Personal Finance

‘Increase exposure to less volatile large-caps’

Nalinakanthi V | Updated on: Mar 26, 2017
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Investors can go for 65 per cent in large-caps and up to 35 per cent in mid-caps

“Don’t speculate in equities, invest only in assets you understand,” advices Rajesh Saluja, Chief Executive Officer and Managing Partner, ASK Wealth Advisors, in an exclusive interview to BusinessLine . Edited excerpts.

When did you start investing?

I started investing when I was in college, back in the mid-1980s.

What was your first investment?

I first bought shares of Tata Steel, ACC and Reliance Industries. Even when I was pursuing graduation in Mathematics and Economics, I started working part-time in a stock broking firm. My college used to get over by 11 am after which I would spend time from noon until market close every day.

Best investment?

As an asset class, equities have done extremely well. Asian Paints, and HDFC Bank have delivered stellar returns (15-20x). Motherson Sumi and Sun Pharma were mid-caps when I bought them and they graduated to become large-caps driven by strong fundamentals. Stocks I have held for a long time are Asian Paints, Hero Honda and HDFC Bank and I continue to hold them.

What is your investment philosophy?

I have always believed that investment should fetch post-tax return of at least 4-5 per cent over and above inflation. The only asset class that can help achieve that is equities. I buy stocks and just keep them for 10-15 years to benefit from the power of compounding.

What is your current portfolio allocation like?

About 90 per cent of my assets are in direct equities, given that I understand equities reasonably well and pick stocks myself. I don’t hold any commodities; according to me, gold has no economic value. Post-inflation and tax, fixed deposits (FD) barely give you returns. While FDs have the illusion of safety, in reality, wealth gets eroded.

Real estate is another asset class I am not positive about due to illiquidity and unfavourable taxation. For instance, you will have to pay capital gains tax if you don’t reinvest proceeds from real estate sale. Similarly, though the returns on residential property may be 13-14 annually on a pre-tax basis, post-tax returns aren’t very attractive at 8-9 per cent. The other big drawback is that the rental yield is abysmally low at 1-2 per cent.

Lessons you learnt?

While my debut in equities was in the mid-80s, my investment portfolio took a hard knock after Rajiv Gandhi disappointed the market with his first Budget (when he was Prime Minister). The reason for the big loss was my wrong decision to bet on derivatives, lured by the expectation of attractive returns, without understanding the logic behind them and the risks involved.

It took me a while to come back to equities. It was post-liberalisation in early ’90s when I started investing in equities again.

What are the ground rules of stock picking, according to you?

I look for four aspects while evaluating any company for investment. First, how big the business is and how large is the opportunity. Second, is the quality of management, their execution capability and governance. Third, is whether the business is capable of generating predictable consistent earnings. Finally, the return on capital should be at least 20 per cent.

What is your advice to investors?

Buying stocks based on tips from friends can backfire; it is important to do your own research before you invest in them. If not, you may be better off taking the help of a professional manager.

The other important lesson is one should avoid speculation. While it is thrilling and exciting in the short term, it can be detrimental to long-term wealth creation.

Take a long-term view on investment and stick to it. Don’t have over-exposure to any asset class. Have a proper asset allocation.

Don’t get carried away by tall claims and don’t invest in something you don’t understand.

Published on January 15, 2018

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