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30 years of liberalization: S Naren on wading through irrational markets and foreign investor frenzy of the 90s

The ED & CEO of ICICI Mutual Fund recalls that most of the IPOs back then were just Rs 3 crore in size

July 25, 2021 / 01:08 PM IST

Sankaran Naren, ED & CIO, ICICI Prudential Mutual Fund (MF), has been with the house for 17 years. Naren was in the investment banking division of HSBC in the early 90s, when the economic reforms were initiated. He later moved to the broking business in 1994. Around this time, the stock markets opened up to foreign institutional investors. After 10 years in broking, he realised his dream of becoming an equity fund manager at ICICI MF. He talks about his experiences from the early 90s and how the stock markets have changed over the years.

A small IPO market

Naren recalls that most of the IPOs back then were just Rs 3 crore of size, which was also minimum issue size.

“Today, such small IPOs can’t be imagined, as we have IPOs in the range of Rs 9,000-Rs 10,000 crore. Those days, IPOs were getting valued at price-to-earnings of 7-8 times. Now, we have IPOs that can’t be valued using the P/E ratio as they are yet to make any earnings. Around 95 percent of the IPOs that hit the market between 1990 and 1994, failed. Those companies don’t exist anymore,” he says.

One of the companies that Naren didn’t underwrite back then was Satyam Computers. “I didn’t underwrite Satyam Computers because they had an associate company that didn’t do well,” he says.


The stock of Satyam Computers did very well till 2008. In 2008, the global financial crisis hit stock markets and the Satyam scam came to the fore in 2009.

Foreign investor frenzy of the 1990s

In 1994, Naren left investment banking and got into broking. He remembers this as the beginning of one of the biggest bull markets in India’s stock market history. “Almost every penny stock went up, driven by foreign institutional investors, who had entered India for the first time. It was the most irrational boom in stocks market history,” Naren says.

The Harshad Mehta bubble burst in 1992, but Naren says by 1994 people had forgotten about it. “Big foreign brokerages came in and set up their research operations in India. So, the 1994-95 market boom was led by foreign investments,” he says.

Only when that boom burst in 1995 amid the Asian financial crisis, did domestic investors realise that even foreigners can get it wrong, Naren says.

Stock markets of yore

As every stock transfer involved paperwork back then; forgery, mismatch of signatures on the transfer deeds, or other irregularities would cause bad deliveries. The issuer also had the right to refuse the transfer of a security.

“Those were the days of bad deliveries. There used to be a centralised system where all those bad deliveries used to get settled. The bad deliveries used to take 6-9 months to get settled,” he says.

Most of the mutual funds in 1998-99 were close-ended schemes, Naren recalls. Schemes such as CanBonus and Morgan Stanley Growth Fund would get listed on the stock exchanges, and were available at more than 40 percent discount to their net asset values and made for quite attractive investments.

But analysing companies was tough. He says that back in the 90s, he used to source company’s annual reports from scrap paper dealers. “Today, annual reports come immediately,” he says. Reporting of profit and loss numbers was also as per olden style. “There was no requirement for companies to give proper details for every subsidiary. We had to analyse each of the subsidiaries,” Naren says.

Similarities in investment behaviour

Naren laments that people still make the same mistakes when investing. “In 2007, investors bought infrastructure-themed stocks despite expensive valuations. In 2017, when small-caps were at expensive valuations, investors bought those,” he points out.

He says while information is easily available today through the internet, greed and fear-led behaviour of investors remains the same.

According to Naren, as trading has become easy, many investors have stopped being long-term in their approach. “This gives genuine long-term investors opportunities to create wealth, compared to short-term investors,” he says.

“Global central banks today are playing an important role in keeping bear markets at bay. However, it is quite likely that some central bank’s action could cause the next bear market, in the future. Easy availability of information accentuates greed and fear behaviour of investors, which gives more scope for strategies such as asset allocation that can gain from these biases,” he adds.

So, investing today requires much more discipline. “The possibility of disruptions is so much more today than in the past,” he says.
Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets
first published: Jul 21, 2021 09:19 am

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