With the Sensex falling below the 11,000-mark intraday today, Rajesh Bhayani spoke to market participants to get a sense of what they expect in the coming days and how investors should deal with the situation.
This is the best time to buy equities, but retail investors should also keep some cash with them
-Vallabh Bhansali
Chairman, Enam group
Why are foreign institutional investors (FIIs) selling heavily, which has resulted in the gains of the last two years being washed away?
First, let us understand that FIIs are not selling because they think that the India story is not good. They are selling because they are either facing or anticipating redemptions (in their home markets).
Do you think there is further scope for FII selling, or is it almost over?
How long they will sell will depend on their need for money. But one thing is for sure. In the absence of buying, this kind of selling cannot continue for long. When there is no buying, prices fall, thereby negating any gains.
Should India also ban short selling?
No. At the current price levels, bear hammering is not likely to take place.
What should retail investors do?
They should not panic at this point of time. This is the best time to buy equities as they are mispriced now and may get further mispriced. But, they should buy with a two-year perspective. At the same time, retail investors should have some cash and should not be leveraged. There are times when one invests for growth. Similarly, there is also a time when one should invest for sheer protection.
What should be the policy response in this scenario?
Conservative asset classes and job-creating asset classes should be protected.
Correction phase may last 12 months
Investors should adopt a disciplined approach, keep adequate portfolio diversification -
Jyoti Jaipuria
Research head, DSPML
Do you think there is further scope for FIIs to sell?
Until we get a clear direction on global outlook, volatility will continue.
What is your outlook on the equity market?
Markets are being driven by global factors. The credit crisis is spreading to Europe and, given linkages in the global economy, there is no country that can be totally isolated from its impact. Today’s interest rate cuts by major central banks will help in bringing about a revival, but it will take some time to start impacting the availability of credit.
Relatively, India remains less vulnerable to the global slowdown, because the country’s exports account for only 15 per cent of the gross domestic product (GDP).
We think India will continue to be one of the fastest-growing economies in the world. However, in an absolute sense, the economy will slow from the high seen last year. Earnings too are likely to slow to around 10-15 per cent, a healthy growth rate relatively, but much slower compared to that in the past few years. While these factors will hurt the equity market, our sense is that a large part of the price correction has already been seen. The correction phase is expected to continue for the next 6-12 months, during which period the market may fall further.
What should investors do in this scenario?
They should adopt a disciplined approach to investing. There should be adequate portfolio diversification in terms of asset classes. Over the long-term, equities tend to beat most asset classes in returns. However, investors should evaluate their risk profile and allocate funds accordingly. Secondly, investors should not tend to time the market.
Market turnaround unlikely soon
Retail investors have become wiser and are broadly holding on to their mutual fund portfolios
- K Vijayan
CEO, JPMorgan AMC
How do you describe the current selling by FIIs?
The market is falling as supply is increasing when there is no buying support. Those FIIs with a long-term view on India are waiting in the sidelines to enter when they get signals that the dust is settling down globally. Most of the selling in the Indian market is by those under compulsions to generate cash. Also, those waiting to enter do not seem to be in a hurry to invest. At the lower levels, some wise investors have started putting money in the market.
Are mutual funds here also facing redemption pressure?
I have seen bearish cycles earlier also, and to my surprise, retail investors this time are by and large holding on to their mutual fund positions. Now they feel that if they hold on, they will get back returns. Some amount of redemption is obvious, but systematic investment plans (SIP) are mostly continuing. In terms of money going out, it is more or less in line with last year. This year, inflow has been affected.
Is the falling rupee not making it costlier to withdraw?
Currency value does matter for inflow. When capital is flowing out because of compulsions, exchange rate doesn’t matter.
What is the outlook?
Globally, central banks are making concerted efforts to prevent the crisis from spreading further and, hence, I think things should stabilise now. I would say, last year the India story was strong. There is no change in it now, except that currently the market is cheaper. As no one can predict how much the market will fall further, one should start accumulating equities in smaller lots as a turnaround will also not come in a hurry. PF and pension fund money is waiting to enter the market. Once that happens, the market will definitely get a boost.
