If you ask me I’d say there are 2 ways to judge where India is heading. I’d rate them as ‘more visible’ and ‘less visible’. More visible are those that are so obvious that you just need to open your eyes to see them.
The roads are choc-a-bloc with more and more cars, number of ‘lowly’ ferrywallahs owning mobile sets have increased, giant malls have come up at places that were dumpyards even 2 years back, crowding at airports wracks your nerves, increasing number of people speak better then chalta-hai English, and of course you find it impossible not to check your mailbox at least once a day.
Well, these are signs of urban affluence – the first lot of population to enjoy benefits when they occur – that indicates India is heading north.
What are less visible signs that too indicate India’s growing affluence? These are those that take somewhat trained eyes to track and make sense of. Take stock market indices for example. They are breaching new highs, the FDI inflows are jumping, and as mentioned briefly in my post yesterday the total market turnover has topped an unthinkable Rupees One Lakh Crore on one single day.
Pundits will tell you stock markets reflect the condition of economy. If you hold that as a gospel, you’ll recognize that the country is at long last on a high growth trail.
If so, what can you do to cash in on India’s growth story? The Americans are fortunate in this aspect. For every situation, whether boom or gloom, their ears are cocked to the only familiar tune they want to hear, which is how to make money. The equity culture is pretty well entrenched, and if the grandma or grandpa cannot withstand the heat of equity investment, there always are the funds to take care of their needs.
In India the few people who invest in stocks mostly prefer the mutual fund route. And here is the irony.
The fund companies in US as well as here have a smallish core group of analysts who pour over an onrush of figures to decide which stocks to invest in, but I suspect their numbers are usually less than those who sell and market the funds to people like you and me.
These people, especially the analysts, make fat income by way of incentives and bonuses other than their salaries, which are essentially money from your pockets. Mind you the analysts’ earnings rarely nosedive even when there is less of shine and more of darkness in the market.
The reason I mention this is because I feel at a time like now investing in funds is a bad investment. Okay you earn decent sum there but perhaps you stand to gain much more if you do direct investment. Why?
Because India today is on the threshold of a virtual take-off from near-sluggish growth all these years. The demand for goods and services will continue to outstrip supply that can be provided, and this is likely to prevail for longer term barring occasional hiccups.
If the overall growth story does seem rosy to you, and you’ve the appetite for equity investment, pray which ones to choose? While I leave that to your considered judgment, here are what I feel 5 safe rules to help you ride the tremendous potential of India’s growth over the next many years:
- Invest only your surplus money, which you know you won’t need for at least 3 to 5 years.
- Preferably buy large cap stocks – even in small quantities – in rising sectors like banking, infrastructure, telecom, realty, IT, and may be retail. These are those that are better positioned to take advantage as the situation develops, and therefore can be expected to witness rapid and prolonged boom.
- Let your portfolio be broad-based, not unduly concentrated in few companies or sectors.
- Invest regularly irrespective of ups and downs in the market.
- Refrain from timing the market whether you buy or sell. That seldom works on a sustained basis.
I agree all these suggestions are old and pretty well known. But then as a smalltime investor and having burnt fingers in the past, I’ve benefited and continue to benefit from them. Hence I’m sticking out my neck to share them with you.
Oh yes, there are 3 more things I feel are necessary in direct equity investing – patience, ability to keep away from the daily buzz, and wearing a thick veil to withstand shocks of bad surprises.
If you feel you’re game with these tips, split your stock market spending 70:30 (or why not 80:20) in favor of equity investment keeping the small portion for funds.
Mint money as long as the going is good. Best of luck.