The top 5 equity funds

2005 is likely to be remembered as a year when the two major mutual fund segments, i.e. equity funds and debt funds, pitched in starkly divergent performances. While equity funds (much to the glee of investors), rode the bull run, investors in the debt funds segment had little reason to cheer.

Equity markets took off from where they closed last year and continued to scale record highs. The BSE Sensex appreciated by more than 40% during the year and even breached the 9,000 points mark. Equity funds benefited from the rally to clock impressive returns.

2005: Top-performing diversified equity funds

Diversified Equity Funds	NAV (Rs)	Assets (Rs m)	3-Mth (%)	1-Yr (%)	3-Yr (%)	SD (%)	SR (%)
MAGNUM EMERGING BUS. (G)	23.12	1193.5	0.87	78.26	-	7.07	0.74
MAGNUM GLOBAL FUND (D)	21.62	2988.1	6.98	77.14	80.95	7.60	0.55
PRUICICI EMERG STAR (G)	19.83	5722.5	7.07	71.24	-	8.27	0.58
MAGNUM CONTRA FUND (D)	21.46	4329.4	5.77	70.46	81.42	7.53	0.52
MAGNUM MULT PLUS (D)	32.28	3109.5	9.68	66.95	69.00	8.54	0.36

(Source: Credence Analytics. NAV data as on December 28, 2005, Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)

Fund houses made the most of the rising markets by launching a number of new fund offers. For the uninitiated, NFO is a new term coined by the mutual fund industry after the regulator objected to fund houses referring to new launches as IPOs.

The year began with mid cap stocks outperforming large cap stocks. Fund houses were busy launching NFOs of the mid cap and flexi cap variety. This was followed by a slew of theme-based funds. Every opportunity right from growing consumerism to competitive strengths in outsourcing and manufacturing among other areas, was presented as an attractive 'investment theme.'

However, towards the later half of the year, good old large cap stocks made a comeback to score over their mid cap peers. Expectedly fund houses took a U-turn and launched large cap NFOs, despite already having large cap funds in their kitty.

Close-ended funds also made a comeback with fund houses finally waking up to the advantages of investing in equities for the long-term. Tax-saving funds (also termed as ELSS) came to the fore, thanks to the changes made in the budget. The erstwhile Section 88 which contained sectoral caps on various tax-saving instruments was replaced with Section 80C.

In the new tax regime, sectoral caps were removed. As a result, the 'eligible' investment limit in tax-saving funds grew from Rs 10,000 to Rs 100,000. This bodes well for high-risk investors as they can now conduct their tax-planning exercise in line with their risk profile. This year also saw fund houses bundle their offerings with insurance products.

The mutual fund industry witnessed a fair degree of churn in fund managers. In some cases, the fund manger's time of exit was inopportune and unfair to investors. This highlighted the need to invest in funds from process-driven houses rather than being married to the fund manager.

Debt fund investors on the other hand had a rather docile year. The uncertain interest rate scenario coupled with fears of rising inflation took their toll on the performance of debt funds. The gravity of the situation was not lost on the authorities either.

It was decided that the monetary policy review would be conducted on a quarterly basis. Repo and reverse repo rates were revised upwards during the year perhaps indicating an upward trend in interest rates going forward.

Capital preservation became the mantra for debt funds in 2005. Fund houses launched close-ended schemes with a fixed maturity wherein the yield is locked at the time of investment.

This ensured that investors would receive the stipulated return on maturity. These funds typically invest a tiny portion of their corpus in equities to provide the much-needed impetus to returns.

What investors can expect in 2006

While it would take a soothsayer to foretell how the markets will behave in 2006, we believe over a 3-Yr time frame, equity fund investors can expect a return of 15% CAGR (compounded annualised growth rate).

However the key will lie in being invested in the right funds. With markets trading at record highs, some might be tempted to take on higher risk for clocking superior returns. We advise investors to steer clear of such temptations and adhere to their asset allocation.

Now is as good a time as any, to create a portfolio which can help you achieve your long-term needs. Also investors would do well to block all the noise coming their way in the form of NFOs.

Rather they should build a comprehensive portfolio of conventional 'bread and butter' equity funds with proven track records from established and process-driven fund houses.

