Avoiding portfolio panic

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It is not funny when the market tanks more than 20% in the first quarter. The 20% number seems an interesting number when splashed in the media, but it means real losses for a large part of India's fast-growing affluent community. Being lured by 'wealth management' service providers, many have now learnt the real rules of the game. And now, many are panicking and pulling out of these services.

And why not? Sources within the industry reveal that investors have lost anywhere between the range of 18-45% in the last two months. Since there is no official number to this trade, estimated to be in excess of Rs 15,000 crore, trade experts reveal that major foreign players have lost almost 18-30% of their PMS portfolios and domestic brokerages have lost 25-35% for their clients.

The panic

So while panic is inevitable, it might not be the best solution. "Most of the errors investors commit in times like this, is to sell out in panic, whether is it direct stock holdings, mutual funds or a product under PMS," says Dhiraj Agarwal, CEO - portfolio management at Motilal Oswal Securities. And this is because it just kills the entire effort of building a portfolio based on long-term goals.

Most of the panic has been noticed in the short-end of the market, where investors were lured into the game by service providers, who did not have the wherewithal to service them. "Losses faced by so-called portfolios, are nothing but speculation monies collected by scrupulous brokers and financial advisors, who lured investors to play the rising market," says Jayant Bhatia, a financial advisor.

And this could be corroborated by the fact that trades carried out by high-networth clients during the last quarter of 2007 had peaked to Rs 6,000 crore a day levels. The average trading on such accounts was about Rs 2,000 crore six months before. "I had at least ten brokers calling me up everyday wanting to invest my funds fruitfully and even promised me 100% returns on my portfolio commitment," says Pankaj Nikam, a senior executive with a media firm in Mumbai. "The kept repeating the great India story and threw all sorts of valuation jargon at me, and I got impressed," Nikam admits.