'Staying disciplined is what will make returns from equities'

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Dhiraj Agarwal, CEO - Portfolio Management, Motilal Oswal Securities and Lokesh Nathany, national head of wealth management, Almonds Global Securities, responded to Akash Joshi and Abhay Rao about the current market impact on Portfolio Management Services and their strategies

Since the beginning of the year, the markets have not been performing well. Has this had any impact on the sentiments of your clients in any way?

It is but natural for the investors' sentiment to be adversely impacted after such a hard fall in equity markets. However, many of our investors are believers in long-term investing and understand that short-term pain like this is sometimes unavoidable.

Has there been a slowdown in investors wanting to take on PMS services?

In general there has been a slowdown of inflows in equity products - mutual funds and PMS.

In times like this, what are some of the mistakes that clients do while dealing with PMS service providers? What is your advice to them?

Most of the errors investors commit in times like this is sell out in panic, whether is it direct stock holdings, mutual funds or a product under PMS. My advice to all equity investors is to understand the risk profile, investment objectives, and horizons and subscribe to products (or buy stocks), which meet these needs. By doing that, one can manage the emotional swings of investing more effectively, rather than getting carried away when the market is in a runaway bull phase or selling/exiting in panic, when the market is under stress. Managing emotions at both the extremes is critical to successful investing.

What have been the changes in the portfolios that you have managed in the past six months?

Of our current 3 products, 2 of them (Value portfolio and Next Trillion-dollar opportunity portfolio) have a clear long-term approach and a buy and hold philosophy. The mandate of these 2 products is to identify long-term winners, buy the stocks at a price where there is enough margin of safety, and then hold on to them, till such time we believe the reasons for buying them are still intact. In these 2 portfolios, we never attempt to time the market, and hence there has been no change there. In our 3rd product - Bulls Eye, which is more dynamic, we changed the asset allocation in favour of large caps during January and February, and also raised about 20% cash that time, which has helped the portfolio outperform the benchmark indices.

What has been the preference in the fee structure that people want? Has this changed in the past few months? What is the optimum structure you would recommend to clients?

It has been a mixed experience here. And the client demand is almost equally divided between preference for fixed fee and a combination of fixed fee and profit share. For PMS, it makes more sense for the investors and the manager to align their interest and work with a profit share model. In that sense, PMS is different from mutual funds, where there is a high touch point with the investors, and products are designed with very specific objectives in mind.

What kind of alternative investment strategies are you advising people to undertake? Are you looking at international markets for diversification?

At this point, I believe India is amongst the most attractive investment destinations, relative to most markets in the world. And the current fall in valuations makes it more prudent to increase equity exposure to India, if the risk profile of the investor permits. While the near term can test patience a bit, long-term economic and earnings growth stories in India are still quite attractive. Hence, a shift in allocation out of Indian equities into other asset classes, or other countries does not make sense.

How do you hope to combat the current market scenario, so as to negate the losses you have sustained so far?