'Making money is short-term, creating wealth is long-term'

[K.Karthik Raja]

'Making money is short-term, creating wealth is long-term'

Making money is a short-term process, while creating wealth only
happens in the long run. Vikas Khemani, executive vice president and
co-head, institutional equities, at Edelweiss, believes this is the
only mantra for young investors to become wealthy in the long-term. "I
have seen most young people these days call up their friends working
in a stock broking house and ask them for tips. This will help them
make money in the short-term. But, on a net basis, they won't be able
to take this money out," he warns all those investors trying to cash
in on the recent bull market frenzy.Vikas spoke with rediff.com's
Prasanna D Zore about the sectors, themes and stocks that can become
help youngsters create wealth if they have an investment horizon of
five to seven years.

Which sectors do you think can help an investor create wealth, in say,
10 years?
Ten years is too long a time period. Probably by that time you will
have two cycles (ideally, any economy moves in two cycles: the up
cycle and the down cycle, with each making its presence felt for at
least five years or more) in place. So I will talk about a long-term
horizon, which could be between five to 10 years. The sectors which we
at Edelweiss like -- with a three to five year time horizon -- are the
banking and financial spaces. One has to take a structural call on
whether India's GDP growth is going to continue at eight to 10 per
cent. The answer to that is India is likely to grow for the next three
to five years at eight to 10 per cent. In this context, the banking
and financial services spaces become the most important. This makes me
bullish on this space with a one, two, three, four, five and possibly
10-year perspective if the growth cycle continues.

Which other sector/s do you like for the long term?
Given the fact that there is huge amount of opportunity, the other
sectors that we like are the infrastructure and capital goods and the
engineering space. As you know, India is still a hugely infrastructure-
starved country and we need to build sea ports, airports, roads,
improve electrical supply and all such infrastructure related sectors.
Huge amounts of investments are likely to be made in building these
infrastructural facilities. In this process wealth creation is going
to happen for two set of people: people who are going to create these
assets and infrastructure and people or companies who will enable
creation of these assets. Both these sections will do very, very well
in the long-term: asset owners and asset enablers.

Can you elaborate on these two themes for our readers?
Let us first talk about infrastructure creators or asset owners. These
will be companies owning ports, airports, power plants. These
companies will own assets, run them and this will be like an annuity
(a business that generates fixed returns or steady cash flows every
year) kind of business. For instance, somebody who will own the mines
will be an asset owner; those who are operating the mines will be
asset enablers. Reliance [Get Quote] Power (yet to be listed) and NTPC
are building power plants so they are asset owners. But other
companies in the capital goods sector like BHEL will be enabling this
process of building power plants. GMR Infrastructure [Get Quote] will
be building airports; but somebody has to help them to build the
airport. In the process, both parties benefit a lot. However, asset
enablers will yield faster results than asset owners.

Do you see investors making money in the banking and financial space
and the asset owner, asset enabler companies?Absolutely! Here I must
also add the domestic consumption story in India. If you are talking
about a five to seven year time horizon then I am sure India's per
capita income will increase, wealth creation will happen, poverty and
illiteracy will go down. All these things will happen structurally.
When this happens, consumption in the economy will go up and the
companies that cater to the domestic consumption sector will benefit
tremendously. FMCG companies, retail stories and any company related
to consumerism will offer a lot of wealth creating opportunities in
the coming years.

Companies that would possibly benefit from the above three themes?
Banking and financial services is a fairly large space and if I have
to name a few companies than the first name that comes up is ICICI
Bank [Get Quote]. They have captured the entire gamut of financial
services and I think this bank is going to gain big time in this
space. Another company that I like in this space is Axis Bank. It has
done well in the last seven to eight years, and if one has to look at
this bank from another five to seven year perspective, then the
quality of management that Axis Bank has will help it reap the
benefits of a booming Indian economy. Also, both these banks can scale
their operations with great ease.

Companies that attract your attention in the asset owner and asset
enabler space?
In the asset owner space, I would go for something like GMR
Infrastructure, Mundra Port -- they own large assets which are going
to yield returns over a period of time. Though there aren't many
companies in this sector that are available at reasonable valuations
now. Having said that, I would still want to go for GMR Infrastructure
and Mundra Port as they are into a space that offers new and exciting
opportunities going ahead. Right now, we are only seeing the initial
phase of what is likely to come in these spaces of ports and airports.
In the next few years, you can see more wealth creation happening.
Other asset owners that come to mind are JP Associates.In the asset
enabler space, L&T comes immediately to mind. The company has
displayed an excellent track record over a period of time and they are
likely to continue with that. Their organisational platform is strong
and I think this company will do very, very well in the next 3-5
years. It can be a potential multi-bagger.In this space you can also
consider BHEL, BEL, BEML. All these companies are large asset-enablers
with good quality management support and scalability. I am talking
only about large caps here. You can also find a lot of good names in
the small cap space in this theme. However, in this space, the main
concern is the scalability of their business models. Otherwise, if I
have to give a pick from the small cap space, then Mcnally Bharat will
be a strong small cap contender in the asset nabler space.

Stock picks for the long term from the domestic consumption space?
Pantaloon [Get Quote] Retail is one name that can ride the boom in
this segment. The management understands the retail game very well.
The other story that is a part of domestic consumption story is ITC.
It is a part of the FMCG sector, in the agricultural space -- which I
believe also offers a huge opportunity for investment. Another name in
this space could be McDowells.

Your advice to young investors?
Don't think you can make quick money in stocks. Don't go by tips and
hearsay. It is a dangerous thing that people can do at your age. You
have to understand what companies you are investing in, what is the
aim of your investments is and then put your money in stocks. If you
can't follow this path, then mutual fund route is better for this age
group to create wealth. If you look at it, over a period of time,
large part of wealth is created through asset allocation rather than
stock picking. If you are able to get right your asset allocation mix
then I think you have done 90 per cent of your job. My suggestion to
young people would be if you are investing directly in equity, do your
home work thoroughly. Read research reports, read about the company
you want to invest in, gather more information about it. Then make an
informed decision.Typically, I have seen most young people these days
call up their friends working in a stock broking house and ask them
for tips. This will help them make money in the short-term. But, on a
net basis, they won't be able to take this money out. This way, they
will make money but not create wealth. Making money is short-term,
creating wealth is a long-term process. Will you be able to make money
out of the markets using trading tips? It never happens. Creation of
wealth can only happen if an investor is looking at it as a serious
business. Look at it this way: People will work for 8-10 hours in
their jobs and make Rs 8-10 lakhs a year. And the very same people
want to make the same amount of money in a month's time purely acting
on tips from their friends. From the effort and return point of view,
there is some disconnect, right? When you come to the stock market,
you should come with a long-term perspective. But they don't look at
what kind of input they are putting in this effort. They should ask
these questions: What kind of intellectual effort I am putting in
this? What kind of research am I doing? Most young investors don't do
this. In my opinion, this is a very dangerous sign