Sure, the bulls are charging again after a dismal October. The Sensex has risen over 1,000 points in the last two weeks, from a low of 7,657 on October 28 to a high of 8,740 on November 18. It closed at 8,744 on November 24 (as this magazine went to press). And the long-term growth story looks good. That's no reason, though, for you to hang on to your picks for dear life. Market recovery has been strong, but there's too much money chasing too few stocks. Says Jayprakash Sinha, Head (Research), Kotak Private Clientele Group: "Fundamentally, the market is overpriced."

In the short term, simultaneous buying turns valuations haywire, but in the long term, valuations will adjust to real value and the market will correct with no immediate upside. Some reasons why you could expect a correction shortly: no major near-term market trigger, the first signs of slowing profits, a depreciating rupee, and big-ticket IPOs (initial public offers) coming up.

Remember, it's impossible to time your sells accurately. The sensible thing to do at a time like this is to re-evaluate your portfolio. Don't buy everything and don't hang on to everything you have. It's much smarter to shed stocks that you feel have peaked and channel some of that money into more profitable avenues.

"Your buying should be sector- and stock-specific," says Gurunath Mudlapur, MD, Atherstone Institute of Research. And rather than accumulating stocks, use the current rally to take profits from small- and mid-cap stocks and move into the big growth stories. As Paras Adenwala, CIO (Equity), ING Vysya MF, says: "Now's the time for fundamental, bottom-up stock picking." We give you here our pick of the top five scrips to hold on to and five it's time to trade in.

Sectors driven by capital investment, infrastructure, consumption and outsourcing-led demand will remain hot. You can stay invested in capital goods, construction and related sectors, it and telecom (although there may be exceptions within these sectors). Sectors driven by consumer demand will surge, as reflected in the aggressive sales figures of the auto industry (particularly two-wheelers) and FMCG (including retail) companies. Companies that are net exporters and focus on outsourcing will also benefit-therefore software and auto components. As Sinha says: "Scrip selection will be key as overall market valuations increase."

On the other hand, at least for the short term, analysts expect steel, oil and gas, pharmaceuticals and chemicals to be subdued. Then there are companies like HDFC, HLL and Tata Motors, which have strong fundamentals, but limited upside potential from current levels. Similarly, other good performers like Bharti Tele-Ventures (one exception), Biocon, sail, NPTC, Sun Pharma and Hindalco might have peaked now. You can expect little more from them at this stage and it's a good time to exit with profits.

Among stocks to stick with, experts prefer frontline companies, especially Infosys, Reliance Industries, BHEL, L&T and ITC. Says Mudlapur: "The potential for an upside in these stocks is huge, whereas other frontline stocks have discounted future earnings." Others in this favoured list include Bharat Forge, acc, Indian Oil, HPCL and GAIL.

The mistake most investors make is to hold on for too long. Our advice: hang on to the aces, but drop the others when the going is good.

SMARTBYTES

Sorry, Your Bank Deposit Rate Stays Put

You'll have to wait a while longer to earn more than 3.5 per cent on your savings bank deposits. When the Reserve Bank of India recently asked banks to consider deregulating their savings rates, depositors hoped competition would mean higher rates. But PSU banks have nixed the move. And you can't blame them: while private and MNC banks insist on minimum balances of Rs 2,500-25,000, PSU account balances are Rs 500-1,000, barely enough to meet maintenance and transaction costs. "If rates are deregulated, there will be an exodus to private banks," says the CEO of a PSU bank. Savings rates are the only administered rates today, but if Mint Street decides to deregulate, there is little PSU banks can do.

-Anand Adhikari

It's Going To Rain Close-Ended Schemes

Close on the heels of templeton's smaller companies fund, the buzz is that HDFC Mutual Fund and Deutsche MF are planning to launch their own versions of close-ended equity schemes, while Paras Adenwala, CIO (Equity), ING Vysya MF, confirms: "We will be launching a close-ended scheme in the first quarter of 2006." So, what gives? It looks like funds want more of your "stable" money and less of volatile "trading" money. Says Hemant Rustagi, CEO, Wiseinvest Advisors: "Close-ended funds are a blessing for fund managers who can take long calls on stocks, while retail investors get time to see portfolios grow." However, if you want liquidity, this is not for you.

-Mahesh Nayak

Retail: Too Hot For Comfort

Retail is hot and happening. And, as is its wont, the street is going gaga. If you're a smart investor, though, you'll play it cool when the sector is so obviously overheated. Says Kashyap Pujara, Vice President (PMS), Sushil Finance: "The P-E multiple of retail stocks is ballooning and the market has already discounted earnings of these companies over the next two years." Clearly, current valuations could be the result of there being too few listed stocks. Also of concern is the government's unclear stand on retail FDI. "The absence of FDI may impact growth," states a recent report from research outfit BRICS. Unless you're looking at a really long-term window, fresh investments don't look sensible.

-Krishna Gopalan

Online And On Guard
It's quick and it's easy, but online trading could also be insecure. Some basic safety tips.

Duped: Radhakrishnan's trading account was misused by a rogue employee

V. Rajagopalan, 35, trades online, and the airforce officer takes equity risks well in his stride. What he cannot stomach though is how his id number was interchanged with another client, and his account debited to pay for derivatives he did not order. Worse, his scrips were sold to cover losses he hadn't made. Luckily, the broker admitted his mistake and compensated him, but the episode has left Rajagopalan extremely chary of online trading.