Debt fund investors should consider investing in floating rate and short-term funds until a more stable investment environment emerges.

For investors looking at a slightly higher return than the conventional debt fund, Monthly Income Plans can also be considered, but the higher degree of risk on account of the equity component must be factored in.

Great investment tips for 2006

Compared with the glamour of stocks and the impressive returns, they have offered in the past couple of years, investment avenues in the debt market have hardly been in focus. Can't blame them, though considering the fact that real return of interest that one earns on a majority of debt instruments may actually be in the negative.

Cruel as it may sound, the chief investment officer of a leading domestic mutual fund puts the plight of debt instruments in perspective. "Debt is dead," he said. While there is no doubt that investing in debt is not the hippest idea going around, it has to be noted that these instruments exist for a reason.

To put it simply, debt investing continues to be the safest option if you are a risk-averse investor. Here is a look at some of the best investment options available in the debt market depending on one's time frame and investment needs.

Short-term: Bank FDs still best bet

Despite the declining allure of bank fixed deposits, the fact remains that they still offer the most attractive returns for the short-term. These deposits offer rates around 5-6 per cent for the deposits from 45-days upto 180-days. In the recent months bank deposit rates have really shot up with liquidity in money market being tight.

So while deposit rates have gone through the roof, liquid funds have suffered a serious setback. Liquid or cash fund returns have dwindled due to the turmoil in debt markets. Over the past three months, for instance, liquid fund returns have given an abysmal return of 1.2 per cent.

Even though debt markets should stabilise and cash fund returns should soon get back to 4-4.5 per cent, experts advice investors to play safe and remain put with deposits for now. Even if an investor has to pay a one per cent penalty for early withdrawal, your money is safer in the bank lockers.

Medium-term: Float to gain

The adverse changes in the macro-economic indicators like rise in inflation or interest rates or changes in the global indicators generally affect the prices of the long-term maturity securities more than the short-term securities.

So income funds and gilt funds are still eminently avoidable. One good option is the fixed income plans of mutual funds. With FMPs you can escape the volatility in mutual funds.

The fixed maturity plan is an income scheme that allows saving only during the initial offer period. They provide an easy route to invest in different types of bonds that include money market instruments, corporate bonds and the government securities.

These funds typically act more like a close-ended scheme. On a one-year period these funds have managed an average return of 5.35 per cent. The fair predictability of the returns is the striking feature of these plans, which have made them popular.

FMPs come in different maturities ranging from quarterlies to five years. They combine the safety of fixed-deposits with the tax efficiency of mutual funds, which makes them extremely popular.

According to a few investment advisers the fixed investment plan offered by the funds has taken the sheen away of the fixed deposit programs offered by the banks and blue-chip companies. That is because FMPs with 13 month maturity are great as they can avail of double indexation benefit which can substantially reduce the tax burden.

Investors could also consider taking an exposure to monthly income plans, if they are willing to take a bit of equity exposure. MIPs usually have an exposure to equities in the range between 15-20 per cent on an average.

With equity markets still offering potential for steady returns, MIPs can deliver better returns than plain vanilla debt funds. The average MIP returns for the past one - year period are around 10 per cent.

For pure debt fund investors, floating rate funds offer the best option at present. These funds typically invest in floating rate securities or floaters as they are called in market terminology. The one-year returns on the floating rate funds are 5.25-5.75 per cent. What edge do a floating rate bond have over the conventional fixed tenure bond?

The answer lies in the inverse price-yield relationship of bonds. Bond prices fall when interest rates rise, and vice-versa. Consider a five-year bond that pays a fixed rate of 4.75 per cent. What if the five-year rates rises to 5.25 per cent after you buy the bond? The price-yield relationship tells us that the bond price will fall to yield 5.25 per cent -- the yield that a new 5-year bond will fetch in the market.

The FRBs as the name suggests do not have a fixed coupon (interest rate) but have a variable coupon, which are based on the pre-determined benchmark and the coupons are adjusted periodically unlike the fixed income instruments carrying a fixed coupon. Any change in interest rate or inflationary pressures are likely to have the minimum impact on the floating rate funds.

