Sunday, August 30, 2009


During my recent visit to USA some of my American and NRI friends asked me if it would be wise to invest in Indian centric stocks now? Whether Indian share market has decoupled from the influence of American share market? Would Indian share market continue to go up from now onwards?

My reply to them was aftermath of Indian election results were announced, the share market has gone up continuously in Euphoria. It is possible that market may come down soon. But that should not deter investor to stop buying equity.In the long run equity is the best asset along with Gold and real estate. I also reiterated that this was the time to plan investment when market goes down through systematic investment plan(SIP) in mutual fund.

I was surprised to find as to why more and more American citizens and NRI were interested in investing in Indian market. On inquiry I found tat senior citizen of America, who retired from 2008 onward, had to suffer a lot due to down turn of the wall street. Their pension was greatly effected. Unlike our countries most of the citizens here do not keep money in banks.
They invest in share market or in real estate. Since both these sectors are in doll drums retired persons had to go back to work in order to maintain their standard of living and livelihood.. Senior citizens of America and Britain were greatly anguished, on banking institutions primarily. Some of them have been advised by their personal finance advisers to invest in "BRICK" countries now . Younger generation are also getting ready to look towards India and China as the share market of western countries are in bad shape.

I also advised them that it would be foolish to assume that Indian share market has completely decoupled from US market. The recession in US would surely have impact on Indian economy. Yet the growth story of Indian and Chiana would be much better than US and Britain in next five years atleast. I had no hesitation to recommend investment in India and China centric shares. Since I had no proper studies on Brazil and Russian share market it was better for me to refrain from commenting on those two economies.

According to an expert, volatility is the friend of astute investors. It is actually the volatility that would make investors rich. Prolonged bear phase is not welcome by new and uninformed investors. But astute investors always welcome volatility and bear phase in share market .According to Warren Buffet equity is the king in the long run. Why? Because, in the long term, the share market is bound to have fluctuations and volatility. The volatility ensures better return if invested with prudence. In case investors adhere to systematic investment plan and Systematic transfer plans he or she is sure to benefit. This is the point which most of the casual investors always ignore. When market went down in 2002 people who continued to follow SIP route and kept on buying the units at lower cost they reaped great benefit. As market rebounded the investors were benefited because their cost of acquisition was much lower during the bear phase. So to be frank enough bear phase should not be looked down always.

I had told my friends that .Investors should not time the market always. All the money at the disposal of investors should not be invested only in equity. Depending on the age of investor and income of investor it should be invested proportionately in debt and equity.

The money required for day to day expenses should be invested in debt funds & bank fixed deposit. In America none want to keep money in Bank FD as the return is absolutely low. How ever they agreed to my suggestion that more money should be allocated in fixed income and less should be earmarked in equity as persons become older. In US there is no fixed retirement age. In Britain people are enocuraged to retire at 65 years of age.

During our discussion it was pointd out to my friends that as share market recovers no lump sum money be invested at one time. It should be through SIP or through STP. My personal preference is STP. Now days investment in India centric funds can be made from US itself.I have no hesiotation to recommend investment in India centric fund so long as the american share market remains dormant. But it should be done as per advice of astute personal finance advisors.

I also pointed out to them that any investors who have followed the time honoured prudent advice would be sitting pretty today, largely unaffected by the current turmoil of 2008.The market value of investments may be down today but it would surely come up sooner or later..

The loss in front of the eyes of investor today is actually notional loss. This would be made good when market takes a turn for the Good. But where is the guarantee that market is going to rebound? In share market no body can predict the behavior of the market. There was no guarantee that market would touch the bottom similarly there is no guarantee that market would surely move up. But our experience reveals that market is going to go up sooner or later as there would be growth in the economy in the long term. If the world can recover from great depression in 1933 there is no reason why the turmoil of 2008 would not be able to be handled.

I would like to quote the remark of Dhirendra kumar “Despite the crashes, equity is a far safer option over the long run. The real danger to your financial well being is not the market crash, but from the insidious effect of inflation’. Yes, equity is not really unsafe, what is really unsafe is our mentality and fear psychosis.


No comments: