Is market trading at its peak? Only a myth, say experts

On CNBC-TV18's special show 'The Informed Investor', Ashu Madan, COO of Religare Securities and Pankaj Jain, director of Sunteck Wealthmax answered investors' queries and shared new investment strategies for the coming year.

Below is the edited transcript of their interview with CNBC-TV18.

Q: We are seeing market on a good run now. Is this the beginning of a bull run, do you think 2013 we should be optimistic, it is going to be all that and more?

Madan: If somebody has to be in the equity market, they have to be optimistic always because you cannot be pessimistic and still be in the market. Even if we don't term it as a bear market but people have not made money in the last two-three years. If you look at the Compound Annual Growth Rate (CAGR) return on FDR it is much better than the market. That is the time that these kinds of prolonged faces put us off from the market.

For the first time in the last couple of years the trend is very positive. It is not about the index going up or the stocks going up, it is the trend which we have to identify though it is easier said than done. The signals are very visible whether it is on the domestic front or on the global platform, it looks like that the worst is over. That itself is a very big answer to the fact that we should be optimistic. 2013 can give us good returns as far as equity market are concerned.

Q: In market like this do you suppose retail investors who have been absent for a while from the market, should they be focusing now on stock specific stories or they should focus on a larger sentiment and therefore at an index level?

Jain: I have been telling investors that one has to be on the right side of the market. You can make money in difficult market also but you got to be on the right side, right stock, right sector. That is a big challenge, it is easier said than done, but we have seen in last six months that market could be in a decent mini bull phase kind of thing for three-six months. Government is on a stronger footing and they may have a clearer path for next three-six months.

Foreign Institutional Investors (FIIs) have pumped in about USD 19-20 billion, which almost close to Rs 1 lakh crore, they have almost sucked out that froth, that easy liquidity available in the market. Growth is a challenge. Now it is to be seen whether this 5.3-5.4 is the bottom and we are on rising side. I would like to see growth going up to 6-6.5% in next couple of quarters.

I see base formation with something positive in the political environment. In spite of whatever negatives may be floating around, but still India is a very attractive market. There are some very attractive sectors and companies. All in all, we are in for a good phase and it is just a matter of time. Now the challenge is to stay with good sectors. It may so happen with the passive investors that even in this bull market he may be in wrong stocks, wrong sectors and at the end of the day he says I have not made any money. One need to be a little alert and with that alertness you can make money in next six months.

Q: At present the market is at the peak level. Is it an appropriate time to invest?

Madan: The answer to whether this is a peak or probably this is a fraction of a peak, nobody knows. Currently, the way the market has turned around; there are hundreds of stocks which have strong fundamentals, good cash flows, good tangible business and we can relate to those. It is not like many other businesses which we don't understand and we just buy a particular stock.

If you look at that they have still not started performing. It is a myth that market is at a peak. If you look at market versus stocks, Nifty at a particular level is backed by few stocks because of which we are relating to Nifty that one point of time the high was 6,100 and today we are closing to 6,100, but many good stocks are still 10 percent of their peak.

I am not saying this 10 percent is the right value or 100 percent was the right value, but still they have much headroom. The idea is to be in the specific stocks.

Jain: In absolute terms it is a very difficult question, nobody can say whether we are at peak or we are on a relative basis at a good point. What I can say, we are in a very healthy situation. Even at current levels, 5900 kind of Nifty, it seems that potential of making money is really serious on a positive side as we summarize that conditions look pretty healthy.

Now the challenge is where do I put my money if I want to start? If you can read a bit of balance sheet, one of the ingredients Return on Equity (RoE), which takes care of share capital, assets, cash generation, cash and balance sheet, what is the kind of money company is making on that? That parameter is the fair value of a good company

Most of these MNCs like Hindustan Unilever (HUL), Colgate are companies with light balance sheets. Smaller share holder capital, smaller assets and giving good returns. They have been giving good dividends and that is one of the ways where they can please their masters sitting abroad. FMCG and pharmaceutical seems to be very exciting sectors with very exciting stocks.

Q: I have 22000 shares of Unitech, this is the original allotment and the investment is almost zero, once these shares were valued at Rs 1 crore, now it is about Rs 7 lakh. What is the future of Unitech?

Jain: The answer to your question is more related to human psychology rather than performance of the company. This is because from Rs 500 stock, Unitech became Rs 50,000 stock and since you had original allotment, you made that kind of money. So what else do you want from the market? You are getting 100-150 times your money. Since you were in the market to make money and you have made money, so take that money out and enjoy.

With regards to the future of Unitech from current levels, Unitech has already rallied from levels closer to Rs 20-21 to levels of Rs 34-35 now. They may not be on a better trajectory path. They have amicably entered into a divorce with Telenor and now they are back into focus. They are where our expertise lies. Earlier in the boom period they were more into management of stocks, rather than management of the company. Now there focus is on management of the company and it is a perception that realty stocks may have bottomed out.

So, I don’t think your Rs 7 lakh can again become Rs 1 crore, but maybe your Rs 7 lakh can become Rs 12-13-14 lakhs. You cannot be super greedy; Unitech has fulfilled all your desires. One has to exit at some point of time. The mistake was yours rather than that of Unitech.

Q: How can one review ones portfolio, should one do it monthly, quarterly, half yearly, annually or should it be done at the end of a bull run?

Madan: There is no thumb rule to this, every time you get amateur signal in the market, you don’t need any kind of expert, your heart will tell you what is happening in the market and that is the time to act.

In the last one year, below 5000 Nifty, if I had spoken to anybody about equity market, it was a strict no. Again you got an amateur signal that some asset class which is a strict no, and people don’t want to see the stock market, this is the time and again you cannot time it out. Nobody could believe that from 4600 Nifty we are at 5900 Nifty, which is more than 20 percent rise, nobody could pre-empt that. So everybody gets these amateur signals and that is the time to act.

