With the equity indices scaling new peaks in quick succession, it is time for retail investors to turn cautious and keep away from "rumours and tips", says Mr C. J. George, Managing Director of Geojit Financial Services. Talking to Business Line he expressed confidence in the Indian equity story for the long term, but warned that investors should not expect the present heady returns always.
Excerpts from the interview:
With the Indian equity market at all-time high, what would you advise the retail investors?
They have to be cautious now. Since the markets have gone up, lots of rumours and tips are impacting on decision making, which is not good for investors. In a bull run the first few tips or rumours will work. So retail investors have to be very careful of these.
What about the confidence shown in Indian equity by Foreign Institutional Investors?
That is very strong and the flow of funds will continue. We are less confident about India than the foreigners. When I travel people say India is the place to invest.
And what appeals to them most?
They say an economy growing at 7 per cent and with potential for further growth is India. China is there but language is a problem; (their) annual reports have no credibility; the judicial system is uncertain. But in India the systems are solid. Japanese investors get 0.5 per cent interest so they are thrilled about the returns here. The India growth story is strong and hot and will attract a lot of money.
But isn't there a contradiction? If India is such a strong growth story, why then the need for caution?
People should continue to invest, but you have to be careful of speculation, tips and rumours. Buying something at 10 a.m., selling at 11 and buying something else... that is dangerous. But young Indians should put money in equity through systematic investment plans and start investing some amount at an early age.
Recently, in Mumbai I saw many senior citizens active in the market, though in a small way. Is that advisable?
The Indian stock market gave a lot of return in the 1970s and the early 1980s. From 1985 to 1995, a large number of investors made money. From 1995 to 2005 we had many scams and very few new investors came in. But those who invested in equity in the 1980s are senior citizens now; many of them became experts, made money and are still holding on to some stocks that are doing very well.
But I also found many of them coming to the brokerage just to pass time and make very small trades.
That happens outside India too. Recently in Bangkok and Taiwan I saw in brokers' offices a lot of people sitting and watching the prices on huge screens. Over 85 per cent are senior citizens and their trade size is small. They come with lunch and sit through the session; brokers know today it is a waste, but then these were active customers 15 years ago.
In Kerala do you find NRI money coming into equity?
Yes, but not at the rate we expect. People still have concern because of the last few scams; people feel another scam is on way.
How are we sure it is not?
Today, the securities market infrastructure is among the best in the world, as also our regulatory infrastructure. But scams happen everywhere and human ingenuity will beat the systems. But we as investors should be careful. We should invest only in quality, understand the risk, and ignore rumours.
You said the NRIs are nibbling at Indian equity. In what way?
They are now pumping in a lot of money in equity mutual funds. They find that more attractive than direct investment in equity because they live outside and cannot track the market day-to-day. The returns are less but better than what they can get in the Gulf. And the Indian rupee getting stronger... That is another main reason.
So faith is returning in the Indian rupee...
Exactly, and that is generating a pride in the Indian currency.
Geojit has opened offices in the Gulf region, what is the response?
We have offices in Dubai, Sharjah and Abu Dhabi and limited operations in Doha and Muscat. But almost 60 per cent of our revenue comes from mutual fund distribution. We cannot provide trading terminals because of Indian regulations. We have trading terminals of Nasdaq and NYSE but not the BSE or the NSE! Under Indian regulations, to have trading terminals, a brokerage should have cent per cent ownership, which the UAE does not allow. But American exchanges allow us to have trading terminals. If our regulations change, there is a lot of business opportunity, so we have approached the Securities and Exchange Board of India on this count.
Also, now the Dubai International Financial Market plans to allow Global Depository Receipts of foreign companies to be listed there. At that time, many Indian companies will get their GDRs listed in Dubai and NRIs can buy and sell without a problem. So we'll take a membership there. This should happen in a couple of months.
What kind of returns should investors expect from equity?
That depends on the risk-free interest rate, as well as inflation; anything over 12 or 15 per cent is good. More is possible, as is seen now, but expecting such returns all the time is dangerous. Stock market intermediaries should tell people that what they are getting now is abnormal. You should invest, for long term but not expect 30 or 50 or 100 per cent return. That kind of expectation can kill the market...
And trigger a crash...
So are you cautioning your clients?
We are cautioning them on rumours, tips and penny stocks. The prices of companies that are not in existence are going up. Investors are asking brokers: `Show us stocks below Rs 10'. This is where investor education should come in, and we are doing that. Though on Black Monday we did advise our clients in the afternoon to buy, and many of them did so.
Are you advising your clients to book profits now?
No, that is their decision. We come out with research reports. I am of the view that the Indian market has to go up.
But people are talking about Sensex at 20,000!
Such talk is meaningless. We should look at the growth in companies and identify companies that will do well. Even though I've never personally invested in the stock market, I'm very optimistic about the Indian stock market.
You are planning to start separate trading branches for women investors in Kochi and Chennai. Why?We have seen many successful women investors. In our Thrissoor branch, we have a retired teacher who is very successful. She is very active, and so are many other women. Many women have the advantage of time when the children are in school. Some trade on the Net from their home and others do it over the telephone. But generally women tend to be more cautious.
When we internally discussed having separate outlets for women, there were reservations that a lot of small trades will happen. But as a culture we want to encourage long-term investment in women. We expect about 25 to 50 women in each of these branches. We also plan to have on every Saturday training sessions on how to pick a stock, what is the risk involved, if you have a service deficiency what recourse you can take, and so on.
We thought it necessary to have all-women branches because sometimes a broking outfit tends to be crowded, so if it is an all-women office, women will feel more comfortable. Also, women's orders tend to be small and they could feel inhibited as the others may not take them seriously. Basically, it will be a handholding kind of exercise.
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