Most people would view the current situation of the Indian economy as the beginning of a horror story for investors – the inflation rates are soaring rather uncontrollably, global cues are dismal and the equity markets are plummeting.
No cause for panic, say investment experts. Those with the qualifications and the technical know-how to assess the present situation assert that this is just the beginning of a new phase and investors will have to change their habits and attitudes accordingly.
Experts refuse to see the recent decline as a bear market. They rather term it as a correction in a bull market. They are confident that once the inflation concerns and the political uncertainty are past – and they will be sooner than later – the Indian equities will regain their flavour.
Their confidence stems from the facts that amidst all the gloom Indian businesses have continued to display very strong fundamentals. What’s needed to stabilize the proceedings is a stable government. Everyone is waiting for the first bit of good news to set the markets on an upward path.
Until that happens, though, experts say the markets will be range bound in the 10 to 15 percent band. The growth will be slow as compared to previous times. There are not too many positive triggers in the market at present. In the past, investors (read speculators) have become used to making a lot of money. There is no quick-money to be made in the market now. Investors will have to stay invested for the long-term to make fairly reasonable returns.
Over the last four years, there was a combination of positive factors working for the economy. Those fundamental factors have now changed. It will take time for the fundamentals to stabilise and people will have to patient during this phase. From now on, at least in the foreseeable future, there will be no instant money. The gains will certainly be there, but for those with an investment horizon of at least two to three years.
Wisdom therefore lies not in shying away from the market but entering it in small calculated steps. One good way to do this is through mutual funds.
With the booming stock market remaining volatile in the recent times, more and more investors are seeking mutual fund (MF) route to invest in the market. This can be seen from the number of investor folios rising faster than the growth in asset under management (AUM) of the MF industry. The Indian MF industry has grown at the compounded Annual Growth Rate (CAGR) of 47 percent between 2003-08, which is next only to Russia at 97 percent and China at 67 percent during the same period. There are reports to say that in the next 2-3 years, the MF sector will grow at 35-40 percent.
A report from McKinsey & Company titled “Indian Asset Management: Achieving Broad-based Growth,” suggests that by 2012, the total money managed by mutual fund houses in India will be between $350bn and $440 bn. That’s a growth of 26-33 percent every year for the next four years.
McKinsey believes that the penetration of mutual funds is very low as compared to other markets. The current AUM amounts to 8 percent of GDP in India compared to 79 percent in the US and 39 percent in Brazil, according to the report. “About 3-4 percent of Indian households have invested in mutual funds and 42 percent of these households are located in the top eight cities,” it further elaborates, underscoring the underpenetration.
To capitalise on this growth opportunity, many new players have recently entered the fray, and at least 10 more are in various stages of launching their mutual fund businesses.
According to Lipper, an international fund tracking firm, Gulf investors earned substantial gains last year from both debt and equity funds.
Funds registered for sale in the Gulf region recorded an average gain of 19.26 percent in 2007, with equity funds from India emerging as the second best performing category after equity funds from China, said a recent Lipper report. Nineteen Among the top 20 GCC-registered funds were Indian. These included six funds from the Reliance Mutual Fund stable, four schemes each of UTI Mutual Fund and Birla Sun Life, three DSP-Merrill Lynch schemes and two HDFC Mutual Fund schemes.
Among the Indian funds, the rupee-dominated bond funds were the best performers in the bond category with about 20 percent return while equity funds gave an average return of 71.08 percent, against the overall average of 26.40 for all the equity funds.
Returns from the rupee-denominated general bond funds and government bond funds stood at 21.56 percent and 19.79 percent respectively. This, compared with an overall average return of 9.94 percent for the bond funds. Investors from the Gulf region were aggressively betting on the Indian market, the study said.
One must remember that the best time to enter the market is when the Sensex plunges. This may be a good time to buy stocks as most scrips are trading at very low prices. But the bigger question is whether you want to enter the equity market directly or opt for the mutual funds’ route.
According to one expert, investing directly in the stock market is good. You should look at splitting your money among 5-6 blue chip companies. However, if (and it’s a big if) you don’t have the expertise, then a diversified equity fund will be a safe bet. It’s better for new investors to enter the market in tranches. If you enter the market today and it falls by another 10 percent tomorrow, it will pinch you. So it’s better to spread your moves when the stock market looks bearish.