Small saving schemes

These conventional instruments are at the services of risk averse investors for a longer term, while providing for decent returns. Public provident fund is the most popular small saving scheme by far, with an offer of 8 per cent per annum the scheme has maturity of 15 years. It is a decent instrument for tax saving as PPF subscription entitles for deduction u/s 88 of the Income Tax Act.

National saving certificates are next in line with entitlement for tax exemption u/s 88 of the IT Act. The rate of interest is 8 per cent p.a. compounded half-yearly. The major drawback is liquidity as withdrawals are allowed only in specific instances like death of the holder, court order, or forfeiture by pledge.

Kisan Vikas Patra is a doubling instrument for investors who have less tax concerns. The instruments double the returns in eight years and seven months. But it does not offer any tax benefit and the investor has to bare the tax liability. It benefits over other instruments as it offers liquidity after an initial period of two-years and six months.Post office time deposits are available for period ranging from one year to five years.

The range of rates offered varies from 6.25 per cent to 7.50 per cent. Post office monthly income plan offers monthly income with the return on investment of 8 per cent p.a.

Great investment tips for 2006

Compared with the glamour of stocks and the impressive returns, they have offered in the past couple of years, investment avenues in the debt market have hardly been in focus. Can't blame them, though considering the fact that real return of interest that one earns on a majority of debt instruments may actually be in the negative.

Cruel as it may sound, the chief investment officer of a leading domestic mutual fund puts the plight of debt instruments in perspective. "Debt is dead," he said. While there is no doubt that investing in debt is not the hippest idea going around, it has to be noted that these instruments exist for a reason.

To put it simply, debt investing continues to be the safest option if you are a risk-averse investor. Here is a look at some of the best investment options available in the debt market depending on one's time frame and investment needs.

Short-term: Bank FDs still best bet

Despite the declining allure of bank fixed deposits, the fact remains that they still offer the most attractive returns for the short-term. These deposits offer rates around 5-6 per cent for the deposits from 45-days upto 180-days. In the recent months bank deposit rates have really shot up with liquidity in money market being tight.

So while deposit rates have gone through the roof, liquid funds have suffered a serious setback. Liquid or cash fund returns have dwindled due to the turmoil in debt markets. Over the past three months, for instance, liquid fund returns have given an abysmal return of 1.2 per cent.

Even though debt markets should stabilise and cash fund returns should soon get back to 4-4.5 per cent, experts advice investors to play safe and remain put with deposits for now. Even if an investor has to pay a one per cent penalty for early withdrawal, your money is safer in the bank lockers.

Medium-term: Float to gain

The adverse changes in the macro-economic indicators like rise in inflation or interest rates or changes in the global indicators generally affect the prices of the long-term maturity securities more than the short-term securities.

So income funds and gilt funds are still eminently avoidable. One good option is the fixed income plans of mutual funds. With FMPs you can escape the volatility in mutual funds.

The fixed maturity plan is an income scheme that allows saving only during the initial offer period. They provide an easy route to invest in different types of bonds that include money market instruments, corporate bonds and the government securities.

These funds typically act more like a close-ended scheme. On a one-year period these funds have managed an average return of 5.35 per cent. The fair predictability of the returns is the striking feature of these plans, which have made them popular.

FMPs come in different maturities ranging from quarterlies to five years. They combine the safety of fixed-deposits with the tax efficiency of mutual funds, which makes them extremely popular.

According to a few investment advisers the fixed investment plan offered by the funds has taken the sheen away of the fixed deposit programs offered by the banks and blue-chip companies. That is because FMPs with 13 month maturity are great as they can avail of double indexation benefit which can substantially reduce the tax burden.

Investors could also consider taking an exposure to monthly income plans, if they are willing to take a bit of equity exposure. MIPs usually have an exposure to equities in the range between 15-20 per cent on an average.

With equity markets still offering potential for steady returns, MIPs can deliver better returns than plain vanilla debt funds. The average MIP returns for the past one - year period are around 10 per cent.

For pure debt fund investors, floating rate funds offer the best option at present. These funds typically invest in floating rate securities or floaters as they are called in market terminology. The one-year returns on the floating rate funds are 5.25-5.75 per cent. What edge do a floating rate bond have over the conventional fixed tenure bond?

