Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Equities: Increasing acceptance - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 8, 2004

    Equities: Increasing acceptance

    The year 2003 had been an extremely good year for the Indian equity markets. There were widespread expectations that given the fundamentals of India Inc, the northbound journey of the stock markets is likely to continue. Although the stock markets did oblige, the magnitude of gains must have left even the most aggressive of investors surprised. After all, appreciation of the benchmark index to the tune of 73% in a single year is indeed an extremely rare occurrence. Against this backdrop, we conducted a poll on our website asking the investors the following question, 'In 2004, you will give higher allocation to Equity shares/ Fixed income Securities/ Gold. The results are as follows.'

    In view of the performance of the stock markets, it was highly improbable that equity shares would lose out to anyone. Therefore as expected, an overwhelming 78% of voters prefer to park their funds in Equity markets. 14% of the voters would like to go for fixed income securities and only 8% of the voters would like to opt for gold as an investment option. We shall now briefly discuss all the three investment options.

    History suggests that over a long-time horizon, equity investments have always outperformed other investment avenues. But the investors have to have the longer-term perspective in mind and not get lured by the greed of short-term gains. Also, since equities give higher returns than other investment avenues, the risk associated with investing in equities is also on the higher side as during a recession, equities may be the worst affected. Moreover, investors also have to bear in mind that during a bull run, risk profile of equities remain the same and they should not commit the cardinal sin of investing in a company on the basis of rumours. Thorough research of the company in order to gauge its fundamental strengths is as important in a bull market as in a bearish market. This piece of information if followed, will go a long way in insulating an average investor from the vagaries of the market.

    Gold has never been considered as an investment option by a retail investor in India. However, with the recent increase in the gold prices, there has been an increased interest for this yellow metal. A lot of reasons have been put forward explaining why gold should be part of an investors portfolio. One of the most important reasons is that gold acts as a hedge against inflation, a situation where the value of currency is eroding. This 'characteristic' of gold exists because the price of gold is impacted by factors that are usually distinct from factors affecting other more popular instruments like bonds. Gold prices witnessed an increase of around 14% in last one year. However, we cannot compare the returns of gold directly with equity markets because it is a different asset class altogether. We believe, it should form a part of one's portfolio, however, the percentage of allocation of funds is subject to vary according to different age classes.

    Fixed income securities
    On the other hand, fixed income securities (FIS) are relatively less risky. The movement in the fixed income securities is subject to change in the interest rates. Interest rates and the FIS prices have an inverse relationship. In last few months, the returns given by fixed income securities have been lacklustre to the extent, that in some months the returns have been negative. The one big advantage of investing in fixed income securities is that investor is assured to what amount he is going to get after a particular period of time. So one can match the duration (duration is the time period for which one can invest his funds in the market) of his requirement with the duration of the particular security he is buying. So we can say that there is lot of surety as far as cash flows are concerned. We believe that in medium term, while interest rates may go up marginally, the long-term bias is likely to remain soft.

    We conclude by saying that though returns given by the stock markets in last one year have been phenomenal, it seems that markets have factored in lot of future growth. Fresh exposure at current levels should be undertaken only if the investment horizon is long term in nature. As far as gold and fixed income securities are concerned, it goes without saying that these instruments should be a part of the portfolio of any investor. The allocation of funds, to these asset classes, however will depend on the risk profile of the investor.



    Equitymaster requests your view! Post a comment on "Equities: Increasing acceptance". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 (Close)