IN DEPTH UNDERSTANDING OF FINANCIAL MARKETS

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IN DEPTH

UNDERSTANDING

OF

FINANCIAL

MARKETS

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INDEX

Sr. No. Particulars Page No.

1 Introduction – Financial Markets 3

2 Introduction – Fixed Income Market 4

3 Interview – Sanjeev Kumar 5

4 Interview – Bekxy Kuriakose 9

5 Interview – Suraj Kaeley 14

6 Interview – Anurag Mittal 18

7 Interview – Piyush Harlalka 22

8 Introduction – Equity Market 26

9 Interview – Arun Gopalan 27

10 Interview – Prabhakar Kudva 32

11 Interview – Sandeep Shinoy 37

12 Interview – Alok Agarwal 41

14 Conclusion 45

15 Annexure 46

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INTRODUCTION – FINANCIAL MARKETS

What Are Financial Markets?

Financial markets refer broadly to any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market, among others. Financial markets are vital to the smooth operation of capitalist economies

Understanding the Financial Markets

Financial markets play a vital role in facilitating the smooth operation of capitalist economies by allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it easy for buyers and sellers to trade their financial holdings. Financial markets create securities products that provide a return for those who have excess funds (Investors/lenders) and make these funds available to those who need additional money (borrowers).

The stock market is just one type of financial market. Financial markets are made by buying and selling numerous types of financial instruments including equities, bonds, currencies, and derivatives. Financial markets rely heavily on informational transparency to ensure that the markets set prices that are efficient and appropriate. The market prices of securities may not be indicative of their intrinsic value because of macroeconomic forces like taxes.

Some financial markets are small with little activity, and others, like the New York Stock Exchange (NYSE), trade trillions of dollars of securities daily. The equities (stock) market is a financial market that enables investors to buy and sell shares of publicly traded companies. The primary stock market is where new issues of stocks, called initial public offerings (IPOs), are sold. Any subsequent trading of stocks occurs in the secondary market, where investors buy and sell securities that they already own.

Types of financial markets

1. Over the counter - An over-the-counter (OTC) market is a decentralized in which market

participants trade securities directly between two parties without a broker. 2. Money market - Typically the money markets trade in products with highly liquid short-

term maturities (of less than one year) and are characterized by a high degree of safety

and a relatively low return in interest. 3. Bond market - A bond is a security in which an investor loans money for a defined period

at a pre-established interest rate.

4. Derivative market - A derivative is a contract between two or more parties whose value

is based on an agreed-upon underlying financial assets or set of assets.

5. Forex Market - The forex (foreign exchange) market is the market in which participants

can buy, sell, exchange, and speculate on currencies.

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INTRODUCTION – FIXED INCOME MARKET

What Is Fixed Income?

Fixed income broadly refers to those types of investment security that pay investors fixed interest or dividend payments until its maturity date. At maturity, investors are repaid the principal amount they had invested. Government and corporate bonds are the most common types of fixed-income products. Unlike equities that may pay no cash flows to investors, or variable-income securities, where can payments change based on some underlying measure, the payments of a fixed-income security are known in advance.

Understanding Fixed Income

Companies and governments issue debt securities to raise money to fund day-to-day operations and finance large projects. For investors, fixed-income instruments pay a set interest rate return in exchange for investors lending their money. At the maturity date, investors are repaid the original amount they had invested—known as the principal. Fixed-income securities are recommended for conservative investors seeking a diversified portfolio. The percentage of the portfolio dedicated to fixed income depends on the investor's investment style. There is also an opportunity to diversify the portfolio with a mix of fixed-income products and stocks creating a portfolio that might have 50% in fixed income products and 50% in stocks. Treasury bonds and bills, municipal bonds, corporate bonds, and certificates of deposit (CDs) are all examples of fixed-income products. Bonds are traded over-the-counter (OTC) on the bond market and secondary market.

Types of Fixed Income Products

Here are the most common types of fixed income products:

• Treasury bills are short-term fixed-income securities that mature within one year that do not pay coupon returns. Investors buy the bill at a price less than its face value and investors earn that difference at the maturity.

• The Treasury bond are similar to the T-note except that it matures in 20 or 30 years. Treasury bonds can be purchased in multiples of $100.

• Treasury Inflation-Protected Securities protects investors from inflation. The principal amount of a TIPS bond adjusts with inflation and deflation.

• Corporate bonds come in various types, and the price and interest rate offered largely depends on the company’s financial stability and its creditworthiness. Bonds with higher credit ratings typically pay lower coupon rates.

• Junk bonds are corporate issues that pay a greater coupon due to the higher risk of default. Default is when a company fails to pay back the principal and interest on a bond or debt security.

• Fixed-income mutual funds invest in various bonds and debt instruments. These funds allow the investor to have an income stream with the professional management of the portfolio. However, they will pay a fee for the convenience.

https://www.investopedia.com/terms/j/junkbond.asp

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SANJEEV KUMAR

❖ ABOUT Sanjeev Kumar has more than 20 years of experience in the banking industry and fixed

income markets. He is currently working as the head – domestic fixed income, in charge of

all proprietary trading in all products of Onshore Fixed Income Market including derivatives

and corporate bonds.

❖ EXPERIENCE

1) EDELWEISS (FIXED INCOME TRADER)

2) CENTRAL BANK OF INDIA (DEPUTY GENERAL MANAGER)

3) CANARA HSBC OBC LIFE INSURANCE COMPANY (FUND MANAGER- FIXED INCOME)

4) PUNJAB NATIONAL BANK (SENIOR MANAGER)

5) PUNJAB NATIONAL BANK (OFFICER)

6) INDIAN AIR FORCE (TECHNICIAN)

❖ EDUCATION

1) INDIAN INSTITUTE OF BANKING AND FINANCE - CAIIB, Correspondence course

(2003-2004)

2) NATIONAL INSTITUTE OF BANK MANAGEMENT – Post Graduate Diploma, Banking

and Finance (2003-2004)

3) OSMANIA UNIVERSITY – Post Graduation, Public Personnel Management

(1997-1999)

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1) Over the period of time we have seen that fixed income small savings product ensuring

constant and regular income has drastically fallen down, directly affecting the retirees whose

livelihood was dependent on these regular income. So, what products would you suggest them

to invest in and maintain the same standard of livelihood or increase their earnings?

➢ Small Saving Deposits (SSD) have been prominent fund deployment options for elderly for their recurring needs since decades. Sharp fall in income from these instruments have started causing hardships to them.

➢ In fact, these returns are supposed to be function of real rate (Nominal Return - Retail Inflation) and therefore if real returns are intact, it should not cause much worry to them. In last 4-5 years’ time horizon, trend of retail inflation (CPI) has moderated in India. CPI median has drifted down to 5% from earlier figure of over 7%. To that extent fall in return on SSD are acceptable. Difficulty mounts when price rise (may be sporadic and sector specific like healthcare, which is a key component of expenditure of elders) happens with SSD return falling.

➢ The guiding principle of sacred investments for elders is SLR (Safety, Liquidity and Return) in its pecking order. In pursuit of chasing returns, one can never undermine safety and liquidity. Therefore, a big chunk of money of elders shall remain in SSD. However, following few diversifications may be prudent. The ratio of allocation for this diversification shall be directly proportional to quantum of corpus which are over and above required for minimum needs.

➢ State Government Bonds (Retail purchase in dematerialisation account through NSE window). ➢ Long duration Gilts funds through SIP. ➢ FD scheme of extremely high-quality corporates. ➢ High dividend yielding blue chip equity stock. ➢ Annuity product where principal is not given back.

2) What do you think will be the impact of including financial literacy programs or workshops at

school level and how one should implement the same?

➢ In Last 3-4 decades, world has acknowledged need of digital knowledge along with pure subject wise

academic knowledge in school curriculum and we are already witnessing magnificent result of this in

terms of entrepreneurial/scientific avalanche in digital field by young kids. Similarly, there is utmost

requisite of financial literacy and education thereof from early age of life.

➢ The financial awareness among growing teens from school level will have following far ranging impacts:

i. Modelling career scope into the field of finance from formative stage of education. In major part of world, presently finance as a career model comes at PG (at best UG level) academics and it typically comes after some other specialized professional education (notably engineering) often.

ii. Imprinting of knowledge at formative levels will induce (and consequent up rise) of financial innovation in growing talent pool.

iii. A balanced life for all (even those who do not choose finance as subject/profession in later part of life) as certain basic financial understanding has always been basic requirement of life (irrespective of field you work) and for which people at large have been dependent upon either paid advisor or knowledge acquired (bits and pieces) through unsolicited means and many time misleading.

➢ Few suggestions to implement financial literacy at school level: i. Basic financial case study in curriculum. ii. Chapter on financial innovation or successful financial professional like we have chapter on scientific

innovation or political personality. After all reading history of wars is not more important for teens rather than something which is going to be part of their daily life.

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iii. Visits to business house/microfinance lending body/B-schools. iv. Formative projects on financial literacy.

3) During this pandemic, have you witnessed any behavioural changes in the investment

strategies of investors as well as fund managers, What according to you would be substantial

reason of such behavioural changes?

➢ In unconventional scenario like current pandemic, investor (both seasonal and amateur) typically gets risk aversion induced and moves to flight of safety. Returns take back seat and safety / liquidity take precedence.

