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Want peace of mind? - Views on News from Equitymaster
 
 
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  • Apr 7, 2005

    Want peace of mind?

    Though the indices gained quite nicely yesterday, they are really at the same levels from where they set off at the start of the week. In effect, the markets are moving in a narrow range, gaining in one session and losing in the other. While this may be frustrating for investors who had gotten used to seeing their portfolio gain, week after week, it may be a sign of investor sentiment slowly maturing.

    We have maintained steadfast that a correction is healthy for the investor from two perspectives. One, it acts as a reality check, avoiding a heady bull phase (like in 1992 and 2000) and the pain post that. It is a healthy sign, as it is foolish to assume that indices will keep going up and only up. Secondly, a correction helps investors re-assess their risk-return matrix and allows new investors, who had missed the bus earlier, to try and make an entry, thus adding to the depth.

    Foreign Institutional Investors (FIIs) continue to be the key drivers of the Indian or rather the emerging stock markets. And that trend is likely to continue in the foreseeable future, despite the thrust on retail participation. But with equities enjoying 3 way tax benefits (tax free dividend, longer term capital gains is zero, as well as freedom to choose a tax saving mutual fund - ELSS, within the Rs 1 lakh ambit), it has become really a very attractive and viable investment instrument. In effect, the movement has been forward looking, aiming to build an equity culture in the country.

    Our view still remains the same. We continue to have confidence in a larger part of India Inc. to grow consistently. Though an 8% GDP growth looks some time away, our usual 6% growth does not look too bad. Of course, that does not mean that India should not strive to break this and enter a higher growth orbit.

    If we look around, we increasingly see a lot of new entrants, both local as well as foreign, offering new ideas, services and products to the Indian consumer. It underlines the potential they see in the Indian economy. We sure have a long way to go, and our progress is not without blushes, but then either you look at the glass as half empty or half full. We prefer half full!

    In this light, we say that the Indian indices are likely to see newer highs. Whether its today, or a month or a year or years down the line that we do not comprehend. Not much of prediction is it! But then if you are not looking to time the markets and are looking at a investment avenue that beats inflation and most other investment avenues in terms of returns, then look at investing slowly but surely in quality companies' backed by fundamental strengths. And stick with your investment for a longer horizon for it does not help you, if you continually enter and exit (it only fattens your broker's purse and gives you tax worries). In the end, most likely, the strategy will result in peace of mind, more hair on your head and give you a clear perspective and control over where your financial goals are headed.

     

     

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