Investors should use the mutual fund route if they do not have the time to manage their equity portfolio, says B Gopkumar, Executive Vice-President & Head-Broking, Kotak Securities.
What is the advice you would give a first-time investor?
The first investment for any investor should be fixed deposits. Don’t save money for tax-breaks. That is a mistake I made; investing in a traditional plan for saving tax. I discontinued it when I became financially literate.
Early investing pays, though many investors do not do that. Try to avoid leverage too early. Taking mortgage for buying a home is all right. It creates an asset. But taking loans for consumption — consumer durable loans, credit card loans, personal loans and so on — is not advisable. The pattern of saving has now changed. Unlike earlier, investors want to buy real estate first and save later.
What was your best equity investment?
The Tech Mahindra stock. I got a small allotment in the IPO at ₹350. The stock listed at ₹550; that Diwali, it went to ₹1,700. I sold it at ₹1,500.
What is your investment philosophy?
I do not believe in buying and sitting tight. You have got to set a target price and exit once that is reached. My target is simple — inflation plus growth. If your return beats that number, that is enough. If inflation is 8 per cent and GDP growth in 4.5 per cent, I will be satisfied with returns of 12-13 per cent.
So you do not advise long-term investing?
If you go back the last five years, long-term investing has not worked. Take any stock— State Bank of India was at ₹2,200 two years back. We saw it at ₹1,400, today it is at ₹2,600.
Unless you are able to book profits at the right time, long-term investing does not work. This is because every business has its own cycle. You should know when to get in and when to get out.
If you want to invest for the long-term and prefer to buy and hold, use mutual funds. I have exposure to mutual funds that I do not sell. This works because someone else is managing your money for you. If you don’t manage your money, it will not grow.
How is the retail participation in the market now?
Retail investors entered the market between 2006 and 2008. These investors have stayed away over the last few years. People have started re-opening dormant accounts.
The feel-good factor is there. But we have to wait and watch. I do not find a large number returning yet; there is only a marginal 10 to 15 per cent increase in participation.
But the HNIs are coming back. We know that greater allocation has happened to equity from this segment but whether they will take the direct or indirect route is not yet known. These investors were in the debt market over the last five years.
What do you think can be done to bring retail investors back on a sustainable basis?
The most important factor is the revival of the IPO market. There should be a reason for retail investors to open demat accounts. If you see the period between 2006 and 2008, many retail investors entered the market due to the deluge of IPOs.
Next, despite our efforts, unless the environment is conducive, the retail guys will not come back. We have reached a tipping point.
Our belief is that in the next three to four months, the IPOs will start flowing. The positive factor is that there is a large working population below 30 entering the savers market. They are willing to take risks.
Brokerages in India continue to face challenges.
The industry contours have changed. There are the banker-brokers and standalone brokers. We are hybrid; we benefit from both sides.
The industry has problems because there are no capital adequacy norms. Anyone can start a brokerage. If the market volume goes up, brokers should be financially strong enough to manage the increase. Discount brokers will find it difficult to scale up.
Customers are now choosing brokers, not based on broking rates, but on technology, desktop solutions, mobility solutions and so on. Margins will not come down because clients are willing to pay.