Interview with Business Standard (Ahmedabad)

Benchmark indices (Sensex and Nifty) are near its all time high of 2008. What factors do you think contributed to the rise of market? Specially when in July – Aug the country was talking about policy paralysis, slowing economy, fiscal deficits and poor monsoon? 

The last time one saw the indices close to current levels was only a couple of years back. The Indian Investor in Capital Markets has had to exhibit great patience. The gloomy scenario that existed in the country looks to be changing, with the government exhibiting some urgency in addressing certain reforms like FDI in retail and increase in price of Petroleum products, to reduce burden of subsidy, Increase in Railway Fares etc. While it can be argued that these measure could give rise to further inflation, no one can dispute that it will they will go some way in addressing the Fiscal deficit situation in the country.Internationally, too, the fiscal cliff was averted. The markets are now looking forward to some stimulus by way of the RBI reducing Interest rates 

What the sectors and companies which has contributed to current rally?

In the current rally the FMCG and Banking stocks have been the favourite of the markets

What do you think liquidity or fundamentals as the key driver for the current rally? 

While the fundamentals of any stock have to also bear out and support, the main driver of this rally has been liquidity. The unabated flows that we have seen through out the last year has contributed to the rally.

Do you think this is the right to time enter the market? Or one should stay invested in the market? Or get out of the market with profit booking seat on sidelines and wait for fall to re enter? 

For Investors who have not invetsed in the markets ever, this is a time to enter the markets by making use of the Rajiv Gandhi Equity Savings Scheme. This will give the first time investor a tax saving on Investments upto Rs50,000/-. For investors who are already invested, they could wait before booking profits,as the outlook for the current year looks promising

Which are stocks/ sectors you would recommend someone to invest in the market? – The shocks which can derail the rally and stimulus that can sustain it. 

As our company policy prohibits  I don't recommend specific individual stocks through the media. But the sectors that the investors should be looking at, currently, are those sectors that have not participated in the rally viz the telecom sector, real estate or mining sector. The union budget is round the corner and the market has pinned its hopes that policy inaction which is preventing these sectors from performing, will be addressed shortly.If  such policy action is missed out in the Budget and the budget turns to be just populist exercise (bearing the elections, next year, in mind) the markets can, once again. begin to stagnate.

What is your expectation of the market by the end 2013? 

Its always unwise to try to predict the markets but I think that the Sensex should be around 21500 by Dec 2013

Retail participation in the current rally specially after 2011 is coming down. Do you think only big boys are getting the benefit of the market? 

There are several factors that have contributed to the retail investor shying away from  the equity markets. The emphasis, in recent times,  has been on real assets like real estate and gold.Because of Securities Transaction Tax we  have seen a flight to speculative and intraday traders to other markets where such a tax is absent. We certainly hope that this anomaly of a tax arbitrage is addressed in the Budget. I disagree that its only the big boys who are getting the benefit, the fact of the matter is that markets do not discriminate and a s an old Dalal Street saying goes "  the tea becomes only as sweet as the sugar you put in it".

Article published on 'STT' in ADC

STT Should Be Removed 

Monday, January 14, 2013

We definitely, would like to see Securities Transaction Tax (STT) done away with, but...the STT would not be abolished since it generates revenue for the government. During the bull period the STT had contributed Rs. 7000 crore to the exchequer. The Securities Transaction Tax is charged on all the transactions in the stock market where it is profit or loss done by the traders. Income that is arising out of the transactions in the stock markets are ether shown as Capital Gain or it is being shown as business income. 

Here the point is that investors who are earning this income under capital gains are more than happy as they have tax advantage in the form that there is no long term capital gains tax which is Nil (after having paid STT) and there is short term capital gains tax at the rate of 15 %. 

The problems lies with the trader investors who are showing this income under business income are at the loss for the following reasons. STT increased when the market is in Bull Run, but in the bear market the cost of transaction hurts the trader sentiment and reduces the trading volumes. This has adverse impact since the impact cost goes up. There has been flight of business to other organized markets like the commodities market, interest rate futures and also government securities market. Dabba Trading which is the hurting the genuine stock market business as it leads to illegal activities hurting the overall economy and the stock exchanges in terms of revenue collection to the exchequer. As people have moved to other organized markets the trading volumes has gone down and this has increased the impact cost of trading due to which the investors suffer.

