“ Stock markets are like women- mysterious, ever demanding, unpredictable and volatile!”
An endeavour to explore the ever-promising and alluring world of meandering unpredictability; an attempt to guide budding investors Pehla Kadam is a show conducted across different B-schools in India and a venture to effectively streamline the efforts of first time investors. And this time it was SPJIMR!
With a topic as profound as Investing in equity and a panel as eminent as Sudeep Bandyopadhyay, Director and CEO, Reliance Money and Gagan Rai, Executive Director, NSDL it was more than an itinerary of the investment journey.
The show was hosted by Mr Vivek Law, Consumer Affairs, CNBC TV18 and CNBC Awaaz who lent effusive content, structure and unbound charisma to the event with his presence. It was an information intensive hour with the guests delving into various perspectives on first time equity investors to answer the questions put forth by the student fraternity.
The discussion was carried forward in the following lines:
Vivek: Good Morning one and all……. (formal introduction)….. With the Indian stock market index rising like never before is the right stage to enter and invest or is it the time for a tactful exit?
Gagan: Yes of course. What I often say is ‘an investor should not time the market, But should he be in the market for sometime’. With the country’s GDP growing at around 9% and inflation hovering at around 5% there will be an YOY growth of about 15%. So, the investor should invest and remain invested.
Sudeep: A good investor should not indulge in trading but should rather invest and stay put. It is as simple as how we buy a car or dress or an electronic good, we don’t buy them with a motive of selling them the next day.
Siddharth: Sir, as a young investor how should I take my first step? How much percentage of my bank balance should I utilise in investing in equities or Mutual funds?
Sudeep: As a beginner one should start with investing in MFs. There are about 1000 schemes but I would recommend equity diversified funds. As all of you are young and will be starting your careers I would say this is the right time to take risks. High returns come with risks. One should not invest in companies expecting short term returns. Neither should one follow blind recommendations seeking immediate returns. Rather as Gagan already mentioned it is better to invest and remain invested and look for long term returns.
Gagan: It is necessary to open a DEMAT account for your transactions. There are a lot of brokerage firms. One could refer to their research reports, consider their recommendations and invest intelligently.
Sukanya: I agree that a good investor should remain in market for a good time to Reap benefits. But how does one decide the right amount of time? How long Should one stay in the market to start expecting good returns?Sudeep: In our organization we have conducted a study which shows that if one stays invested in the correct shares for a period of about 15 years, one gets about 20% YOY ROI. Around May 2004 the market was down at 4000 and now in just 3.5 years it is at 20,000 and still going strong. Further the Indian financial market is very strong, is growing very fast and will continue to do so. Well, With respect to your question, it would be difficult to prescribe a specific period as the right time, but 3 years would be a sizeable minimum in my opinion.
Vivek: Equity market is a wealth creating tool. I remember I was anchoring a show in 2004 and asked a very well-informed person if it was the right time to invest. Ah well, he thought I was being ridiculous. But then had one invested then, for the kind of boom the market has depicted one would have earned a crore by investing merely a thousand a month.
Vikas: When a person invests for the first time he needs a sense of security. Are there any regulations in place to ensure protection to the investors?Gagan: For the past 12 years, the system has been pretty regulated and we have A system known as ‘screen based trading’. There was a time when there were lots of fake and forged shares that were delivered in the market. But now SEBI has come out with lots of rules including the 3+3 rule, wherein a cycle of 3 days are allotted for Trading, 2 for the settlement period and then the stock is allotted within the next 24 hrs.
Gaurav: When an IPO is made what should one look for before investing?Sudeep: There are a lot of ways to get to know about an IPO. The company’s offer Document is available at the SEBI’s website. If the company is an established Company and listing it’s shares for the first time, it’s past performance statistics are mentioned in the offer document which stands a testimony to it’s reputation. Else any brokerage firm or an analyst would have an IPO report that enlists the advantages and disadvantages of investing in the same. Navneet: Many a times people lodge an application for investment in an IPO but shares are not allotted. How does the allotment happen?
Sudeep: In any IPO certain amount is allotted to the retail investors, some for the QIBs and so on. In case it does create an issue, it would be oversubscribed. The shares are allocated proportionally to the applicants of different categories and further it is allotted by lots amongst them.
Shubham: Off-late there have been a plenty of investments by the FIIs. Does the market rise Pertain to them or has the market fundamentally become strong?
