With Akshaya Tritaya around the corner, I have been advised to buy units of gold exchange-traded funds (ETFs), instead of physical gold. Is it advisable to hold gold in demat form? How is the price of gold reflected in an ETF?
Introduction of a gold ETF has made life simpler and better for gold investors. Compared with physical gold, investment in gold through a gold ETF is more convenient, safe and transparent because the pricing is market-linked. The price of a unit of gold ETF almost reflects the price of actual gold.
Information technology (IT) majors, Tata Consultancy Services and Infosys, have posted mixed results for the fourth quarter. What is your take on investing in IT stocks for the mid term?
The business environment is conducive for the Indian IT business. However, they are facing headwinds in the form of intensifying competition from global IT players, volatile currency and manpower shortage. Also, internal re-structuring in some bellwether companies is putting a temporary pressure on their businesses. However, on a correction, one can buy into IT majors that have no management issues and a robust business model. If one wishes to take some extra risk, for some additional return, midcap IT stocks with good management and business models can be considered. Besides, midcap IT stocks quote at a significant discount to the front-liners and, hence, present good value for investment.
I am 24 and have recently started investing in stocks. I hold a few blue chip stocks. Companies would soon start announcing their annual reports. What information should I watch out for? How can I use the same for taking investment decisions?
It is appreciable that you wish to read the annual reports and, thus, be up-to-date with your investments. Please go through the director’s report, the management discussion and analysis, the auditor’s report and notes to accounts, while going through the reports. If you are well-versed in finance, reading through the financial statements is highly recommended. If the company concerned has reported better profitability and pricing power, a better return on capital employed, no or modest leverage and generated positive cash flows, one can take a favourable investment view towards them, subject to their valuations being attractive.
One of the recent initial public offerings (IPOs) is priced on par. What does this mean? Does it necessarily mean the IPO is cheaply priced?
Pricing an IPO on par means the offering is being done at the stock’s face value. However, it does not mean that it is cheaply priced. Investment decisions should be based on the attractiveness of a stock’s valuation at a price rather than its absolute price. A stock may look unattractive on par prices or quite attractive at prices that are significantly above par. The attractiveness can be judged using various valuation methodologies such as price/book value, enterprise value/Ebitda (earnings before interest, taxes, depreciation and ammortisation), market cap/sales, etc.
The writer is managing director and principal portfolio manager, Capital Portfolio Advisors. Send your queries to yourmoney@bsmail.in