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Given the economy and investor wealth, what is your message to the investor?Sanjay Sinha: Some bit of the message is reflected by the investor himself.If you

see the funds industry,it has not grown the same way it did last year. The second thingis investor reaction. In the early part of the previous rally, the participation of the re-tail investor was very modest, almost negligible. The participation steadily grew,reaching the maximum in the last 12-18 months.Equi ty as a percentage of financialassets continues to be at a low proportion. Even today, most people dont own a sig-nificant part of their portfolio in equity. So, even a 40% fall does not erode their wealthsignificantly.S o, why have investors come in last 12-18 months? They have now be-gun to believe that the economic growth is going to be sustainable not for just oneyear or 18 months.The best way to participate is through equity ownership. That is

one part of assessment. The second part is the erosion of wealth.The market went up by 42%, 46% and 47% in 2005, 2006 and 2007, respectively. Fromthe peak we have fallen 40%. If you look at history we have fallen from top a num-ber of times and bounced back from there over a period of time.In the past, whenthe market has fallen so much in 1992 and 2000, it rallied 100% plus from bottom in2 years time. At present, there is an aura of despondency due to high inflation andother concerns. But we need to look beyond that.We need to see if this is structur-al in nature or is it just short term.It doesnt look structural; it is short-term.I thinkthis is a buying opportunity.

Madhu, investors understand that markets keep going up and down, whether they them-selves are investing or not. At this point in time, how does one protect capital - whenthe markets are down?

Madhusudan Kela: Let us unambiguously say this:If you are an investor, if yourtimeframe is 3 to 5 years,then these are the best times to buy equity with a lot of stockprices demonstrating the kind of fear which are not real if you take a five-year view.

From an investors perspective,for people who have no substantial part of theirsavings in equities as an asset class, this is very clearly time to systematically invest.In the near term - say six months - things may deteriorate. Like Sanjay was say-ing, things dont look structural. High inflation, interest rates,crudethese are notthings I can see lasting for more than six months.

On the flip side,if you dont invest in equity, you put your money in a bank.Therewealth is going down for sure. With 12% inflation and 9% interest rate,you are los-ing money on bank deposits.In equities at least you have a hope of making positivereturns. But the answers are not simple.

Sandip, looking at macro situation, the widespread expectation is that the west willslow down. How do you see the fundamentals of economy in next two years? Investorswill have to derive their decisions from that. What is your assessment ?

Sandip Sabharwal: The concerns are well known, they are talked about in me-dia all the time.We know theres inflation,poli tical uncertainty and tight monetarypolicy impacting banking and capital goods sectors. We have to see, like Madhu said,if this is structural or is transitory in nature, which may remedy itself over a peri-od of time.

My view is that a slowdown in the western economy is absolutely essential for In-dia and China to emerge as the next growth drivers of the world.The demise of Japanled to the emergence of the US. Just see the kind of return the US stocks gave duringthe time of their emergence.There are structural issues in the US,which will lead tothe decline of US economy in the next 10-15 years. This will lead to the emergence ofother countries especially India and China and many be other economies like Braziland Russia may also do well.Demographics- wise, India is best poised. Resource-wiseBrazil is placed well. China and Russia also have lot going for them.

Whoever is a long term investor should look at investing in a structured manner.Today inflation is at 12%; six months ago,it was 4%. One year down the line,it mayagain go to 4%.

The drivers of inflation are unlikely to persist at such elevated levels for extendedperiods of time.There can be high interest rates,there can be low interest rates.Butwill the high interest rate kill the investment and consumption psyche of the corpo-rates and households? I dont think thats going to happen. The balance sheets areleveraged to lesser extents.

Today its a crisis of confidence caused primarily by news flow. As we do micro-analysis,as we meet a lot of corporates,we dont see the kind of slowdown as reflectedin the macro numbers.

Madhusudan Kela: For a longer-term,the situation is far looking worse than whatit is today in the current year. There is a delta (unexpected negative impact) of $75billion, which you had not anticipated when you made investments two years ago.

The delta came in two forms.One was rising oil prices. India has had to pay $50 bil-lion more than what was anticipated three years ago. And $25 billion dollar less in-flow by foreigners through foreign convertible bonds, equity etc put together

So, for a trillion-dollar economy (there has been) a $75 billion negative unexpect-ed impact, which is why we are seeing a chaotic situation. If you expect this $75 bil-lion delta to occur year af ter year, then you must be very pessimistic - what the me-dia is today widely. If you think there is a scope for another $75 billion delta, thencrude must go to $300 per barrel, in which case we are all dead anyway.We have seen oil prices moderating suddenly over the past few days. We dont know ifits a long-term thing. But oil prices have transferred wealth from one set of people toanother. Sanjiv, do you see any positive in that for India as far as liquidity and moneyflow are concerned? Or is it all bottled up somewhere else?

