A lot of times we keep hearing and reading about extreme positivity / negativity about equity markets. These are basically driven by the market sentiments of people investing / trading. These extremeness is also due the inflow of money into the market, macro-economic conditions, global economic factors etc.
Currently India is considered as one of the lucrative option among emerging markets and within India, due to few structural reforms like GST, demonetisation etc, there is excess money supply to invest.
With the aggressive education (advertisements on Mutual fund sahi hai) by regulators on mutual funds in India, retail investors have also started shifting their investments into Mutual funds. This shift is also due to unattractive Fixed Deposit interest rates of banks.
If you have read, there has been a stupendous increase in the inflows into mutual funds in last year. Below picture is indicative of this inflow.
Before I explain what we need to understand and be cautious about, let me take you through the history of Indian Stock Market.
If you look at below table, you will understand that after every few years, there has been –ve returns from stock market which lasted for 2 or more years. The reasons for these –ve returns could be various such as Harshad Mehta scam, Tech Bubble in 2000, US Sub-prime and global recession in 2008, fall in earnings growth / poor macros in 2011.
|Year||Close Value||Return||Investment Value|
If 1 lakh rupees was invested in Sensex in 1979 and stayed invested thru the course till 2017, the value of 1 lakh would have been 2.86crs. This is the power of compounding and long term investment benefits.
Irrespective of different cycles of fall in value, over long periods of time, investors have made money way beyond inflation and other avenues. From this what we have to understand is as following:
- Following asset allocation very strictly always. What it means is having clear demarcation of safe money and growth money and then distribute it via asset allocation into Debt / Equity Mutual funds depending on your goals / risk appetite.
- Managing fear, during the periods of fall in value of investment value. Stay calm in the periods of downfall and staying invested through the course.
- Invest in equities only if you can stay through for very long periods of time. Don’t look equities as alternative to Fixed deposits.
This New Year, gift yourself with asset allocation and long term equity investing.
Should you need any assistance, please feel free to reach out to me.
Happy reading and happy investing!!!!