Big is beautiful. It's the defining mantra of our times, almost. Big companies, big profits, big market caps, big salaries and big returns on big investments. But buying big name stocks at this stage-with the BSE Sensex ruling at above 8,000-is expensive and fraught with risks. If the size of your corpus is Rs 40,000-50,000, it's best to invest in mutual funds. Alternatively, if you're willing to take the risk, you could invest in penny stocks-stocks that cost less than Rs 20 per share, according to BSE's definition-or other low-priced stocks, which though not technically penny stocks, will suit those with low budgets.

Jay Sinha, Associate Vice President (Research), Kodak Securities, adds a second caveat: "Cheap or penny stocks are not necessarily good stocks. But that's not to say that there are no jewels to be found among the pennies." Adds Sandeep Neema, Fund Manager at JM Financials: "But check out the company very carefully before investing."

Listed below are five low-priced stocks that are likely to give 20-30 per cent returns over the next six months to a year.

Varun Shipping

The company, which plans to acquire three more liquefied petroleum gas vessels by November 2005, is all set to become the world's second largest fully refrigerated mid-sized carrier, with a fleet strength of 19. Since LPG freight rates have remained stable compared to crude freight rates, analysts expect the company to earn a net profit of Rs 154 crore in 2005-06 compared to Rs 81.68 crore in the previous fiscal. Its stock, which is currently trading at Rs 55.65, is likely to touch Rs 75 by next September.

Centurion Bank

It is emerging as one of the fastest growing retail-focussed banks in India. It is already among the top three players in two-wheeler financing and among the top 10 in the financing of commercial vehicles and construction equipment. Moreover, its recently announced merger with the Bank of Punjab will give it greater access to low-cost deposits, enhance its retail franchise, broaden its footprint and give it scale to grow even faster. Analysts expect the stock, which is trading at Rs 19.40 (September 12), to jump 30 per cent in three months.

Maral Overseas

This LNJ Bhilwara Group company is the country's largest vertically integrated knitwear company. Its clients include London-based retailer Marks & Spencer and a host of other smaller companies in the West to whom it supplies cotton yarn, knitted fabrics and sweaters. Analysts believe it will be a major beneficiary of the lifting of textile quotas. Maral shares, which are quoting at Rs 59.75, are expected to rise 30 per cent over the next six months.

LG Balakrishnan & Bros

This auto ancillary company, which produces automotive chains, is considered a good buy by analysts at Rs 39.10. Following its acquisition of Bangalore-based Apten Forging, it has emerged as a tier-II supplier to Visteon and Delphi. Within India, its clients include Mico, Lucas, TVS and Sona Steering. The company is expected to post strong numbers over the next few quarters. Most analysts see the stock apprecia-ting 20-30 per cent over the next six months.

Mysore Cements

The cement industry, which is projected to grow at 9 per cent over the next two years, is expected to see some consolidation during this period. And Mysore Cements, with a capacity of more than two million tonnes, is considered ripe for takeover. Analysts expect its Rs 36.60 share (September 13) to rise 20 per cent over the next six months.

SMARTBYTES

Buy HLL for long-term gains

Hindustan Lever (HLL) recorded a 10 per cent topline and bottom line growth for the quarter ended June 30, 2005. This is the first time its topline has grown in the last eight quarters. On cue, the stock has risen from Rs 130 levels four months ago to about Rs 170 now. Says Amnish Aggarwal, Assistant Vice President, Refco-Sify Securities: "Despite this, I wouldn't recommend a buy on the stock for the short- to medium-term." The reason: Though there is less pressure on pricing, margins will remain squeezed. Things change if you have a longer-term investment horizon. Says Ambreesh Baliga, Vice President, Karvy Stockbroking: "The worst is over for the company and we expect to see robust topline growth and improvement in margins. Our recommendation for those with a horizon of more than one year: buy." So, if you can wait for more than a year, go ahead.

-Mahesh Nayak

Time to buy short-term debt papers

Most money managers expect a 25 basis point hike in interest rates in the Reserve Bank of India's mid-term monetary policy, due in the last week of October 2005. The reason: the crude price rise-led growth in inflation. Says Santosh Kamath, Chief Investment Officer (Fixed Income), ING Vysya Mutual Fund: "The market has already discounted a rate hike of 25 basis points. Therefore, investments in short-term funds at the current levels are safe." The three-month Treasury-bill is quoting at Rs 98.96, while the six-month GoI 2006 bond is priced at Rs 97.79. These are good investment options. Even those who do not expect a rate hike feel it's the right time to invest in short-term debt. Since the markets have already discounted a rate hike, bond prices will rise if the hike does not materialise.The expected annualised returns: 6.10 per cent.

