TRENDS AND TREND-LINES

Trend identification can be called the keystone of technical analysis.

The price typically moves in a wave like motion forming a series of peaks and troughs. The direction in which these peaks and troughs are moving is called the trend.

In an uptrend, we have a series of higher peaks and higher troughs.

In a downtrend, we can see successive lower peaks and troughs.

When the peaks and bottoms move horizontally we call it the sideways trend.

An example is the stock of Reliance Communications is in a downtrend since January 2008.

A stock chart that resembles a roller-coaster ride is typically in a sideways trend.

Sintex Industries is moving between Rs 60 and Rs 250 since 2006. Such sharp price swings are common when stocks enter a sideways or consolidation phase.

Trend identification is done with help of trend lines. Constructing a trend line is fairly simple. When the stock is in an uptrend, the trend line is constructed by joining the troughs formed during the uptrend.

Conversely, a down trend line is formed by connecting the peaks formed during the down trend.

A buy signal is generated when the stock price moves above the down trend line. A sell signal would be generated when the stock price moves below the up trend line.

Lets look at one more example:

Andhra Bank has been in a downtrend ever since it peaked at Rs 190 in December 2010. The next significant peak was formed at Rs 159 in April 2011. We should join these two peaks with the help of a trend line.

This downward sloping trend line was breached in February this year thus signalling a trend reversal. 

TYPES OF EQUITY

Essentially seven types of equity shares are important from the investor’s point of view:

1.   Blue chips

2.   Growth Stocks

3.   Defensive Stocks

4.   Cyclical Stocks

5.   Turnaround Stocks

6.   PSU Stocks

7.   MNC Stocks

The above classification has to be understood in a broad sense for there is scope for overlap, as the last two categories are based on ownership. It is possible to classify the PSU stocks and MNC stocks into one of the first five categories.

BLUE CHIP STOCKS                     

Shares of established companies whose asset, sales , turnover and profits continue to grow rapidly are fittingly called Blue Chips. Ex: HDFC Bank, TITAN etc

GROWTH STOCKS:

Shares of relatively new companies which are performing in outstanding manner are known as growth shocks.

Growth stocks eventually graduate into established blue chips. Ex is Infosys and Dr Reddy’s LAB

DEFENSIVE STOCKS

Typically these are shares of traditional companies engaged in stable and mature industries. Their earnings do not fluctuate very widely from year to year. Market prices of defensive shares tend to fluctuate within a narrow range.

CYCLICAL STOCKS:

These are shares of companies engaged in business which are susceptible to fluctuations  caused by economic and trade cycles. Typically do very well in Boom and hit the bottom in Bust phase.

Ex : Real Estate industry, Automobile industry , Sugar industry etc.

TURNAROUND STOCKS:

A turnaround share is one whose market price is currently lower than its intrinsic value because the company has recently gone through a bad patch. One of the example is TATA Motors.

Choosing the Right Equity

This is a truly tricky decision to make for most. But if you are willing to study and follow fundamental principal for investment, it should be a good decision.

Let me look at some salient factors that you must keep in mind:

Pinpointing a Company:

All companies in a particular industry earmarked for investment may not be uniformly good. You have to pick the right company or companies based on fundamental criteria and non-financial aspects such as management  reputation , past track record , future plans , etc.

 Deciding on the Right Price:

Having chosen a company, you need to decide , whether its stock is attractive at the prevailing price. Is it overpriced, is it under priced , or is the price just right.  Whether a price is right or not essentially depends not so much on a company’s asset base but upon its earning power. If the earnings are good and growing, a high price may be justified ; otherwise not.

 Deciding on the Right Time:

In a way, the time and price issues are interlinked and may be examined together. A good understanding of share price movement chart may help in timing your purchase. Here to perception of an investor and trader is different.  An investor has more freedom here than a trader. Investor can survive a fall in price better than a trader.

Equity Buyers

At the highest level you have just two types of people buying stocks. One is Trader and the other is Investor. 