➢ According to the difference in fixed income investment return (typically interest rate offered) becomes wide and wider between good and not so good issuers. Also, as pandemic endures, both sign of credit crisis and FOMO (fear of missing out) shapes the investment decisions.

➢ In my opinion, non-clarity on endurance/end of pandemic is the sole reason for such behaviour change.

4) We have heard about a lot of millennial investors now a days and new money coming into the

fixed income market. So, what will be your tip for budding investors of our country?

➢ The common textbook understanding is equity shall be preferred asset class for any investor in early stage of life and over the periods it would taper and give space to fixed income. However, there are certain trends disruptors of this long-existed understanding are being witnessed on account of following reasons:

i. Trading return getting precedence over investment return. ii. Overall investment corpus being so large that diversification becomes necessary. iii. Volatility in interest rate variable caused by fundamental reason being more frequent and interest rate

cycle becoming shorter and wilder. iv. Cross border fixed income investment becoming an opportunity. v. Availability of net positive return on fully hedged basis (covering both interest rate risk and currency

risk.

➢ Few formative guidance to millennial investors for fixed income instrument i. Clarity of difference between credit risk and market risk. ii. In early stage preference of sovereign credit over corporate credit. iii. Investment time horizon clarity. iv. Balanced allocation of corpus between pure investment portion and investment portion with intent

of trading alpha.

5) Nowadays everyone is talking about financial inclusion, if it is attained on a massive scale what

possible impacts according to you would it bring to the industry?

➢ Financial inclusion is both need of the hour as well as future big largely under tapped business opportunity. This sector is typically human capital intensive so far and still technology has not played its extent role.

➢ We have already witnessed numerous mega success story of higher level of technology uses in retail finance at metro and urban level. With onset of data connectivity available in far flung areas possible now, financial inclusion industry is poised to get the advantage of technology fusion. Hence, future work in this area should focus on harnessing technology for financial inclusion.

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6) Indian fixed income market is always termed as being in nascent stage as compared to markets

of other developing and developed countries. So, what will be your suggestions towards

making the Indian fixed income market more dynamic and efficient as compared to others?

➢ The need to bring vibrancy in Indian fixed income market has been subject of research, panel

discussion, financial street talk and committee formation since last 4 decades. All stakeholders viz government, regulator, investor and intermediaries are making jointly/severally effort in this direction.

➢ I have following two clarity in this regard:

i. We have achieved a fair amount of scale and vibrancy (at relative level) in primary fixed income market. The same is awfully missing/lacking in secondary market.

ii. Institutional dominance is major roadblock in the path of vibrant fixed income market in India.

➢ My one and only suggestion (besides tons of suggestions already being there) in this regard would be need to integrate the institutional and retail fixed income market. With the level of technology now available, it is feasible better now than in past. The other small point I would like to mention is corporate failure which keeps the investor class on edge for making credit fixed income investment. There may be need of blunt and ruthless treatment to corporate failure, particularly wilful failure.

7) When it comes to investment what will be your suggestion to investors who look at fixed

income market for their savings:-

a) Direct bond investment

b) Through bond fund

And why?

➢ I would advise of have a combination of both- a) The corpus which are available for time span of more than 5 years shall be channelled to direct bond

investment. b) The short/medium term corpus should go to bond fund.

➢ Following rational I have for aforementioned suggestions: a) Direct investment keeps your skin in game, enhances your rational and understanding and saves on

investment cost. b) Investment portion having precedence of liquidity and ask of trading alpha shall go to bond fund

because it suits them.

8) One thing you that you missed while reaching this position and would like to advise the

upcoming generation to incorporate it in themselves in order to become a better professional.

➢ Higher skill of networking across different class of investors/traders.

9) What books you would advise to a person willing to get into the capital market or choosing

finance a major?

➢ Fixed Income Mathematics by Dr. Frank Fabozzi.

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❖ ABOUT

Bekxy Kuriakose has worked for more than twenty years in the field of fund management area,

in which about sixteen years were spent in mutual fund industry and the rest in insurance. Her

primary area of focus has been fixed income and associated products.

❖ EXPERIENCE

1) PRINCIPAL ASSET MANAGEMENT CO LTD. (HEAD- FIXED INCOME)

2) L&T INVESTMENT SERVICES CO LTD.( ASSOCIATE VICE PRESIDENT – FIXED INCOME)

3) DBS CHOLA ASSET MANAGEMENT CO LTD. ( SENIOR FUND MANAGER- FIXED INCOME)

4) RELIANCE LIFE INSURANCE CO LTD. ( FUND MANAGER )

5) SBI FUNDS MANAGEMENT CO LTD. ( FUND MANAGER )

❖ EDUCATION

1) INDIAN INSTITUTE OF MANAGEMENT BANGALORE – Post Graduate Diploma in

Management (1998-2000).

2) DELHI UNIVERSITY, LADY SHRI RAM COLLEGE – Bachelor of Arts (HONOURS) in

Economics (1995-1998)

BEKXY KURIAKOSE

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➢ Yes, definitely there has been a substantial impact to the cash flow of people dependent on small

saving products. The interest rates for small savings product have been constantly coming down since

demonetization happened in the year 2016. One of the key reasons of this trend is that the

government decided to link the small savings rate with the government securities rate which has been

declining over past few years due to rate cuts and open market operations by RBI to support growth.

➢ To maintain the same cash flow, the retirees should look at their whole investment portfolio and reach

out to a professional financial advisor to allocate their resources in some inflation beating products,

perhaps, little equity exposure after analyzing how much buffer they have. However, in equities with

greater returns comes greater risk so caution is warranted. Also, a second alternative would be cutting

down expenses. On the other hand as cash flow declines, they should also evaluate their expenses and

rationalize where possible.



➢ It is extremely important to initiate financial planning education not only at school level but also at

college level. Many people who are in fields other than finance or commerce, per se, do not know

much about finance. There are barely any such programs available in the country at school or college

level despite the significant role that it plays in one’s life. Financial education at such level mean

teaching basic finance to students, for example, how to manage money, how to initiate savings, how

to make investments, etc. Even if students graduate from high school or college from a non-finance

background they should be well versed with basics of finance so that they could manage their money,

liabilities, etc. In recent times, we have seen a change in the curriculum and now a days many fund

managers/advisors/finance experts are invited to various colleges to give lectures and make the

students understand basic finance. However, such programs are not fully penetrated i.e. the access of

such lectures are not available at every school or college across the country. Hopefully, few years down

the line, we could see more such programs being organized and students becoming more financially

educated.

3) During this pandemic, have you witnessed any behavioral changes in the investment strategies

of investors as well as fund managers, What according to you would be substantial reason of

such behavioral changes?

➢ The Indian fund management industry went into a credit crisis which started from the IL&FS default in

September 2018 and was a very significant event from fund management point of view. Owing to

various other substantial defaults in recent years, unfortunately, the industry entered the pandemic

with an ongoing credit crisis. In recent times, the industry has witnessed a substantial behavioral

change in investors. Those who were chasing high returns and investing in high yielding products have

become more cautious, started to minimize their risk and withdraw their funds from high risk

associated product.

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➢ Many of them have turned to bank fixed deposits, becoming completely conservative in regard to their

investments and altogether avoiding risk associated with financial markets. And many of them have

turned to products with relatively less market risk, such as, ultra-short term products, short term

products, AAA high credit quality funds, etc. Thus, the fixed income industry has experienced a

considerable slide to safety. Fund managers have also become relatively more risk averse in their

selection of fixed income issuers.



➢ For all the investors it is extremely essential that they should map out their goals. For example, buying

their own house, buying a car, waving off some existing liability, saving for a vacation, retirement, etc.

When expenses are approaching they should know about their cash flow at particular point in time

and carefully assess their expenditure i.e. to do some budgeting. It is obvious that only the amount

left after deducting expenses from income will be allocated towards savings and investments. Ideally

one should save a targeted amount first and balance left over should be spent. Risk profiling and risk

appetite is also essential to know. This will help a person map his or her asset allocation i.e. deciding

where to invest, for example, would it be fixed income funds, equity funds, etc. The chronology that

follows is, first decide your long term goals, then do some budgeting, determine how much you should

save to build your corpus to meet goals, project returns on your portfolio, asset allocation ratio and

then choose a suitable fund according to one’s needs and goals. So, these are some healthy practices

that every millennial must practice when they start off with their career.





And why?

➢ If someone has zeal, passion and most importantly technical knowhow then only one should go

through a direct bond investment. When a person has done specialized courses in the fixed income,

he is well versed with all the variations, different kinds of products and terminologies then he can

follow the fixed income market and perhaps make informed decisions. On the other hand, if a person

is from a different field and lacks technical knowhow but has enough surplus for investment then a

person should take the route of bond fund which are managed by professional fund managers. When

investing through direct bond investment a person has to constantly monitor the market in order to

initiate investment. Time which can be spent more productively in increasing one’s earnings. He or

she can hire a professional financial advisor who will devote time and invest in different products

saving you the time that otherwise would have gotten wasted.



➢ Financial inclusion is definitely very desirable. We belong to a country where even basic financial

literacy is very poor, especially in the rural areas. Various financial products are very under penetrated,

for example, there is almost negligible participation in mutual funds from the rural areas, and thus,

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they there is a dire need to spread awareness so that the products could penetrate deeper and more

people have access to them.

