What should an investor do?

Friends,

The Nifty PE is at under 20. In other words it will take 20 years to recover by way of profits at the current of profitability. This return will be without having to pay further tax. In a similar fashion, Rs 100 invested in a bond at coupon rates of 5pc will also recover the invested amount in full but only in the hands of those who are not paying income taxes. For those who have pay tax will take more than twenty years to recover their Rs 100. Now, the long term gilt-edged securities are yielding between 7 and 8% and if these are adjusted for tax these would yield roughly 5%. In this light, at present, the equities are at similar discounting level.

What should an investor do? He should make up his mind whether he thinks or not that the future earning sof corporates would grow. The past twenty years have seen earning of corporates grow at about 8-9% per year, this means that they have quadrupled. If this happens over the next twenty years, your Rs 100 will be recovered in 8 years instead of 20 years, leave aside what the shares will be valued at the four times earning level as against earning level of today. You may well take your decision, I have just interpreted facts for you. It may also be kept in mind that last five years have seen earning quadrupled.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market