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. Stock market fundamentals may not look good due of negative sentiments of investors towards equities due to major factors like high interest rates, inflation beyond control, rise in crude oil prices etc but FIIs have poured in huge capital into equities in recent times.
There are two major reasons for FIIs inflows, first reason is excessive liquidity due to launch of QE3 by US government and second reason is much awaited reforms initiatives taken by Indian government to control fiscal deficit and to bring GDP growth back on track above 6%.
Now, time has come to invest in equities as next bull run is on cards. 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. Business is cyclic in nature which performs well in favorable time and performs badly during tough time. Currently, we just started recovering from a bad phase of business cycle where we are getting equities at a cheaper price (Sensex is trading at a P/E multiple of 15-16). 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 enough 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.
Start Investing in Hidden Gems & Value Picks with us. Our equity research team will never suggest you to take exposure in any of the stock which is sitting on huge pile of debt or pledged its shares to insitutions for working capital requirement and that is one of the strong reason that carefully selected Hidden Gems in last 2 years have given average returns of +36% compared to negative returns of -8% of small cap index.
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