The answer lies in the inverse price-yield relationship of bonds. Bond prices fall when interest rates rise, and vice-versa. Consider a five-year bond that pays a fixed rate of 4.75 per cent. What if the five-year rates rises to 5.25 per cent after you buy the bond? The price-yield relationship tells us that the bond price will fall to yield 5.25 per cent -- the yield that a new 5-year bond will fetch in the market.

The FRBs as the name suggests do not have a fixed coupon (interest rate) but have a variable coupon, which are based on the pre-determined benchmark and the coupons are adjusted periodically unlike the fixed income instruments carrying a fixed coupon. Any change in interest rate or inflationary pressures are likely to have the minimum impact on the floating rate funds.

Small saving schemes

These conventional instruments are at the services of risk averse investors for a longer term, while providing for decent returns. Public provident fund is the most popular small saving scheme by far, with an offer of 8 per cent per annum the scheme has maturity of 15 years. It is a decent instrument for tax saving as PPF subscription entitles for deduction u/s 88 of the Income Tax Act.

National saving certificates are next in line with entitlement for tax exemption u/s 88 of the IT Act. The rate of interest is 8 per cent p.a. compounded half-yearly. The major drawback is liquidity as withdrawals are allowed only in specific instances like death of the holder, court order, or forfeiture by pledge.

Kisan Vikas Patra is a doubling instrument for investors who have less tax concerns. The instruments double the returns in eight years and seven months. But it does not offer any tax benefit and the investor has to bare the tax liability. It benefits over other instruments as it offers liquidity after an initial period of two-years and six months.Post office time deposits are available for period ranging from one year to five years.

The range of rates offered varies from 6.25 per cent to 7.50 per cent. Post office monthly income plan offers monthly income with the return on investment of 8 per cent p.a.

Check out these 14 great stocks

Will 2006 be a crash year or a euphoric year? Or will it be a year of modest returns? The spectacular rally witnessed since 2003 has put stock market experts in a conundrum. Over the past two decades, bull runs in India have not lasted for more than two and a half years.

The only exception to this was the run from 1989 to 1992. However, the last year of that particular bull run was driven by the liquidity slush created by Harshad Mehta. With two and half years of bull run behind us, could this year be the grand finale with a euphoric spike?

While there is no question that stocks look a lot more expensive than the past few years, valuations do not look to be at unsustainably high levels. Retail investors have largely been spectators in the current rally and the retail hysteria, which accompanies every market boom is yet to materialise.

Even as stocks tread into uncharted territory, every step has been marked with caution (read intermittent corrections) till now. Considering that greed has still not taken over the market, one could probably say that the euphoria is yet to begin. But that may not be something one could count on.

The big money is behind us

Since the beginning of the rally in May 2003, the Sensex has more than tripled buoyed by fantastic foreign fund flows, which have been backed by solid corporate performance. Earnings have grown over 25 per cent per annum over the past four years, but now expectations are that growth will slow down though long-term story still remains intact.

Though topline growth would be strong, companies will find it difficult to keep up their bottomline growth. Savings on interest costs and salaries are already at rock bottom and may be set to rise marginally while depreciation expenses will begin to rise with plant expansions underway.

Analysts predict that earnings growth for the year would be around 15 per cent. So stocks which already seem to be trading at a notch above what earnings can justify, market returns can at best mimic earnings growth.

Mantra for 2006 - quality first

As bull runs progress, mid and small caps tend to outperform their bigger peers. In several sectors the valuation gap between large and small companies has narrowed considerably making a strong case for investing in established companies with a track record than those, which are driven by hope and faith.

With this in mind we have drawn out a portfolio, which should beat the Street this year. We have picked stocks hoping that the two main driven of the domestic economy - consumption and infrastructure will continue to do well this year too. Besides, we have also picked some stocks because we think they are ripe for a re-rating or have some hidden value, which can get unlocked.

A V Birla Nuvo

Nuvo was born after the three-way merger between Indian Rayon, Indo Gulf and Birla Global. The idea of integrating these diverse businesses under one umbrella was to ensure that the value businesses or its cash cows are used to feed the cash hungry high growth business.

Currently, the company houses value businesses such as insulators, VFY, fertilizers, textiles, carbon black and high growth business like garments, financial services, telecom and IT and IT enabled services.

