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Long term investment tips for students

In Students special of ‘Your Stocks’, Investment Advisor SP Tulsian gives fundamental view on queries; Sanjeev Agarwal, MD, dynamixresearch.com gives technical view and Monika Halan, CFP and Consulting Editor, Mint answers personal finance related queries.

Below is a verbatim transcript. Also watch the accompanying video.

Q: I have 15 shares of RIL at Rs 1,077. What's the target price to watch? How long should I hold on? Have a corpus of Rs 50,000 to invest, where do I invest?

Tulsian: It reminds me of my olden days, when how I started. At that time I use to make applications in the IPOs (initial public offering) and whatever profits use to get rotated in the IPO because that was, at that time, very paying proposition. So now obviously the IPO market is not very active, you don’t see the administered price mechanism or the control price mechanism, so you don’t get that kind of profit. So the next alternative for the student is to make investments in the front liner, in the blue chips, the companies which can really grow for the next eight-ten years or which are likely to remain in the field with the same size at least for next eight-ten years. If that theme is I think followed by any student or any young person, he will definitely be making money.

Taking that as a theme Reliance Industries perfectly fits in that, Larsen and Toubro perfectly fits in that. But honestly I won’t be going by KRBL because these are the small caps stocks very seasonal kind of thing and very erratic working and erratic kind of profitability and all sorts of things. So may be in this range my advice is to select the long-term growth oriented stocks, which could be in the banking space, which could be in the metal space, which could in the refinery, construction, infrastructure and all that.

So, yes, the additional amount which she has of about Rs 50,000 can either get deployed in the Reliance Industries or may be to give some indications like IDFC, like SBI to broad base the portfolio because your entire holding should not be concentrated in one sector or in one company. So have a portfolio of at least five companies, never mind even if it is an allocation of Rs 10,000 because that is how you can really grow. So RIL is definitely fitting stock in that category.

See student should first concentrate on their study, they should not bother too much for the day to day volatility and all that. So as I said that may be couple of years must be your view. You take a view after couple of years and may be take a review at that point of time. Otherwise at least two to three years should be the horizon.

Q: My time horizon is two-three years, can I enter JSW Energy at current levels?

Tulsian: People infact say see the present avatar of any company, but they have forgotten that even the JSW Steel has passed through that bad phase. If you recall Jindal Vijaynagar Steel, was merged with Jindal Iron and Steel and that’s how you have seen this new avatar of JSW Steel. We shouldn’t not forget that Jindal Vijaynagar, at one time, was ruling at 50% of its face value.

JSW Energy is a very excellent company, they went public may be some six months back at Rs 100 per share. We have been seeing now that it is ruling now at Rs 120. Presently they are on with 1000 megawatt of capacity. Infact they are holding some of the shares also, about 70 lakh shares of JSW Steel also along with them. But the ultimate target of JSW Energy is to set up the power plant of 10000 megawatt over net three-five years.

The kind of growth plans they have and the kind of financial structuring they have for the whole company, I am very much convinced with the stock, we wish that it becomes JSW Steel. The stock is capable to give a 20% annualised return and believe me if you can earn 20% annualized return and compound that you can give a very good return. May be if you compound it over six-eight years time, probably you will find a price of may be Rs 300 – Rs 400. I advice that since you have a horizon of three years, my advice is that JSW is almost ruling at its bottom, we have seen the stock moving up to Rs 130- Rs 132 in last month. But considering the results, considering the growth plan, promoters’ background, this is an ideal stock to have in students portfolio with two to three years horizon.

Q: We spoke to fair number of students. While some of them seem to have gone directly into stocks and are doing a fairly okay job with it in the sense that they are picking the right stocks, looking at a long-term horizon of three-five years, but one sees a tendency to make your first investment more in terms of a speculative investment. From a point of view of a student, how would you advise them to go about their whole financial planning?

Halan: It’s always very exciting to see the money multiply almost within a week, but I don’t want to be a party pooper and take that joy away. But yet if they are going to invest say Rs 100, maybe they could keep Rs 10 for that speculative investment and Rs 90 they could do say for mutual fund led investments. They advise always sort of remains the same, break up the amount that you want to invest into smaller bits and then you put it into the market, so the longer term, safer investment through the mutual fund route. But don’t let that excitement go at a younger age, you can take that risk little bit of playing with your money. So keep Rs 10 out of Rs 100 for speculation, but Rs 90 please go long-term.

