Retail Investors | Nikhil Kamath Portfolio: Nikhil Kamath’s advice to retail investors: hedge, diversify and have some gold in the portfolio. | Jobs Vox

“Recognizing how expensive diversification is today compared to our past, we know that it’s not always right to be in stocks, and it’s not always right to be exposed to unconstrained products and vanilla stocks. If I were to advise someone today, I’d probably tell that person to sweep, diversify and hold some gold,” he says. Nikhil KamathCo-Founder, Zerodha & True Beacon.

How do you see the retail investor’s rush in 2022? Do you think it will last and is good for Indian equity markets as well as individual retail investors?
First, we need to know how far the retail business is out of the general market. If one considers only the retail business, the number is 7-7.5% of the total market. If you think most mutual funds are covered by retail, let’s add another 7%. Add HNIs on another 1% or 2% and I would say about 15%, retail investors don’t necessarily dictate the direction of the market. FII and DII flows have a very large impact.

We were working on a research paper on FIIs and DIIs. They are inversely related. DIIs sell when FIIs buy. For all retail tracking, I think DIIs get it right more often than FIIs. In our study, about 55%, DIIs are correct and about 35%, FIIs are correct. But that being said, where we sit today, if bank FDs start offering 7-7.5% as in most cases and stocks have typically performed at 11-12% per annum, retail investors should really ask themselves. Is the added risk and volatility of being in equity beyond the 2.5%-3% that everyone deserves from fixed income or bank FDs?

I’m surprised you said that because your company has been a gateway and champion for retail investors, especially during the pandemic. Why are you so honored?
I have already realized and lived for a long time. Globally, markets have adjusted slightly. I’d say everything from America to Europe to Southeast Asia is down 30-40%. The Indian market is close to an all-time high and in this connected world, if the rest of the world is slowing down, it is far-fetched to think that India will be exempt from it.

Back to advice stories

Given how expensive the multiples are today compared to our past, I’d say we know that it’s not always right to be in stocks, and it’s not always right to be exposed to stocks that are unconstrained and vanilla. If I were to advise someone today, I would probably tell that person to clean up, separate, and keep some gold. One should have a more comprehensive approach in building a portfolio.

So what do retail investors do? They may not have the time or effort or inclination to overcome that. SIP sounds simple. Do you think it should go this way?
SIP is a good idea but if I have to recommend one thing in general, it would be more diversification. Access to more fixed income products, view debt that is not yet available at attractive rates today. They are likely to become more attractive in the near term as the interest rate cycle continues to look upward.

If you have 70% or 80% equity exposure, lowering that, putting some in commodities, putting some in risk-free fixed income or close to risk-free fixed income and more is not a good idea. A diverse portfolio.

Again one should know that India has many things to offer. We have a government in power that seems to be maintaining stable policies for a long time. If you ask foreign investors today, many of them will tell you how much they respect their own geography. But when it comes to India, everyone is optimistic about the narrative we have pushed and the consistency we have shown as a country.

In a geography that I don’t think many other countries have had in the recent past, there are positives for India. I recommend continuing to hold exposure but the way to do it is not to have 100% of your money in one asset class as equity, but diversify that into some debt, some commodities and get a more balanced portfolio.

When it comes to looking at leverage in your portfolio, how exactly do you recommend retail investors do it?
Okay, that’s a tough question. If you look at them historically over the last decade or two, the people who let their funds pool in any geography of the world – if you go into ETFs – one could argue that passive has done well and done better than active. In many cases.

This noise is also a complicated term because noise costs money. It may not be right, it may not be right, you may make wrong trading decisions but other than that, every time you enter and exit a particular stock, you pay STT, you pay commissions, and there is an output price. All this will affect you in the long run.

So I don’t think I can make a one-way call on whether active is better or passive is better. The big call is that in trending markets one should be passive and in volatile markets, it is probably better to be active. What will be the situation in the next 3-5 years, maybe it is impossible for anyone to call, but maybe a combination of active and passive is the right way.

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