This story is from February 6, 2006

Sensex at 10K scary

SRIKALA BHASHYAM / TNN / Feb 6, 2006, 23:53 IST

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Ananya is enjoying every moment of the current bull run but where does she invest now is a question that even her broker can't answer.

BANGALORE: Like a few lakh investors, Ananya is enjoying every moment of the current bull run. Less than a month ago, she invested Rs 50,000 in a capital goods company.
As things stand now, she's richer by Rs 12,000. Her broker insists she liquidate the stock and book profits. But Ananya isn't biting the bait.
"What do I do after I book profits? Where do I invest then?"she asks.Her broker doesn't have an answer. And that pretty much sums up the question on the minds of most retail investors. A few good reasons exist that explain the dilemma.
Interest rates on fixed deposits have gone up. But returns are still in single digits at 5.5-6%. Then there's real estate.

Over the last two years, it grew at a scorching 40-60%. If trends over the last six months are an indicator, real estate is running out of juice.
Real estate veterans are quick to point out that average returns are now in the region of 30-40%. By itself, not a bad number.
But when juxtaposed with returns from rentals, things don't look pretty. It's down to 4% from 6-8% a few years ago. Add to these diminishing returns the fact that the bull run has pushed prices up. "Property is an option.

But it is not for everyone. You can get into the capital market with Rs 5,000. But you need at least Rs 20 lakh for a property investment in bigger cities"says Anand Rathi's director (south), Manoj Shenoy.
Then there is the fear that a lack of liquidity brings. Good enough reason for wealth consultants to advise their clients to go easy on property shopping.
"In an equity market, even when prices go through a correction, you can recover your investments 2-3 years down the line if you invest in a quality stock. This is not true of property.
If you make a wrong choice, you may get caught on the wrong foot forever"says Sunil Nahar, a wealth consultant.
Coming back to equity, there are enough pointers to indicate the retail investor ought to stay invested. For one, a lot of money is waiting on the sidelines and dying to get in.
In January alone, a handful of mutual funds mobilised over Rs 6,000 crore. SBI Mutual Fund managed to collect Rs 3,000 crore through its large cap fund while HSBC and HDFC through their new fund offers, collected around Rs 2,200 crore between them.
More interestingly, SBI collected its corpus from as many as 7 lakh applications. Just a year ago, a customer base of 1 lakh was touted as a huge retail base in the MF industry.
With a few dozen funds waiting to launch their new products, there is more to the current equity story.
Fund managers insist the long term story is likely to get even better. India's household income base as of 2004 is reported to be Rs 70000 crore out of which equity managed to get only around 1.5%.
"Even if 1% of this base makes a shift towards equity, we are looking at a fund flow of Rs 700 crore into equity. In a few years, we may not depend solely on FII flow for our bull run,"says Shenoy. It may not take too long for other Indians to join the equity party. Perhaps, because they don't have much of a choice.
Debt gives returns of 6-8% while gold despite a smart showing recently, hasn't been a consistent performer over the long term.
(with inputs from Sujit John)

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