Q: How critical is gold in a portfolio? There are various versions we get 5%, 10% but as a financial planner, what do you advise people depending on age, how much of a percentage should gold occupy?

Halan: These are retail portfolios, these are not so speculation. Again gold is just a hedge against inflation and it’s for quick liquidity, when you want money very quickly and both real estate and stock markets may be down. Between 5% and 10% really, depending on whether your children already grown up or not. If you already have married children, the need for that gold actually does reduce. But if you have got children who are going to grow up in the next ten years, it’s a fair strategy to keep 10% of your over all portfolio into the gold ETF (exchange-traded fund), that should work well.

Q: I have SIP (systematic investment plan) in the following:

Rs 1000/month In Reliance Growth SIP

Rs 1000/month In Birla FrontLine SIP

Rs 1000/month In Birla Tax Relief SIP

Should I continue to hold tem? And I want to buy one more SIP and I am willing to invest more Rs 1000 per month, so what should I do?

Halan: I mean what you are saying is absolutely bang on which is that once you diversify across too many funds what you are buying essentially is the index. So you may as well save on the fund management cost and buy the index through an ETF or an index fund. So what you have done good is that at nineteen you are already doing an SIP of Rs 3000, so what you can do a little better is maybe reduce those three into two schemes. You have got all three are good schemes, all three have done excellently, they have done well.

Reliance Growth used to be a mid-cap fund, now its half large cap half mid cap. It’s too large right now to give those mid-cap sorts of returns. So, all three are worth keeping, you could look at maybe moving the Reliance Growth into the Birla Frontline and collapsing it. But even if you do keep Reliance Growth, it’s not such a big problem.

For that extra Rs 1000 SIP, my suggestion would be to give your portfolio a mid-cap sort of a push, a growth push. You could look at the Nifty Junior BeES, it’s an exchange traded fund on the Nifty Junior and again you don’t need to monitor that fund, it would give you really good returns. If you look at numbers, last five year return, the index actually has given 24%, in the last year, the junior Nifty has done 141% that’s the Junior Nifty benchmark index. So do give this portfolio a little bit of a return kicker by putting a mid-cap fund into it. So you are doing very well, just do a little better with return kicker.

Q: What are the charts showing up for Essar Oil right now?

Agarwal: Essar is looking very sideways between somewhere around Rs 165 to Rs 125. The overall structure is not very-very tradable, except you like to trade in the range. If you are looking for a long-term view, I think I will like to explain a little on the market view which I have and that will have the bearing on most of my recommendations.

As I had also recommended last month on April 6, 2010 that we are reaching some where near the peak and 5400 would be almost the peak we would reach and exactly it made 5400 on April 7, 2010. After that we had a view that it may have some sideways movement between 5100 and 5400 and then it will break down, exactly that happened.

Now, what I feel it is just taking a pullback after the first leg of the fall has completed and we are in the second leg of that. Now, what we feel that the third wave should start like on the downward and we have quite a bearish view in the coming days and months. So definitely one should be cautious on equities as a class, not on any other share, but equities as a class, we can see a big fall possibly in the May end and latter on also. The targets are quite scary, like we are looking more towards 4000 rather than 5000 plus. So definitely I feel one should wait for the right time because timing has a very good bearing on the profits the investor can make. The same share which you buy at the right time can give you huge return and the same share you buy on the wrong time can give you a loss.

So I will definitely suggest after market has had a very good run in the last year to be little cautious. I am not saying just shun the equity altogether, but you have to be cautious and buy on sharp dips not on a very small dips. I feel if you can postpone your decision for two-three months or possibly five-six months you will have much better price to invest rather than now.

Q: I have 150 shares of RNRL at an average price of Rs 77 and 125 shares of NHPC at an average price of Rs 33. Should I purchase RNRL to average the price? What should I do with NHPC?

Tulsian: I am not happy with both the investments. First, if you want to take a call on RNRL because the moment they will go for re-negotiation, I do not know any shape, any term, any contract can emerge we may again see government see giving the direct gas supply to the eventual company of the ADAG group. In that case RNRL can totally be eliminated or by passed, so in that situation you are running a high risk of share price even falling to a great extent. A student having horizon of five years should not go in to these kind of stocks. I realise that you are already sitting on a loss of about 38% to 40%. JSW Energy, Reliance Industries, Larsen and Toubro, they are the kind of stocks one should look at.

