ideasmoney featured on FEMINA india Feb 10 2010 issue

ideasmoney.blogspot.com has been featured in Feb 10 India edition of femina under " Money Resolutions 2010" -> Blog my money.

Investing ( trading) when you are in debt trap

Recently, got a mail from a person who is struggling to pay his EMIs. The person had withdrawn cash from a credit card when his variable pay got down and has a huge outstanding amount on his credit card.

When his company announced an increment this year, the person was keen to invest the incremental income in the stock market , to multiply the money quickly to pay off his credit card dues.

I was shocked on reading this mail. When you are in a deep debt trap, you should try to get out of it first. In fact credit card cash withdrawal should be the last mode you should look into.

When you are in a debt trap, one should try to use any excess or surplus cash to pay of the debt. Investing (Trading!) with borrowed money or when you are in deep debt trap would potentially lead you to more trouble.

One should always try to live within the means and borrow within the means too.!

Analysing 2009 IPOs

Here is an analysis of the IPOs of 2009 ( Source data: - NSE web site).

1. There were 21 IPOs in 2009. ( 20 issues after stability returned and only 1 during the time of uncertainity - Edserv softsystems in Feb) . IPOs are highly dependant on market sentiments driven and this fact proves that.

2. Edserv systems has given a good return and this after getting only a CARE rating of 1!!. So, solely depending on the rating and market sentiments may not help.

3. only 12 out of the 21 IPOS are trading in positive territory as of 21 Jan (Adani and Astec , just above the issue price)

4. All issues that were given a grading of 4 ( 6 issues) by rating agencies are trading in the positive zone.

Grade 3 's - 2 in positive zone out of 8.

Grade 2's - 3 in positive zone out of 4.

Grade 1 's - 1 in positive zone out of 2.

So, there has been no correlation between grading by the agencies and the returns except for the fact that all the issues graded four are in positive zone ( May be the sample is too small :-)).

5. Power and Real estate IPOS have not given any significant return in spite of the hype.(including PSU -NHPC).

We can infer that not all IPOs are money making engines for retail investors. All issues need to be analyzed carefully before you throw in your money. Just depending on a broker's recommendation or a tip or GMP ( grey market premium) or an article on a blog like this :-) wouldn't help. The basic rule is- if you don't understand about an issue or if you are not convinced what you want out of investing in an IPO, Please don't invest. Do your thorough research before you invest your hard earned money.

2010 - An interesting year ahead !!

Early 2009 , was an easy phase for seasoned investors as they could spot gold just walking on the road!!. Yes, most of the stocks were trading well below their real values. Anything you would have invested should have at least doubled by now. Having said that, it was only the people who were greedy when others were fearful and those who would have invested regularly ( say SIP) have benefited immensely out of the down turn.

2010 is showing a lot of promises (esp. media blowing a lot of good news like new jobs coming in, salary increments ,etc for Indian economy). But, the returns of 2009 would be unrealistic to expect from 2010.

At this stage there are a few who are sitting on decent profits from equity. So, the question is whether to stay invested or reap the rewards. If you are in need of money in next two, three years time frame , it may be prudent to book profits at least partially (depending on your need). However, if you are ok to hold your money for a long time, say 5 years then you may choose to hold on. The west is not completely out of the woods. So , FII flows, fluctuating exchange rates might lead to volatility of the markets.

It would be interesting to see how the markets turn about. There are a lot of predictions about markets touching new highs. We know how predictions work:-).

But as a retail investor, following a path of extra caution while making investing decisoins( in 2010) would definitely help protect your money .

Property ( Real Estate ) and Power IPOs

There have been a line of power IPOs this year and real estate IPOs are also lined up. This week we have JSW energy and Godrej properties opening up for public subscription.

Both these sectors( power and reality) come up with huge premiums on IPOs which are not justified by any means and they project 20XX- 20YY earnings to justify their valuations. The PE or institutional investors pressure to get their money out of the company may be the reason for over pricing of these issues.

Whatever may be the case and irrespective of the recommendations given by stock anlyast, we should try and stay away from these issues.

Reviewing what happened to the IPOs of real estate companies ( DLF, omaxe, purvankara, brigade ,etc), Power ( reliance power, adani power, PSU- nhpc,etc) , we can easily see how these sectors are mis-sold. May be in the long run these stocks may give reasonable returns but they should be bought when the valuations are sane enough.

There are various other stocks with good valuation stocks which our money can chase . So let's try and avoid the sectoral temptation of power and real estate.

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