➢ However, in India the micro finances have done a commendable job in providing credit to the people

residing in rural India. They have reached the pockets of people in rural or urban areas where the

banks could not reach. The banks do not lend to people with relatively low income as those people

lack collateral also the banks lack companies trust as there is no surety of re-payment. Nevertheless,

these microfinances have has provided a major boom in areas where there was completely no credit

facility. They have reached out to people and provided them loans to meet their goals, for example,

someone wants to buy a durable like TV, fridge or invest in their business . Although, these micro

finances charge a relatively high rate of interest as there is risk of non-payment and loans are

unsecured but it is substantially lower than local money lenders who charge higher interest. Therefore,

our Indian society is witnessing meaningful changes in the field of financial inclusion but there is still a

long way to go and hopefully in future our country can witness much more substantial changes.




➢ In the last two decades the Indian fixed income market has seen many significant changes. Previously,

the Indian fixed income market was a physical market i.e. people used to exchange certificates and

there were physical papers for bonds that were traded. Physical settlement was also very tiring as

people were running to central bank’s office with different papers to trade.

➢ The first major step was the initiation of dematerialization that was the move from physical certificates

to electronic bookkeeping. Then, The Clearing Commission of India Limited (CCIL) came up with online

portal and NDS terminals and we started having electronic trading of government securities and state

development loans, etc. The trading portals offered by CCIL i.e. Negotiable Dealing System (NDS), the

online order matching system, etc. are among the best in the world both efficiency and infrastructure

wise. The corporate bond market we have is also very vibrant and its online trading portal, again, is

among the best in the world both efficiency and infrastructural wise. Therefore, a lot of small changes

in the base level have been initiated in the markets making it comparable to the best in the world.

➢ One of the major concern in the secondary bond market is that a lot of trading has been restricted to

AAA high credit rating securities. The regulators want that trading should happen in other lower credit

ratings names, such as, AA, AA-, etc. And the secondary market trading should improve. Thus, they

are taking steps to make it more dynamic in nature. Steps are being taken to convert the market that

is more over-the-counter (OTC) in nature into an electronic platform. So, there are a lot of ongoing

efforts to fill the left over gaps in order to ensure a smooth working market.

8) One thing that you think you missed while reaching this position and would like to advise the


➢ I wish I had a good mentor when I was starting of my starting off with my career, I knew nobody in the

mutual fund industry. Also, I was an introvert person in my school and college. And in a corporate

world you cannot survive by being an introvert, one needs to open up to people, seek out for support,

interact with people across industry, etc. Thus, it is extremely essential to have a network around you,

and, also, if one can catch hold of a senior colleague within the organization who can act as a mentor,

and give the right guidance as and when needed.

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finance a major?

➢ I love reading books and all kinds of genres, namely, biographies, fictions, non-fictions, etc. Ironically,

being from finance background post IIM I haven’t read too many finance books as such. I would suggest

that if anyone is seriously willing to gain knowledge about the Indian financial markets, they should

read the articles on the website of the central bank RBI such as the governor and deputy governor

speeches, various types of RBI reports like the financial stability report, research papers etc. There is

a wealth of data on RBI website which will be very useful.

➢ Secondly, follow some notable economists/market experts/bankers on their social media handle and

read their posts about the markets, this will give a great insight about the markets. Reading business

newspapers and watching business channels is also important.

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SURAJ KAELEY

❖ ABOUT Suraj Kaeley has more than 25 years of experience in the Indian financial services sector.

He has been part of the senior management at Franklin Templeton Asset Management,

Met Life Insurance, FIL Fund Management and UTI Mutual Fund. As head of sales,

Marketing and Business Development, he has contributed significantly to growth of these

organizations.

❖ EXPERIENCE

1) SELF EMPLOYED (MENTOR&TRAINING, RETIREMENT SPECIALIST)

2) UTI MUTUAL FUND (GROUP PRESIDENT- SALES & MARKETING)

3) L&T ACCESS FINANCIAL ADVISORY SERVICES LTD. (CHIEF EXECUTIVE)

4) FIL FUND MANAGEMENT LTD. (HEAD-SALES AND BUSINESS DEVELOPMENT)

5) METLIFE INDIA INSURANCE COMPANY LTD. (CHIEF MARKETING OFFICER)

6) FRANKLIN TEMPLETON INVESTMENTS LTD. (SENIOR VICE PRESIDENT)

❖ EDUCATION

1) UNIVERSITY OF MUMBAI – Master of Management Studies, Marketing (1986-1988)

2) UNIVERSITY OF MUMBAI – Bachelor of Science, Chemistry (1983-1986)

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1) Over the period of time we have seen that fixed income, small savings product ensuring




➢ The interest rate in India has gone up in real terms, earlier India was a high inflation economy and

because of that the nominal rate was very high, despite that investors were not getting a real rate of

return. In the last decade, it is true that the interest rates have come down a bit but the inflation has

plummeted much sharper. Now the challenge faced by retirees is that the corpus held with them is

not sufficient enough in order to run their household. They have always computed their returns in

terms of nominal rates, so when the rates come down it tends to hurt them. In recent times, the

problem is not in terms of interest rates but it is with the inadequacy of retirement savings and the

lack of corpus held with them.




➢ During the pandemic we have seen various kinds of erosion, many people have lost their jobs, their

money, their investment values have plunged, etc. Whenever such downfall happens there is a desire

in people to move towards safety and minimize their risk. People nowadays have the fear of missing

out, i.e. they do not want to miss any opportunity that comes their way. Initially, in anticipation of

markets falling even more, people had withdrawn all their money but the markets have bounced back

very strongly. The investors are now in a dilemma of when and where to invest. As, at the current level

people are considering markets as very expensive and are not willing to enter in equities, gold has

gone up more than 40% in last one year and people want to sell at those prices rather than buying it,

interest rates are at an all-time low and people are eyeing even further rate cuts, therefore, people

are also losing interest in small savings products. To overcome the dilemma people should diversify

their portfolio. This is a very common term but is often misunderstood. Diversifying not only means

choosing different asset classes but also means that they should not be correlated or should have a

very weak correlation in order to minimize risk. Concluding, a lot of conjecture is happening in the

industry about how and where to invest and people are taking their money out of riskier asset classes

and a move towards safety is observed.



➢ Worldwide, many Governments are trying and willing to initiate such programs and this is also a great

idea. There is no such school in the world that teaches you about effectively managing money.

Irrespective of the career background, every individual should be well versed with basic finance. When

such programs are introduced the object should not be to teach them complicated aspects but to

inculcate healthy investing habits in them. For example, teaching students about the value of money,

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importance of savings, right kind of fixed income and how to manage it, etc. These are the building

blocks of one’s career irrespective of their field. So, inculcating such healthy practices in people will

give them lifelong benefits apart from their field of study.

4) We have heard about a lot of millennial investors nowadays and new money coming into the


➢ To be honest, millennials do not invest. I was willing to organize an investment workshop for millennial

investors and for which I surveyed 10-15 millennials. The response I got was astonishing, no one was

willing to invest, and everyone just wanted to spend as much as possible. It is very important to

educate millennials, asking them to write off the money spent on investments and treat it as an

expenditure. This can help them in generating wealth by compounding it over the period of some

years. This money generated over a period of time will give them long-term benefits which otherwise

would be wasted in purchasing materialistic things.




➢ When one says a fixed income market is well developed it means that :-

a) There is a wide range of products and issuers in the market

b) These products are priced appropriately so that a lot of trading can happen

➢ Firstly, in India the problem has been that the number of issuers are very low because a lot of

businesses have relied on bank finances as their major source of finance.

➢ Secondly, in India we have only OTC products i.e. most of the fixed income trading happens one-to-

one, there are not many exchange rated products. So, today if someone wants to buy a bond, there is

a very limited supply of bonds that one can choose from.

➢ Indices should be there, in India we do not have fixed income market indices popular among fixed

income market professionals.

➢ Thus, a lot of work needs to be done in these areas before we call our Indian fixed income market a

vibrant market.





And why?

➢ First of all, bond fund is a tax efficient option. Coming to taxation of bonds as compared to deposits,

in deposits the money earned is in the form of interest which is added to your income and one has to

pay tax on that. On the other hand, when it comes to funds, what one gains is called capital gains,

below three years it is called short term but after three years it is called long term capital gains which

turns out to be relatively very tax efficient.

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➢ Second of all, one doesn’t have the risk of one of the asset class defaulting and losing all their money.

In a fund, one’s portfolio is diversified and it has relatively lesser risk as compared to direct bond

investments.

➢ In a nutshell, because of the diversification benefit, liquidity benefit, taxation benefit, etc. Investments

through a bond fund will always be a superior option as compared to direct bond investment

7) One thing that you missed while reaching this position and would like to advise the upcoming

generation to incorporate it in themselves in order to become a better professional.

➢ First, when I started my career, we didn’t have CFA as a gold standard for investing. Today CFA is a

gold standard. I feel that anybody who wants to build a career in the investment industry must do

CFA.

➢ Second, what I feel is that a lot people in very early phase of their career decide what kind of

investments they want to pursue. Everyone should open themselves up and explore each and every

horizon of investment and then decide what path they should choose.

➢ So, these are the two things that I want the upcoming generation to incorporate in themselves which

will pave a better path to success for them.


finance a major?

