In an interview to CNBC-TV18, experts Harshvardhan Roongta of Roongta Securities and Dipan Mehta of Investment Analyst, answered questions on investment from eminent personalities like Vicky Ratnani and Cyrus Broacha. The session also included questions from Babita Malkani, Ayub Khan and Dinesh Vazirani.
Q: How has the year been financially? Are there investments that have worked out? Are there any financial resolutions that you have been making for the next year?
Broacha: Most of my money is in Greece at the moment.
Vazirani: I can talk about the art world, over the last year it has changed quite a lot. Modern art has done very well. Contemporary art unfortunately has got a little bit of a beating. There is a revival now and people are looking at it. For next year, contemporary art is something to look at very seriously if you want to invest your money. It is a good value.
Q: Is there a lot of interest now from retail investors?
Vazirani: There is a lot of interest within India.
Khan: We as actors do not have funds to take and put into big investments. We just have to make sure that we keep breaking it up. That is how we build up investments. I have been investing in property and just started investing outside Mumbai. I believe that investment outside India is very favorable. The markets are not that bullish anymore. So they say, this is the right time to invest outside India.
Q: We are seeing a lot of people who are now freelance professionals and incomes may not be regular, you are investing in yourself in your businesses, what is a good strategy for that?
Khan: What is the percentage of that one should keep aside for investment from the earnings?
Roongta: To begin with, one needs to atleast save 20 percent of the earnings to achieve certain goal. What Ayub Khan is rightly doing is that if he has access to a certain amount of money at one point in time, he needs to park it into assets that require such inflow. Real estate particularly has that requirement to invest a large chunk of money yourself, even if you are going for a housing loan. Even 20 percent needs to go and buy. Rest amount can be amortized over the next five-ten or twenty years.
Q: Is there an investment in art? Would you advice that to someone for the sake of diversification?
Mehta: I do not understand art but you have to admit that it has done well for a lot of investors. It has given very good returns. I think the principle over there is that whatever is rare, will get expensive as the years goes by because not many of it is getting produced. However, what is important for everyone is to have a good strong look at their savings and do very intelligent allocation.
For example, we have a thumb rule, whatever your age is, that percentage you must put in risky assets. It could be equity, real estate, art. When one talks of risky assets, I see equity as a larger portion of it because of liquidity factors, past returns, ease of investing and the tax breaks. There too you could make intelligent bets on the largecap companies, which are growing at 15-20 percent. Once which are domestic oriented, like ITC or Hindustan Unilever or some of the banks --the absolute bluest of blue-chips.
Roongta: I just like to add one part on how art is picking up within retail investors. It has been a domain of HNIs till now. The reason is to identify an artist, to value that product which is very difficult for a retail investor to do.
Q: What about the affordability?
Roongta: Affordability, I am sure there is a full range. There is a wide band. You can start with a couple of thousands and go up to a few lakhs.
Vazirani: There are several publications and websites, where there is a lot of information available about art. We were talking earlier and there is a percentage of wealth in every country that people put into things which are called treasures; gold, silver, art, objects, collectibles. India is probably the lowest in the world. It’s about two percent, out of which one and a half percent is probably gold. So, it’s a very small percentage of people’s wealth that actually is going into alternative assets.
Q: How much of that one percent do you own?
Malkani: I believe in investing in gold. Gold has been a good investment for me. I also invest in real estate.
Broacha: When we are looking at short term, what can we get from the treasures?
Roongta: Gold normally is a hedge against inflation. That is, whatever your rate of inflation is technically that much is the return gold is suppose to give. What has happened in the last two, three years is exceptional. So, if you take that as a benchmark and invest into gold from hereon you would probably be wrong.
Q: Talking about tax breaks earlier. You are new to the entire concept of taxes?
Ratnani: Yes. We used to work overseas for 16 years. As its coming to the end of the year, I want to know what are the best things to invest in?
Mehta: You need to get an advisor for yourself. Try not to do it by yourself. Even when you are looking at suggestions which your advisor or stock broker has given you, have a look at the companies which you are investing in. One has to buy the bluest of blue chip companies. Within the Nifty also there are certain allocations. Banks have got about 25 percent weightage, pharmaceutical stocks 15-16 percent and so on and so forth, that’s all in public domain.
So, when you are structuring your portfolio, if the weightages in your portfolio are similar to the ones which are there in the Nifty, then that is a good way of getting returns which are at par with the Nifty. One of the problems we find with the investors is that they feel the markets have gone up but their investments have not done as well. That’s because they have not invested in the right sectors which are the growth sectors and well represented in the major indices.
