With the market see-sawing, a lot of Indian investors are currently staying away from equities. But volatility is an opportunity for retail investors to make good for the opportunities they might have lost in the rally of 2009, says Manasije Mishra, managing director & CEO of HSBC InvestDirect. In a chat with Ashley Coutinho & Muthukumar K, he talks about why he is particularly bullish on power companies that already have a large generating capacity as well as engineering companies which are best placed to benefit from the upturn in the capex cycle.
What is your take on the prevalent volatility in the market?
There?s no doubt the markets have been choppy for quite some time and volatility has gone up. Investors are a bit apprehensive. I think a lot of retail investors completely missed the rally that begun last year in May, post the general elections. Whether it was equity or mutual funds, it doesn?t matter. The fact is that investors have missed the rally and have not participated in the wealth creation that has happened.
In many ways, the market today gives a lot of opportunities to make up for those missed opportunities. Many of the stocks have gone back to the prices that existed in October last year. So, while markets are volatile and one needs to be little careful, the long-term investor who is willing to put in money for two-three years needs to remember that India?s growth story is still robust. It?s a great opportunity to pick your stock and sector. There?s no doubt that in the long term, equities give much better returns.
The global economy is yet to return to normalcy. Plus, there are concerns in the Eurozone. Your views?
The upheaval in the global economy may be a blessing in disguise. For instance, the global turmoil has resulted in the softening of commodity prices. The price of oil has come down 20%, the price of aluminium is down 17.5% and copper is off by 13%. Falling commodity prices will help India because we are an importer of many of these commodities, especially crude oil. And since we are currently battling inflation, falling commodity prices is a boon.
The other good thing is that growth has moved east to countries like India and China. Europe and America, which together form 45% of world GDP, are not performing well and might at most grow at 2-2.5%. Compare this with the growth rate of 8.5% that India is expected to clock this year. Even Latin America and eastern Europe are not going to register growth rates that are close to India’s or China’s.
There may be short-term liquidity issues, particularly if the FIIs start pulling out money. They have already pulled out as much as $2 billion last month. That said, I haven?t seen too many long-only funds exiting India.
Which sectors you are bullish on?
Agriculture grew by 0.4% last year; this year the talk is about a growth of 5.4%. That?s going to have a huge impact on GDP, particularly consumption-led sectors like auto, FMCG and consumer durables. Even last year, there was considerable growth in rural consumption owing to the government?s social welfare programmes like NREGA, which resulted in higher disposal incomes. A good monsoon will further boost the rural economy.
Another sector I?m bullish on is heavy engineering, because we think the capital expenditure cycle is turning. There is a huge amount of government investment that is coming in areas like roads, ports and power. The private sector investment is also set to increase. In power, we are particularly bullish on companies that already have a generating capacity, as power deficits are there to stay for some time. And, merchant power rates are already higher.
What is the status of client reconciliation in regard to the case of IL&FS Investmart Securities? Could you clarify your company?s position in it?
The HSBC InvestDirect got management control of IL&FS Investmart Securities in October 2008 and this issue goes back several years before that. There were certain technical violations and the accounting entries were not appropriately carried out and, therefore, we proactively approached Sebi and made full disclosure of them. A voluntary disclosure was made to the regulator in the form of a consent order. And that order was accepted by Sebi.
In the meantime, we made efforts to ensure that customers are contacted and amounts rectified. It has already happened for 50% of customers?but it?s a long-drawn process and the matter goes back seven-eight years. Technically, some things were not right and, therefore, we want to fix it. The total amount of such transactions is less than half-a-million dollars.
Retail participation in equities is very low. What is the industry doing to increase the investment appeal?
The regulator (Sebi) and the industry are doing a number of things to make equity easily available and accessible. I think it?s quite important. For a country of our size, the number of demat accounts is quite small and the percentage of people trading in equity is quite small compared with other markets. But I?m sure the numbers will grow. The regulator is involved in a lot of investor education to make trading safer. That?s an area where we are involved, too. For example, at many of our branches, we invite customers and hold presentations for them. We educate and explain to them how the market works, the pitfalls to look out for and the kind of rules and regulations to adhere to. We are also offering different products that will appeal to varied type of customers.
Retail participation has been muted for the past few quarters. How has it impacted the broking industry?
Lower retail participation does affect the broking business. But certain parts of the business?the online business, for example?have been relatively less impacted. That?s because investors using the online route tend to be self-directed professionals or customers who manage their own portfolio.
What is your take on the government?s new ruling making 25% listing compulsory?
In the long term, the 25% float is a superb measure that will help the development of the capital market. The move will give more depth to the market, make manipulation more difficult and stock prices more realistic. With the supply increasing, its stock prices might fall, but the fact that any dilution of stake can be done gradually should cushion the impact somewhat.
What are the best practices that HSBC InvestDirect has put in place to better its services?
HSBC InvestDirect is guided by Indian regulation as well as by what the group prescribes. Especially in areas like wealth management, we ensure that know your customer (KYC) norms are practised and the customer is sold the appropriate product.
On the equity side, we spend a lot of time understanding our customers and their trading pattern?whether they are experienced or first-time investors. We have put in place certain sales processes to ensure that customers are advised appropriately. These general guidelines are applicable to all countries. They help protect our brand and are in keeping with our brand values of being transparent and open.