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Awaiting Correction! The Conclusion: Market once again proved that it is smarter than any individual. Most of the financial newspapers, magazines, TV channels, and analysts were seen recommending ‘CAUTION’ in June/July'06 to the investors anticipating a deeper correction below 9000 levels. The sensex since then has zip zap zoomed past 10000, 11000, 12000 & 13000 levels forcing all those who anticipated further correction to hide their faces in some corner. Those investors, who tried to time the market, awaiting the bottom, are a bunch of paranoid investors totally confused whether to wait again for the correction or invest now. At BRAINPOINT: We continuously recommended to invest regularly in Equity Mutual Funds even at 9000 & 10000 levels & justified our view with many reasons. Our investors will agree that we stressed a lot on ignoring short term trends and highlighted many-a-times via AURUM, SMS updates and Emails that it is a ‘LONG TERM SECULAR BULLRUN’. It was a tough job putting our neck out to recommend ‘BUY’ when only a few were of the same opinion. But today I & my team get so many letters of appreciation and we have won the trust of many investors. This makes us happy and encourages us to provide you with much more updated information and critical guidance at the right time. It’s a responsibility which we will accept with a smile because equities are not business for us, it’s our passion.
Medium-Long term view Indian economy is poised to sustain a GDP growth rate of 7% plus over the next 10 years principally on the back of rising domestic consumption and accelerating spending on infrastructure development. Indian market cap will rise faster than the GDP growth the way it has happened in Japan (between 1980 and 1990) and in the US (between 1990 and 2000), led by technology and productivity growth. India is on a similar upcycle. There is a groundswell of aspiration that will propel growth for the next 10 yeas and markets will keep discounting that growth much earlier. The three big investment themes over the next 5 years will be domestic consumption (banking, auto), infrastructure development (cement, materials) and outsourcing (pharma, auto components and software.) The beauty about Indian growth is that all three sectors are kicking in at the same time. Also the biggest difference between India and most of the other emerging economies is the low dependence on exports, which accounts for approximately 12% of GDP. Putting it in other words, India’s favorable demographics (sustaining strong domestic demand) and government’s thrust on infrastructure development, both accounting for a very large proportion of its GDP makes it an economy which can grow sustainably at fast rate and is least affected by global slowdown.
• We all know Emerging Markets P/E is at 18 now almost equal to P/Es of developed nations, but Do You Know In 1994, Emerging Markets P/E had risen to 30. • We all know this rally has lasted for 3½ years now, the longest that Indians have ever seen, but Do You Know In 1990’s Dow Jones had a decade long rally when it shot up from 2000 to 10000 levels. Nikkei zoomed from 6475 in March 1980 to 38274 in Jan 1990. So, don’t try to time the corrections. Once again I repeat: Market is smarter than any individuals. And believe in the Incredible India story that this rally is a ‘LONG TERM SECULAR BULLRUN’. There is much more to mint in this market in next 10 years. Don’t be restless. To be sure, nothing goes up in a straight line. Violent corrections are an integral part of major bull runs and a shakeout in emerging markets may be overdue. But it’s important not to lose sight of the primary trend through all the noise. These markets, including India, are in midst of a powerful rally driven by fundamental change. Such currents don’t end because markets are no longer cheap. P/E ratios get very stretched at the peak of a bull market and emerging markets aren’t at that point yet. What do you get when you try to fidget with your portfolio by selling in anticipation of correction and aiming to buy at lower levels by investing the same funds? Loss No. 1: You pay 0.25% STT on the Redemption amount. Loss No. 2: You pay 2.25% Entry Load when you re-enter. So, one thing is sure: Your 2.50% Loss. And if your investment has not yet completed 1 year… Loss No. 3: 10% Capital Gain Tax on the appreciation. After bearing these Assured Losses if markets go down you are lucky, but the fall should be sharp to cover your above losses & dip much lower so that you can buy and make gain out of the whole issue. Risk No. 1: You might wait & wait to catch the bottom and miss it and market bounces back sharply without you investing at lower levels. BIGGEST RISK: You sold. You paid STT & STCG Tax. And markets didn’t correct at all. Sensex makes headlines in next 2 months of crossing much higher peaks. What do you do then? Lose your happiness for nothing? So, try to learn the most frequently taught lessons of equity markets which all agree but very few obey. "Ignore short term fluctuations and think Long Term." "Markets are smarter than any individual." "Invest regularly to strengthen your portfolio." "Buy on every dip without fail; do not try to catch the bottom." Short term view: Correction is very much expected due to continuous uptrend seen over last 9 weeks. If FIIs continue their heavy buying spree seen over past 2 months, Sensex will move further up. So it’s a very difficult call to take on short term market movements as FIIs are buyers even at these levels and only if they scale down their buying or if some other major negative development occurs, we will see a correction.
But who knows? Markets might consider next 3 years earnings in next few months and rally by another 10-20% to breach 13000 / 14000 or who knows 15000! The chances are remote but it might come true. Historically it has happened in many countries like US & Japan where P/Es shot-up to unimaginable levels & then indices stayed almost flat for some years and earnings went up to catch up with the valuations bringing the P/Es to reasonable levels. India has seen its P/Es rise to 52 during 1992 and to 26 during 2000 bull run. Let’s see to what levels this fundamentally strong rally leads the P/Es from current level. Corporate India’s earnings are expected to grow by 15-18% p.a. over next 5-10 years and markets will factor that much earlier. Market prices are slaves of earnings and nothing else. Be prepared to see Sensex touching 25000 maybe in next 4-7 years. Sharp intermediate corrections will occur but do not try to time the corrections. At current levels direct stocks may prove to be very dangerous. Sell shares and stay invested in equity funds and keep adding regularly to it. (Read my article on moneycontrol.com ‘Invest wisely and get rich with Equity MFs’) Now you would ask me, what to do if our market starts falling! My own strategy would be of buying at every 4% fall (500 pts) in market because I won't like to miss even the smallest falls. I am least bothered if sensex falls further after I invest because neither I nor anyone will know how deep the correction would be. But I know one thing for sure it will bounce back, maybe in 1 week or may be after 1 year. Patience pays. I am sure, you must be exhausted reading this extensive Gyan, but I would like to reiterate one thing here. You need not worry on whether Equity Mutual Funds will make money for you or not. The question is which Equity Funds among over 100 diversified funds would fetch best returns. Every time when you have investible funds do ask us and get names of 2-3 funds which are recommended strongly by us at that moment and have a portfolio of future winners. At BRAINPOINT, we strive to offer you THE BEST. And we do our job with complete passion. |
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