Trader can be qualified as daily trader , weekly trader and monthly trader.

Investor  typically hold on to his investment for a long time.  A investor might be holding on to a equity anywhere from 1 year to 10 years.

I shall try to perceive stock buyers in terms of their risk taking appetite.

Low Risk Takers : They should invest in blue chips and aim at long term gains (3 yaers and above) only. They need to adopt a buy and hold strategy

Medium Risk Takers: They should invest in growth stocks and aim at medium term (1 to 3 years). They should adopt a reasonably aggressive strategy.

High Risk Takers: They should invest in turnaround stocks and aim at short-term gains only (around 1 year). Adopting a very bold investment strategy , they should go bargain-hunting.

DALAL STREET AND ITS BULLS AND BEARS

The Bulls , Bears and investors are the kingpins of  the money game on DalalStreet.

The BULLS:

The bulls , whether investors or brokers have an optimistic view of the market.

A half empty glass always looks half filled to the bulls.

They expect stock prices to rise. A strong and rising market is known as a bull market.

When bulls swing in to action , prices tend to rise. The bulls buy shares hoping to sell them soon afterwards at higher prices.

The BEARS:

The bears, whether  investor or broker hold a pessimistic view of the market.

A half full glass always looks half empty to the bears.

They expect stock prices to decline. A weak and declining market is known as bear market. When bears are active stock prices tend to decline. The bears sell shares hoping to buy them soon afterwards at lower prices.

The stock prices on Dalal Street fluctuate due to brisk buying and selling from bulls and bears. The market has been a silent witness to numerous periods of bull run and bear hug.

 

New Service Tax Impact after Budget

                       New Service Tax Impact

Budget 2012 has delivered a staggering blow by hiking the service tax and excise duty from 10% to 12%.

So, if you were feeling thrilled at being able to take home a bigger salary, I am here to burst your bubble: your expenses are bound to go up too, more so since the service tax net has been widened to include almost all services that comprise a huge chunk of the household consumption basket. Only 17 items, such as essential education, public transport and services meant for agriculture, are exempt from this tax.

A good example of little gain on the tax front is your expenditure on health. Though preventive health check-ups for up to Rs 5,000 are exempt, a visit to the dentist or diagnostic tests will be more expensive due to the higher service tax levied on these. You will also be shelling out more on your life insurance policy.

The service tax on the premium for policies where the mortality charges are explicit has also been raised on the charges. For other policies, the service tax on the gross premium for the first year has been hiked from 1.5% to 3%, while subsequent premiums will be taxed at 1.5%.

Even the hike in excise duty and customs duty is going to bloat your expenses as manufacturers are bound to pass these on to the end-consumer. Be prepared to pay more on everything from cigarettes and cosmetics to watches and washing machines. If you were planning to buy a sedan this year, increase your savings as the duty on cars that are more than 4 m in length has been hiked from 22% to 24% and 27%, depending on the engine.

The good news: since these taxes are mostly levied on discretionary spends, not on roti, kapda and makaan, you could tighten your purse strings if you want. Here's a look at how much more you will pay every year as service tax and other indirect taxes.

ITEM	Expenses	Service Tax	Service Tax
		10.30%	12.36%
TelePhone Bills	12000	1236	1483
Coaching Classes	24000	2472	2966
Eating Out	20000	2060	2472
Gyms	12000	1236	1483
Car maintenance and Repair	12000	1236	1483
Cable TV	3600	371	445
HealthCare	5000	515	618
Life Insurance Premium	6000	618	742
Functions : catering , photographer etc	20000	2060	2472
Real estate agent/ stock broker	10000	1030	1236
Salons , courier , packaging services	8000	824	989

