A DV I S O R S JUNE 2009 | 3

EditorC.P. Bhatia/Anurag Jain

Editorial ConsultantsK.N. Sharma, Nidhi Sharma

ResearchAlok Agarwala, Shibesh Jha

Graphic DesignerAnuj Kumar Singh

PeriodicityMonthly

Language English

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Note: All the information contained in this publication is true to the best of our knowledge and we do not own any responsibility legally or otherwise for correctness of the same. Any mistake or discrepancy noticed may kindly be brought to our notice so that it may be rectifi ed in future issues. It is notifi ed that neither the publisher, nor the editor, nor the printer will be responsible for any damage or loss to anybody arising out of any error or omission in this issue. Readers are advised to satisfy themselves about the merits and details of each investment scheme before taking any investment decision. Readers are also advised to check the interest rates before investing.

All your suggestions may be sent to advisorsnetwork@bajajcapital.com

The new fi nancial year has brought in a positive change in our economy. The recent months have been abuzz with lot of activi-ties– the General elections and the surprising results, the IPL, the new RBI policy, the rally in the Sensex – all gave a facelift to our markets and the economy. What the new RBI policies have in store for us? This is the Cover story this month, which gives detailed coverage on the same.

The wave seems to have begun – this is the wave of relief, a wave of hope and aspirations. Invest your client’s money wisely and they will surely reap the rewards of investment. This is an opportune time to invest and make savings grow.

Advisors/Financial Planners are busy informing their customers about the benefi ts of right fi nancial planning, of prudent asset allo-cation and timely re-balancing. Change your investors fi nancial plan as per the market sentiments. Periodical review is very important to make any fi nancial plan a success. So, if you have not reviewed your investor’s plan for over six months, do so now and reallocate there investments, if required.

This issue of ‘Advisors Success Guide’ is packed with all the regu-lar features and the current topics of choice. Our Lifestyle Plan-ning section this month focuses on the power of the sub-conscious mind. Tap your sub-conscious mind and life will smile at you. You have the power to change your life…do so now!

Best Wishes

C.P. Bhatia

COVER STORYFUND MANAGER OF THE MONTHMUTUAL FUNDSLEARNING CURVEPERISCOPEFINANCAIL PLANNINGLIFESTYLE PLANNING

CONTENTS

INDIAN ECONOMY: LOOKING UP FOR A BETTER FUTURE

EDIT NOTE

47

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4 | JUNE 2009 A DV I S O R S

COVER STORY

The Annual Credit Policy for 2009-10 surprised the markets with a 25 bps cut in the Repo

as well as Reverse Repo rates, when the market was expecting none. This positive surprise led to a sharp rally in bond prices and was supported by a dovish statement from the Central Bank on growth and infl ation and its focus on reviving the sagging credit growth. The central focus of the Policy statement was on reviving and rejuvenating credit growth which has now fallen to approx. 17% levels, way below the deposit growth rate at ~20%. Moral suasion was the order of the day as the RBI said that small savings (higher small savings rates have been said by banks as a key impediment to reducing deposit rates) are not a perfect substitute for bank deposits and banks should not benchmark their deposit rates to the small savings rates.

This was also the fi rst time that the RBI has admitted that the GDP growth can slow down to 6% in FY10, way below the ~7% projections from other government

RBI’S ANNUAL POLICY STATEMENT FOR 2009-10: AN ANALYSIS

agencies and more in line with global agencies. Ensuring ‘ample’ liquidity also remained at the top of RBI’s agenda for FY10 and so was ensuring a non-disruptive management of the higher government borrowings. RBI also presented a benign outlook on infl ation.

The fundamental case for lower interest rates was thus re-strengthened and G-Sec and Bond yields simply confi rmed the same by falling between 10-15 bps across maturities. Short term papers were the biggest gainers with yields falling by almost 45bps on 12M PSU Bank CDs. Among the negatives in the policy statement was the fact that RBI will continue to focus on CPI infl ation, which remains notoriously high, along with the acceptance that higher government borrowings will be a key impediment in RBI’s efforts to maintain a low interest rate regime.

Investment Strategy Post The Annual Policy MeetOur outlook for Debt remains bullish post the annual policy meet, particularly Income Funds in the long term Debt

Fund category and Short Term Bond Funds in the short term debt category. We do not recommend Gilt Funds at this juncture. Post the annual policy meet, the direction of interest rates has defi nitely turned southwards and corporate bond spreads are likely to compress further. Short term yields are also expected to go down further amid ample liquidity. However, supply fears are likely to keep having an impact on G-Sec yields, particularly at the longer end of the curve.

In our previous reports, we had mentioned that 10 year yields are likely to hover between 6-7% and that 10 year yields at 7% makes a good entry point whereas 10 year yields at 6% makes a case for profi t booking. In line with the above, we had recommended a debt portfolio divided equally (50:50) in Income Funds as well as Short Term Debt Funds in our “Bajaj Capital Investment Outlook” for April 2009. The above portfolio must be yielding excellent returns as of today. We continue with our strategy of using the 7% level as the entry point and the 6% level as the partial exit point from Income Funds.

Going ahead, for savvy investors who are interested in actively managing their debt portfolio, we would now recommend a partial shift from Income Funds to the less volatile “Short Term Bond Funds” category so that the portfolio mix now becomes 30% in Income Funds & 70% in Short term debt funds. The portfolio can be rebalanced to 50:50 either by a fresh entry in Income Funds or by way of a shift from Short Term Bond Funds as and when the 10 year yields touch

What happened at the last four Policy meets?

Bank Rate 6.00% 6.00% 6.00% 6.00%Repo Rate 4.75% 5.50% 8.00% 9.00%Reverse Repo Rate 3.25% 4.00% 6.00% 6.00%Cash Reserve Ratio 5.00% 5.00% 6.50% 9.00%GDP Growth Target for the year ** 6.0% 7.00% 7.5-8.0% 8.00%WPI Infl ation Target for the year ** 4.0% 3.00% 7.00% 5.0-5.5%M3 Growth target for the year ** 17.0% 19.00% 17.00% 17.00%

POLICY STATEMENT

21-Apr-09 Jan 27,09 24-Oct-08 29-Jul-08

A DV I S O R S JUNE 2009 | 5

7% levels. For the conservative medium

term investor who is happy with average debt fund returns, we would recommend remaining invested in the above portfolio mix of 50% in Income Funds and 50% in Short term debt funds with an investment horizon of at least 1 year during which he/she can expect to beat the returns on Bank Fixed Deposits by a handsome

margin.

