CNBC-TV18's strives to create an Informed Investor by empowering them with knowledge under the Investor Education Act and help them make the correct financial decisions.
The show Informed Investor brings together people from various walks of life and demystifies the essence of investments and the myth of the market. The sector-specific forums will help to bring together the communities that can engage directly with the best financial minds in the country.
This special episode of Informed Investor brings together members of the legal community and tries to find out what their investment requirements are.
Teaming up with CNBC-TV18 in this endeavor is S Naren, CIO Equity, ICICI Prudential and Ambreesh Baliga COO at Way2Wealth.
When CNBC-TV18 decided to engage with the members of the legal community and find out what the investment requirements are, it thought the best way to go about it would be to perhaps find out what their current investment practices are…what are they doing?
So CNBC-TV18 reporters and researchers scanned the length and breadth of the country. They engaged with lawyers from various law firms from across age groups and from various brackets of income and levels of experience. They had a lot of research that they found out and some of it is quite startling. About 40% of lawyers that we had surveyed said that they preferred investing in bank FDs.
Only 6% of the lawyers we surveyed who said they would be interested in perhaps equity or even mutual funds. 26% of the lawyers we surveyed still preferred the safety of holding onto solid gold or silver.
There were only 11% who said they were willing to invest in gold ETFs. A whopping 46% of those surveyed said that their annual investment was under Rs 1 lakh, which perhaps just about qualifies as their tax saving requirements. There were only 13% of the people who said that they invested between Rs 3-5 lakhs a year. It is perhaps is indicative of the lack of proactive approach towards wealth creation.
As they say, 'wealth cannot be earned; it can only be created' and CNBC-TV18 is here to help you do just that: Create wealth and manage it!
Below is an edited transcript of Naren and Baliga’s discussion. Also watch the attached videos.
Q: You have had time to study the findings of the survey. Are you at all surprised by the lack of participation in the market? Is it just the volatility in the markets that's keeping the retail investor away or is it perhaps a lack of awareness about the options that are there at their disposal?
Naren: As is typical of all financial products, there are period when greed comes to a particular asset class and people are very passionately involved in it. Then there are other periods of time when fear comes to asset class and people forget about the asset class.
I have seen in my career of 20 years, there has been periods like 1997-98, 2001-2003 and increasingly now where I find that people have just forgotten about equities as an asset class. They only think about other asset classes, although the experience of investors shows that the people who invested in the 80s, 1997-98, 2001-2003, they were the people who made all the money and others actually didn’t make money.
If you go back and see the period of mania in equities was 1992, 1994, 2000 and 2007. These were the four years where I believe even lawyers would have entered equity markets saying, this is the way to make money. In other years they would have said equity doesn’t look to be a place to make money. So, my sad experience has been that investors get drawn in at the wrong time because they think it should be invested like the weather. Whereas if you want to make money in markets like equities, the whole process is that you have to invest irrespective of the weather. You can’t say the weather is bad today, so I won’t invest or if the weather is very good today and I will invest.
Unfortunately, investors choose to invest in equities through the weather. What we have done in the mutual fund is that, we have started to create products like SIPs and systematic transfer plans, which basically force people to invest irrespective of the weather, but that works for sometime.
Now, people ask me: "For five years, I have not made money in SIP, so what do I do now?" But the global experience is that this is not the time to worry about SIP. These are the time to increase your SIPs. This seems to be a global problem, not just an India problem. What we have done is: We have added debt to product. We have added gold ETFs to our products. Our regulators helped us to add all these products. We have hybrid products, which invest in multiple of two or three asset classes. So, when we do all these things, our goal is to get people in all the time and that’s the hope for us that we want them to invest irrespective of the weather. But I can still tell you people invest based on the weather.
Q: It's investment discipline that needs to be followed. What Naren is saying is absolutely right...that a lot of people are lacking discipline. Do you think this lack of participation in equities is also because of lot of confusion between investment and trading?
