The World is changing from Physical Assets to Financial Assets.
In one of the RBI reports, it is highlighted that 95% of Indian house hold savings are in physical assets like gold, silver, land, flats and only 5% in financial assets. This may be because of no financial inclusion in lower strata of population. Most of the Indian people reside in villages where bank accounts were never heard of. But now with Jan dhan accounts and direct subsidy transfer, almost everyone at every place has a bank account and an aadhaar/Pan card. So, the financial inclusion has already started. This will shift the household savings from physical assets to financial assets. In the 2019 financial year, Indians held around 168 trillion rupees in physical assets as part of individual wealth. This was a big jump in asset valuation compared to the previous financial year's 156 trillion rupees' worth of physical assets (Published by Statista Research Department, Mar 8, 2021). So, there is a huge scope of this shifting from physical assets to financial assets. Even a 10% shift will be very very huge. The banks will automatically get capitalised and will have more cash to disburse. The business will have more lending and capex will increase. This is how the economy improves. So, how do we benefit from this physical shift to financial assets. The need of the hour is to shift focus from physical to financial. By not investing in financial assets, you are missing the India's growth story.
The people from lower strata of society will go for bank deposits, you and me who have better understanding and more educated, must look for better financial products. Where is the opportunity? Can you start a new venture at your own? Can you start a business. NO.... Then what??? We all can participate in the well run businesses by investing in equity market. There are around six thousands listed companies. Yes, you can become a shareholder of any company by investing even a Rs 100 per month. *Companies have grown from few crores to thousands and lakhs of crores of market cap today.* You name it, reliance, TCS, Infosys, HDFCs pedigree, HUL, ITC, Bata, MRF, godrejs, nestle, HCLs, Maruties, Eichers, Gillets, Page, Reddy's, Heros, L&Ts, Asian Paints, Berger Paints, Havels, Aditya Birla group, battery gaints like like Exide and Amarraja, Muthoot, mannapuram, lux, ttk, symphony, wipro, Mindtree, Mittal's telecom, titans, pidilites, daburs, maricos, Britannias, bajajs, Abbots, divis, other pharma companies, the new kids on the block like India Mart, CAMS, Dixon tech, route mobile, affle india, happiest minds etc etc etc....when their market cap and earnings are increasing over the years why will not your wealth. Also, on the other side, companies like Satyam of Raju's, kingfisher airlines, jet airways, Suzlon, JPs, Unitech, GVKs, GMRs, ADAG group, vodaphone, Yes Bank, DHFL, Gitanjali gems of Choksi's, Deccan Chronicle and many many more have completely decimated the investors wealth. The world is highly competitive. The greedy, over ambitious and selfish promoters will surely destroy their companies and shareholders wealth.
There is lot of inertia in investing in stock market primarily because most of us loose money in the equity market. Why is it so, when the data suggests otherwise. If sensex has risen from 100 in 1979 to almost 65000 now ie 650 times (65000%), why you and me can't make money. The only reason is lack of patience and desire of making money overnight. You need to invest in equity markets intelligently and conservatively to augment your money compounding for future growth of financial assets. Ofcourse, with a fine balance of your short term and long term needs. Asset allocation is the buzz of the market today. Yes, it is important. Decide how much money you can spare without needing it for the next 20 years. It may be one thousand or one lakh rupees a month depending upon your income. Have liquidity with your bank saving, FDs, short term funds and some security in terms of Provident Fund and other schemes like SCSS, if you are eligible. How to park the excess corpus? You have to consider equity an option because there is no other competitive option and no alternative. Interest rates are down. Inflation is expected to rise. Oil is already making a century. Real estate and gold are cold. Equity markets are rising every day. There is a FOMO ( fear of missing out) factor among the retail investors. The approach should be simple, for long term, without any clutter and noise, disciplined, modest and with reasonable expectation. The route is direct equity or mutual funds.
Fundamentally, a bull market and commodities mean input cost pressure. It leads to inflation and therefore one needs to invest in strong franchises which have pricing power to deal with inflation and protect their operating margins. Across the world, it looks inevitable that commodity prices and inflation will go up strongly. Therefore, the focus as ever should be to invest in powerhouse franchises which have the pricing power to make sure that the topline growth comes through the bottomline.
And the fact is that there is a huge opportunity waiting for wealth creation. Good powerful clean run franchises with clean and modest promoters will generate wealth irrespective of governments, policies, pandemics, politics, oil prices, US bond yields, inflation and printing of money. The need is to identify and invest judiciously, intelligently and conservatively with a high degree of discipline, modesty and simplicity.
According to Mr Ramdev Agarwal of Motilal Oswal Sensex can reach 2,00,000 (2 lakh) within next 10 years. The calculation is very simple. With 15-16% of CAGR (compound annual growth rate), you get doubling in every 4-5 years. Sensex is already 65,000. Next 5 years, it may cross 1,00,000 and another five years it will double to 2,00,000. So, it is very much possible.
The powerful franchises have created huge wealth for themselves and for their shareholders. Market leaders keep changing with disruptions in technology, pricing, equity investment, logistics, greed, ambition so on and so forth. The problem is stock selection and lack of patience. We want to get rich overnight the moment we think of stock market. The CAGR of around 15-16% will make you rich by the time you retire and compound your money enormously. Your money is doubling every four to five years which is huge. Once, you have substantial corpus of say 15-20 lakhs, the doubling in every 4-5 years is magic. Within the next three cycles, you will be crossing a crore. The key is to start early to have the time advantage. It is not the amount but the time which is most important. Even if you start early in life and contribute less, you have all the chances to enhance it over a period of time because of your increasing salaries, bonuses etc. But, if you start late, the chances of compounding reduces. Please remember the rule of 15*15*15. If you invest Rs 15000 per month for 15 years with an expected CAGR (rate of return) of 15%, you will generate Rs 01 crore. So, starting early in life is the key to wealth creation.
I am not suggesting to go out today and buy the stocks of good well run companies. Market is at all time high and there is euphoria all around. The stocks are at very high valuation right now. There is plenty of liquidity flowing all around. It's a bull market. We want to buy high flying stocks without much fundamentals or history of consistent earnings. Markets were there, markets are here and markets will be there. It is not going anywhere. Markets never follow a linear path. The basic nature of market is volatile. There will always be better times to invest. But when will that better time come, nobody knows. And even if that time comes, there will be few takers. When the market crashes, there are very few braveheart to invest. People invest more in bull markets. So, don't sit tight and hold all your investments. Stay Invested and buy slowly. When you get better opportunities, buy little more. Cash is the king in the bull markets.
You need to follow a simple and balanced approach for equity investment (direct equity or mutual fund). But simple and balanced approach is not that simple. It comes with time and patience. You need to go through atleast two bull and bear cycles to experience the vagaries of stock market. You need to burn your own fingers to feel the pain and not repeat the mistakes.
REFERENCES:
https://timesofindia.indiatimes.com/business/india-business/explained-why-indian-households-may-more-than-double-savings-in-5-years/articleshow/96250095.cms
https://www.thehindubusinessline.com/money-and-banking/financialisation-of-household-savings-gaining-pace-crisil/article66267798.ece
https://marcellus.in/blogs/marcellus-the-big-shift-in-small-town-india/
(main source of information)
https://www.youtube.com/watch?v=Q1eS6tfSaUs&t=24s
(main source of information)
https://www.livemint.com/opinion/columns/the-evolution-of-financial-services-and-savings-trends-in-india-11678620519140.html
DISCLAIMER : The above information is available on public domain and has been taken mostly from above mentioned websites and YouTube videos. 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.
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