Monthly Archives: May 2014

What will bring Indian retail investors back into the stock market?

amriNandita Parker May 16, 2014


I believe it is crucial for India to attract domestic financial savings into its equity markets. These can act as a counterweight to volatile foreign portfolio inflows  and enhance the depth and breadth of Indian Capital markets.


Since the global financial crisis, Indian investors have been exiting Indian equities in droves. Financial savings in equities which peaked at 13% in the early 2000s, actually dipped to -1% in 2013.  So will domestic investors return to the market now that the Sensex is scaling new highs? At the margin, yes, but in my opinion not in the size that counts. Nor do I believe that the market regulator’s bid to “educate investors about the merits of stock market investing” is an effective strategy. If we think about what drove investors away in the first place, it was the loss of confidence as a result of the extraordinary volatility post the 2008 global financial crisis. In the aftermath, Gold and real estate became safe bets and that’s where a bulk of household savings were invested. Today, both have lost their sheen because of RBI controls on Gold and over-investment in property at least in the major metros. Property tends to be illiquid as the speculative run of the last four years has now shown.


I believe that two key changes can significantly impact equity investing in India. First, regular inflows of domestic pension fund money into actively managed funds, something that SEBI has been pushing for. Although this reform has been blocked time and again by special interests, we hope that SEBI can work with the new government to make this happen. If it goes through, EPFO funds to the tune of $12bn would enter the Indian equity markets. Second, a radical shift in corporate governance across the largely ignored section of the market where angels fear to tread, i.e., small and mid-cap stocks. I believe the recent Companies Act 2013, enacted by legislation in August 2013, will go a long way to bring about changes in this regard.

Market Guru – Rupee is most undervalued currency: Nandita A Parker

Sep 17, 2013 – Uploaded by Bloomberg TV India

“We are seeing a correction in rupee now and hope to see it moving to 60 and below,” says Nandita Parker. The US Fed will continue to add liquidity before it takes it down, so there is time for the world to prepare for it, she says. “The government needs to provide fiscal space to allow RBI to meet price stability and growth goals. It’s up to the government to see how they will attract FII and boost growth,” she adds.


India: How Long a Pause?

May 1, 2013 – Uploaded by MilkenInstitute

The Milken Institute’s 2013 Global Conference in Los Angeles. Nandita Parker as a panelist touched upon various issues pertinent to the India story – the urbanization of rural India, the significant transformation in the Indian consumption patterns driven by an exponential growth in telecom, internet and social media,  the importance of corporate governance in making investment decisions and the unprecedented use of technology and emphasis on a development agenda in the upcoming general elections in India.


Women-run hedge funds

Despite exclusion from old boys’ club, women outperform the industry
by Christin L. Munsch on Monday, February 11, 2013


Carrie McCabe – one of the most senior alternative investors in the industry – enjoys looking at the newspaper each morning and seeing 50 things that influence her investing decisions. McCabe, who is also a member of Clayman Institute’s Advisory Council, is passionate about finance and investment. “It’s relevant to everything that is going on in the world.”


McCabe is one of a handful of women who invest in “alternative investments,” and she’s known for being good at her job. Alternative investments are those outside of stocks, bonds, cash, and real estate, such as hedge funds, private equity, and venture capital.


With a BA in economics from Stanford and an MBA from Harvard, McCabe has managed funds well over ten billion dollars. She’s served as the chief executive officer at Blackstone Alternative Asset Management, FRM-Americas and, in 2008, she launched Lasair Capital – a firm specializing in long/short equity investment. There is no doubt that McCabe has the education, intellect, and experience to succeed in the industry.


It turns out, gender may have aided in her success as well.


Women in alternative Investments A new study called “Women in Alternative Investments” reports that, over the past five years, women-owned and women-managed hedge funds performed significantly better than the overall population of hedge funds.


That is, they outperformed those funds that are almost exclusively owned or managed by men. According to the report, women-run hedge funds produced a return of 8.95 percent through the third quarter of 2012. By contrast, the flagship industry-wide performance index, the HFRX Global Hedge Fund, yielded a 2.69 percent net return over the same period.


