Mom! Is That a Green Light?

Hello. This is a wake-up call for those with some spare money. Invest in the
market. NOW! As for where to invest, don’t even bother asking this caller. He
doesn’t have a clue. NO ONE DOES!

Much in tune with this particular caller, the market is running around in
circles. And running after it in bigger circles are the small investors,
millions who got bitten by the K-10 bug and never recovered. But like the
gambler who will never leave the table without getting cleaned out, the small
investor too has his own malaise–he cannot exit now, not when the market has
clearly hit bottom and tech-scrips are going a-begging.

Looked at from the peculiarly warped perspective of today, Ketan Parekh and
his shenanigans have done the small investor a world of good–the best scrips
are there for the taking at never-before prices, the market has nowhere to go
but up, mutual funds are easy to enter and exit, and dividend stripping is the
flavor of the day. All thanks to the KP factor, which managed to shatter the IT
dream and eroded over Rs 150,000 crore of market wealth in under a week, perhaps
the most spectacular expense account of all time.

This was a single man with the right connections and scheme–much like his
mentor Harshad Mehta–and he managed to outdo the vigilance of all those who
are supposed to earn their living by protecting the investments of others. Of
special mention on this front is the Securities & Exchange Board of India,
which sat quiet and contented for seven agonizing days while millions lost
billions, banks went out of business and the financial markets went from darling
to detestable.

Interestingly, there is a part of the market that has continued to develop,
and never mind the scams and debacles. In terms of automation and legislation,
it is on par with the best in the world; it has also reduced problems related to
paper-based trading and counter-party risk–it is when it comes to enforcement
and supervision that our ratings clip to near zilch.

Rock bottom means sky high

But getting back to the investor and his potential money-spinners, the sky
seems to be the limit at the moment, provided that you take a few precautions–ones
that you would in any other investment too. How much technology exposure do you
already have is a question you need to ask yourself. And forget the slowdown,
technology remains a wonderful long-term story. Also, with prices reigning at
rock bottom, the going is unlikely to be dismal for very long. Something of a
rebound began in the last week of April, and leave aside the inevitable
volatility that tech stocks will perforce have for the next few months, it is
still a good long-term investment.

And for those with little exposure to technology, take a closer look–you
might have exposure to mutual funds, which, in turn, have exposure to technology
scrips. Most mutual funds, especially growth funds, have been carrying immense
tech weightings, and never mind the panic-pushed sales of the last two months.
The typical large-cap growth fund keeps more of its assets in tech stocks–as
much as 32% of it–so if you are exposed to growth funds, chances are you own
lots of technology stocks. And that might not be the right tonic right now. Just
ensure that what you have is what you can afford to hang on to for a long time,
because the really heavy returns you are betting on are some time away.

Infotech stocks hitting circuit breakers everyday is a matter of routine now.
Even an infotech fund–a diversified portfolio of infotech stocks–is not
insulated from wild volatility, as has been proven by every fund which joined
the go-tech bandwagon in the middle of last year. Forget the maxim that mutual
funds are safe: look at US 64 or every single infotech-specific fund and you see
greatly whittled-down NAVs. The lesson is clear, infotech has been volatile, and
it’s not going to stop being so. Corollary–infotech gives the highest
returns if industry sustains itself, as was witnessed for well over two years.
After all, Azim Premji did become the richest Indian in the world, and Bill
Gates is the richest man in the world, give or take a few threatening Wal-Marts.

Sebi pulls out some stops

Having finally woken up to the crash, especially after some reports insist
that Sebi chief DR Mehta is facing increasing pressure from the finance ministry
to shape up or ship out, the watchdog has decided it is time to stop growling
and start biting. However, it is ironical that Sebi has chosen to walk the one
route that will again hit the small investor most. The move–a ban on carry
forward of trades in the rolling settlement mode. The result–second round of
disaster selling hits markets; prices again crashed post-announcement as fears
of a liquidity-crunch held centerstage.

Sure, it is an accepted fact that the Indian market system needs radical
reform to usher in transparency and protection for the investor. The move to ban
carry forward trade, therefore, is justified. Similarly, the decision to limit
the exposure of banks to the market is also welcome. But how does Sebi propose
to have an overnight transition of trading practices? And how can one clearly
classify any of banks’ exposures to the market, or loans extended against
market instruments, as market risk?

Clearly, a lot of thought needs to go into policies before they become
policies. Otherwise, half-baked initiatives will just provide half-hearted
regulation, which, in turn, will lead to another round of market manipulation
sometime soon. And frighteningly enough, we in India are quite unfazed by scams
now.

Rajeev Narayan in New Delhi