Sudip Bandyopadhyay, managing director, Reliance Money, spoke with Abhay Rao of the Financial Express about the various economic conditions affecting the nation’s growth, markets, investment strategies and what can one expect in the future now that things are a little clearer. Excerpts:

•How is the company faring so far given the meltdown starting so soon after your inception?

The economy as a whole and the broking industry, in particular, has definitely gone through a tough time. Most of the large companies in this sector had a significant funding book comprising of margin funding and IPO funding. This business does not exist any more. However, Reliance Money never had a margin funding book and our reliance on income from the funding business has been negligible.

Besides that, the right combination of cost effective services, world-class security, convenience and innovative value additions provides a unique value proposition for our customers. Hence, inspite of the slowdown, Reliance Money has continued to grow. The company today enjoys the confidence of over 3 million customers and is present across 5,165 cities and towns within the country.

We are also entering new business segments like the exchange business and are setting up operations in new geographies. In a short span of two years, we now have a presence in Asia, Africa and Europe through various innovative tie-ups and acquisitions.

•What do you feel is the current market outlook? When do you feel the markets will show some more clarity?

The market mood is clearly positive and bullish. The landmark election mandate is expected to push reforms in a big way without hindrances of other left and smaller parties, which affected progressive reforms earlier. This in itself will drive consumption and infrastructure growth in the country.

The mood in the market is still one of euphoria though there has been some selling post the sharp rise on May18, 2009, when markets rose by over 17% in a single day. The upcoming Union Budget will be the first official communication of economic reforms from the new government and will provide far more clarity for different markets participants.

•These days, with so many different asset classes, including metals, how do you reckon should investors plan a balanced portfolio?

Asset allocation always plays a key role in managing risks better. By this we would like to mention that depending on the age profile and risk appetite of individual investors, one should have a right balance of debt and equity in their investment portfolio. This strategy of a mix of debt with equity will ensure a steady flow of returns to investors in such uncertain and volatile times. Any investment in equity, at this point of time, should be spread over the next six months, in small installments.

Broadly speaking, retail investors should have 20-30% for this portfolio deployed in liquid/cash funds of reputed AMCs, 10-15% in gold coins/ bars or gold ETF, 20-30% in large cap equity diversified funds through SIP over a period of time, and the balance in fixed return/ secured and safe instruments like bank FDs / NCDs of reputed companies, etc.

•How is the response on the PMS and wealth management sections in terms of investor interest?

The response to our PMS and Wealth Management Services has been encouraging. However, considering the fact, the markets have been going through a very rough phase, our expectations were also similarly conservative. With the revival of the markets in the recent past we are hoping for a much better response in the near future.

•Are there any particular areas you feel that investors should be more aware about these days while investing?

Investors should avoid investing large amounts in companies that are still deriving a major chunk of their business from the global markets. This is especially true for all large exporting firms and where the final price of the finished product is dependent on the global markets, as the global markets are yet to show any major improvement and could possibly continue to show weak signs in 2009.

Another factor to be considered is the top management of companies, as this sharp rise in the markets has seen many small midcap prices moving up sharply by nearly 80 to 90% in few weeks. This needs to be backed by a sound business model and strong management, which needs to be cross checked by investors.

•On a macro level, where do you feel India stands in comparison to the other BRIC or Eastern European Nations? Are we still a popular investment destination?

India is a domestic growth story and will do exceeding well when the global market rebounds some time in the first half of 2010. Nevertheless, on its own, India enjoys a large domestic market as compared to other BRIC countries, which should place it in a far more competitive position. Its fiscal discipline is also very strong and the forthcoming budget will give a clear direction and focus to its growth objectives. With a strong stable government at the centre the GDP growth estimates are already in excess of six per cent.

•Are there any particular sectors, which have caught your interest this year and if so why?

India being the second largest populated country, education, banking, financial services, insurance and infrastructure sectors are likely to emerge as new-age favorites in the future.

•Have you noticed any trends emerging within the Indian economy currently?

One noticeable trend, which has emerged, is the increase in risk appetite, especially for mid-cap companies. This is primarily due to large caps being fairly valued. Investors now do not mind the high risk factor as they are aggressively looking at new corporates, which have a strong and robust growth potential.

This was not the case earlier when risk aversion was high in the absence of a clear election mandate and amidst global uncertainty.

•What do you feel is driving the current markets? Are FIIs still playing a major role in the Indian markets or have other factors come into play now?

FIIs clearly remain the biggest drivers of the domestic markets at this point of time. This will continue in the near term as India remains an attractive investment option and more FII flows are likely. According to rough estimates, FII flows could exceed $20-25 billion, if the progressive policy initiatives are undertaken by the government in a swift manner.

•Most people complain that confidence is a key factor missing in the Indian markets today. Are you of the same opinion? And, if so how do you feel one can change this?

Lack of confidence was a key factor missing a little while earlier. However, with a stable government at the Centre, we have seen investor confidence returning in the last week.

Markets will get a further boost once the first Union Budget of the newly elected government is announced, which is expected to be progressive with various reforms to improve fiscal discipline and thereby the health of the economy. This will be a big trigger that will substantially change market confidence.

•The bulls rallied heavily post the election results, showing the optimism they have in the government. However, do you feel this rally will continue and are the current market levels justified as per the valuations of the companies?

While the current rally is more a liquidity-driven rally, there can be no denying the fact that this election mandate has positively surprised all market players, leading to euphoric buying in the markets, where they were over cautious previously and felt left out.

Hence, although valuations at FY10 levels look fairly valued, with a better earnings growth expected for FY11, it is likely that the markets could still witness a steady to reasonable upside as sentiments have turned positive and liquidity from both, FIIs and domestic funds, are increasing.