In 1986, Deena Mehta became the first woman to enter the male-dominated trading circle. From this bold beginning, she went on to become vice-president (twice) of the Bombay Stock Exchange and was also appointed the first lady president of the bourse. Although she made her mark in the capital markets, Mehta’s dream was to become an engineer. Small wonder she became instrumental in bringing technology to Asia’s oldest exchange and pioneered computerisation of the bourse. In an interview to DNA, Mehta said people should never ignore the equity markets if they do not want inflation to erode their financial assets. Excerpts:
What factors do you see affecting the direction of the market in the medium term?
Company results are likely to have the biggest impact on markets in the middle term. All eyes will be also on the GDP and industrial production numbers. There’s a section that believes problems are not over yet and any weakness anywhere in the economic system would bring down the prices. However, strong fundamentals will see the markets back to higher levels.
Does it worry you that the global economic recovery is lagged by a much lesser rate of improvement in consumption and employment?
There are enough causes to worry in the world. But looking at the Indian market, these global problems are more of volatility agents than long-term dampeners. Yes, if the world does badly, it catches up on us at some time, but our fundamentals are very strong and this will help absorb most of the shocks.
Will India be able to sustain the same pace of economic recovery with a reversal of the RBI’s accommodative stance?
RBI has been known to make timely interventions in terms of regulating money supply in the economy. Hence one should trust the RBI since the amount of information available to it for the decision-making process is far more then those who stand in the judgement of RBI. Secondly, artificial props have to go and sooner the better. Thirdly, props provided by RBI haven’t been on the same scale as those in the US or European countries. The RBI report itself talks of low utilisation of refinance facilities and the ones that were taken were repaid in July.
How do you see investors benefiting from the extended trading hours?
Economically speaking, the marginal utility of extended market hours is nil to negative. Benefits for the markets won’t be much in terms of depth, liquidity and integrity of prices. Today, we have huge volumes that are fulfiling the efficient market norms. In terms of number of shares traded and number of transactions, we are among the world’s top exchanges.In fact, there is a talk of an increase in impact cost since the time between order and order fulfilment is likely to be longer. Trading on markets is not a physical thing where you can stretch your limits or put two on the job. It is an activity that requires sharp attention and quick thinking. Keeping one’s system on alert for a certain number of hours is not possible. Quality of advice could suffer. Lastly, a decision that impacts every segment of the financial market, whether it’s banks, mutual funds, insurance companies, depositories, courier companies, brokers or allied service providers, needs more ground work in terms of benefits. Just saying that we want to bring our markets in line with the world markets is not enough. Real reasons need to be made more transparent.
What challenges do you see for the new SME platform?
There is a need to pay special attention to the SMEs. The need is dual — one for nurturing the SMEs and preparing them to come to capital markets and second for the actual listing of their shares on stock exchanges. Several state governments have special institutions to technically guide and nurture the SME sector. However, when it comes to financial discipline and sensitivity to compliance, I don’t think much is being done. We first need institutions to prepare an SME as a mature institution where processes, and not just promoters, play a major role in driving operations. Quality can be assured only with excellent processes. SMEs should be prepared to benchmark themselves in the world arena and not just locally.
Would you like to give any advice to a first-time investor at the cusp of a new bull run?
A portion of your savings must go to the stock market. Then only you will be able to maintain the value of your financial assets, otherwise it will be eroded by inflation. Having said that, I must add that discipline is a must while investing in the share market. Goals in relation to returns on investment and stop losses are necessary. You may act on any number of buy tips, but decision to sell should not be delegated to anyone. It is yours alone. If you do not have time to go for mutual funds and if you want to spread the risk, go for systemic income plans (SIP). The bottom line is, do not ignore the markets.
Lately, there’s been a lot of excitement around the PSU stocks. However, with more and more private players entering sectors that were earlier a monopoly of the PSUs, do you think PSUs still make a good long-term investment bet?
PSU stocks are in the news every now and then, primarily due to triggers from divestment. PSUs were formed to carry forward the objectives of industrial and social development. Thus, charting a middle path between the two divergent objectives was difficult and continues to be so. Also, the scenario has changed with private sector making large inroads (for example the L&T-Mitsubishi tie-up for boiler/turbines). Nevertheless, it is hard to cover the achievements accumulated over the last 30-40 years. The private sector will steadily chip away at the incremental business volumes and at a faster pace too, since they are more focused on ramping up business and profitability. In fact, PSUs will remain inferior to private sector firms, in terms of profitability except where they have depreciated plants or make good divestment candidates or are highly policy sensitive.
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