After gold & equity, real estate will be the next asset class: Rajiv Bajaj

Investors’ preferences have undergone a change after the global financial crisis and they now prefer debt to equity, says Bajaj Capital’s vice-chairman and managing director, Rajiv Bajaj (below left). In an interview with Vrishti Beniwal, he says real estate mutual funds are going to give a boost to investments, and gold isn’t a safeguard against inflation in the long run. Excerpts:

You have completed 50 years this month. How do you plan to expand your business from here?

A lot of work needs to be done in converting a nation of savers into a nation of investors. Only three to four per cent of retail household money is in capital markets today. Our vision is to make crorepatis of one crore people, the crore being a symbol of wealth in India. Our core will remain the same but the method will be different. A substantial number of investors now prefer to invest online.

So, our delivery model will be online and mobile application-based. We are keenly awaiting the launch of real estate mutual funds. That would be a big game changer for financial markets in India.

In the past couple of years, we have introduced real estate as a mainstream asset class for households. Then comes geographic reach. Today, 85 per cent of MF assets are in the top 15 cities but we are very confident the future growth is going to come from beyond these 15 and we are going to ramp up our presence in those places. We don’t see ourselves becoming a manufacturer of products but we could potentially be assembling products. Through a single cheque, one will be able to invest in different asset classes and schemes.

What returns have you offered?

Depending upon the financial goals of the client, our experience has been that the most conservative ones are happy with one per cent over bank deposits and the most aggressive clients get three to four per cent over bank deposits over a longer period. If you are looking to double the money in three years, we are not the player.

How has the investment mix changed in recent years? Which asset classes are now favoured more by investors?

Investors have realised they’d probably gone overboard on risk in the previous decade. They got over-exposed to equities. In the past five to six years, equity market returns have been lower than bank deposits. So, it’s an important lesson taken by households, that the core of the portfolio has to be debt. People have shifted most of the incremental money into corporate fixed deposits, bonds, debt funds. This trend is here to stay.

Are investors turning towards small savings because of this conservative approach?
It’s a two-pronged approach. One is that markets have not been kind because of the global financial meltdown, denting the confidence of investors. I would also like to confess that business models of financial services companies have been very transactional. They have not looked to build relationships with clients. We have often heard about mis-selling.

To bring back growth, the markets have to start performing. It would be fair to say we are coming to the end of a down-cycle and are at the cusp of the next up-cycle — it should be six months, one year or two years from now. Second, financial services providers have to become more consumer-centric.

How do you look at gold as an asset class? The demand is so high and it gave a lot of pain to the government, trying to control the current account deficit.
In the past 10 years, gold has given equity-type returns. People have formed a misnomer that gold is a growth asset class but it is not. There are only three growth asset classes — real estate, equity markets and, in a very limited way, art. Gold is, at best, a hedge against inflation. If you see a 50-year trend of gold returns, it would not be higher than inflation.

Do you recommend gold as an asset class to your clients?
We do like to hedge our clients’ portfolio against inflation. Depending upon their preference, we recommend them to take five to 10 per cent gold exposure.

How is art picking up as an investment?
Art is a mood investment. When you are feeling buoyant, optimistic, art picks up. Now, optimism is coming back.

The new National Pension System has not picked up well. What went wrong?
The remuneration has been too low. It will pick up slowly when more fee-based advisors come in the market. Instead of commissions, people will shift to a fee-based model. We are on the verge of launching a fee-based advisory. Also, there has to be a substantial tax benefit for a household to commit for long-term financial security.