If somebody wants to take a call in the power space, I think the second comforting stocks comes in mind is Adani Power and may be one can wait for the Sutlej Jal Vidhyut Nigam (SJVN) to get listed, which is likely to get listed may be about Rs 27 – Rs 28. If we have that kind of listing or even slightly lower than NHPC then shift from NHPC would also be advisable. But I advise now as of today to exit from both the stocks. As of today can move to JSW Energy, Reliance Industries, Larsen and Toubro, SBI, let them have these kind of stocks in the portfolio with a view of five years horizon.

Q: I have 400 shares of Power Grid at Rs 110. Should I hold or sell?

Tulsian: You have chosen on one analysis that this is a disinvestment candidate or there could be FPO (follow-on-public offering) prospects by the government, which in fact is right. The company is likely to tab the capital market somewhere in the month of September to December. But one should not forget that kind of response the government has been getting or government has got for their previous issues. They have almost made up their mind to give a discount of about 5% or set a price band of 5% lower than the prevailing market price. On top of it, they have been giving 5% discount to the retail investors. So in this scenario it is most likely that suppose if Power Grid is going with its FPO, the share price will all be made at a 10% lower than the prevailing market price. So in that scenario one should really avoid, number one.

Number two, if you see the price behavior of Power Grid in last one year, I do not think that share has moved beyond range of Rs 100 to Rs 120. If one has to take a median, it could just be about Rs 110 and it has been languishing at that level only. But, yes, this is a very strong player, they are controlling almost 50% of the transmission and distribution segment of the total power generation made in the country which itself is very high. They have huge capex plan going over next four-five years.

If you have a time horizon of five years, this is an excellent stock to remain invested. But as I said that since you are seeing an opportunity of acquiring the share may be in the two digit or may be at around Rs 100 in six months down the line. There is no point in remaining invested in the stock, one should not allow the investment to remain either stagnant or lose money over next six months if you have that certainty. So considering that my advice is that there is point in remaining invested in Power Grid. You should exit and may be take a call in some other stocks, either in the power or in the infrastructure segment.

Q: When he was talking about Power Grid it was more like many other investors who we see are particularly lured into the disinvestment story and the kind of rally that they expect or the potential rally that they expect to see in many of these stories. But like you were indicating Power Grid is a stock that hasn’t moved anywhere for sometime now, how would you caution these investors as to what the right way to approach these disinvestment candidates would be?

Tulsian: Suppose if you want to preempt on the story that since the government is going to go for the disinvestment and then we will be seeing the run up, that has really happened, we have seen NTPC moving to Rs 245 or may be Rs 250. But we have seen fate thereafter because that time market people had been saying that government will come out with FPO Rs 260 –Rs 270 that did not happen. See a student or a long-term investor cannot really indulge into these speculative elements. First, he must learn the mantra that he has to preserve his capital, that is the mantra for him that look for the safest investment where the downside is as low as may be 2% to 5%. As I said in Power Grid, you have the prospects of getting the share at 10% lower than the prevailing market price in next six months. So what is the point in remaining invested in that, number one.

Number two the trend of preempting or running the stock price have gone because we have seen the fate of three-four issues, so I don’t think that this will happen from here on. So one should refrain from taking a preemptive call on the stocks which are due or which are the candidates for disinvestments going six months down the line or 12 months down the line by the government.

Q: I have 100 shares of ICICI Bank at Rs 890 (Bought at the time of IPO). What is its target in the next six-twelve months?

Agarwal: I don't think that stock has much upside now; Rs 935 has been a very strong resistance in this pullback rally. We had actually given ‘sell’ call around Rs 920 to our clients with a stoploss of Rs 935. So my view remains the same Rs 935 may not be crossed. If it crosses Rs 935, then it may go towards Rs 960 to Rs 980. But I feel if you are looking for a long-term, till it has a strong close above Rs 1,015 on a stronger volume the stock may not go higher. It will languish between say Rs 860 and somewhere around Rs 1010. Below Rs 860, which happens to be its 200-day moving average, we have a complete exit from this counter because then it may come down to somewhere around Rs 600 also.

So the whole idea remains the upside is limited. So I will suggest exiting this counter at the current price and waiting for a big fall to enter again. The counter in long-term will give good returns because it's very fundamentally sound also. Around Rs 600 to Rs 650, it will be a compelling buy.

Published in MoneyControl.Com  on Fri, May 14, 2010 at 14:29

Updated at Fri, May 14, 2010 at 17:57
Source : CNBC-TV18