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What they don’t tell at investor meets

Designed by Ajit Dayal of equitymaster.com, the investor meet offered contrarian views on a range of subjects. A report.

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MUMBAI: Did you know that the average length of hair in India is twice the world average and India’s share in world hair is 28%? Did you know that Voltas derives its name from Volkart Brothers and Tata Sons who started the company in 1954? And that the company has got the mandate to air-condition the world’s tallest building (162 floors) coming up in the Middle East?

You would have, if you attended the investor meet organised by equitymaster.com, one of India’s most popular financial websites, in association with DNA Money.
Unlike other investor seminars, organised specifically for foreign institutional investors and high net worth individuals, this one was designed by equity master Ajit Dayal (founder of equitymaster.com, Quantum Information Services and Quantum Mutual Fund) for retail investors. “We expect property prices to crash by 30-40%. There is usually an 8-9 month time lag after the stock market meltdown, before one sees property prices coming down,” is one of his insights that investors lapped up.

Sample another one from him: “Anything with the name infrastructure attached to it (like an infrastructure fund), will take a minimum of 10 years to give returns to investors.”
Attended by more than 200 investors and potential investors, the meet also had top honchos from various companies speaking on their own firms.

Ajit Dayal, chief executive officer (CEO) and chief investment officer of Quantum Advisors, started off the proceedings with the keynote address. It was followed by talks from Milind Sarwate, chief financial officer (CFO), Marico Industries, H Shankar, CFO, Cranes Software International, MM Miyajiwala, CFO and BN Garudachar, general manager (corporate communications) of Voltas Limited, and Alok Vaish, CFO, Hindustan Sanitaryware.

Each of them explained the core competencies of their companies. While they talked about their existing businesses, they also talked about plans and strategies to grow their brand, profitability and presence within the country and abroad.

Arjun Marphatia, chief executive officer of Quantum Mutual Fund, Rahul Goel, CEO of Personalfn.com, Ashwin Ramesh, director of Primary Real Estate and IV Subramaniam, senior fund manager of Quantum Mutual Fund were the other speakers.

The afternoon session for such meets, which usually starts off on a rather dreary note, following a heavy lunch, was lightened up by Alok Vaish, chief financial officer of Hindustan Sanitaryware. “Whenever I introduce my product, I tell people that you start the day with us, use us at least two-three times a day, and usually end the day with us,” said Vaish.

Rahul Goel explained the importance of asset allocation among investors. He talked about the need to know who you are and how, from this basic fact, plan finances for the future.

Meanwhile, Arjun Marphatia, who is at the helm of affairs at the only mutual fund house that set a paradigm in the country by not selling its schemes through distributors and hence not charging a distributor commission to investors, explained how his low-cost Quantum Long Term Equity Fund could potentially beat the returns earned by traditional funds. He explained that a person investing Rs 1 lakh in a traditional fund would be poorer by Rs 27,419 over a 10-year period and Rs 1,38,024 over a 20-year period, than someone investing in a low-cost fund (which does not charge any distributor commissions). “We are completely redefining the asset management business by starting this no-distributor model. Though we may not be able to brag about new fund offer collections, we are confident to slowly, but surely attract investors into the fund and grow our assets. Our objective is not as much to gather assets as it is to manage our investors’ money well,” said Marphatia.

Incidentally, Quantum Long Term Equity Fund has seen the lowest decline in net asset value among diversified equity schemes, since the Sensex declined from its peak of 12,612.38, recorded by it on May 10, 2006.

Its fund manager IV Subramaniam talked of how if one has a higher risk tolerance, one could add more mid-cap stocks to the portfolio, to generate higher returns. “Large caps are strong like a sumo wrestler, standing its ground even in times of trouble. Whereas a mid-cap is like an agile boxer: If it take a hit, it can get knocked out,” he said.
A conservative portfolio, he explained, should have 80% in large-cap stocks, 15% in mid-caps and 5% in cash. For a more aggressive one, 65% can be in large-caps, 30% in mid-caps and the remaining in cash.

Real estate mutual funds (REMFs), which have become a hot topic of discussion these days, what with the Securities and Exchange Board of India clearing initial guidelines for the introduction of the product in the country, was touched upon by Ashwin Ramesh of Primary Real Estate.

“The introduction of the product will bring in two key benefits. One is that you can buy units as per your finances. The other is that you can get indexed to real estate prices,” he said. This means that by investing in REMFs regularly, one is buying property in the dematerialised form at the prevalent market rates. When the need arises, the dematted property can be exchanged for actual property.

But he feels that there are still some grey areas that need to be addressed by the regulator. For example, the daily declaration of net asset value. He cited the example of the real estate investment trusts (REMFs’ counterparts in the US), which declared their NAVs on a quarterly or annual basis. The 197 US REITs have an AUM of around $330 billion.

The grand finale to the conference had Dayal giving his sectoral likes and dislikes:

“We are overweight on power and banking and financial services sectors. In spite of the power segment being over-regulated, we feel there is a lot of scope for growth since India is a power deficit country. We like the consumer discretionary sector (what consumers buy with their extra income). Though consumer staples (like essentials they need) is an important sector, we’re not too keen on it now. We like telecom, but the valuations currently are too high for our comfort. We have increased our exposure in the oil and gas sector. We do not like the industrial goods sector (L&T, ABB, Siemens), although these companies would continue to grow. The valuations are not realistic. We recently bought some textile-related companies.”

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