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Financial planning can be daunting, especially if you’re new to budgeting. With bills piling up, unexpected expenses arising, and saving for the future feeling like a distant dream, it’s easy to get overwhelmed. But the 50/30/20 rule offers a simple and effective way to manage your money and reach your financial goals.

What is the 50/30/20 Rule?

The 50/30/20 rule is a widely embraced budgeting principle aimed at assisting people in dividing their income into three primary areas: needs, wants, and savings. For those wondering how to budget effectively, this rule offers clear guidance on allocating resources. Although predominantly associated with personal finance management, this rule can also benefit investors seeking to enhance their financial management strategies, ensuring a balanced and disciplined approach to spending and saving.

Also Read: Top 10 Stock Market Movies to Watch

The 50/30/20 rule suggests allocating your income as follows:

50% Needs: 

This category represents your essential expenses, the non-negotiables you need to maintain your basic standard of living. Here’s what typically falls under needs:

• Housing: Rent, loan payments, property taxes, and homeowners insurance.
• Utilities: Electricity, water, gas, and internet.
• Groceries: Food and essential household items.
• Transportation: Car payments, public transportation costs, gas, and car insurance.
• Minimum Debt Payments: Minimum payments required for credit cards, student loans, or other debts.

Aiming for Balance: The goal is to allocate enough to cover these needs without feeling deprived comfortably. However, if you spend significantly more than 50% on needs, explore ways to reduce expenses, like cooking more at home or finding cheaper housing options.

30% Wants: Fueling Your Lifestyle

This category represents your discretionary spending, the things you enjoy that enhance your life. Here are some examples:

• Dining Out: Restaurants, cafes, or takeaway meals.
• Entertainment: Movies, concerts, sporting events, or subscriptions to streaming services.
• Hobbies: Supplies and equipment for your favorite activities.
• Subscriptions: Streaming services, music platforms, gym memberships, etc.
• Non-essential Clothing and Personal Care: New clothes, haircuts, makeup, etc.

Prioritizing Enjoyment: This is your chance to indulge in what brings you joy! However, it’s crucial to stay within your allocated 30%. Consider saving creatively, like using free entertainment options or library resources.

20% Savings: Investing in Your Future

This is the crucial portion dedicated to building your financial security. Here’s where your savings go:

• Emergency Fund: This is a safety net for unexpected expenses like car repairs or medical bills. Aim to save 3-6 months’ worth of living expenses.
• Retirement Savings: Investing in a retirement plan ensures a comfortable income after you stop working.
• Long-Term Goals: Saving for a down payment on a house, a child’s education, or a dream vacation.

Growing Your Wealth: Consistently allocating 20% to savings allows you to build wealth over time. Prioritize building your emergency fund first, then focus on retirement savings and long-term goals.

Why Use the 50/30/20 Rule?

The beauty of this 50/30/20 money rule lies in its simplicity and flexibility. It provides a clear structure for allocating your income, ensuring you prioritize essential expenses while carving out space for enjoyable activities and financial security.

Benefits of the 50/30/20 Rule:

• Reduced Stress: Knowing your money is allocated purposefully can decrease financial anxiety.
• Balanced Budget: This rule encourages responsible spending on needs, wants, and savings.
• Financial Goals: By consistently allocating 20% towards savings, you’ll be well on your way to achieving your financial dreams.
• Debt Management: The emphasis on needs allows you to manage your debt effectively and prioritize essential expenses.

Putting the Rule into Practice: Examples for Everyone

Let’s see how the 50/30/20 budgeting rule translates into real-life situations:

Scenario 1: The Young Professional (Monthly Income: Rs. 80,000)

Needs (50%): Rs.80,000 * 50/100 = Rs.40,000

This includes rent, groceries, utilities, transportation, and minimum debt payments.

• You must track your spending in these categories to determine an accurate allocation.

Wants (30%): Rs.80,000 * 30/100 = Rs.24,000

• This is for your discretionary spending on entertainment, dining out, hobbies, etc.
• Once your needs are covered, you can allocate this amount for enjoyable activities.

Savings (20%): Rs.80,000 * 20/100 = Rs.16,000

• This is your investment in the future.
• You can split this further for an emergency fund, retirement savings, or other long-term goals.

