The economic scenario has remained fluid and no rational assessment was possible due to concerns having roots overseas. Only the basic strength of Indian economy and more particularly the bigger Indian corporates gives me courage to tell you once more that equity investment is a better option and hence you should be more inclined to keep your funds in equities in accordance with your age and risk profile. This means that the younger of you may remain in equity pocket as younger people have longer period for letting the investment fructify.
It may seem to you that right when the interest rate is going up I have been telling you what I told above. I need to explain to you the situation and the main points guiding me have been the following :
A) the RBI has been busy raising the Repo and Rverse Repo rate due mainly to address the inflationary situation. They have done it lastly today itself by 25 bps and the Repo and Reverse Repo stand at 8.5pc and 7.5pc while the CRR has been kept unchanged at 6 pc. In my vew the rate increases in medium term do not adversely affect the corporates. The possibility of readjustment right after the moderation of inflation leaves scope of good appreciation in equity prices. You may well appreciate that while rates have been going up the collective performance of corporates has still shown positive growth over the past quarters since the rate hikes have been taking place.
B) the market is flat since Oct 2007 ie it stays at the same level now as was the level in Oct 2007. But, the important point is that the sales have nearly doubled , the profits have also nearly doubled while the Price to Book Value ratio has come down under 2.9 from above 4 in Oct 2007. Typically the net-worth of companies acts as support for Indian corporates as the this counters inflation in a beautiful way. This should be understood against the back-drop of Indian economy's still nascent state which has an enormous room for growth given the demographic advantage and the ever increasing proportion of population actively participating in recountable economic activity. This ensures robust GDP growth for some more time to come besides making capital as more precious asset than bullion etc.
C) it has been observed that the Indian equities go up in geometric progression after a long period of lull (extending beyond four-five years). This is partly due to lack of depth and partly due to design by some market participants. In view of this those who miss the bus don't have any safe chance of boarding it later. So safety lies in remaining invested in equities at the moment and being prepared to see some temporary dilution of values which may happen due to some developments in world markets or some precipitate govt action. Being ready to forego the interest earning is another aspect but it gets neutralized due to the nominal returns on equities being the same as the bank interest (it means that since the PE ratio at present is under twelve the nominal return on investment remains at over eight percent)...kbk
It may seem to you that right when the interest rate is going up I have been telling you what I told above. I need to explain to you the situation and the main points guiding me have been the following :
A) the RBI has been busy raising the Repo and Rverse Repo rate due mainly to address the inflationary situation. They have done it lastly today itself by 25 bps and the Repo and Reverse Repo stand at 8.5pc and 7.5pc while the CRR has been kept unchanged at 6 pc. In my vew the rate increases in medium term do not adversely affect the corporates. The possibility of readjustment right after the moderation of inflation leaves scope of good appreciation in equity prices. You may well appreciate that while rates have been going up the collective performance of corporates has still shown positive growth over the past quarters since the rate hikes have been taking place.
B) the market is flat since Oct 2007 ie it stays at the same level now as was the level in Oct 2007. But, the important point is that the sales have nearly doubled , the profits have also nearly doubled while the Price to Book Value ratio has come down under 2.9 from above 4 in Oct 2007. Typically the net-worth of companies acts as support for Indian corporates as the this counters inflation in a beautiful way. This should be understood against the back-drop of Indian economy's still nascent state which has an enormous room for growth given the demographic advantage and the ever increasing proportion of population actively participating in recountable economic activity. This ensures robust GDP growth for some more time to come besides making capital as more precious asset than bullion etc.
C) it has been observed that the Indian equities go up in geometric progression after a long period of lull (extending beyond four-five years). This is partly due to lack of depth and partly due to design by some market participants. In view of this those who miss the bus don't have any safe chance of boarding it later. So safety lies in remaining invested in equities at the moment and being prepared to see some temporary dilution of values which may happen due to some developments in world markets or some precipitate govt action. Being ready to forego the interest earning is another aspect but it gets neutralized due to the nominal returns on equities being the same as the bank interest (it means that since the PE ratio at present is under twelve the nominal return on investment remains at over eight percent)...kbk
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