Markets: Bogged by index levels? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Markets: Bogged by index levels?

Apr 12, 2006

Thinking twice about Sir Newton's law? Well, we do not blame you if it is in the context of the Indian equity markets, as they have defied the law of gravity and continue to move in a one-way direction. However, a large part of this one way run could be attributed to the immense liquidity prevailing in the system, especially with mutual funds (MFs) and Foreign Institutional Investors (FIIs) sitting on huge piles of cash. Every word of caution, even by the most experienced of players in the market, has been proved wrong. Given the above backdrop, we had recently conducted a poll on our website asking investors if stock market index levels influenced their investment decisions. Around 63% of those who polled, indicated that this was the case with them, while the remaining voting that market levels did not matter to them.

Our take is that one should not simply go by the five-digit figure and get ecstatic or frightened, as over a long-term period, equities are supposedly the best investment option. Also, equities are the among the most liquid investment options, in case any emergency crops up, and an investor can get back his money within 48 to 72 hours.

Let us look at it this way. In 1984, the BSE-Sensex (NSE did not exist) was about 400 points. Now it has crossed over 11,500 levels. Mathematically, that translates into over 17% rate of appreciation each year over the past 22 years.

Now let us take a slightly conservative approach and assume that the indices will grow at 15% per annum each year (the Sensex has already appreciated by over 23% in this calendar so far) in years to come. Using the same mathematical formula, the Sensex should be in the neighbourhood of 185,000 points in 20 years' time. Wait! Please do not get too much excited and sell all your other investments to invest in equities. As has been the case in the past, the ride from here on will not be as steady as it seems. One must remember the risks of being in equities and also recall the journey from 400 to 10,000 - there were years when the markets lost money. During the journey, there were instances when the markets lost 20% in a year, while in heady times, the benchmark indices gained over 80%.

So it will NOT be a 'straight line' to the sky but many bumps along the way. Although, we continue to believe that equities, over a long period of time, will continue to outperform other assets classes like debentures/bonds, property and gold. And they should, because you take more 'risk' by being in equities.

Thus in conclusion, we would like to say that simply looking at where the index is today should not bog one down, while investing from a long-term perspective. Also, there is a possibility that the past 3 years will not be replicated in the future. One should rather invest with the idea of accumulating surplus for meeting personal financial goals (like children education, marriage and retirement) and, in the mean time, beating inflation or probably getting more returns than the highest yielding paper or deposit.

Equitymaster requests your view! Post a comment on "Markets: Bogged by index levels?". Click here!


More Views on News

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

How to Save Money by Exiting Stocks Before They Fall podcast (Views On News)

Sep 24, 2020

A penny saved is a penny earned. It doesn't matter where you enter. All that matter is where you exit. Watch this video to identify an opportune time to exit your investments and book profits.

ICICI Prudential ESG Fund: Aims for Sustainability (Outside View)

Sep 24, 2020

PersonalFN briefly explains the newly launched fund : ICICI Prudential ESG Fund.

What to Do if there is a Second Wave of the Stock Market Crash (Profit Hunter)

Sep 24, 2020

Here's what I think investors should do in this selloff.

IDFC Mutual Fund Starts Campaign 'SIFI'. Should Buy Into the Idea? (Outside View)

Sep 23, 2020

IDFC Mutual Fund is taking the road less travelled and hence started a campaign SIFI (SIP in Fixed Income) to promote the concept of SIP for its debt funds investors.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 24, 2020 02:36 PM