Some alternative but workable options are…
1. Introduce a dual STT structure where FIIs pay higher STT in return for complete exemption for all taxes - LTG, STG, Business Income and Speculation irrespective of domicile for all transactions, irrespective of any dual taxation treaties. This would be in line with the Shome Committee recommendations, which is suggesting higher STT for completeexemption of all taxation. 

The additional revenue from this higher STT rate for FII should be setoff against lower STT for domestic investors. This would boost volumes, increase depth, reduce impact cost, lower transaction charges and yet be revenue neutral for the exchequer.

2. STT paid by companies on shares held in investment account on transactions which then get classified as capital gains should be adjusted against MAT payments. That would reduce MAT liability which in any case is like an advance and can be adjusted against future tax payments at full rate of taxation.

Restoration of Rebate under Sec 88E 
As per Sec 88E, where the total income of an assesses in a previous year includes any income, chargeable under the head “Profits and gains of business or profession”, arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year. This rebate is not allowable after AY 2009-10 and now STT paid is allowable except from the sale and purchase amount for the computing of capital gains/losses.

In our view Section 88E must be reintroduced, so as to give the benefit of rebate which will help small investors a lot. The argument given earlier by the Department was that there is a lot of misuse of the STT rebate by transferring the benefit to other accounts by the Brokers. Things have changed drastically from then and now. As per present provisions, SEBI has imposed a severe penalty on the Client Code changing, which has made it almost impossible for any Broker to make any fictitious code changes with the mala fide intention of transferring the STT benefits. 

If the government cannot lower the STT on the ground of revenue loss, the rebate u/s 88E must be restored, which will be restricted to tax amount on the profits of dealing in shares.

Other expectations
Industry status should be given to the broking industry to enable easy access to funds from Banks and other financial Institutions.

Rajiv Gandhi Equity scheme to be extended to existing investors:- The Rajiv Gandhi scheme should be extended to the existing  investors  which would make large number of investors get the benefit and bring them back o the equity markets who have shun equities over the past few years. Tax benefits for consolidation among brokers.
 

Full text of Interview with Afternoon Dispatch & Courier dated 13/8/2012

A little background about your company and yourself ?

Churiwala Securities Pvt. Ltd. (CSPL), one of the leading and respected retail broking in India with over 3 decades of experience in creating wealth for investors. The company founded by Late Shri Gaurishankar B. Churiwala in 1971, is a member of Bombay Stock Exchange and a Depository Participant with the Central Depository Services (India) Ltd. Its group entity also offers services on The National Stock Exchange and MCX –SX .Our expertise lies in personalised investment planning in Equities / Portfolio Advisory for HNI & Retail clients. Our core focus is to look for value & assist our clients to take prudent investment decisions.

CSPL is currently spearheaded by Mr. Alok C. Churiwala whose focus & vision has helped the company to establish itself as a prominent & respected player in the industry. Besides being an Ex member of the BSE Board, he has been actively involved with BSE Brokers Forum and is currently the Vice Chairman of the Forum.

At what point had you given a thought to making a career in the stock / financial markets?

Stock Broking was our family business. Alongside of doing my Graduation from H.R.College of Commerce & Economics, Mumbai, I was also learning the ropes of the stock broking business in my spare time. By the time I was through with graduation I was ready to face the challenges thrown by the world of Bulls and Bears in Dalal Street. It was a foregone conclusion that I would move in to assist my Dad in the Family Business since the time I was out of School.

How do you pick your trades/investments? Do you use technical analysis, or do you employ fundamental data?

I essentially am neither a hard core fundamentalist nor a slave to charts. But tend use a combination of both Fundamental and technical, when signals from either are not compelling. I also like to keep myself abreast of the grapevine on Dalal Street.