Highlights of The Policy Statement Key MeasuresPolicy rates: Just a token cut…• Repo Rate cut by 25bps to 4.75%

with immediate effect.• Reverse Repo Rate cut by 25bps to

3.25% with immediate effect.

How did the Debt market react?

Instrument Yield before Yield after Change (bps) the policy the policy % % Benchmark 5Y Govt Bond 6.10 5.95 -15Benchmark 10Y Govt Bond 6.34 6.20 -14Benchmark 30Y Govt Bond 7.46 7.30 -1612M PSU Bank CD 5.70 5.25 -455Y AAA PSU Bond 7.50 7.40 -1010Y AAA PSU Bond 8.45 8.33 -1291D T-Bill 3.50 3.25 -25

• Cash Reserve Ratio left unchanged at 5.00%.

On liquidity front: To ensure ad-equate liquidity to avoid repeat of Sep-Oct 08• Extends special refinance facility to

banks until March 2010.• Extends special 14-day repo facility

to banks until March 2010.• To conduct special 14-day term repo

weekly basis.

OUTLOOK FOR 2009-10• FY10 GDP growth projected at 6.0%. Upturn in growth momen-tum FY10 unlikely as global demand down; Global econ outlook remains uncertain and unsettled; India growth prospects remain favorable versus other economies.• FY10 WPI inflation projected at

4.0% by March-end.

6 | JUNE 2009 A DV I S O R S

• FY10 credit growth projected at 20.0%; deposit growth projected at 18.0%; FY10 money supply growth projected at 17.0%.

Rbi Stance Going AheadFuture Policy and Rate Regime: To remain favorable in near term…• To ensure policy regime conducive

to credit growth and credit quality; to maintain rate regime conducive to fi nancial, price stability.

• Policy thrust to maintain adequate rupee, dollar liquidity; policy thrust to also maintain market conducive to loan growth.

Reviving Credit Growth: To get maximum attention going ahead…• Loan growth fall refl ects demand

fall, inventory drawdown.• Deposit, loan rate higher versus

2004-07 but policy rates lower.• Banks have been slow in rate cuts as

deposit cost high. There is room for more deposit rate cuts.

• Banks should not be “overly appre-hensive” over small savings as bank deposits and small savings are not perfect substitutes for each other.

• Ups limit on loans to NRI against de-posits to 10 mln rupees vs 200,000 rupee.

On Liquidity: To remain ample till situation improves…• Committed to provide ample liquid

ity on continuous basis.• Need to withdraw liquidity once

economy regains momentum.On Infl ation: CPI infl ation to remain

in focus…• Will see all infl ation indices to an-

chor expectations.• Endeavour to anchor infl ation, infl a-

tion expectation.On Government Borrowing: Try to

manage it non-disruptively…• Will use policy plus debt manage-

ment tools to manage government borrowing.

On Fiscal Health: Temporary relaxation under exceptional circumstances…• Challenge to unwind fi scal stimulus,

return to consolidation. Need to re-store Fiscal consolidation process

Key Observations By RBI• Infl ation risks have “clearly abated”;

WPI infl ation seen negative for short period

• External fi nance conditions to re-main tight.

• Planned OMO buy, MSS unwind in H1FY10 equals a 3% CRR cut add-ing 1.20 trln rupees liquidity.

FUND MANAGER OF THE MONTH

• Steps since September boosted li-quidity to 4.22 trln rupees.

• Liquidity situation improved “sig-nifi cantly”.

• Overnight rates have softened “con-siderably”.

• MFs’ liquidity problems have eased considerably.

Other DevelopmentsFor Debt Markets: Adding depth to Debt markets…• To launch exchange traded rate fu-

tures contract soon; to be based on 10-year G-sec

• Structure for pricing fl oating rate bonds revised. Earlier FRB pric-ing linked to 364-day T-bill cut-off yields. Now FRB base yield to be linked to 182-day T-bill cut-offs at auctions.

• To launch STRIPS in FY10; draft norms to be placed on STRIPS pro-cess by end-May.

For Industry: Addressing the debt repayment pressures…• ECB relaxation extended for all-in-

cost limit to December 2009.• FCCB buyback policy relaxed for

companies; Companies can now buy back up to $100 million out of internal accruals vs. $50 million ear-lier.

• To review export credit refi nance limit in March 2010.

For Banks & NBFCs: Relaxation for NBFCs…• 12% CAR implementation of some

NBFCs deferred to Mar 31, 2010.• 15% CAR implementation of some

NBFCs deferred to Mar 31, 2011.• Interest payment on savings bank

accounts to be calculated on daily basis from April 2010.

• Banks allowed to set-up offsite ATMs without prior nod.

• RBI to form draft norm on integrat-ing liquidity risk management of banks by Jun 15.

A DV I S O R S JUNE 2009 | 7

“ASSET ALLOCATION IS MORE A FUNCTION OF THE LONGEVITY OF INVESTMENTS THAT ONE HAS AND THE RISK APPETITE ONE IS WILLING TO ASSUME”

Lakshmi Iyer

FUND MANAGER OF THE MONTH

Q: Post General Elections, what’s your take on the future prevailing conditions on the investor senti-ments?Lakshmi Iyer: The market quite frankly remains circumspect about the likely and/or unlikely outcomes from the general election. However, since almost all the major political parties remain vocally supportive of liber-alization and future reforms, there remains a comfortable zone in the markets about future economic poli-cies. Yet, the possibility of populist surge amongst political parties may cause additional burden on the trea-sury, which the debt market may not appreciate in the present context. Any which ways, the markets would be far more appreciative if the possibility of a clear mandate and a stable polity be-comes increasingly evident.

