Enthusiasm among retail investors appears to be cooling down with stock prices declining. Here is Kapil Bali, Executive Director and CEO of YES Invest’s take on what investors, particularly new investors, should do in such markets.

What was your first investment?

My first investment was through an IPO at the age 24 when I started my first job. I got interested in markets while studying for my MBA and then my first job with an investment banker drew me further to the capital markets.

What are your best and your worst investments?

I have tried to invest in companies whose business I could understand. Since I have never been a trader, I have not bothered too much about entry price points. After dematerialization of shares was introduced in the late nineties, the lot size restrictions were removed. So it became even easier to put small sums in good shares at regular intervals. This is ideally suited to young professionals who have just started earning. My worst investments I would say are those that I didn’t do. In hind sight I feel I should have invested more. The Sensex is at 28000 today. Just a decade back it was around 5000 levels.

What is the asset allocation that you follow for your investment? 

The thumb rule I have set for myself is that around 25 per cent of my saving will be invested in equities. I prefer to invest directly in the markets as I find it cheaper to do so and further I am in control of the holding period. My investments in debt assets is limited to basic fixed deposits and liquid/bond schemes of mutual funds, which also takes care of my instant liquidity needs.

Over and above these, there is the investment in term life plans and hospitalization general insurance plan to take care of rainy days.

Do you think equity market is over-heated now? Where do you see value in the market?

It depends on your investment horizon. In our opinion, the markets do look a tad expensive from a one-year horizon because corporate earnings growth is still low and does not justify the premium valuations.

However, we expect things to revive in the second half of the year and if we look at investing from a longer term horizon, investing in equities is still attractive.

Which sectors should investors consider now?

We see a lot of value in sectors that will benefit from the Government’s infra push as well as from the cooling interest rates.

These would include infrastructure, capital goods, private banks and also cyclicals such as autos and auto ancillaries. However, these sectors would take time to deliver returns.

In addition to this, it is always good to have some defensives in the portfolio — good names on the pharma and IT side.

Do you think new investors should buy stocks directly or through the mutual fund route?

There should be a healthy mix of both. Invest directly in those stocks that you understand well; you must be comfortable with the business models and financials. Having some part of the portfolio in mutual funds can help investors diversify.

What is your view on the interest rates and fixed income securities?

We (YES Bank) expects policy rates to be cut by a total of 75 bps in FY16, of which 50 bps cut has already been undertaken. A further 25 bps cut is what we expect. If commodity prices were to continue remaining low, a further 25 bps cut cannot be ruled out.

Based on the assumption of one more rate cut of 25 bps, we expect 10-year yields to come down to around 7.35 per cent.

If there was another cut, which depends on the commodity prices remaining soft, 10-year yields could come down to 7.15 per cent.

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