‘If you learn your lessons well, you can earn a lot’

Mehraboon Irani, senior vice president - PMS, Centrum Broking, is in love with the stock market. He says his obsession with stocks is so much that even his wedding and honeymoon could not keep him away from it. Irani spoke about his first love and its future.

When did you ‘fall in love’?
I have been in the market since 1985; full-fledged for the past six years. Prior to that, I was doing consultancy, giving advice to HNIs. Many times I was not paid. Stock market is my first love.

How was your first experience with stocks?
When I started in the market, I invested in three companies on the advice of a friend. Needless to say, I lost money.

I did my MBA from Jamnalal Bajaj Institute. I spent a lot of time understanding the market, to the extent that I would visit the Bombay Stock Exchange before my lectures started. I got to understand why stock prices behave in a particular way. I am convinced that the market is supreme.

Market has been in teaching mode for some time now…
If you stick to the lessons, this market will earn you a lot of money. But only 1% people will remember the lessons. It happened in 1991, 2001 and 2003. This time, we have learnt more. If you have learnt your lessons, put it on your desk and read it everyday; you will do well in the market.

Is it because new people come in every boom?
It’s not that. In December 2007, every broker was trying to jump even deeper into the market... Things have changed so much. Everyone has gone wrong. If you learn your lessons, you can earn a lot.

What are the lessons?
In 2007, people were justifying ridiculous valuations. There were price-to-book-value ratios of 6:1 and 7:1, and still, we said, ‘Things are attractive’. Today, PBV is 1.4 and in some cases, lower than book value. Yet, we are not able to defend those valuations.

Why then were we saying 7:1 was attractive?  We were trying to fool ourselves. The market was overstretched on all parameters. But we refused to believe it. So what happened? We knew the client had many options for investment. We tried to outperform each other. In that, we all became blind. Blind to the fact that stocks had become expensive. When the market fell, we thought it was a correction. It all started with the yen carry trade; we never realised it.

Are we close to the bottom?
In this market, we have seen most of the pain. But I’m not convinced that we have seen the bottom. The financial impact may be over, or may be on the verge of coming to an end, but the economic impact is yet to be felt. I am very happy with the central bank co-ordination across the world. Very happy with RBI’s package, but it will take time to play out. But before that we are yet to experience the pain of the corporate numbers.

What kind of numbers do you see?
We refuse to believe that companies will announce dismal numbers. Some companies may announce loss. Today, good corporates are finding it difficult to raise funds. A company like Tata Motors has to raise money at 11.5% in a falling interest rate scenario.

Banks have liquidity. But they are not lending. They are worried about defaults and delinquencies. All this will take its own time to straighten out.

People have to put money in the market to recover their losses. Some 90% of investors are of the opinion that in two-three years, the market will recover. But those whose Rs 100 has turned to Rs 30 or Rs 20, if they think this Rs 20 will again become Rs 100, they are wrong. Even if the market doubles, the Rs 20 won’t become Rs 100. Investors will have to put in money.

Do you see a fall from here?
For all you know, it may go higher.

People may think October 27 is an all-time low. But a market has bottomed out only when it refuses to react to bad news. Even if it doubles in the next two years, only when it refuses to react to bad news can we be sure that it has bottomed out. Some weeks back, Maruti announced a 27% drop in sales. The stock dived 10%. The stock had a lot of weight. If you are expecting Maruti to do bad, then it’s safe to say auto industry will see slowdown.

Do you see another round of selling by FIIs?
I don’t know what will trigger the next sell-off. It might be poor number from corporates. In short, next 1-6 months it could be painful for markets. Equity markets will be back on their feet only after that.