The Hindu Business Line : ‘Everybody’s interest is to buy cheap, sell high’

Because our percentage savings — as a country — in equities is low. The country saves only 3-4 per cent of savings in equity. Whereas, the pool of money available with overseas investors invested in the country is far higher. But today we are already seeing a situation where insurance companies are playing an equally important role.

But they are playing a defensive role instead of taking an aggressive posture, like the FIIs.…

What is defensive or aggressive? That I should go and buy a share Rs 50 higher? Everybody’s interest is to buy cheap and sell high. So, nobody is going to be aggressive when you feel the market is coming down because of global liquidity issues.

Even among FIIs, there are two or three types. FIIs are long only – who are very patient with money and behave in the same manner as domestic institutions. They are very selective and they buy slowly.

Further, there are a different set of people who are hedge funds, who have a different perspective of the market. Their vision is the shorter term. They don’t mind impacting the market price provided they see profit at the end of the transaction.

So they are defensive and aggressive players in those segments. But, of course, FIIs will contribute a significant pool of transactions in our markets.

With valuation eroding 40 per cent in the recent crash, is it possible to achieve returns of 15 per cent per annum by investing for three to five years?

That is not possible if our interest is 12 per cent. Equities do well when interest rates are lower. Credit tightening is taking place globally; therefore, one cannot expect the equities to do well.

What do you think about SIP in the current scenario?

SIP is a better way to build up the portfolio because one can’t call the bottom and top of the markets. When the credit cycle eases, you will see sharp rises in equity market, and SIP is a better way to build up a portfolio in anticipation of that.

What is the worrying factor right now for the markets?

Let us not forget that the country has a huge growth imprint. The country may be taking some measures to cool off inflation. But if we have half our population below the age of 20, the number of jobs we need to create is huge – 20-24 million jobs every year. And, therefore, no country, especially India, can afford to do business the way the West has done. The West is a matured economy. We have to be growth oriented. And if we are not, we will have social problems in our hands. The lot of problem that we face — this entire interest rate cycle, tightening or loosening — is going to take a toll on the broad-base economy for a long period of time. And we are already seeing IT companies scaling back employment. Manufacturing has becoming unviable. If we do not create enough jobs, we will have social problems on our hand. This is the biggest fear I have everyday when I go to sleep.

What is your advice to retail investors?

The time is not ripe for equity; one can build up a steady portfolio using SIP route over the next two years and see the market turn up. When we have an environment where corporate profits are taking a hit and liquidity is compressing the P/E of the market, one cannot have very great returns till the cycle turns. And it will take its own time for the cycle to turn.

Do you still think the domestic consumption theory holds true?

Yes, it will hold true. But we need to create jobs. Lot of us have focussed on the domestic consumptions part of it. But we haven’t focussed on where is this guy going to get his next meal if he doesn’t have a job. I think that’s where all of us need to focus — where are our next employment drivers?

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