-Mahesh Nayak

Contrarian play: Time to invest in fixed deposits

The BSE sensex has crossed 8,000-not a very good time to enter the stock market. Reason: a correction is around the corner. At times like these, seasoned investors look for capital preservation, not returns. Why? Once the market comes back to its senses (read: a correction of 500-1,000 points), you can re-enter the market at lower levels. So where should you park your funds over the near term? The obvious option is the good old fixed deposit. Banks offer interest rates of 3-6 per cent per annum depending on the deposit tenure. If you are looking at higher returns, then there are good companies that offer 8-9 per cent interest rates on fixed deposits. But their tenures can range from one to three years. Then there are short-term floating rate funds, which are suitable for investors with an investment horizon of six months. The returns (of 5-6 per cent) won't make you rich, but at least you won't lose your shirt.

-Sahad P.V.

PHARMACEUTICALS
Read The Prescription Carefully
Despite short-term problems, pharma companies look good for long-term investments.

The Indian Pharma sector presents a mixed bag of companies. Some, like Ranbaxy Laboratories and Dr Reddy's Laboratories (DRL), compete against giant multinationals in the generics space in developed markets; others, like Divi's Lab and Shasun Chemicals, have emerged as contract manufacturers for Big Pharma. So, one has to follow a stock-specific approach to investing in the sector, which has a price-earnings (p-e) multiple of 33.87 (for 211 listed companies).

Ranbaxy, India's largest domestic pharma company, posted terrible results for the second quarter ended June 30, 2005 (it follows the calendar year). Its stock price (see graph) has also moved sideways in the last one year, giving zero gains for the investor.

However, DRL fared better. After a horrible 2004-05, during which its net profit plummeted 91 per cent to Rs 21.1 crore from Rs 247.4 crore, it has been able to recover partial ground in the first quarter of 2005-06. But Ranbaxy and DRL are uncertain bets as "their numbers do not justify their valuations", says an analyst with a leading Mumbai brokerage. Their future depends on how fast they can come up with new products for the export markets and on the fate of lawsuits in us courts (Ranbaxy's legal challenge of Pfizer's Lipitor and Merck's Zocor patents are still pending).

Several mid-cap pharmaceutical stocks, however, look attractive. Orchid Pharmaceuticals, which recently received approval from the US Food and Drug Authority for three drugs, is targeting a turnover of a billion dollars (Rs 4,400 crore at the current exchange rate) by 2010. The stock looks attractive at Rs 370 (p-e multiple: 35.42). Aurobindo Pharma, which has shifted its focus from active pharmaceutical ingredients to formulations, is also a good buy at Rs 363.60 despite its high P-E multiple of 81.28.

We've selected four stocks. But there are several other winners in this sector. Hint: look for companies that focus on R&D and boast strong product pipelines. They're the ones most likely to reap golden harvests. And despite short-term problems, the overall outlook for the sector remains bullish in the long term.

-Sahad P.V.

How To Become A Millionaire By 40
Invest in systematic investment plans and watch your savings grow exponentially.

Are you sulking because you couldn't get through to Kaun Banega Crorepati? Take heart. There are other, more viable options of making big money. And becoming a millionaire within 15 years is not as difficult as you thought. You can maintain your current lifestyle and still save a fortune.

Did you know that you'll have well over Rs 28 lakh after 15 years (assuming 14 per cent compounded returns per annum) if you save only Rs 5,000 every month in systematic investment plans (sips)? As the name suggests, the secret of success lies in making regular-monthly or quarterly-investments in mutual funds (MFs) that offer this scheme. A caveat: the returns are not guaranteed; but during the 1980-2004 period, the stock market has given average returns of well over 15 per cent per annum. And empirical data shows that over long terms, investments in equity give better returns than any other instrument. If you put aside Rs 5,000 per month in sips for 21 years, the power of compound interest will take your corpus to Rs 89 lakh (again assuming a compounded growth rate of 15 per cent per annum). So, the earlier you start the better. If you are wondering how a sum of Rs 12.6 lakh (Rs 60,000 per annum x 21 years) can grow to Rs 89 lakh at the end of 21 years, the answer is simple: compounding (see graphic).