As for the investor sentiments, we believe that it is directly linked with allaying of fears and ensuring a more stable lending, borrowing, and consuming environment. So as such, the investor sentiments would con-tinue to be weighed-in by the larger macroeconomic development and policy initiatives.

Q: Last month the market had risen considerably, led by robust infl ows

from FIIs and domestic MFs. Do you think this will enthuse investors to put money into the stock market? Lakshmi Iyer: The rally which you referred to, has been the outcome of recent event-based triggers. More specifi cally; the nearly US$ 1 trillion buy-back plan by US treasury, the Geithner plan etc, all these events in synchrony infl uenced the resultant market outcome.

Risk aversion seems to be giv-ing way to risk tolerance, though one would need to see a sustenance of the same. The question of the toxic assets in the US banking system still remains unresolved. Investors may stagger in-vestments in such market and would still want to watch out for the politi-cal outcome in India as well as global developments for enthusiasm to re-emerge.

Q: Many technical experts are saying that we are very well placed on the second wave of the fi ve wave cycle. On the other hand, fundamental experts are pointing that the market may dip to 6000 levels. Who do you think will win this analytical battle?Lakshmi Iyer: Well the truth of the pudding lies in its eating. As of now, the market seems to have already fac-tored-in the pessimistic future possi-

Risk aversion seems to be giving way to risk tolerance, though one would need to see a sustenance of the same. The question of the toxic assets in the US banking system still remains unresolved. Investors may stagger investments in such market and would still want to watch out for the political outcome in India as well as global developments for enthusiasm to re-emerge.

Lakshmi Iyer, Head – Fixed Income & Products, Kotak Mahindra Asset Management Co. Ltd

8 | JUNE 2009 A DV I S O R S

MUTUAL FUNDS

bilities. Hence at the current juncture we would assign a low probability of the 6000 targets being met. Markets would however continue to keep con-stant watch on the emanating cues from global economies there prevent-ing excessive exuberances on either sides

Q: Government has announced a borrowing plan of Rs 2.41 trillion in the fi rst half of FY10. On March 30 it will come out with the gilt calen-dar. Mr. PC Chawla has also ruled out private placement of Govern-ment securities with RBI. In light of the above mentioned points, where do you think the yields of G-sec are headed and at what levels you expect the G-sec yields to settle in next 3 months and 6 months to 1 year?Lakshmi Iyer: High fi scal defi cit re-sulting in huge g-sec supplies is an inevitable reality. The essence for the central banker going forward is how well can they “manage” the borrowing program. We believe that going for-ward, the central banker would use a combination of aggressive buybacks, private placements and monetary eas-ing to cushion any signifi cant rise in interest rates. Gsec yields would be

in a trading range moving largely in response to OMO buybacks and auc-tion supplies.

Q: Credit spreads between G-sec and corporate yields reduced but mainly because of the rise in G-sec yield. When do you think a real positive contraction will happen which will help Income funds in giving posi-tive returns? In the current situation when yields are volatile, which type of debt funds will you advice for in-vestment? Lakshmi Iyer: Credit spreads have narrowed from their all time highs reached in mid of last year. Going forward, as lenders get more recep-tive to embracing some credit risk for the extra return, the yield trend would be towards contraction. However this would take atleast a couple of quar-ters as the current credit risk aversion would take some time to abate in the wake of rising delinquencies.

Despite such high spreads, in-come funds have delivered positive returns on a long term horizon. The current environment is very condu-cive for debt funds with investments at the shorter end of the yield curve.

Q: What will be your advice to retail investors on asset allocation? Periods to be considered: 1 year, 3 years & 5 years.?Lakshmi Iyer: There is no defi ned rule of the thumb as far as asset allocation is concerned. It is more a function of the longevity of investments that one has and the risk appetite one is willing to assume. Accordingly the one with a higher risk appetite and longer ho-rizon could have a tilt towards equity investments with the rest in debt and vice versa. We would also defi nitely recommend Gold as a protection to one’s fi nancial portfolio. The best way to own gold would be through the ETF route.

STOCK MARKET GLOSSARYDividend yield: Annual dividend paid on a share of a company divided by current share price of that company. Diversifi cation: Investing in a basket of shares with different risk-reward profi le and correlation so as to mini-mize unsystematic risk. Discounted payback period: Period in which future discounted cash in-fl ows equal the initial outfl ow. Discount factor: Expected rate of re-turn by which, future cash fl ows are defl ated. The discount rate is annual rate and defl ating future cash fl ow takes place in a compounded man-ner.

Downgrade: Refers to lowering of ratings for a share by analysts, inter-mediaries or investors. DV: Disclosed Value (DV) orders al-lows the user to disclose only a por-tion of the order value to the market. For example, an order of Rs. 1000 lakhs with a disclosed value condi-tion of Rs. 200 lakhs will mean that Rs. 200 lakhs is released into the mar-ket. After this is traded, another Rs. 200 lakhs is released and so on till the full order is exhausted. Every time a fresh lot of the disclosed value is re-leased it is time-stamped (becomes an active order) again at the time of its

release into the market and not the time at which the original DV order was placed.Ex: Means “without.” A price so quoted excludes recently declared dividend right or bonus shares.Ex-bonus: The share is described as ex-bonus when a potential purchaser is not entitled to receive the current bonus, the right to which remains with the seller. Ex-rights: The share is described as ex-rights when a potential purchaser is not entitled to receive the current rights, the right of which remains with the seller.

Credit spreads have narrowed from their all time highs reached in mid of last year. Going forward, as lenders get more receptive to embracing some credit risk for the extra return, the yield trend would be towards contraction. However this would take atleast a couple of quarters as the current credit risk aversion would take some time to abate in the wake of rising delinquencies.