The fact that mistakes like this can happen at all sounds terrifying to the retail investor, but there's worse. Two clients, complaining of alleged fraud while trading on the Indiabulls Securities (ISL) website, have lodged complaints with the police, and with the Securities and Exchange Board of India (SEBI) and the National Stock Exchange (NSE).

Amrutha Radhakrishnan, a 36-year-old college lecturer (the trading account is in her husband's name), and Lalita Murty, a 50-year-old housewife, allege that the site's relationship manager, after denying them online access under some pretext, went on to trade illicitly from their accounts. Too late, the women found stocks missing from their account, discrepancies in statements, huge losses and, in Murty's case, liabilities for loans taken under her name.

When BT approached ISL, Gagan Banga, Director, responded with a general statement saying: "Proper course of action is happening via the arbitration process, which has been instituted by SEBI and NSE for such complaints, and ISL will abide with the result of the legal process."

Well, it's been two years now. Redress might be delayed or denied. It obviously pays for you to take ample safeguards before clicking that mouse. Here are some rules.

• Choose a service provider who does not allow 'margin' or credit trading and sticks to the rules, however time-consuming. This means you settle on time, stake only your own cash and monitor every trade.

• Check if the company trades on its own account. If so, there could be a conflict of interest. Select a site that provides a neutral trading platform. And, though inconvenient, it's better if the broker and the depository participant are two different entities.

• It's better if your service provider does not have allied activities because there is always the risk of fund misuse, though brokers swear this will never happen. Is your brokerage firm expanding aggressively into mutual funds or real estate?

• Read the fine print on the offer document carefully, if necessary using a lawyer, to find loopholes and hidden charges. And ensure you receive and scrutinise your account statements regularly.

• In case of computer or network downtime, most net brokers allow telephone transactions, but ensure your orders are recorded.

• Do not allow site representatives to trade on your behalf. If you're denied access to your account, stop all trades with immediate effect. Do not sign cheques in the name of individual employees-they could be acting without the company's knowledge.

• Ensure your online broker has a brick-and-mortar office. This usually ensures a certain degree of accountability.

• Don't allow your account to lie dormant-it leads to a greater chance of misuse. Check the security and encryption software your online broker uses. Look for a secure symbol, such as a closed padlock on the status bar in the lower right side of your computer screen. Change passwords frequently, and avoid accessing your trading account from a public computer.

Some fairly basic precautions, but they can save you much heartache. Happy trading!

-Nitya Varadarajan

Greener Money
For a few dollars more, try this.

It doesn't matter if you don't understand us Federal Reserve rates or aren't up-to-date with rupee-dollar relations. There are rich pickings across the borders. Use the RBI (Reserve Bank of India) window that allows you to park up to $25,000 (Rs 11.25 lakh) in a calendar year in overseas fixed deposits.

Interest rates are on an upswing in the global market. A deposit in us dollars (us$) can fetch you 4.12 per cent per annum, while a deposit in New Zealand dollars (NZ$) earns 6.88 per cent. And if the US$ strengthens, you'll pocket more.

After a massive 300 per cent hike by the us Fed, short-term interest rates moved from the decade low of 1 per cent last June to 4 per cent in November this year. Also, the rupee has slipped 4.6 per cent against the US$ in calendar year 2005-from $43.7 to $45.7 (November 17), which further adds to the returns.

So, what do you do? Depositors can choose from close to a dozen international currencies such as the us$, British pound (£), Euro, Australian dollar (A$), Canadian dollar (C$), Hong Kong dollar (HK$), NZ$ and Swiss francs (SFr). Take, for example, Citibank, which offers multi-currency deposits (see Greener Pastures). You can invest a minimum of $1,000 or Rs 45,000 (or equivalent) with incremental deposits in units of $1,000 up to a maximum of $25,000 in one calendar year.

However, one word of caution: you must be prepared to bet on more hikes in the US Fed rates and a possible depreciation in the rupee in the months ahead.

-Anand Adhikari

Value-picker's Corner

MADRAS CEMENTS; CURRENT PRICE: RS 1,561

With the sector growing at 10.2 per cent this year, cement makers are in clover. The capacity build-up has not kept pace, resulting in excellent prices. Madras Cement (MCL), among the most efficient producers (operating cost: Rs 1,522 per tonne vis-a-vis Rs 1,662 for ACC), makes the cut on other counts too. Its new 36-MW captive power plant at Alathiyur will yield savings of Rs 30 crore per annum. Second, cement supply in the south is expected to drop sharply, making MCL a key beneficiary. With earnings expected to grow at 50 per cent CAGR in the next two years, brokerages like the Mumbai-based Sharekhan see this scrip touching Rs 2,032 in the medium- to long-term.

-Sahad P.V.

Peerless' Roy: Just bundle it

Trend-spotting

With their share of deposits crashing over the years, RNBCs (residuary non-banking companies) are ready to shift gear in retail finance. Kolkata-based Peerless Company is first off the block with its 'cluster' strategy. Peerless 'smart guides' will now upgrade you from plain old savings schemes. The company has launched three-year fixed deposits bundled with free accident/life cover for minimum deposits of Rs 15,000 and Rs 10,000 respectively, at 5 per cent per annum. Its five-year recurring deposit now comes with free life cover up to Rs 3 lakh (5 per cent per annum plus bonus), and it plans to launch credit cards soon. "Bundling will help us offset falling interest rates," says S.K. Roy, Managing Director. It looks like local RNBCs will soon loom large in the financial products space.

-Ritwik Mukherjee