ITEM	Expenses	Service Tax	Service Tax
		Old	New
Transportation : There hasn't been any change in the road cess, which is charged on diesel and petrol. Its at 2 Rs/Litre. Assuming petrol consumption at 1000 litres a year at 74 Rs/ Litre	74000	2000	2000
Jewellery: Prices will rise as customs duty on gold and platinum has been hiked from 2% to 4%. While excise duty for gold has been increased from 1.5% to 3%.	50000	1000	2000
Entertainment : No change in entertainment tax. It still ranges from 15% to 40%	6000	1200	1200
Holiday :  Hotel Stay for 5 days	25000	3125	3125
Holiday :  Food and beverages at hotel	6000	618	742
Holiday : Air Travel	20000	2060	24600
Holiday : Train Travel	12000	Nil	1483
Holiday : Tour operator / Travel agent	3000	309	371

As you can see friends almost all areas are going to come under new tax regime.
 

Comparison of Bank FD and Company FD

BANK FD   vs  COMPANY FD

Its a good time to invest in FD. The rates offered by banks are high. Now, they have even better news from companies. There are around 100 companies offering FD schemes currently, and most of them offer at least 1% to 4% more than bank FDs. A three-year FD from Mahindra Finance, for example, gives 10.5%, while one from Jaiprakash Associates offers 12.50%.

Compared with this, the State Bank of India and HDFC Bank offer 9.25% and 8.5%, respectively, for a three-year FD. You don't need to be an investment wizard to figure out that the rates offered by the companies are the best you can pocket and you should park some money in their FD schemes. But, don't commit the mistake of equating a company FD with a bank FD, say experts.

This is because bank deposits are covered by a guarantee from the Deposit Insurance and Credit Guarantee Corporation of India, which assures repayment of Rs 1 lakh in case of default by a bank, but there is no such guarantee for company deposits. The safety of the FD rests firmly on the financial position of the company. That is why you have to be extra careful while choosing and investing your money in a company FD. "When investing in company deposits, do not get lured by high interest rates. Check the past track record and financial position of a company before committing your money.

Do A Thorough Check: Before putting money in a company's FD, try to get a rough idea about the company and its activities. Go for companies which have an AAA or AA rating (for their deposit schemes).

If a company has a long history and is making consistent profits and paying dividends - HDFC and Mahindra Finance, for example, then your money in its schemes will be in safe hands. Both HDFC and Mahindra Finance have a sound past track record.

This, along with their strong financial performance and strong parentage, makes them a good bet in the company deposit space. If the financial performance of a company has been erratic, and the promoters are not well known, you should think twice before investing in its schemes.

Rates High? Check Why: Whenever you come across a company paying higher interest rates, try to find out why the rates are so high. Put simply, a company should have some reason to pay a higher interest than the prevailing market rate to depositors. Most often, you would find out that the company is paying a high rate because it is in some financial trouble and the higher rate is a way to compensate investors for taking the high risk of putting money in its scheme.

Illiquid And Taxable: If the money you have is for use in an emergency, then company FD may not be the best investment option. If you have a bank FD, then in an emergency, all you need to do is walk across to your bank with the FD receipt and you can get your money back with no difficulty. Sure, there may be some penalties for breaking the FD, but you get access to the funds to be used for the emergency. But, a company FD cannot be redeemed so easily.

Budget 2012 Impact

                                               
                               BUDGET 2012-2013 

For salaried class, this budget is rubbish. Completely disappointing.

Income Tax:
The slab has been increased from 1,80,000 to 2,00,000. So a gracious raise of 20,000. If you are in 10% bracket, then the saving is 2000 Rs/Year and if you are in 20% bracket would end up saving 4000 Rs/Year.
I am listing below tax slab and tax rates:

Old Rate

Slab in Lakhs	Rate%
0 to 1.8	0
1.8 to 5	10
5 to 8	20
Above 8	30

New Rate

Slab in Lakhs	Rate%
0 to 2	0
2 to 5	10
5 to 10	20
Above 10	30

Other Impact:

Prices of consumer electronics like LCD TV, LED TV, air-conditioners, refrigerators, washing machine and microwave ovens are going to go up by 2-4%. This is because of increase in exercise duty from 10% to 12% .
Accordingly, a 1.5 tonne 3-star split AC will now cost Rs 1,000 more, while a 240-litre 5-star frost-free refrigerator will cost Rs 800 more. A 6kg fully-automatic front-loading washing machine will cost Rs 1,200 more.
The other announcement - exemption of basic custom duty for LCD and LED TV panels, will have little impact since there was already nil custom duty for imports from Japan and Korea from where major companies like LG, Samsung, Panasonic and Videocon primarily source their TV panels.