A DV I S O R S JUNE 2009 | 9

MUTUAL FUNDS

R Deepak Joshi

Ques: Th e names of the funds in my portfolio are as follows: IDFC Enterprise Equity Fund – Growth, Birla Sun Life Long Term Advan-tage Fund - Series 1 – Growth, Fi-delity India Growth Fund – Growth, HDFC Long Term Advantage Fund – Growth, HDFC Infrastructure Fund – Growth, HSBC Small Cap Fund – Growth, ICICI Prudential Dynamic Plan – Growth, ICICI Pru-dential Infrastructure Fund – Growth, ICICI Prudential Fusion Fund - Se-ries 2 – Growth, Reliance Diversifi ed Power Sector Fund – Growth, Reli-ance Regular Savings Fund - Equity – Growth, Reliance Tax Saver Fund – Growth, Reliance Long Term Equi-ty Fund – Growth, Reliance Natural Resources Fund – Growth, SBI Infra-structure Fund - Series I – Growth, SBI Tax Advantage Fund - Series I – Growth, Sundaram BNP Paribas Equity Multiplier Fund – Growth, Tata Tax Saving Fund, Franklin In-dia High Growth Companies Fund – Growth, HDFC Tax Saver Fund – Growth. How’s my portfolio? I also wish to start two new sip for 5+ years in open fund (without tax). Kindly advise me for that as well which one I should purchase.

H.M. AroraReview of close-ended funds: Your portfolio has a lot of close-ended funds and funds with a lock-in period

of 3 years (ELSS). In case of close-ended funds, it is not advisable to redeem the units before the maturity date (maturity date for each close-end-ed scheme in your portfolio is shown in the table given below) as you will have to incur heavy exit loads in such case. In case of ELSS too you cannot exit now, since, as per your invest-ment date, your funds will mature in the year 2010, 2011 or the fag end of 2009. You can go in for a review of this part of your portfolio once your funds reach the maturity stage.

Review of Open-ended funds: Reli-ance Regular Savings Fund (Equity): HOLD. It is a fl exi-cap fund and is amongst the best funds in its cat-egory and has outperformed the peer group and benchmark consistently. The fund’s name is a misnomer and it is actively managed and plays on the market momentum.

Reliance Diversifi ed Power Sector Fund is a thematic fund focusing on the power and infrastructure theme. It has done well in the past, outperform-ing its peer group across periods. The fund holds 38% of its portfolio in cash as on March 31, 2009. This places the fund in a comfortable position in the present volatile times and shall enable it to enter stocks at attractive levels as and when a recovery begins. You can

hold the scheme with an investment horizon of at least 2-3 years.Reliance Natural Resources fund is a thematic fund focusing on the natural resources theme. It has been an above average performer and has beaten its benchmark over the last 1 year. The Fund has exposure of 47.70% to large caps and holds ~ 30% of its portfo-lio in cash which might help the fund manager to go in for value pickings in the present market scenario.

ICICI Prudential Infrastructure Fund is an Infrastructure focused fund with a high risk-high return proposition. In its category, it has been an above av-erage performer throughout, though in last 1 month it has lagged behind marginally. The Fund has delivered positive returns on a two year basis whereas its benchmark has ended with a 2 year return of -7.83% as on 17th April 2009.

ICICI Prudential Dynamic Plan is a fl exi-cap fund with a diversifi ed port-folio. The fund has increased its ex-posure to large cap to 46.87% on 31st March from 35.01% as on Feb,2009. The fund has reduced its exposure to small cap by ~3% as per March port-folio in comparison with February portfolio. The fund has given an an-nualized return of 22.15% for a 5 year period as on 17th April 2009.

ASKTHE EXPERT:MUTUAL FUNDS

10| JUNE 2009 A DV I S O R S

DSPBR World Gold Fund: You can continue holding the fund as the cur-rent outlook for Gold prices remains positive over the medium term (1-3 years). There might be a short term correction in gold prices but investing in Gold mining companies through this fund should help cushion the im-pact of the downside. The fund has performed well and has improved its performance over the last 6 months. An allocation of 5-10% of the total portfolio to Gold Funds/ETFs is sug-gested at all times as Gold is the best form of portfolio insurance.

Fidelity India Growth Fund is a pure large cap equity fund and has been a consistent performer. It has a well-diversifi ed portfolio which provides a diligent mix of defensive (FMCG – 17.3%, Pharma – 8.6%) as well as

growth (banks – 15.75%, Petroleum products – 8.9%) sectors. The scheme is characterized by a low portfolio turnover ratio (0.46 times) over the one year period from March 01, 2008 to Feb 27, 2009 and hence can be con-sidered as a low cost fund suitable for long term investment.

Franklin India High Growth Com-panies Fund: The Fund has not done well in the past but has picked the mo-mentum in the near term of 3 months and has outperformed the category average. The fund has majority of the exposure to large cap stocks for which the outlook is positive in the near term.The funds mentioned above can be held at present but a portfolio review has to be done every 6 months to keep it updated in the fast changing invest-ment landscape.

Description Maturity Type-DateIDFC Enterprise Equity Fund - Growth Close EndedBirla Sun Life Long Term Advantage Fund - Series 1 – Growth Close Ended (5/18/2010)Fidelity India Growth Fund - Growth Open EndedHDFC Long Term Advantage Fund - Growth Open Ended (ELSS)HDFC Infrastructure Fund - Growth Close EndedHSBC Small Cap Fund - Growth Close Ended (3/3/2011)ICICI Prudential Dynamic Plan - Growth Open EndedICICI Prudential Infrastructure Fund - Growth Open EndedICICI Prudential Fusion Fund - Series 2 - Growth Close Ended (3/16/2010)Reliance Diversifi ed Power Sector Fund - Growth Open EndedReliance Regular Savings Fund - Equity - Growth Open EndedReliance Tax Saver Fund - Growth Open Ended (ELSS)Reliance Long Term Equity Fund - Growth Close Ended (12/11/2009)Reliance Natural Resources Fund - Growth Open EndedSBI Infrastructure Fund - Series I - Growth Close Ended (7/6/2010)SBI Tax Advantage Fund - Series I - Growth Close Ended (3/30/2018)Sundaram BNP Paribas Equity Multiplier Fund - Growth Close Ended (1/31/2010)Tata Tax Saving Fund Open Ended (ELSS)Franklin India High Growth Companies Fund - Growth Open EndedHDFC Tax Saver Fund - Growth Open Ended (ELSS)

Future Investment Strategy For fu-ture investments look to investing in open-ended funds so that in case of market downturns you can withdraw your investments and book profi ts, if any. Portfolio consisting of Open ended funds can be managed easily since you have the option to enter and exit schemes any time.You will have to rebalance your port-folio and increase your exposure to Large Cap Funds or Equity Diversi-fi ed Funds with large cap bias. Few funds you can look to, for starting your SIPs are: IDFC Imperial Equity Fund, DSPBR Top 100 Equity Fund, DWS Alpha Equity Fund.

