This question is asked by many – especially those who were left out without investing in the market and sitting on the fence expecting some corrections. The bull run of around 35-40% in the last year is attracting many to the Indian Stock market. But before entering the market, please ask yourself, whether it is the right time to invest in the Equity market.
If your financial goal is just for 2-3 years and you want to save to fund those goals, then Equity might not be the right choice for you. For such short term goals, go through the Recurring Deposit and Short Term Debt Mutual Funds. Starting a Recurring Deposit for 3 years will be a good idea now, because you will continue to receive the contracted rate of interest for the full term, even if there is a reduction in the interest rate by RBI in the course of the year.
If your goals are at least 5 years away, you can plan for those goals through Equity. Investing in Equity can be best done by investing through Mutual Fund SIPs.
Is it the right time to invest in equities?
Sensex at 29,000 is attracting us to invest in the market. Rather than looking at these values, let us see why the market can give a good return in the long run. India is going through a phase which can help the Indian equity market to offer decent returns in the next decade or so. Let us analyse the reasons:
- Falling oil prices: Falling oil prices will reduce the oil import bill of the country and help in improving the current account deficit which will have a cascading effect in the reduction in price of many essential commodities. This will also help in reducing inflation. While industries like automobiles and paints will be the direct beneficiaries, most of the other sectors will also be benefited indirectly. This can boost the economy.
- Reduction in interest rates by RBI: The Reserve Bank of India reduced the Repo rate to 7.75% in January 2015. The reduction in rate is due to the reduction in Consumer Price Inflation which is on the decline. With this, we can expect a lower interest rate regime for a fairly long time. A reduced interest rate is good news for most of the companies. While sectors like Banks, Home Loan companies and NBFCs benefit directly, many other sectors will benefit indirectly.
- Stable government at the Centre: We are having a stable government at the Centre after many years of coalition politics. BJP is known for its industrial-friendly economic policies. With a visionary leader like Narendra Modi, we can expect the economy to grow in the coming years. The Make in India campaign, Smart City concept etc can boost the manufacturing and infrastructure sectors.
- Slowdown in China and many other emerging markets: There are reports of a slowdown in China. With a young population, India is well poised to take on China as the fastest growing economy. As per the recent World Bank report, India can overtake China in the next 2-3 years. This will make India a preferred choice for FDI and FII in the coming years and will support the Equity market.
- Huge young population: India will soon have the largest youngest workforce ever. Nearly half the population is less than 25 years of age and around 1.2 crore young people will be entering the job market every month for the next 20 years. A good number of these people will be working abroad and will help in improving the inward remittance. This can boost the consumption and most of the sectors will be the beneficiaries of this.
- Introduction of GST: The introduction of Goods and Services Tax (GST) can boost the tax collection by plugging the leakages in the tax administration. This will help in higher tax revenue and lower fiscal deficit. Introduction of Direct Tax Code also can further boost the reforms in this area. All these can help in improving the GDP of the country.
All these factors and many others can really help India to grow as the fastest growing economy and into a developed country status earlier than expected. This will offer investors in Indian companies a chance to make more money than the past decade. Start investing in Equities through good Mutual Funds to enjoy the high return. Invest in the Direct Plan of Mutual Funds, if you want to get an additional return. If you cannot identify good funds, go through a Fee only Financial Planner who will suggest you good Funds at a nominal fee. Acche din aane wale hain.
What do you think, is it the “right time to invest in the equity market” and through which route?