➢ Many of these novels are very technical in nature, unfortunately. One of my favorite novel was ‘One

Up On Wall Street’ by Peter Lynch when it came to investing. Also, there is a wonderful book called

Five Rules of Successful Stock Picking by Pat Dorsey, it is neither too easy nor too hard to comprehend.

At an early stage one just needs to gain a little insight of the market and for that purpose these books

would suffice.

18

ANURAG MITTAL

❖ ABOUT Anurag Mittal has more than 15 years of experience in the fund management industry.

He has been a senior member of the asset management team at many big firms such as

Bank of America, ICICI Prudential Life Insurance, etc. Currently he is the Associate

Director at the IDFC Asset Management co. ltd.

❖ EXPERIENCE

1) IDFC ASSET MANAGEMENT CO. LTD. (ASSOCIATE DIRECTOR)

2) HDFC MUTUAL FUND (SENIOR MANAGER-FIXED INCOME)

3) AXIS MUTUAL FUND (FUND MANAGER- FIXED INCOME)

4) ICICI PRUDENTIAL LIFE INSURANCE (MANAGER-FIXED INCOME)

5) BANK OF AMERICA (CONSTRUCTION ANALYST)

❖ EDUCATION

1) LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE(LSE) – 2005-2006

2) INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA – 2001-2005.

3) DELHI UNIVERSITY- BACHELORS OF COMMERCE (HONOURS), 2001-2004

19





➢ These rates are the reference points of the growth potential of our economy. Firstly, when people say

that these interest rates have come down, they are referring to the era when the rates were relatively

high, 8-9%, and at that time the inflation rate was also very high. Secondly, there is a possibility that

despite low Repo Rate, Reverse Repo Rate, Bank Rate, etc. the small savings product rates were still

high because they were not de-regulated. Now, these rates being de-regulated, they are in line with

Central Bank rates. So, I personally don’t think that these rates are low considering the situation of the

economy. If we recall, our Nominal GDP was growing at a rate of 9-10%. However, experts have

estimated that this year India might be de-growing, have a negative GDP growth. At a period when the

GDP is de-growing even these rates are quite attractive. Thus, on an absolute measure, yes, the small

savings product rates have drastically fallen down from what they used to be but, considering present

scenario, they are in line with the economic situation.

2) During this pandemic, have you witnessed any behavioural changes in the investment

strategies of investors as well as fund managers, what according to you would be substantial

reason of such behavioural changes?

➢ A lot of investors, to whom I have been interacting with, are looking more towards risk averse

products. They understand that this pandemic is a global economic shock and no one knows till when

everyone will be confined in their homes. Even when the confinement gets over, no one knows how

the economies will shape up as many changes in different industries could be permanent. We do not

know how the banking system, financial system, aviation industry, etc. evolve post pandemic.

Therefore, all the investors are more focused in protecting their wealth, their risk appetite have

reduced, owing to a lot of uncertainty in the markets.



➢ Although, we have a wide curriculum in school, it should also include financial literacy. Students are

taught how to earn their livelihood but they are not taught how to utilize the money they earn, for

example, what is the right kind of saving, right asset allocation, how to efficiently invest, not getting in

the trap of high risk high return, understanding their financial needs, etc. More workshops should be

held in school teaching about asset allocation and how these respective assets function. If students

are taught how to manage their finances in the school itself it will really help them once they start

working.



➢ The difference in millennial investors is that they have a continuous series of goals that needs to be

fulfilled and for that they have a short term investment plan. Although they have investment goals

with 10-15 year perspective but there is also an investment goal with 3-5 year perspective in order to

20

fulfil short term goals. Now, for short term investing there should be a process of downside mitigation.

One should not invest in a very high risk asset class that may perform well in long term but can give

volatility in the short term. Rather, they should invest in a low risk asset class, given, that they won’t

get the desired return because the lesser the time horizon the lesser are the returns, but they will at

least be able to gain money and safe guard their capital that otherwise has a chance of losing its value.

Thus, new investors have to keep this thing in mind while investing their wealth. Also, the advisors

who are guiding these investors should ask them to not go by the flavour of the month, but match

your time horizon.



➢ Financial inclusion, was started with the initial aim of everyone in the country having a bank account

for which various schemes by the government were launched. Now a days there is drastic change in

investments from what it used to be a few years back, today investors don’t need to belong to the HNI

category or those who invest in lakhs, there as ticket sizes as low as rupees 500 or 1000 as well. The

main purpose of this being to cater the people of low income group and to include them in the capital

markets. Even after this step the participation is not much as it was anticipated because of the

conventional thinking of investment in fixed income and lack of literacy. Thus, to include more and

more people in the financial circuit the people should know how to market their product in simple

language so that everyone is able to comprehend the scheme presented to them.




➢ Our Government bond market is relatively liquid as compared to markets of other developed

countries. The intra-day volatility of our government bond is also lower as compared to markets of

other emerging or developed economies. In the corporate bonds, the market for AAA rated bonds is

also reasonably liquid. However, unfortunately, the credit market is not that liquid, there are a couple

of reasons for that. Firstly, there is an absence of credit default swaps, so an investor is holding a lower

rating paper there is no protection to the investor. Secondly, the bankruptcy law in India is not that

robust as compared to other nations as they have just been introduced. Also, there is less participation

in fixed income market from retail investors as compared to equity because of the returns. An investor

can earn 8-10% return in a single day, however, in fixed income the same the amount of return is

annualized. Depending on investor’s age, financial needs, risk appetite, etc. one needs to allocate asset

classes and not just run behind high risk high returns. Thus, once this education comes among public

we could be able to a much larger retail participation than what it is presently. Thus, this is the reason

as to why the Indian fixed income market is termed as being in the nascent stage.


upcoming generation to incorporate it in themselves to become a better professional.

➢ One thing that I have witnessed over the period of years in the capital markets industry is the there is

no seniority. When a discussion is taking place there is no hierarchy in the room as everyone I just

discussing data there and no matter how much experience one has, they are always welcomed to put

21

their perspective forward. Thus, I would like to advice the incoming job aspirants to never shy away

from asking a question or putting forward your own perspective about the topic.

8) What books you would advise to a person willing to get into the capital market or choosing to

finance a major?

➢ Choosing books are always a personal choice and depends on the field you want to get. I could advice

some authors, such as people who want to get into the equity market should a lot of book on Warren

Buffet and Peter Lynch, etc. people who aspire to get into the fixed income market read should read

books written by Frank Fabozzi, etc. My personal author is Michael Lewis, what I like about his books

is that they are written about different market episodes and each one of his books gives you a fresh

perspective of the markets.

22

PIYUSH

HARLALKA

❖ ABOUT Piyush Harlalka has more than 15 years of experience as a fixed income trader and fund

Manager. He is currently placed as a fixed income trader in ICICI Bank, he has previously

worked in HDFC AMC as a vice president & fund manager.

❖ EXPERIENCE

1) ICICI BANK (FIXED INCOME TRADER)

2) HSBC ASSET MANAGEMENT (VICE PRESIDENT & FUND MANAGER

3) BATLIVALA & KARANI SECURITIES INDIA LTD. (RESEARCH ANALYST)

❖ EDUCATION

1) INDIAN BUSINESS SCHOOL, HYDERABAD – Masters of Business Administration,

Finance.

2) THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

3) THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

23





➢ Yes, it is true that the interest rates of fixed income small savings products have gone down in India

owing to current circumstances. Therefore, it is not possible that the retirees can have the same return

that they had with the same amount of corpus and the same interest rate. However, there are some

ways in which they can maintain the same income level, and those are as follows:-

➢ Firstly, the retirees can maintain the same income level or the same amount of interest they got earlier

by increasing the corpus invested in that asset class in such a proportion that even a low interest rate

can compensate them with the same amount return, so that they can maintain the same standard of

living.

➢ Secondly, they can ensure the same amount of return by going down the ‘Credit Curve’ i.e. lowering

the quality of the credit they get. For example, a retiree has invested money in F.D’s in a Public sector

bank which, hypothetically, offers a 10% interest YoY. Now, getting enticed by the higher return in a

smaller private sector bank, the retiree switched to that bank which, hypothetically, offers him a 12%

interest YoY. Here, the credit quality and security one has by investing in a public Sector bank goes for

a toss but the interest is high which can help him maintain the same standard of living.

➢ Thus, these are the two possible ways in which retirees can maintain the same amount of earnings as

they formerly had.



➢ This step of including financial literacy programs will be a very welcomed step when initiated in school

curriculum. A few decades back we didn’t have as much awareness of finance in our school systems

but now there has been a significant change and schools have started basic financial teachings and,

also, many people are talking about including such programs in our school systems. Now, the next step

would be to teach the students about managing their money efficiently, and making them financially

literate in true means. Thus, this step being included will have a great impact in the upbringing of the

students and will help them a lot in future when they set their feet out in the real world.




➢ One major behavioral change in investors has been that people have become relatively very risk averse

as compared to pre-pandemic times. As, this situation is something no one has witnessed earlier and,

in contrary of other global downfalls, people are anticipating that it will a considerable amount of time

for things to get stabilized first and then even more to start showing improvements. The fund

managers are now focusing more on quality asset classes, considering the rate of return from that

asset class has taken a back seat and the sole intention has turned towards safe guarding the capital

first and then looking at the rate of return on the investment. Thus, there has been a movement

towards risk-free investment in other to safeguard the capital and have a smooth investment journey.

