Fund Switching Advice as on 5 Oct 2007

Friends,

There was some sobering of market on Friday, 5 Oct 07, when the Sensex closed at 17773 (Nifty closed at 5173) almost after a continuous rise for over last thirty sessions. While main index has been moving up so much, the broader indices have not kept pace and all the gains are under influence of large stocks. The Reliance Pack has actually added most of the incremental points. The news through out has not been good and still we have seen this kind of behavior. The reason is not far to seek and it has been the FII money inflow that has done the trick. What is still unknown who these foreign players are and whether the local operators have any truck with them. The FM has gone to the extent of advising the members of public to be cautious in investing which is very rare from such quarters. SEBI, keeping a watchful eye, has reason to believe that what is going on is not normal, and suspects some old groups to be back in market.

More than 100 stocks have PE ratios in excess of 100 today while number of such stocks was 80 when the Sensex was at 14000 level. High PE denotes high expectations. The catch is that the expectations may be belied without any one to blame as the investing class itself has built up the expectations. Even company managements have given some projected figures of performance and an idea about high profitability, the promise is still not there. Even if there is a promise, it may still not come true as there are innumerable factors at play and things may not remain in such equilibrium, as it is necessary. The gullible are being pushed into believing that there are no risks, just as the prices keep moving up. In fact high profitability areas keep attracting higher investments and the present times give way to gloomy times due to unabsorbable capacity additions. Only a monopolistic hold on the production front, raw material front, technology, markets etc and the brands' unmatched acceptability may deliver ever-increasing results but only at a slower rate, otherwise, any high profit industry is vulnerable to see bad times ahead. My simple words of caution and hope are 'BEWARE OF RISK IN HIGH EXPECTATIONS AT HIGH POINT IN MARKET AND BE COURAGEOUS ENOUGH TO HARBOUR HIGH EXPECTATIONS AT LOW POINT IN MARKET'.

I advise the ULIP Policy Holders to switch in to safety of 'secured fund' completely and switch back in to 'growth fund' at the rate of just 10% at the end of every month from now onward, till you find a fresh advice here.

Needless to say, this advice is as per my understanding and is no binding on you and you are best to judge where your interest lies.

Hari Om

Krishna Kumar Khandelwal