Debt Mutual Funds

Investing in Gilts and Corporate Bonds is a good idea when you know that Interest rates would trend in a downward direction. The RBI has been cutting interest rates since the past few months. Though the interest rates have almost bottomed out, there exists a close to 400 basis points (4%) different between the corporate bonds and the Government Securities. This opens an opportunity to invest in Debt Mutual Funds.

Based upon the estimates of Financial Experts like Nouriel Roubini, the global economy could start to recover from the first half of 2010 onwards. Beginning of the next year would be a good time to start investing in equities. (Though, one can passively invest in equity now via SIPs). I plan to park some funds for a short term ( 1 year) in a debt fund comprising of AAA rated Corporate Bonds / Debentures.

Here is some information that I found useful regarding Debt Oriented Mutual Funds :

http://kayezad.blogspot.com/2009/01/good-time-to-invest-in-debt-funds.html

http://www.financialexpress.com/news/debt-funds/108298/3

http://www.thehindubusinessline.com/iw/2009/02/15/stories/2009021550290700.htm

Here are a few funds that I found interesting. I sorted the Short Term debt funds by their previous returns, then selected the following as they had majority of their portfolio in Corporate Bonds / Debentures

1] Kotak Bond Short-term-G

http://www.valueresearchonline.com/funds/portfoliovr.asp?schemecode=1313

35% bonds / debentures, Gilt - 48

2] ICICI Pru Short-term-G

Bonds + Debentures = 55 %

3] HDFC Short Term Plan-G

Debenture : 50 %

http://www.valueresearchonline.com/funds/portfoliovr.asp?schemecode=1237

4] HDFC HI Short-term-G

Debenture : 60 %

http://www.valueresearchonline.com/funds/portfoliovr.asp?schemecode=1204

5] Reliance Short-term-G

Non Convertible debentures : 61 %

http://www.valueresearchonline.com/funds/portfoliovr.asp?schemecode=1499

 

Portfolio Performance [Update #4]

Changes:

1] Added Compact Disc. [As it fell to 48. I fell further to 39 the next 3-4 days. I should have waited :(]

2] Added Mercator Lines [New fleet, long term:s

hort term contract ration of 70:30, acquisition of coal mines and long term contracts with steel / power companies looked good.

3] Added Eastern Silk as it was still cheap [PE of around 2]

4] Added GE shipping.

Here is my portfolio as on 1st october.

                     1] As you can see, it looks more like a mutual fund with lots 13 companies. I am considering going the Mutual Fund way as that would give me more time to focus on other areas. Investing in stocks is good, but if there is someone else who can do it for you the way you want, why not let him do it for some fee? The time invested somewhere else could give me higher returns.

                      2] Failure of the US investment banks, FII outflows and their effect on your portfolio is something that one needs . At present, I am avioding exposure to stocks that have high FII holding (more than 10%). I learnt this the hard way. Lehman brothers had a significant stake in Amtek Auto and see what that has done to the price.

Portfolio Performance [Update #3]

Changes :
1] Added position in Eastern Silk
2] Reduced position in ICSA
3] exited from Agro Dutch at a loss ( Company had a high debt and I had invested inspite of this fact)

Learnings :
1. Say not to companies with debt.
2. Do not expect any company to turnaround easily
3. Do not buy stocks just because you have money to spare. Buy only if you find a great opportunity. Having money in your bank account is better than losing money in stocks.
4. Limit your holdings to 5-6 companies. I do not have the time nor the resources to keep tracking each of these companies.
5. Do not spend more than 12 hrs per month on stocks. I have more important things to do. Invest the time in improving myself.

Cals Refineries Annual Report

Cals refineries is in the process of setting up a petroleum refinery.
It has bought second hand refinery equipment in Germany and Canada and is in the
process of assembling it in Haldia, WestBengal. The location of the refinery on the East Coast would add $2 per barrel in Shipping costs.
Negligible profits at present, and money would start flowing only after 2010.
The board of directors looks impressive, but I'd like to wait till I get more information on this company. This could be a turnaround story.

I mailed the company requesting the annual report and received it promptly.
Nothing interesting in the Annual Report, but I am uploading it here for record.

