Wednesday, January 28, 2015

Sensex crossed 29000, What Next ?

Sensex crossed 29000, What Next ? 

Every time sensex crosses new numeric level, the same question arises in everyone's mind, right?

At 9000 sensed level suddenly we all feel, it will go to almost zero and heard someone saying market will get close one day, but it didn't happened ? Right ?

Same way now at 29000 level, people feel it will cross 30,000 and then cross 1,00,000 soon ? Really ? Can you predict the same ? Businesses do not stop like that.

So how this numbers really comes from ?

Lets understand, sensex is almost a mirror image of Indian corporate earnings and how they really perform in their business (how their profit grows).

Is it so Complex to understand ? Not at all if you see price and sensex numbers.

Let's learn it with a simple example.

You invest 1 lac in a company / stock, if company do well and generate a profit of say 15%, it will sooner or later reflects in the balance sheet of the same company. if the same company grows at 15% cagr for next 10/15/20 years, imagine a kind of wealth you can create vis-a-vis you invest in Bonds or Fds.

Now you may argue, sometime companies make profit for 5-10 Years but it is not reflecting in a particular stock price, and suddenly you see stock price roars 100%, yes it happens and it will happen in all market across the world, because someone wants to buy and the other feel its cosly, so he sells, that is how market works.

To sum up, equities  will reflects the same valuation as the profit or loss of the particular business will behave.

What now ?

1) One should look at investment horizon of 10year plus in equity markets or mutual funds,

2) Do not expect a miracle, 15% cagr is a very good return over 10 year period.

3) Map your financial goal like retirement/kids education etc., to the investment you are doing...and keep doing it.

4) Put that amount of money which you will not require for next 10years,

5) Have faith in all of the above 4.