Policy paralysis biggest curse; bet on equities: Madhu Kela

Policy paralysis has affected balance sheets of corporates, households and even the government, says Madhu Kela, Chief Investment Strategist at Reliance Capital.

Another thing that has affected India is the emerging markets theme which was being played and which was favouring India a lot has also become somewhat challenging in the last six-nine months, specifically, when every other emerging market has lost money while developed markets have made money and that has made matters worse for India. Because when the overall emerging market does well, India automatically does well and when overall emerging market does badly, obviously India also faces challenges.
He told CNBC-TV18, too many people have hidden in gold and real estate in the last five years, just because equities have been challenging. Though, even these markets in the last 12-18 months have started to show some kind of fatigue.
According to him, the best of gold investing period is behind us. In real estate, in cities like Mumbai and Delhi prices have stopped going up, in fact they have started to come down.
Kela is selectively optimistic on equities. He does not believe that a ra-ra bull market is coming back, but a lot of money has got withdrawn from the market and people are investing in gold and real estate after these asset classes went up by five-six-eight times in the last five years, this makes him believe that equities still have hope. He feels a lot more money can still be made in equities than in a lot of other asset classes. Below is the verbatim transcript of Madhu Kela’s views on CNBC-TV18
In the stock market they say that either you get good prices or good news. It is very rare that when the news is good the prices will be good and it’s very rare that when the news is so bad the prices will have to be very bad for investing.
Equities have been challenging, however, there are lot of people who have hidden in gold and real estate in the last five years. Significant amount of savings have gone into gold and real estate. I think even these markets in the last 12-18 months have started to show some kind of fatigue.
If you take the gold prices in dollar terms they are already down from USD 1900 to USD 1300-1350. Don’t see the rupee term gold prices, it is not losing its sheen only because of currency depreciation.
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Clearly the best of gold I can say with a lot of conviction as much I can that the best of gold investing period is behind us and not ahead of us.
In real estate, every Tom, Dick and Harry wants to either be a builder or wants to put all his money into real estate. He feels that is the safest place to put his money. But we are seeing in places like Mumbai or Delhi, in some of the larger markets not only have the prices stopped going up, they have started to come down. In the last 12-18 months, the real return in a lot of real estate prices, in a lot of these major markets have been actually negative.
We talked about investing in fixed deposits (FDs). According to my calculation if you just invested in FDs and if you just computed the consumer price inflation against your fixed deposit because that is the only real return which you make in fixed deposits you have actually lost 15 percent before taxation by keeping your money in the bank - this I am saying the real return is minus(-) 15 percent. Coupled with the fact that Rs 60,000 crore has been redeemed by retail investors from equity markets in the last five years – I am only talking about mutual funds. Similar amount of money would have got redeemed from the insurance sector as well.
According to him, markets have become very pessimistic, looking at the screen and looking at the fundamentals in the near term, there is a scare. But the other side of the story is the amount of money which has got withdrawn from the market as well as people who are investing in gold and real estate after these asset classes went up by five-six-eight times in the last five years, makes me carefully and selectively optimistic on equities which means I am not making a case that we are going to have a ra-ra bull market coming back and wherever the index goes we are going to have jubilant time of 2007-08 come back wherein out of 1,000 listed stocks, you made money in 1050 of them.
However, based on my experience and understanding there is an opportunity if you do your homework here and if you invest with a perspective, if you want to invest for one month then god only can save you in equities, but if you invest carefully, do your selection whether it is of individual companies or whether it is mutual funds or whether it is portfolio management schemes; if you do your selection carefully, a lot more money can be made in equities than in a lot of other asset classes over a period of time.
So what has gone wrong; there is policy inaction from government in the last three-four years. All balance sheets whether it is government balance sheet, corporate balance sheet, household balance sheet, all balance sheets have come under huge attack and the long-term India story because of the currency, the way it is moving is being questioned not only by foreigners, but also by local investors.
However, given this pessimism, equities have started to outperform. There is one big factor which is playing out to this negative sentiment, generally the emerging market theme which was being played and which was favouring India a lot has also become somewhat challenging in the last six-nine months specifically when every other emerging market has lost money while developed markets have made money and that has made matters even more worse for India because the overall emerging market does well, India automatically does well and overall emerging market does badly, obviously India also faces the challenges.