Consistently closing your eyes and putting money in a box not a wise idea in present volatile markets: Ajay Srivastava

"This rush will carry on because till the time the real interest rates do not go positive in this Indian industry, they have gone marginally positive but unless they go around 3% to 4% positive over the inflation rate you will find this trend going,"says Ajay Srivastava, Dimensions Corp Ltd.

Tamanna Inamdar: The numbers are fantastic and there is one statistic out there which says for every Rs 100 foreign investors have sold, domestic investors have bought Rs 93. Clearly retail investors have found their faith finally in Indian markets. What do you think this comes down to is it the TINA factor like we say in politics there is no alternative?
Yes, you named it. I think it is a straight function of negative real interest rates in the economy for the last five-seven years with the deposit rates of 5% to 4% and inflation at 8% to 10% minimum on the CPI.

The savings actually are going down and therefore the answer is go to equity markets. The fact is that mutual funds on a three-year period have not beaten the debt returns, have not beaten gold. The investors are hoping that some day there will be a pay day on the equity market.

This rush will carry on because till the time the real interest rates do not go positive in this Indian industry, they have gone marginally positive but unless they go around 3% to 4% positive over the inflation rate you will find this trend going.

The moment interest rate goes positive and the real interest rate goes positive by about 2% plus you will find the trend going down. Now the good part is that it gives strength to the economy no doubt about it but has it given value to the investors my answer perhaps would be no and investors would still be disappointed who are putting in money at this time because the threshold for Indian investors is not less than 14% to 16% return minimum on an equity portfolio and that is not coming their way. The index is up 6% so faith is high but the reality is it will be very disappointing. It will be more disappointing because you will never make more than your debt return at this point of time in the next 12 month or 18 months.


Tamanna Inamdar: I am actually quite glad that you are striking a cautious note at a time when you hear only very-very congratulatory sounds and excitement about retail investors. I mean some would argue that it is finally the time of the retail investor, they have finally figured it out that long term investments will give them the returns that they need?
Long term investments do not give any returns. If you look at the returns of even the best of stocks like Eicher, Reliance it will not give you long term returns. This is the age of smart churning your portfolio because if we are not churning the portfolio, we are not going to make a return.

If you look at any stock let us say sugar today you mentioned it has a major upside as it went up. But the stocks first went down 40% after which it grew 17%. Suddenly if you see the headlines today sugar goes up by 17% but no headline will say it went down by 50%. So the point remains that investors should know that this long term model is dead. Every company including Apple share price fell at this point in the US.

In India every price falls so if you do not book your profits tough luck. But we are so exuberant about our equity portfolio that even today people are buying shares.

I will give you an example of Jet Airways, that airlines is not going to fly, it is dead. The RPs made more money than either creditors, investors or the employees but people still believe that the airline would fly. Now if someone can buy Jet Airways today you can imagine the exuberance in the system today of the equities.

Tamanna Inamdar: So the investors which are coming into Jet are they coming in because they have some big great fundamental faith in that brand, they have some brand loyalty, they love Indian aviation or is it that they want to make the most of that arbitrage which may be available if there is any positive regulatory announcement etc.?
Well I simply would say that if investors want to play a suicidal game then why don't they go for skydiving. They will get better and guaranteed thrills. Spending money on a stock like Jet Airways and denting your own portfolio neither will give you the thrill and in turn will give you sleepless night. Believe me doing skydiving will sound better than investing in Jet Airways which is not going to fly.

Tamanna Inamdar: I am going to of course ask you about your advice for retail investors. Investment in equity markets is usually aligned with or drawn as a parallel to faith you have in the Indian economy. It is suppose to be a mirror to the Indian economy that is why you hear a lot of times that this is the fastest growing bright spot you want to bet on. Do you think that holds true?
I do not think that connection between an economy and markets have held true for any geographies in the world and certainly not for long periods of time. In fact at one point of time it became inverse that the worst the economy did, there was a need that the central banks to come in and pump in more money and the markets went up.

So the correlation is not so established in an economy like India where a large part of the economy does not correspond with what is available in the stock market.

The agriculture sector etc. has no meaning in terms of the stock market at the end of the day and the government intervention will goes with it. So I do not think it is the economy, I think it is the Indian investorwho has to feel strongly about India.

I do not think you need to use your equity and your money to vote for a country's economic policy. I think you need to use your money to vote for the fact that are you feeling lucky about where you are investing and will you get greater than debt return with the margin.

I think that is the bottom line that investors need to book profits. You stay long enough you make nothing in the Indian market not only Indian global equity market. You book profits there is real money in the bank not paper money in demat.

What do you mean when you say keep the churn, give us a clearer guideline to that?
See for instance if you look at the sectors like the IT, the moment the US economy went into a tizzy it was quite logical for everyone to know that IT sector will take a hit so when you look at the IT funds if you had not booked the profit there was a issue.

Also the large caps of India at this point of time are giving 6% for the year. There is no way it can grow beyond what the economy is growing at the end of the day. So if you look at it sectorally you need to find a way to book profits.
Number two is if you made a 20-25% return on your portfolio whatever the composition of multicap funds, small cap funds, large caps you have, I think the good idea is to take 30-40% of profit of the table and hold the fresh money. You can keep saying that long term investing is key but the fact remains that if you look at a return see Jan to now it is nothing but when look at a return last June to now it is absolutely fantastic.

So I would say encash your 20-25% return, keep your powder dry as there will always be correction in the market and sectoral flow has to be churned. There is no question about it, some sectors will do well and I think one of the problem India will have and continues to have is government policy change. Although consistency is there you had a steel policy that destroyed the steel stocks, you had sugar policy which lead to sugar stocks correction, you also had the oil windfall due to which the oil companies went for a tizzy. So there is lot of government intervention as well which happens so before government moves in to tax the supernormal get out of the sector and book your profits at the end of the day.

Just consistently closing your eyes and putting money in a box is not a wise idea in the present volatile markets.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)