Since the current National Democratic Alliance (NDA) government assumed power (May 2014), the mood of the market has changed significantly with the benchmark index climbing over 60% until June 2018 (see chart below).
The real market action has been revolving around stocks, sectors, and themes that have been growing over the years. In this blog, we will share a few scenarios with you that will eventually turn into moneymaking opportunities.
Consumption Related Stocks/Funds are Here to Stay
The consumption of the Indian economy is cliched. FMCG companies have garnered a large share during this period and they have grown over 65% (BSE FMCG Index).
With a population of 1.3 billion and an ever-changing demographic, derived due to changing lifestyle, rapid urbanization, improving disposable income and the likes, we believe the consumption story will continue.
In addition, the Goods and Services Tax (GST) has proven to be a big boon for FMCG companies as the companies can now re-align their supply chain and logistics from an operational efficiency perspective and not tax-efficiency perspective. Also, the government has pumped in money in urban India, with its ‘Seventh Pay Commission’ hike and ‘One Rank One Pension’ scheme for the army personnel.
This also triggered a shift in disposable income.
Lastly, the rural space is not lagging behind and the government has provided hike in ‘Minimum Support Prices (MSP)’ to boost the rural income level, which would eventually translate to a better disposable income. Thus, we believe buying consumption-related stocks or mutual funds remains an opportunity.
Contrarian View of Public Sector Banks
If you have been following the market for some time now you must have seen reports related to non-performing assets (NPA) that have been skyrocketing in Public Sector Banks. Huge wealth has been eroded with the rising NPA.
We believe that the worst may be over with Bhushan Steel, Essar Steel, Electrosteel Steels and Binani Cement finding a new home, but the after-effect of the NPA mess still remains. In addition to the NPA, the scams reported that PSU banks are increasing which has resulted in a significant correction in their value.
We believe these banks have played a pivotal role in India’s growth story but could not sustain their value on account of such developments. For an aggressive investor, while PSU banks and related funds make sense, we recommend them to stay away from the ocean where one can only witness volatility.
Why Equity SIP?
If you do it the right way, mutual fund SIPs are one of the best ways of making money. SIP or Systematic Investment Plan helps an investor save a small amount of money regularly (say monthly, quarterly, etc.).
As they say, slow and steady wins the race, similarly, a small amount as low as Rs 500 in a diversified equity mutual fund helps you save and earn over a period of time.
You should always remember the SIP mantra – Horizon for investment should be long-term.
Now, let us show you how even a small amount of saving can grow into a sizeable corpus over time and how timing plays a crucial role with SIP.
|Value of SIP = Rs 500 per month|
|Expected Return||10 Years||15 Years||20 Years||25 Years|
|10%||1.0 Lakhs||2.1 Lakhs||3.8 Lakhs||6.7 Lakhs|
|12%||1.2 Lakhs||2.5 Lakhs||5.0 Lakhs||9.5 Lakhs|
|15%||1.4 Lakhs||3.4 Lakhs||7.6 Lakhs||16.4 Lakhs|
|18%||1.7 Lakhs||4.6 Lakhs||11.7 Lakhs||29.1 Lakhs|
As evident from the table above, ample time works wonders for SIP. If you hold the investment for long, even a 2% difference becomes big. Should you have any questions with respect to investments in mutual funds, feel free to write to us and we will be glad to assist you.
Disclaimer: The views expressed in this post are that of the author and not those of Groww