The reason why the government is giving you so many tax breaks is because it is encouraging you to invest in a sector. That sector which is highly productive for the nation.
Khan: When you bank with a multi-national bank and they say that they can handle your funds and you invest in companies. As a layman you don’t know what to invest in. How do one figure out that in this market which company does well?
Mehta: It is important to be well diversified into a lot of industries. Try and grow the equity gradually. In equity the best way it works is, don’t make any sharp moves like getting in and out in one chunk. Best time to invest is when the markets are down. See what returns you are getting after two to three years and then add some more after that. The mental framework has to be such that this is a part of your wealth which you will bequest to the next generation. If you have that mindset that you want to be in it for 15-30 years then it will work phenomenally for you.
Q: You all have advisors, but you need to also keep track of your advisors.
Ratnani: What do you think is your advice?
Broacha: You have to pay these gentlemen lots of money for them to make you money.
Roongta: How would you go about with your investments is the first level you need to draw up. How much money are you going to save out of your income, is the second level. Then the question of investment starts rising. One has to decide how much of it will go into equities which is shares, how much into debt. So, that allocation is the first step that you need to do. The moment you overshoot in any one asset class, you are going to probably go wrong somewhere. If you can identify those stocks yourself, very good. If you cannot identify then you can choose to park your money in stocks through mutual funds. Then think whether to go in infrastructure sector. There they have specific funds which say that they will invest only into infrastructure. They have a diversified portfolio. If you do not know which sectors are going to do well, you can go and tell them that I want to give the money to a diversified sector fund or diversified mutual fund. They will spread across in different sectors as per their research.
Then comes the debt part, on the debt investments, which is basically non-equity. This does not invest into risky assets and shares of companies. In that there are lots of products or plans that are available. There are tax-free bonds, the interest that you earn on these bonds are tax-free in nature. So, if you are into a high tax bracket, which means that you are into a high income category, you could possibly choose those bonds wherein all the interest that comes to you is tax-free in your hands.
Broacha: He also has a high-risk job, cutting vegetables and things, what about parking money in insurance, is that a good idea? We have a lot of old advisors who love this insurance but I do not like it at all?
Roongta: There are two parts in insurance as well. One is, wherein there is a savings element to it which says that you park your money, there is some kind of growth that it will generate.
Broacha: What is the value of that money, 100 years later, Rs 25,000 crore does not mean anything?
Roongta: Absolutely. So that is one type of plans that are available in insurance. The other is a pure risk cover. We have yet not seen insurance grow to that level in India wherein you could ensure your fingers.
Broacha: Back to the other insurance, is savings part a good idea or not?
Roongta: The savings part of it is really not a good idea.
Broacha: It is not something you would really advice?
Roongta: No, absolutely not.
Mehta: There are so many options available now. So it is better to try and do it yourself especially if you have a large enough pie.
Khan: What I find very funny is that there is nothing stable over here. Today it is a blue-chip company, tomorrow it is infrastructure, third day it is pharmaceuticals, what do you think is the next investment one should park their money in?
Mehta: I wish I knew it. That is why we advice diversification and not to get focused on one single company or one single industry. A lot of investors feel that 30-40 percent in a single company is risky. If that company gets into some kind of a trouble then their savings are getting eroded.
Malkani: What according to you is top of the line, is it gold, infrastructure?
Mehta: A bit of everything. Coming from an equity background obviously that would be my preference. However, I could justify by saying that anything which has not given you return for five-six years is bound to do well over the next two-three years. It is just pure common sense. So, what has done well over the past three-four years have been real estate and gold. So we should not expect them to give the same kind of returns.
Broacha: So, do not jump into that?
Vazirani: What is your view on equity?
Mehta: Equity has not gone anywhere for past four-five years. The returns have been flat when they should be atleast 17-18 percent. If equities have to go back to their mean of 17-18 percent which means that over the next three-four years, they should give at least 24 percent to maybe 30 percent as well.
Malkani: What about the mutual funds?
Mehta: They are all linked to the equity end of the day.
Broacha: Is 2013 is a good time to go back into the market?
Mehta: 2013 onwards is a good time. We have a very major event coming in 2014. Markets generally do well before and after elections. After the elections usually it is a typical honeymoon period for the government. They try and do reforms and that gets the market quite excited. So, I would say that we are looking at a good kind of scenario for the next 24 months.