How would you describe your methodology?

My methodology is very simple and stems from my Investment philosophy, I look for value buys, Believe in Long Term Investments. Equity Investments are a great tool, not only for saving but also to beat inflation. This is precisely what leads to robust wealth creation. I am also of the view that for we have to have conviction in the businesses (companies) that we invest in, if we lack that conviction, we fall prey to selling a good stock when its in a downward cycle. Most of the veterans of this trade have made more money by sticking by their stocks than by reacting to every news (of which there is an overflow of, these days).

What appeals to you about trading/Investing . The short side or the long side?

I am an investor. I look at value investments. I am not comfortable trading either intraday or on the Futures and Options segment. Not to say that I don't trade at all but its extremely selective and small quantities (lot sizes). My trading bias is on the long side and that is probably the reasons that I am not the most efficient trader.I am aware that as a trader we should not have biases, either long or short, but trade the trend.

What differentiates you from other traders/Investors?

I think, the principal difference that differentiates me from most traders/Investors is that I KNOW what my weakness are. I know that I am not a very good trader, have a "long only" bias and extremely "loss averse". While you would say that are not all investors loss averse, but in this context loss averse means the ability to face the prospect of a loss, which according to Behavioural Psychologists would mean not sticking to "Stop losses".

Also, as an Investor I am extremely confident about the stocks we pick and experience has show that most of them tend to do well if the basic tenets of Value Investing are followed.

What gives you that edge?

The thrill to extract value in Investments. But to get there one requires knowledge not only of the markets but about the self. There are two ways of acquiring this knowledge - Watching the behaviour of other (learning form others experience) and observing our own behaviour in situations.

Is there any applicable lesson to trading/ investing?

Certainly. Every trader/investor must remember that with the promise of gain attached is the possibility of a loss. So the trader/investor should do a judicious risk-reward analysis for himself/herself before initiating a transaction.

How much of what you do is gut feel?

Gut Feel is a signal that the mind gives based on the individuals past experiences, eco system etc. Its triggers automatically and without cognition. I do pay heed to it and it has served me well.

Do you try to anticipate or follow market trends? What are the basis?

As is often said, "Trend is Best Friend"... it is always safe to follow market trends, but anticipating the trend is what can differentiate between normal profit, super normal profit or a loss. The markets always tend to discount future, hence at some level it becomes imperative to anticipate the movements in the future. Some of the factors that need to be taken into account are obviously Economic (both Macro & Micro), Political last but not the least Social.

When you put money on a trade and it goes against you, how do you decide when you're wrong? What do you do next ? Reverse the position, average or just take your losses and stay out ?

This is where our conviction in the business (company) invested in comes into play. There are occasions when the stock moves in the opposite direction, the classic dilemma is should we take a loss, buy more of the same (popularly known as averaging) or do nothing.

Each decision would depend on several factors. Has there been a material change in the dynamics of the Industry? Is there aspersion cast on the quality of people managing the business? Is the company found wanting on Corporate Governance standards? Some of these factors are non negotiable, and if the answers to these are not palatable then the decision (albeit a tough one) is to exit the stock. But if its just a function Dynamics of Global Markets, Political Uncertainty or Normal Business Cycles then the call would be to either buy more or at best do nothing.

Any positions you ever lost sleep over? What happened...?

As I mentioned earlier, I am not much of a trader and very rarely indulge in speculative activity. Even if it is done, it is in moderation. Hence there has been no occasion to lose sleep over a trading or speculative position. Even when investments go wrong, the conviction carries us through (could be totally misplaced at times) But still not an occasion to lose sleep.

What would make you wary about a trade/Investment?

The current scenario is distressing. Most youngsters are falling prey to the lure of Intraday Trading, Margin Trading, Speculating on the futures contracts and not leveraging on the use of intelligent strategies whilst playing options. The Investment culture is missing. The fact that Equity Markets can be effectively used to save money and act as a hedge against inflation is totally lost on our youth. Also the falling level of Corporate Governance Standards amongst the second and third tier Companies is a concern.