24


fixed income market. So, what would be your advice for the budding investors of our country?

➢ The most important advice for the budding investors of the country is that there is no quick money in

any of the asset classes, be it equity, fixed income, commodity, currency, etc. They should not be

allured by the schemes that talk about easy money being made through just clicking the mouse in one

of the investing software. They will have to struggle, do thorough research, study about the asset class,

and, most importantly, have patience, and then only wealth can be generated. Therefore, as the saying

goes ‘there is no substitute of hard work’, thus, people have to work very hard and have belief on

themselves then only people can earn money.



➢ Financial inclusion is an extremely positive step for the Indian economy. The penetration of financial

products in India is still way behind other emerging and developed economy. Financial inclusion is the

only way through which we can ensure this penetration in our economy and this step will help

everyone in the long run. For example, when a rural wage worker, who used to store all his savings in

the form of liquid cash, opens a bank account and starts putting money there both the farmer as well

as the bank with which money is invest are benefitted by it. The farmer gets interest on his money

which otherwise was kept idle and bank also utilizes that money further. Thus, financial inclusion has

the potential to boost a country’s economy.




➢ This lack in the vibrancy of Indian fixed income market can be linked to lack in financial literacy and

inclusion among people. The more people participate, the more vibrant the market becomes.

Moreover, the regulations, compliances, risk awareness, etc. should be more stringent. For example,

steps like the recent Banking Insolvency Act should be taken more frequently as they bring confidence

in both the investor as well as the investee. Also, the market for fixed income products below the best

quality is almost non-existent. Only in recent years, with the emergence of credit bond funds securities

of lower rating are also finding buyers. However, with a series of defaults in a short span time the

market has withdrawn its interest in those securities and back to square one. Thus, working on these

steps the Indian fixed income market could also become as vibrant as its peers.




b) Through bong fund

And why?

➢ The value of the transaction in fixed income market is way higher than what it is equity. Thus the Indian

fixed income market is still largely an institutional market and not a retail market. Investing in fixed

income is easy as well as accessible to institutional investors considering the knowledge and technical

25

knowhow they have. However, for retail investors the most suitable way of investing would be through

a bond fund.



➢ Technology has evolved drastically over a couple of decades. Now, all the information related not only

to the local economy but also to the global economy is available just at the click of a button. So, my

personal advice to the upcoming generation would be to not restrict themselves to just their country’s

economy but get exposure of the global markets as well. This will help them in the long run, helping

them to understand the markets in a better way.

26

INTRODUCTION – EQUITY MARKET

What Is an Equity Market?

An equity market is a market in which shares of companies are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy. It give companies’ access to capital to grow their business, and investors a piece of ownership in a company with the potential to realize gains in their investment based on the company's future performance.

Understanding an Equity Market

Equity markets are the meeting point for buyers and sellers of stocks. The securities traded in the equity market can either be public stocks, which are those listed on the stock exchange, or privately traded stocks. Often, private stocks are traded through dealers, which is the definition of an over-the-counter market.

When companies are born they are private companies, and after a certain time, they go through an initial public offering (IPO), which is a process that turns them into public companies traded on a stock exchange. Private stocks operate slightly differently as they are only offered to employees and certain investors.

Some of the largest equity markets, or stock markets, in the world are the New York Stock Exchange, NASDAQ, Tokyo Stock Exchange, Shanghai Stock Exchange, and Euronext Europe.

Companies list their stocks on an exchange as a way to obtain capital to grow their business. An equity market is a form of equity financing, in which a company gives up a certain percentage of ownership in exchange for capital. That capital is then used for a variety of business needs. Equity financing is the opposite of debt financing, which utilizes loans and other forms of borrowing to obtain capital.

In the equity market, investors bid for stocks by offering a certain price, and sellers ask for a specific price. When these two prices match, a sale occurs. Often, there are many investors bidding on the same stock. When this occurs, the first investor to place the bid is the first to get the stock. When a buyer will pay any price for the stock, they are buying at market value; similarly, when a seller will take any price for the stock, they are selling at market value.

When a company offers its stock on the market, it means the company is publicly traded, and each stock represents a piece of ownership. This appeals to investors, and when a company does well, its investors are rewarded as the value of their stocks rise.

The risk comes when a company is not doing well, and its stock value may fall. Stocks can be bought and sold easily and quickly, and the activity surrounding a certain stock impacts its value. For example, when there is a high demand to invest in the company, the price of the stock tends to rise, and when many investors want to sell their stocks, the value goes down.

27

ARUN GOPALAN

❖ ABOUT Arun Gopalan is an equity markets specialist with more than 15 years of experience in

handling investments. He has expertise in investment research across all asset classes,

with a focus on Equities. Active portfolio Management, superior stock selection &

timing, proven skills in client acquisition and managing HNI client relationships.

❖ EXPERIENCE

1) SYSTEMATIX SHARES & STOCKS LTD.(VICE PRESIDENT- RESEARCH & INVESTMENTS)

2) ULJK FINANCIAL SERVICES LTD. (HEAD- INSTITUTIONAL EQUITIES & PMS)

3) ASIT C. MEHTA INVESTMENT INTERMEDIARIES LTD. (AVP- PMS ANS HNI DESK)

4) INDIA INFOLINE LTD. (AVP – DISTRIBUTION)

5) WEALTH ADVISORS INDIA LTD. (AVP- WEALTH MANAGEMENT)

6) EMKAY GLOBAL FINANCIAL SERVICES LTD. (HEAD – DISTRIBUTION)

❖ EDUCATION

1) UNIVERSITY OF CALCUTTA – Bachelors of Commerce (HONOURS), 1990-1993

28

1) We have seen that in past 5-10 years the market have changed big way and has become

relatively more dynamic in nature. Nowadays there are a lot of new investors in the market

bring huge sums of money. What would be your advice to them for optimal investments and

savings in the early phase of their career?

➢ In the early phase of the career one should one should mainly focus on making equity investments.

When a person is starting his or her career, at the age of 25-26, for the first ten years should have

hundred percent investments in equities only, according to me. As, this is the age where if one loses a

little he or she could gain it back. Thus, the focus should be aggressively on wealth creation. Once one

gets married, has a kid and his fixed responsibilities towards the family increases, then his investment

portfolio should shift from equities to fixed income in order to cater to those fixed responsibilities.

Once a man told me that at the age of 40, what a person earns out of his investments should be more

than the money earned by salary or business and in order to achieve this goal one should understand

his investments and start at an early age. Therefore, this is the whole investment plan that a person

should look at so that one does not default on any of the fixed responsibilities.



➢ It is extremely critical to implement financial literacy programs for children. The first and foremost

principle that they should be taught about basic finance is to initiate savings. The principle is “do not

save what is left after spending rather spend what is left after savings”. So, this principle when taught

at a young age can be extremely beneficial for students. Once students come to high school then they

should be taught about the working of financial markets, different horizons of it, for example, equity

markets, fixed income markets, the risk associated with these markets, etc. As, students enter high

school they go on to study different subjects of science, liberal arts, etc. and the knowledge of financial

markets is very less among them and many of those are not even aware until they start working. Thus,

educating and informing students about basic finance at school level is extremely essential.

3) When we talk about investments or savings, the term “power of compounding” is widely used

across various fields. What according to you is the significance or importance of “power of

compounding” for a person, not familiar with financial market, who is trying initiate savings?

➢ Albert Einstein stated “compound interest is the 8th wonder of the world”. Compounding is a process

that happens automatically one does not have to work towards it. So, to enjoy the benefit of power of

compounding, once a person has made his or her investments, he or she should not fiddle with it, let

it stay where it is and watch it grow. The power of compounding gives you added earnings on what

one has already earned i.e. earnings on earnings and this can only be attained when one is invested

for long.

➢ One more important law in order to understand the power of compounding is “do not time the

markets, spend time in the markets” this means that one should not try to catch the lows and sell on

the highs rather one should just enter the market and then stay invested for a longer period of time

in order to maximise their earnings.

29

4) When it comes to investment what will be your suggestion to investors who look at equity or

stocks for their savings:-

a) Direct equity investment

b) Through equity fund

And why?

➢ Millennial investors who are the turn of their career should start looking at equities for investment at

a very young age(22-24) so that they have a lot of time to spend in equities before they have fixed

responsibilities and are somewhat compelled to move towards fixed income market. When they are

at the start of their career, it is certain that most of them would not have the technical knowhow about

investing directly. Thus, they should choose large cap equity funds for their investment and give the

funds their 80%-90% savings for investment. On the other hand, millennial investors should use that

10%-20% income for investing in direct equity. From that 10%-20% of their wealth millennial investors

should gather experience, make mistakes, and, most importantly, learn from that mistakes. They

should analyse themselves and then after at least 5-6 years of direct investing from that 10%-20% they

should contemplate and take a decision about how good are they as an investor? If they think that all

I have done is made losses over the period of years then they should let fund managers handle their

wealth and they should give 100% of their savings to fund managers. However, if they think that now

I have gained experience, I have learned from my mistakes, and evolved as a better investor overtime

and can generate at least the same amount of alpha as my fund manager did, then they should

gradually withdraw money from fund and start investing directly. Therefore, in a nutshell, at the start

of their career millennial investors should rely heavily on large cap mutual funds and then, once they

grow older, they should analyse their own investing capabilities through investing directly and check

whether are able to do it or not. If no, then continue with mutual funds, if yes, then withdraw money

from funds and start your own investments.