No cause for panic, say investment experts. Those with the qualifications and the technical know-how to assess the present situation assert that this is just the beginning of a new phase and investors will have to change their habits and attitudes accordingly.
Experts refuse to see the recent decline as a bear market. They rather term it as a correction in a bull market. They are confident that once the inflation concerns and the political uncertainty are past – and they will be sooner than later – the Indian equities will regain their flavour.
Their confidence stems from the facts that amidst all the gloom Indian businesses have continued to display very strong fundamentals. What’s needed to stabilize the proceedings is a stable government. Everyone is waiting for the first bit of good news to set the markets on an upward path.
Until that happens, though, experts say the markets will be range bound in the 10 to 15 percent band. The growth will be slow as compared to previous times. There are not too many positive triggers in the market at present. In the past, investors (read speculators) have become used to making a lot of money. There is no quick-money to be made in the market now. Investors will have to stay invested for the long-term to make fairly reasonable returns.
Over the last four years, there was a combination of positive factors working for the economy. Those fundamental factors have now changed. It will take time for the fundamentals to stabilise and people will have to patient during this phase. From now on, at least in the foreseeable future, there will be no instant money. The gains will certainly be there, but for those with an investment horizon of at least two to three years.
Wisdom therefore lies not in shying away from the market but entering it in small calculated steps. One good way to do this is through mutual funds.
With the booming stock market remaining volatile in the recent times, more and more investors are seeking mutual fund (MF) route to invest in the market. This can be seen from the number of investor folios rising faster than the growth in asset under management (AUM) of the MF industry. The Indian MF industry has grown at the compounded Annual Growth Rate (CAGR) of 47 percent between 2003-08, which is next only to Russia at 97 percent and China at 67 percent during the same period. There are reports to say that in the next 2-3 years, the MF sector will grow at 35-40 percent.
A report from McKinsey & Company titled “Indian Asset Management: Achieving Broad-based Growth,” suggests that by 2012, the total money managed by mutual fund houses in India will be between $350bn and $440 bn. That’s a growth of 26-33 percent every year for the next four years.
McKinsey believes that the penetration of mutual funds is very low as compared to other markets. The current AUM amounts to 8 percent of GDP in India compared to 79 percent in the US and 39 percent in Brazil, according to the report. “About 3-4 percent of Indian households have invested in mutual funds and 42 percent of these households are located in the top eight cities,” it further elaborates, underscoring the underpenetration.
To capitalise on this growth opportunity, many new players have recently entered the fray, and at least 10 more are in various stages of launching their mutual fund businesses.
According to Lipper, an international fund tracking firm, Gulf investors earned substantial gains last year from both debt and equity funds.
Funds registered for sale in the Gulf region recorded an average gain of 19.26 percent in 2007, with equity funds from India emerging as the second best performing category after equity funds from China, said a recent Lipper report. Nineteen Among the top 20 GCC-registered funds were Indian. These included six funds from the Reliance Mutual Fund stable, four schemes each of UTI Mutual Fund and Birla Sun Life, three DSP-Merrill Lynch schemes and two HDFC Mutual Fund schemes.
Among the Indian funds, the rupee-dominated bond funds were the best performers in the bond category with about 20 percent return while equity funds gave an average return of 71.08 percent, against the overall average of 26.40 for all the equity funds.
Returns from the rupee-denominated general bond funds and government bond funds stood at 21.56 percent and 19.79 percent respectively. This, compared with an overall average return of 9.94 percent for the bond funds. Investors from the Gulf region were aggressively betting on the Indian market, the study said.
One must remember that the best time to enter the market is when the Sensex plunges. This may be a good time to buy stocks as most scrips are trading at very low prices. But the bigger question is whether you want to enter the equity market directly or opt for the mutual funds’ route.
According to one expert, investing directly in the stock market is good. You should look at splitting your money among 5-6 blue chip companies. However, if (and it’s a big if) you don’t have the expertise, then a diversified equity fund will be a safe bet. It’s better for new investors to enter the market in tranches. If you enter the market today and it falls by another 10 percent tomorrow, it will pinch you. So it’s better to spread your moves when the stock market looks bearish.
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