Scenario 2: The Growing Family (Monthly Income: Rs.4.5 Lakh)

• Needs (50%):
  
  • Mortgage – Rs.1.87 Lakh (assuming a home loan EMI)
  • Utilities – Rs.15,000
  • Groceries – Rs.37,500
  • Transportation – Rs.22,500
  • Childcare – Rs.52,500 (daycare, nanny)
• Total Needs: Rs.3.15 Lakh
  
• Wants (30%):
  
  • Streaming Services – Rs.3,750
  • Family Activities – Rs.11,250 (travel, outings)
  • Vacation Fund – Rs.7,500
• Total Wants: Rs.22,500
  
• Savings (20%):
  
  • Emergency Fund – Rs.15,000
  • Retirement Savings – Rs.90,000
• Total Savings: Rs.1.05 Lakh

Adapting the Rule to Your Life

• Track Your Expenses: For the first month, meticulously track your spending. This will give you a realistic picture of where your money goes and help you adjust the percentages if needed.
• Needs Can Vary: The percentage allocated for needs can fluctuate depending on your life stage. For example, a young adult might spend less on housing but more on debt repayment than a family with a mortgage.
• Review and Adjust: Don’t be afraid to adapt the rule as your circumstances change. Maybe you need to increase your emergency fund contribution after a car repair, or you can bump up your “wants” allocation after achieving a savings milestone.

Beyond the Basics: Additional Tips for Success

• Automate Your Finances: Set up automatic transfers to savings and investment accounts, ensuring you pay yourself first.
• Embrace Frugal Living: Find creative ways to save on everyday expenses. Cook at home more often and utilize free entertainment options. 

The 50/30/20 rule empowers you to take control of your finances. You can get the answers to how to save money by implementing the 50/30/20 rule by allocating funds for needs, wants, and savings. Remember, it’s a flexible framework. Track your spending, adjust as needed, and explore creative ways to save money within each category. With a little planning and the 50/30/20 rule as your guide, you can unlock a world of financial freedom.

FAQs on the 50-30-20 Rule:

share recommendations, themselves depend on others for it and do not understand the reason why the particular share recommendation will work.

Let’s take a look at an example of why one should never invest on the basis of random share recommendations.

Prashant was driving back home from the office with his colleague Suhass when his car sputtered to a halt.

“Oh no, not again. This car is giving me a lot of trouble lately” said Prashant with a dejected look.

“Well why don’t you buy a new one?” asked Suhass.

“I cannot afford a take a car loan now as I have many other commitments. Besides I will get only 2 lacs for this 8 year old car now so I have to chip in atleast 3 lacs more from my pocket” replied Prashant.

“Well don’t worry. I have a confirmed share recommendation .You can just sell off your car and invest this 2 lacs in XYZ stock. It is going to increase by 5 times in next 6 months as its biggest competitor is planning to take over it. So it you invest 2 lacs you will easily get around 8 to 10 lacs in next 6 months. I think you can easily buy a sedan instead of a hatchback with that kind of cash in hand” replied Suhass.

Taking Suhass’s advice seriously, Prashant sold off his car for 2 lacs the next day and invested the amount in XYZ stock.

After a month as a result of market correction, the stock lost as much 60% of its value. With this the total value of Prashant’s investment fell to Rs.80,000 from 2 lacs. Struck by panic he decides to check with Suhass.

“It’s going down continuously. What should I do now?” asked Prashant.

“Don’t worry it is just falling with the market correction. Just wait for 3 months and see it will not only bounce back but also give you 5 times return” assured Suhass.

After 3 months the stock price of XYZ stock fell further by 60% reducing the total value of the investment  to Rs.32000/-

To save whatever was left, Prashant decided to sell off the stock and salvage Rs.32000/-.

The above story is nothing new. It has been played out countless times. There are thousands of Prashants out there who have been misled by the generic share recommendations offered by office collegues, friends, relatives, Whatsapp group messages and TV channels.

Stay Away From Free Share Recommendations

Most people have a tendency to invest in recommendations. However, what they fail to realize is that such share recommendations are incomplete and incorrect. In many cases, such share recommendations are deliberately shared by scamsters with a malicious intent of artificially manipulating the price and trapping innocent investors.

If you really want to create money from stock markets, ignore free share recommendations provided by self-proclaimed market experts. Instead, opt for share recommendations offered by a professional financial advisory service as they are best suited to offer you correct investment advice on the basis of thorough research.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

There are many of financial advisory services in India. But still majority of stock market investors prefer to invest on their own.
Believe it or not, do-it-yourself investing is like self-medication.

