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Ajit Dayal on stock markets and interest rates - Views on News from Equitymaster
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  • Apr 10, 2006

    Ajit Dayal on stock markets and interest rates

    Stock markets have run up significantly over the last couple of weeks, catching even the most optimistic investor by surprise. On the other hand, the rise in interest rates shows no signs of letting up. In the midst of this, Securities and Exchange Board of India (SEBI) (the market watchdog) played its role to the hilt by issuing guidelines to mutual funds (MFs) for curtailing expenses and regulating dividend declarations.

    We saw this as an opportunity to interview Ajit Dayal, CEO and CIO of Quantum Advisors Pvt. Ltd. and Director, Quantum Asset Management Company Private Ltd. Ajit is also the Chairman of Quantum Information Services Ltd., which owns the brands www.personalfn.com and www.equitymaster.com

    On the rally in stock markets over the past few days
    Strong foreign flows and domestic flows continue to take markets northwards: the demand for Indian equity is greater than the supply of Indian equity and, for any product, when demand exceeds supply, prices will increase.

    On stock markets from over the long term (more than 36 months)
    We have seen a spectacular increase in global equity markets, including the Indian stock markets and it has been a wonderful ride, but these unusually high returns cannot sustain over longer terms. I began in the business when the Index (BSE-Sensex) was 250 in 1984, now at over 11,000 in 2006 that shows a return of about 18% per annum compounded over 22 years when measured in Indian Rupees. In the last 4 years we have seen the market increase by over 350%. Over the long haul, Indian stocks will give 15% per annum returns so an Index of 150,000 is possible but in 20 years!

    On short term and long term interest rates
    We believe that interest rates will harden in line with global interest rates.

    On the expense structure and dividend declaration norms proposed by SEBI
    Over the past 12 years the Indian mutual fund industry has followed a distribution model that has been harmful to its investors. We are honoured to be the first mutual fund house in India to recognise that investors must be reached out directly so that the excessive distribution charges and fees are not incurred by the innocent investors. We are amazed - and proud - that it has taken the smallest fund house the strength to challenge and change the NFO mentality. Any regulatory help in that direction is welcome.



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