Baliga: Absolutely. People are not really looking at equities or various other classes. From the statistics, this is not only specific to the legal community. If you look across the various Indian investors or I would say savers, our saving rate is one of the highest in the world and the amount of money, which comes in to equities, is minuscule.
One of the reasons is people are not really aware and they don’t know how one can go about investing in equities or other asset classes and when it comes to investing in equities again there is confusion whether you should be investing or whether you should be trading. There again the weather comes to play, what Naren was talking of, when you have the markets doing extremely well, everyone turns to trading because that’s the way to make quick money and once you get stuck on the way down, you become an investor. This is the story of most of the investors around.
Abidi: The takeaway from our expert advice is - if you want your money to work for you, you have to work at investing it right.
Q: The present economic situation is very bad; falling stock market because of the falling rupee, rupee has depreciated to the extent of 56, there is hike in petrol prices, food inflation has gone up, the world market also in the Europe, there is economic breakdown so having all these parameters which are going against the market and the economy, I would like to ask you a pertinent question in this scenario, which industry or which stock will do well, which stock can an investor think of buying at the present juncture?
Naren: Today, the situation does look cloudy and that is one of the reasons why we strongly recommend systematic investing at this point of time. That is the way you have to invest when things are cloudy not when everything is shining. Sectorally, our view has been that given the fact that currency has depreciated, export oriented sectors like technology and pharmaceutical are the biggest beneficiaries.
The benefit particularly to the technology sector is that although the sector’s outlook must have improved because of the currency depreciating, the stocks have fallen very significantly. So when people ask us, what is a good tactical call at this point of time, we talk about technology funds. Of course it carries the risk of any sector fund but that is the way we look at it.
Baliga: Generally the best time to invest is whenever there is complete pessimism on the street, whenever there is panic. Right now, there is not much of panic but there is a lot of pessimism whomever you talk to. People are talking of the index going down further from here and the rupee going to 58-60. So when there is so much of pessimism around, generally that is the right time to invest.
Again if you look at the statistics, last twenty years, equity markets have given you a 16% return compounded annual return in the last twenty years. If we go by possibly 40-50 years, it is the same story. Basically, one should not generally try and time the markets but then if you are talking of the current juncture, yes, I think it is surely time to start investing.
Q: Suppose a person has already invested whatever he had when the Nifty was at the highest levels; and today speaking of Nifty, it is going down further. Which direction will the Nifty go from now?
Baliga: First of all, one should not invest all his money into one asset class whether it is equity or whatever it is. Secondly, you should always – even if you are investing in equities, I think you should always keep some cash for those rainy days, which is current.
But since you have asked the question where you are saying you have already invested whatever you had at the highest possible level, the only thing you can do right now is possibly restructure your portfolio because you cannot put in fresh cash.
So, sell some of the stocks in your portfolio, which as per your understanding, are not going to perform going ahead and get into those sectors or stocks which you think will perform. At least this way, you will be able to recoup part of your losses. If you are fortunate and if your reading is right, you will possibly make profits.
Q: Which stocks would you prefer investing in at this moment?
Baliga: At this moment, I would look at the largecap stocks. We are investing in capital goods, telecom, couple of export oriented companies especially in the midcaps. In midcaps, we are looking at the tea stocks, which are clearly export oriented. Prices are hardening and most of the tea stocks are available at very good valuations.
Abidi: So the key takeaway from what the experts are telling us is that you can buy on dips in a market like this. In the current market conditions, perhaps a stock specific or a sector specific approach is better than just going at the index level at least for retail investors.
Abidi: We caught up with quite a few lawyers from across the country where our reports have scanned the country to find some of the questions that lawyers have for our experts.
Kumarpal Chopra, Advocate, Chennai: I invest regularly on a monthly basis. The main reason to invest is to safeguard my future obviously. My investment is diversified into different fields. Firstly into direct equity, then some part goes into mutual funds and property as well. My preferable mode would be solid gold but I am looking at ETF options as well. The option in ETFs is that you don’t get taxed on your wealth tax purposes. On that front, I would like to invest on Gold ETF as well.