"It creates real value," says Saurabh Sonthalia, Executive Vice President, DSP Merrill Lynch Fund Managers. "Regular investments reduce the cost of acquisition and works wonders even in a relatively flat market," says Nilesh Shah, Chief Investment Officer, Prudential ICICI AMC. As volatility gets factored out over the long term, higher risks bring higher returns.

"My job keeps me away from the country most of the time," says Manoj Deorukhkar, 41, Director (Centre of Excellence), Bristlecone India, a Mahindra Group company. He doesn't have the time to monitor the stock market. So he gives his broker post-dated monthly cheques of Rs 15,000 each for investing in sips. Arush Mayank, 31, a freelance television editor, follows the same approach. Mayank started investing in sips two years back. His income is erratic and so are his work timings. By investing Rs 8,000 in sips every month, Mayank has ensured he gets high returns and hopes to retire with at least Rs 1 crore by the time he is 50.

Almost every mf company has an sip. There are also some interesting new plans in the market. For instance, DSP Merrill Lynch and Bajaj Allianz have come together and launched a Super sip scheme, which clubs a life insurance cover along with the sip. So, if an investor puts in Rs 10,000 every month for 11 years, he can expect roughly about Rs 20 lakh (at 10 per cent compounded return per annum) by the end of the 10th year, plus a life cover of Rs 20 lakh during that period. So, God forbid, if the investor dies during the period, his family receives the insurance cover along with the returns on the sip. Others also have similar schemes.

Which one you choose will depend on your requirements and goals. A word of advice: do your homework well, shop around and check out at least four or five such schemes before deciding on one. After all, it's your hard earned money that's at stake.

-Swati Prasad

Stretch Your Savings
Make the most of Section 80C.

This year's budget gives you the freedom to choose your investment options. You can invest up to Rs 1 lakh per annum in any approved instrument(s) and claim tax exemption on the same. But how do you extract maximum benefit from this?

Returns are a function of risk. "People at lower income levels should not go in for high risks," advises Vikas Vasal, Senior Manager at accounting firm BSR and Co. The one instrument that everyone should necessarily invest in is life insurance. Provident Fund (pf), Public Provident Fund (PPF) and Post Office schemes, which give 6-8 per cent returns, offer security and tax exemption. National Savings Certificates (NSCs), which double your money every 84 months, are another good option. A pension plan linked to debt instruments like Central and state government bonds is also very attractive. These give 8 per cent returns and provide a regular income after 10-30 years.

The scenario changes for people with high incomes. Life insurance, PFs and pension plans are critical for this segment, too, but financial planners advise this group to also invest in certain mutual funds like SBI Mutual Fund, India Magnum or General Insurance Company Mutual, which are tax exempt under Section 80C. Unit Linked Insurance Plan (ULIP) and Equity Linked Saving Scheme (ELSS) are also exempt under Section 80C and can give returns that may vary between 10 per cent and 50 per cent.

How should you allocate your resources between various instruments? That depends on your risk appetite and investment goals. But the bottom line: savings have become a lot easier. And the time to start is now.

-Amanpreet Singh

Value-picker's Corner

DEEPAK FERTILISERS & PETROCHEMICALS CORPORATION (DFPCL); RS 102

Deepak Fertilisers & Petrochemicals Corporation (DFPCL), which manufactures chemicals like ammonium nitrate, methanol and nitric acid, offers value for money. Its profit after tax for the first quarter of 2005-2006 jumped 71 per cent to Rs 22.62 crore against Rs 13.20 crore in the previous corresponding quarter, while revenues rose 23.5 per cent to Rs 138.27 crore from Rs 111.96 crore, implying an improvement in margins. Research houses like Sharekhan and KR Choksey say the stock is a good investment for the short term as well as long term.

-Sahad P.V.

Trend-spotting

Indian automobile components companies are on the prowl. Globally! Amtek India has bought out the UK-based SigmaCast Group, and Bharat Forge has acquired US-based Federal Forge and German auto components firm CDP Aluminiumtechnik. Within the country, Raymond took over Ring Plus Aqua in July. Can retail investors benefit from this trend? Alpa Shah, who tracks the automobile industry at Khandwalla Securities, says they can, "but only in the long term". The stocks to look out for: Bharat Forge, MM Forgings, Sundram Fasteners and Amforge.

-Krishna Gopalan