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Suresh Krishnamurthy

INVESTORS can sell the stock of SBI Home Finance trading at Rs 28. This stock has appreciated by 40 per cent in the last one month and by about 80 per cent over the past year. The company has, however, shut shop and according to its management, it is not a `going concern.'

It has large accumulated losses and National Housing Bank has issued a show-cause notice as to why its licence should not be cancelled. The balance sheet of the firm also does not hold any valuable assets. SBI and its associates hold a 26 per cent stake and any merger with SBI may not lead to issue of shares of the bank to the shareholders of SBI Home Finance.

Budget risk: Buy puts/sell futures

INVESTORS can consider insuring a part of their portfolio against a possible decline in values to guard against an `event risk' ahead of the Budget, which is to be presented on February 28. The Budget promises to unveil a number of initiatives that would boost industrial growth.

A big concern would, however, be a high fiscal deficit. Considerable political pressure for an increase in the proportion of tax revenues to the gross domestic product to fund a larger plan outlay also exists. This could trigger an increase in taxation of corporate profits or income from investments. The effect of the budgetary numbers on interest rates is also not clear.

Stock markets have often remained stagnant in the period between February and October. Since 1992, the Sensex has gained 10 per cent or more in only three years. On the other hand, it has lost more than 5 per cent in six of these years and remained stagnant in three more years.

Given this backdrop, it may be prudent to hedge a part of your portfolio by shorting index futures or buying puts. Contracts maturing in March and April would be appropriate for this purpose. Positions can be built over the next few weeks.

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