Send in your queries at: investorsindia@baj

ajcapital.com or write in to: Investors India,

311, Bajaj House, 97, Nehru Place, New Delhi

- 110019 or SMS invest IMF to 53636.

LEARNING CURVE

Existing Portfolio

A DV I S O R S JUNE 2009 |11

LEARNING CURVE

PRICE EARNINGS RATIO

PE Ratio expresses the price of a stock relative to its earnings. It is used as an indicator to gauge whether the stock is over valued or under valued, relative to its earnings per share. The reciprocal of PE ratio, called Earnings Yield (1/PE) indicates the returns a shareholder will make by investing at the given price and at the given level of earnings.

What do high PE and low PE mean? A stock is said to have a high PE if its PE ratio is high as compared to that of its peers or to that of its Bench-mark Index. Similarly, a stock is said to have a low PE if its PE Ratio is lower than that of its peers or Benchmark Index. For example, if the PE of Hin-dustan Unilever is at say 20 whereas that of the BSE FMCG Index is at 12, then Hindustan Unilever will be said to have a high PE and vice versa.

What is PE ratio? PE ratio is simply calculated as Mar-ket price by Earnings of

the company. While price of stock is available to us, Earning per share is calculated as Total annual ‘net Profi t Available For Equity Share Holders’ (PAFESH) of the company, divided by total number of outstanding shares in the market. PE ratio is usually cal-culated on the trailing twelve month (TTM) profi ts of the company. TTM profi ts are calculated by adding the net profi ts in each of the last four quarters of the company.PE ratio = Price of stock Earnings per share (EPS) EPS = PAFESH(total of last 4 quarters) Total number of out standing shares in the market

Price Earnings ratio (PE ratio) is one of the most widely used terms in the analyst community. So what exactly does this term mean? Well, Price Earnings or PE ratio or Price Earnings Multiplier are the different names of the same term.

12| JUNE 2009 A DV I S O R S

In common parlance, a stock with a high PE is interpreted as being over valued whereas one with a low PE is considered under valued. However, having a high PE does not necessar-ily mean that a stock is overvalued. PE ratio also refl ects the expectations of the market from a stock. A stock having strong fundamentals and good earnings potential is likely to be at a high PE because the market rates it highly and is willing to pay a higher price for it. Hence, a high PE might also mean that a stock has superior earnings potential. Conversely, a stock with a low PE might have weak fundamentals and poor earnings potential and hence the market is not willing to pay a higher price for it and hence, the low PE. PE ratio is thus more of a refl ection of the future earnings potential and stability of a company rather than an indication of the current over or un-der valuation of a stock. It has to be used in unison with the fundamental strength of a company and its future

earnings potential.

Does that mean one should buy high PE stocks?Fast growing companies usually com-mand higher PE but that should not be the only criterion for stock selec-tion. PE also depends on the indus-try, as industries vary in their growth prospects so do their PE. For exam-ple FMCG Companies usually trade at a higher PE as they have stable earnings, high dividend payouts and are considered defensive compared to other industries. Same is the case of Pharma stocks. Cyclical stocks like sugar and metal stocks tend to have their earnings fl uctuate as per the prices of the underlying commodity and hence a lower PE. Similarly, a low PE ratio does not necessarily mean that one should sell the stock. Some-times, due to extreme sentiments (read panic), the price of a stock or group of stocks can be beaten down to abnormally low levels which do not actually justify its earnings poten-

tial. During such times, the stock can have an extremely low PE. This can be used as an opportunity to buy such a stock. This is also called bottom fi sh-ing. However, one must be very care-ful with his analysis of the company while doing bottom fi shing. Stock price at any point of time re-fl ects the ‘Expectation’ that aninvestor has from the company in the future. Expectations are in terms of company’s earnings and dividends. Most of us buy stocks in expectation that the stock is going to reward us with a price appreciation and/or divi-dend income.

On a concluding note…One should use Price earning ratio carefully without completely depend-ing on it while making his/her in-vestments. Yes, PE ratio works but it works only in the long term. One should remember that some times“Market can remain irrational longer than you remain solvent.”

PERISCOPE

A DV I S O R S JUNE 2009 |13

The economic somatic structure was bled to almost total collapse from which recovery

would have been an extremely long drawn and painfully arduous, if not impossible task. Thanks to the speed and sagacity of states across the globe for their bold steps of infusing unprecedented amount of liquidity into their respective economies which helped avoid a complete breakdown of the existing economic system. And as things stand today, this isn’t going to be a one time blood transfusion , yes blood - where does this money come from, who eventually pays for the follies of and virtual loot by those at the helms of the business world? There has to be some connection between what people contribute to the total national product and the compensation they take for their contribution.

The economy of the world had been made to run at full throttle in the wake of technological innovation and emergence of new economic giants – China and India and it really got tired and completely fagged out. Any attempt to gallop through a marathon stretch is going to see the runner give up before covering half the distance and may have to be provided a stretcher. This is what exactly happened in the post globalization days. The forces of free enterprise just ran amuck throwing to winds all business norms and discipline and plunging the global economy into a state of paralysis. The normalcy as such may continue to elude for an extended period of time

PERISCOPE

THE WORST SEEMS TO BE OVER…

and the best or the true halcyon days of 2007 henceforth would defi nitely belong to the world of dreams – a highly wishful mirage. This is despite the fact that in some quarters, there is talk of six fi gure Sensex - a sign that confi dence in the stock market has again started building up.

Matters may be less serious for emerging economic giants’ i.e. China and India, especially for India. There are three distinct advantages or features of the Indian economy which will help her keep on the tracks and moving forward at steady pace, ensuring reasonable level of employment and opportunities and avenues of profi table or high yielding investment. Apart from guaranteed demand for industrial products and services of all kind, India has a huge stock of trained and skilled workforce which can be gainfully employed on creating a network of effi cient and modern economic infrastructure. We have the required amount of capital resources and material for this purpose. Most importantly unlike china our economy does not depend on large scale exports for its survival. A 6 to 8 percent growth is therefore quite realistic.