5) What kind of investments would you advice to the millennial investors investing in the equity

market-

a) Investment giving regular income through dividends

b) Investment in growth stock

And why?

➢ Initially in their career, millennial investors should focus mainly on growth stocks. Dividend yielding

stocks are for people who want to maintain a constant flow of income. Thus, early in their career they

should look only at growth stocks owing to their risk appetite and later, again, when one has fixed

responsibilities to cater, they should start looking at dividend yielding products and when their

expenses are at the peak they should look more towards fixed income and in equities, towards

dividend yielding stocks.



➢ If anyone is saying that have no mistakes or haven’t missed out on anything, they are probably lying.

In my case, I would say that I have more mistakes than did right things.

30

➢ Firstly, I missed in understanding the value of savings and then making optimum investments out of

those savings. That is why throughout our discussion I am talking more about inculcating the habit of

saving.

➢ Secondly, learn to take risk but calculated risk after doing enough research on your investment

product. Merely saving considerate amounts of your income will never generate great wealth, to

generate great wealth one has to learn to take risk in the early years of their career as the risk appetite

is maximum then.

➢ So, these are the two major things that the upcoming generation should incorporate, which I missed

during my initial years.



➢ Financial instruments which are utilized and employed properly can change the fate of an economy

because they are a source of capital. But in India we found that in the first 40 years of our independent

existence we did not focus much on capital creation which dented our economy a lot and a large

percentage of population was outside the savings net. However, in the last 20-25 years things have

changed quite a lot. Many people in India do not have bank accounts only. The benchmark should be

that each and every Indian should have a bank account, then they should initiate savings in those bank

accounts so that the banking sector also gets money. Once the habit of savings is initiated then only

they should start investments.

➢ Thus, we can conclude that the term financial inclusion is very dynamic. It will change from time to

time. Currently, in India financial inclusion can be termed as opening more and more bank accounts.

Few year down the line, the term financial inclusion might change to help people inculcate habit of

savings then few years further down the line it should be to make them aware with several

investments schemes, etc.


finance a major?

➢ Warren Buffet’s book have sold in millions and if readings books were the key to earning billions there

would have been millions of Warren Buffet, however, there aren’t. Yes, books are a good source of

gaining knowledge but one should not solely rely on them

➢ So, In order to gain some insights about investments and savings, a book that I would suggest is “The

Warren Buffet Way by Robert G. Hagstrom Jr”.

➢ I believe that first a person should understand value and then understand growth. So, for this there is

a book called “The Book of Value by Anurag Sharma”.

➢ Now, in order to understand growth and identify growth stocks, there is a book wonderful book called

“Finding the Next Starbucks by Michael T. Moe”. This is the book which I recommend the most, it

personally changed my perspective of investing.

➢ Thus, I would advise these 2-3 books in order to get a brief insight about the financial markets. They

are not complex to understand and would be a good read.

9) During this pandemic, have you witnessed any behavioral changes in the investment

strategies of investors as well as fund managers, What according to you would be substantial

reason of such behavioral changes?

31

➢ The global pandemic is huge and, owing to that, the global economy has taken the same kind of knock

that a world war would have conflicted. So, the investors have panicked but if people go back and see

how the markets reacted after world war – 2, they would see that the markets have reacted to this

pandemic with great maturity. The Indian markets were at an all-time high in March and in just one

month it lost 40% of its value but in the next three months it gained almost all of its value and is just

about 10% down from its all- time high. What it shows here is that today the investors are smarter,

they realize their mistakes earlier and very few of them react. Many of the investors just sat quietly,

they didn’t sell, didn’t panic, etc. they might have fear in their hearts but it didn’t show on the streets.

The financial markets have largely been insulated by the fear in investors’ heart not reflecting on the

street which portrays maturity. The fear didn’t reflect on the street as the fear was dealt with very

early. Thus, the investors of 2020 are far more mature than the investors of mid 1900’s. So, truly

speaking, I don’t see a substantial change in the behavior of the investors. Yes, the investors might

have become a little more cautious but they haven’t panicked.

32

PRABHAKAR KUDVA

❖ ABOUT Prabhakar kudva has more than 10 years of experience in the financial markets industry.

Started off as a software engineer, is currently the Co-Founder and Director of a

portfolio management company, Samvitti Capital ltd. He also has his name in the list of

40 under 40 Alternative Investment Professional.

❖ EXPERIENCE

1) SAMVITTI CAPITAL PVT LTD. (CO-FOUNDER & DIRECTOR)

2) THOMPSON REUTERS (PRODUCT MANAGER)

3) OMNESYS TECHNOLOGIES PVT LTD. (MANAGER ALGORITHMIC TRADING)

4) OMNESYS TECHNOLOGIES PVT LTD. (SENIOR BUSINESS ANALYST)

5) MFORMATION TECHNOLOGIES (SOFTWARE ENGINEER)

❖ EDUCATION

1) SRI JAYACHAMARAJENDRA COLLEGE OF ENGINEERING, MYSORE – Bachelor of

Engineering, Computer Science (2003-2007)

33

1) It is said that one cannot beat the market when it is efficient i.e. the prices of the stocks have

incorporated all of the news and reached its optimal level. Thus, no stock is undervalued or

overvalued. Sir, this is just a hypothesis in practical life how would one analyze that whether

the stock is optimal, undervalued or overvalued.

➢ Markets are not hundred per cent efficient, they are said to be broadly efficient. This means, most of

the times the prices seen on the screen will reflect all the information and data that is known but there

is some 10% of the times when it is not true i.e. the efficient markets theory does not subscribe. This

happens because markets are all about people buying and selling stocks and amongst people when it

comes to money it is a very emotional matter. There are these concept of greed and fear that come

into play, supposedly, the markets are falling and the stock that one owns is down 30%, then he or she

will not think of efficient markets theory, they will just go and dump their stocks and sometimes people

do not want to miss an opportunity and they go and buy at any price. So, such forced selling and forced

buying can lead to opportunities for rational investors. Somebody who just dumps a stock because

they are feeling scared or left out then this efficient markets theory goes for a toss and that create a

small opportunities for rational investors. Now, to value the stock or determine whether it is

undervalued or overvalued people use discounted cash flow (DCF) which is used to estimate the value

of an investment based on its future cash flow. So, people predict a particular company’s future

earnings which is full of uncertainty and on that basis people hypothetically estimate a particular

company’s valuation. An undervalued company for one person can be an overvalued company for

another, it is based on different perspectives.





➢ Benjamin Graham and Warren Buffet gave three principles, those principles seem very simple but they

are quite difficult to implement. So, they are as follow:-

a) Every time while buying a stock, think of it as buying a part of the business

➢ Anytime one buys a stock don’t just buy by looking at the price, as when you buy and the price goes

up one will never know when to sell. Then, one should ask oneself questions like, what is that company,

how that company earns money, what will be its future earnings, etc. So, when buying a stock think of

it as investing in the business and not in the stock.

b) The concept of ‘Mr. Market’

➢ As said earlier, there will be many situation when the markets will act irrational, like in the month if

March. In the month of March people resorted to forced selling because of the fear and ominous

signals. Businesses were doing just fine, they had taken a toll for a year or so but people were pricing

them as if they would go completely bust. These irrationality in the markets will come on both, the

upside as well as the down side. Thus, one has to utilize those irrationality by taking the other side of

the trait.

c) Always build in a margin of safety

➢ What this means is that do not put all your money in one stock, stay diversified. Do not be scared to

take risks but calculate your risk appetite.

34

➢ So, these three things if one follows they can have an edge over others. As I said, markets are all about

the future and not the past and future no one knows, therefore, one should leave scope for errors,

learn from them and rise as a better individual.



➢ Financial literacy programs are very much required among students as the ability to manage their own

is a life skill which can be taught, at the base level, only through such programs. It is very simple to

teach students about basic finances which will help them manage their own money, it is not a rocket

science, but unfortunately it is not taught. The best way to implement these programs is to encourage

to do things more practically, if people are taught theoretically, perhaps, they will not be able to go

out and invest in a fully functioning market. The real experience comes when they get through

practice, students in colleges should be encouraged to enter into the market as early as possible in

order to get a technical knowhow. Thus, if financial literacy programs are taught in a theoretical

manner they might not add much value, there has to steps through which the learnings of these

programs can be brought into practice.




➢ Power of compounding is extremely important for everybody investing in the financial markets.

However, there exists a fallacy amongst people when talking of compounding their wealth. Many

people have to understand the formula of compound interest [A=P (1+r/100) ^t] from a practical from

of view. Most people focus of on the R i.e. the rate of interest but actually what matter is the T i.e.

the time that people remain invested because even with the lower R and a larger T people can earn

the same amount of money which has a bit of certainty in it. However, what most people do is that

they run for a higher R and a lower T i.e. they want to make the most amount of money in the least

amount of time. Unfortunately, this practice leads to more risk taking, more aggressive investing, and

this then leads to losses. Thus, in compound interest the key element is the time, moreover, if people

see the curve of compound interest it follows the power law i.e. it grows exponentially, it will be very

flat in the beginning and the real power of compounding is realized when the years pass by, this is the

time when people will notice a steep graph and the value of their investments will rise by considerable

numbers.





And why?

