The festive season on Indian bourses doesn't seem like fizzling out anytime soon. The rally continued all through October, well supported by the robust earnings performance of India Inc and the sustained buying interest of foreign institutional investors (FIIs), which pumped in a breathtaking sum of over $1.5 billion during the month. The benchmark Bombay Stock Exchange (BSE) Sensex again posted a double-digit growth (of 10.2 per cent) over the previous month. What else could punters ask for?

Action Month

October saw action in the auto, banking and technology sectors, which powered the index upwards. Select pharma stocks have also attracted growing interest. On the other hand, fast moving consumer goods (FMCG) and PSU (public sector undertakings) counters were relatively passive.

During the month, the BSE PSU index was up just 3.4 per cent, while BSE FMCG was down 0.6 per cent. This is in contrast to the handsome gains posted by other sectoral benchmarks: namely, BSE Teck, BSE Healthcare, BSE Bankex and BSE it, which have appreciated by 7.4 per cent, 7.2, 14.7 and 6.9 per cent, respectively. Global markets have also grown at a brisk pace. The kospi was up 12.6 per cent, KLSE up 11.4 per cent, SETI 10.4 per cent, Hang Seng 8.6 per cent, Nasdaq 8.1 per cent and the Dow 5.7 per cent.

As for mutual funds (MFs), domestic fund houses have started booking profits in equity markets, and net sales for the month (till October 25) stood at Rs 400 crore. The stockmarket, though, continued its momentum into November, with the Sensex famously scaling the magic point of 5,000 for only the second time (in discrete phases) in its history.

The interesting thing is that it is still looking strong. The revised estimates of gross domestic product (GDP) growth, together with several other positives, have boosted market sentiment.

Equity Schemes

The top five diversified equity funds have posted huge gains (in the range 14-16 per cent), but the average performance of equity schemes was around 9 per cent. The FMCG and petro sector funds are the only funds in this category that turned in negative returns.

Among diversified equity funds, Deutsche Alpha Equity Fund, with its exposure in automotive, banking, information technology (it) and pharmaceutical sectors, has done very well.

Other performers, such as Escorts Growth Plan, HSBC Equity Fund, SBI Magnum Global Fund 94 and DSP ML Top 100 Equity Fund, have also done well on sectoral allocations. HSBC Equity Fund, for example, had around 12 per cent invested each in auto and pharma.

Sectoral Schemes

In this category, Alliance Basic Industries Fund, with returns of 11.6 per cent, is ranked above all others. The fund, though classified as a sector fund, has quite a diversified portfolio.

The fund has benefited from its increased exposure to stocks such as Maruti Udyog, Bajaj Auto and Tata Motors. Franklin Internet Opportunity Fund is at second position, followed by UTI Growth Sector Fund-Services, Sun F&C Emerging Technology Fund and Alliance Buy India Fund, respectively.

Balanced Schemes

Balanced funds delivered an average return of around 6 per cent for the period under consideration. SBI Magnum Balanced Fund emerged the top performer, clocking absolute returns of around 12 per cent. The fund's bets on Infosys, Maruti Udyog and Tata Motors have helped boost performance.

Debt and Gilt Funds

The sentiment in the debt market was also positive in October, with most of the market players expecting a rate cut from the Reserve Bank of India (RBI) in its mid-term announcement of monetary and credit policy. But the RBI's continued adherence to the existing rate structure has shaken the debt market players a little bit. Yields hardened slightly in immediate response to the news. While the central bank may have hinted that its bias towards a 'soft rate' would continue, and it might take another decision sometime soon, a lot depends on the macroeconomic numbers. The Gilt Benchmark Index I-Bex ended 1.3 per cent higher over the previous month's closing.

Pssssst: Bank At The Post Office
Looking for a safe place to park money that pays an interest like banking's old days? Try your friendly neighbourhood post office.

By Vandana Gombar

Let's hit it straight. If you are the ultra-risk-averse sort of person, concerned mainly about ensuring that your money remains what it is (money, valuable as a means of exchange and store of value), you probably use bank deposits a lot. But while you were busy being safe, something happened. The interest you earn on a fixed deposit (FD) started falling, and is now down to a miserly 5.5 per cent per annum.

