The Hindu Business Line : Managing expectations is the challenge

As the equity market scales new highs, the dilemma of mutual fund and portfolio managers is to convince investors that last year's returns will not be possible, Mr Sandeep Presswala, Chief Operating Officer, Retail Business, IL&FS Invesmart, Mumbai, told Business Line in an interview:

Excerpts:

In the background of the Budget, where is the equity market headed?

I was just checking out the numbers with my colleagues and got a startling figure; they met the CIOs of leading MFs who have collected huge amounts from NFOs and collectively they are sitting on Rs 10,000 crore of cash.

Over 20 NFOs are coming in March-April and some funds are going overseas to raise money.

At one level everybody says the market is fairly valued, at another people are sitting on huge amounts of cash, which has to enter some time or the other. And the euphoria makes those who have not invested feel left out. So that's an interesting troika.

So it's a dicey situation?

Absolutely. We're trying to discourage fresh money in our PMS, and telling people that don't bring new participants unless they understand risk and take a long term view. Momentum play is out and you may see a 1000 to 2000 point correction. I wouldn't be surprised if the market goes down by 2000 points tomorrow.

You have to be very clear what you're getting into and if you think that past is going to hold true for the future, you can get hurt badly, because the prices have already moved up and have to match earnings.

What returns do equity investors expect, and what're you telling them?

We're cautioning people from entering the market with unrealistic expectations.

If they want 30 to 40 per cent, we say: `Not possible'. But, 15-20 per cent is possible but you have to be patient to make gains. Don't think momentum will work.

Only recently the midcaps have gone up, otherwise it has been a large-caps story.

You market MF products. How is the scene there?

Oh, money is simply pouring in. Fund managers tell us that they are sitting on huge sums of money and facing a big challenge in finding good stocks at reasonable valuations.

Some funds have stopped accepting money.

Yes. The dilemma of fund managers is `if money is flowing in, we should take it'.

This is an opportunity and you're in the market to raise money.

So is a correction on the cards?

Yes, but the problem is that when everybody waits for a correction, it doesn't happen. There's a new set of foreigners who are coming in, who have not seen an 8 per cent growth rate anywhere in the world. So they are saying: "I too want a piece of this action." Recently I was in Dubai, and over the last four years this is the first time I'm seeing such strong conviction about India there. Forget the NRIs, the locals want to invest in India. Institutional investors have come to India, met us, saying we want to know more about India. All those financial scams are things of the past. We want to invest in India. If that money comes, we'll have a serious problem on hand. If one Arab Sheik comes he'll shake up everything. The kind of money they have is humungous.

Are you seeing a different class of retail investors coming in... the BPO and call centre employees?

The call centre guys are the spenders but people who have been used to the FD culture are coming in. Investors are coming from new centres and pockets; many brokers are setting up branch networks in the interiors of India.

The Budget allows mutual fund to invest more in foreign markets...

When I have a domestic market that is so buoyant, why should I go to any other market? That is not an opportunity. Here, by doing nothing, you get the advantage of an 8 growth in the economy... so that's not a problem.

The issue is not returns, but managing expectations of returns.

Returning to expectations... has investor psychology changed?

Greed is ingrained in the human psychology; unfortunately for us this time we have seen a sustained bull run except for one blip. Investors have now got used to 30-50 per cent returns so managing expectations is the biggest challenge. For everybody in the market, the challenge is to bring about a mindset change in equity investors.

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