What will Fed do?

September focus will be on Janet Yellen

In the last Fed meet, they did nothing on interest rates and the question is what has changed in the last 2 months. Frankly, but for an additional bout of volatility in markets, nothing much has changed. US growth continues to flatter with marginal positive surprises. Inflation continues to stay low due to cheap crude and cheaper commodities. The US continues to attract capital flows from risk-off trade, which has been the investment theme over the last 2 months. So what does all this mean for the Fed decision on rates in September?

Continue reading “What will Fed do?”

Pledged Shares

Why promoter’s pledged shares must be watched closely

As India celebrates a plethora of good news like low inflation, falling deficits and corporate profitability; there is a silent problem that is lurking in the shadows. Promoters pledging shares with financers to raise money for their business is nothing new. The problem arises in two basket cases. Firstly, when promoters have pledged almost their entire holdings with the financers! Secondly, when the pledged shares belong to a company that is susceptible to bouts of volatility! Unfortunately, both these cases are visible in abundance in India currently.

Continue reading “Pledged Shares”

World Market crash

Why Indian markets cannot be an isolated beneficiary 

The 24th of August may have had traces of “Black Monday”, but it was far more benign compared to 1987. However, the impact was much bigger in terms of its seamless spread and the carnage across emerging markets. Over the last few days there have been consistent arguments on how India can outperform in these difficult global conditions. That argument may be flawed! Here is why…

Continue reading “World Market crash”

Don’t Succumb To The Averaging Game

A successful self trader – Rule # 22

Averaging is the cardinal sin of investing

Let me begin with the caveat that, averaging your position is not theoretically wrong. Just that it does not work in practice. You bought a great stock, the stock corrected; you averaged and lost money. You averaged your short position and again ended up with losses. Why does averaging not work in reality? Are there situations where averaging makes sense?

Continue reading “Don’t Succumb To The Averaging Game”

Dividend yield is a good story but beware the trap…

The immediate beneficiary of any market correction (probably we can call this a carnage), is the now-famous dividend yield argument. To begin with, it is an extremely logical and seductive argument. Let us explain! Divided yield is obtained by dividing the rupee dividend paid on the stock by the current market price. Obviously, when the prices are falling, the dividend yield tends to become more attractive for that stock. For example, Tata Steel paid a dividend of Rs.8 per share this year. When the stock was quoting at Rs.500/-, the dividend yield was 1.60% (8/500). On the contrary, when the stock had corrected to Rs.200 on August 25th, the dividend yield would have automatically improved to 4% (8/200). Before jumping into the dividend yield argument to identify stocks, one need to understand the following key points to fine tune your decision. Continue reading “Dividend yield is a good story but beware the trap…”