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Commentary

What to do now? Gilts, Nifty and No Predictions

A few comments have been mailed in asking “What to do now?”. I wish there was a universal answer but there is not. Here is what I am doing, and my needs are very different from those of others.

I am buying Gilt Funds. This is for my liquid portfolio. Things at play here:

  • The government is auctioning 10K crores on Monday. This is going to bring in supply of gilts into the market, which should keep prices low for the time being.
  • Interest rates are not likely to increase from here. When interest rates decrease, bond and gilt yields will decrease to match interest rates. Yield increase = rise in prices of bonds/gilts.
  • Then why not bonds? Why gilts? Because I don’t trust bonds anymore. Bond funds have gone and thrown money at avenues not quite safe – like buying Asset Backed Securities of transport finance companies and of personal loans, or loaning money short-term to real estate companies. These things will soon default, and I don’t want a default.
  • Gilts are also where you run to in a credit crisis. Look at the US t-bill yields – 0.4%! With those yields prices are extremely high. A combination of flight-to-safetly and falling interest rates should provide a good return.
  • Many gilt funds are investing in fixed deposits of nationalised banks. I don’t know yet, but those should be safe…still, I would rather pick up funds that invest in gilts mostly.
  • I like the Templeton India GSF – Treasury (Dividend) plan. I also am reasonably ok with Tata GSF Short Maturity plan. No entry or exit loads there. DO NOT invest in that fund. I tried to get in through Sharekhan and they held my money for an ENTIRE MONTH, before “rejecting” my application! Meanwhile the market value went up by more than 5%!
  • I have now bought Prudential ICICI Gilt Fund, Short Term Plan. Seems to be good, no entry/exit loads.

For equity, I am nearly out of everything (except for a few small mutual funds I have put money in and either can’t withdraw as they have lock-ins – tax funds – or don’t have the time to withdraw) But on a trading basis, I have started buying and am long the Nifty. I have a strategy on this and it’s too far fetched to talk about on the blog – but I’m playing for a 20% bounce from current levels. Essentially a target of 4000 or so.

I might consider buying a few stocks at certain levels – but only if they show their strength in their price. And of course, my pessimism about this credit crisis goes away (or there is momentum).

Now to questions: What to do if one has bought the Nifty? The answer demanded is a prediction – will it go up? or down? But that’s not the point. If you bought the Nifty, you bought it for a reason. You should have had a stop loss. If the stop loss is breached, sell. If it’s not, and your original funda – you had a funda the market would go up no? – still applies, then hold. If you don’t have a stop loss – set one NOW. If you have already lost too much, it’s too late to do anything; might as well book losses and figure out what else to do.

Same funda applies for stocks. Fundamentals are what they are – funny-mentals – and you can choose to rely on them; and if your faith still remains, stick on. If you don’t have faith in the companies, don’t hold their stocks. There will always be another day.

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