The main concern today is the state of real estate. The building industry in any economy is perhaps the most important area of economic activity and in a way an index of the health of the entire economy. Things do not seem to be at all reassuring on this front. The government of India seems to be fully aware of the

K.N. Sharma

The worst is apparently over al-though all do not seem to subscribe to this view. The global economy looks like it has weathered the harshest of economic winters. There is hope all around that better days will soon catch up with us. What is the reality or the true state of things. Aren’t people indulging in some kind of day dreaming just to see them through the most horrible economic situation facing them?

14| JUNE 2009 A DV I S O R S

situation facing this sector is taking all possible steps to generate steady demand for housing. Home loans are being made available at cheaper interest rates. The builders also need to play their part in a more thoughtful and practical manners. They can divert their work force and machinery to state sponsored projects which are awaiting to be undertaken for a long time but are not being executed for want of people willing to undertake them.

Another area which holds promise of high returns on capital is the creation of infrastructure, directly aiding the agricultural sector. Instead of going for space in the malls, investor should put their saving into these kinds of projects which cold storages, roads and quick and economical means of transportation.

If the above gives an impression that Indian economy can delink itself from the rest of the world economy, it may not be correct conclusion. Globalization has come to stay and there is no way that we can go back into the detesting era of high tariffs

and strict control and regulation of fl ow of foreign money. Now what are implications of this statement? The implications may not be so serious or damaging but nonetheless they are there and do impact our economy in a signifi cant way.

One of worst sufferers of the economic meltdown is the hotel industry. Despite reducing their tariff drastically many fi ve star properties are unable to sell minimum number of rooms. May be the Common Wealth Games help them make up

for their current losses. Outsourcing by developed economies may also see some slackness. Workers in the handicrafts and jewelry sectors are also likely to face some hardships. These are the cons of free economies and there are only rare occasions when every sector performs well. This has been the way the economy has been behaving and there is no likelihood of the emergence of an economic system of global dimension which would be static neither is such a scenario desirable.

Well, Our Readers Have Got Returns Upto 30% P.a. For Last 10 Years. Multiply Your Money. Read

Investors India

HAVE YOU MADE MONEY IN SHARES/MUTUAL FUNDS/ULIPS IN 2009?

Matters may be less serious for emerging economic giants’ i.e. China and India, especially for India.

FINANCIAL PLANNING

A DV I S O R S JUNE 2009 |15

FINANCIAL PLANNING

ASK THE EXPET:PERSONAL FINANCIAL PLANING

Q: I have recently retired and have a corpus of 20 lakhs. My monthly ex-penses are around Rs. 15,000 pm. I get Rs. 10,000 as pension. Please sug-gest a fi nancial plan.

- S K YadavAns. Mr. Yadav, your monthly infl ow in the form of the pension is Rs.5000 less than your expenses. To be able to meet this shortfall, we suggest that you invest around Rs.7.5-8 lac in the POMIS. The balance amount of Rs. 12-12.5 lacs should be invested in a mix of debt and equity with predomi-nant part getting allocated to safer debt oriented fi nancial instruments such as Long term fi xed maturity plans, Company FDs, Monthly In-come Plans with less than 20% equity exposure. On a broad basis, around 70% of your remaining corpus can be invested in debt oriented fi nancial in-struments and the balance 30% can be invested in equity, gold and cash pro-portionately. For a more specifi c asset allocation and product wise break up, we may have to meet you in person, assess your risk profi le and time hori-zon and then suggest you accordingly. Q: My MHI is Rs. 1,60,000 p.m. EMI of my housing loan is Rs. 40,000 p.m. I don’t have any other savings. I can save around Rs. 20,000 p.m. Kindly suggest a plan.

- DevendraAns. Mr. Devendra, we shall need more elaborate inputs from you to be able to suggest you a plan. For purely investment purposes and towards your long term fi nancial goals due

in 10 years or more, we suggest that you invest the amount of Rs.20000 in a growth oriented asset allocation as shown herewith:• 65% Growth Avenues as Real Estate• 25% - Debt Avenues as Long Term Fixed Maturity Plans, Company Fixed Deposits, etc

• 5% - Portfolio stabilizers as gold or other opportunities as available

• 5% - Cash & other liquid avenues such as short term debt funds, liquid / liquid plus funds, etc.

Please ensure a proper selection of fi -nancial products and periodic review as you invest in the suggested asset al-location to be able to reap maximum benefi t from our recommendations.

Q: I have the saving capability of 17K per month .I am 33 years old and have 8 months baby. Please tell me the investment options to reach a huge corpus for 15 - 17 years plan.

- KP GiriAns: Mr. Kuttanur, since you are in-vesting for a span of 15-17 years, there is enough scope for you to invest in growth oriented avenues such as eq-uity, real estate, etc. With the sum of Rs.17000 available to you now as sur-plus on a monthly basis, it is essential that you meet your different needs as risk protection, both for life and non life, provide for your fi nancial goals as your baby’s education, primary as well higher education, his marriage, your retirement and your other aspirational goals as bigger house, car purchase, vacations, etc.

It is important that you identify these goals, quantify them and then earmark a part of your monthly discretionary cash fl ow towards these goals. This way, you will be able to objectively evaluate the progress in goal achieve-ment and take corrective action, if and when required.15-17 years is a long time horizon and you can comfortably follow a growth asset allocation for this tenure by in-vesting 65% of the available amount in equity / real estate, 25% of the amount in debt oriented avenues, 10% in cash and other avenues as gold, commodities, etc depending on the kind of opportunity as available.By following the above shown asset allocation, the average return will be around 12%. As you invest the amount in this asset allocation on a monthly mode, you will be able to build on a bigger corpus over your investment time horizon that can then be used to-wards meeting your important fi nan-cial goals.Please understand that the risk associ-ated with this asset allocation is mini-mized as your investment horizon is long enough and over this time hori-zon, the level of market volatility gets well evened out. The choice of fi nan-cial products within these asset classes is critical. To discuss your case in de-tail, we can meet up, chart out your detailed plan and allocate investmentsper se.