Imagine you are in deep pain due to tooth decay and instead of going to dentist you try some home remedies or over the counter pain killers. It may give some temporary relief, however the pain will keep cropping up after every few hours because the root cause of the problem still exists.

While overdose of pain killers and resulting complications may be an altogether different issue, the biggest issue in this case is lack of seeking professional help from a dentist who knows how to get to the root of the problem and solve it.

Just like a dentist who is an expert professional who can diagnose and resolve your dental issue successfully, financial advisory services in India offer professional expertise to help an investor to create wealth.

Yet as per estimates more than 90% of stock market investors in India prefer to invest to on their own without depending on financial advisory services in India.

While very few are successful, most investors end up with losses and quit the markets or keep trying by investing again and again and in the process make further losses.

It is said that “If you want to be successful in something change your strategy, not your goals”

When we talk about stock markets, the first thing that comes to our mind is wealth. And of course those few people who have created huge wealth from it like Warren Buffet and Rakesh Jhunjhunwala.

But then how many people like Warren Buffet and Rakesh Jhunjhunwala do we know who have managed to build such huge empires from stock markets.

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Maybe one can recollect handful names like:

• Benjamin Graham

• Charlie Munger

• Peter Lynch

• John Templeton

The list of names would hardly go above 10 or 20. Have you ever wondered why so less?

Because there are only very few investors who understand the right methodology to create wealth from stock markets. And they not just create wealth but are able to sustain it for future use.

Which unfortunately 90% of investors don’t understand. By seeking expert help of a financial advisory service in India, any investor can gain the professional edge to become a successful investor.

As a SEBI registered financial advisory services in India, how Research and Ranking can help you in wealth creation?

Research & Ranking was founded in the year 2016 with the prime objective of “Wealth Creation” through long-term equity investing.

According to estimates, less 2 per cent of Indians invest in stocks and majority of these investors are often confused, misguided or ill-informed. As a SEBI registered financial advisory service in India, Research & Ranking aims to change this scenario by busting the myths about equity investing and providing investors with tech-enabled solutions for creating long term sustainable wealth.

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Research & Ranking’s journey as a financial advisory services in India

Research & Ranking is a part of the Equentis Wealth Advisory Group which was incorporated in the year 2009. Research & Ranking is headquartered in Mumbai and has offices in Delhi and Thane and has team size of over 100 professionals which includes an in-house team of research professionals with several decades of experience.

Since inception, Research & Ranking has educated, empowered and realized the financial goals for more than 7000+ investors by offering a tailor-made portfolio based on their profile.

Read more: About Research and Ranking.

Welcome to the world of simplified long-term investments!

Investing may look relatively easy now with information right at the tip of your fingers.

However, 9 years ago, when the digital era was not the buzzword, there were countless obstacles and myths surrounding the stock markets. Investors used to buy/sell businesses on the basis of ad hoc news, tips, rumours, etc.

We identified the problem and it is during one of those times in the year 2009, we incorporated ‘Equentis Group’ with a single mission of changing the financial lives of many by helping them navigate through the confusing lanes of the stock market.

We have set out a big mission to ‘Empower and Educate’ the investors to make them the ‘Billionaires’ of tomorrow.

Our objective is simple: Deliver ‘Quality’, made possible by ‘In-depth Research’ and ‘Technology‘, which is lacking big time today, as millions of seasoned investors and 400 million millennial are waiting for it.

What we promised and relentlessly delivered to our investors was:

• We don’t target short-term returns.We believe in long term investment. Instead, we helped 5,000+ investors take the first step towards creating sustainable wealth through long-term investments.
• With the right mix of rigorous research, education and discipline; we ensured half the job of our investors was done!
• We followed the disciplinary approach and guided our investors to make rational decisions during all market conditions.

All of this may look too big. But that’s the core of Equentis group! And now as we complete 9 years of wealth creation for our thousands of investors, we’re just getting started to bring the wind of change in the otherwise chaotic world. We are proud to say that 92% of our customers showed their loyalty and are willing to recommend R&R to their family and friends. We understand this responsibility and are always thinking of new ways to improve, innovate and become more useful to our investors. And we don’t wish to stop here.

