Vijay Kumar Gaba

There are two types of investors in Indian stocks markets – (i) who own all Tata group stocks and all internet and related businesses like IRCTC, IEX, IndiaMart, InfoEdge etc.; and (ii) the others who own none of these. (It’s a Joke or Irony only time could tell.)

A survey of Indian investors indicates that presently the investor positioning and opinions are deeply and widely divided. The survey in the form of a free unstructured discussion with some professional, household and institutional investors was conducted over past two weeks.

Indian investors – A divided house

Based on the discussions, the investors in Indian equities could be divided into the following ten broad categories –

(i)    Fearful - Investors who are fully invested and are overweight in equities and/or cryptocurrencies but are uncomfortable with the current price levels and volatility. This category mostly involves High Networth households who have significantly increased their active involvement in the financial markets over past couple of years. Most of these investors have earned good return on their capital. They are moderately leveraged. Most of them have yet not defined any strategy to moderate their exposure to risk assets, though they are afraid of severe market correction and erosion in the value of their portfolios. Some of them are exploring investment in real estate by taking some money out from financial investments. They have been consistently reducing exposure to debt instruments and increasing allocation to equities and other risk assets.

(ii)   Fearless - Investors who are exclusively trading in risk assets like equities and cryptocurrencies, and are not bothered at all about the current price levels or volatility. These are mostly household investors (not necessarily high Networth) who have taken to trading in financial markets as their full time occupation in recent past. They enjoy the high volatility and are least bothered about the things like valuations, business models, sustainability etc. They have moderate to high leverage; and mostly have negligible allocation to debt securities.

(iii)  Optimistic - Investors who are deeply convinced about the “India Story”. They believe that the valuation premium for Indian equities is justified given the high growth potential, changing global supply chain landscape, increasing level of organized businesses and larger role of Indian businesses in the new economy. These are mostly professional and institutional investors. Many of these have recently increased their allocation to equities given the pressure on bond yields. Only a few of these would advise leveraged positions in equities at present level.

(iv)   Cautiously optimistic - investors, who are convinced about the long-term ‘India Story”, but find the present price levels unsustainable in the short term. These investors are a mix of professional investors, institutional investors and high networth households. They have been reducing their equity allocation for past couple of months. Paradoxically, some of these have increased the allocation to high yielding (credit risk) debt.

(v)    Hopeful - Investors, who misjudged the markets in the past 20 odd months. They either reduced their equity allocation significantly after pandemic breakout; or during the market rise in the past 6-9 months. These are mostly professional and household investors. They are overweight on debt, gold and alternatives like arbitrage funds that have yielded very poor returns over the past 20 months. These investors are sincerely hoping for a major correction in the equity prices so that they can correct their mistake by increasing their equity allocations. Ironically, many of these investors have increased their allocation to foreign equities in past one year to compensate for lower allocation to the best performing Indian equities. Their arguments for investing in Asian (mostly Chinese) and US equities are varied and mostly unconvincing. For example, a veteran investor allocated 10% of his portfolio to US Tech stocks, while vehemently arguing against the valuation of Indian IT and internet sector. Similarly, a professional investors, who listed meltdown in China as one of the key risks for the market, is invested in a global fund focused on Asian Tech sector (mainly Chinese semi conductor and internet stocks).

(vi)   Happy - Investors, who stayed composed and disciplined during the market volatility and religiously adhered to pre-determined asset allocation. These are mostly professional investors and high networth households. Many of them have changed their strategic asset allocation to increase the weight of equities in past one year; while maintaining a conservative debt profile. These investors are closely observing the markets for any lucrative opportunity, but are not perturbed by the present volatility.

(vii)  Dismissive - Investors, who have materially cut their allocation to risk assets like equities in the past 20 odd months and are regretting their decision badly. They are mostly household investors. They are regularly convincing themselves that the entire rally from March 2020 lows is farcical and the prices will correct to those levels in next one year. Though, many of these are actively looking at real estate to make up for the opportunity loss of equities. Interestingly, some of these are actively trading in commodities.

(viii) Hypocrite – Investors who are cautious and fearful in their personal capacity, but are advising others to increase the weightage of risk assets in their portfolios. These are mostly professional and institutional investors. A couple of fund manager who sounded extremely cautious in their comments, were actually seen aggressively marketing their small cap funds a few hours later.

(ix)   Explorers – investors who are consistently looking for profit making opportunities in the market, regardless of the benchmark index numbers, pockets of over exuberance and popular trends. These are mostly professional and institutional investors, who are either running ahead of the market in identifying new trends and rotating their portfolios to position for the likely emerging trends; or discovering the pockets of under valuations and positioning their portfolios with the assumptions that these pockets will soon converge with the broader market trends.

(x)    Observers – these are mostly passive or inactive investors, who observe the markets from a distance and have little position of their own. They are financially unaffected by the market movements; however many of them are very aggressive and emotionally charged about their opinions about markets. They love to express their views and offer advice to fellow investors.

While you discover what category you fall in; it might be worthwhile to also figure out- do you truly belong where you are, or you just drifted to this category unintentionally/unconsciously.