Sudeep: The market has fundamentally become strong. One would have read in economics about the laws of demand and supply. FIIs are investing because India is the best place to invest in. We are a fast growing economy and fundamentally strong too. The US and the Europe market is not growing strong. Moreover the FIIs do not have an option. In fact last year, the FIIs inflow was around 7.5 billion dollars but the retail remittances accounted for 25 billion dollars. Today the market might rise by 500 points today and decline by 700 points tomorrow, but the binding factor to be considered is that we stand at an index of 20,000 and not 4000. Volatility is a way of life and one must learn to live with it.
Abhay: You have mentioned regarding investing in a equity diversified MFs. How does one Chose the right MF?
Sudeep: Moneycontrol.com provides us with an excellent analysis on MFs. One can also do same all by his own. All you need to consider are a few indicators such as sharp ratio, genesis alpha and training ratios which enable one to make decisions.Vivek: For that matter we have CRISIL investor ratings for most companies which would be an effective tool to make individual choices. These are the CPR rankings that grade the MFs.
Pallavi: One is only too aware of the story of India shining and the market boom. However,The current market cap to GDP ratio is 150% compared to 90-100% of the developed countries. Also the PE ratio is high. Is it an indication of a bubble?
Sudeep: I do not subscribe to your view ma’am. The way the companies and the economy are Growing 20% YOY growth is immensely achievable.I don’t see any reason to worry about. In fact recently a company named Ali Baba got listed in the Chinese Exchange and had a market cap greater than most Indian companies barring the top 10. NY does not subscribe to electronic trading till date. In spite of being late starters in trading we have we providebetter facilities. And we do have a strong fundamental base for our financialmarket.
Rampal: It is a known fact that the US is our major importer. In case of a recession in there do you envision a repercussion over here?
Sudeep: It is important to realize that the Indian economy is insulated from the world market. It is not really dependent on exports like some others countries are. A acse in example would be Thailand, Vietnam or may be even China. We have a thriving robust domestic economy and a large domestic market.
Gagan: For quite sometime now what we have been facing is an unprecedented Growth and that’s the reason why we have an inexplicable apprehension and unfounded fear. It is totally unnecessary.Nishant: What would be an ideal ratio of investment in FDs, SB a/c and MFs?
Sudeep: As discussed, all of you are starting your careers and it is the right time to Take risks. You should invest upto 75% in equities, MFs, even ULIPs and stay Invested. Ideally you should keep the remaining 25% for recurring expenses.
Gagan: There are no hard and fast ratios in life. Do not run after them. Nothing is Black or white in life, most of them, rather all of them are gray. So investing Is an art one must experiment with and master it.
Aparna: As a young investor, should one look at the past performance of a company or its future prospects?
Sudeep: As a principle look at the future but one should not discount the past too.Avdut: With the advent of DMAT account and the electronic mode of share trading Many have been incited to invest in the market. But how can the people of rural India be made a part of the development and growth India is experienicng?
Gagan: In about 750 cities and 6,600 centres we have provisions for opening a DEMAT a/c. It spans the entire geographical location of the country, though it might not include some very remote areas.
Sudeep: Only 15% of the transactions take place on the internet, the rest happen over the phone. Telephone facilities have reached almost everywhere. Mobile phones have penetrated 3,00,000 villages. Lack of knowledge may be a problem, but investing as such is definitely possible. But if one invests in MFs, there these MF managers who would carry out the primary research and invest your funds, so that is a very good option.
Abhishek: India is growing, there is a strong financial market, it does generate feel good factor.It is in these times when one gets apprehensive about another Harshad Mehta lurking out there waiting to take things to such huge proportions?
Sudeep: Hopefully not, definitely not. Considering any scam, it is not the case where someone has run with your money. This definitely cannot happen in the Indian market. It is only that someone buys unrealistic proportions of money. From an investors’ perspective, you ought to pick good companies and good sectors, invest and stay invested for a long time. You will reap the benefits. Also today you will not lose your money even if such a scam occurs because of the investor protection schemes.
Vivek: That brings us to the end of the show. It has been a great show and must have been a great experience learning for all of you.
All is well that ends well, but well its not the end yet! The show is yet to be telecast on CNBC Awaaz. So get your affairs done, finish your errands, complete the homework, don’t get office work home, get dinner from outside and make yourself all ready for Saturday, the 1st of December, 2007 at 12:30 PM and 7 Pm and for Sunday on the 2nd of December, 2007 at 6:30 PM.
