Beginners’s guide to becoming the Wolf of the Indian ‘Wall Street’

If you are eyeing the bull in 2017 and have a fully funded emergency account, you are all set to invest in the stock market. You might be fully charged up. Having read online guides to become a millionaire, you might have learnt that investing in stocks is the quickest way to be rich.
However you aren’t that confident unless you know about the nitty gritty of investments.

Fret not, for Santosh Nair has debunked your fear about stock markets in his new book ‘Bulls, Bears and Other Beasts: A Story of the Indian Stock Market’. Published by Pan Macmillan India, this is a comprehensive account of the stock market over the last 25 years. It tells you what to watch out for while investing. It also looks at policies that the government needs to revise if the country is to harness domestic capital more effectively.

Business Insider in an exclusive interview with Nair finds out what to watch out for when investing in the Indian stock market.

What is Indian stock market all about?
It’s definitely one of the best places to grow your wealth. Only thing is that you need to be a little patient. The basic misconception about stock market is that you can make money very quickly. However they don’t do their homework well and later on start thinking that system has cheated on them. The system does have its shortcomings. But if you are patient enough and willing to work hard, the stock market is a very good place to grow your wealth.

How to start investing?
If you don’t want to take much risk, then equity is a very good way. However, if you plan to invest in stocks directly, you need to do a lot of homework. But, you should also be prepared to accept losses. It’s not always that you win. Big industrialists buy stocks in large amounts from different sectors. So even if one flunks, there is the profit of others to back you up. It’s better to invest in a company or industry where in you have a decent understanding about how it works as opposed to companies and industries, you absolutely know nothing about.

Sensex and NSE are different. For an ordinary person how do you define it? Also how do you position Indian market with developed markets?

Indian stock market has done well because the country is the fastest growing economy in the world. Sensex and NIFTY are indices comprising of a number of companies. So Sensex comprises of 30 companies and NIFTY is 50. It may happen that the index, either NIFTY or Sensex is up, but the stocks you have invested in aren’t. Conversely, the index may be down but the stocks you have invested in are getting you fair returns. A lot of things boil down to the stocks in your portfolio. If there is a report about an index going up by 30%, it’s not necessary that all stocks in that index would go up. If you are investing directly in the market, you should be a little more careful about the companies in the market. It might be that the market has come crashing down, but that doesn’t mean that stocks are cheap. There will always be companies, which have fallen 30-40%, but after the fall they would still be expensive.

Most regular people who invest in retail, get confused between price and value of stocks. Big investors don’t commit these mistakes. It’s like you buy land and you pay a price on the basis of its value. Some years later, this plot gets connected to the main road or metro and the value goes up, so does the price.

Talking about retail stock investors, they would buy stocks that are cheap. For say a stock costs Rs 5, they would go for it and not the one that is expensive, because the chance of Rs 5 stock to become Rs 10 is much probable than the expensive ones.

How should one invest in crisis laden companies, something like Tatas is going through at present?

Most of the times, these kind of incidents are triggered by sentiments. There will be some kind of development and the market would react to that. It’s neither a knee jerk reaction nor a well thought one. In case of Satyam, there was a fraud. The company never made as much money as it claimed to be. Now for this company to regain the faith of investors was impossible. For companies, where there is a labour unrest or failure of a product, initially the stocks fall and sentiments turn negative but over longer period, it regains. There is a brisk market reaction. By and large, investments shouldn’t be a result of panic.

The amount of profit you make at the stock market is directly proportional to the amount of risk you are willing to take.

Why did you write the book?

I have been tracking the market for two decades. When you meet people outside the stock market, most people don’t have any idea about how the system of stock market works. It’s very interesting. They have their own notion, which isn’t always right. There is also a good history of the market, which hasn’t been recorded anywhere – like how the evolution happened and how the changes took place over the last few years. So, I thought this could be a good book that explains, educates and entertains.

I have pitched it as a kind of history book. Then when I was writing the book, I thought it would be better if it is narrated by somebody. So, I included my personal experiences of brokers and investors to make it a fun read.

There are various stories, which you have spoken from a close perspective. Which story do you think aptly describes the stock market?
Compared to the 80s and 90s, Indian stock market has grown to be a far safer place now. It’s far more transparent as far as the ordinary investor is concerned. You have access to information better than before. But having said that it’s far more difficult to make play for an outside game.

Is there anything you thought you should have mentioned but skipped out?
There are quite a few anecdotes. It’s generally felt that some of the individual investors or market operators as we call them are the sharpest. But even they have been taken for a ride by the promoters. It’s not that all big investors know everything. There are many stocks where they lose. It’s not because of their error or judgement, rather they were provoked by these promoters.