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.