➢ It is mainly dependent on one’s interest, there are a lot of people who are interested in something

other than finance. So, for these people mutual funds are the best, they get the chance to participate

equity journey, get the chance to participate in the expansion of the economy, etc. without really

bothering about day to day fluctuations and managements, etc.

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➢ But some people are interested in the financial markets, they have the technical knowhow. So, people

who are interested should choose the direct equity route because direct equity requires constant

attention, if someone who is not interested and cannot provide the attention and monitoring that

direct equity requires he or she will end up losing money. Thus, the most important things to gauge

for any individual is to determine that is that person really interested in the markets, if the answer

comes to be yes, then direct equity is the way and if it turns out to be no, then that person should

choose mutual funds.


market-


b) Or investment in growth stock

And why?

➢ Currently, India is a growth market. In India the valuations are very high and the number of mature

businesses are very low i.e. most of the business are in their growth phase. However, in other

developed countries there are many businesses which are mature i.e. their growth phase is over, and

are focusing on providing dividends, doing buy backs, etc. Thus, India, right now, is inherently a growth

market and people investing now should keep growth as their main variable because people won’t get

many matured businesses paying large dividends. There are some public sector undertakings in India

which pay dividends but then the investment in that asset class is a questionable matter. The

management is a major issue, the CEO keeps on changing every two years, government intervention

also brings in some issues related to governance, etc. Thus, people in India should focus on growth

stocks for wealth generation.



➢ Lot of us spend a considerable amount of time reading books on different investors in order to find a

formula that would unlock the door to riches as it did for those investors. Unfortunately, there does

not exist any such listed strategy or formula for a successful investing career. Of course, it is very

essential to read about different investors, their investing strategies, etc. but the purpose should not

be finding a desired formula, rather, it should be to explore different strategies, evaluate them and

then find the one that suits your instinct and the one with which you are comfortable. Otherwise, one

would waste substantial amounts of time hopping from one strategy to other and later realize that no

wealth has been generated. Thus, people should first read basic books as early as possible in their

investing career, then experiment different strategies and find out which suits them the best. The early

they compound their knowledge and identify their style, the longer time they could spend in the

financial markets.


finance a major?

➢ The best book for anybody wanting to understand the financial markets is one up on Wall Street by

Peter Lynch. It is written in a very simple language and covers almost everything one needs to know

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about the markets, starting right from the functioning of the markets, searching for an optimum

investment, applying different strategies, etc. Thus, this book a must read, also, there is one more

book by Peter Lynch i.e. Beating The Street, this also gives very informative insights on markets. So,

these two books are from knowledge point of view. If someone wants to get an insight on stock

trading, the best book is ‘Reminiscences of a Stock Operator by Edwin Lefevre’ which is an

autobiography of Jesse Livermore. Therefore, these three books will provide a deep insight into the

financial markets, moreover, saving people from the complexity in language of other finance related

books, making them a must read.




➢ There is definitely no change in the behavior of fund managers who have been in the market for many

years, for them this is just another cycle of markets plummeting and rising back, of course the

situations have been very different every time but the overall effect has been the same. Now, in the

case of retail investors and youngsters, the market has witnessed an outlandish increase in people

participating in the markets, which is a good sign for the economy as a whole. The main point to notice

here is that most of the people entered the markets just to make money and not to learn and gain

experience. As, people entered when the markets were down 40% so any stock picked up by them has

rallied and they have made good profits. In the current scenario, what we have witnessed is that

people have turned greedy, they are not really considering the fundamentals and taking advantage of

the beaten down market, as every asset class has given them profits. Now the key thing to watch out

for is the behavior of these investors when a downfall reoccur, which is inevitable, they have seen only

the up side movement, but how they would react when the situation takes a turn is an intriguing thing

to observe in future.

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SANDEEP SHENOY

❖ ABOUT

Sandeep shenoy is an engineer by profession having additional training in management and

corporate law qualifications, he has more than 20 years of experience in the field of equity

markets. He is a specialist in analysing investment opportunities and advising on how to

capitalise upon the same.

❖ EXPERIENCE

1) PIONEER INVESTCORP LTD. (EXECUTIVE DIRECTOR – EQUITIES)

2) ANAND RATHI SECURITIES (EXECUTIVE DIRECTOR – INST EQUITIES)

3) ANTIQUE SHARES AND STOCK BROKERS (HEAD OF RESEARCH)

4) PIONEER INTERMEDIARIES PVT LTD. (STRATEGIST)

5) SHRIRAM MUTUAL FUND (FUND MANAGER)

❖ EDUCATION

1) INSTITUTE OF COMPANY SECRETARY – ACS, Corporate Law (1992-1995)

2) UNIVERSITY OF MUMBAI – BACHELORS OF ENGINEERING & TC (1983-1987)

38



overvalued. Sir, this is just a hypothesis in practical life how would one analyze that whether

the stock is optimal, undervalued or overvalued.

➢ This hypothesis is held true when a stock is in the maturity phase. At that time everything is well

factored and you know what is going to happen next. However, when market is grappling with what it

can do next then it can give a under depressed price. Over a period of time we have seen that efficient

markets theory works, but when a particular stock is the middle of its maturity or we can call it as its

growth phase, then it is generally not able to determine what scale it can achieve. So, this scale

achievement is generally missed out by the markets and this where most of the growth stocks do not

subscribe to the efficient markets theory.





➢ A person at a young age has relatively no big responsibilities that has to be fulfilled and is capable of

taking a relatively high amount of risk. Thus, a person should start as early as possible and give

maximum weightage to equities. Although, equities are an extremely risky asset class as compared to

other but is suitable for people at the start of their career as they no responsibilities, liabilities and

have nothing to lose. Supposedly, owing to the risk associated with financial markets, if a person loses

all hi wealth invested in equity market, then also he knows that he still has 30-35 years left of building

his wealth and he, apparently, didn’t lose such a substantial advice. Therefore, my advice to millennials

would be to start investing as soon as possible and devote maximum proportion of your portfolio to

equities.



➢ Financial literacy programs are of great significance. Students should be taught basics of the financial

markets such as, working of financial markets, what are stocks, what are dividends, what is debenture,

what drives stock prices, etc.

➢ Also, as said earlier, that young people at the start of their career should take high degree of risk and

maximize their exposure to equities as much as possible. This philosophy of risk, return and payoff

should be thought to children in financial literacy programs.

4) When we talk about investments or savings, the term “power of compounding” is widely

used across various fields. What according to you is the significance or importance of “power

of compounding” for a person, not familiar with financial market, who is trying initiate

savings?

➢ Compounding plays a very important role in creating wealth for a person. A person should be very

considerate about the “Compounded Annual Growth Rate (CAGR)”. It is possible that in the first 3-5

39

years one’s investment only moves 5-6% but in the last two years it moves about 40-50% per year.

Therefore, people should make their minds beforehand to remain invested for a longer period of

time in order to average out their returns over the period of time.





And why?

➢ Firstly, to learn how to ride a motorcycle a person first learns to ride a bicycle. This is how your

investments should also take place, in order to learn how to ride motorcycle i.e. investing through

direct equity one should first learn how to ride a bicycle i.e. investing through an equity fund. When

invested through an equity fund one gets the technical knowhow required for direct investing and

learns about the functioning of markets. Once a person is equipped with all the prerequisite

knowledge required to invest directly he or she can gradually withdraw money from funds and utilize

them in direct investments. Considering the same analogy, when a person riding a bicycle falls he or

she has minor injuries and the cost of repairing the bicycle is also not much. However, if a person riding

a motorcycle falls he or she has, perhaps, some major injuries and the cost of repairing the motorcycle

is also very high. Thus, the risk associated with investing directly is very high as compared to investing

through a fund. Therefore, unless and until a person is extremely confident about his investment

savings and has all the knowledge required to invest directly he or she should take the route of an

equity fund.


market-



➢ As stated earlier, people at the turn of their career have the ability to take bigger risk and that too for

a longer period of time. Therefore, millennial investors should invest in growth stocks to maximize

their wealth. On the other hand, dividend yielding stocks are for people who are willing to take less

risk and want to ensure regular income. Thus, when people get to an age where their expenses are at

peak and they want to ensure regular cash flow then dividend yielding stocks will suffice.



➢ One thing that I would like to advise the upcoming generation is to study people who are not successful

or those who have lost their wealth after creating a huge empire. What people do is the complete

opposite, people study those who are their peak right now to understand what one should do to

become successful. Who will be the next Warren Buffet we don’t know and what that person is doing

to become successful is also not accessible but stories of those who have lost all their wealth by

following some wrong practices is readily available. So, one should read them and get know not only

about what they should do but also be well-versed with what one should not do so that he can avoid

those practices.

40



➢ Supposedly, a person was paying their house helper in cash and they used to buy daily consumables

now the same person has started depositing the amount in their bank accounts and they buy the same

consumables by swiping their debit card. A shift from cash to bank neither changed the expenses of

that house helper nor did it benefit the company that sales daily consumables as the money received

by them is the still the same. Now, how does financial inclusion helps then? Financial inclusion solves

the problem of credit availability to low income groups. When more and more people will deposit

money in their bank accounts the banking sector flourishes and more money will come in the banking

sector. For the people who have deposited their money can now avail loans from banks for their

expenditure at a fixed rate of interest which otherwise would have been very difficult and the rate of

interest charged by random money lenders is detrimental for people in the low income group. Thus,

the banking sector will flourish, the loan taken will be utilized somewhere, say, in buying television,

motorcycle, building house, etc. and the overall cash flow in the economy will increase which will

provide a boom to whole economy. However, this all may look very fascinating and enticing but the

whole process is almost sluggish and will be beneficial only on the long term.


finance a major?