Analysts peg the valuation of the telecom and insurance at roughly Rs 200 each. Stripping that part off the current price of Rs 667, the stock looks cheap.

Amtek Auto

Amtek Auto seems to be a good play on the auto ancillary industry, which is touted to be the next big outsourcing beneficiary after software services. Amtek Auto is the only player in the country with strong presence in both forgings and casting and with capacity to supply finished components to global original equipment makers.

The company has acquired seven companies in the past five years, which helped it attain critical scale and geographical spread. The company is likely to end the year with Rs 2800 crore (Rs 28 billion) of revenues and Rs 220 crore (Rs 2.2 billion) of profit after tax. Based on the current market price Rs 297, the stock trades at price multiple of 14 times FY07 earnings.

Compared to that, Bharat Forge, the leader in the business and darling of the bourses, enjoys a P/E of over 20 times. The reason why the Amtek Auto stock is going cheap is that the market perception about the company's management isn't anything to write home about.

But like Warren Buffet, when the reputation of the management and the reputation of the business are pitched against one another, it is the reputation of the business that prevails. Amtek may not deserve the same valuation as Bharat Forge but the differential should begin to narrow as business dynamics continue to remain strong.

Clariant India

Clariant is an indirect play on the textile sector. The Indian arm of the global leader in specialty chemicals, Clariant is a market leader in dyes and specialty chemicals and caters to catering to textiles, leather and paper industries.

While the textiles sector looks to be on the fast track, most textile companies have only disappointed in terms of financial performance. One way to capture the growth in textile sector may be through key suppliers with good market position like Clariant.

Recently, the parent approved the merger of Clariant and three other subsidiary companies with Colour Chem. The swap ratio for Clariant shareholders is 1:1. The combined entity called Clariant Chemicals (India) will have sales of around Rs 800 crore (Rs 8 billion) and net profit of Rs 44 crore (RS 440 million) in FY06.

Share of Clariant in the profitability of the combined entity is expected to be the highest, though in the terms of sales, share of Colour Chem in the combined turnover will be a tad higher.

Given government's ambitious goal of growing Indian textile exports to a level of $50 billion by 2010 from the current $14 billion and number of global players like Walmart making a beeline for sourcing Indian garments, a lot more efforts will have to diverted to augment India's capability in processing and finishing of fabrics.

Also India's leather industry has also been emerging among the top 10 export earners and they are more into value added products like footwear, garments etc. Thus analysts believe that the company is likely to cash in on this opportunity due its leadership position.

Divi's Laboratories

While the analyst perception of big pharma currently not too positive, it is the mid-cap pharma segment that is coming into focus. Hyderabad-based Divi's Laboratories is said to be among the most attractive in this segment. A big chunk of company's business is derived from active pharmaceutical ingredients.

The company enjoys a leadership position in some of the products by virtue of being one of the top three global suppliers of Diltiazem and Naproxen. Divi's is focussing on filing more DMFs (drug master files) as it tries to enhance its offerings.

The company's strategy is to target only few compounds and be a major player in them. The company is also trying to enter into long-term sourcing contracts for some of the bulk drugs, which are expected to enhance topline.

Apart from APIs, Divi's also provides custom synthesis services in all three phases of clinical trials to leading global innovator pharmaceutical companies.

Analysts note that this is a high-margin business and has large potential for upside. The company has also entered into an agreement for contract manufacturing for seven years.

However, future growth drivers are expected to be peptides and carotenoids (recognised for their usefulness in treating cancer and heart diseases). Given the limited competition and higher margins in these segments, Divi's head start is expected to stand it in good stead.

Management expects a 15 per cent topline growth in FY06E and FY07E, excluding the contribution from carotenoids. Though analysts expect Divi's to grow at a steady pace, they note that it could surprise on the upside. The stock trades at Rs 1525, on a trailing 12-month P/E of 28x.

Engineers India

State-owned Engineers India has a strong foothold in the business in which it operates. An engineering and technical service provider with predominant focus on the oil and gas sector, Engineers India's performance is linked to the growth in the sector.

Growth in demand for petroleum products is resulting in a shift from surplus refining capacity in the country to projected shortages in the medium term.

New refinery projects at Paradeep, Orissa, Bhatinda, Punjab and Bina along with a slew of other expansions are expected to take-off in the near future. Even around the world, the refining sector is marked with capacity constraints and shortages.

