Good mid-caps 'the best bet for small investors'

How do you see the market shaping up?

We expect the market to be volatile in the short term. The pressure points in the short term are oil prices, rising US interest rates, primary issues and rising input costs for most industries.

However, given the economy's current inflexion point and the breadth and depth of the equity markets in India, investors could expect returns of more than 15 per cent on an after-tax basis.

Which is the key trend to watch out for?

In every rally there is an index, which is a barometer to market actions. In the 1999-2000 rally, the key index was the TMT index and not the Sensex. In this rally it is the midcap index and we expect this index to be under pressure for the next three to six months.

What will you recommend to the small investor?

Though some mid-caps mean higher risk as they tend to be more volatile, we recommend investors to trade off short-term volatility for longer term growth. We suggest investors buy good growth mid caps and evaluate these once a month, based on fundamentals and not on stock prices.

Despite being a very young company, your firm has grown very fast ...

We started nine years ago and have been fortunate that this coincided with tremendous liberalisation in our industry and a huge change in the equity markets. We acquired new businesses over the years with an intention to grow inorganically.

There are a lot of high quality companies in our industry which would benefit from consolidation. We are happy that we have found people who thought similarly and have folded their operation into ours. In all these acquisitions, quality of clientele and quality of the management is very important.

Which services do you see as a major growth area for your company and why?

We see all financial services as great growth opportunities, especially areas wherein an intermediary can play a value-added role. As the complexity in financial products has increased, and as the hunger for yield has grown, investors need good and sound advice.

They need advice on understanding risk, they need advice on asset allocation, they need advice on planning for the future, and they need advice on product selection for their needs.

Edelweiss has become a big entity in the derivatives segment...

All over the world derivatives (especially equity derivatives) have been a high growth and high margin products for brokers. Secondly, this opportunity calls for high quality research and analytic skills, which is one of our strengths. As the market volumes have grown, we have been able to ride this growth effectively.

How are you coping with increased competition in institutional stock broking?

The way to cope with competition in any business is to be better and try harder. That is the only key to survival and growth. We have invested extensively in research products and client servicing.

Many of our products are unique and encompasses fundamental and derivatives research. This, coupled with a high level of client servicing and execution enables us to compete effectively.

How do you see the distribution business evolving?

The distribution business is also going to demand high value-added services. Currently, a large part of the market competes on client access and pricing factors. We believe these factors will get commoditised and in the long term only players offering advice will survive.

Is there a rise in demand for private client services?

As the affluent and high net worth investor base is growing, there is an increased need for private client services. Gone are the days when investors had to either invest in IPOs or keep money in the bank.

The array of products available now is very complex. Secondly, the available yields on most instruments are low and sometimes falling. In this era of low yields, there is a hunger for yields but at the right level of risk.

Most HNI investors are grappling with these issues. Concepts such as efficient portfolio construction, uncorrelated products, and risk return tradeoffs are necessary for providing services to this clientele.