WEALTHY YEARS ARE AHEAD

It was good to get in touch with each of you.  Other than those of you who started investing during last 2 years; everybody else has done well. Those of you who have started a year or two ago, would start seeing better results in next few years.

I’m grateful that all of you have internalised the concept of SIP and sticking to the discipline through ups and downs.

I think I wrote in January that we’ve entered a bear market. A 20% fall from the previous high is considered as a bear market. Markets lost heavily in January and February. The interesting thing is that the market has started rallying in March and at the time of writing this, has recouped the losses made during the first two months. I wouldn’t be surprised if it crosses it’s all time high this year itself.

Globally things are not looking bright. India is considered as a sole bright spot in an otherwise gloomy scenario. As explained before, budget was very good. Government is sticking to fiscal discipline. Inflation is continuing to come down. RBI is targeting 4% inflation over next 2 years. As inflation comes down, interest rate is also continuing to fall. Recently RBI reduced the interest rate further by 25bps (0.25%). Good monsoon may lead to further interest rate cut. RBI, through various measures, is increasing the liquidity in the economy.

After 2 years of insufficient rains, an excellent monsoon has been forecasted for this year. Mr Rajan, a man who measures his words, mentioned last week that Indian economy is on the verge of a revolution. Growth has started picking up in certain pockets. Corporate earnings growth are expected to pick up before end of the current financial year. The industrial production has started picking up. The seeds sown by the government and RBI for the last 2 years have started showing results.

Someone on Twitter mentioned that markets are influenced in short term by liquidity, medium term by sentiments and long term by earnings. Being the bright spot and offering stable growth, India would attract both liquidity and positive sentiments. More than these two, as earnings pick up; the long term growth story would be intact.

If we look at long term, the future of India, its economy and companies is extremely bright. Before end of the next decade, we may see India becoming a $10 trillion economy from the current $2 trillion. Good companies grow at a better rate than the overall economy. So we can expect around 15% annualised return from equity funds in the next 15 years. This means wealth getting multiplied by 8 times.

I feel that the future performance of economy and markets would be much better than past. The growth in economy and earnings may be more stable and less volatile. However markets, by its very nature, would continue to be volatile. The journey would continue to be bumpy. You would see many bear markets as well in next 15 years. However continue to focus on the bigger picture.

In every bear market you would come across people who say ‘buy & hold’ no longer works, equity is dead and SIPs are no good. Learn to ignore them. They would change their tunes in the next bull market.

‘Buy & Hold’ of excellent companies and good funds would continue to work. In India, equity would be THE asset class for next 2 decades. SIP is the best way for an average investor to participate and reap the benefits of equity.

The sceptics would never make any meaningful money. By being optimistic on future of India, you would create good wealth and become financially independent.

All the best.

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