Sanjiv Shah: Before I answer that question, look at the total Indian investment inthe equity markets, it is minuscule.As Sanjay was saying, Indian investors haventreally taken huge bets on economy.They have been lending to the government at theend of the day. Until now, they didnt have pensions, didnt have anything else. Every-body wanted capital safety because of which we didnt see flows into equity. As we goforward, you start realising that by keeping money in a bond or a bank deposit thereal value of money will go down dramatically. If I am a investor I got to start look-ing at asset allocation. Forget growth,if I want to protect the value of my capital, Ihave to look at assets like equity. That is going to bring more and more flows into eq-uity. If you look at market valuations, I feel more and more money has to move intoequity. If you look at RBI bonds, they have collected Rs 100,000 crore. What is drivingthat? Safety of capital. Going ahead,safety of capital will drive more money into eq-uities.

Then comes international flows. International flows, the ability to take risk is com-ing down due to problems in the US.Money supply will come down. There has beentwenty years of high growth in money supply. That will come down.Bala, from an investors point of view, this should be the beginning of the right time toinvest. Why is not the fund industry able to sell this idea?

Balasubramanian: The point is, everybody wants to come in at 21000 Sensex butnobody wants to come when its 13000.

From the overall economy point of view, in the last few years, we were talking offiscal deficit coming down, now we have fiscal deficit going up to 6%.T he Indian cor-porate was leveraged. In the 1990s,cost of borrowing was high. For every rupee in-vested, there was Rs 2 to Rs 3 debt. Today the balance sheet of Indian corporates ismuch stronger and the valuation lot cheaper than in many international markets.Assets have grown in last the 3 years much faster than in last 10 years.

Look at the reality of funds,how they have grown.Between January and March, mutual funds could almost match the selling pres-

sure from FIIs.Not only mutual funds, insurance has also grown considerably. The industry has

matured so much. Investor awareness has also increased significantly in the last oneyear or so. People are asking when should I invest in markets.But is it possible totime market? Its very difficult.

Despite many crises, in the last ten years industry growth has been 26% com-pounded annual growth rate. Month after month SIP (systematic investment plan)flows are increasing.

The uncertainties that we are facing are global in nature.The Reserve Bank of In-dia governor in his latest speech he said The Indian financial system is much strongerthan US. These are facts which are not coming to foreground. Therefore its an op-portune time.

Sanjay Sinha: To bring to the fore the role of mutual funds, just look at the num-bers.In the whole of 2007,they bought Rs 6,700 crore. This year they bought over Rs10,000 crore. So participation of mutual funds has been far higher. Look at the con-tribution they have made to change the investor psyche.

Look at the two falls of May 2004 and May 2006. In these, the investor reaction wasnegative. But on both occasions, they were inactive.This year,mutual funds are buy-

ing. How are they doing so? Because they are seeing inflows.In our funds, right fromJanuary, we have seen net inflows almost everyday. I travel all over country. We go toTier II and Tier III towns. They are not asking should they put money into equities.Investors are askingwhen they should put money.

Madhusudan Kela: Equity is the only commodity where higher is the price,high-

er is the demand and vice versa.Thats because of greed and fear. However, scientif-ically you try to justify, much money will not come at the bottom of the market.ButI think the industrys effort and the media role should come in here.

There is a lot of wishful thinking that when mutual fund redemptions happen,thatis the time market will bottom out.That will remain just wishful thinking.

About 85% of the retail investor base of 65 lakhs have put in less than Rs 50,000.

That is the level of penetration we have achieved as an industry leader. I am sure ifthe media plays a more positive role, we can take the message across to them.

Sanjiv Shah: The Indian investor has no choice to move into equities.Until now,real rates of interest have been higher. But with the scenario changing, we think the65 lakh number will move into 65 crores in short time. That process is on and its go-ing to get accelerated.Mihir, quite obviously the investor has not panicked. He is not pulling the last rupee outof mutual funds. How would you sum up the macroeconomic and investor sentiment interms of plusses and minuses? Do the pluses outweigh minuses?

