Q&A: Krishna Kumar Karwa, MD, Emkay Global Financial Services

'Don't treat equity market like casino where money can double overnight'

Krishna Kumar Karwa, managing director, Emkay Global Financial Services, tells Masoom Gupte that retail investors must keep their expectations of returns from the markets reasonable. Edited excerpts:

What are the factors impacting the current market?
The market has reacted to rising interest rates, falling liquidity and rising input costs on corporate earnings, resulting in margin pressures. Besides, political and governance issues and the recovery in the US economy leading to outflows of foreign institutional investors’ (FIIs’) money from emerging markets to their own markets have had their impact. While domestic negatives have been factored in, it is the flow of money from the FIIs that will determine the market movement going forward. Having said that, valuations look attractive and there are some good investing opportunities. Long-term investors should not be worried about the negatives.

Considering the recovery in the US markets, should investors divert part of their investments towards them?
The Indian growth story seems more long-term than the US. Also, even though the Reserve Bank of India has permitted investors to invest upto $200,000 per individual outside India in a financial year, there isn’t much clarity on how the investment would be treated when brought back to India. The implications in terms of taxes and other charges are unknown. While self-driven investors may consider this avenue, their numbers are few.

What should a retail investor’s strategy be in the current market?
A retail investor’s equity exposure should be based on asset allocation, risk appetite and most importantly, on what stage of life he\she is in. Those who do not understand equities should invest either via mutual funds or opt for portfolio management services, where professionals manage the portfolio and one simply monitors the investments. Both new and existing investors should invest regularly in equities in small tranches rather than in lumpsum.

What are the most common mistakes that investors must avoid pertaining to their equity participation?
They should avoid any kind of leveraging or margin funding. If the markets correct and you can’t top-up your account, your investment can get sold off at the wrong point, resulting in losses. Investors should understand that any erosion in the value of their portfolios is only a notional loss. So, unless you are forced to exit equities at a loss, there are no losses, even if the markets correct. Let the return expectations be reasonable. Don’t consider equities as a casino where your money can double overnight.

What sectors are you betting on?
Infrastructure and capital goods sectors have to grow for India’s GDP to be robust. Both these sectors have not done well in the past 12-18 months. This is a contra bet but according to us investors should include these sectors with a long-term view.