In fact, we take immense pride to share few initiatives in this direction such as:

• Elite Club Conclave for our privileged investors
• Launch of R&R mobile app to simplify and ease the wealth creation journey
• Focused approach on improving the systems, customer service and product
• Improving technology to make our platform more user-friendly and personalized

In the coming days, we will be undertaking more educational initiatives with our Investor Education workshops and branding initiatives to create more awareness around how sustained wealth can be created in a hassle-free manner.

Our vision is clear. We wish to:

• Become a listed company by 2021-22
• Lead technological innovation in the equity market investment & research space
• Deliver the best value for money to all our investors
• Create wealth for all our customers, shareholders & colleagues

It is not necessary to do different things. Sometimes, a simple thing done differently can bring in extraordinary results.

And we at Equentis, believe in staying true to this by following a simple (yet stringent) methodology and helping our investors follow them with patience, perseverance and discipline for a longer term to experience big results.

This is what has been an endeavour of Equentis, is, and will always remain…

And before we get back to serve you better, we thank you once again for your pertinacious support, for showing your trust in our wealth creation for long term investments products and being with us while we built a better, stronger and phenomenal product, technology and process.

With Gratitude,
Equentis Team

Read more:  How Long-term investing helps create life-changing wealth – TOI.

When there is an uptick in the equity markets, many investors try to time the market. Few of them are sceptical about the markets and hence, adopt the ‘wait and watch’ methodology. They believe that the markets are overvalued and hence wait for a correction before entering the markets. While there are few investors, who jump on-board when the markets keep touching new highs.

However, not many investors understand that even a bull/bear run in the stock markets undergoes several phases, and it is a Herculean task to determine which phase the market is going through, how long it would stay there and how that would impact the short-term long-term investments.

Investing in stock markets should be tyrannized by the following factors:

1. Specific need / financial goals
2. Quality of investments

Specific need / financial goals: If a guileless investor is looking out for a steady return without significant risks, then they should invest in fundamentally strong large-cap equities, and which will help them to grow their wealth with time. However, if an investor is looking out for more returns and is comfortable with the affiliated high risk, he may consider small-cap and mid-cap stocks which are capable of giving high returns In such cases, the partnering with a credible expert will help them to mitigate the risks to a large extent, as advisors can mentor them on when to exit and enter, optimal portfolio allocation and periodic portfolio rebalancing.

Quality of Investments: Stock market fluctuations can be nerve-wracking. The prices are driven by demand and supply, micro and macroeconomic indicators and investor’s sentiments. Rather than trying futile attempts to time the market, one should pay careful attention to the quality of the investments. Also, since the markets are moving up and down every single day, it doesn’t mean investors should alter their investment methodology as per every move. Risks get reduced to a notable extent when you have a long-term horizon of 3 years and above.

To encapsulate the story, investors should strongly focus on the quality of stocks and should espouse the healthy investing regimen comprising of patience, perseverance and discipline.

Warren Buffett in one of his interview stated that ‘Buy and hold’ strategy is still his best strategy and when asked about his favourite holding period, he quickly replied ‘Forever’.

“If you aren’t willing to own a stock for 10 years, do not even think about owning it for 10 minutes”
– Warren Buffett

Read more:  How Long-term investing helps create life-changing wealth – TOI.

I have been extremely bullish on the medium to long term trajectory of India’s economic growth.

Instead of going into the past, let me share with you some reports – reports from respected organisation that are currently being ignored by the media.

Why? Simple, fear sells much better than anything else.

1. As per recent IMF study, India is projected to be the fastest growing economy in the world. Real GDP growth to register CAGR of 7.6% between 2015-25.
2. Domestic savings allocation to equities to aggregate close to $250 billion by 2025 (as against $40 bn in the past 10 years), 50% more than what FIIs have invested since 1993.
3. As per McKinsey report, India will have 69 metro cities by 2025, housing close to 80% of urban population and contributing close to 80% to urban GDP.
4. Market Capitalisation to touch $4 trillion (very conservative estimates) by 2025 (roughly 10% CAGR), given that Corporate India has demonstrated successfully its ability to manage RoE and valuations look reasonable.
5. As per the study by TeamLease Services, India can supply 25% of the increase in the global working age population by 2025.
6. Size of banking assets in India to reach $30 trillion by 2025 from current levels of $1.5 trillion, a CAGR of 30%.
7. As per KPMG study, India’s manufacturing sector, worth $220 billion has the potential of crossing $1 trillion by 2025, with its share to GDP swelling from current 15% levels to 25-30% in 2025. This sector alone is likely to add nearly 100 million jobs.