➢ First of all, there are two books written by Dr. Prasanna Chandra in which he has very simply explained

about basic finance. Thus, if someone just wants to get a bit knowledge about basic finance these

books would be very helpful. Also, there is a book called ‘Reminiscence of a stock operator’ which was

written in 1920’s and the person who wrote this book had lost all his wealth and then he wrote this

book about the mistakes that he made. While reading this one will notice that the way humans used

to think a hundred years back the same way they think now and many of them are making the same

mistakes as this man did.

41

ALOK AGARWAL

❖ ABOUT Alok Agarwal is an experienced equity fund manager with a demonstrated history of

working in the financial services industry. He is a strong professional graduated from

the CFA Institute, USA and the CA Institute, India. He has also authored 4 books on

financial management.

❖ EXPERIENCE

1) PGIM (SENIOR FUND MANAGER – EQUITY)

2) DEUTSCHE ASSET MANAGEMENT (FUND MANAGER- EQUITY)

3) K.R. CHOKSEY SHARES AND SECURITIES LTD. (HEAD FUND MANAGER – EQUITIES)

❖ EDUCATION

1) CFA INSTITUTE, USA – 2005-2009

2) ICFAI UNIVERSITY – Masters of Science, Finance, 2002-2005

3) ANNAMALAI UNIVERSITY- Masters of Commerce, 2000-2002

4) INTITUTE OF CHARTERED ACCOUNTANT OF INDIA – 2002

5) ST. XAVIER’S COLLEGE, KOLKATA – Bachelors of Commerce (HONOURS), 1995-2000

42



overvalued. Sir, this is just a hypothesis in practical life how would one analyze whether the

stock is optimal, undervalued or overvalued.

➢ Financial markets are made up of individuals, and in history the world has witnessed that individuals

have never been completely rational. Due to all the conjecture, anticipating and forecasting done by

these individuals, a stock price can almost never be completely optimal. There will always be a

situation where the prices will be either undervalued or overvalued, mostly due to favourable and

unfavourable anticipation done by individual players in the market.

➢ A stock is never undervalued or overvalued on the basis of its price. For example, a Rs.2000/share

company can be extremely undervalued and a Rs.50/share company can be extremely overvalued.

Also, it is possible that they might have split their shares that is why the prices have come down, this

process never hampers the valuation of the company. To know whether company is optimal or not,

one has to carefully asses the balance sheet, the cash flow, etc.

2) We have seen that in past 5-10 years the market has changed big way and has become


bringing large amounts of money. What would be your advice to them for optimal

investments and savings in the early phase of their career?

➢ Millennial investors need to understand the importance of saving in the early phase of their lives.

Talking of wealth creation, they need to understand the significance of remaining invested for a longer

period of time. They should start off with investments at an early phase of their career so that they

have more time to remain invested. Also, one big mistake that almost all millennial investors do is that

they follow the practice of saving what is left after spending their income but it should be the other

way round i.e. one should first save a fixed proportion of their income and then spend from what is

left after savings. This practice will increase their savings proportion immensely and will help them to

quickly gather more funds for investments. If a person is disciplined in his investments no one will ever

lose money in the long run but if a person deviates from one’s goal and becomes undisciplined, it is

imminent that the person will end up burning his fingers.



➢ Financial literacy program should be initiated at school and college levels. In India we do not have

such programs in each and every locality. Students should have at least basic financial literacy

irrespective of their educational stream. This includes teaching them the importance of savings,

making them understand about fixed incomes, how to manage money, etc. These programs if

introduced properly in India, it will help in students’ development and also provide them with the

prerequisite insight into the finance industry.




43

➢ The power of compounding is the most important thing that a person needs to understand in

investing. As stated earlier, the longer one remains invested the more is the wealth that one makes. It

is the time that needs to be taken into consideration than the rate of return. For example, anyone who

had invested in the markets any time between 1980-2005 and held it for at least 15 years, has gotten

a bare minimum of 8% year on year average return. In a lay-man language, the amount invested any

time between 1980-2005 and held for 15 years must have got more than three times of the value

invested i.e. a person investing Rs. 10000 got more than Rs. 30000 in 15 years. Thus, the importance

of time frame is extremely significant in compounding.





And why?

➢ It is always feasible to make your investments through an equity fund. For a person who doesn’t

have technical knowhow and knowledge about investing directly can choose the way of equity funds

and save a lot of his valuable time and energy. If a person is from the similar background and has

sufficient time, knowledge, and information about the financial markets then only he or she should

invest directly.


market-



And why?

➢ Investments in dividend yielding stocks can be for older people who do not want to take the risk and

ensure regular income through their investments. On the other hand, millennial investors should take

the route of growth stocks as they can take the associated risk and also their main focus should be on

wealth creation through compounding and not ensuring regular income through dividends. Moreover,

if a company pays high dividend it does not mean that it is a bad company or only elderly should invest

in it, one should asses the company and then carefully take the decision to invest but investing in a

company for the reason that they constantly pay dividends is not something that millennials should

practice.



➢ One thing that I said “don’t save what is left after spending, but spend what is left after saving” I

adopted this principle very late in life and I feel that if I had known this at an early phase of my career

it would have paved a better path for me. Thus, I advise the upcoming generation to follow this

practice in order to be better off in future.

44


finance a major?

➢ Beating The Street by Peter Lynch

➢ The Little Book of Common Sense Investing by John C. Bogle

45

CONCLUSION

• Small saving products’ interest rates are continuously falling which have directly affected retired people

or people in the lower income group who used to put their money in these products for future savings.

There is a lot of conjecture and anticipation in the fixed income market about the future of these small

saving products. Some fund managers say that there would be even further rate cuts owing to situations

brought in by Covid-19 and people either have to accept that or go down the credit curve and trying

diversify their portfolio with an exposure to other debt instruments or equity. On the other hand, some

fund managers say that small saving interest rate in India has gone up in real terms i.e. the inflation rate

has plunged significantly from before and people are now earning in real terms unlike before. However,

one of the key reasons of this trend is that the government decided to link the small savings rate with the

government securities rate which has been declining over past few years due to rate cuts and open market

operations by RBI to support growth.

• The markets have witnessed a drastic change in the investment strategies of investors. Most of the fund

managers have witnessed that all the investors have turned risk-averse. Their greed for returns has taken

a back seat and now everyone is focused on safe-guarding their wealth. People have withdrawn their funds

from risky assets and put them in assets that are relatively safer. Such dramatic change in investor

strategies was only linked to non-clarity on the endurance/end of the pandemic.

• It is true that the Indian Fixed Income Market lacks the vibrancy as compared to markets of other

developed and developing economy. It is because of limited issuers and buyers, the penetration of debt

instruments is not as much as equity and small savings products in India. Most of the trading in the

secondary markets is limited to AAA rated bonds only. Moreover, India does not has a fixed income market

index very popular among investors. Thus, there is a lot work to be done in various horizons to make the

Indian Fixed Income Market at par with its peers.

• The most common advice that I received from all the fund managers related to investment strategies for

millennial investors was asking them to map out their goals right in the beginning of their career. Some

believe that investors should map out goal with different time perspectives i.e. short-term, long-term, etc.

Almost everyone is advised to have maximum equity exposure at the start of their career as their risk-

appetite is at the peak and even if they lose their wealth, they have the time to rebuild it. However, when

millenials were surveyed about investing, none of them wanted to invest and wanted to spend their

earning. Thus, it is extremely important to educate millenials asking them to write off money spend on

investment and treat it as an expenditure. Inculcating this habit in millennial is very important for their

better future as one should start saving as early as possible in life.

• People at the start of their career are always advised to invest through a fund be it equity or bond.

Investing directly in the financial markets require a lot zeal, passion and especially technical knowhow.

People in the start of their career do not have so much experience and technical knowhow to invest

directly into asset classes. Moreover investing directly requires a lot of research, time and energy and

people who are in fields other than finance may find it difficult. However, people who have the zeal and

want to gain experience can have a mixture of both, they can keep a small portion of funds for investing

directly and analyze their investment decision, putting the greater chunk of money in a fund thus

safeguarding it.

46

• The most common misconception that people have about power of compounding is that they give more

importance to returns rather than time. In today’s world, the markets are so dynamic and efficient that

getting high returns is tough, however, people can earn the same amount of returns with a lower ‘R’ but

higher ‘T’. Thus, it is extremely important to start investing early in life and remain invested for a longer

period to take maximum advantage of power of compounding.

• When asked about books to read on finance in order to understand the working on financial markets, the

most common book that everyone advised was ‘One Up On Wall Street’ by Peter Lynch. It is a book that

is easy to understand for beginners as it has a language that is non-technical and easy to comprehend.

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ANNEXURE

1) Sanjeev Kumar

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2) Bekxy Kuriakose

49

3) Suraj Kaeley

50

4) Anurag Mittal

5) Piyush Harlalka

51

6) Arun Gopalan

52

7) Prabhakar Kudva

53

8) Sandeep Shenoy

54

9) Alok Agarwal

IN DEPTH UNDERSTANDING OF FINANCIAL MARKETS

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