Do you have a scenario about how the current bull/ bear market will end ? Where do you see the Indian markets five years down the road ? Any number for the Sensex in 2015 ?

Markets tend to provide opportunities at every juncture. Bull or Bear markets need not bother the investors?traders. The challenge is to spot the trend and play it accordingly. Also our preoccupation with trying to guess what the markets will do, is meaningless. We should be more concerned with what we will do in the markets in a given situation.

Now to crystal ball gaze... First let me share some facts and that should give the readers some perspective Sensex in 1990 was 1000, a decade later in 2000 it touched 6000, in 2010 it kissed 20000, so its anybody's guess what it ought to be in 2020 but I will put my foot in the mouth and say it here, that it will be in excess of 50,000

Of the tens of thousands of trades/investments that you have done, which was your best trade/investment?

The first Multi Bagger stock, that I picked, still remains as a fond recollection. It was a PSU stock in the Metal space and it turned to be a 40 bagger.

What was the story there?

No story really there, it was a stock neglected at the time and at quoting at abysmal PE of 2. It was not long before it caught the attention and fancy of investors, aided and abetted by bull markets and the rest as they say is history..

What makes a trader/investor successful ? Your success mantra ?

I would say knowing yourself or where your strength lies and acting likewise, meaning, if you know that you have the ability to trade successfully then one should continue with it. Also having realistic expectation of returns from the markets help because with higher returns are attached higher risks. I know that I am not a good trader, hence desist from it.

Any final words?

While the rest of world looks at India and takes advantage of its Capital Markets its time that the Indian Investors too turn their attention towards Indian Equities, else a great opportunity would be missed.

What is his take on the current market scenario, Indian as well as global?

Indian market space is offering multiple avenues Equities, Currencies, Commodities, Mutual Funds. The environment is well regulated. The technology used is efficient and cost effective. All these augur well for the investors. The economy is still showing a growth of 6% despite the drought like situation, which, is much better that American & European economies. The India story on Demographic Dividend is still on and shall remain for the next couple of decades. The challenges before us, too, are manifold corruption and governance issues can still be road blocks that need to be negotiated. The markets continue to wait for reforms. 

Financial Inclusion & Capital Market

Rangarajan’s committee on financial inclusion defines it as:
“the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.”
The financial services include the entire gamut - savings, loans, insurance, credit, payments.
The financial system has to provide its function of transferring resources from surplus to deficit units but both deficit and surplus units are those with low incomes, poor background .
By providing these services, the aim is to help them come out of poverty. So far, the focus has only been on delivering credit (it is called as microfinance but is microcredit) and that has been quite successful.
Rationale or the need for Financial Inclusion: Why is it so important?

Finance has come a long way since the time when it wasn’t recognized as a factor for growth and development. It is now attributed as the brain of an economic system and most economies strive to make their financial systems more efficient. It also keeps policymakers on their toes as any problem in this sector could freeze the entire economy and even lead to a contagion.

Reserve Bank of India data shows that as many as 139 districts suffer from massive financial exclusion, with the adult population per branch in these districts being above 20,000 and only 3 percent with borrowings from banks. On the assumption that each adult has only one bank account (which does not hold good in practice, so that actual coverage is likely to be worse) on an all India basis, 59 percent of the adult population in the country has bank accounts. 41 percent of the population is, therefore, un banked. In rural areas the coverage is 39 percent against 60 percent in urban areas. The un banked population is higher in the poorer regions of the country, and is the worst in the North-Eastern and Eastern regions. Its not surprising that these very regions are also suffering from Naxalism.

Financial Inclusion is delivery of not only banking, but also other financial, services like insurance, pension, remittance, mutual funds, etc. delivered at affordable, though market driven costs.
Opening a no-frills account is just a beginning to a continuous process of providing banking and financial services.
Once the first step of safety of savings is achieved, the poor require access to schemes and products which allow their savings to grow at rates which provide them growth beyond mere inflation protection.

