Those investors who avoided stock markets even in these
bullish times have a new reason not to invest in Stock Markets
Their biggest question to me is "What if BSE Sensex
/Nifty is in Bubble like Japan's Nikkei was in 1989”?
Fairly valid and understandable.
Let’s first understand the background
The Nikkei Index hit an all-time of 38,915 in Dec 1989 and
today after 32 years it is 30,381
No...it has NOT given any bonus nor seen a split!!!
Those who say invest for a period of 20 years and you will
never lose money.... show them this!
The highs touched in 1989 was touched even after 3 full decades !!
So, has Japan NOT grown in the last 32 years?
Of course, it has!
Then why?
What if the Indian BSE Sensex and Nifty too see a similar fate?
In an extremely high BULL market like the current one, the above question will NOT COME UP EVEN IN A DREAM because we indeed are in a
DREAM BULL RUN and it’s not looking like stopping soon.
But DOUBT is an inbuilt habit in Humans and more so in Investors and hence to SEARCH for reasons to avoid investing in Equities, many FD lovers tend to come up with such questions.
Before answering the question of whether the Indian Sensex and
Nifty could see the same fate as Nikkei or not, let’s find why Japan's Nikkei
NEVER RECOVERED to its old glory
For your even the great recession that hit the US in 1929 and shook its Equity markets recovered in about 25 years
but 32 years and still Japan's Nikkei touching its previous glory looks a
distant dream
Let's try to understand .................
POPULATION :
Japan's population is aging, workforce shrinking, and hence
they are forced to SAVE rather than spend.
We all know that for an economy to grow and grow fast,
SPENDING is what is required and to the BIG question,
Srikanth’s answer :
India's population is a YOUNG population
Latest data shows that more than 1/4th (26.16%) population in India are aged LESS
than 14 years which means huge working-class and obviously HUGE
SPENDING
India is expected to have 70 crores of young consumers (more than the combined population of Brazil, Germany, Russia, and Germany) by 2030.
The young population means young investors who are also more likely to be ready to increase
exposure to risky assets and stock markets will be a huge beneficiary of this.
Hence India's GDP is bound to go up and go up SUPER SPEED
HUGE PE :
The period prior to 1989 (when Nikkei hit ALL-TIME HIGH)
Japan saw unparalleled prosperity and boom for nearly a decade.
This led to huge money in hands of people and huge spending
thus creating a cycle of boom and overheating of stock markets and real estate
In fact, the Nikkei PE was above 60!
Just imagine! PE of above 60 for a developed country is like
a PE of above 100 for India
It’s like BSE Sensex quoting at 1,95,000 and
NSE Nifty quoting at 70,000 at present valuations!
Nikkei was that expensive!
Srikanth’s answer:
India is yet to see this kind of prosperity and boom. India
is all set to see these kind of glory years which means we are yet to see a
REAL BOOM In Indian Stock Markets
Hence it would be prudent to say that BSE Sensex and NSE
Nifty will be seeing lots of glorious days going ahead
Indeed, we are all lucky to be in this kind of GLORIOUS
TIMES and we SHOULD make maximum use of this to create unparalleled wealth by
staying in Equities and growth assets (and definitely not Gold or bonds, except
as a part of Asset Allocation)
STRONG YEN:
The Yen became so strong that it dropped from 240 (in 1985)
to 140 and further to below 100 against the Dollar making exports highly competitive
rendering factories to halt production resulting in job losses
It’s like Indian Rupee going from the present 73 levels to
sub 32 levels!!
Even today the Japanese Yen is around 109 levels. Still a
long way to go
Srikanth’s answer:
Indian Rupee has been weak to steady and rarely strong and
moving like the Yen is certainly out of question.
Moreover, the RBI and the Govt of India have been proactive
in this matter making sure that our Exports stay competitive and in turn have been doing a phenomenal
job in keeping the Indian Rupee Steady
INFLATION :
Inflation in Japan from 1990 has been ranging from 1% to
negative 1% going up to 2.76% only once.
Low inflation is bad for businesses and the economy (just like
high inflation)
Moderate inflation is the BEST scenario
Srikanth’s answer:
India’s young population is a big blessing for us and due to
this the SPENDING is only bound to increase keeping the inflation at good rates
RBI in India has been doing an awesome job when it comes to
controlling inflation and also ensuring a conducive atmosphere for GROWTH.
SHARP RISE IN BANK RATES :
The Bank of Japan sharply raised Inter-Bank lending rates in
late 1989. This was done to deflate speculation and keep inflation in check.
The rates went up from 2.5% to 6% in just 1 year !
An huge huge jump of more than 140% which obviously led to heavy repurcussions.
This caught many bulls off guard who rushed to cover their positions,
and this created a cycle to SELL as more and more people got trapped.
Srikanth’s answer:
Yet again, we have to truly appreciate our Central Bank, the
RBI for its amazing work in making sure that the rates are range bound and are
rarely volatile. The pumping of money and the soft interest rate all show how
good RBI has been in keeping rates in control.
ECONOMY :
Japan's economy is not only aging but also shrinking.
In fact, Japan's economy shrank at the FASTEST rate in 2019
as it was hit by sales tax rise, a typhoon, weak demand and of course due to
shrinking workforce.
