It is a big week for earnings but I am not sure if Q1 numbers are what markets are eyeing now. Perhaps some commentary on the recovery and the exuberance is continuing. Which way do you feel the trend is going to turn?
Well if 50,000 cases of coronavirus and recovery go together, so be it. Being in the money, we do not argue with the market at this point of time. But having said that, this is a good time to look at your portfolio and say that you can take some profit off the table. There is exhaustion and there is going to be a little bit of a selloff which will take place as people start to book profit. Certainly, this is not the time to over commit capital. It does not matter which stock you talk about — technology or pharma — everything has run up quite a bit and we need to give it a breather. The market is giving itself a breather. Investors should give themselves a breather at this point of time.
Does that mean you are expecting some consolidation and want to monitor the pace of recovery or do you actually see any risk of a substantial cool off or profit booking coming in, because globally there is some chatter that we might see markets fall off a cliff sometime in the fall given the current valuations, but does that logic apply back home?
I am not sure that the logic applies purely because liquidity is not in short supply, that is one. Number two is in a domestic market , the maxim in the market is why put money in your own company when you can make it easier by putting it with Reliance, the Ambani buy or whatever it is at the end of the day.
The thesis here is that for the time being the money flow which would have gone into productive assets including factories and build up of inventory is now being redirected to the stock markets. So people are not going to be building up MSME ventures. We have got enough people on our investment list at this point of time who are putting large sums of money in the market but not in their own businesses. I am not sure that is going to happen and the fact is the flight to risk and flight to safety coexist at the same time. There is enough people buying gold which is flight to safety, there are enough people buying equity which is flight to risk.
So, there are different sets of investors but till the liquidity remains where it is, it is very difficult to believe there will be a large clientele unless the coronavirus situation goes out of control. That is one of the biggest risks in the market. At 50,000 cases, we just saw PVR saying they are going to open in Maharashtra, are going to open it up etc. What we are getting into at this point of time and where it is going to end, we do not know. One should not be too despondent that at this point of time enough people are buying gold. That means enough capital is going into safety. People will take some risk and now will discover safety in gold. People are distributing their portfolio quite well enough for this kind of eventuality.
It may be complacency and despondency but some would also say that if you are not participating right now you are actually missing on an opportunity because you will not get this kind of rally or momentum whether you are an investor or whether you are a trader. None of the fund managers have managed to beat the index in the last 10 years and when retail guys are there in the market, you start raising question marks?
Well that is a dilemma all of us face and there is no doubt about it. But the fear of missing out (FOMO) is a highly overrated fear. Market gives you enough opportunities to miss out. Look at the last three years. You had a historic high. The market corrected and you got enough opportunity to get in. Again, post corona. the market has corrected. So investors should know that they are not going to miss out, the market will give everybody a chance to get in, do not worry about it. You got to be patient. It is not that the end of the world is here.
Market finds its own reasons to come down and give chances to get in. So if you are buying purely on the thesis that you missed out on this rally, that is the worst decision you can make because that is going to lead you into serious trouble. Keep capital dry. At the end of the day, let us be honest, people who had capital dry in the month of March-April are the people who made money. All the fund managers you mentioned including some of our fund investment thesis which went into the March with huge investments already locked in, could not get the whole benefit of the rise and you guys rub it in every day because all the indexes start on the lowest point of the index and tell you how much you missed out the rally.
So, I think partly it is a media creation but my message to everybody is that I have been long in the Indian market. The market gives you enough chances to get in. It is never that it is over and now onwards there have been no chances to get into the market. So, that fear should not be driving you at this point of time.
Number two is I never ever looked down on retail investors. What you need to understand is that the poor fellows also lose a lot of money. So yes, there are success stories but if you look at the individual portfolios, you will find that where they make 300% returns, their capital allocation was 5%; where they made huge losses their capital allocation was 50%. So it is not that they ride into the storm beautifully always. You lose a lot of money in the larger ones you invest in. Let us take Reliance for instance, I am not sure how many of the smaller investors had put 50% of their money in Reliance. It could have come in later but perhaps less. Lots of other stocks have been liquidated,. You take off CCD, you take off Eros cinemas of the world, where they have fallen 90-95% so some stocks could have gone 20, one would have gone 90% down.
Therefore the retail caution is only one that their mix of investment is perhaps sometimes weighted towards big losers rather than the big gainers.
Is there a big challenge now for everybody who is following Nifty as a benchmark because as a fund house, nobody is allowed to go more than 10% in one stock as per the Sebi law. Reliance’s weightage is about 14.5-15%, So you are underweight Reliance and that underweight perhaps is something which is a compulsion. Reliance keeps on going higher every day. Do you think that for a lot of Sebi regulated fund managers, there is a bit of a challenge?
Of course, it is quite a bit of a challenge. At least in the mutual funds it has been a big challenge. The redefinition of schemes two years back created a huge challenge for mutual funds. But that is not the whole story; the whole story is at the end of the day, people come to mutual funds to invest in the stock market, they do not come to mutual funds to hold cash at that point of time. That is what the market has to understand that mutual fund managers by nature need to invest. It is not about where they feel the market is.
Even if they feel in their heart of hearts that the market is at really stupid levels at this point of time, they will never tell you not to invest because that is against the thesis of income. You cannot tell an investor to not put money in equities because that is where you make your money at the end of the day. So people have to realise that a mutual fund manager is not there to tell you when to invest in equities or not, he will always tell you this is the best time to invest.
Now given that thesis, as an investor you need to space out and see where you need to go. I will give you an example, for instance, there is a huge thing going on equity REITS for instance, the real estate REITS. You as an investor need to figure out whether you want to be in a real estate REIT or in a Power Grid REIT which is IndiGrid and where the returns are also different, the risks are different, the profiles are very different.
So when you want to do mutual funds, you also need to figure out where you want to put your money, lots of our customers who put money in US funds, came out winners at this point of time, Lots of them put in banking and you know about the massacre at the end of the day. So the fundamental thesis is if you give money to the fund manager, his job is to invest, now if he loses the money, that is because you came at the wrong time and not because he can be faulted, his job is to invest.