Company watch #5

It is difficult to find good companies trading at a price that fit my criteria. Nevertheless, here are a few companies I looked at:

grindwell Norton - Apparent PE = 4, (Effective PE = 10) zero debt (CMP = 99)
This company is into making abrasive products used in industry for machining / grinding operations. It is also into the manufacture of indistrial ceramics. It ranks 2nd in the domestic abrasive market (Carborundum PE = 12 is the market leader)

+ Abrasive is a consumable
+ Second Leader in the Abrasive markt (Carborundum, Grindwell, Orient)
+ close to 0 debt
+ promoter Holding 70%
+ MF's increased holdings in June

- industry slowdown ==> lower sales
- chinese competitors ?
- One of the promoters sold around 3 lac shares recently

more info:
http://groups.google.com/group/dpstock/browse_thread/thread/900e929458b63796
I need to research the company in more detail. Need to get hold of some analyst report

Update : Rohit pointed out that the PE is apparently low due to one time income in the Sep 07 Quarter. Excluding this one time income, the effective PE comes to 10. One can see that the Sep 07 EPS is an outlier. Not too cheap!

June 07 2.26

Sep 07 16.48

Dec 07 2.80

Mar 07 2.27

Jun 07 2.66

===
CHI Investments (dump)

http://www.capitalideasclub.com/ideas/article-full-90.php?id=74
*NBFC : Holds investments of many companies
+ summation of holdings is 80 Rs per Share

- low market cap - 36 Cr, possibility of manipulation

===
Can Fin Homes Limited (CMP : 72) (dig further)
http://www.capitalideasclub.com/ideas/article-full-90.php?id=51
+ PE : 4.84
+ BV : 105, trading at 30% discount to book value

- Housing Sector slowdown / high interest rates will lower sales and margins

note: look for cheaper housing finance companies (LIC housing finance, etc) and wait
for interest rates to come down.

===
Tata Elxsi (I want it cheaper)
http://www.capitalideasclub.com/ideas/article-full-90.php?id=32

Into product development outsourcing
+ PEG = 10/20 = 0.5

- PE = 10
- finding talent in India ..

===
Cals Refineries (CMP : 3.36) ??
In the process of setting up a second hand refinery. Plant to operate from 2010.
So I guess that there would be no earnings till 2010. Paucity of information on this company, did not find annual reports. The Board of directors looks impressive.
A possible turnaround ?

I'd like to be on the lookout for more information on this company

Note : These posts are for my own record, these should, in no way be considered as recommendations. I can change my mind and views without notice.

Company Watch #4

Patel Airtemp
+point
low PE
-point
but in the business of Manufacturing Air conditioning. highly competitive industry with a lot of players

HDIL
moderate PE = 8

Orbit Corp
moderate PE = 8

Both HDIL and Orbit Corp are infrastructure / construction companies. I'd like to look at them when they become cheaper in the coming 2 quarters.

Jindal Saw
+points
low PE, into the business of manufacturing steel pipes.
Low Debt/Equity ratio (0.52)
set a price alert at 400 (PE=2.5)

Kavveri Telecom ( CMP: 120)
Into the business of manufacturing telecom equipment.
Low Pe : 6.34
Debt/Equity = 0.45
Negligible FII/MF holdings (Why)
set a price alert at 80 (PE=4)

SPEL Semiconductor (CMP = 23)
High YoY growth, but a high PE (12)
Into the business of semiconductor testing / outsouorcing.
I do not have much knowledge of this industry, but I feel that Chinese / Japanese would be better than India in terms of technology and technical knowledge.
I'll look at this company when I have time. Set and Alert at 16.

At present, Eastern silk looks attractive for me. Since I did not have a large amount of funds, the present round of investment has gone into accumulating Eastern Silk. I'd I would also like to add Compact Disc in case the price falls back to 55 - 60 levels. Kavveri Telecom and Jindal Saw are on my radar at present and I would analyse them in more detail in the next round of investment. Both companies look good, but I would like to buy them at a cheaper valuation. As Warren Buffet says - "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Banks

Personally, I feel that money lending is a good business as it gives a steady source of income (in the form of interest from borrowers). This is one of the reasons I am planning to include one of the banks into my portfolio. With inflation showing no signs of cooling, it is possible that the RBI would continue to tighten it's monetary policy, Banks would have to raise the interest rates and the amount of loans disbursed would fall. This would affect the Sales and Toplines adversely. Margins are also bound to be affected. One of the reports I was reading mentioned that the profits of banks can be impacted 5-20% over the coming 3-4 quarters. The report had listed the following banking institutions:

I am planning to wait for another 6-9 months for inflation to cool down and the RBI to ease the monetary policy. I'd also look at real estate sector around November for similar reasons . Meanwhile, I'll go look for some other yummy company to embellish my basket with ;)