If you have switched over from old-fashioned snail mail to the now ubiquitous system of e-mail, there is also something else you may have missed. The opportunity of banking at the neighbourhood Post Office (PO). That quaint old place with paper-littered floors, creaky fans, grumpy clerks and periodic sounds of stamps being thumped. The premises may not match your idea of glamour-the PO was meant to be a poor man's bank-but you wouldn't want to dismiss the interest rate it offers on a vanilla deposit: a sexy 8 per cent.

If you can wait out a whole six years invested in one of the PO's most popular schemes-the Monthly Income Scheme (MIS)- you will not just get a monthly interest payment, but also be rewarded with a 10 per cent bonus (on the principal), which translates to an effective coupon return of over 9.5 per cent. Interested?

Getting Invested

Are you put off by the vision of going through all those paper formalities surrounded by a group of grumps? Don't be. Your local PO may no longer be what it was in the bad old monopoly mail days. This correspondent was accosted politely with details of the deposit schemes by a bunch of helpful agents on a visit to the PO overlooking New Delhi's Parliament Street. This, I am told, is actually a regular feature these days at the larger pos across the country.

The clerk at the counter advised me to take the account opening form from the aforementioned agents, any of whom would willingly offer to 'introduce' me officially to the PO as an honourable money saver (this is about the only formality required). Yes, the deal isn't designed for the wealthy. The maximum that you can invest as an individual is Rs 3 lakh, or Rs 6 lakh in case of a joint account.

You must be prepared to see some old world charm-passbooks being updated manually (literally with a pen) and no facility for standing instructions (like rolling over maturing fixed deposits), not to speak of the tattered files strewn just about everywhere. What matters, however, is the fact that the PO isn't going to sink with your money, and is willing to reward you better than the banks.

Little wonder that the PO's deposit schemes have a reasonably strong clientele. The MIS, for example, attracts small entrepreneurs, private sector employees and public sector savants. Just about everybody who knows about it. This correspondent bumped into two honchos from Tata Consultancy Services (TCS), a small entrepreneur and some senior citizens in the few minutes taken in the queue to get the account opening form.... Oh, yes, be prepared for queues, though they move much faster than they did in the bad old days of yore. Tell yourself that this is a small price to pay for the benefit of no tax deducted at source, and you wouldn't even notice.

Other Options

For those looking to maximise returns, the PO has other deals to offer as well. One such option at the PO banking counter is the Recurring Deposit (RD) scheme, which also offers 8 per cent interest (no bonus, though) for five years. The hassle here is having to put in a committed sum every month. Some investors, however, are pushing their monthly income earned on the Monthly Income Scheme account into the rd scheme, and reaping double benefits. The bank clerk tells me that you can leave standing instructions to that effect. Other than that, there's the 15-year Public Provident Fund managed by the Postal Department, which is also offering 8 per cent (the investment limit in a year: a reasonable Rs 70,000).

But how is the Department doing all this? How does it make the money needed to offer such attractive rates?

The funds collected through the various saving schemes-gross collections in the last financial year topped Rs 117,000 crore, while net collections were Rs 59,000 crore-are pooled and transferred to the National Small Savings Fund of the government (which is distinct from the consolidated fund). This money is then routed to state governments for "developmental activities" at a coupon rate of 9.5 per cent. Since this translates into a neat spread of 1.5 per cent for the fund, there seems to be no immediate reason to slash the interest rate-though you had better act fast. Interest watchers have been pointing to this anomaly for quite some time now, and the government might just decide to change the rate structure.

At the moment, the main competition for PO schemes comes from government bonds (8 per cent), which can also be treated as safe. There is also a tax-free deposit option, on which the coupon is 6.5 per cent for a five-year lock-in. The upside: no investment limit.

All said, the only thing the PO schemes in India suffer from is lack of publicity. If more people knew about them, more money would flow in. Unless, of course, the banks begin to worry about this competition.