So where does Capital market figure and what can be role of Broking houses

The role of capital markets is vital for inclusive growth in wealth distribution and making capital available to investors.
Capital markets can create greater financial inclusion by introducing new products and services tailored to suit investors’ preference for risk and return as well as borrowers’ project needs and risk appetite.

• Innovation,
• Credit Counselling,
  Financial Education and

Proper Segment Identification constitute the possible strategies to achieve this.


A well-developed capital market creates a sustainable low-cost distribution mechanism for distributing multiple financial products and services across the country.

Indian households are among highest savers in the world but less than 1 per cent of the population participates in capital markets. Given a savings rate of 29% and the fact that more than 50 per cent of household savings continue to be in relatively unproductive assets, prospects lie in driving these savings into the financial system and channelising them into productive investments. Through financial inclusion, capital markets can actually generate productive investments

For the Capital markets herein lies a great once in a lifetime business opportunity for decades to come

How can Financial Inclusion in Capital Markets be achieved?

Identify Target segment : Once the exercise of UID / Aadhar is completed, the govt. will have a repository of credible information and the same can be used effectively by targeting the needy. Here the Capital Market participants are involved in asstisting the govt. in issuing these ID’s.

Educate them- Financial Education is the key… BTI too could paly an important role in aiding and assisting this process. There are several Social Religious & Behavioural aspects that need to be addressed. Dr.Shariq’s efforts are precisely in that direction.

Making available multiple products & Services to the masses: Money Transfer, Loans , Insurance etc

Simplification of procedures : Simplify KYC’s, (Provision for compulsory PAN nos)

Product Innovation & Diversification: SEBI has allowed online distribution of mutual funds units through the stock exchanges and retail investors are encouraged to invest in mutual funds. India has more than 200,000 such terminals and allowing investors in over 1,500 towns to invest in the Mutual funds through Stock Exchange terminal will provide accessibility to more investors. The network of brokering companies has spread to semi-urban areas and is now increasing its focus on retail investors. Such cross selling facilities creates enough products and services for each intermediary to have economies of scale and also promotes financial inclusion.

Customisation: Apropriate & Affordfable services to those that need them.



Low cost of delivery..using mobile phones, internet and leveraging Information Technology : In India, there are 70-80 million internet users and 5.2 million broadband internet connections.However, internet penetration rate is merely 7 per cent for a billion population as compared to 25 per cent in China and Singapore, and 75 per cent in the United States. This signifies the great potential for internet trading.

It is widely recognized in economic literature that there are at least five different types of capital - physical (roads, buildings, plant and machinery, infrastructure), natural (land, water, forests, livestock, weather), human (nutrition, health, education, skills, competencies), social (kinship groups, associations, trust, norms, institutions) and financial. One of the causes as well as consequences of poverty and backwardness is inadequate access to all these forms of capital. Thus to look at financial inclusion in an isolated way is not the solution.

Friends, the next few decades clearly belong to us, but it is up to us to seize the moment, recognize the challenges and address them.. It is up to us to transform the Indian Capital Markets from an Emerging Market to a Well Developed Market.

Sensex in 2020

Happy New Year!

Just an interesting observation.....
Sensex in 1990 was 1000 points,
a decade later in year 2000 it touched 6000,
at the end of first decade of the new millenium, the Sensex was 20000,
Year 2020 it should be 50000 plus (thats my prediction)

To List or not to List..

The fact that, India is on the verge of a great Economic boom is well known and acknowledged by the world. If such is the scenario, the future of its Capital Markets can definitely not be bleak. Hence, it brings into cynosure the MII’s like Stock Exchanges, Depositories, Clearing Corporations etc. Business has grown manifold, from a single exchange dealing only in Cash & Forward we now have many exchanges dealing in several segments- Cash/Futures in Equites/Commodities/ Currencies etc, all functioning in a competitive environment and getting the best deal for investors (especially the small investors). From a paltry volume of Rs.500 crores daily, our exchanges now turnover Rs.2,00,000/- crores and the same is expected to grow exponentially.

