Monday, July 25, 2011
Sunday, July 3, 2011
Buy Short Term on 4th july
LIC Hsg Finance Buy between 220-240 for a target of 280+ Stock broken symmetrical triangular pattern
Apollo Tyres Buy Between 73-77 for a target of 100+ as stock is reversed from its inverted H&S
Building an all-weather portfolio by B. VENKATESH
June 18, 2011:
Traditional diversification often fails because asset classes move in
sync during certain market conditions. Investors can create a
diversified portfolio using inflationary, deflationary and conducive-
growth conditions.
Asset classes move in sync during certain market conditions such as
credit crisis or political unrest. Such asset price behaviour often
prompts investors to question the rationale for diversification. The
question is: Why do even “diversified” portfolios decline sharply in
certain market conditions and how can investors moderate this risk?
This article explains why asset classes within “diversified”
portfolios suffer from synchronous behaviour. It then discusses how to
create portfolios considering the sensitivity of asset classes to
varying market conditions.
Typical portfolio diversification occurs at two levels — macro and
micro. Macro-level diversification refers to allocating assets among
asset classes (in some ways, asset allocation is a diversification
process). Often, such diversification in retail portfolios refers to
taking exposure to stocks and bonds.
Micro-level diversification is taking exposure within an asset class.
An investor can take desired equity exposure through, say, large-cap
funds and mid-cap funds.
Such a diversified portfolio is cobbled together using either short-
run or long-run correlations among asset classes. We call this
“synchronous” diversification because such correlations breakdown when
the market tanks, prompting most asset classes to move in the same
direction.
Consider a portfolio that contains stocks and corporate bonds. Returns
on corporate bonds are a function of two variables — change in
government yields and change in credit spreads. And change in credit
spread, in turn, depends on how well the industry and the economy
perform- factors that could also change the price of equity.
In some ways, then, corporate bonds have equity-like characteristics.
And they move in sync when such factors are adversely affected. But
because of the asset-specific characteristics, stocks and corporate
bonds do not move in sync when the economy is strong.
Diversification, hence, fails because correlations among risk factors
change depending on market conditions. This makes it important to
build a portfolio considering the sensitivities of risk factors of
each asset class to different market conditions.
Structural diversification
To construct such a portfolio, we first divide the market into three
structures — inflationary, deflationary and conducive-growth. Stocks
and bonds often react differently in each of these market conditions.
Inflationary condition is when there is high inflation with little
growth. Such a situation hurts both stocks and bonds. Deflationary
condition occurs during market crisis when economy either slows down
or slips into recession. Such a condition is bad for stocks but good
for bonds as interest rates decline and remain soft. And, finally, the
conducive-growth condition is one where the economy grows with
moderate inflation. Such a situation is good for stocks and can be
good or bad for bonds depending on the level of inflation.
The diversification process should consider all three scenarios for
building the portfolio. Consider the inflationary scenario. Suffice it
to know that commodities tend to perform well during high inflation
conditions. An investor should, hence, have exposure to commodities,
preferably through commodity futures. Sometimes, investors take
exposure to stocks of companies in the commodity business. Such
exposure is subject to equity risk and is, hence, not preferred.
Consider next the conducive-growth scenario. Investors should consider
corporate bonds and stocks, as these assets are expected to do well
during good economic conditions. And finally, consider the
deflationary or minimal-growth scenario. As this happens during a time
when investors do not have confidence in the economy, there is often
“flight to quality”.
Thus, government bonds and gold typically move up while other asset
classes edge down. We call this process as “structural”
diversification.
The creation of diversified portfolio is not complete till the
investor decides on the asset allocation. The asset allocation
strategy would depend on probability of each market condition during
the investor's investment horizon, and risk tolerance.
For instance, those who are aggressive and have a longer time horizon
may consider a larger allocation to the conducive-growth scenario
while those having a shorter time horizon may allocate more to the
inflationary scenario. Such a structurally diversified custom-tailored
portfolio can increase the likelihood of an investor achieving her
desired investment objectives.
The author is the founder of Navera Consulting, a firm that offers
wealth-mapping and investor-learning solutions. He can reached at
enhancek@gmail.com)
http://www.
Tuesday, April 19, 2011
Muthoot Finance Limited
The IPO of Muthoot Finance Limited has received a very little response from the investors with the 1st day over-subscription figure reached to just 0.16 times on an overall basis. Muthoot Finance IPO is open on 18th Apr 2011 and will get closed on 21st Apr 2011 for subscription. The IPO has managed to get some response from Qualified Institutional Buyers (QIBs) Category where it overbid by 0.26 times on the 1st day of subscription. The price band for the issue is Rs 160 at lower level and Rs 175 at upper level. Kerala-based firm Muthoot Finance is the largest gold financing company in India in terms of loan. The company claims to disburse Gold Loan in 5 minutes.
The category-wise subscription status of IPO on closing of 1st day is given below:-
Qualified Institutional Buyers (QIBs) : 0.26 times
Non Institutional Investors : 0.02 times
Retail Individual Investors : 0.12 times
Overall : 0.16 times
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