Arti Sehgal, CFP

16| JUNE 2009 A DV I S O R S

K.K. Bajaj(Chairman, Bajaj Capital Ltd.)

LIFESTYLE PLANNING

TAP YOURSUB-CONSCIOUS MIND -LIFE WILL SMILE AT YOU

Albert Einstein said- “Every particle has the knowledge of the whole-we carry within our consciousness all the knowledge and expericence of human race”.

What is conscious and sub-conscious mind?We are all aware of our conscious mind, with which we daily interact and solve our problems. The sub-conscious mind speaks to you in in-tuitions, impulses, hunches, urges and ideas. The sub -conscious mind is a common pool of knowledge of all humanity. Whatever anybody has never thought so far, it is stored in the sub-conscious mind. We have total hu-man past in our psyche. It is a treasure

house of knowledge available to every person provided one takes the trouble of opening the gate of this treasure house. Your sub-conscious mind is a thread of cosmic intelligence and is a part of the universal mind of God.

“Awaken your sub-conscious mind. All the creative thinkers of the world after tasting this thundered: “Man know thyself”

Sub -conscious mind is a Kingmaker. All the researchers and inventors, art-ists, businessmen and professional get the creative ideas by tapping their sub-conscious mind. According to psy-

The sub-conscious mind is a trea-sure house of knowledge available to every person provided one takes the trouble of opening the gate of this treasure house. Your sub-con-scious mind is a thread of cosmic intelligence and is a part of the universal mind of God.

A DV I S O R S JUNE 2009 |17

chologists, an average personuses only 5% to 10% of his total potential, the rest remaining untapped and unex-plored throughout life due to inatten-tion and ignorance. We have to learn to use all the powers of our sub-con-scious mind in order to realize our full potential and fulfill our dreams and ambitions to do something new and unique. Our sub-conscious mind is an ocean of creativity, and whenever we consciously tap it, creativity sprouts from within us and we gain health, wealth, fame and power i.e. whatever we want.

Ask your sub-conscious mind to guide you. Remove your mental blocks, fears and phobias by suggestions to your sub-conscious mind.Whenever you are stuck up in a very serious problem and do not know the way out, you can ask your sub-con-scious mind to guide you. The sub-conscious mind will provide solutions to your problem. Everybody has ex-perienced in his life it that whenever we think hard on any subject, the so-lution is flashed in our mind by intu-ition. This is the work of our sub-con-scious mind.

Albert Einstein said,” It is not that I am more intelligent than others. I simply stay with the subject for lon-ger time”.Whenever anybody thinks about a particular subject very deeply, he is unconsciously linked to the sub-con-scious from where he gets the creative ideas. Wilbur Wright, the inventor of airplane wrote in his biography that, after failing in practical experiment for many years, as an engineer, once he was thinking very deeply till mid-night about the machine which could fly. He just had a nap of few minutes

and in that period he saw in a flash the design the machine that could fly. In the morning, he fabricated that machine and it flew for few minutes. That was the birth of aircraft technology.

Your sub-conscious mind needs command, and it will obediently obey to your orders.The sub-conscious mind does not work on its own. It needs some in-structions, may be in the form of di-rect orders or simply our yearning or strong desire and it jumps up to fulfill the same. It is like a treasure house whose key is with you. If you do not use the key, the treasure house of your sub-conscious mind will remain closed.

An optimist never loses hope. He sees an opportunity in every calam-ity while a pessimist sees a calamity in every opportunity. You can attract the ideal companion, business contacts and money you want by tapping the sub-conscious mind - Vincent Peal.Whenever you sincerely desire to achieve some goal or target, your sub-conscious will provide you the right contacts and create situation where some people of similar thoughts are searching somebody and you will come into contact with them and the result will be good luck and money.

Curative power of the sub-conscious mind.You can cure all types of diseases by asking your sub-conscious mind to heal your body. Modern scientific research says mind is the creator as well as healer of all types of diseases. Hence it is essential that whenever you are sick, you should be optimis-tic and ask the sub-conscious mind to free you from all types of diseases. It will activate your immune system and strengthen your body system and you will be in the pink of heath. Accord-ing to psychologists, positing thinking is the best tonic in the world. Vincent Peale sys always repeat “day by day, in every safe way, I am getting better and better and you will be renewed every day.”It is the thought power that differ-entiates between human beings and animals.

Story of a beggar who was sitting on a goldmine.There is a story that a beggar used to beg by sitting at a particular place for the last 40 years. When he died, the villagers thought; let us bury him at this particular place where he sat for 40 years. When they dug up the land only a few feet, they found it was full of gold bricks. Similar is the case of people who keep on blaming their bad luck and circumstances and never tap the powers of sub-conscious mind

18| JUNE 2009 A DV I S O R S

quickly. Dr. Richardson in his book “Parenthood and the Newer Psy-chology” writes - we know that the children can unconsciously register parental tricks, habits and mannerism at an age which seems impossible that they should be taking conscious note of his surroundings. Children register your reactions right from their birth. “Once a young mother went to Aris-totle and asked him as to when she should start giving instructions to his 5 year old child. Aristotle told her “Go home quickly and start doing it; you are already 5 years late.”

Your own conscious mind is your best friend and your worst enemy.Your sub-conscious mind is always being programmed by you. Your thoughts, behavior, opinions, theo-ries are having imprints on your sub-conscious mind and one day these thoughts, positive or negative, shall fructify. Hence be careful whatever you think. Every pessimist thought, doubt or negative emotions, even for a short period, leaves a scar on your sub-conscious mind. We must always think optimistic and positive thoughts. We should always be hope-ful and brimming with confidence and our every wish shall be fulfilled. That is the power of our sub-con-scious mind.The easy way to achieve your heart’s desire is through the “Art of Visual-ization”.Whatever you want to achieve or be-come in life, visualize that. Feel that you are a successful man, having com-pany of successful people and that they are appreciating and compliment-ing you on your success. Visualization is also a sort of auto-suggestion and it shall turn into reality. Every wish, desire, effort and research is having

within themselves. As in the holy Bible it is said:” Seek and you shall find. Ask and it shall be given to you. Knock and it shall open”.

