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Friday, July 15, 2011

How to Multiply your Investments by 5 Times in 5 Years?

Looking at global turmoil and the way Indian market is outperforming compared to other Asian market, we expect that 5200 in Nifty and 17500 in Sensex will act as a strong wall of bulls which is too difficult to be collapsed by bears.

Nifty has tested 5200 level two times in last 6 months and both the times we have noticed a sharp recovery. Unlike other markets which have fallen significantly, Indian stock market have shown tremendous strength and outperformed not only US and Europe but also Asian peers.

Recent inflows into equity market clearly indicate believe of FIIs in India as a growth driver of global economy. Long term funds seek India as a great destination to park their investments. During tough times of Indian stock market which is due of negative sentiments of investors towards equities (high interest rates, inflation beyond control, rise in crude oil prices etc), FIIs have poured huge capital into equities in recent times.

We are sure that FIIs have started investing in Indian stock market keeping a long term view of 3 to 5 years when they will get minimum 5 times returns on their investment. You may be surprised reading this, how this can be possible?

Let us update you of last bull phase which was started in early 2003 and peaked off in January 2008 and believe us there were thousand of stocks which multiplied your investments 5 to 10 times in those 5 years. Stocks were from all sectors and include large caps, mid caps as well as small caps. You can compare any well known company's stock price. Reliance group companies like Reliance Industries, Reliance Capital, Reliance Infrastructure, RNRL or merged entity Reliance Petroleum or any other giants like Larsen and Toubro, BHEL, Infosys, TCS, State Bank of India, HDFC, ICICI Bank. All of these stocks multiplied your investments by 5 times during those 5 years.

Realty stocks with land bank stories gave mind boggling returns. Unitech was the shining star of those times. Can you believe that your Rs. 10,000 (ten thousand) invested in year 2002 in Unitech was worth above Rs. 1,00,00,000 (one crore) in Jan 2008. Yes, it is difficult to believe but it’s a fact.

Stock market can give you extra ordinary returns when you invest your money during tough times for a longer period of time. Business is cyclic in nature which performs well in favorable time and performs badly during tough time. Currently, we are going through a bad phase of business cycle when we are getting equities at a cheaper price (Sensex is trading at a P/E multiple of 16-17). Historically, we have seen Sensex P/E multiple in the range of 12 to 28.

Moving forward, when conditions become favourable and GDP growth estimates become higher, P/E ratio will improve for sure giving you handsome returns on your large cap stocks. As mid caps and small caps companies flourishes much faster during good times, you would be lucky if you identify one future “Unitech” and have patience to hold it tightly.

So its time to invest in good companies with strong fundamentals and hold them for next 3 to 5 years to create wealth.

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