Stricter Compliance Is Certainly Desirable: Dr. V K Vijaykumar, Chief Investment Strategist, Geojit Financial Services
How do you see the aftermath of the KARVY incident playing out? Anecdotal evidence would say that there is a fair degree of panic and consternation among equity investors, who are already by and largely frustrated with returns over the past couple of years.
Disappointment among investors due to poor returns from investment and anguish due to fraud by a broker are two different things. There have been instances in the past when the broader market performed poorly for an extended period of time and tested investors’ patience. As the broader market also joins the rally in the market, investors will be rewarded and disappointment will vanish. However, the anguish of investors over fraud is a serious issue. This has to be addressed seriously by the regulator and the broking community. This is being done.
Do you think stricter compliance norms are the need of the hour? What are some of the best practices that the industry needs to incorporate to restore the faith of investors?
Stricter compliance is certainly desirable. At Geojit we have never pledged our clients' securities for a loan from any bank. We did this as a matter of internal discipline before it became a regulation. Furthermore, to ensure 100 per cent safety of transaction, every off-market transaction of a client is first confirmed through a voice call/email and undergoes a concurrent audit by an independent external auditor before the transfer is executed. This has been a healthy standard practice at Geojit for years even though it is not a regulatory requirement. Apart from this, clients are informed every month, the net value of their securities and funds as and when there is a transaction in their trading account, which is again not a regulatory requirement.
How do you advise your clients on Mutual Funds, considering that the dynamics of broking and MF advisory are quite different, at a business level? How do you see the RIA theme playing out in the industry – if at all?
Broking and MF advisory are separate. A major part of our broking business is now done online through our platform Selfie. Our Fundamental Research team gives advice on stocks. Our MF division ranks MFs based on our norms of performance and assigns ratings. MF advice is based on this.
Are you bullish on Mid-Caps right now? What sectors are you looking at favourably?
Yes, we are bullish on midcaps. We feel that quality large-caps are richly valued and therefore incremental capital flows - both FPI and domestic - will move towards midcaps in search of better returns. We are bullish on multi caps too.
Lastly, what’s your take on the market right now? There are still polarized viewpoints – some believe that the headwinds are by and large behind us, while others predict that the worst is yet to come. What’s your house view?
We now have a paradoxical situation of a ‘slowing economy and accelerating markets.’ The markets are bullish due to the ‘risk-on’ in global markets, which, in turn, has been triggered by the dovish monetary stance of the world’s leading central banks. Presently, $17 trillion invested in bonds globally is yielding negative returns. Consequently, money is moving into equity in search of better returns. This Bull Run has created highly polarized valuations in India with 10 to 15 stocks driving the rally. Nifty has delivered around 10 percent returns YTD. If we take a 2-year time horizon, the returns from Nifty reveals interesting data. The returns from top performing 15 stocks in Nifty – HDFC, HDFC Bank, ICICI Bank, Axis Bank, Kotak Bank, Bajaj Finance, Bajaj Finserve, RIL, BPCL, Britania…..is 40 percent while the balance 35 Nifty stocks have delivered negative19 percent return. These highly polarized valuations are unlikely to sustain. There is no room for the richly valued stocks to go up further. Either the broader market will participate in the rally or the market will correct.