Further, major investments in the gas sector including the gas exploration and production in Krishna Godavari basin, LNG terminals, cross country pipelines and the expansion in the downstream petrochemicals sector will also usher more growth opportunities.

The company is also diversifying into several new areas including highways and bridges, airports, mass rapid transport systems, ports, power projects etc. This should ensure that the company will benefit from the continued thrust on infrastructure too. Last fiscal the company booked new orders worth Rs 652 crore (Rs 6.52 billion). The company should be a steady performer.

Glaxo Pharma

With the US generics markets getting tougher, domestic pharma companies have suffered a serious setback. On the contrary, multinational pharma companies look well poised to take advantage of the vast domestic market. Glaxo SmithKline Pharma looks interesting with a strong parent to support and some product launches in the pipeline.

The company's growth will be driven by in-licensed brands and two launches from its own global product portfolio. GSK India has been exploring opportunities for licensing new products, which will suit to its currently focussed product portfolio.

The company is also exploring options like brands and company acquisitions in the domestic as well as overseas markets. Moreover, parent company Glaxo SmithKline Pharmaceuticals Plc is planning to make GSK India's Thane manufacturing facility a global sourcing hub for active pharma ingredient for its top selling steroid - 'betamethasone'.

Analysts expect the company to grow about 15 per cent in the next couple of years but there could well be positive surprises. The company is cash rich and cash per share amounts to Rs 130 per cent. Stripping this cash off its prices, the stock trades at Rs 1121.75. Based on an estimated FY07 EPS of Rs 44, the commands a P/E of 25x.

ICICI Bank

ICICI Bank, the largest private sector bank in the country, looks like the best retail banking play. The bank seems to have transcended its turbulent times with non-performing assets now down to 1 per cent.

With 2600-odd branches and ATM networks, the bank is a household name and has the biggest retail book of Rs 60000 crore (Rs 600 billion) on a total loan book of Rs 1,89,000 crore (Rs 1890 billion). Retail loans would continue to be the main growth driver for the bank.

That apart, the bank has built a strong technology backbone, which has helped it keep its costs low. More than 70 per cent of the bank's transactions are done through the Internet, which helps to keep its manpower requirement low.

Having raised $1.8 billion through the public issue last month, the company is unlikely to be constrained for capital to feed its future growth. Currently, its capital adequacy stands at close to 17 per cent. Another significant driver for the bank is the three subsidiaries - its insurance, broking and asset management businesses.

ITC

When the markets look overheated, ITC is usually touted as a good play thanks to its defensive strengths. But that is not the only reason we are recommending the stock in our 2006 portfolio. ITC has undergone a transformation from a tobacco major to a fast growing consumer company.

The company is a play on the consumer sector and has a good chance of capturing the growth in the foods segment in which it has been increasing its presence steadily.

On top of this, its e-chaupal strategy should bear rich fruits in the long haul as it will help the company reduce its procurement costs (of farm inputs) apart from developing an alternative revenues stream through distribution. The investments it is making in real estate though fairly small as of now, has the potential to appreciate significantly over time.

The company's mainstay, the tobacco business is seeing steady growth even as its three other businesses, paper, hotels and foods are also showing good momentum. Both the hotels and paperboards business have seen a cyclical upturn in the past year and are expected to do well this year too. According to analyst estimates, topline is likely to grow around 15 per cent while better margins should ensure that bottomline grows at a faster clip.

Maruti Udyog

Maruti has been an outstanding performer in the past three year with tremendous improvement in productivity. The success of its newly launched Swift, which sells about 5000 cars a month has also effectively addressed the issues with its ageing portfolio.

Over the past three years the company has improved its operating margins from four per cent to 13 per cent, on the back of higher volumes, better product mix, significant productivity improvements. With its new diesel plant to be commissioned in end 2006, Maruti will see even more exciting times as its small diesel car should be a roaring success.

This is especially true in a situation where oil prices remain high and the differential between petrol and diesel remains high. Based on an estimated FY07 EPS of Rs 46, the stock (Rs 635.80) trades at a P/E of 13.8x.

Mphasis BFL

The worst seems to be over for software and back-office service firm MphasiS BFL has delivered decent growth in the second quarter of the FY06 beating analyst estimates.