I think I’ll stop here and ask you a question. I am sorry if my words are harsh, but allow me to ask this.

For how long are you wanting to stay bogged down based on biased news that are targeted to delay your wealth creation journey?

We’ve seen people wait in 2002, and then enter markets when they had already run up.

We’ve seen people exit the markets after the 2008 fall, only to miss out on the run-up in 2009.

Well, the choice at the end of the day would always be yours.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

The BJP led NDA government is back with a bang in power with a massive mandate and the stock markets have responded positively to this by breaching new highs. At this juncture, one important question raging across the minds of most investors is “which are the best stocks to buy for next 5 years?’’

The result of 2019 general-elections was a very important win for the incumbent government who have initiated many reforms over various sectors to uplift the structural foundation of the Indian economy.

This massive victory of Modi led NDA signifies not just the end of political uncertainty but also means the additional reforms in the pipeline. Surely this is the right climate for the investors to a look for the best stock to buy and build a strong portfolio for the next five year.  But rather than looking for the best stock to buy, investors should look at the bigger picture as to which sectors are likely to benefit the most from government’s policies the most in the next 5 years.

The best clue to sectors which will outperform in the next 5 years can found in BJP’s poll manifesto.

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Some key points announced in BJP’s poll manifesto for 2019 general elections:

• Rs 100 lakh crore to be spent on infrastructure in 5 years
• National Security – Strengthening Armed Forces

Let’s take a detailed look at each of these promises and businesses which will benefit from them:

Rs 100 lakh crore to be spent on infrastructure in 5 years

In its poll manifesto for 2019 elections the BJP had announced that the government’s primary focus would be on infrastructure development which will includes water grids, modernization of railways, construction of 60,000 kms of national highways and way side amenities along national highways, increasing the number of regional airports and port capacities.

The poll manifesto also mentioned urban development by in the form of new townships and urban centres.

These massive push in infrastructure will be beneficial for businesses operating in the cement, construction, capital goods & engineering sector. Hence some of the best stock to buy can be found in these sectors.

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National Security – Strengthening Armed Forces

India is one of the world’s biggest importer of defence equipment. Government wants to change this by encouraging domestic arms production through private sector through Make in India scheme.

According to industry experts the new government is planning to spend over $ 130 billion for modernizing the Indian armed forces over the next 5 years.

A major chunk of these projects will be bagged with top defense equipment manufacturers in India with the expertise in manufacturing small arms, ammunition, artillery shells/guns, air defence guns, combat vehicles, missile parts, naval equipments, aerospace and communications equipments. Hence some of the best stock to buy can be found in these sectors.

India’s transformation to an economic superpower is imminent in the next 5 years. Infrastructure and defence sector will gain the most over the next 5 years and hence making these sectors hot picks where one can find many best stock to buy.

Recommended: Best Stock To buy In Stock Market

Read more: About Research and Ranking.

Over the last few months, the Indian stock market has been going through a rough patch. A flurry of challenges such as oil prices, weakening rupee, elections, trade war, etc. have gripped the Indian investors.

Prices of many small-cap and mid-cap stocks have tumbled and are now trading at low valuations.

But this was the story two weeks ago.

Coming now, the current scenario reinstates the trust in the fact that if the fundamentals of a stock and country have not deteriorated, such transient hiccups should not deter you from creating wealth in the stock markets.

There are two kinds of investors: the individuals who know about the investment in the share market and those who don’t. Here we’ll give a review of the Indian stock market and how interested investors can gain exposure.

The several reasons behind an investors’ agony are slowly evaporating. The unfortunate factors of yesterday are slowly turning in our favour.

Let’s have a look at each of them…

Ex-Fear #1. Crude oil prices: From spiking to falling…

Fears surrounding the shortage in supply of oil drove the narratives in oil markets over the last few months. This led to the oil prices touching four-year high in early-October. However, that story has now taken a complete U-turn, with oil prices entering the bearish zone. Now, the prices of crude oil have retraced from its peak level of $86-a-barrel to $71-a-barrel, which is a decline of close to 20%.

The ramp-up in production has lifted the oil stockpiles up, which resulted in fall in the prices.