TV makers indicated LCD and LED TV prices will also go up by 2-3%. As a result, a 32-inch LCD TV price will go up by Rs 800 while that of a 32-inch LED TV by around Rs 1,200.
Apart from the items listed above other areas impacted would be:

Air Travel
Eating Outside
Phone Bills

Salaried urban middle class is going to be in a big way affected.

NSC CERTIFICATE

NSC CERTIFICATE  or National Saving Certificate

Let me take some time out and share my knowledge and information on National Saving Certificate. I remember my dad investing in NSC during my growing up years. Of late white collar urban middle class seems to have lost interest in this investment tool, largely owing to extravagant marketing of Mutual funds [Equity, Non Equity] , Direct equity , Bank FD and other Debt options.

Investment limit

NSCs do not have a limit of how much one can invest. What's more, interest up to Rs 1 lakh is tax-free. You read that correctly. NSCs offer you the possibility of earning up to Rs 1 lakh fully tax-free.

 

This is because NSC is the only small saving scheme wherein not only the initial deposit, but also the interest for the first five years, out of its term of six years, is eligible for a deduction under section 80C.

 

Interest and returns

NSC offers 8% interest compounded half-yearly. Due the compounding, the effective rate per annum works out to 8.16%. It is a cumulative scheme with a term of six years, meaning, though the interest accrues every year, it is paid to the investor together with the initial capital invested at the end of six years. For example, Rs 10,000 invested in NSC today will grow to Rs 16,010 at the end of six years.

Tax treatment

Let’s talk about the tax treatment of the interest paid out . Unlike PPF, where the full amount of interest is tax-free, NSC interest is taxable. However, as it is a cumulative scheme (eg interest is not paid to the investor but instead accumulates in the account), each year's interest for the first 5 years is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year's interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.

 

Illustration

Example: You invest Rs 1,00,000 in an NSC on April 1, 2010. Interest on this investment for each year is shown in the following table:

  

April 1, 2010 Initial investment 100,000
Mar 31, 2011 interest for Yr 1:   8,160
Mar 31, 2012 interest for Yr 2:   8,830
Mar 31, 2013 interest for Yr 3:   9,550
Mar 31, 2014 interest for Yr 4:   10,330
Mar 31, 2015 interest for Yr 5:   11,170
Mar 31, 2016 interest for Yr 6:   12,070
Total interest 60,110
Total value of investment:   1,60,110

Important detail:

From the above discussion, it is shown that both NSC and PPF interest is tax-free. However, the difference is that PPF interest is tax-free per se, whereas the NSC interest becomes tax-free on account of the deemed reinvestment under Sec 80C. Remember that Section 80C has a limit of Rs 1 lakh. Your NSC interest would only qualify for the deduction provided you have funds left in Sec 80C.

Comparion with Fixed Deposit:

NSC is a better investment than Fixed Deposit. Lets say the above 100 K was invested in a Fixed Deposit for 5 years. Ler ROI be 10%. Then in 6 years you would have earned 60000 unlike 60110 above. But your entire 60000 rupees can be taxed. In NSC only the last year’s interest of 12070 would be taxed.

Where and how to buy?

National Savings Certificates (NSC) are certificates issued by Department of post, Government of India and are available at most post offices in the country in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. NSCs can also be transferred from one person to another by paying a small fee. They can also be transferred from one post office to another.

See url’s:

http://www.bajajcapital.com/gss/nsc.html

http://www.investmentyogi.com/planning/national-savings-certificates-nsc.aspx