'Money in the bank' is a good, safe way to lose money. A couple of months ago, I renewed some fixed deposits at 7.25 per cent per annum. At today's income tax rates, almost a third of this will go into the care of Shri Chidambaram, leaving a net interest rate of 4.9 per cent, which is less than the official rate of inflation. So the money I manage is actually losing value.

Why do my clients (who expect me to make money for them, not lose it) have money in banks and fixed deposits? The answer lies in the index levels. At 3,877, the Nifty is trading at 21 times earnings, and five times book value (BV). To my mind, these ratios are too high, and present a downside risk.

Since the Nifty reflects an important segment of the market, most leading shares I look at, too, seem very expensive. And with good reason -- the Indian economy is growing on a sustained basis, and managers have managed to channel this growth for companies through impressive gains in both turnover and profitability. The gains have been particularly spectacular in commodity sectors such as cement and sugar. But investing in commodity stocks is a high-risk proposition.

Nevertheless, as the Sensex climbed up to 12,000 early this year, I sold equities across the board, from Hindustan Lever [Get Quote] to Siemens, from HDFC [Get Quote] to Titan. The fall in May seemed to justify my actions. However, when investors piled back into the markets, I did not reinvest in these stocks. Now, with the leading indices 10 per cent higher than their peaks, it seems I lost out on an opportunity to make a quick buck without altering the nature of my holdings.

However, I saw the over-pricing in May as an opportunity to do exactly that -- restructure my portfolio into a new risk-reward profile.

I constructed three main investment themes. The first was customer franchise. By and large, even at May's depressed prices, FMCG stocks seemed expensive, but I put my faith in two -- Tata Tea [Get Quote] and NIIT [Get Quote]. The first is still languishing, I suspect because the market is worried how its huge investments overseas are going to pay off. However, NIIT Ltd [Get Quote] has rewarded me well, having climbed some 40 per cent from my buying levels of around Rs 260.

My second theme was smaller rung infotech firms, which were selling at low multiples. Two companies seemed attractive -- KPIT Cummins and Tata Elxsi [Get Quote]. KPIT Cummins has done very well, rocketing from Rs 360 to past my target level of Rs 640. I booked some profits here, but continue to hold much of the stock. The second was Tata Elxsi, best known for its work on high-end computer graphics. Earlier this year, it was available at less than Rs 200; at its current level of Rs 250, it is heading in the right direction, but below my target of Rs 320.

My third theme was pharma, as a defensive sector. My two picks here were FDC and Merck. Both have gone into passive mode. The first at around Rs 40, and the other at about Rs 480, partially because of the noise over drug price control. But I am secure in my holdings here, and will wait for the reality of growing healthcare expenditure to work its way into the bottom line of these companies.

Along the way I also developed a fourth idea -- high oil prices are not here to stay. As a result, I bought into BPCL [Get Quote]. Though I have not seen this holding appreciate much, crude oil seems to be headed in the right direction.

Meanwhile, of course, I am allowing banks to lose some value for me. This has been very trying, as the markets have spurted. But I am determined to hold out till I find other themes (and stocks) with good value. I may be wrong, but I believe the markets reward patience, whether in being invested or in waiting on the sidelines.

The author is an investment advisor to a select group of clients. He can be reached at msatyanand@yahoo.com.