“An Investment in knowledge pays the best interest”
12 Jan 2018by Research and Ranking
Many of the investors we talk to would like to invest more in equities – once the markets undergo some correction. While people have become more comfortable with the idea of buying common stocks vs. investing in low yielding FDs / gold / real estate, yet the long rise of equity prices we have seen over the last year or two, leaves most people afraid - that they will suffer immediate losses if they invest before the markets correct. For many people, the obvious answer has been to wait for a correction.
With GST and demonetization behind us, and easy compares on earnings ahead, we believe the relative attractiveness of India will stand out in 2018. We expect the reform agenda pursued by the government to deliver sustainable growth in 2018 & beyond. Ground level green shoots are visible already. Sectors that were a drag on earnings at the index level are repairing themselves, such as PSUs, Telecommunications, Materials and Real Estate. The government’s wave of reforms will yield multiplier benefits.
With an Aadhaar driven economy where every bank account, mobile phone, demat account, investment account and bill payment history is centralized, the government has effectively transformed the domestic economy in a matter of months from largely unorganized and unreported, to organized and reported. The benefits are, in our opinion, likely to be substantial, with lower costs of capital, greater transparency, increasing tax collections, rising productivity & an improvement in operating efficiency.
The Sensex currently trades a little over 21xs FY18 consensus earnings, which is slightly above its last 10-year average. Our view is that investors often tolerate high valuations, if earnings growth is expected to be strong. As a rule, valuation is not a significant problem for equities until growth begins to slow. Thus, investors who wait to invest until they can buy at “reasonable” prices often miss out on some of the strongest market rallies.
Distinctions between a correction and a bear market:
Based on our years of investing experience across business cycles we read the current situation as follows:
'Timing' the market is usually a recipe for losing money. This is because to ace market timing strategy you must ace its 3 components as well: Getting in at the right time, getting out at the right time & knowing what to do in the interim.
You can’t control timing the market. But you have control over time. Therefore, time in the market is a better option than timing the market. You are likely to have more success in the market if you decide to stay in for a long period of time. By long we mean ‘YEARS’, NOT MONTHS. This is known as HOLDING or Buy & Hold.
In the long run your holdings will survive through all the cycles of market and you will enjoy good rate of returns for your patience along with the power of compounding which is the only confirmed way of wealth creation. And if you choose to invest via SIP mode you can turn market volatility into a long-term wealth creation opportunity.
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