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"Do not lose sight of the fact that India's economy will grow for the next decade..." - Views on News from Equitymaster
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  • Oct 19, 2007

    "Do not lose sight of the fact that India's economy will grow for the next decade..."

    Ajit Dayal is Director, Quantum Advisors Private Limited. Ajit is the founder of Quantum Asset Management Company Pvt. Ltd. and also Quantum Information Services Pvt. Ltd., which owns Equitymaster & Personalfn.

    The stock markets are at their volatile best. And in our view it is an opportune time to get in a rational view on how you should deal with this situation. So, here it is! In an exclusive interview with Equitymaster and Personalfn, Ajit Dayal offered his views on the markets and what investors should do in present times.

    (This interview was sent to clients of Personalfn's financial planning services and Equitymaster's subscribers before it was posted on the website.)

    Eqtm: The stock markets have turned volatile. And they have somewhat corrected. To what would you attribute this correction?

    Ajit: International investors have poured in over USD 50 billion into the Indian stock markets over the past 4 years. That is great. Unfortunately, half of that money could be from short-term investors. India has had a policy to attract long-term foreign capital since 1991. This short-term capital that has come in via P-Notes is in some sense unwanted money because, by definition, it is not likely to stay in India for the long term.

    The recent proposed rules by Securities and Exchange Board of India (SEBI) to curb this short-term activity has led to a market sell-off. Today, the holders of these P-Notes may be potential sellers of USD 80 billion of Indian stocks and there is no one here to buy that size immediately. When there are more sellers than there are buyers, prices decline.

    Eqtm: How much of a correction do you foresee for the Indian stock markets?

    Ajit: Stock market prices could decline by as much as 20% from here in a worst case scenario, in my opinion, if the sell-out is disruptive and the sellers all rush to the exit door at the same time. But, if the sell out of the excessive P-Note money is orderly, then there may be no decline. If someone has 18 months to unwind their positions and sell, then the Indian markets can absorb that. But will the unwind be orderly or disruptive? No one knows.

    Eqtm: Please share with us your long term view on the investment opportunity that is presented by the Indian stock markets

    Ajit: India is a fantastic long-term growth story. The presence of P-Notes money exaggerated the sharpness of the rise in the stock market prices. The sell-out of P-Notes will cause a momentary decline. We are cautious, value buyers. We love to buy when prices are "sensible". The investment managers of the Quantum Long Term Equity Fund have been trained in the "long-term, value" approach to investing.

    Eqtm: What would you advise investors to do in present times

    Ajit: As I indicated to the DNA newspaper, "Investing in the stock market is not a one-day event. That would amount to gambling. I would advise people to invest consistently over a long period of time. There is no right time to enter the market. Every day is the right day. If you start investing in the stock market, you should be committed to be in the market for a long time. Decisions on when to buy and sell stocks are best left to the fund managers. The idea is not to focus on the index but to invest consistently over a period of time."

    Eqtm: What would you advise investors not to do in present times

    Ajit: Do not lose sight of the fact that India' economy will grow for the next decade. If governments in power get the policy framework on infrastructure correct, the growth will be even higher.

    We have a strong bias to being invested in equity for the long haul - investors must have that long-term outlook when they invest in stock markets. Otherwise they should stick to gambling in casinos, horse races, cricket matches, and playing cards.



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