It’s one of the amazing turnaround story considering a few months ago, few analysts were predicting that the $100-a-barrel oil is around the corner. Now, many analysts are warning that U.S. oil prices hitting $40-a-barrel can be a reality soon. Having said this, India being a major importer of oil, any decline in oil prices positively impacts the growth of our economy.

Ex-Fear #2. The closed chapters of amplified fear in NBFC’s

A quick flashback to the plight of NBFCs in India. At a time, when the biggest risk in the stock market was the liquidity tightening in the debt market, that affected the NBFC’s ability to access funds, now a different tale is unfolding in the market.

In the last few days, three reputed NBFC’s such as IIFL, JM and Edelweiss repurchased their commercial papers in the market.

What does this hint at?

Fundamentally strong NBFC’s that faced the heat of default by one of the leading housing finance companies, suffered a transient setback due to tightening of liquidity and negative sentiments surrounding the NBFC’s. With RBI intervening, the liquidity is improving in the NBFC space.

Also, considering most NBFC’s have reported healthy balance sheets and decent ALM positions, the fear surrounding the NBFC fiasco have calmed down now.

Ex-Fear #3. Weakening rupee? No longer now…

The rupee is up close to 2.40% against the dollar. With the crude oil prices falling, we can expect the dollar-rupee equation to stabilize further in the coming weeks.

Ex-Fear #4. NPA’s – The worst is over…

As per the report by CARE Ratings, most banks have reported a decline in bad loans in the second quarter of FY2018. Also, the provisions came down to 50,714 crore in the second quarter, which is a decline of approx. 12%.

This recovery from earlier provisioning is helping the banks post better bottom-line numbers, which can be reflected in declining NPA ratios in Indian banks. In the case of 13 banks, including SBI, Axis Bank and ICICI Bank, the NPA ratio has declined in the last two or more successive quarters.

Ex-Fear #5. Tax collections

GST collections in the month of October 2018 crossed the mark of Rs. 1 lakh crore on account of lower rates, lesser evasion and higher compliance. With this, gross direct tax collections for F.Y. 2018-19 (up to September 2018) stood at Rs. 5.47 lakh crore, a jump of 16.7% as compared to the corresponding period of last year, while net direct tax collection improved by 15.7%. This upward trend in tax collections will positively impact the growth of the economy.

What does all this indicate?

The Benchmark Indices BSE Sensex is up by 4.5% in a matter of 15 days. Backed by strong sales, PAT growth and robust consumption, the share prices of fundamentally sound good companies have surged by 10-15% backed in just a few days.

But there’s a catch here…

As we said earlier as well, few investors are hunting for reasons to worry, while few are taking note of all these opportunities to create wealth in the stock market.

As of now, we would like to conclude with a quote by Erma Bombeck, “Worry is like a rocking chair: It gives you something to do but never gets you anywhere.”

Read more:  How Long-term investing helps create life-changing wealth – TOI.

An experiment by Ralph Wanger is perhaps one of the most relevant trials ever conducted in the investing world.

Ralph Wanger is not only a great investor but a great investment writer and is known for unifying his observations into his writing.

And here is one of his most interesting observations, where he analogizes the stock market to a man walking with the dog. This man has been doing the same walk for years.

But if you have walked a dog, you’ll know it doesn’t walk in a straight line. The dog hops forward and backwards, from one direction to another either to smell something or bark at other creatures. The dog also jumps on you for no reason, and even sometimes jump randomly on benches and other things.

In short, there’s no way to predict what dog will do and which way he’ll walk.

But if you know that the owner of a dog is heading northeast at about three miles per hour, towards the museum, you will eventually also know where the dog is heading towards – because that’s where the owner is taking him.

Wanger further adds, “What is astonishing is that almost all investors, big and small, seem to have their eye on the dog, and not the owner.”

What we are trying to deduce here is that, as an investor, we often end up following the dog (markets/ticker price) than the owner (businesses behind the stock).

It’s never been easier to stay on top of day-to-day fluctuations as we see them everywhere. Twitter is shouting out loud about all the daily events, there are online forums, there’s information bombardment on your mobile through various app notifications, the journalists are busy talking about the movements of stock markets and then there are WhatsApp groups, etc.

Definitely, data or information is not the privilege anymore as everyone has access to real-time data.