Only those women who are the most talented – that is, those who consistently produce large net returns – are likely to have persevered in the male-dominated business of alternative investing.


The report, the second annual published by financial services provider Rothstein Kass, documents the performance and experience of 366 senior women in the alternative investment industry. To analyze performance, the authors focused on the 67 women-owned and women-managed hedge funds in the industry.


The funds were used to create a monthly performance index, the Rothstein Kass Women in Alternative Investments (WAI) Hedge Index. Returns for the index were calculated for the five-year period and compared to the HFRX Global Hedge Fund Index over the same period.


While this is impressive, McCabe stresses that there are several caveats worth noting. First, no adjustments were made to account for survivor bias (defunct funds) or the net worth of the individual funds. Second, few investors are women and even fewer women invest in alternatives. McCabe estimates that less than 2 percent of alternative investors are women. To put this in perspective, women currently hold 20.9 percent of the seats in Congress <>  and 4.2 percent of Fortune 500 CEO positions <> . Consequently, the report compares the performances of countless men and a handful of women. Only those women who are the most talented – that is, those who consistently produce large net returns – are likely to have persevered in the male-dominated business of alternative investing.


Women and risk taking Hundred dollar bill Do women manage risk better than men? (Source: Wikimedia) Nonetheless, McCabe believes the report’s conclusions are sound. “Women have a different framework on how they run money,” she said during a recent appearance


<>  on Bloomberg Television’s “Taking Stock” with Pimm Fox.  “Women tend to manage risk a little bit better. So that would mean, in these volatile times, they would be patient for some of the things to come through and maybe not trade and get whipsawed.”


Challenging gender stereotypes, Fox responded, “sounds like a little less emotional than the alternative perhaps.” McCabe concluded, “Having female alternative investment managers makes good business sense.”


McCabe’s explanation is supported by numerous sociological, psychological and economic studies that find women to be more risk-averse than men. For example, in 1998 economists Nancy Jianakoplos and Alexandra Bernasek published a landmark study on investment behavior in “Economic Inquiry.”


Using data from the Survey of Consumer Finances and controlling for factors such as age, education, children, and home ownership, the pair found that single women held a smaller percentage of their wealth in the form of risky assets  <>  than single men. Laboratory studies have yielded similar findings. For example, women bet less money, less often <>  when they participate in experimental gambling games. Moreover, it seems that gender differences in risk-aversion are more pronounced <>  in high-stakes settings like alternative investing.


Climate for women in the alternative investment industry In addition to performance, Rothstein Kass assessed the experiences and perceptions of women in the alternative investment industry. Nearly two-thirds of the respondents agreed that being a woman makes it more difficult to succeed and nearly one-half indicated that being a woman impacts their ability to do business.


Why aren’t more women in the alternative investment industry? Respondents cited the lack of available positions in the industry – particularly positions that would allow women to develop a verifiable track record, and they felt women often lacked the motivation to enter or stay in the industry. To be sure, this lack of motivation is not intrinsic. Rather, respondent after respondent used the term “old boys’ club” to describe the industry’s cultural climate. The respondents also indicated that women tend to have more difficulty accessing investor capital than men.


The rise of women, the importance of mentoring Despite the belief that being a woman makes success more difficult, the majority of respondents expected an increase in women in the alternative investment industry and more women-owned and women-managed fund launches in 2013 and beyond.


“When I would go to an investment summit or an investment meeting which might have 50 or 100 participants, I used to be the only female in the room,” McCabe said. “About five years ago, I started noticing a few more.


There are only a handful, but there are more than there used to be.” “When a professional woman succeeds – all professional women succeed. It’s very cumulative.”
“It’s important that professional women be there for each other,” said McCabe, who emphasizes the importance of coaching other industry women. “When a professional woman succeeds – all professional women succeed. It’s very cumulative.”
“When I sit down with a young woman, I say, ‘I’m doing this because I want to help other women, but you have to promise me that you’ll help two other women who come behind you.'”


