and discovered its many virtues.

Fibonacci ratios describe the interaction between trend and countertrend markets -- 38%, 50% and 62% retracements form the primary pullback levels. Apply these percentages after a trend in either direction to predict the extent of the countertrend swing. Stretch a grid over the most obvious up or down wave, and see how percentages cross key price levels.

Convergence between pattern and retracement can point to excellent trading opportunities. Keep in mind that retracements work poorly in a vacuum. Always examine highs, lows and moving averages to confirm the importance of a specific level.

Discord between retracement and the underlying pattern generates noise instead of profit. Move on to a new chart when nothing lines up correctly. This divergence generates most of the whipsaw in a price chart. Alternatively, strong phasing between Fibonacci and pattern exposes highly predictive reversals at narrow price levels.

Let's look at five tricks to improve your Fibonacci skills. Add these twists and turns to your toolbox and apply them to your next trade. I promise they'll serve you very well in the years ahead.

First Rise/First Failure

Fibonacci Chart, First Rise/First Failure

First Rise/First Failure marks the first 100% retracement of a trend within your time frame of interest. It provides an early reversal warning after a new high or low. The 100% retracement violates the major price direction and terminates the trend it corrects. From this level, the old trend can reestablish itself if it breaks through the old 38% level. More often, traders will use that level to enter low-risk positions against the old trend.

Parabola Hunt

Fibonacci Parabola Hunt

Parabolic movement tends to occur between the 0%-to-38% and 62%-to-100% Fibonacci levels in all trends. This tendency offers a great tool for finding the big moves when looking for trades. Watch for congestion to form at the 38% or 62% level. Then use a simple breakout or breakdown strategy when price moves past it. The next thrust can be dramatic, with price moving like a magnet back to an old high or low. Of course, the strategy only works when you can find these levels in advance.

Continuation Gap Extensions

Continuation Gap Extensions

You can often target the exact price a rally or selloff will end at by using the continuation gap as a Fibonacci extension tool. Identify the gap by its location at the dead center of a vertical price wave. Then start a Fib grid at the beginning of the trend and extend it so the gap sits under the 50% retracement level. The grid extension points to the terminating price for the rally or selloff.

Overnight Grids

Overnight Grids

Find an active stock and start a grid from the high (or low) of a session's last hour. Stretch the grid to the opposite end of the next morning's first hour low (or high). This defines a specific price wave traders can use to uncover intraday reversals, breakouts and breakdowns. The overnight grid also offers a way to trade morning gaps. The gap will often stretch across a key retracement level and target low-risk entry on a pullback.

Second High/Low

Second High/Low

Many traders can't figure out where to start a Fib grid. Here's a trick to help you place it where it'll do the most good. The absolute high or low in a price wave isn't the best starting point for a grid most of the time. Instead, look for a small double bottom or double top within the congestion where the trend began. Swing one end of the grid over this second high (or low), instead of the first. This will capture a specific Elliott Wave that conforms to the trend you're trying to trade.

Monday 16 June, 2008

How Oil Prices Affect Consumer Spending

The price of oil has doubled over the last 12 months reaching almost $140 per barrel last week. How this boom in oil prices may affect global economy and consumer spending?

To answer this question correctly one should try to understand the origin of the current oil shock. Indeed, the present surge in oil prices has been mostly driven by increases in demand from rapidly growing developing countries like China, India, and Brazil. Also, supply problems in Russia, Nigeria and Venezuela have accelerated the rise in energy prices even further. Since the elasticity of supply and demand for oil is almost inexistent, the reduction of crude supply connected with the moderate increase in demand may have caused the surge in the price of barrels. For example, in the past, over periods of less than five years, oil consumption in the OECD dropped by only 2-9% when the price doubled, according to the research published by Gary Becker, an economist at the University of Chicago. Likewise, oil production in countries outside OPEC grew by only 4% every time the price doubled. Yet, over longer periods, consumption dropped by 60% and supply rose by 35%.

