Niveshika

Niveshika-Investment Blog

VALUE INVESTING

Niveshika has been created to spread financial awareness to investors for long term wealth creation and financial planning across different financial instruments, investment domains like Mutual Fund, Insurance, Stock investing etc.

Breaking

Tuesday, October 9, 2018

SHOULD YOU INVEST IN EQUITY MARKET!!!



SIMPLE MATHS

In 2012,
GDP     : 1.25 trillion dollars
Sensex : 16000

In 2018,
GDP     : 2.50 trillion dollars
Sensex : 35000 (touched 39500)

By 2027, the GDP is expected to be 5 trillion dollars at 7-8% growth rate, and if extrapolate, sensex may touch 70000.

Sensex Historical Data

Year
Close
Year
Close
1979
118.76
1999
5005.82
1980
148.25
2000
3972.12
1981
227.72
2001
3262.33
1982
235.83
2002
3377.28
1983
252.92
2003
5838.96
1984
271.87
2004
6602.69
1985
527.36
2005
9397.93
1986
524.45
2006
13786.91
1987
442.17
2007
20286.99
1988
666.26
2008
9647.31
1989
778.64
2009
17464.81
1990
1048.29
2010
20509.09
1991
1908.85
2011
15454.92
1992
2615.37
2012
19426.71
1993
3346.06
2013
21170.68
1994
3926.9
2014
27499.42
1995
3110.49
2015
26117.54
1996
3085.2
2016
26626.46
1997
3658.98
2017
34056.83
1998
3055.41
2018
35217.11

Let's now take historical data of Nifty  and extrapolate for future growth:

 03 Nov 1995, Nifty : 1000

02 Dec 2004, Nifty : 2000 (almost 9 years for Nifty to double)

30 Jan 2006, Nifty : 3000

01 Dec 2006, Nifty : 4000(almost 2 years for Nifty to double again)

 27 Sep 2007, Nifty : 5000 (almost 12 years for Nifty to grow 5x)

11 Dec 2007, Nifty : 6000

12 May 2014, Nifty : 7000

01 Sep 2014, Nifty : 8000 (almost 8 years for Nifty to double)

14 Mar 2017, Nifty : 9000

 25 Jul 2017, Nifty : 10000 (almost 22 years for Nifty to grow 10x).

 CAGR of Nifty : 11.03%  (cagrcalculator.net)

So, if we extrapolate, we find that Nifty may touch 50,000 (5x from 10,000) after another 12 years ie by 2029 and 1,00,000 (10x from 10,000) in another 22 years ie by 2040.

These returns are not showing any dividends which the sensex or the Nifty companies must have given to the investors since 1995. A total return index takes into account not just the price return of the stock but also dividends paid out.

Also, if we compare the Nifty or Sensex to any large cap mutual fund, the difference will be huge. I will take one example of a very common and popular large cap fund, HDFC top 200 fund (G) :-

Inception date: 03 Sep 1996

NAV: 10 (All mutual funds start with NAV of Rs 10/-)

NAV on 28 Mar 18: 429.08

 CAGR : 19.6% (cagrcalculator.net)



Even the worst of the funds will give you returns comparable to sensex or Nifty.  Midcap and small cap funds have given even better returns.

That's why we must understand the Equity Market and invest into it. There is no other market instrument which can give you this kind of tax free returns (10% LTCG after one lakh profit per annum per investor). Also, by investing in Indian equity market, we are contributing in India's growth and making it less dependent on FIIs money.

Though it is correct that past records do not guarantee the same future growth but statistics is also a science and based on some rationale. The rationale here are India's current position in the world economy, the demographic dividend, the fastest growing economy, strong and stable leadership at the centre, govt resolve to push forward the reform agenda (I feel it is irreversible now, irrespective of any govt at the centre. Only the speed may change), consumer spending ( the average age of India is 25 years. The younger the nation, the more it spends) etc etc. I may go on and on.  These are enough indications to give confidence that we can repeat the past performance rather we have a fair chance to beat it.

Image result for mutual fund

DISCLAIMER : The above information is available on public domain and has been taken mostly from websites and YouTube videos freely available on internet. The opinion expressed above is in no way recommendation of buying or selling.  You must consult your financial advisor before making any fresh investment in equity market.

                                        

No comments:

Post a Comment