‘Limit exposure to equity at 20-30%'

Retail investors should limit their exposure to equities, cautioned Mr Nirmal Jain, Founder and Chairman, India Infoline Ltd. In an interview to Business Line, Mr Jain spoke about the issues affecting the economy, equity markets and how investors should deal with the deteriorating market conditions.

What are the factors impacting the equity markets at this point?

The factors impacting the market are the continuing depreciation in rupee caused by very high current account and balance of payment (BOP) deficit, worsening fiscal deficit situation, complete logjam in policy and reforms, Euro Zone crisis, concerns about slowdown in China, high crude oil prices, high interest rates, etc.

Where do you see the markets headed?

As long as the rupee remains weak, markets will tend to drift lower. This is because market is driven by FII money. Major correction in crude oil price can be game changer as that improves our fiscal, BOP situation and also helps the currency.

What is your advise to retail investors? Should they stay invested, exit or take up fresh positions?

Our advise to retail investor is to limit exposure to equity between say 20 and 30 per cent depending on their risk appetite. They should invest the remaining portfolio in fixed income instruments, Government securities, gold, etc. We should refrain from taking fresh positions in equity markets under these circumstances.

Under the current circumstances, which are the sectors investors you would bet on and why?

Under the current circumstances, we would recommend overweight in IT sector which is a very good hedge against depreciation in rupee, followed by pharma sector where the growth is far more resilient to economic cycles. Then take exposure to some select FMCG companies which are on high growth path and not impacted much by commodity prices.

What will be the triggers/ policy measures which will help markets move up?

Policy measures that address macro concerns about balance of payment deficit and fiscal deficit will help market sentiment. Government should increase prices of petrol and diesel, try and restrict import of gold, provide more incentives and boost for exports, clear all doubts about retrospective amendments in income tax and uncertainty about the policy environment going forward, open up FDI in insurance, retail sectors, etc.

What is the behavioural pattern of FIIs, DFIs (domestic financial institutions) and retail investors under the current market situation?

FIIs are concerned because their investment portfolio can depreciate in dollar terms if rupee falls further, even if the market in nominal terms remains range bound. DFIs have been on the sidelines, have never been convinced in the last three-four years and have been taking trading positions. Retail investors by and large have been decimated and more or less are not in the market or not making any significant fresh equity investment.

As a broking house, how are you facing the challenging times?

The broking business is cyclical as it faces ups and downs. In broking, we want to focus on cost, consolidation. Our strategy also focuses on upgrading people skills from pure broking to financial planning and advisory.

As a company, the broking income only contributes 35 per cent of topline and we are significantly de-risked and have diversified our business model.

There is significantly larger income coming from more steady businesses such as consumer finance, life insurance and financial products distribution, wealth advisory, etc.

sneha.p@thehindu.co.in

kram@thehindu.co.in

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