Japanese consumer market is getting smaller day by day.
Srikanth’s answer:
India's GDP is expected to touch $8 trillion !!
and India's per capita income is expected to touch $2000 (thats Rs.1,50,000) putting more money in the hands of people by 2030 which is nearly 3 times of today.
3 times growth expected in the next 9 years in GDP
As I said earlier, India’s young population is our biggest
strength. The Young workforce will ensure that the economy is moving at a fast
clip. The proactive moves by the Central Government also is keeping the economy
in growth mode. Lot of moves like the GST, Start-Up India has ensured that
Indian economy is on a good road
==============
SO...
I do understand Mr.Srikanth
But just in case if the Sensex/Nifty does give NEXT TO
NOTHING returns for the next 10-15 years, what's the solution to our Wealth
Creation?
Srikanth’s answer:
SIP, the Magic
Mantra :
Use the MAGIC MANTRA....the Rupee Cost Averaging .... the
humble SYSTEMATIC INVESTMENT PLAN (SIP)
All said and done, the humble sip is the David who can take
on the mighty Goliath.
As I have pointed in my book DONT RETIRE RICH...there
have been many mutual funds (Ex: ICICI Technology Fund) whose NAV
from Rs.10 nosedived to Rs.2 and SIP investors were already sitting in profit
at NAV Rs.8.
They did not even need the Nav to touch Rs.10!
That's the power of Monthly SIP
ASSET ALLOCATION:
While Asset allocation may look foolish in these Bullish
times, the fact remains that Asset Allocation is one of the most effective to
book profits at high rates and reenters at lower levels.
Time and again this has been proved multiple times.
For example, a 50-50 allocation automatically ensures you
sell at high rates and purchase at low rates
Asset Allocation may not give you super returns but has the
potential to give you above-average returns with below-average volatility
Think over it
REINVEST THE DIVIDENDS:
If you are investing in stocks directly, it would be prudent
to reinvest the Dividends that you receive.
Not only will the wealth compound faster but also you will
be buying at different time intervals.
The FTSE 100 return for the 18-year period between 1999 and
2017 was a measly 20.4%
But with dividend reinvestment, the return shot up by nearly
6 times to a decent respectable 119.3%
Yes... up from 20.4% to 119.3%
That's the power of Reinvestment.
DIVERSIFY YOUR
GEOGRAPHY TOO :
Yes. India is in bullish mode
Yes. India is on the threshold of Super-Fast Growth
But it would be hugely prudent to diversify your investment
across the Geography to avoid over-dependence on 1 country and also to benefit
from other Growth Economies.
Investing in Global Funds like say PGIM Global Opportunities
Fund, DSP US Opportunities Fund, Invesco Global Consumer fund etc gives you exposure to economies across the
World spreading your risk.
STAY THE COURSE:
Yes... there will be sharp corrections in between. It’s
inevitable. Whether it's stock markets, real estate, and even Bond rates,
corrections are inevitable and unavoidable.
Never get worried about people's reactions (or the Market
falls) when you have invested in good STRONG fundamental stocks/funds.
Likewise, you need to understand your MFD's choice of
investments may go through pain for a brief period.
But history has proved innumerable times that
CORRECTION IS
TEMPORARY
AND
GROWTH IS PERMANENT!!
The LONG TERM does not matter if you don’t survive the short
term.
So... never convert your Temporary Paper Loss into Permanent
Loss by selling off Blue Chips.
BTW,
All the indices be it the Nikkei 225, BSE Sensex, the NSE
Nifty does not include dividend returns which are quite decent.
In spite of this addition, the Nikkei is still not back to
its old high levels.
MATRUBAI'S MUSINGS:
The French Economist Thomas Piketty pointed those profits
generated by companies are always MORE than that particular country's economy
This makes it very clear that if you feel that Indian The economy will do well, the Indian companies will do better, and, in that case,
the Stock Markets too will do better
The biggest growth driver for India is the rapid shift from Unorganised to ORganised.
This will boost the Listed companies profits and resultantly their stock prices
And for your portfolio to do MORE THAN BETTER, the best an option would be to give your corpus to a competent Fund Manager who is bound to
be much more knowledgeable with more resources and research at his beckoning to
generate much higher returns than a layman investor
And most importantly, remember, EQUITY IS THE BEST ASSET CLASS for your Wealth creation
See the above graph.
Its a graph for 120 years and clearly Clearly Equities have been the runaway winners
And this is not just in 1 county but across the World
And when it comes to investment and wealth creation, you should
be
a) Consistent
b) Unemotional
c) Logical
d) Have no Biases
e) Have an expert to guide you
A Guide will instill discipline into your investment
strategy and identify right assets for your financial goals.
Become a Drudpati and never let the Right Side of the Menu affect your decision on the left side of the Menu !!
Equity is unavoidable
and
Mutual Funds are the BEST way to ride the Equity Asset Class
All the best,
We wish that you do not just become a mere crorepati but
upgrade to become a Drudpati.
Because CROREPATI KA ZAMANA GAYA !!
Regards,
Srikanth Matrubai
The MOST Loved book on How NOT TO RETIRE RICH!
4.8 out of 5 stars
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