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Sunday, November 04, 2001


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`When you see profits, get out' -- Ms Shanti Ekambaram, ED and CEO, Kotak Mahindra Capital

Rasheeda Bhagat

``IN equity, if you want to make one lakh rupees, be prepared to lose one lakh,'' says Ms Shanti Ekambaram, Executive Director and CEO, Kotak Mahindra Capital. While those with no risk appetite have no business to be in equity, for those who can take risks, there is no better avenue of investment, she said in an interview to Business Line.

Excerpts from the interview:

The small, or the individual, investor today does not know where to go. Battered, bruised and confused, what does he do at uncertain times such as these?

Times of uncertainty are times of risk, and in such times, typically even known fund managers follow the policy of being in cash and putting the money in completely safe investments.

For small investors, for whom the money is their life's savings and hence to be guarded very carefully, in such times, it is best to be in liquid and safe investments. But realising that the returns are going to be very low.

The economy goes through phases and you have to modulate your investment according to these phases. In such times, the small investor has to be in safe investments such as a bank deposit. This is for investors who have no risk appetite at all. And, these days it is also important to choose your banks correctly.

Look at some of the co-operative banks...

Yes, these days it is no assurance that banks are 100 per cent safe. So, choose your bank correctly. Sure, the returns are not that attractive but that is probably the safest kind of investment.

Next comes the traditional fixed deposit. But, again, go only for those that come with AAA-rating and watch the ratings carefully. Because, even in the FD market, the range of companies is right from the unknown to the not so good...and even among the well-known names today, you do not know where the companies are headed.

Investors also need to be aware of their investments. Those who do not know or do not understand investments should only go for FDs in a safe bank. Or, liquid funds of mutual funds that invest in safe instruments such as the call money market, treasury bills of the RBI, or the Government. These are risk-free instruments with lower returns. So, you can invest in the liquid funds of the top five MFs.

But these are very limited options.

Yes, for the risk-averse investors. But it is not as though all small investors are risk-averse.

Some investors have question marks about foreign banks. Are they safe? Would you call all nationalised banks safe?

I would say you should go by their global ratings. Some leading foreign banks are certainly names that have international credibility, and under no circumstance, would they default on depositors. And the large nationalised banks. You also have nationalised banks that are going through troubled times. While I would not want to name them, it is known that the RBI is definitely bailing out a lot of those banks.

So, it is better to stay away from those banks...

Yes, better. At such times, it is also better that you take out life insurance policies; not for returns, but for life cover. But there are people who can take risk with 10 or 20 per cent of their money.

And where do these go?

Into equity. Today, if you have a one-year time frame and you are willing to take risk with 10 per cent of your money, there are some outstanding sectors -- cement, pharma, oil or even a part of technology -- where the returns you can make in a year's time will be very good.

The problem with small investors is...there is a phrase in the market when you must buy when the market is low, and sell when it is high. But small investors buy when the market is high and sell when the market is going down because they panic. That is because they follow a herd mentality.

Not all of them have knowledge...

Here, we come to the next rule -- if you do not know the stock market, do not invest in equity. Because then you would go by hearsay and, you would go by broker's tips. If you do not understand what you are investing in, do not invest. It is a sincere advice I give to people because it is their life's savings. There are things you save for...such as old age, children's education, marriage, some contingency, and so on. Whatever you are investing in, research it.

Would you recommend to such people to go into equity funds of mutual funds...with 10 per cent or whatever?

Yes, but small investors should not put more than 10 per cent in equity...particularly, if they are really small investors and really dependent on their savings.

How would you define a small investor?

Somebody who has Rs 5,000-25,000 to invest. But somebody with Rs 3 lakh to invest...I would not call him a small investor. He can afford to take a little more risk.

What about somebody having Rs 3-5 lakh to spare?

The grade of the scale goes up on the risk-return parameters. Again, not all who have Rs 3-5 lakh to spare have the same degree of risk appetite. They may need money far beyond this amount.

Supposing you had Rs 5 lakh to spare what would you do?

If I am the sort of person who does not really need this money, if there are no contingencies, I have enough cash in reserve and I expect money to come... you can afford to put 50 per cent of your portfolio in risk assets.

But if I am a person with Rs 5 lakh; but I have to buy a house or send my child abroad for study, then I cannot afford to risk this money. In the equity market, if you want to make Rs 1 lakh, then be prepared to lose Rs 1 lakh. That is the basic line in this form of investment. From that perspective, it is important that people define their risk and liquidity parameters. Even if you fit the equity category, invest directly only if you know, study and understand the market.

So, what are mutual funds doing at times like these?

I do not run the mutual fund, it is an independent outfit run by independent fund managers. But we deal with a lot of mutual funds. Roughly, most mutual funds hold 5-8 per cent in cash. Many of them are looking at short-term trading in equity. The market has afforded trading opportunities and managers are looking at these. Also, if you are investing for the medium term, this is a great time to be buying equity and you can see buying has happened.

At the same time they are ensuring that they are holding liquidity; to take care of redemptions as well as for opportunities. Both are important.

Do you still have faith in the technology story?

Selectively, yes. If you look at this sector, you have to divide it into companies and companies. If you look at the Infosys results announced recently, it clearly shows that a quality player with focus can keep to the growth rate and deliver what it has promised. The business per se still has potential. That is something on which there is agreement throughout the world. Yes, the pace may slow because of external events, but there is definitely going to be a bounce back.

How many technology companies are worth investing in?

Three or four. That is all; In Tier 1, as I call them, there is some steam left.

Could you name these companies?

I think they are well known...

Infosys, Wipro...

You have already named two... everybody knows them. So I would leave it at that. If I were to mark a portfolio, I would include at least one stock from the tech sector. As against earlier days, when 60 per cent of the stocks used to be from the tech sector, today maybe one, or two stocks would be from the tech sector for a fund manager. But let me insist, I am not a fund manager; I run an investment bank and the two are really different businesses.

Do you feel that at the height of the euphoria, some mutual funds mis-sold... particularly, sectoral funds such as technology?

No. All this can be said in hindsight. But I believe all the mutual funds were looking at opportunities. When every person on the street wanted to invest in the technology sector, they had to listen to what the customers were saying. At the end of the day, all of us are in business for our customers, and if you do not heed their demand you lose market share.

Sector funds are there all over the globe. The market decides whether you are right or wrong, and the boom and bust cycles are but normal. At the end of the day, the ability to identify a quality name at the correct value is what distinguishes a fund manager.

You mentioned earlier that the returns are going to be lower. What is a realistic expectation?

From safe avenues, 8 per cent is the benchmark.

What about equity?

Again, if you are willing to take risk and have a two-year framework, maybe 20-25 per cent return should not be difficult at all. People should not think I will make a 100 per cent return. You may end up doing that...

And if that happens, you should cash in?

Yes. The other mistake people make, and that includes people like me -- I may advise all this but when it comes to my own portfolio I am always terrible at getting out -- is saying that it will go up further. People must learn to encash profits. That is very important. So, in equity you can say I will make a 20 per cent return over one or two years.

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