'To be able to sail through such volatilities, it is prudent to focus on quality.'
Front-line indices have tumbled over 10 per cent from their recent peaks in the past few weeks.
Saahil Murarka, managing director of the Batlivala & Karani Group, tells Puneet Wadhwa/Business Standard that it may not be the wrong strategy to invest when the markets are at a high, provided investors continue to stay invested and employ cost-averaging techniques.
You specialise in the small and midcap (SMID) segments as a research house, and these two segments have been hit the hardest in the recent market fall. What's your take on this?
When dealing with the SMID segment, investors must appreciate that returns accrue in cyclical bouts.
Historically, unlike the largecap segment, which shows greater performance stability, we have seen sharp rallies propelling returns in these two segments.
Over the past five years, most returns for SMIDs were generated between 2020 and 2022, followed by a shorter uptick period in 2023-2024.
The robust rally seen in SMIDs after 2020 belies the fact that the SMID segment yielded flat to negative returns in the five-year period preceding 2020.
Again, all this analysis is at the index level. Such rallies often lead to momentum in most stocks within the segment, regardless of the underlying growth story or business model.
It is only during downturns that quality stocks survive and thrive. To be able to sail through such volatilities, it is prudent to focus on quality.
Researching opportunities within the SMID segment is best undertaken through a strong bottom-up approach.
That said, sound businesses within the SMID segment will always have the potential to grow into long-term compounders.
Is there a crisis of confidence now among retail investors?
While the systematic investment plan numbers may serve as a broad barometer of retail investor interest, we ought to look at things from a broader perspective.
The positive flows we are witnessing from lump-sum mutual fund investments, direct equity investments, insurance, alternative investment funds, and portfolio management services (PMS) further echo a robust investment appetite.
It may not be wrong to invest when the markets are at a high, provided investors continue to stay invested and employ cost-averaging techniques.
What really matters is the 'time in the market' rather than timing the market. Our client interactions suggest that smart retail money is entering the market during dips.
Do you think it will be the end of the road for traditional brokerages over the next 10 years as derivatives trading picks up rather than advice-based stock investment?
No, I don't think so. While derivatives trading may cater to a small segment of market-savvy investors, the rise of the mass affluent segment is a much larger and growing pie that holds tremendous opportunities to offer advice-based investment services.
There is also a difference between trading and investing. For a client looking to invest in fundamental businesses, there will always be a requirement for research-based investing.
On the contrary, as participation increases, rising trading volumes will bode well for liquidity and depth in the market.
IMAGE: Saahil Murarka.
Photograph: Kind courtesy Saahil Murarka/Linkedin
How far are the broking and PMS industries from becoming overcrowded?
The financialisation of savings has just begun in India. Participation by retail and first-time investors in MFs has been expanding in recent years and yet stands at just 3 per cent of the total population.
About 14.3 per cent of the total population holds a demat account, again a small number compared to the scale seen globally.
We also see a rapidly growing affluent investor segment that is market-savvy and seeks differentiated investment ideas.
This demand explains the rise in PMS offerings. So, there is a long way to go before any overcrowding takes place in these segments.
From where will the next big disruption come for the Indian broking industry, and how soon?
The Indian broking industry has been evolving over the years and has witnessed major changes in regulations, the introduction of new instruments, platforms, and technology, to name a few, that have caused quite a disruption.
Staying upgraded in terms of technology provides immense flexibility to navigate any disruptions smoothly.
Generative artificial intelligence is a potential disruptor. However, in our experience, we have found that AI can be more of an enabler to enhance productivity.
To what extent are you using technology/AI in portfolio management?
AI offers opportunities to engage meaningfully with clients and provide customised investment plans through scientific processes and monitoring.
We view AI more as a robust tool to enhance the accuracy and efficiency of decision-making, monitoring, and data analysis, supporting the effective execution of management's requirements, rather than translating management's vision and passion into actionable plans.
With nearly 150 years of history and over Rs 50,000 crore worth of assets under management, you are one of the largest brick-and-mortar research houses in the country. Any plans to go the discount broking way and/or debut on the exchanges?
We currently have no plans of entering the discount broking segment. There are many players doing an excellent job in this space.
We have faith in the service we provide, and we receive validation from our clients, who find these services value-accretive. At present, we do not have plans to list in the short term.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Feature Presentation: Rajesh Alva/Rediff.com