Mihir Vora: If you ask this question in terms of timeframes,if you are lookingat a 3-5 year timeframe, I can see very little minuses. We have three or four pillars - demographics, infrastructure, consumption and outsourcing.We look at sectors ineach of these themes.There are very few sectors that wont do well in each of thesespaces. Whether it is capital goods,construction or FMCG, Telecom or informationtechnology. On none of them can you say with conviction that they wont do well inthe next 3 to 5 years. In the short term, there are concerns. The correction shouldhave ended - if we had the same global macroeconomic and commodity prices -around Sensex 16000-17000. The fall from there was due to the incremental negatives

that have happened post correction: oil shooting up and other commodities rising.The short-term scenario cant sustain. We are already seeing demand destruction.

The world cannot afford such high commodity prices, more contraction of demandwill happen and when that happens, we will see economies like India and China whoare net users of these commodities, doing well. Globally, if you look at the financialmarkets,till last year India and China were stars of global system.Now with the risein commodity prices, despite the crash in global markets, countries like Brazil andRussia have gone up because they are commodity exporters.Once the commoditiescorrect, sooner or later, itll back to China and India, which are local stories.

Its only a matter of time. Structurally, the story is intact.Where we are today ispartly our own making. We should have probably done more in the infrastructurespace faster

But a 10% growth may not be possible from here. But 7-8% is very much sustain-able. Its just a question of time.

Madhusudan Kela: The last point on the economy. If you take a three-year view,even if oil prices remain where they are today, India will actually spend less moneyby 2011 compared with today because we will by then have $25 billion worth of crudeand crude equivalent savings happening due to availablility of local crude and localgas. And,if you look at the picture of $120 billion dollar worth of oil exports,and ifyou take my $25 billion number at face value, on a $1.7 trillion economy, in percent-age terms, the expenditure is quite reasonable.Remember, here we are still assum-ing 5% growth in oil demand.

Point no. 2 is that let us look at the Indian economy vis a vis global our growthfalling from 9%-10% to 7.5% looks like chaos. Imagine a $12 trillion economy like theUS - they are struggling,struggling to grow on a notional basis at 3%,including in-flation, whereas here, including inflation, you are growing at 14%-15% (7% growthand 8% inflation) this year, and continue to do so. I dont think the relative impor-tance of India in the world of investing can be ignored for a longer term for institu-tional investors. Its a greed and fear game. People are so fearful they dont want toanalyse and look beyond 6 months

STREET TALK: (From left to right) : Sandip Sabharwal, Sanjay Sinha, A Balasubramanian, Sanjiv Shah, Mihir Vora and Madhusudan Kela warm up for the DNA Money

Getting sleepless nights seeing the Sensex gyrate to the tunes of rising oil prices? Hurt by inflation? What aboutpolitics? Will the FIIs continue to stay away from the Indian stock market? What should you do with your

investments? Should you stay put or exit?Just relax, is the message from top fund managers to investors who are in the game for a period 3-5 years.Madhusudan Kela of Reliance Mutual Fund, Sanjay Sinha of SBI Mutual Fund,A Balasubramanianof Birla SunLife Mutual Fund, Mihir Vora of HSBC Mutual Fund, Sandip Sabharwal of JM Financial Mutual Fund andSanjiv Shah of Benchmark Mutual Fund came together to launch the first of the DNA Money Conversations seriesof round-table conferences on Friday, July 18.Anchored by DNA executive editor R Jagannathan and business editor Raj Nambisan, the topic of the round-tablewas the current macro-economic environment and the fundmens message for the retail investor .

Not the bottom yet, but time to

www.dnaindia.com

Mumbai, Tuesday, July 22, 200826...

If you are looking at a3-5 year timeframe, Ican see very littleminuses. We have four

pillars demographics,infrastructure, consumptionand outsourcing. There arevery few sectors that wontdo well in each of thesespaces... On none of themcan you say with convictionthat they wont do well in thenext 3-5 years.

Mihir Vora,

Head- Fund management-equities,HSBC Mutual Fund

My view is that a slow-down in the westerneconomy is absolutelyessential for India and

China to emerge as the nextgrowth drivers of the world....there are structural issuesin the US, which will lead toits decline...This will lead to the emer-gence of othercountries. Demographics

wise, India is best poised.Sandip Sabharwal,

CIO-Equity,JM Financial Mutual Fund

There are 3 factorsthat the retail investor

must keep an eye on:first is the Israel-Iran

conflict; second is check ifinflation is peaking -- donthope to invest when inflationfalls to 6%; thirdly, the RBItoday is worried about infla-tion, not growth. Somewheredown the road, it will start toworry about growth. Thats asign of bottoming out...

Madhusudan Kela,

Head-Equities,Reliance Mutual Fund