The recent market correction is only a short-term pain for genuine long-term investors, asserts Porinju Veliyath, founder and CEO, Equity Intelligence India. He told ETNow that last 2-3 years have spoilt us because returns have been extraordinary. Edited excerpts:How are you approaching this market because all kinds of parallels are being drawn between September 2008 and September 2018. The news flow may not be that bad, but for mid and smallcap investors, the pain has been excruciating. So, how are you dealing with this fall? As an investor, I have nothing to do at this point of time. Investors have to only wait and watch. This is a typical market panic and we have gone through such many corrections and cycles and every cycle, every correction is unique in this market. That is what I believe. People try to compare it with 2008 or 2000 IT bubble or 1992, but these things do not matter and every cycle is a learning point. When the markets are bullish and things are going well, especially in the five years of bull market, especially for small and midcaps, everybody gets carried away, even I also got carried away. One thing investors should not forget is such kind of scary fearful situations, sharp corrections and crashes have happened many times in the past and every time, markets have bounced back. So, it is not the end of the world. As many people may be thinking at this point of time, this is not something happening for the first time. But there are some certain aspects of this fall. This crash is first time in the sense our Nifty, for example, is still at near the peak. We had gone to something like price earnings multiples of 28-29 for the Nifty. It is still around 26 or may be 25. It is still expensive and at that same time 90 per cent of the stocks, listed companies even investment worth companies, they have gone 30 per cent, 40 per cent, 50 per cent and some of them 60 per cent and 70 per cent. So, this is very unique and it is very painful for investors in any case. Especially in the short term, maybe 1-2 per cent of people survive and some of them might have even made money. But investors at large are in pain. One has to admit that. But I believe this is a short-term pain for genuine long-term investors. My question to you again is that how should one really minimise the losses, do maximum capital protection. I am with you when you say that markets go through a painful cycle of boom and burst. Last 2-3 years have spoilt us because returns have been extraordinary and this mean reversion is coming at a painful cost. But when you suddenly see portfolios which are down 15-20-25 per cent, what should one do? Because nobody likes to lose money and the experience of losing money makes you anxious, nervous, you may end up doing stupid decisions which you should not be doing right now?Equity investors have lost money. Now the only thing what they can do is lose more money by selling it today. So right stock again is not an easy thing. If you remember, I was talking about an improvement in the corporate governance and some of the chor companies with very good business model and potentially high quality business model could be multibaggers when corporate governance improved. I have gone very badly wrong in timing that because I was very optimistic with the structural changes happening in the economy where the black money has been discouraged. Many of the smaller companies, family owned and traditionally managed companies will have encouragement to go more professional about it and take care of the minority shareholders. So that expectation has been belied. So, I am paying a price for that at this point of time. But I have not lost all the hope on that. I still believe there is improvement in the corporate governance happening or it will definitely happen, the way things are moving in this country and we are now in fact going through the pain of that reforms, going through the pain of that cleaning up happening in this country. So I still definitely appreciate the recent reforms by the government to clean up the system. All systems have been corrupt and the criminals and the bad guys have been making all the wealth so that system has to change politically. Bureaucracy and the complete social sector has to be cleaned up. That cleaning up is happening and I in fact underestimated the short-term pain of that reform. So many companies are paying a big price for that. There can be even permanent loss of capital in some of the listed companies.You rightly said it is really the fear psychosis which seems to be gripping the market right now and investors at large. So tell us what is your strategy right now in your PMS, are you buying this decline into individual stocks or are you in pure capital protection mode right now?I am in total inaction at this point of time, to make it very frank. I do not have money to invest. Of course some fresh money is coming in. They have been adding funds, additional capital and many new investors are also opening accounts.So, we have been fully invested otherwise. With this new money coming in, I am very confident, I am very happily buying stocks. Even today, we have clients and we will be buying mostly today itself and maybe little money kept for some of the stocks where we expect it to go down further and this market is too dynamic. Now, it is very easy to say people are using today the word capital protection, I think it is a wrong time to use that word. If somebody had that vision 8 months ago or 1 year ago, all these things, this sophisticated jargons would have been more relevant. But again nobody is that smart in this market. Market makes everybody look fools at some point of time. A few of the people who have been talking about capital protection and the price earning multiple were bearish in the market 3-4 years ago and they have missed out on the rally. But those people are really doing well today. Their conservatism, their capital protection kind of style everything is working in the last eight months. So that is why I am telling everything, every strategy has a time and market has the cycles and even individual companies are going through cycles.
from Economic Times https://ift.tt/2NVtWPw
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