Do your investment homework

Debojyoti Ghosh | TNN

Bangalore: If you are confused about where to invest, you are in good company. Even seasoned wealth managers are far from unanimous on which the best avenues are, and often offer contradictory advice. Mrunmay Das, director of Das Capital Management and Advisors, says he has been advising high networth clients to invest in private equity (PE). “Due to the global meltdown, there is no liquidity in the PE market and the valuation is attractive right now to enter,” he says.

    However, Anil Rego, CEO of wealth management firm Right Horizons, believes this is just not the time to invest in private equity and unlisted companies. “Even well established companies are facing liquidity problems, and the situation is likely to be worse for second rung companies. So the risks are high,” he says.

    Pradeep Dokania, head of global private client in DSP Merrill Lynch, is encouraging his clients to take small steps towards investing overseas. “Home-country bias is extremely high in India. We are advising our clients to learn the dynamics of investing offshore. As investors go up the learning curve, we should see at least 5%-10% of the portfolio invested outside of India,” he says. Rego too thinks it’s imperative for high networth individuals (HNIs) to diversify outside the home economy. But another wealth manager, who did not want to be seen to be countering Dokania and Rego, says every country has been hit by the global meltdown, and it just doesn’t make sense now to look overseas, especially given that it will be difficult to estimate the risks of overseas assets.

    So, unless you have a wealth manager in whom you have complete confidence, you may do well to undertake a lot of research yourself before committing big money. Some wealth managers admit the need for intensive homework. Das says before putting money into PE, it is important to understand the type of business and sector. “Understand the quality of the promoter, its business and clientele. Find out which markets it caters to, whether it is US centric or not. Also look for the cash flow of the company, the banker and the debt equity ratio,” says Das, whose clients have invested in sectors like power, agro, auto and pharma R&D.

    Das thinks it’s safe to invest in the equity of unlisted companies, compared to listed entities, as public companies are guided by various sentiments, the performance of other markets and global economies. “We also advise our clients to concentrate on gold, looking at the current market trends. And most important, if you have cash, sit on it for sometime,” he says.

    Rego appears to have successfully used Warren Buffet’s “contrarian model”, booking profits at market peaks and increasing debt exposure at that stage. “We are currently moving this into equity for our clients. We are also suggesting investments in direct equity. Blue chips with good dividend yield are an option worth considering,” he says. When investing in overseas markets, the economies must be chosen carefully. “The promise of higher returns in emerging markets must be weighed against the higher risks associated with them,” says Jaideep Hansraj, head of wealth management services at Kotak Mahindra Bank. Most see diversification across asset classes as critical in this period of uncertainty. “While earlier the bulk of investments comprised of direct equity, the ratios are getting more balanced now thanks to options in PE, strategic real estate, hedge funds, co-investment opportunities, structured products, commodities and global markets,” says Hansraj.

    Dokania says HNIs should even look at investing in non-traditional themes like alternate energy, water, agriculture. “While many of these are not available directly in India, investors can participate by investing offshore,” he says.

    debojyoti.ghosh@timesgroup.com