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C.J. Punnathara

Kochi, Dec. 31 “I am not interested in increasing my business volumes or bringing in more customers at the moment. My primary concern is to reduce the value erosion that some of my recent customers have suffered due to the global economic slowdown and the stock market crash. And I am pained to say that this financial tragedy has struck some of my small middle class investors who were just able to mobilise the minimum amount of Rs 5 lakh to invest in portfolio management services,” Mr Porinju Veliyath, Managing Director of Equity Intelligence, said. The turnaround in the fortunes of PMS companies started towards the end of 2006 when the returns from mid-cap stocks slowed, even as the growth of frontline stocks accelerated.

But it was the small customers who joined the portfolio schemes late in 2007 and early part of 2008 who paid the biggest price. However, these small and more vulnerable investors constitute just 2-3 per cent of my total customer base and far less in the total volume of investments, Mr Porinju pointed out.

Despite persistent advice to invest only a portion of their total savings into stock markets, a few of these customers have invested their life savings into the market.

It was these late and small investors who felt the maximum pain as markets gyrated from its peak to its bottom in 2008. Their pain was all the more bitter as the pace of growth of mid-cap stocks tapered off. While the common retail investor chose to invest a part of his savings in frontline stocks, most portfolio managers extracted even faster returns by identifying small and mid-cap stocks with good fundamentals which grew even faster than the frontline and index stocks. As the returns from portfolio investments accelerated, the number of new customers seeking their services swelled. Portfolio investors were more often long-term investors, guided by valuations rather than sentiment. But this positive trait also turned against them as the market turned from value-driven to sentiment-driven.

While there was all round value erosion, portfolio managers say that early customers who sought portfolio services 3-5 years back would still be walking home with fat returns, albeit far lower than what they would have got in January 2008.

As negative sentiments hold sway over the market, value investing has become passé.

Though there are several mid and large-cap stock with good valuations, unless the sentiments improves, it would not be prudent to invest in the market, some portfolio managers said.

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