As the markets expand and deepen, herein, lies the opportunity for the small investors. They should be allowed to participate in this process by way of being allowed to invest in shares of Stock Exchanges viz NSE, BSE, MCX, USE etc. This is possible only if these exchanges are allowed to be listed. This would be no different than investing in Stocks belonging to the PSU basket.

There are misgivings that certain speculative tendencies will emerge and upset the independent working of such institutions/companies. It is noteworthy that there are already enough checks and balances in the system to detect/prevent such occurrences.

While there may be some merit in the argument that profit should not be the sole motive..

There are already examples of listed companies whose profits earned/distributed are regulated viz. Listed Power Companies.

The NSE was founded on the basis of a ‘Model Stock Exchange’. It was formed as

A ‘For Profit’ Corporate entity. It has made Road Shows to investor abroad. This had increased the hope of local small investors that the exchange would be listed some time in the near future giving them an opportunity to invest and be a part of its success.

The BSE & other regional exchanges which were ‘Not for Profit’ , Association of Persons were corporatised into ‘For Profit’ Corporate entities. This sent a signal to the small investors that they would be listed some time in the future.

Internationally, too, the scene is no different. There are several leading exchanges that

Not only self listed but are examples and models of successful running of exchanges and they too play the role of regulating themselves.

Given our strong regulatory system, we should be able to overcome and cope with whatever challenge that may arise. Another issues is raised with respect to “Monitoring Mechanism’ but should the small investor be deprived of this Golden Opportunity to invest just because of lack of forming appropriate mechanisms and it also gives rise to the question that are monitoring mechanisms not already adequate and do the small investors desist from entering a system which is inadequate?

Searching for the Indian Investor

The Sensex is on the verge of touching lower bottoms! (no pun intended) The world seems to be preoccupied with economic problems of its own so much so that they would hardly be interested in the Indian Markets at the moment. Our markets at the moment are 'Emerging" and too minscule, just to put things in perspective, the $700 Billion was the first Bailout package announced by the US government, and a similar package to follow ( now that Mr. Obama is firmly in the drivers seat) is almost twice the total market capitalization of our Sensex. So lets forget the Foreign Institutional Investor (FII's) and Hegde Funds (they are undesirable anyway) and look with in our country and search for the elusive Indian Investor, who is fast disappearing like the Indian Tiger.

What has been the reason for the Indian investors disappearance? Lack of confidence in the Capital Markets beacause of their inability to understand the markets, with no access to proper advise even from brokerage houses (who deemed fit only to promote Futures trading) resulting in complete destruction of whatever little capital the 'Investor' had, little realizing that he became a punter/speculator/gambler and would be better off at the Mahalaxmi Race Course.

Notwithstanding the Global meltdown, current economic slowdown and the Satyam episode, there is a case for Investors to take the plunge. The PE ratios are at an all time low. Even if the markets are to fall another 10-15 % and, if we, believe that we can never enter the markets at the lowest, its about time that the investors start purchasing stocks. The risk reward ratio is clearly favourable at this time with an investment horizon 6-12 months. The economy will still grow at 5.75(IMF estimates) or 7% (Ministry of Finance), which will still be amongst the highest growth rate in world. Much of our economy depend on the monsoons which were reasonably good leading to decent internal consumption, rising prices of Crude, which was a concern, are at comfortable levels and inflation is low. What is needed is stimulus for demand for goods and services. which may be provided by cutting taxes and placing more money in the hands of the people, those people who will not hoard the money but will spend it...meaning the poor sections of the society. If corporate governance (or the lack of it) worries investors then maybe its time to go back to the listed Public Sector Enterprises (PSU's), atleast there you can be reasonably certain that the profits are not misstated or the balance-sheet reliable.

The flavour of the day for investors is preservation of Capital. Hence the alternate investments sought for are Bank Fixed deposits which offer around 10.5-12 % pre tax returns per annum. Agreed that equity investment are risky but it is this very element of risk which yields profit, and to my mind the risks involved at this stage are limited whereas the potential profits could be very handsome. The FII's will come , but only after they've dealt with problems at home, which could take a while. Its about time we start doing what enterprising investors have done - take calculated risks.