The reason why MphasiS is in this list is because the stock appears to be a value play, considering that the stock trades at a trailing price-earnings ratio of around 18x, which is attractive compared to its peers like Aztec Software (41x), 3I Infotech (32.05x) and Polaris Software (21.51).

MphasiS has an impressive client list that includes Citigroup, ING, BNP Paribas, Compaq, and many other Fortune 500 clients. MphasiS expects to add 1500 more employees in the BPO division in the near future. The telecom re-configuration is expected to assist the company in sustaining the operating margins in the coming quarters.

Of late the non-voice based services contribute about 21 per cent of the overall BPO revenues. Going forward the company plans to increase this to 25 per cent, to improve its utilisations and consequently its margins.

The IT growth is expected to continue while the BPO division is expected to record double-digit growth mainly due to growth from two large customers, Bharti Tele-Ventures and a North American bank.

Sanghvi Movers

The 16-year old Pune-based Sanghvi movers is the largest crane hiring company in India and the fourth largest in Asia with a fleet of about 200 medium to large size Hydraulic and Crawler Cranes with lifting capacity ranging from 20 tonnes to 800 tonnes. It is planning to add some more cranes worth Rs 160 crore (Rs 1.6 billion) by FY06.

Besides, it also provides an entire range of services like movement of materials, erection of equipment, and assistance in fabrication apart from engineering services. Currently wind mills contribute about 35-40 per cent of total revenues from cranes, with Suzlon being the biggest contributor.

Higher contribution of wind mills in crane hiring augurs well for the company as India is supposed to be the fastest growing market for wind power. The government's focus on infrastructure development has facilitated huge investments in infrastructural and core industries like steel, cement, oil and gas, construction, power projects etc who are major users of cranes. The stock currently rules at Rs 443, on a trailing 12-month P/E of 16x.

State Bank of India

Devina Mehra of First Global started telling the story of State Bank of India quoting Lou Gerstner, the man who changed the way business was done at IBM. "Who says elephants can't dance?" Gerstner had quipped about IBM. Some of the things that SBI has done made her wonder why this elephant can't dance.

Mehra concluded that there were three reasons why it could not - one it has a huge investment portfolio which will make it difficult to survive when interest rates were rising, capital constraints as its adequacy level were hitting the floor and the imminent peak in the credit cycle which has seen a long expansionary phase. Mehra concluded that SBI could at best be a market performer. But we differ and think the elephant still is the closest proxy for Indian economy.

Even if it is tired in the near future, it will keep up the good performance over the long term. Valuations still looks pretty attractive, especially compared to several other banks. At the current price of Rs 907.45, the stock is trading at 1.14 time price to book (Rs 651) which is reasonable.

Q3 results are likely to be disappointing with pressure on margins as funds would have been parked in short duration securities due to the IMD redemptions in December. But that could precisely be the time to go bottom fishing.

SREI Infrastructure

SREI Infrastructure Finance is a good way to play the infrastructure theme. Despite the rapidly changing industry environment, declining industry margins and increasing competition the company has been able to maintain its growth momentum.

In the last fiscal the company reported a 50 per cent increase in disbursements, and a 38 per cent increase in net. SREI seems to be transforming from a pure finance company to an equipment provider cum financier. Some of innovations the company has done recently sound interesting.

The company directly liaisons with the original equipments suppliers to ensure that customers get what they want. In a booming economy where demand exceeds supply, several serious users face delays in product delivery resulting in loss of profitable opportunities.

The company has set out to address this by organising bulk purchases. In April 2005, SREI signed a landmark deal with Tata Motors for the purchases of 10,000 heavy transport equipment, the largest such instance in India. Similarly, the company has pioneered a system of auction of interest rates for infrastructure equipment.

So instead of the company dictating the rate of interest that customers would need to pay as a part of the financed acquisition, it enables them to decide the rate influenced by the prevailing demand and supply of the equipment. Obviously, these strategies should work well for the company till infrastructure growth continues to strong.

TVS Motors

With more money in the hands of youngsters, consumer spending is likely to remain strong. So all businesses, which thrive on the consumer spending should do well. Two wheeler sales have been racing ahead over the past few years with no signs of sluggishness yet despite the higher base. All the three top two-wheeler makers namely Bajaj Auto, Hero Honda and TVS Motors should do well.

