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Investing: Boon or Bane

In an ever growing, emerging market like India an investor is always in a dilemma whether to pick a blue chip mutual fund or succumb to risk
free return instrument like Fixed Deposits. On the other hand, salaried employees beat the year end heat by investing in PPFs to save tax under
Section 80C. The next big question one faces is how safe is it to invest in equities, what is the time horizon I must look at for positive returns,
how do I diversify my portfolio? With all the confusion that loom around an investor, wealth advisory has been a booming space. My stint as a
Placement Committee Coordinator married with my passion to keep myself abreast with the dynamic world of today plays catalyst for choosing
a profession in Wealth Creation/Counsellor. My experience as a Solution Advisor at Deloitte has broadened my horizon of comprehending client
requirements and delivering high quality solutions to beat industry benchmarks. My accolades reverberate the client appreciation.
Vision:
As per IMF’s World Economic Outlook Update, January 2019 global expansion has weakened. The global economy is projected to grow at 3.5
percent in 2019 and 3.6 percent in 2020, 0.2 and 0.1 percentage point below last October’s projections. However, India’s economy is poised to
pick up in 2019, benefiting from lower oil prices and a slower pace of monetary tightening than previously expected, as inflation pressures ease.
To support the same the RBI’s monetary policy committee (MPC) had cut the repo rate by 25 basis points to 6.25% earlier this month,
besides changing the policy stance to neutral, citing easing inflation and the need to sustain growth in the world’s fastest growing economy.
If we take a step back and evaluate Sensex performance even amidst large volume Foreign Portfolio Investor outflows (approximately 49249
crores as per NSDL), volatile crude oil prices, depreciating rupee, rising interest rate liquidity concerns in the NBFC space and Indian mid and
small cap correction, investors can instill a sense of belief in the Indian growth market.
FTSE 100
Sensex MSCI Emerging Markets DOW Jones Shanghai Composite (China) Nikkei 225 (Japan) (UK)
5.90% -16.60% -5.60% -24.60% -12.10% -12.50%
Source: Bloomberg (December 2018)

The dark cloud that envelopes India today are election jitters, steep valuations and weak earnings combined may dampen the market outlook at
the start of the year (2019), but one must view returns from the lens of the age-old portfolio theory that spending more investment time in equity
markets is far more important rather than trying to time the markets. The brighter side of India’s horizon is the AUM (Asset under Management)
of the Indian MF Industry has grown from ₹4.78 trillion as on 31st January 2009 to ₹23.37 trillion as on 31st January 2019, about 5-fold increase
in a span of 10 years. Historically, flows into equity mutual funds dry up and even turn negative whenever the markets fall into negative territory
and vice-versa.
However, unprecedented flows into systematic investment plans (SIPs) of mutual funds have resulted in a rewriting of history. Equity returns
have been negative in the past few months. However, net inflows into equity mutual funds remained fairly strong at ₹6,606 crore and ₹6,158
crore in the past two months. SIP investors, with contributions of a little more than ₹8,000 crore in each of these months, did all of the heavy
lifting, while there were net outflows from other types of investors. While the pace of increase in SIP flows declined, from about 52% year-on-
year six months ago to 21% in January, flows remain strong and have helped support Indian equity prices, even at relatively high valuations.
The table below constitutes a comprehensive overview of various asset classes which supports investors with a long-term horizon strategy.
CRISIL Composite
Year Sensex Bond Fund Index Gold Crude BSE Realty Index
2018 5.9% 5.9% 7.2% -19.6% -31.1%
2017 27.9% 4.7% 6.2% 17.7% 106.4%
2016 2.0% 12.9% 11.4% 52.4% -6.0%
2015 -5.0% 8.6% -6.1% -35.0% -13.6%
2014 29.9% 14.3% 0.3% -48.3% 8.5%
CAGR 5years 11.2% 9.2% 3.6% -13.5% 4.6%
CAGR 10years 14.1% 7.4% 7.6% 1.7% -2.3%
Source: Bloomberg (December 2018)

Opinion:
Metrics around the Indian market might keep one at bay, but the bigger picture motivates retail investors to stay put. Barring the macro
economic reasons India will soon be the most populous country in the world, with an average age of only 29. About 125 million people speak
English and the number of engineers graduating each year is five times compared to the US. What’s getting us encouraged though is that the
government has taken on a bunch of positive steps to facilitate and accelerate growth. The insolvency reform, GST (goods and services tax) and
the government’s focus on getting inflation down from 10% to 2%, which has helped more FDI to come in. All this, and increasing infrastructure
spend, is creating the monetary, legal and physical infrastructure to allow this incredible pool of talent to reach its potential. In the real estate
area, they enacted this REIT (real estate investment trust) legislation, and reduced GST rates on under-construction housing to 5% from an
effective 12% and lowered GST for affordable housing projects from an effective 8% to 1% which is a big boon to the real estate sector. It
should lead to much more construction and job growth by allowing foreign capital to come in. Overall, India being the fastest-growing trillion-
dollar economy in the world and the sixth-largest with a nominal GDP of $2.61 trillion sets a stage for prospect and due success.
- Sattwik Sinha Ray

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