IT Sector expected to post solid Q1 earnings - MC

De-risk yourself by being in the IT sector
Brokerage firms are expecting Infosys' overseas revenues to grow by 38%, Wipro's global revenues to ramp up by 45% and Satyam's overseas revenues to grow by 31.7% in the first quarter of FY07.We never had Infosys and Wipro trading at lesser valuations, so typically whenever the fresh FIIs came in they had to buy these stocks at those valuations and these stocks became richer in valuations. Infosys and Wipro are suitable for fresh investors.
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Hot stocks for next week: Experts
Deven Choksey, KR Choksey Sec: Reliance, Infosys, Glenmark, look good in a falling market.
Rahul Mohindar, Viratechindia.com: Reliance, Infosys will be the key stocks to give market direction.
Sumeet Rohra, Antique Stock Broking: Watch out for ONGC, Infosys, TCS and Reliance.
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QoQ margins will stay flat for most of the companies and the profits of banks may decline due to the Held To Maturity, HTM, transfers.
Among the non-ferrous stocks, he says that they are expecting strong numbers from Hindalco, while he feels that Tata Steel and SAIL may post strong sequential numbers.
He adds that oil marketing companies may see a strong net profit growth and he expects strong numbers from the auto and infrastructure sector.
For textiles, actually expecting a decline in the PAT and your report mentions that it is primarily because of Arvind Mills.
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Stocks trading at a discount to their book value
Market price of 37 stocks from the BSE 500 companies are trading at a discount to their book value. While Chennai Petroleum’s stock price on June 12 was equal to its book value, the next 110 companies were available at a price to book value of between 1-2.
While as many as 80 companies are available between a P/BV of 2-3, 66 companies were trading at a P/BV of 3-4, and 52 companies were available at a P/BV of 4-5.
The 30-stock benchmark, BSE Sensex, on the other hand, is available at a much higher P/BV of 4.05 and 12-month PE multiple of 17.16 as on June 12.
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4 foolish money goals... and 4 smart ones

Human beings need goals to survive. And it's not just goals at work that I am referring to. You need a goal to lose weight or to put on weight. To save money or to spend on a function. The list is endless. Which brings us to personal finances. Do you keep goals?

Even if you vehemently answer yes, are you doing it smartly? Here are four foolish goals and their smart variants.

Wrong goal: I will save.
Smart goal: I will save 15% of my salary.

I learnt this from a dietician. "Saying I want to lose weight is pointless," she told me. "You must be clear how much you want to lose."

Ditto with your money. Saying you want to save will take you nowhere. Everyone wants to save but everyone does not get down to doing it.

Get specific. Put numbers to your goal.

I want to save 10% of my salary. I want to save Rs 3,000 every month. That will get you on track.

Else, you may end up saving Rs 500 the first month, Rs 1,000 the second month, and Rs 300 the third month.
Have you reached your goal? Sure, if your goal is just to save.

But, once you get specific, you get disciplined.

Wrong goal: I will invest.
Smart goal: I will invest in NSC, PPF and a diversified equity mutual fund.

In this instance, it is wise to decide where you are going to invest.

Let's say you decide to save Rs 3,000 every single month. You also decide you want to distribute the money between a safe investment and a risky one.

So you pick up on a diversified equity fund and, every single month, you decide to invest Rs 1,000 in it. This amount can be directly debited from your savings account into your mutual fund. Every month, you also put in Rs 1,000 in your Public Provident Fund account. The balance Rs 1,000 can be put in a recurring one year deposit. At the end of the tenure, when you get a principal of Rs 12,000, you can buy a National Savings Certificate.

But, if you just decide you are going to invest and don't decide how, you may end up putting the entire Rs 3,000 in a mutual fund. Or all of it in your PPF. Worse still, you may invest nowhere and just sit on your money wondering what to do with it.

Don't invest dumbly. Invest smartly and diversify.

Wrong goal: I will be debt free.
Smart goal: I will plan a strategy to get debt free.

Who does not want to be debt-free? To throw off all those loans and forget about the monthly payments and the stress that accompanies it. However, it requires planning to get there.

You have to look at all your loans and see if you have the funds to pre-pay a loan. If yes, which loan will you pick on?

Let's say you are repaying a personal loan and a housing loan. And now you have some money but are not sure which one to prepay. Don't prepay the housing loan. You get tax benefits on interest payment and principal repayment, which works to your benefit. You get no tax benefits on a personal loan.

The interest rate on a home loan will be much less than a personal loan which could vary from 14% (if your company has a tie-up with a bank or it is a promotion) to 21%.

So, it would make sense to pay off the more expensive loan first.

If it is a credit card loan, you will have to stop using the card so that all your additional purchases do not get caught in the interest cycle.

In such a situation, every month, instead of investing your savings, use them to pay off your credit card debt.

Wrong goal: I will live within my means.
Smart goal: I will cut down on partying and not spend on my credit card.

Every month, every spender will make a resolution to live within his or her means. Easier said than done.

A better way to do it is by specifying where you will cut down. For instance, I shall eat out only once a week and I shall visit the pub only twice a month is a great start for someone who splurges on the above.

Or, let's say, you have budgeted Rs 10,000 for monthly expenses. Of this, your essential expenses come to Rs 6,000 (cell phone bill, travelling, etc.)


You can keep limit of Rs 4,000 on your credit card. Once you touch this limit, you will not longer take your card out with you and stop all shopping and spending.

