Is it the right time to invest in Equity?
Many are asking this question now because there is a feeling that market is in the overbought zone and upside is limited. Many investors are sitting on the fence expecting some correction. The bull run of around 40% in the last year is attracting many to the equity market.
If your financial goals are just 2-3 years and you want to save to fund those goals, equity may not be the right choice for you. For such short term goals, go through the recurring deposit and short term debt mutual funds. Starting a recurring deposit for 3 years will be a good idea now, because you will continue to receive the contracted rate of interest for the full term, even if there is a reduction in interest rate by RBI in the course of the year.
If your goals are at least 5 years away, you can plan for those goals through equity. Investing in equity can be best done by investing through mutual fund SIPs.
Is it the right time to invest in equities?
Sensex at 29K is attracting many to invest in the market. Rather than looking at these values let us see why the market can give good return in the long term. India is going through a phase which can help the Indian equity market to offer decent returns in the next decade or so. Let us analyze the reasons.
1. Falling oil prices: Falling oil prices will reduce the oil import bill of the country and will help in improving the current account deficit. The price reduction in oil can have a cascading effect which will help in the reduction in price of many essential commodities. This will also help in reducing inflation. While industries like automobiles and paints will be the direct beneficiaries of this most of the other sectors will be benefitted indirectly. This can boost the economy.
2. Reduction in interest rates by RBI: The Reserve Bank of India reduced the Repo rate to 7.75% in January 2015. The reduction in rate is due to the reduction in Consumer Price Inflation which is on the decline. With this we can expect a lower interest rate regime for a fairly long time. A reduced interest rate is good news for most of the companies. While sectors like banks, Home loan companies and NBFCs benefit directly many other sectors will benefit indirectly.
3. Stable government at the centre: We are having a stable government at the centre after many years of coalition politics. BJP is known for its industry friendly economic policies. With a visionary leader like Narendra Modi, we can expect the economy to grow in the coming years. The Make in India campaign, Smart City concept etc can boost the manufacturing and infrastructure sectors.
4. Slow down in China and many other emerging markets: There are reports of a slowdown in China. With a young population, India is poised well to take on China as the fastest growing economy. As per the recent World Bank report, India can overtake China in the next 2-3 years. This will make India as a preferred choice for FDI and FII in the coming years and will support the equity market.
5. Huge young population: India will soon have the largest youngest workforce ever. Nearly half the population is less than 25 years of age and around 1.2 Crore young people will be entering job market every month for the next 20 years. A good number of these people will be working abroad and will help in improving the inward remittance. This can boost the consumption and most of the sectors will be the beneficiaries of this.
6. Introduction of GST: The introduction of Goods and services tax (GST) can boost the tax collection by plugging the leakages in the tax administration. This will help the higher tax revenue and lower fiscal deficit. Introduction of Direct Tax Code also can further boost the reforms in this area. All these can help improving the GDP of the country.
All these factors and many others can really help India to grow as the fastest growing economy and into a developed country status earlier than expected. This will offer investors in Indian companies a chance to make more money than the past decade. Start investing in equities through good mutual funds to enjoy the high return. Invest in the direct plan of mutual funds, if you want to get an additional return. If you cannot identify good funds, go through a Fee only financial planner who will suggest you good funds at a nominal fee. Acha din aane wala hei.
Melvin Joseph
SEBI registered Investment Adviser
SEBI registraton number -INA 000000342
Finvin Financial Planners
10. Ground Floor, Olive Excel CHS Ltd
Plot No- 16, Sector 42, Nerul, Navi Mumbai – 400 706
Mobile: 91 9820843739
Website : http://www.finvin.in
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