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'Indian Markets Are In A Sweet Spot'

Monday, August 17, 2015

Kapil Bali is Executive Director and CEO at Yes Securities, a 100% subsidiary of Yes Bank and has close to two decades of experience at various leadership roles in Financial Services. A B.Sc, with an MBA (Finance) and CFP, this Market Wizard stands tall amongst his peers. In conversation with Dominic Rebello, he espouses his belief in the fact that for investors who are willing to invest for 2 to 3 years, there exist quite a few good opportunities in the market, saying 'Bottom-up stock picking could help identify fundamentally strong companies that are available at attractive valuations’. His views...

A little background about your company and yourself?
YES Securities is a wholly owned subsidiary of YES BANK and is a securities broker that offers investment in equity and other financial products with various value added services to customers including trading on the website and mobile app. I have close to two decades of experience at various leadership roles in financial services and have been instrumental in setting up various organizations. Prior to joining YES Securities, I held a variety of senior management roles at Reliance Spot Exchange as CEO, Reliance Securities as CEO, Reliance Mutual Fund as AVP & Head Distribution, and prior to that with HDFC Bank, ICICI Capital and Delhi Stock Exchange.

At what point had you given a thought to making a career in the financial markets?
Right at the time of enrolling into my post graduation course in Finance, I was thinking of making a career in the financial markets. In fact, my first campus placement was with a leading management company which started off my journey in the capital markets.

How do you pick your investments? Do you use technical analysis or employ fundamental data?
I believe picking the right equity investments is very similar to picking the right house to buy; both involve a thorough background check. I dig in deeper into the company’s fundamentals, try and identify the key things that set it apart/above its peers, its drivers going forward and the risks that it faces. All this would necessitate fundamental analysis. Having identified the stock the next step would be to see what price it should be bought at and that is where Technicals helps. Technical analysis helps in understanding the current price trends for the stock and provides a useful tool for deciding the price one would want to enter a stock at.

How would you describe your methodology?
It is a prudent mix of fundamental and technical analysis.

What appeals to you about trading; the short side or long side?
I view long term investment as an asset class which complements other asset classes to form an investment portfolio. Generally, I recommend investing in stocks for a period of at least 5 years.

What differentiates you from other Investors?
At YES Securities, we encourage a long-term viewpoint and not a short term specific return percentages. This unwavering approach makes our investment decisions immune to knee-jerk news and market reactions.

What gives you that edge?
The above-mentioned approach has worked for me on an overall basis.

Is there any applicable lesson to investing?
Equities as an asset class can help an investor earn high returns in the long term. Therefore, it is prudent to have a certain percentage of one’s portfolio invested into equities. The underlying principle is to identify stocks that have sound fundamentals, buy them at attractive valuations and then hold them for a long term to maximise the returns. Trading in my opinion should be done by professionals who can work full time in the markets.

How much of what you do is gut felt?
Very little; I try and analyze all aspects of the company which then formulates my decision. Of course, there is no certainty, but it’s a best practice to do your homework whenever investing in any asset class like property, gold, etc.

Do you try to anticipate or follow market trends?
It is difficult to predict the market; even the best and leading experts have not always been successful at it. Therefore, I think it is better to stick to fundamentals and valuations rather than trying to predict the peaks and bottoms of the markets.

When you put money on a trade and it goes against you, how do you decide when you're wrong? What do you do next?
There are two ways to view a fall. If there has been a material change in the fundamentals of the company which is why the stock price has fallen, then it is best to book losses and exit. However if the fall is purely sentiment driven and/or related to temporary business blips then it actually provides an excellent opportunity to buy more of the stock at cheaper valuations. So it is best to determine the reasons for the fall before taking a call on the next step.

Any positions you ever lost sleep over? What happened...?
Never, long term investment and new leverage in stocks has ensured that I don’t lose sleep over my investment decisions.

What would make you wary about an Investment?
I am not comfortable buying stocks in a hurry without adequate research and analysis

What makes an investor successful?
As mentioned before – long-term investments with a strong emphasis on company fundamentals.

Of the tens of thousands of trades/investments that you have done, which was your best trade/investment?
PI Industries.

What was the story there?
PI Industries focuses on Agri-inputs and custom synthesis. The Agri-inputs division offers plant protection products, specialty plant nutrient products and solutions while the customs synthesis division offers contract research and production of agrochemicals, intermediates and other niche fine chemicals for global innovators. The growth in the custom synthesis division has been able to offset the impact of the vagaries in monsoons that are felt in the domestic agri-business. The steady launch of molecules in the agribusiness and commercialization of early molecules in the custom synthesis business should help drive growth for PI Industries in the long term.

Do you have a scenario about how the current bull market will end? Where do you see the Indian markets five years down the road?
I believe the run up that we have been seeing since February 2014 is largely fuelled by the expectations from the new Government. However, the measures taken by the Government are yet to show prominent results. The policies & reforms that have been announced have a certain amount of gestation period, post which we expect actual signs of recovery to become visible. This is why we believe that the long-term outlook for the economy is positive. For investors who are willing to invest for 2 to 3 years, there exist quite a few good opportunities in the market. Bottom-up stock picking could help identify fundamentally strong companies that are available at attractive valuations.

Having said that, I believe that the risks to corporate earnings, the major driver of stock markets are high in the near and immediate term. Even in the ongoing result season, earnings growth has been tepid. Though companies are seeing order inflows, but the execution of the same is lagging. Fast track clearances of projects, resolution of issues related to land acquisition, etc. are just some factors that can help improve execution. If these were to get delayed on any account then the recovery would be postponed which in my opinion is the biggest risk that the markets face. The efforts of the government should translate to signs of recovery only by the second half of the year so for FY16 the earnings growth may not be very spectacular. But post that the growth in earnings could be in high teens or even cross 20%.

Any final words?
The Indian markets are in a sweet spot as they are seeing a confluence of positive factors – reforms to drive economic growth, soft commodity prices and cuts in interest rates. Collectively these factors should help in reviving the growth in the country which in turn would help drive the earnings growth for the corporate world. This makes India an attractive investment destination not just for domestic investors but also for the foreign investors.

Even on the global stage, India is perhaps one of the most attractive opportunities besides the US. Other regions are still seeing problems. Eurozone has been struggling. Other emerging markets including China are seeing a slowdown. In such a scenario, India does emerge as a relatively more attractive space. Therefore, I believe we should see the upward momentum continue for the Indian markets in the long term.

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