Too much advice hurts the investment

Last Updated: Thu, Mar 14, 2013 04:54 hrs

Equity investing isn't easy. First, one has to take a call on stocks and trust that the markets will favour these over the long term. But there are enough distractions for the direct stock investor.

On the one hand, there are research reports and analysts giving advice on a daily basis on the future of a stock. And more recently, proxy advisory firms have entered the fray questioning the corporate governance issues in companies.

For instance, Institutional Investors Advisory Services (IIAS) opposed the appointment of Sudarshan Venu on the board of TVS Motors. Then, InGovern recommended Pantaloon Retail shareholders to vote against the resolution to demerge the fashion business of Pantaloon and its subsidiaries.

Proxy advisory firms are relatively new to India. In fact, the oldest, InGovern - is only two years old. And, their opposition to various issues can easily unsettle the investor. Certified financial planner Anil Rego says news reports have been troubling equity investors. "Institutions have many ways of finding out what is happening in a company. But individuals don't have such resources. Hence, it tends to get a bit unsettling for them," he says.

However, financial experts feel one should not be reading too much into them. Arun Kejriwal of KRIS Research says individuals should not read too much into reports. "Individuals should use these reports to become informed investors but not to get affected by them. Especially those from proxy firms as those are meant for another category of investors," he adds.

Individuals should also stay away from reports as far as investment decisions are concerned because the competition among brokerages and now among proxy firms is very high. So, in the process to outdo each other all these firms tend to confuse only those who can't source internal information about companies as easily. For instance, IIAS wasn't in favour of merging Vedanta's group companies and forming Sesa-Sterlite but InGovern favoured the resolution. Who, should you believe?

Even Shriram Subramanian, founder of InGovern, agrees. He says proxy advisory firms' services are not for retail investors. "Retail investors should base their investment decisions - both on asset and liability sides - on informed decisions. They should rely either on trusted financial advisors or do detailed research on their own. Some of the common mistakes that investors make is to rely on broker reports or tips from others," he explains.

Yes, corporate governance issues are important and should not be taken lightly. But reports of these firms are exactly not 'buy' or 'sell' ratings to compel you to take a decision. Always look at a combination of factors. But the best strategy should be: Buy large-caps and hold these for longer periods. Returns will follow.

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