Although stock prices gyrated wildly in June, the thirst for knowledge about
investment apparently remains high. On a rainy 8th June weekend in Mumbai,
investors flocked in large numbers to the India Equity Show that the finance
myiris.com organises every year. The show combines lectures and panel
discussions on the capital market with an exhibition of financial products and
Obviously, one of the biggest queries in volatile times like these is regarding
short-term trends and most experts were hard pressed to offer definitive
answers, especially in view of the uncertain macro-economic scenario, soaring
crude prices, spiralling inflation and rising fiscal deficits. Nilesh Shah of
ICICI Prudential painted a rather gloomy picture by narrating the story of the
ant and grasshopper with a cynical twist to depict the Indian situation. It
basically says, the ant toils in summer to stock up for the cold hard winter
when food is scarce while the grasshopper lazily basks in the sunshine. Come
winter, the grasshopper is hungry and in danger of perishing, so NGOs,
political parties and the government rush to rescue it from the consequences of
its own foolishness and kill the initiative of the hard-working ant. In the
Internet version, the ant migrates to the US and becomes a silicon valley
Nilesh Shah used the story to illustrate how the shoddy government approach of
handling larger issues is what puts India on the backburner. For instance, he
said, many countries are oil importers and hurting from the steep rise in oil
prices, but our myopic political response has aggravated the pain and caused
the economy and shareholders of oil companies to suffer.
“Unless oil prices decline, we are at the risk of losing one year of
returns. While higher oil prices lead to higher inflation, the populist
pressure to keep oil prices artificially low, by issuing oil bonds, is
increasing the fiscal deficit and at some point of time corporates and citizens
will have to pay the price for this,” says Shah. Meanwhile, the market has lost
momentum and, although earnings may still continue to grow because of the hard
work of people and managements, our politicians and bureaucrats will make sure
that the country ends up getting de-rated because of bad policy decisions.
Unless oil prices correct, things can get worse for the Indian market. The only
silver lining is that many people are sitting on cash and, if external factors
do not deteriorate, the market may stabilise at the current level, opined Shah.
Crucial advice from Shah includes not falling in love with your stocks, not
waiting to exit at the top and not making the mistake of following the crowd.
Sanjoy Bhattacharyya, formerly with HDFC Mutual Fund and now with New Vernon, a
hedge fund, said that 95% of the time it really doesn’t matter what the
market is going to do tomorrow; it is important to hang around and wait for the
correct opportunity to buy. If you cannot give much time to choosing your
stocks and monitoring them, passive products such as index funds are much
better for you. The much-touted research- based investing is not of much use,
according to him.
Bhattacharyya had some unconventional suggestions for investors who spend time
taking cues from business television or their brokers. Knowledge of history,
psychology, philosophy and anthropology is far more important than knowledge of
accounting or economics or computer science, says he. The three most important
factors that lead to failure in investing are a sense of comfort, excitement
and sensibility. Another point to be careful about is consensus. He feels that
consensus brings down your returns. In order to earn better returns, it is
always good to stay away from the crowd, although this may be riskier.
“Investors need to keep in mind that economic cycles are not easy to
ride,’’ said Bhattacharyya.