What is the right time to invest in the equity market given the current fluctuations in the market? I am looking at corpus of about Rs 50 lakh in next 10 years.
Naren: First of all, he is doing many right things. One is he is investing periodically, second he is investing across asset classes. So these are two key things which are very important and like what I call the weather oriented investment, he doesn’t seem to be following that which is very good for him. This means he is investing in all the asset classes all the time. I think that is the first most important thing for making money in the long term. On that basis itself, I would say no one can predict the corpus but he is doing the right things, which will give him long term wealth.
From the mutual fund side, we are always very clear that the best way to invest for the long term is through Systematic Investment Plan (SIP). In our belief, whenever you get an opportunity where an asset class does too well, you should actually redeem from that asset class. If that were to happen sometime in the next 10 years, he should rebalance his investment at that point of time and move possibly into debt or something like that.
Ramesh Vaidyanathan, Advocate, Advaya Legal: I practice law all over the country and I am very familiar with security legislations and laws. I am also an avid investor and I have quite an interest and stake in the stock market. A couple of things I wanted to mention in terms of the Indian stock market are –our market has probably not reached its full potential because we have not been able to attract enough number of investors into the market. The reason I see for this is the fact that perhaps we have not been able to demystify the market for the purpose of the common investor.
We still seem to be talking about company analysis in terms of financial number. Perhaps, it is time we graduate to a more physical analysis in terms of telling the common investor that if there is a construction activity going on, the cement stocks could go up or real estate stocks could go up.
The second aspect where I feel we can do better is in terms of improving the procedure and the ability for example to get the Indian diaspora all over the world and to invest in the Indian market.
The process and procedure is so complicated if you are a non-resident investor looking to open a demat account, it’s a humongous challenge. So somewhere, we need to be able to cut out a lot of the bureaucratic delay in opening bank accounts, which are basic requirements for any stock market to get going. So my suggestion would be to look at the market to actually go out there and try and talk to people and keep it simple, make it as simple as possible and that can really help get more investors into the market.
Baliga: As an investor, he should go with the fundamentals because based on news the stocks move for a while but for a sustained move, it has to be backed by fundamentals so the person has to decide whether he is a trader or investor. If he is a trader, yes go by rumors, go by tips and go by the news. But at the same time, if he is a long term investor it is best that he does his research and invest based on that.
Naren: In the last 20 years, things have become so simple. Twenty years ago, the brokerage rate used to be 3-4% and you would buy a stock then you will send it for transfer and after 9 months it will come back saying signature differs, then you will have to give it back to your broker and then he will return it back to you in months and then you might resend it and again it may come back saying signature differs. So this was the kind of procedure which was there 20 years back.
In the last 20 years, the effort of NSE and the Sebi has created a very good system for domestic investors. We have historically not encouraged too much of investing by foreign individuals in the Indian equity market. But if I look at it otherwise, just think about it – today’s most popular asset class is real estate. It is much more complicated to buy real estate. You will have to do all kinds of check on property, as lawyers would tell you there are all kinds of things which can hit you.
Whereas if you buy stocks you are sure of the title, the title comes to your account in two days, any day you can call and get your demat account statement. I think the process is that have been set up for equity investing for the domestic investor is far better than what it is there for the real estate investor.
Despite that if you see in the last 5 years, equities are suffering not because of process and real estate the process is certainly not easy. I don’t agree with the view that investing in India the process is more complex.
It is just that investors in India have a very high return expectation on equities. Many of them have become traders and maybe they lose money on their trading and then blame their investing of the asset class. But I don’t think that is a problem. I think the real problem is I keep mentioning is that people have to invest in all seasons, in all times, in equities for the long-time through systems like SIP and STP then they will make money.
Q: Gold ETF costs Rs 2600-Rs 2800 per ETF. Why is it that silver ETF has not come in?
