Microsec IPO -- Attractive Gains

Microsec Financial Services Ltd (MFSL) a NBFC dealing in finance , investment , broking and wealth management opened its IPO on 17th Sep at Rs 113-118/share . The company expects to mop up Rs 141.25 crore at lower end and Rs 147.50 at upper end with 1.25 crore shares at stake . Primary business is granting loans against shares which makes the company extremely vulnerable against market forces . It has 239 branches in 16 states with 178 of them west bengal alone . It operates in a fiercely competetive broking and investment banking industry . It plans to use the proceeds to increase its fnancing business .

EPS for past fiscal year was 12.58 . At lower issue end PE comes at 14.70 while at upper end it comes to 15.40 . While the fundamentals of the company arent too rosy but banking n Neo banking (NBFC) together with MFI(read SKS Microfinance) are the flavour of the season hence Microsec would see a smooth sailing . Attractive Listing Gains are in the offing for retail investors . My recommendation would be a BUY

Debt Instruments --- Your Weapon in Volatile Interest Regime

EPFO(Employee Provident Fund Organization) has hiked rates of EPF(Employee Provident Fund) by 100 basis point--from 8.5% to 9.5% for 2010-11 . According to EPF law, an employer deposits 24% of an employee's basic salary with EPFO annually . This includes employer & employee's contributions of 12% each . With the rate hike of 100% for 2010-11 , returns from EPF will be higher than bank deposits--the gap between EPF and PPF(Public Provident Fund) is going to be a whopping 150 basis points (PPF is @ 8%).

EPF as an asset class thus makes sense . Tax benefit is an added attractive feature but lock-in constraints must be looked into . There is an option to increase the allocation as well . An employee can increase his contribution upto 100% of basic to EPF . The employer will deduct his portion of additional amount and the money goes into VPF(Voluntary Provident Fund) . Also if one has both EPF & PPF account , one can reduce the amount being contributed towards PPF and allocate it to EPF . But the catch is this hike is operational for 1 year only . So tread cautiously !!!

Now as the RBI has hiked repo and reverse repo and reduced their mismatch to 1% point (repo stands @ 6% while reverse repo @ 5%) banks would raise deposit rates . Hence avoid Fixed Deposits and instead go for flexible deposits where the rate of interest keeps changing according to the prevailing market conditions .

Short Term Bonds and income Funds are gud bet with 3-6 mnths horizon . Liquid Ultra Short Term Funds will yield 6.5% in next 2-3 mnths . These funds invest in 1 year bonds and are thus riskier than liquid funds and short term debt funds . Such funds reprice quickly . Another option could be Fixed Maturity Plans(FMPs) . The yield could be around 8% in these .

Yet another option in a scenario of rising interest rate regime is Floater Rate Funds .