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Allocate your capital smartly

, August 2, 2012, 0 Comments


Invested in mutual fund or have you diversified your portfolio yourself? Did you find yourself amongst lucky few to be on profitable side or just blamed downward spiraling economy? Okay I hear you, someone prevaricated and you believed or rather prayed it turned the same way. Looking back at history one should not be surprised to find every rise and fall is harbinger to subsequent fall and rise respectively. Economic cycle is the term; no investor ever forgets to keep check on. If cycles are important, sector qualifies for equal attention and discussion. And the ultimate question pops up which sector and when? Well answer to this question is really straight forward if you are a long term investor. Historically evidence is strong and hardly any doubt that it will not be repeated in future. After all there is some reason why The Coca-Cola Co. constitutes 8.86% in Mr. Warren Buffet’s portfolio1 second to American Express Co.

Given a choice from seven sector specific indexes on Bombay Stock Exchange, which index do you think would have been the safest? Give it a shot. Below are your choices;

1. BSE BankIndex  2. BSE PowerIndex  3. BSE FastMovingFMCG
4. BSE RealtyIndex  5. BSE OILIndex  6. BSE AutoIndex
7. BSE Technology Index

To shed some more light, I have results from linear regression of each index against BSE Sensex for last 10 years.

BSE sector Index Adjusted R-Square2
BSE BankIndex

90.09%

BSE PowerIndex

78.20%

BSE FastMovingFMCG

82.84%

BSE RealtyIndex

9.55%

BSE OILIndex

95.05%

BSE AutoIndex

86.16%

BSE Technology Index

87.18%






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