McCabe’s perspective is not only ethical; it’s a smart business decision too. “Part of successful investing is having a diversified approach – and women have a different approach,” said McCabe. “It really comes down to framework. And when you have multiple perspectives framing an investment portfolio, it leads to more robust results. It just makes good business sense.”


In other words, if your investment team isn’t diverse, neither is your portfolio.


Why India Will Soon Outpace China

James Gruber, Forbes Asia 5/04/2014


On the face of it, the title of this article will seem absurd to many. While China’s economic growth has slowed, it’s still running at a brisk 7.4% annual rate. Moreover, the Chinese government seems to be successfully slowing credit in order to rein in a burgeoning debt issue. And it’s implementing a plethora of reforms which should propel the next phase of growth.


Meanwhile, India’s a mess. This fiscal year’s GDP will be below 5% and near decade lows, government and corporate debt is high, the current account deficit has been out of control until recently, inflation reached double-digits late last year, business confidence and investment are at extreme lows and corruption remains rampant.


Dig a little deeper though and the picture doesn’t appear as favourable for China’s economic prospects vis-a-vis India’s. First, it’s highly probable that China’s GDP growth rate is slowing much more than the fraudulent figures put out by the government (I’m not picking on China here as many governments are guilty of this). Second, credit tightening in China will almost certainly take years rather than months given the boom which preceded it. Third, Chinese economic reform will be a drag on growth in the near-term, as can already be evidenced by the crackdown on corruption and its impact on retail consumption.


On the flip side, there are many signs that India’s economy may have bottomed. The current account deficit has significantly eased, the currency has stabilised, inflation has substantially pulled back and corporate earnings are improving. With inflation down, interest rates will soon be cut, which may prove the catalyst for the next investment cycle. The election of a new, economically-friendly government should ensure an acceleration in investment and improved productivity.


There are other positive developments which augur well for India too. For instance, there’s an ongoing boom in the agricultural sector with rising investment and wages. This has resulted in India becoming a net food exporter – an important development given the country’s dependence on agriculture.


For a long time, India’s decentralised, often chaotic economic model has been seen as inferior to China’s authoritarian, top-down model. A reappraisal of that view may soon be in order.


Click here – to read the complete story.


India – The Investment Case

Mumbai SealinkWe believe that the Indian economy is likely to continue growing at a much faster pace than the rest of the world for the next decade.  India has the potential to cross $5 trillion in GDP by 2025. Only the US, China and Japan have been able to cross this milestone so far. The astounding rise of India is likely to be fuelled by its extremely favorable demographics, improving structural growth dynamics, and globalization. This creates vast opportunities for investors because India’s earnings growth is highly correlated to macro variables such as industrial production and GDP. Investors with proven stock picking abilities are likely to outperform the markets in general because the correlation of returns across stocks remains much lower in India, when compared to the rest of the world.


India’s favorable demographic dividend is driven by the fact that it is a young country with a growing talent pool. According to United Nations’ estimates, India is going to contribute an additional 124 million people to the global labor pool by the end of 2025, a number far greater than the combined contributions of other large economies such as USA (5 million), Europe (28 million), China (12 million) and Japan (6 million) over the same period. Improving education levels in the country can ensure that India’s labor force is better-equipped for high-end jobs. The country’s tertiary educated workforce is set to double from 50 million in 2010 to 122-125mn in 2020.


Rising Income levels in India have led to rising aspirations for its people. The recent election outcome has addressed a major issue that has plagued Indian politics in the past 10 years and held India’s development back.  This Election is a lesson that what young India wants is development, better infrastructure, better opportunities. It is this unified desire that has pushed aside decades of caste based, religion-based and community based politics.  A stable political regime which favors infrastructure development and drives policy reforms can unlock India’s demographic potential. With a new government in place, we expect crucial reforms in Taxation and better allocation of natural resources to inspire business confidence. Reforms are likely to encourage private sector investment in India, a process that should not only improve efficiency but also create employment opportunities for India’s growing workforce. Further, continued private investments are likely to increase the representation of corporate sector in India’s economy. Private sector revenues currently accounts of around 56% of India’s GDP, up from just 18% in mid-1990s.