Naren: I think the industry is in dialogue with the regulator. You have to remember when a regulator approves a product, he looks at how easy it is to handle, how safe it is. If you look at gold – even if you were to buy one crore of gold and there is an ETF backing it, the amount of space required for that one crore of gold is pretty small. So the custody of that gold is much easier whereas if you buy one crore of silver the amount of space that silver will take it may take a room so it is these kind of issues which are going on.
Majeed Memon, Advocate, Mumbai: I belong to a middle class family and I did not have anyone to support me. I had no godfather, I did not have financial support also in fact for my law studies I was an earner and a learner. So I had difficult times as far as the economy is concerned that I first thought of investing in myself, that I would tell every lawyer here.
In the first 10 years, by God’s grace, I made sufficient money to buy a good house, a good office, a good vehicle, and have good staff. I spent everything on my personal listing thereafter I thought that if I have little money to be spared still then I though of investment.
I did not venture to take risk in buying shares or in equities etc where fluctuations were very high and there was risk of even losing money. I believed in sound investments. My investments has been in the nature of say fixed deposits in the banks or buying some plots somewhere or buying some flat somewhere, selling them.
Abidi: A lot of experts suggest diversification of portfolio, is that something that you also agree and what would you think make a model portfolio?
Memon: It is always safe for a person who wants to be very cautious with regards to his investment; it’s a matter of economics that if I have Rs 100 as you said then I would not put entire Rs 100 in one particular mode of investment. If anything happens there then probably I would be a loser. So it is better to experiment 20-30% here. The safest investment lesser returns is my first priority. Your hard earned money doesn’t go away, it might give you more or less – this is my first priority.
Abidi: Equities is something you are not very fond of, what about mutual funds? Is that something that you would consider investing into?
Memon: I have experimented with mutual fund in some phase of my career. But I was not very happy with that because then again risks are involved but then now the number of avenues open for solid gold or real estate. In cities like Mumbai, people have made huge money by investing in real estate that we are just wondering that if I had done this, probably I would also have made lot of money.
Abidi: You mentioned gold; is that a safe option according to you and would buy solid gold as opposed to investing in gold ETF or a gold fund?
Memon: No, I would prefer solid gold and now there is the euro crisis is there. These days what we are seeing is that even if I have collected substantial amount of Indian rupees, it is diminishing vis-à-vis pounds and dollars and euros. Unless I keep my money locked in a cupboard, it will vanish within no time. So it is unwise to hold money in – but then you must have some liquidity.
Abidi: What's your advice for a budding lawyer?
Memon: My advice to young lawyers would be that don’t make money as your first priority. Money is important and without money, you can’t survive but money is not everything. Lawyers must not resort to dishonest earnings. This should be the principle for every lawyer. The priority for a young lawyer is, invest in yourself so that you will get double your return or triple your return and you will see that what you did was wise enough.
Abidi: That was Mr. Majeed Memon’s story. Mr. Naren, if I can come to you, one of the things he kept telling me over and over again was his fondness for real estate. For someone who doesn’t have the kind of capital to buy a house or a property would you advise a real estate fund? I know you spoke about the risks of a sectoral fund earlier but is that something that’s advisable or perhaps even in the equity markets considering the hammering that real estate stocks have got is there something that’s a value there?
Naren: If you look at the real estate, I can tell you there were periods across the country that between 1995 and 2003, there was no movement in the sector. But the fact is that people don’t think there can be a decade of no returns but when it comes to equities they say I experimented with equities or mutual funds. So you have to give it time and you can’t experiment.
Abidi: Another thing that he said was that something that a lot of people do is that he buys into gold perhaps as a hedge against depreciating rupee. Is there any other option that people have for the same effect?
Baliga: Hedge against depreciating rupee other than gold is foreign investment because that is one area which has opened up. Individuals can invest up to USD 200,000 per financial year in assets abroad. So you can look at investments in US dollars for e.g. if someone had invested around a year or two year back irrespective of how investment had done. He has already gained about more than 20% on currency fluctuation.
Raghu Gunnala, Legal Office, ABG Group: Which is the best bet for investing - is it stocks, real estate, commodities or gold? Looking at the volatility of the market, which is the best savings option? When do I enter the market or when do I exit the market regarding stocks. How do I gauge the market or how do I study the market?
