None knows the Indian capital market and character of investors investing in India better than a wealth management company of over two and a half decades. PR Dilip, who has seen the legacy and evolution of the Indian capital market in close quarters through more than two and a half decades, is one of the most experienced wealth managers in India. His major strength lies in his understanding of investors psychology, their anticipation, risk-tolerance, risk digestibility, types of their future needs and nuances of various asset classes.
That was on a Thursday, December 1, 1994, P R Dilip, who holds a Bachelor degree in Mathematics and an MBA in Financial Management & Asset Management founded Impetus Wealth Management. On the Vijayadashami day, this year he renamed it Impetus Arthasutra. The day Impetus was floated the 30-share Sensitive Index popularly known as Sensex closed at 4104, after a fall of 20 points from the previous day’s closing. The period was witnessing a technical correction, as the Sensex lost 10 per cent in a period of three months after crossing the Big Bull fired pre-scam peak of 4566. Yet, that was a bull-market waiting for a radical change in the overall contortion of the equity market. Foreign institutional investors (FIIs) had begun to fuel the bulls. Trading on BSE was in the process of migrating to the BOLT system, calling an end to the jobbing system and unhealthy speculation. Through NSE started equity trading on its platform a few days before the founding of Impetus, the NIFTY wasn’t launched.
The market regulator, SEBI was at its infant stage with less than two years old. The primary market saw too many IPOs tapping the capital market and uneducated investors losing money. A trend of change in the Indian equity market was gathering a speed. Operational transparency and asset management professionalism were new subjects. That coincided with India being identified as one of the potential markets after returning an average of 20 per cent on equities in that year, the best among the emerging markets. It was in January that year, Morgan Stanley, the first foreign institution to float a mutual fund scheme in India came out with a 15-year closed-end fund, which was listed on the bourse. The investors’ rush to fill the yellow-coloured application form of the scheme standing in a queue as long as 2kms, believing as if that was equity, remained a classic example of the Indian investors’ appalling ignorance. Misled investors lost their hope and Morgan Stanley its pricey image.
On the other side, even people with knowledge of the equity market couldn’t foresee how the market would behave in the short, medium and long term. Issues like micro-macro economic parameters, prospects of various industries, financial fundamentals of listed companies, government reforms and economic policies, changes in the global economy and trade and other technical parameters, which used to have a sway on bulls, were not easy for even wealthy investors to understand. These were enigmatic issues, which could be tackled only by experts. Wealthy individuals and institutions realized the relevance of a professional wealth management company. P R Dilip had foreseen how seriously high net worth individuals (HNIs) and institutions with investible surplus were exploring wealth management services. The time set by him for founding a wealth management company was perfect. Registered and governed by SEBI Portfolio Management Regulations. Impetus, which manages the wealth of ultra HNIs, NRIs, corporate establishments, and any investor whose investible size is more than 50 lakh.
Dilip found a wide gap in the culture of informed buying and a huge space for market awareness among investors. “Regulators and asset management companies have been working hard to create awareness among investors. Today, the Indian market has matured. But there is a huge scope for change in the public perception about savings and investments,” he says. The Indian investors needed professional support so that their money would remain safe. In the last 25 years, the Sensex spiralled over 10 times as at 42273 in January this year. Nifty saw a jump by 11 times from the base at which it started in 1996. In all parameters, equities have returned a spectacular value in a long cycle, making every wealthy investor wealthier with the support of professional wealth managers. The real returns have always been much higher than what any other instrument could have fetched.
Nevertheless, right timing, right calculation, right decision and sustainable approach mattered, he points out with an anecdote of accumulating SIP units more n a bear market as a sensible option. In fact, in the equity market, the timing of one’s investment is an important aspect, he asserts. Impetus’ investment management service is based on highly reliable and professional equity research. A quarter of a century is too long a period for a wealth management company to understand every nuance of the equity research and to learn how a portfolio manager could take safe calls. In two and half decades, Impetus has evolved into a respectable wealth management company with a base of over 2000 investors on either side of Atlantic.
Every saver isn’t necessarily an investor, as savings and investments are entirely different terms with different connotations. Dilip unequivocally defines these two terms and underlines the importance of educating investors about these genres to give an impetus to India’s capital market thereby a solid wealth creation in the chest of each investor.
The difference in savings and investments
There is a big difference between savings and investments. Savings is the natural outcome of one’s residual income. Whatever is his or her surplus that would be the savings. Indians have the world’s highest savings rate at 28 to 30 per cent. But where it is invested, either in real estate or in gold and the rest in other financial assets. In the financial assets, the majority goes to fixed deposits. And only three to four per cent comes to equities. That is not desirable for a country like India, which is growing. In the growing economy, inflation is a necessary evil. Most of the time an investor in fixed deposits does not get a decent real rate of return, as the inflation-adjusted rate of return used to be very nominal.
A person investing in such an instrument in the name of safety probably does not know whether such a return can maintain the value of his asset in the long run. Value of the savings would rise only if the savings are invested prudentially with the right calculation. One must identify the difference between savings and investment.
Investment is a conscious act and savings is only the result of income minus one’s spending, which may be discretionary or non-discretionary spending according to one’s willingness and options say PR Dilip. While one can have control over discretionary spending like buying a car, luxury items or even buying a home in which cases the person can choose the timing and size of money to be spent, you have no control on non-discretionary spendings like children’s education and healthcare. When the high inflation eats away a lion’s share of the value of the investments, investors, especially if they park their money in bank deposits, do not get an impressive real rate of return. Sometimes, the rate of inflation goes higher than the yield from deposits, which effectively renders negative return to an investor. That necessitates an investor to look for high return instruments.
High return instruments have some inherent risks. Earlier people were extremely risk-averse and wanted only capital protection. There were enough options for capital protection also. However, as we went forward, there were less and less capital guaranteed products, as market-linked products gradually replaced them. So it was necessary for every investor to understand, what is the risk attached with each investment and what kind of return one could expect from his particular investment. One must evaluate the risk-reward ratio properly and determine risk tolerance and how much one can withstand possible losses and how better one can emotionally adjust with losses.
Some may be capable of absorbing losses. And some may be capable of adjusting with the losses emotionally. Those who are not in a position to absorb losses will usually exit the market with losses, admitting that volatility is not acceptable to them. Such people will not stick with the high-risk investment options. Then he moves out of the market at a wrong time. So one must understand the nature of the market and assess his risk tolerance and risk-taking capacity. One has to deploy his capital accordingly.