Thursday, February 11, 2016

Blood Bath In Indian Equity Market, A Perspective

The first common reaction in seeing market 800 points down in red is, oh my god! it is the end of the world - It feels like it’s going to go down further, I should have waited some more time to make an investment. ask yourself (how much money is in equities of your total net worth ?)

So let us understand what share market (sensex) is:-

When you buy Equities- you buy a SHARE/ Partnership / Holding / Business by investing in particular stock / company / equity mutual funds (equity mutual funds consist of around 20-40 stocks in one particular fund)

Let us understand that equities are for appreciation, it takes time to build businesses, it may not give you 8%-9% yearly returns like your FD’s / PPF or Post office money, but it gives you inflation adjusted returns in long term as the businesses grows / makes profits – it reflects in balance sheet of the company & stock prices goes up or down.

Let me also ask you one thing- what if gold prices fall down by Rs. 2000 per 10grams?  90% of people rush to buy gold – because our parents told us – it will appreciate and will never go down, is it so? What if you bought gold @ rs. 30,000 per 10grams and its trading today at 28000? Don’t you think you lost money? You buy more? Right? Because of emotional bonding with gold? Daughter’s marriage? (That too after 20years) because you are not selling it, you are ready to hold it for next 20years. Isn’t it? You will be shocked to know, Gold has given 1% extra then inflation rate till inception, but you never see that because you never sell gold in your lifetime.

One more example – Real Estate

We buy real estate – home / office / land / resort when it crashes right? People never count expenses while buying it – Loan interest / Processing Fees / Registration cost / Maintenance Cost / Municipal Tax Bill / Electricity bill / Brokerage paid to buy or sell / just add everything to your property and try to sell it, you will have answer to it J
so what is going to happen to sensex now ? people around you will talk about sensex will go down to 21000 / 18000 / 16000 ? or some will talk about 6000 now, everyone is bearish once it goes down as if all businesses will get to zero / or will shut down next day morning ? it never happens like that, businesses goes through ups and down in life like your real estate or gold or any other asset class which is trading in market, some businesses makes profits and share price goes up – some make losses and price goes down.

So what is to be done ?

In my view – we should park our money as per our need – use equity related schemes only if you have 5years of view or more than that – keep your emergency fund ready, usually 9 month’s salary (in case if you loose job or any other unexpected expenses you feel can arise) – invest in short term debt / bank fd / debt funds for 1-3 year money (see your tax slab before investing) – invest by SIP – STP mode and top up your sip’s or invest lump sum whenever you have money to invest (not because market is up or down) small amount can make huge difference if invested regularly for a longer period. Do not listen to people or get scared about market going down because it is the nature of market to be volatile. Equity have always outperform Gold – Bonds – Real Estate in 10-15 year time horizon – the only asset class which is far superior in giving inflation adjusted returns.

If you buy gold when it corrects / if you buy real estate when it goes down / this time sensex is down from 30,000 to 22000 levels – I feel it’s a good time to top up your SIP’s or invest in lump sum- you have a choice to regret later.

Tomorrow's headline in news papers will be "Blood Bath In Share Market - Investor wealth wiped off 3.1 Lac Crore" - sensex down to its 2014  levels and blah, blah, blah, never ending discussion will be on TV's) it's their business - isn't it ?

your business is to see - its 2years low - start investing - or start complaining in next bull run.


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