Bollinger Bands

Bollinger bands are an integral part of just about every charting system We have ever seen but many traders are unfamiliar with how to use them. In this lesson we will cover the basics of Bollinger bands and one particular technique which we have found to be very reliable.The bands are plotted at a standard deviation (statistical term for measuring volatility) around a moving average. Typically the standard deviation used is 2.
A simple moving average in the middle. Most charting software defaults to a 20 period moving average.An upper band calculated around a simple moving average plus 2 standard deviations. A lower band calculated around a simple moving average minus 2 standard deviations. For our examples we will use the most common setting of a 20 period simple moving average. This will give us 3 bands, the middle band of a 20 period simple moving average and the upper and lower bands calculated around the middle band with standard deviation of 2. The closing price is most commonly used to calculate the moving average. Bollinger bands can be used to generate buy and sell signals but that is not their primary use. The main purpose of the bands are to:
To identify areas of high and low volatility.
To identify periods when prices are at an extreme and possibly ready for a reversal.
To identify a trending market. See Chart Below

The SqueezeThe squeeze (tightening) is a period of low volatility and often happens before a big move. It can also help identify potential breakout areas.ReversalIn conjunction with other indicators you can identify potential reversal points. Trending FollowingAlthough Bollinger bands will not tell you when the trend has started if you combine it with certain indicators they will confirm the trend.Our Use Of Bollinger BandsAs we mentioned earlier Bollinger bands are not really meant to be used as a signal generating indicator but in conjunction with another indictors can be very useful. We like to use Bollinger bands and RSI together to generate possible buy and sell signals or to confirm overbought or oversold areas. When the RSI reads below 30 and price is touching or pushing through the lower band then we know we are oversold and We will either consider buying the market or close existing short positions.
See Chart

We have found the bands to be effective on all time frames from Daily to monthly bars.

The power of compounding

If compound interest is so simple that it is taught in high school, how come it took Albert Einstein, arguably the greatest scientist in the world, to call it the 8th wonder of the world?

Was it to remind us that we forgot about a magic theory? Really, understanding compound interest is very, very difficult. The human mind does not comprehend such growth so easily. We in our physical selves have a simpler type of growth. So we do not comprehend compounding of growth. A few old, really old stories might just help.

Let us start with the famous story of the Persian emperor who was so enchanted with a new 'chess' game that he wanted to fulfill any wish the inventor of the game had. This inventor, a mathematician, decided to ask for one seed of grain on the first square of the chessboard doubling the amounts on each of the following squares.

The emperor, at first happy about such modesty, was soon to discover that the total yield of his entire empire would not be sufficient to fulfill the 'modest' wish.

The amount needed on the 64th square of the chessboard equals 440 times the yield of grain of the entire planet. Just try converting into money in any currency and you will realise the importance of compounding.

A similar analogy is that one penny invested at the birth of Jesus Christ at 4% interest would have bought one ball of gold equal to the weight of the earth in the year 1750. In 1990, however, it would buy 8,190 such balls of gold.

At 5 per cent, interest it would have bought one ball of gold by the year 1466. By 1990, it would buy 2,200 billion balls of gold equal to the weight of the earth!

The example shows the enormous difference 1% makes. It also proves that the continual payment of interest and compound interest is arithmetically, as well as practically, impossible.

Just see what a difference it would have made if your great grandfather had invested in a bank fixed deposit only Rs 100 say 150 years back. What it would have grown to?

Here is a dream sheet. See for yourself. Imagine Rs 100 is invested and it grows at 10 per cent every year.

Column 2 is what it will grow to if it was held for the number of years in column 1. So if your great grandfather invested Rs 100, 150 years ago, you would have inherited Rs 16 crore (Rs 160 million).

No. of years it is invested for-What it would grow to in Rupees:

1 - 110

5 - 61

10 - 259

15 - 418

25 - 1,083

50 - 11,739

100 - 1,378,061

150 - 161,771,784

200 - 18,990,527,646

300 - 261,701,099,618,845

400 - 3,606,401,402,752,540,000

500 - 49,698,419,673,124,400,000,000

So what is the learning from this sheet? Even a 1 per cent difference can make a mountain of a difference, but the greatest difference is made by the number of years the money remains untouched. That is the key.

For those more mathematically inclined, I state below the formula:

Vn = Vo * (1+r)^n

'n' in the compounding formula is the number of times the amount is compounded.

But for practical purposes if you take that as the time for which you stay invested in an instrument, you would not be too wrong either.

What it means is that:

The amount of money that you require (Vn) is equal to the amount invested today (Vo) multiplied by [1+ interest rate (r)] raised to the number of times the amount is compounded (n).

In this formula you as a client can control how much money you want at the end of the waiting period (Vn), how long the money can be invested (n), and how much money you can invest today Vo.

Instead of worrying about 'r', just start investing. That is the key.

Takeaways:

Start investing early.
Do not touch the amount for a long time.
Do not keep jumping from one investment instrument to another.
Let the power of compounding work for you. It would have worked for your grand-dad, dad and you. If they knew it, great. If they did not, you can start the line. At least your grandchild will praise you for it.
To see what it would have become over 500 years is fantasy. What it could have become over 150 is Ratan Tata.
When you read about 'the rich get richer, and the poor get poorer,' it is not about socialism. It is about compounding.