'A self-regulator for each segment needed'

Q&A: Shitin Desai

Shitin Desai, executive vice-chairmen, DSP Merrill Lynch, tells Rajesh Bhayani why foreign investments will keep coming in over the next few years. Excerpts:

What are the primary indicators of FII investments in 2007?

We should not be worried about foreign portfolio investments. There are hundreds and thousands of new FIIs waiting to enter the Indian capital market. If some are selling, many more are intending to buy. I believe foreign investments will keep coming in over the next five years.

What makes you so confident?

The current rally is driven by a sustained and better corporate performance. Also, the government has continued reforms. The recent announcement on opening up of insurance and pension reforms are all positives for FII investments. There is no change in weightage in the Morgan Stanley Capital index yet. Many more new FIIs are waiting to enter the Indian market.

What are your views on private equities?

They hold huge potential. All of them want to be in India. They are long-term (five to ten-year) players, who look at opportunities and valuations. They have many opportunities in small- and mid-cap companies. We can see many such companies, which were on the verge of closure, have now turned around.

This is happening because of the economic boom. Private equity players are also coming in a big way in real estate. I think they are currently concentrated in class-one cities and can move to tier-2, -3 and -4 cities which have big potential. When I say real estate, I also mean infrastructure.

The domestic market is still dependent on foreign liquidity, isn't it?

I don't agree. Our local presence is also important. Our mutual funds are big players now. Equity investment as a percentage of household savings is also increasing. Don't forget foreign investors are entering the markets which are liquid.

They have the bitter experience of investing in markets that are driven by their money only. India is a liquid market and is over 100 years old. It's not that they have taught us the investments in equities.

Don't you think valuations in the Indian market are the issue for foreigners?

Not really. Remember the current rally is driven by an economic boom and a consistently better corporate performance. The earlier rallies were not so "� the market was going up even in absence of good corporate performance.

What should be the (investment) strategy in the current scenario?

It depends on the type and risk profile of the investor. But I believe equity investors should take a three to five-year view and target their investment returns.

If they get the targeted returns earlier than expected, they can book profit early. Tracking share prices daily is not the right strategy. Even for IPOs, if they are seen selling at higher prices on listings, they should be skipped.

There cannot be price protection in equities, but investors can park their money through funds, for which investments are a full-time business. Funds too can make mistakes, so I suggest investors to have family doctors-like family financial advisors.

What kind of changes do you see happening in 2007?

We need different self-regulatory organisations for all players. Let each of them be separate for each separate segment, as it is always advisable to have a practitioner as self-regulator. We also need a liquid corporate bond market.