So nobody can answer whether it is one month, three months, six months but one has to be active and cannot sleep over investments currently if you are into stocks.

Q: I had been investing all my life in banks but between 2002-03 and 2006 I had invested through Mutual Funds on advice of my agent; even though he made 15-20 percent commission, I could not get my principal amount back, since I am retired and had to go back to bank deposits to get assured returns. Should I continue with my bank deposits or should I change my portfolio?

Madan: There is no answer to this because if somebody is into the assured risk free returns then fixed deposits (FDs) or some kind of bonds or instrument is the only answer.

Maybe you had a bad experience but for somebody who invested in MFs in 2003-04, have made money by the time the bull market matured in 2007-08. I don’t think you have a perfect experience because there are many success stories of MFs for a small investor.

For example currently, I believe that the market will go up and midcaps are the themes, so it is not possible for everyone to get right kind of advice and to be in the right stock with limited amount of money. Investing in a midcap fund is better for a small investor or a medium investor because they cannot devote too much time. If you are tracking a particular stock or portfolio and are too much involved in tracking it every minute or watching several channels or tickers to track your portfolio that approach is incorrect.

If you are in mutual fund, you are for a little long-term so invest in particular stock. If we feel the market is going up and there is a combination of stock portfolio that one should have then the alternate means is investing into mutual funds.

With the current rules and regulations with entry loads and costing which has come down dramatically, at times it makes sense to invest in MFs, if somebody is unable to devote time and have direct advice to be in equity market.

Q: Can I invest in mutual funds? Which scheme is better, dividend or growth?

Madan: It depends on the risk appetite and also what are you looking forward to. People who invest in dividend yield mutual funds are those who want to shift their corpus from fixed deposit to dividend. Where they feel that 6-8 percent or 5-6 percent post-tax return should make better through dividends and which is a tax-free kind of a return. But it has to be a mix of growth and dividend, because as it is you are taking a risk to be in the equity markets but if the market moves up and you do not get growth in your mutual fund portfolio then you will be left with nothing.

You should encash that opportunity. If there is an opportunity to make money, if you are already taking a risk then it has to be a balanced portfolio between growth and dividend because growth can give you a much better yield. So it has to be a mix of both.

Q: Investment in gold has always been fascinating for Indians. Especially in India, in average household the investment in gold forms the bulk of household investments. In this context I would like to know the route through which we can invest in Gold Exchange-Traded Fund (ETF), whether it is advisable to invest in bulk or can we choose the Systematic Investment Plan (SIP) route?

Madan: Gold has always been a great investment for Indians; the best thing now is that there are avenues available. In the earlier markets and earlier times the only way to invest gold was buying hardcore gold or gold jewellery. But now with the instruments and Gold ETFs, one of the best route, I think with the current high of gold which we have reached due to rise in price of gold and the rupee depreciating to a large extent from last year 44-45 to 55 has added fuel to the pricing of gold.

The best way to invest in gold in the current situation is through SIP, the way we have been following the equity markets, because now gold is also one of the integral asset class of our portfolio and with these traded funds you can have gold in your demats whether it is Gold BeES or Gold ETFs. SIP is better, because if the economy is back on track, if the reforms are in place we might see rupee appreciating. So that can put some pressure on the gold pricing. To balance currently, SIP in Gold ETF is the best way to invest.

Q: I have Suzlon Energy. What is prospect of this particular share? I purchased it at around Rs 80 and now it is at Rs 15.

Jain: Suzlon is one of the fallen stars. Earlier Suzlon was at Rs 500, now it is available at Rs 80, how much worse can it get, without going into why it has become Rs 80 from Rs 500 and now it is at Rs 20. Averaging out a stock without knowing why it is falling is the most stupid thing to do and generally people tend to do that, even smart fellows tend to do it. So Suzlon is one story as of now that seems to have gone sour.

It seems very difficult that Suzlon will again bounce back to the levels into three digit kind of figures. They have a very heavy debt and their operations are concerned in Europe and Europe is not performing. This should be a lesson and we have many stories like this. So you got to safeguard against these kind of stories, does not matter you have gone wrong at Rs 80, but you must have realized that at Rs 60-55. Have courage to book that loss, come out of that story and get into a better story.

Q: I purchased 1,000 shares of Petronet LNG at the rate of Rs 26, now it is Rs 162. At the  same time I purchased Gujarat State Petronet Limited (GSPL), so the product is same. I purchased it at Rs 58 and it has gone up to Rs 124, but again it has come back. The product is same from both the companies. Both companies are very good but now Petronet is Rs 162 and the GSPL has come to Rs 64 and now it has gone up to Rs 72-73. What is the reason?

Madan: You cannot simply say that the two companies are into the same product, so obviously they should perform in tandem. There are companies which are at better run and similar in shape. So the important thing is that the sector is still performing, sector is good and you should continue to hold your portfolio. There were times when GSPL in the last couple of years has underperformed versus peers also versus market also as you rightly said, but that has happened not just with GSPL but with many other stocks as well.

If you look at the banking sector or IT sectors, there are couple of stocks who have outperformed. So this phenomena will continue and it is good that a person like you is active and tracking their portfolio and is very alert. So I would suggest that hold both these stocks at some point in time, because the market looks good and they fall in that midcap category which will perform in this market.

Indraprastha Gas Limited (IGL) is also a very good stock. It is a prospective story. It is a sunshine kind of a sector, because of some news flow, the regulations surrounding that, some court verdicts and those pricing policies that have come down. So it has become a little volatile stock, but I would suggest that since you have weathered this volatility in the past and you are a long-term investor you should continue to hold these stocks.