Henry Ford, one of the richest man of the world said,” Be optimistic. I have not seen any person who is a pessi-mist and has lot of money.” Pessimism is a living death. Such people are always full of complaints, doubts, negative thoughts etc. Such people should be avoided. They are sure to discourage you also. Always find the company of healthy, happy and optimistic people who are full of life. Optimists unconsciously get linked to their sub-conscious mind and, without even knowing the pow-ers of their sub-conscious mind; they are able to achieve whatever they de-sire in life. So whatever you want ask your sub-conscious mind to provide you. Tell your exact demand and time within which you want it. Then live with that idea constantly.

The sub-conscious mind normally does not comply with vague orders or fleeting desires which keep on changing every minute. Whatever you want, be very specific.For instance, if you want a car, you should request your sub-conscious mind to provide you a car. You specify the particular model of the car you desire to possess, the color of the car and where you will park the same. Now this is specific desire and your sub-conscious mind create conditions whereby you can acquire such car and provide you means for the same. Similar can be a desire for the house. Be specific and your desire shall one day become a reality.

Be good in the presence of your children. They are learning by your reactions.Emotional reactions attract children

imprint on your sub-conscious mind and shall bring positive result. The controlled and trained mind is one’s best friend and a uncontrolled and un-trained mind is one’s worst enemy.

Master your sub-conscious mind. It is the golden key to success in all fields of life.Apply these techniques in your life. According to psychologists, your thought power creates all you want. Thousands of books have been written on the power of mind and power of positive thinking and millions of copies of such books have been sold and it has benefited crores of people. These books transformed the psyche of people in the western nations with the result they have progressed to develop.

Your sub-conscious mind is the kingmaker.Walt Disney said: “Any height can be scaled by a man who knows the secrets of making dreams come true. This special secret of success can be summarized in four C’s. They are curiosity, confidence courage and consistency and the greatest of all is confidence. All our dreams can come true, if we have the courage to pursue them.” It has been experience of great men throughout that they changed their fate using the power of their sub-conscious mind.

A DV I S O R S JUNE 2009 |19

CANFIN HOMES LTD 8.00 8.50 8.00 8.00 8.00 8.00 8.00 0.50 01/May/09

CEAT LIMITED 9.50 10.00 10.50

DEEWAN HOUSING FIN.LTD 10.50 10.10 10.25 10.00 10.00 10.00 10.00 0.25 11/Dec/08

DELPHI- TVS DIESEL SYSTEMS LIMITED 9.00 10.00 10.00 01/Apr/09

EXIM BANK OF INDIA 7.25 7.25 8.25 8.25 8.25 0.50 21/May/09

FERTILIZERS & CHE TRAVANCORE LTD 10.00 10.50 11.00 17/Feb/09

GABRIEL INDIA LTD 11.00 11.50 12.00 16/Sep/08

HDFC LIMITED 7.65 7.90 8.00 8.00 8.25 8.25 8.25 0.25 19/May/09

HUDCO 8.50 8.50 8.40 8.40 8.25 8.25 8.25 0.25 13/Apr/09

ICICI HOME FINANCE 8.40 8.40 8.50 8.50 8.50 0.25 18/May/09

J.K LAXMI CEMENT LTD 9.50 10.00 10.00

J.K.INDUSTRIES LIMITED 10.00 10.25 10.25 01/Oct/08

JAGATJIT INDUSTRIES LIMITED 11.00 11.50 12.00 12.50 15/Oct/08

JAIPRAKASH ASSOCIATES LTD 11.00 11.00 11.50 12.00 0.50 01/Nov/08

JCT LIMITED 11.00 11.50 12.00 23/Sep/08

JINDAL SAW LIMITED 6.75 7.25 8.50 9.50 0.25

JINDAL STEEL & POWER LTD 10.00 10.75 11.00 10/Nov/08

JK PAPER LIMITED 9.00 9.50 10.00 01/Apr/09

KERALA TRAN DEV. FIN LTD. 9.75 9.75 9.25 9.25 9.25 0.25 01/Apr/09

LIC HOUSING FINANCE LTD 8.00 8.25 8.50 - 8.50 0.10% upto 01/Mar/09

Rs. 50,000 &

0.25% for Rs.

50,001 & Above

LUCAS-TVS LIMITED 9.50 10.00 10.00 01/Apr/09

N HOUSING BANK (Sunidhi Scheme) 7.75 7.75 8.00 - 8.00 0.50 20/Apr/09

N HOUSING BANK(SUVRIDHI T S S) 8.00 0.50 27/Apr/09

PNB HOUSING FINANCE 8.50 8.50 8.25 8.25 8.25 8.25 8.25 0.50 01/May/09

SHRIRAM PISTON & RINGS Ltd. 8.00 11.00 11.25 11.50 02/Dec/08

SHRIRAM TRAN. FINANCE CO.LTD 10.00 10.00 10.50 10.50 10.50 08/May/09

SIDBI 6.75 7.25 7.25 7.75 7.75 0.50 01/May/09

SOLARIS CHEM TECH LIMITED 10.00 11.00 11.50 20/Jan/09

SURYA ROSHNI LTD 11.00 11.50 12.00

TATA MOTORS LIMITED 9.25 9.50 10.00 0.25 16/Apr/09

TN POWER FINANCE LTD - 8.25 8.75 9.25 9.25 9.25 - - 0.25 upto 2 years 01/May/09

and 0.50 for 3

yrs and above

TRIVENI ENGINEERING LTD 9.25 9.50 9.50 01/May/09

RANE MADRAS LIMITED 10.00 10.25 10.50 13/Mar/09

RANE ENGINE VALVE LIMITED 10.00 10.25 10.50 13/Mar/09

RANE BRAKE LINING LIMITED 10.00 10.25 10.50 13/Mar/09

THE INDIAN HOTELS COMPANY LTD 9.50 10.00 0.25 19/Mar/09

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