Deciding to invest in a sector may not be challenging but choosing the sector definitely is.

One of the ways to pick a sector is to look at its medium-term prospects. Though sector funds are riskier than diversified funds, invest in a sector which has a good potential in the near term. Hence, the investment tenure too should be a minimum of 2-3 years like diversified funds.

While choosing a sector, avoid investing into a sector which has seen a sharp rise in a short span of time. Though retail investors always tend to chase sectors which are in the news or companies which have seen a sharp upside, such a strategy will only increase the waiting period for investors.

For instance, the flood of IPOs from the construction sector had taken the share prices of many construction and realty sector stocks to dizzying heights, a year ago. Now the sector heads the list of non-performance ones and those who didn’t book profits earlier, have seen huge erosion in value. As a result, investors who made their investment at higher levels will have to wait for a good 3-5 years to see good returns. In fact, one of the big risks associated with a sector is that the performance tends to get cyclical and the investor should have the ability to hold on to his investment.

Besides keeping away from hot sectors, investors would also be better off if they choose sectors which are more dependent on domestic consumers. For instance, sectors like FMCG, retail, services, infrastructure and media are a reflection of the economy though policy changes relating to the sector could have some short-term implications. Infrastructure, for instance, is a typical example which offers good growth potential in the long term.

• Sensex down 1132 to 8640. Nifty (worst fall ever) down 386 to 2557. #

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If there ever was a time when the government needed to overreact to a situation, it is now. The drying up of global liquidity after the bankruptcy of Lehman Brothers has hit financial markets across the board in India with astounding ferocity and speed.

And with that, market uncertainty has spiked to unprecedented levels; rarely have we seen the stock market change direction by 500 points or more in a day, these many number of times, in this short a time. In this environment of hyper-uncertainty, traders, investors and businesses are likely to have overreacted and prices of equity, bonds, foreign exchange have probably overshot their fair valuations.

To increase rupee liquidity cutting CRR to 5 per cent and SLR to 20 per cent, making oil and fertiliser bonds SLR-eligible, increasing the range of repo-eligible assets and even providing insurance against counterparty risk in interbank transactions is the key. To raise dollar liquidity in a predictable manner, setting up a weekly dollar-swap facility against rupee-denominated assets and investing part of the foreign exchange reserves in one-year deposits in foreign branches of Indian banks is the way to go.

Rajiv Mundra has a keen eye for the markets and he has the following post on his Google Group.

Details here Buy & go to sleep for 4-5 years!

Sensex opened with a negative gap of 242 points at 12,284 on the back of negative cues from the global markets. Sensex finally ended with a significant loss of 725 points at 11,802. The market breadth was extremely negative, as advance decline ratio pegged at 0.12

While the financial crisis has felled several international banking giants, closer home, it is the banking sector funds that have outperformed all other categories of funds over the last three months.

Seven of the 10 top performing mutual fund schemes during the July-September quarter were banking schemes, including banking ETFs, says data provided by Value Research. 

The banking sector funds have given an average return of 4.72 per cent for the period, while Gold ETFs have given a 4.26 per cent average return. Equity diversified schemes have recorded negative returns of 5.62 per cent, according to the research firm.

The benchmark index, Sensex, was down by 4.47 per cent, and the S&P CNX Nifty down 2.95 per cent during the July-September quarter.

The banking stocks performed well as they had under-performed badly in the months before the quarter, said Mr Satish Ramanathan, Head of Equities, Sundaram BNP Paribas Mutual Fund.

While the BSE-Bankex was up by 9.51 per cent for the three months ending September 30, it had fallen by more than 23 per cent during the first quarter of the financial year.

While Gold ETFs couldn’t give returns as high as banking funds in the three-month period, they have logged the highest returns of all categories during September, as well as for the six months ended September 30.

Investors can buy the units of HDFC Prudence, a balanced equity-oriented fund, considering its long-term track record in delivering returns and ability to contain downside as a result of hedge offered by its debt exposure. The fund?s balanced structure may, however, limit it from benefiting as much as top diversified equity funds during market rallies. It may, therefore, be suitable for investors with a low-risk appetite.

Over a five-year period, HDFC Prudence is one of the best performing balanced funds with a return of 26.8 per cent compounded annually. This compares favourably with a good number of diversified equity funds. With a mandate that allows it to move to debt substantially, the fund may be well placed to not only contain downside risks from equity but also benefit from rallying interest rates.

Performance: HDFC Prudence has managed to beat its benchmark ? the Crisil Balanced Fund index ? over a three and five-year period. While it has trailed its benchmark over the last year it has, nevertheless, managed to contain losses better than indices such as the Sensex and the Nifty. The fund has, over a long-term period, delivered returns superior to peers such as FT India Balanced and DSPML Balanced fund.

During market rallies, the fund may not be able to fully participate to deliver superlative returns, given its debt exposure. It may at best deliver steady returns. The fund has so far retained its bias for equity (about 75 per cent of assets at present) and kept its debt holding limited when compared to other balanced funds. But importantly, during phases of market fall the current year, the fund has contained losses better than its benchmark.

Strategy: HDFC Prudence has around 40 per cent of its portfolio in midcaps (with less than Rs 7,500 crore market cap) stocks and has retained this proportion for over a year. This strategy worked well for the fund during last year?s market rally. The fund also invested in momentum sectors such as capital goods, banks and power. It does not indulge in heavy churning in sectors. But exposure to defensive sectors such as pharmaceuticals and consumer non-durables has seen an increase.

http://personalfinance201.com/mutual-funds/

Mr Kenneth Andrade, Vice-President of Equity at IDFC Mutual Fund, having over 14 years of experience in equity research and fund management, spoke to Business Line about the mutual fund scenario in the country.

Infrastructure Development Finance Co (IDFC) took over Standard Chartered?s mutual fund business in India in March. Currently, the fund house manages assets under management to the tune of Rs 12,255 crore.
What do you have to say about markets at this point?

In the current macroeconomic environment, equities are not the most-favoured asset class, so there is a lot of money going into alternative assets, and as long as the fixed maturity plans, and debt markets continue to give double-digit returns, the appetite for equity will be low. I think that the way we are valued or the way the market is trading, we have a market which is already reasonable in terms of multiples.

retweeting @manuscrypts

with a name like that, its no wonder that the sensex gets screwed regularly problem is I do too, by association!

Investing in the equity market directly is exciting and rewarding over a long period.

But the volatility and the information overload make it a very difficult task.

It is important to understand that everyone has different financial goals and risk appetite. So the first step would be to be aware of your own financial goals and your risk profile before you take a d ip into the Stock Markets!