`The small investor is lazy' -- Mr Darshan Mehta, CEO, Anagram Stockbroking

Rasheeda Bhagat

HE HAS little sympathy for those who lost a fortune in the stock market crash this year. If small investors consider the market a gambling den and refuse to do their homework -- read up, study share price movements and understand technical charts -- ``they have only themselves to blame,'' says Mr Darshan Mehta, CEO of the Mumbai-based Anagram Stockbroking, in an interview to Business Line.

Excerpts from the interview:

Why are so many Gujaratis involved in the stock market? Mr Harshad Mehta, Mr Ketan Parekh... I am not saying anything against Gujaratis, but...

(Laughs) The Shah scam is waiting to happen. You have not had a Shah scam yet...

But, seriously, how come there are so many Gujaratis big players?

There are historic reasons. People from South India are more attracted to government service, whereas North Indians -- Marwaris and Gujaratis -- make it to high entrepreneurial ventures.

Was the crash waiting to happen?

Absolutely.

Why?

I have gone on record several times that this buying was waiting to be absorbed and the polarisation towards quality had to happen. Only, I did not expect it to happen so fast. The Himachals, Silverlines and Pentas were way above their price levels. We have gone on record in our newsletter, and have been wrong too, because when we dissuade our investors from buying Himachal at Rs 1,000 and it goes up by Rs 200, they lampoon as being way off the mark.

We urged investors to purchase Tisco at Rs 90 and switch it from Himachal and Silverline. I had embarrassing moments because in the short-term I was proved wrong.

Any management, however good or robust its business model, if it is present on its counter...buying or selling its own shares -- keeping in mind the extremely weak laws and still weaker administration -- avoid those shares.

What percentage of Indian companies do that?

A very small number -- about 20-25 out of 500 companies.

Can you give us examples?

Himachal, Global Tele, Silverline. Take the run up in the Silverline price before its ADR listing. This is a sure sign.

So the Pentamedias and DSQs...

Pentamedia, out and out. It has the most opaque balance-sheet. I have not managed to decipher it. I am not saying I am the last word, but it is very difficult to understand what is happening there.

How many small investors does your retail brokerage have?

On the Internet we have about 13,000 trading members.

How active are they?

The pre-trade is fast migrating towards the Net. They are very aware, they do not call to say `Aaj bazaar kaisa hai?'. I would say about one per cent on the actual trade. But on the pre-trade, we find that the convenience of following your scrip is enormous. There are those who follow the prices in the first few hours of trade and then pick up the phone to say: `Mera 200 Satyam bech do.' The convenience is enormous.

Would you advice investors to trade on the Net?

Absolutely.

But is it not dangerous... Someone impulsive could punch in an order on the spur of the moment...

If it is proves a convenient proposition for you to go on the Net, by all means do it. We are not pushing people towards Internet volumes. I compare this facility with bank ATMs. Does any bank push you to withdraw money from it? But if you are a working couple and cannot go to a bank during working hours, the ATM is convenient. Say, all my 13,000 clients start trading through my branch, I would be dead.

Okay, this would be easier for you. But coming to the larger issue, do you think today's small investor has any business to be in the market directly. People have lost so much money.

Equity is a risk instrument. I believe that a large portion of the so-called small investor is the biggest gambler. He invests the least amount of energy. For instance, on the Net much information is available free. But it is the herd mentality. Take the vyaj badla issue. We have booklets that spell out the protection available. We ask investors to insist on a contract note from their brokers. But if you do not have the note and suddenly find the broker has been using that money instead of investing in vyaj badla, I do not know how much you can blame the stock exchange system or the administration mechanism.

So you are saying the small investor is lazy?

Yes. He does not understand his risk appetite and his expectation management is a big issue. I have often addressed seminars where I have said that people ask what so and so is buying. If he is buying 200 of Satyam then let me buy 50. It is like going to a barber and saying: `Give me a hairstyle like his.' However, the other person's hairstyle might look better on him than on you. So too your risk appetite might be different from his. He may not be married, have children, or have your responsibilities.

There are so many Web-sites -- ours (www.moneypore.com), sharekhan.com and walletwatch.com. I can give you 10 Web-sites that do superb work. Spend some time on them. We have tests that reveal your risk appetite, profile and you can invest accordingly in equity and debt. However, he (the small investor) does not have the patience to answer those 20 questions. He just says: `Bhai Himachal accha lag raha hei, Zee accha lag raha hai'.

You say the investor is to blame, he is too lazy and casual. But what about people who did their homework and went in for fundamentally-strong counters such as Infosys at Rs 10,000. Where does it leave them today?

Let us talk about Infosys. I believe it is an absolutely first class company with first class management. To a certain extent the global scenario is to be blamed if it has come down to Rs 4,000 from Rs 10,000. I am still a great fan of technology. To say technology is bad is like saying manufacturing is bad. You have to pick the right companies. I do not regret the 200 Infosys shares I personally hold. I did not sell them at Rs 10,000 and I am not going to sell them now.

At what price did you buy them?

At an average of Rs 1,500.

But you are still making money so you are not worried.

The price you buy it is anyway historical and it is no excuse for not selling it at Rs 10,000 and holding on. But because I am not looking to churn my portfolio regularly... from Rs 10,000 to Rs 4,000... I do not feel cheated. I have faith in the company. I have only that much faith in balance-sheets. The quality of management is important; how agile or transparent it is; will it they create shareholder value... these are important questions. If I was investing, I would pay attention to these issues.

Today if I encashed Rs 8 lakh by selling Infosys at Rs 4,000, I would not know where else to go. I do not want to get out of the equity market. A client, a retired Air Force pilot, at one point invested Rs 10 lakh. After the 1996 crash, people like him said: `Boss abhi to kaan pakad liya, share market ki taraf dekhengey bhi nahi.' But this time round it is not like that.

This is the time to pull out the cheque book and invest rationally. If you put your expectation management -- that is, if you decide you are happy to get 30-35 per cent returns -- then that is the kind of investment strategy to adopt. But if you want Rs 5 lakh to become Rs 10 lakh, then intrinsically you will go in for riskier shares. On the other hand, portfolio investment is different. You need to churn your portfolio, but do not have to watch it every day. You also need to follow some thumb rules:

*Do not have more than 10-12 scrips;

*Do not attempt to get out at the peak and enter at bottoms as this is not possible;

*Do entertain inertia -- like buying into IPOs and forgetting about them;

*Do not churn your portfolio daily;

*If 85 per cent of your liquid assets are in equity, take a look at your portfolio once a month.

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