Prominent fund managers say a bull run is sustainable if reforms take place. And a long-term approach will help the intelligent investor
As part of the fifth Forbes India CEO Dialogues: The Leadership Agenda, top fund managers and investment gurus discussed whether the markets had run ahead of the economy. Our CEO, Mr. Parag Parikh was one of the participants.
Others included, Bharat Shah, of ASK Investment Managers, Raamdeo Agrawal, of Motilal Oswal Financial Services, Saurabh Mukherjea, of Ambit Capital and Ratnesh Kumar of Standard Chartered Securities.
The discussion was moderated by Senthil Chengalvarayan, of Network18.
Senthil: Mr Parikh, what is making the markets so optimistic? Is it betting on what one man can do?
Parag Parikh: After three decades, India has got a leader who has been elected by the people. [Prior to Modi taking charge], the markets were down and out, but now the sentiment is bullish and the recent state elections have given another indication that there is one person who is leading from the front. But why are we judging the markets? We are suffering from sample size neglect [too focussed on index-based stocks], which is making us question whether the markets have run up a lot.
Senthil: Mr Parikh, you spoke about value traps. How do you avoid them?
Parag Parikh: When India had a GDP growth of 7 to 8 percent, all airline industries expanded operations as people started flying more. But what happened to the profits of the airlines? They went bad. It is not necessary that GDP growth will result in companies making profits. We all are making decisions out of limited knowledge. Those are the biggest value traps.
The way out is that instead of stocks, you start calling them businesses and then look at investing. You will not get into some of these value traps then. In a business, you become a minority shareholder.
Senthil: So how do you increase liquidity in the system?
Parag Parikh: The problem with our markets is corporate governance and no fear of the law. Also our markets, in some cases, are over-regulated. In terms of investor philosophy, when we cannot understand the reason for our greed and fear, we start trading in markets [instead of investing].
The original article could be seen here.