In addition, eve though the share of oil in Gross Domestic Product is relatively small, oil price shocks could affect the economy through aggregate demand, particularly consumption. People start spending less on other goods since they need to pay more for energy and gasoline. Moreover, customers may also purchase fewer products that are complementary with oil, like cars. Higher oil prices also raise the cost of production for firms, resulting in lower investment spending. Finally, one the biggest impacts of high energy prices, many times forgotten by economists, is the psychological impact. High oil prices encourage precautionary saving by the consumer and the greater economic uncertainty normally means fewer jobs.

Friday 13 June, 2008

more pain likely....

Nandan Chakraborty, head of research, Enam Securities, said the call on interest rate right now is that it can get worse before it gets better.

"There is liquidiy in India and abroad but the liquidity has a huge risk premium and inflation element. That is why interest rates are going up. Whether it is inflation or currency depreciation, they are all going to get worse before they get any better for at least the next couple of months."

So, is this the time to invest in the markets? Nandan says: "Absolutely not.. there is still a lot of uncertainty. Once there is more clarity, an investor can enter the market even if it is at higher levels.."

He added that they like mid-cap pharma and FMCG, and "do not like stuff like energy..

Wednesday 11 June, 2008

How you can get good returns in bad times

Diversification is one of the most important principles in investing. The basic idea is simple: Don't put all your eggs in one basket, especially when the entire world economy is in turmoil. In other words if you invest in a wide range of assets -- stocks, gold, real estate, mutual funds, bank fixed deposits, government bonds -- whose prices behave differently, the overall risk of your portfolio will be lowered. That is, if stocks are not performing well, perhaps gold and fixed deposits will give you decent returns.

There are many types of risk and different diversification strategies to deal with them. Some basic tips:

Invest in a wide range of assets

Some of the important asset categories are stocks, debt-based products (bonds, fixed deposits etc), commodities (including gold) and real estate. Each has different kinds of risks and ideally you should invest a part of your portfolio in each of them. For example fixed deposits in a good bank carry very little risk of default but are highly vulnerable to rising inflation which will eat into the inflation-adjusted return.

While stocks are a good hedge against inflation they are very vulnerable in the short run if the economy weakens like it is happening today in India.

You can invest directly in these asset classes or use mutual funds. Your asset allocation will depend on a number of factors like your age, income, risk appetite etc. For example when you are young it usually makes sense to invest strongly in stocks and gradually switch to debt-based products as you near retirement.

This will help to optimise your investment returns over a period of say 30 to 35 years. This is generally the time period between you getting a job and nearing retirement.

Invest in different types of mutual funds

Mutual funds are the ideal way to diversify your portfolio allowing you to invest in a large number of assets without having to monitor them individually. However to get the maximum benefits of diversification you need to invest in a variety of mutual funds. For example you may wish to purchase a large-cap, mid-cap and small-cap fund, an international mutual fund, a couple of sectoral funds and now you can even buy into gold and real estate mutual funds.

Even if you don't invest in mutual funds you should apply similar principles to your investments. You should purchase stocks of companies of different sizes and which operate in different sectors. Also, it always helps to religiously invest a fixed amount of money every month for number of years just like in a mutual fund's systematic investment plan.

Diversify internationally

This may be the most neglected aspect of diversification. Most investors keep the vast majority of their investments in their home country. This exposes them to any risk specific to that country: for example investments in India may face the risk of a bad monsoon or political uncertainty. Investing in a large number of countries reduces your exposure to such country-specific risks

Fortunately for Indian investors the opportunities for investing abroad are increasing every year. For example it's possible to purchase international mutual funds or invest directly in international stocks.

Assess your overall financial situation

Your diversification strategy needs to be based on your broad financial position which goes beyond your investments and factors in things like the type of your job.

For example if you work in the IT sector, a large proportion of your human capital is exposed to that sector. You may not want to expose yourself further by buying large quantities of stocks in IT companies. Of course this isn't a hard and fast rule. If you feel you have a special insight into the sector, you may invest there too.

The point is that that you should be aware of the extra risk that you are running.

Similarly, if you own a home, a large part of your total capital is invested in real estate. You should be careful about exposing yourself further to that sector especially in the same city.

Conclusion

There are no magic bullets in investing and diversification is no exception. It won't make you rich overnight but what it will do is to significantly reduce your risk without reducing your return. Every knowledgeable investor needs to understand diversification and apply it to his or her investment strategy.
-NS Sawaikar