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'The worst is behind us, but we may have run ahead of the basics'

Ambareesh Baliga, Vice-President, Karvy Stock Broking, talks about how investors should not be swayed by market movements and have clear objectives.

R. Sree Ram        Print Edition: September 2009

Ambareesh Baliga
Ambareesh Baliga

Ambareesh Baliga, Vice-President, Karvy Stock Broking, talks about how investors should not be swayed by market movements and have clear objectives.

What should a small investor consider before entering the stock market?
Stock-picking is vital to investment though the approach to zeroing in on a particular stock varies. It is important that an investor define the objective for his investment—is he trading, speculating or making a long-term investment? A lay investor should look at the following parameters:

  • Business or sector: One needs to have a fair idea of the company’s business. Use publicly available information to gauge whether the sector is expected to perform or whether it is going through troubled times.
  • Management: A good management will give excellent returns, but a bad one ensures that shareholders’ interests are secondary. Keep track of promoters’ background, experience and record.
  • Valuation: This depends on a number of factors, including the size of the company, its position in the sector, and historical and expected performance. An investor needs access to brokerage reports for future projections.

Can you offer some tips on wealth creation?
People are not sure of their investment objectives and time frames, so most of them are swayed by the given environment. The majority of small investors enter the equity markets when the smart ones are making an exit. Investors must be clear about their objectives, decide on the methodology, and maintain discipline and patience in order to reach the goal.

What is the ideal time frame to stay invested in equities?
If you love taking risks and enjoy the adrenaline rush, look at short-term trading. However, if you are investing for the long term, and want safety and stability, you should have a time frame of at least two-three years.

An investor should review his portfolio on a regular basis. There are no hard and fast rules about booking profits or cutting losses. Based on the portfolio review, one can keep changing the targets in light of the information available at that point of time. One should also have a wish list for stocks and the levels at which one would consider buying them. Again, there are times when one needs to hold cash instead of re-investing in another stock.

What is your current view on the market?
The markets are grossly overvalued. We are swayed by the news flow, due to which the markets tend to quote differently from the intrinsic value. In the recent past, we have seen the markets move due to global liquidity and better-than-expected results. But they have ignored the ill-effects of a truant monsoon, rising food prices, trade deficit and lower-than-expected tax collection. The results for the June quarter prompted analysts to increase their expectations for the September quarter, but can the corporates keep pace? While the worst is behind us and we are on a recovery path with money likely to continue flowing in, for the time being, we seem to have run ahead of the fundamentals.

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