What do I do with my Gold ETF’s?

I believe that quite a few of my readers have investments in gold through the ETF route, as part of portfolio diversification.

Some of my readers have asked me this lately-  “what do I do with my Gold ETF’s – do I sell it? or do I keep it?.

There is no straight answer to this question as it depends on you and your ability to manage risks. But here is what I can share - my forecast of gold prices in the coming 12 months. You can take your call to sell or not to sell based on this forecast

Gold ETF's has given the following returns in the past 5 years:

• Returns in 2009 – 22%
• Returns in 2010 –21.5%
• Returns in 2011 -30.5%
• Returns in 2012 -11%
• Returns in 2013 - (-14%)
• Returns in 2014 - 3.5% till date (May end 2014)

Gold prices in India depend on two factors:

• Global gold price  - if this goes up, the price of gold in India goes up and vice versa
• USD/INR conversion ratio – if this goes up (means rupee is getting weaker) then the prices of gold in INR goes up and vice versa

For the next 12 months, the global price of gold is expected to be under pressure. It is easy to see the reason for this. The US economy is stable and the stock markets in US are doing really well. The EU economies are stabilising and the stock markets in EU too will be stable in the next 12 months. In such stable conditions, investors globally tend to exit gold and go towards stock markets (where there is better ROI). Hence the global prices of gold will be under pressure. This is visible in the chart below – the global prices of gold has been falling since 2012 mid (this correlates the US stock markets surge since 2012).

The USD / INR ratio is also expected to be in the range of 58-62 for the next 12 months. With the Modi govt in place, Indian economy should do better and the Rupee is expected to stay strong and that means that the rupee will be closer to 58 than 62.

Both these factors tell me that the gold prices in INR will not do well in the coming 12 months.

So here is my forecast - I believe that the ROI on gold will be below 10% in 2014. It will not be negative – but it will not be above 10%. So if you stay invested in gold, with a 10% inflation, you are technically losing money on gold investment.

So to sell or not to sell? - you take the call.

MF’s that you can invest now

With the election results behind us – I am sure you are looking forward and wondering if you need to rebalance your portfolio. The answer is YES.

If you been following my blog and investing accordingly, you should have invested in Pharma and IT sector focussed MF's. These sector funds gave returns of around 25% per annum in the last two years. Now the time has come to move out of these sectors as they are overvalued.  In the next one year these funds may not give great returns  - already for the past two months they are in the negative zone.

Hence it is best to sell these funds. If you have invested in these funds in the past 12 months – you will be charged 1% of the value as exit load plus you will need to pay tax on the capital gains based on your tax slab.

Looking forward, I think the funds to invest in now are large cap and mid cap funds. I personally prefer HDFC Top 200 and HDFC Mid Cap Opportunities fund. There a few more large and mid cap funds that you can look at –  

• in large cap catogory you can look at ICICI Pru Focussed Bluechip equity fund
• in mid cap you can look at IDFC premier Equity-A and ICICI Pru Discovery fund .

There are also the banking sector focussed funds that are doing well already - In case you want, you can invest in the Reliance banking fund.  This fund has already gone up by 40% in the past three months and so I am not sure how much more it will go up now.

The basic assumption behind choosing these funds is that ther new government will take measures to improve the GDP growth  rate from the current 4.5%  - if that happens, these funds will surely give about 15-20% per annum.

 

Related post –

 http://mbaclassdiscussions.blogspot.in/2014/04/where-to-invest-post-elections.html

My equity calls - one free service that you may be missing

I get a feeling quite a few of my readers do not know that I have a Private mailing list for equities. Whenever I buy or sell a stock, I share it with this Private mailing list for equities (I call it PMLE).

I believe that equity investing is not for everyone and hence, by design, I have reduced sharing my equity investing ideas through my blog where I primarily share investing ideas in all other areas such as Mutual funds, Real estate, Insurance, Gold etc.

So in case you are reading my blog and are already investing in equities (or are interested in equities) and did not get a mail from me today on my latest stock pick – please write to me at rajasekharan.sg@gmail.com and tell me to add your name to my Private mailing list for equities (PMLE).

 My stock investing style is long term based on fundamental analysis. Here is my stock portfolio performance as of today vis a vis the Sensex

Here is the mail that I sent today to my Private mailing list for Equities (PMLE)

Here is one stock that does not depend on Election results

I know most of us are waiting for election results now – looking at whether NDA will come to power without any outside support. If that happens, Bank stocks ( SBI, ICICI, HDFC bank etc) and Infra stocks  ( BHEL, L&T, ABB) are going to be everyone’s favourites as there is a good chamce that their prices will go up in a comparatively short period of time (less than one qtr).

Now here is a company that really does not depend on stable govt.

In the past two years, it has given me 132% returns (52% per annum) and I am happily holding it still, as I believe that it will continue to perform in the future. It's 10 year compounded average growth rate of  EPS (CAGR)  has been a whopping 40%. - which means the company's per share profits is growing at 40% per annum. It has an average Return on Equity for the past 10 years of 54%.  and the ROCE for the past 10 years has been 29% -both of which is very good. And the stock has been going up steadily (the key word is “steady”) – here is the graph and  you can see how "steady" has been the price climb.

The 2013-2014 annual results is yet to come but the past three quarters the performance has been superb and the company continues it’s upwards trajectory. 

The company is Page Industries.  A Bangalore based mid cap that is better known for it's brand JOCKEY

What I like about the company is it’s brand power and it's continuous efforts to grow the brand and the distribution. I have been watching it closely for three years now and I know some people who have dealt with the management of Page industries and as per them these folks are honest, trust worthy and surely they know their job.

I am further investing in it with a 3-5 year timeframe at the current price of around 6020 -6050. I believe it will give me 30% per annum returns and that is all that I am aiming for. I am not looking at multi-baggers. 

Here is my stock price projection calculations based on the past 10 year data -https://dl.dropboxusercontent.com/u/73601331/Page%20industries.xlsx