Modi 2.0 should quicken GDP growth to a much higher level and market always welcome a stable government and what better than having Modi 2.0 version to accelerate the growth engine. But in spite of knowing all this and the confidence in our Indian story, why people still don’t make money from the market? Here's what we found out.
The Bharatiya Janata Party’s massive victory sent Indian stock market to a record high right from the moment results started coming in, towards the start of the day. Sensex went up by almost 900 points and crossed 40,000 level for the very first time and so as the other stock index Nifty which hit a record high.
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But it proved to be short-lived and the market ended in negative as predicted because we are still facing weak sentiments around the global economy, the US-China trade issues and weak earnings. In fact, market already discounted the BJP’s victory as soon as the exit poll results were out and market will soon start worrying about the things as mentioned above apart from things like who would be the new FM, policy changes or how the monsoon will pay out.
I expect Modi 2.0 to be a reform-oriented and business-friendly government and this second term should help us progress on the foundation built up in the first term. Modi 2.0 should quicken GDP growth to a much higher level and market always welcome a stable government and what better than having Modi 2.0 version to accelerate the growth engine.
But in spite of knowing all this and the confidence in our Indian story, why people still don’t make money from the market. The main reason behind this is the investor’s behaviour because they keep succumbing to their emotions and take irrational decisions. They start buying when the market attains peak like in the past few days and sell their stocks or mutual funds’ investments on seeing the negative returns. In fact, this is the same reason why in spite of Sensex giving more than 16 percent CAGR in its history of 39 years since inception, people don’t make similar returns. Nobody remains invested for long term and often investors follow herd mentality and keep trying to time the market.
In fact, as a famous saying goes that a portfolio of a dead investor is better than an active investor is very much true because thinking that you would always buy when the prices are low or sell during the peaks is totally a myth. What you should be focusing on is to invest in quality stocks over a long term.
Always remember that India’s GDP will keep growing at an average rate of 6 percent or so despite any government but with Modi 2.0 we expect to have a good governance and coupled with the fact that Indian is one of the fastest growing countries in the world, this GDP growth rate can achieve new highs.
Our equity market specially the mid-caps/small caps haven’t performed in the last 1.5 years which makes investors doubting their decision which often led them to think that they would have been better off had they remained invested in bank FDs. But doing that comparison is not an apple-to-apple comparison. So, in spite of you seeing Sensex/Nifty touching new highs and your mutual funds not giving you the same returns should not make you lose faith, rather you should stay invested looking at the factors mentioned above. In fact, your equity mutual fund’s investment in mid-cap, multi-cap or small caps will result into giving you good compounded returns in the long run, as of now the market highs are driven by select few stocks. Always remember that focusing on creating a good financial plan, proper asset allocation suiting your risk profile and stay invested for the long term can help you create great wealth despite any political changes. With Modi 2.0 we expect this to grow further. Stay invested, stay long-term.
Rishabh Parakh is the founder and chief gardener of Money Plant Consultancy.
First Published: May 24, 2019 7:56 PM IST