Naren: Buying in dips is what essentially an SIP is. So you buy on dips, you just put your money every month into equity, into equity mutual funds so the market falls more you get more number of units. If it goes up, you get lesser number of units. So that’s buying on dips strategy.
The only thing is there would be one in five to ten years where the market rallies beautifully. That could be a good year for you to trim your equities and move to a different asset class.
As far as commodities is concerned, my view is that at the end of the day, allocate your money in a way that you want to put your money in some equities, some in debt, some in gold ETFs, some in physical gold, some in real estate.
SN Verma, Lawyer, Sighania and Company: A lot of schemes come out where people invest and ultimately they land in a difficult situation irrespective of whether it is focused by the weather of the market or otherwise. For example, about 20-25 years back, some UTI came out with a child growth scheme, which promised high returns if money is invested for a certain number of years. But they stopped the scheme in between. There is no accountability; can it prevail?
Naren: We have other well regulated systems at this point of time. If I see what the regulator has done over the last five years, as most people will tell you, they have worked in the interest of the investor. In the last 10 years, the settlement has never been postponed, which means that if you sell today you always get the money normally in t+2 or t+3 kind of period, that is in three working days. Not even once in the last 10-15 years, there has been a delay from NSE. Therefore I would agree, yes, there may be some cases, particularly of the 90s. If you see even today we don’t have a situation where everyone understands the law. You are in a much better position to understand the law. But if you look at it, there are periodically collective investment schemes on peak farms which came up and then disappeared.
I would say we are still very well regulated compared to most of the world. That’s why if you see the recent JP Morgan incident or something like that, we have such a tight regulation that such risks just don’t exist in India.
Dr. Ullal, Singhania & Co: My specific question is in investments the normal axiom is high risk, high return on investments, low risk, low return on investments. But in the case of real estate would you go so far as to say that there is medium safety and high return on investment?
Baliga: Again real estate, you can’t generalize. Just take equities. When you talk of equities we talk of the index, the Nifty, the way it’s moved. But Nifty may have moved from 3,000 to 6,000, but does it mean all the stocks in the stock market have moved? No. You would have made losses and some of the stocks would have also got delisted, which you had invested possibly in 2000. Similarly in real estate, it depends on where you are investing?
Savina Crasto, Practicing advocate: Nowadays there are many advocates who have taken loan and they have completed their studies. How do we strike a balance between repayment of loan, savings as well as our education?
Naren: My view would be to repay the loan, because at the end of the day that’s a clear liability. The way we see in typical products you have to get 12%, you must be paying as on interest on the loan or even higher. So you have to get a sure return of above 12% otherwise it’s much better to repay the loan.
Q: What should be the top five things we should look at while investing in an SIP scheme and decide that this is the scheme which I want to invest into?
Naren: What I would say is go and ask your distributor to give you a list of five year SIP best return product or seven year best return products, or 10 years best return products. Then look at what are the commonalities between the 5 year, the 7 year and the 10 year SIP product. See whether your scheme is coming with reasonable assets under management, let’s say Rs 500 crore or something like that, then pick a product out of that.
If you just look at the set of products which come out of 5, 7, 10 year SIP, if you picked the top the chances of your going wrong are much lower. One rule of investing is that in the short runs returns come out of luck and that’s why there is only one Warren Buffet because he is the only person who has managed to shore returns over the last 50 years. So there is a question of luck which comes in the short-run. But as you go longer, the risk levels certainly go down.
Q: What is the future of banking industry? Is this good time to invest in banking stocks?
Baliga: Banking is surely a good space to invest in. First of all, the root question is do you believe in the India story? Do you expect India to continue growing at 7-8%? I am not talking of the next one or two years. But if you are talking of the next 5-8 years, do you expect India to continue growing at the 7-8%?
If that is your belief then the best proxy to play on that story is banking, infrastructure and capital goods. So I think if you pick up banking, you would be in the right space.