''Made Good Money? Take Your Capital Out'

'Forget your loss or profit in your portfolio.'
'Look at how much cash you have in hand.'
'If you don't have cash in hand, liquidate at least partially; get into about 20 per cent in cash.'

Independent market analyst Ambareesh Baliga's golden advice on why small investors should protect their capital and book profits even as global markets continue to fall freely fearing a recession in the US, the unwinding of Japanese yen carry trades, not to forget the stretched valuations of Indian equity market.

"In the last three years, if your portfolio has become a multi-bagger then with whatever 16 per cent to 18 per cent CAGR returns you have made, you take that money (only the compounded profits) out from the market and let the balance remain in the market or minimum, take your capital out. You made good money. Take your capital out. Play with your profits," Baliga tells Prasanna D Zore/Rediff.com.

Why did the markets witness a bloodbath on August 5?

The markets were expensive for quite a while. Which people knew, but then liquidity was driving it (the rise in market). But the issue also is that at every higher level, you require that much more of impetus for the markets to move further.

You require that much more of good news for the markets to move up. Instead of that what we have seen in the past couple of days is a variety of adverse news.

We are talking of the Japanese yen-carry trade being unwound, which was a fear for a while, but now you also have the hike in rates (by the Bank of Japan) as well as association of yen-carry trade and it's a double whammy.

We have now this geopolitical issue (the ratcheting up of tension between Israel and Iran), which is the most important issue today because you don't know as to how it's going to shape up: either it can end in a whimper or it can blow up.

In these circumstances, it's quite natural that we have seen the global markets correcting so sharply and India also had to correct. End of the day, the fears are more or less similar.

The difference between today's fall (on August 5) and the other falls which you've seen, is that in the other falls, we have seen a lot of buying happening by the retail. In this fall I doubt whether so much of buying (by retail) has happened.

If we fall like this for the next one or two days, all that confidence which was there might wane and because of that we could see some drop in retail money entering markets (via MF SIPs). We have already fallen 4 per cent from the top. Another 4 to 6 per cent more from here, that confidence will take a beating.

Do you think the quantum of mutual fund SIPs that enter the market every month could come down or investors could become so wary as to stop their SIPs?

It can because the difference between five years back and now is that people are able to take decisions (to pull money out of markets) and execute it immediately. Earlier (five years back), you were quite lazy about stopping your SIPs.

Again, the connection between news flow and how swiftly decisions were made was not that good.

Today you're so involved in the market that it starts affecting you (immediately). If the market cracks, say, for example, if it falls to about 21,000-22,000 level (the 30-stock benchmark Nifty is currently trading around 24,000 level as on August 6), it's possible that people may go ahead and stop the SIPs.

And if SIPs are stopped, I'm not saying all SIPs will stop, even if some part of it stops, it'll affect (the liquidity in the market). No doubt the key level to watch out for now is 22,000 and then 21,000.

Retail investors who enter markets via SIPs might have a rethink about continuing with SIPs because at 21,000-22,000, that confidence will go for a toss.

So retail investors will do two things: Just sell out everything and get out and say, okay, this market is not meant for me. Or, they will take a very long time to come back because we have seen that those who have booked losses and left the markets don't come back so easily.

Would you believe that retail money is supporting the markets?

FIIs are withdrawing. They are selling because they have to take care of the yen-carry trades and make up for losses they must have made in other markets.

Any absence of fresh retail investment (via MF SIPs) will have a double impact on the markets.

What are the chances that markets could hit 22,000-21,000 maybe in a week or two? (The US futures were down more than 3 to 4 per cent on the evening of August 5 when this interview was conducted).

If the fall in the US market sustains over next couple of days then we should again see a similar fall tomorrow (on August 6, the Sensex opened in the green and at one point had even jumped 1,000 points but closed in the red when markets closed for trade at 3.30 pm, India time) in Indian markets. If that happens, you slowly start seeing panic coming in.

You have always been cautioning investors about the high valuations in Indian markets...

Because finally valuations have to come to place (reflect the growth in profits and revenues of top Indian companies) sometime or other.

You can keep ignoring (high or over stretched valuations) for a while, and we have ignored valuations for a very long time because of (abundant) liquidity.

The liquidity was not chasing valuation. Liquidity was chasing momentum (the breakneck pace at which the Indian markets, certain companies in sectors like defence, railways and oil and marketing companies, etc., rose in value in less than a year).

Finally, we need to come to the mean (average). It always happens.

Looking at the various technical, macroeconomic factors, as well as the geopolitical tensions would you be in a position to say how much more pain is left in the market given that we are living under the shadow of a potential US recession?

If we go to the levels of 20,000-21,000 -- in case we go to those levels -- then I think it (the pain) will be slightly more long drawn because it will be difficult to pull back people (into investing in markets again) who have lost money.

In the past 18 months or so, when we have seen huge amount of retail investment every time the markets used to fall, people used to come in and buy and the market used to bounce back very well.

It was a given that if markets fall, you buy and you were proven right every time in the last 18 months and you made good money. This time, if you're proven wrong -- surely today (on August 5 when the Indian markets plunged two and half per cent) people would have bought using that thesis -- and when you start losing you react way differently than the way you react when you're making money.

If it (the equity market) falls some more from here then everything will come together -- the fear, the panic, people booking out which further brings down stock prices and starts hurting someone else, who in turn again start selling more to protect their gains or to minimise losses and so on.

Everyone has a holding capacity (a point beyond which investors prefer not to suffer more losses or start booking profits). When that threshold will be reached, I don't know.

In this panicky situation, what would you advise retail investors? Would there be any pockets of value still available in the market?

Let us not even look at the pockets here; one should be investing on the pockets where one should be exiting. I mean, what I've been telling investors now, especially in the last.

I've been asking investors what kind of returns they expect from the market when they start investing. You typically expect 14 per cent to 18 per cent on a CAGR basis, depending on risk taking capacity.

In the last three years, if your portfolio has become a multi-bagger then with whatever 16 per cent to 18 per cent CAGR returns you have made, you take that money (only the compounded profits) out from the market and let the balance remain in the market or minimum, take your capital out.

You made good money. Take your capital out. Play with your profits.

Forget your loss or profit in your portfolio. Look at how much cash you have in hand. If you don't have cash in hand, liquidate at least partially; get into about 20 per cent in cash.

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