A much better investment than infrastructure bonds
In this issue:
» Will 2012 be the last and most painful year for global economy?
» Former GE boss Jack Welch blasts stifling nature of US regulations
» Infosys predicts a lacklustre March quarter
» US bond markets could be in bubble mode, feels Robert Shiller
» ...and more!---------------------------------------- Did you miss the Webinar? ----------------------------------------
Equitymaster's Webinar on the Future Prospects for the Indian Economy with Mr Ajit Dayal was broadcasted on 30th of December, 2011.
The webinar answered questions that could be troubling any Indian Investor today. Where is the Indian Economy headed in 2012? Is Gold still a good investment? Could the Stock Market touch the 21000 figure in 2012?
If you missed watching the webinar, here is your chance to access the same.
Click Here to watch: Indian Economy - From Darling to Damned (Rebroadcast)
And let's understand what lies ahead for India and how could this impact your investments.
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00:00 | Chart of the day | |
Well, the answer lies in the all too common tendency of us humans to rely too much on past performance and herd mentality and thus, completely ignore the fundamentals in the process. In their exuberance, investors forgot to account for the fact that not only were interest rates at historic lows back then but the corporate profit margins were also at an all time high, thus making valuation growth in double digits a next to impossible task. What this shows is that if markets have moved in one direction for long periods of time, a move in the other direction is almost guaranteed for an equally long period.
Are investors in India falling prey to the same investor psychology currently? We have a strong feeling that this is certainly the case. Like their US counterparts, they too seem to be relying too much on the performance of the stock market in the recent past and taking very little note of fundamentals. Agree that the stock markets have gone nowhere in the past three years but this does not mean that they will continue to do so in the future. Infact, the very fact that they have underperformed makes a move in the other direction a strong possibility over a long term period. Hence, just as the chances of making money in equities over the long term are getting brighter with each passing year, investors are making a move away from equities and putting their money in fixed income instruments such as infrastructure bonds. As today's chart of the day shows, for every 10 year period starting from 1997, Sensex returns have remained in the low to high teens on a CAGR basis. This is certainly much higher than what one would get from even the most attractively priced infrastructure bonds today. Hence, the strong returns from Sensex over a 10 year period combined with the relative underperformance of the markets over the past few years makes the case for investing in stocks from a long term perspective a very potent one indeed.
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Source: Ace Equity |
Do you think stocks will return more than infra bonds over a 10-year period? Share your views with us or you can also comment on our Facebook page / Google+ page.
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Government's social obligations have made some of the world strongest economies debt ridden. The continuation for a prolonged period could spell doom for the global economy. Who better than one of the shrewdest corporate bosses of America, Jack Welch, to corroborate this? The former chairman of General Electric believes that the US is making a big mistake by passing needless and politically-charged regulations. Without them the economy's recovery can take shape much faster. Unfortunately, very few politicians run the government like a good CEO!
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This is a challenge that the government and the industry faces and this is where the government will have to shake itself from inaction and implement some much needed reforms. But that is easier said than done and with party politics taking up much of the government's time, we wonder when it will actually get down to taking India's growth to the next level.
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04:54 | Today's Investing Mantra |
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1 Responses to "A much better investment than infrastructure bonds"
kirubakaran samuel
Jan 12, 2012Looking at the bar chart given by you it looks the sensex may range between 18 and 16 (% CAGR). The trend lines suggest that.