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Rich Investors’ Reaction Separates 2008 From 2018-19, Says Kotak Wealth’s Subramanian

India’s largest wealth manager hasn’t seen any panic reaction from rich investors.

Traders work at a securities exchange in Mumbai, India. (Photographer: Adeel Halim/Bloomberg)
Traders work at a securities exchange in Mumbai, India. (Photographer: Adeel Halim/Bloomberg)

The volatility over the last 12-18 months and the selloff in the broader market may prompt comparison with the 2008-09 crisis but, according to India’s largest wealth manager, there’s one key difference: how the rich investors behaved.

“2018-19 have been very testing times for equity investors. But many of the investors have exhibited a great sense of maturity. We haven’t seen any panic reaction despite portfolios bleeding,” Srikanth Subramanian, senior executive director and head- investment products, at Kotak Wealth Management. “The only action that these investors have taken is shift their portfolios to quality-conscious funds/names. But otherwise it’s been more inaction than taking money off the table, which was exhibited in 2008.”

There has been no cover for equities in general but the story goes much deeper, he said. “Cuts and gashes in the mid- and the small-cap end of the market reminds one of 2008. And while 2008 was on the back of a brewing global financial crisis, this correction is more of India’s own doing.”

Yet, most investors in the pocket are aware of the risks that equity presents and have “exhibited patience which is a big virtue”, he said. “They believe that this cycle will give way to good times.”

Kotak Wealth, which managed $33.6 billion in assets as of 2018, chose to sit on cash whenever needed and sold anything volatile, Subramanian said. Even now when the markets are starting to find a bottom, the wealth manager refrains from recommending concentrated or overly volatile positions, he said, adding that while choosing equities depends on an investor’s profile, portfolios should be skewed towards fixed income for the conservative.

No Structured Products

Kotak Wealth has stayed away from many structured products which offer guaranteed returns.

“If the purpose of the structured product is to give you capital protection, then there is a layer of risk added for the investor—that of the diligence in looking up the issuer, especially in these times,” he said. And as long as the risk is priced in appropriately, structured products are a good alternative to fixed income, he said.

But not equity. “Time-bound investing leads equity-oriented structured products to be an antithesis to equity as equities per nature have to be an investment which is not a victim to time-bound investment.”

Cagey On Real Estate

Kotak Wealth has been cagey about investing in real estate due to a number of regulations which can have material impact on the asset class, he said. The real estate investment trust is an outlier but, according to Subramanian, it’s at a very nascent stage and needs to be monitored.

Gold Has Limitations

Subramanian is also not sure about having gold in the portfolio even as it’s considered as a safe haven during volatility. He said investing in gold has its limitations:

  • Whether to use it as a hedge or an investment
  • Taxation of gold is closer to fixed income, not equity.
  • Unless it’s an ETF, gold is relatively illiquid.
  • Brings exchange-rate volatility risk.

It’s not been a major go-to asset class for Kotak Wealth, he said, as the firm hasn’t found the right mix of how it could fit in an investor’s portfolio.

Watch interview here