India is urbanizing at an unprecedented pace in its history.  — estimates that . The Bharatiya Janata Party has announced a vision to create 100 smart cities in India.  For this to happen, the new government will need to announce a a very clear approach and a modern policy framework which will attract both foreign and domestic capital.


With the private sector accounting for a larger chunk of India’s economy, we expect earnings growth to outpace India’s GDP growth rate over the next decade. Equity markets are likely to be a direct beneficiary of the growth in corporate profits and are expected to compound between 12% and 15% in local currency terms over the same period. The combined market capitalization of Indian equity markets can reach $4 trillion by 2025, a sizeable opportunity set.While the growth in Indian economy boosts the overall market capitalization of the country, individual stocks are likely to behave differently. The average correlation of stocks to India’s benchmark index remains significantly below rest of the world, implying ample opportunities for stock picking and alpha generation.

Asset Managers Roundtable of India

A new initiative which brings together institutional investors from the Investment industry in India. The goals of AMRI are to encourage and promote India’s Capital Markets, to ensure their growth and to expand their base within India and abroad. AMRI works together with the government, SEBI, the Reserve Bank of India and the stock exchanges to increase transparency and create a model framework which would generate confidence, and create a favorable long term investment climate for India.

AMRI Group Discussion (Linked-In):

  • Click here – to join Asset Managers Roundtable of India Group.

Risk Management

Volatility is not our enemy, loss of capital is. This is how we at Karma understand risk. We build the portfolios from the bottom-up, one stock at a time. Rigorous due diligence, focus on corporate governance, management quality and above all, the price you pay for an investment; these define risk.

Stop losses: We admit, and learn from our mistakes. Sometimes we prefer to sell, clear our heads and move on.

Position Sizing: We believe that sizing our positions correctly to account for liquidity, volatility and market capitalization is a basic tenet of risk management.

Ownership Bias: We maintain rigorous risk management throughout the investment process. We actively seek out contrary opinions, and try to rebut rather than confirm our investment hypothesis.

Diversification: Our wide opportunity set increases diversity across sectors and has the added benefit of reduced directional risk. We also examine cross-correlations between sectors to determine the weight of a given economic scenario in our portfolio.

Behavioral Finance

We are students and practitioners of Behavioral Finance. The markets have made us humble. So, we avoid the use of excessive leverage, we diversify, we minimize trading. We have learnt to be patient. We understand and profit from reversion to the mean.

We distance ourselves from the daily “noise” of the market and the ticker. It is all about maintaining a balance between what is “”news” and “actionable””, from what is a constant stream of extraneous static which does not impact our investment thesis. We teach ourselves to not be fooled by randomness, to look for empirical data to support our thesis.

We are extremely open-minded. We often invest in turnaround situations. These are often the most rewarding.
We have all experienced panicky markets and the agony of holding stocks at these times. Fund managers have been known to experience physical pain and the risk of selling at the bottom becomes very real. We have learned to be cognizant of these risks and not let pain influence our investment choices. Maintaining a high degree of discipline at these times has often provided the greatest opportunities.

Our Expertise

We live and breathe India. The Investment Management team has extensive industry knowledge and experience. Our analysts scour the news, travel across the length and breadth of the country, and engage policy makers. Analysts constantly strive to add to their wealth of knowledge about the interplay of forces governing companies, industries, policy and macroeconomics. Our local presence in India facilitates idea generation and efficient trading execution.

Proprietary Research is the basic tenet of stock selection for the fund. Our passion for excellence is a hallmark of our strategy. Our research process is rigorous and relies on multiple sources of information, an understanding of “street bias” and buy-side investment processes. Our laser sharp focus allows us to generate consistently strong performance.

We have a strong risk management focus. Risk management is incorporated into every step of the investment process including sizing of positions, security concentration, liquidity and exposure.