Don’t shy away from investing in equities
I do not know if we are in a bear market in the ‘technical’ sense of the word. However, it does seem that people think so. In the last two to three years in the post-Lehman crisis period, retail participation in stock markets has been diminishing. There is a marked shift of new money to gold, fixed deposits, bonds etc. Stocks and real estate seem to have been pushed to the corner. We tend to ignore equity investing and resu-me only after the market appears visibly to be in a bull orbit.
Some people I talk to seem to be smug about the stock markets not having ‘bottomed’ yet. I wonder if these people hear someone ringing a bell at the bottom. Equities are for those who want to build a ‘core’ portfolio of high quality equity shares for the long term, which means anything beyond ten years. Does it matter, when you buy, if you are going to hold it for ten years? I think it does. For example, if I buy something at Rs 100 and it becomes Rs 1,000 in ten years, it is great. I think it is even greater if I could buy it at Rs 60 or Rs 80. If we measure the performance of mutual fund schemes from, say, 1996 to date, they have surely done better than the broad indices.
We just have to check the prices of some quality stock like Hindustan Unilever or Cummins or Colgate, etc, a couple of years ago when the markets were at 21,000 and today when the markets are at 16,000. For example, HUL was Rs 214, when the Sensex was 20,325 in end January 2008. At the point of writing this, the Sensex is around 16,000 and HUL is around Rs 390. I am sure that you can give me a list of stocks that have also destroyed wealth.
Even if the GDP grows at five per cent and inflation remains at 10, there is reason to believe that domestic spending grows at 15 per cent. Companies that cater to this demand must grow at this pace. Do not shy away from this asset class.
The writer is an independent investment analyst
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