However, we are inclined to favour TVS Motors purely because of the progress the company has made in terms of sorting out its product portfolio, which was inhibiting growth for a while. Now the company has presence in all the key segments. Its new product Apache which is pitched against the Bajaj Pulsar is also expected to do well.

There is no reason to believe that the company should not be able to sell more numbers with a superior product and more competitive pricing. Assuming that the company is able to clock a modest 20 per cent growth in earnings in fiscal 2007, the stock trades at 12.5 times at the current price of Rs 100. That looks attractive compared to Bajaj Auto, which trades at 20 times FY07 earnings.

Get money savvy in 2006!

New Year's Eve is the time when the lessons of past experience weigh lightly on the mind. It is the time when we become momentarily rational and hope that the logical mindset would continue through the year and beyond.

Here are some resolutions that I made to usher in some sense into the way I handle money.

I will not swallow any rule of thumb without checking if it holds good for me.

Someone told me that the proportion of stocks in my portfolio must be 100 minus my age. Since I am 28, that meant 72% of my investments should be in stocks.

The rationale: when I grow old I must invest less in stocks and more in bonds and fixed return instruments.

Another told me that I must hold every kind of asset for the sake of diversification.

Many more pearls of wisdom were thrown at me. But, till now, I never bothered to question any of them.

Instead, I suppressed questions that sprang to my mind.

What has my age got to do with stocks in my portfolio?
Why shouldn't I time my entry into the market even if I intend to hold stocks for a long, long time?
Should I save for my children's higher education when I am reasonably certain that a decade from now, my children would be able to walk into any bank and get a loan for their college expenses?
Should I take my house to be an asset when I know that I will never sell it but may bequeath it to my daughter?

From now on, my answers to such questions will guide my actions. Not rules of thumb or received wisdom.

Will not keep a hefty balance in my savings accounts while having outstanding dues on my credit card.

The reason is obvious: you pay more on revolving credit card dues (24% per annum at the least) and earn less on savings account (3.5% per annum).

Extend the logic to the following situations: Why do we keep large sums in fixed deposits with banks when they could be earning superior returns elsewhere at the same level of risk?

Why do we go to great lengths to save money on air travel by hunting online for the cheapest flight ticket, but frequently visit expensive restaurants when better food could be had at home for far less money?

The answer: we make disjointed decisions in money matters. We don't think logically all the time and across spending, saving, investing decisions.

How wise we are is a measure of how frequently we make mistakes. I will try to bring down the number of such logical errors I commit in money matters.

I will not try to avert losses at any cost.

Behavioural experts tell us that our pain of losing Rs 100 is three times higher compared to the joy of gaining Rs 100.

This explains my tendency to prefer avoiding losses rather than acquiring gains.

I would go for a smaller, certain gain rather than go for a larger, uncertain gain, even if I know that risks are equal in both options.

For example, I would prefer a bank deposit that gives me a low return to a bond mutual fund where the potential for higher return exists, without additional risk. Or, I would prefer keeping my money in a savings account, when actually I can park it in a liquid fund with virtually no risk.

Tendency to avert any loss at any cost is irrational.

Not for me. From now on, I will take a risk with my investments.

I will pay back my loans within the quickest possible time

When I went for a home loan, I preferred a 20-year loan even though I knew that I could easily afford the slightly higher Equated Monthly Installment (money paid every month towards the repayment of the loan) of a 15-year loan.

In absolute terms, I would have saved a decent sum in interest if I preferred an affordable, shorter duration home loan.

I fell for the trap of lower EMI extended over an unnecessarily long period.

From now on, if I can afford it, I will prefer as big an EMI as possible. The sonner you pay back the loan, the less you eventually dish out.

I will take all of the above resolutions with a pinch of salt

Every year I resolved to become rational in every monetary decision that I made, fill my budget plan with every detail I can think of, and track every rupee spent.

The exercise was futile and it collapsed even before the first week of the new year wore off.

I realise that the only sensible thing that I can do is to be aware of my follies, dispassionately analyse how much they could cost me and if it is a shocking figure, then try and do something about it.

Have a great year!