The Asian Age - - Money - R. Balakr­ish­nan

The prob­lem with us is that we are all im­pa­tient. The in­vestors are im­pa­tient to wait for the fu­ture and val­u­a­tions are al­ready deep in to the fu­ture. The do­mes­tic in­vestor pop­u­la­tion is grow­ing and they have off­set the with­drawals by the for­eign in­vestors. We are prob­a­bly mov­ing away from ex­treme de­pen­dence on the FII crowd. The mar­ket is awash with liq­uid­ity and ev­ery­one seems to be search­ing for new ideas to en­gage their money with. Lever­age of a big mag­ni­tude is vis­i­ble in this mar­ket, as the lure of quick riches draws peo­ple to the mar­ket, with a feel­ing that they will get out be­fore it gets over.

To me, all this speaks of one thing: Con­fi­dence in the fu­ture. Ev­ery­one is cer­tain that we are on the right path, the clut­ter notwith­stand­ing. Oth­er­wise, we will not see so much liq­uid­ity com­ing in to the cap­i­tal markets.

The govern­ment, I be­lieve, will re­spond. GST im­ple­men­ta­tion in some coun­tries has taken up to two years to sta­bilise. How­ever, we ex­pect things to sta­bilise in 30 days. About de­mon­eti­sa­tion, the one thing it has done is to bring down the us­age of cash. Yes, the govern­ment’s in­dul­gence to the gem and jew­ellery in­dus­try is puz­zling, but these aber­ra­tions are what we are used to.

The govern­ment is in a hurry to kick start and ac­cel­er­ate the pace of award­ing in­fras­truc­tur­ere­lated con­tracts. The do­mes­tic fi­nan­cial sys­tem is awash in liq­uid­ity. New projects from pri­vate sec­tor are be­ing an­nounced. Debt on com­pany books has come down. I see more rat­ing up­grades hap­pen­ing and all these point to bet­ter health. I will be bank­ing on few things:

An in­crease in RoCE for the com­pa­nies that will have the im­pact of sud­denly mak­ing val­u­a­tions look rea­son­able;

Growth that is in the re­gion of more than 10 to 12 per cent on the top line;

In­creased ease of do­ing busi­ness — iron­ing out wrin­kles in GST, bet­ter labour laws, the do­ing away of reg­u­la­tory ‘fear’.

While I main­tain that all this does not tell me to go and buy all the avail­able stocks, it also makes me think that the mul­ti­ples and mea­sures of stocks need not tell the whole story. Easy avail­abil­ity of cap­i­tal (through pri­vate eq­uity and stock markets) also seems to bring about ex­plo­sive growth in the ser­vices sec­tor. Ex­pan­sion­ary per­sonal credit (while it sounds risky) is also fos­ter­ing con­sumerism on a scale not seen be­fore. In­fras­tru-cture projects pick up is also re­flected in bet­ter ca­pac­ity util­i­sa­tion by ce­ment, steel and other ‘smoke-stack’ sec­tors in the econ­omy.

As in­vestors, at this stage, I pre­fer to be pre­dom­i­nantly in large-cap di­ver­si­fied eq­ui­ties rather than in mid caps. Be­cause mid caps will not al­low you to take your eye off the screen. A rapid rise in prices, which are typ­i­cally af­ford­able, is also a risk when some­one falls out of favour. So, I will limit my­self in mod­er­a­tion to the mid level. For stay­ing in­vested, my bias is clearly in favour of large cap, di­ver­si­fied port­fo­lio.

How much cash should I keep? That de­pends on how close you are to need­ing the cash out of your in­vest­ments. If you are very close to your goals, it could be a good thing to cash out most of it. If you are still some­where half­way or lower in your jour­ney, stick to your SIPs and your in­vest­ments. Long cy­cles will work in favour of stay­ing in­vested. And one thing. Avoid lever­age. Never bor­row to in­vest in stocks. It gen­er­ally causes more grief than joy. Most im­por­tantly, do not lose faith in eq­uity. The econ­omy will grow at five to seven per cent, ir­re­spec­tive of gov­ern­ments.

The writer is a veteran an­a­lyst. He can be reached

at bal­akr­ish­

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