Equity markets, which have been on an uptrend over the last few months could see some correction, but there is unlikely to be anything like the crash we saw in March, Prakarsh Gagdani , CEO of broking firm 5paisa.com, told THE WEEK in an interaction.
Investors in the last few months have made handsome returns; the broader indices have gained 46 per cent since March 23. Gagdani’s advice is that people should stay invested and they should develop a regular habit to invest, either via SIPs in mutual funds, or buying stocks, to create wealth over the long term.
Q. Aided by surplus liquidity pumped in by central banks, huge retail inflows, equities have continued to rise over the last few months. What’s your outlook on the markets?
The market rally came after the repercussions of the lockdown and the COVID situation had been factored in. In the single month of March, the stock market went down 40-50 per cent from where they were. Now, some sectors are back to the pre-COVID levels—like agriculture, which are doing better. So, stock prices will be a reflection of how the economy is turning out to be.
At this point in time, the worst is already factored in, so the market is looking up. It will continue to go up if there are no negative surprises. But, we will have to wait till the time we get some numbers on the banking side, non-performing assets, the state of the economy, once everything comes back to normal. There will be some sectors that will be hard hit.
Q. The economy is expected to shrink 5-6 per cent this year, globally there is a recession, there have been job losses, salary cuts and so on. The market doesn’t seem too worried. Is there is a disconnect between market valuation and the real economy?
Not just markets, but every investment opportunity, be it gold, crude, stocks and even real estate, which was the least expected to go up, has gone up. There are sectors and pockets in the country, where the real estate prices have gone up.
If you see, your market cap to GDP ratio is not as high as other markets, including the US. But, if there is a global rout, there will be a sell-off in Indian markets also. But, I don’t think that on a standalone basis we will see the kind of crash that we saw in March. There could definitely be a correction. After markets rallying 40-50 per cent, if there is a pullback of 5-10 per cent, it would be ok.
Unless, if the economy contracts more than expected, or there are NPAs far more than expected, or the COVID situation worsens, in these scenarios, then obviously this will change.
Q. What we have observed is that equity mutual funds have seen redemptions in July, but investment in direct equity continued to rise through the lockdown. Is there a correlation here?
At one end, equity funds investment has gone negative in July, there were more redemptions than investments. But, on the SIP (systematic investment plans) side, the number hasn’t fallen drastically. So, what I feel is, it is not the retail investor who has redeemed more from mutual funds. But, yes what people are seeing is that there is opportunity in the stock market. If you see, most of the mutual fund investment was in the large-cap funds. There was a lot of opportunity in midcaps and small caps. So, there will be some money that would have moved out from the mutual funds, normal schemes, which has gone into direct equity investments in midcaps and small caps. But, broadly retail invests in equity via SIPs. It would be SME (small and medium enterprises) kind of businesses who must have redeemed their investments to invest in their business or the stock market.
Q. At 5Paisa, are you see still seeing a strong momentum in new investors opening equity trading accounts?
Absolutely. We have seen a huge demand from people for Demat accounts. Between, March and April, we saw a 100 per cent jump in the new customer acquisitions. People from across the country, across age brackets, are coming to stock markets and investing money. Since March, till August, there has not been a single month where I have seen even stagnation in new account openings. Every month there has been an increment and it continues.
Q. Is the growing simplicity in demat account openings and trading, due to the many online broking firms that have come up in recent years, a key reason that is driving the growth in new equity investors?
Discount brokers like us had already made a seamless platform to opening account and trade. But, for a large demand, you need a trigger point. COVID became a trigger for people to realise that they have to save money and they have to invest for higher returns than what they are getting. This became a trigger. Platforms of discount broking firms are preferred as they are seamless, easy and you can open accounts in 30 minutes
Q. What would be your advice to all these new investors? Many may have been looking to make a quick buck during the lockdown and may have got handsome returns as the markets have run up?
My advice is to stay invested. They have come with capital, they invested and got returns very fast too. But, that is not a regular phenomenon. It takes time to create wealth, so you have to stay invested and they have to inculcate a habit of regular investing. Either, you are investing through SIPs in mutual funds or you are investing through direct equity. But, it has to be a regular exercise. You have to make it a habit.