The Hindu Business Line : ‘Start making staggered purchases right away’

Despite the current correction denting investor morale and making the turnover on the bourses plunge, Mr Sudip Bandyopadhyay, Director and CEO, Reliance Money believes the Indian economy will cruise along steadily, albeit at a slower pace.

He advises long-term investors to buy blue-chip stocks while holding 15-20 per cent in cash to capitalise on opportunities that could emerge in the future, during a brief interaction with Business Line over phone. And we continue the conversation with Mr Bandyopadhyay through email.

Excerpts from the interview.

What are your expectations from the fourth quarter and full-year results of India Inc?

By and large we expect an earnings growth of 15 per cent plus in the fourth quarter of FY (financial year) 2008 for the Indian corporate sector. For full year our expectations are that the earnings will grow by 20-21 per cent year on year.

We remain positive on the earning potential of large corporates and this has already been reflected from the advance tax numbers.

How long do you think the current correction will last?

The markets will continue to remain in a narrow range of 15,000 to 18,000 over the next two quarters. Our sense is that the markets are viewing negatively certain macro factors like high inflation, lower IIP (Index of Industrial Production) numbers and the potential losses incurred by Indian companies in derivative transactions.

Until the markets get more clarity on these issues and the Government’s inflation control measures, a sustainable rally is hard to foresee.

Until then, the markets will remain in a trading range and will be driven more by global cues and international events.

What should the long-term investor be doing now?

He should be buying into large-cap stocks across sectors such as telecom, education, infrastructure, cement, construction and financial services and strive to build a portfolio consisting of blue-chip stocks since the risk-reward ratio is favourable at these levels, provided one invests with a long-term perspective.

What per cent of his capital should a retail investor hold in cash at this juncture?

Every investor has a different investment appetite and hence this cannot be generalised.

However, as a thumb rule, an investor can hold 15-20 per cent of his funds in cash so that he can capitalise on opportunities that might arise later.

That said, the markets have already fallen from 21,000 to 15,500 in a deep correction. Waiting for another shape decline to buy into is not practical.

Investors should start making staggered purchases right away.

How is Reliance Money coping with the declining turnover on the Indian stock exchanges?

Equity trading is one of the three business verticals of Reliance Money. Since the other verticals of distribution and OTC (over-the-counter) business in money transfer, money changing and precious metal retailing also contribute significantly to the company’s top-line, the company as a whole has not been too heavily impacted by the falling turnover in the stock markets.

Also, Reliance Money has been focused on retail investors and not high net-worth individuals (HNIs) and institutions.

The volume has declined more sharply in the HNI and institutional segment as opposed to the retail segment.

What is your view on the SEBI proposal to link client limits in derivative trading to their net worth?

I think this is a step in the right direction. Stock exchanges worldwide are following this practice and it results in greater stability in stock markets.

Though it can bar some of the smaller players from trading in derivatives, it should work out well in the long term.

The trading turnover is not likely to be affected significantly by this proposal.

When PAN (Permanent Account Number) cards were made mandatory for trading, similar fears were expressed regarding the effect on turnover. But the changeover was seamless.

Would a lay investor be able to use the new technical analysis product being launched in collaboration with Recognia? How has been the experience of investors in other countries where the software is used? Any increase in return achieved?

There is no specific formula for making money via technicals.

The software is only a facilitator for investors to arrive at the right decisions. However this software is very user-friendly and an investor can access the technical report of any company at the touch of a button.

Carrying out the technical analysis manually for all the companies listed on the Indian exchanges would be next to impossible for an individual.

It would be difficult and wrong to compare the performance of this software in different countries since ours is an emerging and imperfect market where volatility and choppiness can make movements unpredictable.

I would not like to comment on returns to be made as it is yet to be tested and evaluated in our markets.

What is your outlook on interest rates?

Interest rates are unlikely to go down in the near term considering the high inflation that the Government is battling with.

In the short term, interest rates are likely to remain firm with an upward bias.

How do you see the road ahead for the Indian markets?

Sensex gave a decent return of over 22 per cent in 2007 and this year we could see this remaining in the range of 15 per cent on the lower side and 25-30 per cent on the upper side.

We remain optimistic as the upside from these levels will be from a lower base and we strongly believe that despite global concerns our economy will still grow by 8 per cent plus, provided we have another good year of monsoons and macro factors like M3 (a measure of money supply) and inflation are kept under control.

We firmly believe that all is not lost and there is a strong case of the Indian economy cruising along steadily, albeit at a reduced pace, as compared to last year.

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