BUSINESS

Bears grip billionaires, small investors

By Tinesh Bhasin in Mumbai
July 08, 2008 09:56 IST
When the markets nosedived to 12,961.68 points on July 1, the country's richest man (read Mukesh Ambani) and his family lost more than Rs 5,000 crore (Rs 50 billion), all in a single day.

The value of his stake in the three companies, Reliance Industries, Reliance Industrial Infrastructure and Reliance Petroleum, was down from Rs 2,14,683.29 crore (Rs 2146.83 billion)  to Rs 2,09,500.36 crore (Rs 2095 billion).

It was not just corporate biggies who saw their wealth eroding. Small investors, who had rushed to trade stocks during the bull run, saw their already-battered portfolio sinking further.

The value of fashion designer Makarand Kulkarni's portfolio came down from Rs 6 lakh to around Rs 4.8 lakh. In January, when stocks were at their peak, his portfolio's value was Rs 20 lakh.

Thirty-one-year-old Kulkarni had started investing directly in the stock market early last year and was trading Rs 15 lakh worth of shares in less than six months.

"The money made from trading was my second source of income," said Kulkarni. He claimed to have made Rs 3,000 a week on an average by just trading HDIL stocks last year. It comprises over 50 per cent of his portfolio.

The five-year bull run in the country's equity market has created many investors like Kulkarni, who lost in the slide this year. Even if an investor had purchased least volatile shares, of the 30 most traded companies on the Bombay Stock Exchange (BSE), his wealth would be down by 39 per cent since January 10.

However, there is little reason why investors like Kulkarni would not be lured by the stock market. In the first year of its upward journey, the Sensex gave returns of 91 per cent. It went up by 2,695.3 points from 2959.79 in April 2003 to 5655.09 a year later.

As Kulkarni kept trading, his risk appetite kept increasing, to a point of recklessness. His favourite stock dipped to Rs 337.95, from its peak of Rs 1,432 (a 52-week high) - a drop of 76.41 per cent.

As the stock market began to tumble from its lifetime high in January, Kulkarni's broker deactivated his trading account as he had borrowed Rs 5 lakh to fund his trade using the margin funding option.

Many other small investors have met similar fate as that of Kulkarni. In fact, such defaulting customers and the falling market have affected the business of brokerages that expanded heavily in the market during the time when they refused to look down. They opened up more offices for better reach, hired employees at expensive salaries and leased swanky offices at unheard rentals.

Small brokerages are the worst hit. Some are willing to sell the business. KLG Capital Services, a Delhi-based broker, reported a net loss of Rs 0.04 crore in the quarter ended March 2008 and is willing to sell the company.

Trading volumes are down 49 per cent since the good times at the beginning of the new year. The volume of trade in early January was Rs 9,12,15,254 crore (Rs 912.15254 trillion). It now is Rs 4,72,54,032 crore (Rs 472.54032 trillion).

"The balance sheets show that the revenues of brokerages have fallen 60 per cent and they have high fixed cost. Many are not making enough to meet their expenses. Some are even using money raised by selling shares to public to meet these expenses," said S P Tulsian, an investment adviser.

The sinking market has also eroded the wealth of billionaires and turned them into millionaires. For instance, R P Goenka and family, who run companies such as Ceat, KEC International and Zensar Technologies, have lost over $800 million since January. Their personal wealth is slightly below a billion dollars.

Some others who have turned millionaires include Birlas, Mukesh Ambani's man firday Anand Jain, commodities king Jignesh Shah, Jet Airways' Naresh Goyal, Bombay Dyeing's Nusli Wadia, Kishore Biyani and stock broker Nimesh Kampani.

If market stalwarts are to be believed, it will be a while before these millionaires enjoy their billionaire status again. 

They are waiting for at least one thing to go right. The US economy has slowed down. Oil is hovering around $135 a barrel. Inflation is the highest in 13 years.

"The company results in the first two quarters (April-June and July-September) will give the direction to the stock markets now," felt Dinesh Thakkar, chairman and managing director, Angel Broking.

Raamdeo Agrawal, the co-promoter of Motilal Oswal Securities, said the upward movement will only come back once we are through with elections next year.

The US economy, oil and election that market experts are watching do not worry Kulkarni. He is busy picking up value stocks by borrowing money from his family members. Currently, he is using his wife's account. "Markets have bottomed out," Kulkarni said.

The country is the fourth most expensive market in Asia with a price-to-earnings ratio of the Sensex at 13.86, despite being the second fastest growing economy in the region. It lags only behind China (21.26), Japan (16.38) and Indonesia (14.72).

Compared with the US too, Indian markets are cheaper. The S&P 500 INDEX has P/E ratio of 21.22 and Dow Jones has around 14.29.

Tinesh Bhasin in Mumbai
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