And as markets go up and down every year, every month or every day, the question is not about whether you have information on the market. The advantage lies in leveraging your astute judgement to understand whether the business is heading towards the growth path to give you sustainable returns over the long run.

Since 1999, we have witnessed many micro and macroeconomic events that impacted the markets favourable and unfavourable. Witnessed natural catastrophic events, trade wars, high inflation, stock market scams, global recession, and the list goes on. And even as we underwent all this, Nifty delivered an impressive 12.7% every year. Isn’t that amazing?

However, this 12.7% returns was never linear. That is, you should know that markets never delivered 12.7% returns in a straight line like this:

• Up 12.75% from 1063 to 1198 (Nifty was at 1063 on 1^st April 1999)
• Up 12.7% from 1198 to 1350
• Up 12.7% to 1522
• Up 12.7% to 1715
• Up 12.7% to 1933
• Up 12.7% to 2178

And so on till Nifty reached levels of 11623 on 31^st March 2019

In reality, stock markets never function like this and in reality gives returns like this:

• Up by 43.74%
• Down by 27%
• Down by 0.7%
• Down by 18%
• Up by 80%
• Up by 12%

(Note: The above are the actual returns delivered year on year by Nifty during 1^st April 1999-31^st March 2005.)

The market goes through cycles, and not all years are the same. There are years of blockbuster returns, there are years of subdued growth, and then there are years where we see a drop. But even if you’re investing in the worst possible time, history says that you’ll be able to do well. The key? Time in the market and the ability to follow businesses and not the ticker price.

But to achieve such returns, you’ve to be a long-term investor who can sit tight even when markets are not right. Easier said than done, I’ve seen many investors withdrawing their investments at the first sign of worry.

But they tend to overlook the flip side: If everything in the stock markets remained glory and alright, they did get expensive day by day. And that would mean, you wouldn’t be exposed to lucrative opportunity to buy more quality businesses at low prices.

However, if you’ve been only following a dog (ticker price), you’ll miss out on substantial returns delivered by good owners (businesses).

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Completely in contrast to February last year, the markets have been in a positive mood this year.

The benchmark indices have moved up over 5.5% over the past 45 days or an even better almost 7.5% over the past 30 odd days.

And as soon as such up swings happen, the “experts” in the market all start jumping around with their new estimates of where the markets are headed.

Allow us to share a bit of history with you and also explain on why I do so.

What does this table mean?

If we see the growth story of the Indian economy from $2 Trillion to $2.6 Trillion which is a 32% growth in the economy over the past 5 years, the markets have gone up by around 62%.

With a lot of government & private agencies talking about India reaching a $5 Trillion economy over the next 7-8 years, one can only imagine where the markets would be heading.

And that’s exactly the only reason we said, if Sensex is at 40,000, so what?

We are not looking for short term upsides or short term blips. Similarly, we do not even bother for short term falls.

We know that India as an economy is probably the fastest growing economy and short term movements or short term rumours, positive or negative, will not hamper its growth prospects.

Let me add another column to the table:

The added column tells you the complete story.

If you are invested in well researched & fundamentally rock solid businesses, you will not just beat the returns given by the broad indices, but beat them by a BIG MARGIN.

So, before we conclude, let us give you a chance to do a small exercise. Just fill up the numbers in the below table and send it across to us on createwealth@researchandranking.com. It’ll be amazing to understand the views of fellow long term investors:

We look forward to hearing from you.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

If you been an active stock market investor you must be definitely aware of how market corrections bundled with good growth projections serve as an opportunity of a lifetime to create wealth for successful investors.

But unfortunately, there are few investors who get worried about the mood swings of the markets and fear losing money to enter during such corrections. What they fail to realize is that such corrections are the best times to buy quality stocks at good discount prices.

Let’s understand why. It is said that numbers never lie and historical data has proved repeatedly that market corrections throw the best opportunities to create wealth.

Just look at how the Nifty behaved post every market correction.

As per the above table, Nifty dropped by 60% from its peak on 8th January 2008. An investor who entered the market during the lowest point in October 2008, would have made a whopping return of 92% in just one year. Likewise, all market corrections provide an opportunity to enter the markets at low levels, and when the markets recover, these investors were the happiest ones!

If you see the growth in Nifty after every correction, you will understand markets not only recovered but delivered a CAGR between 14-28% over the next 3 years.

Here we have mentioned the upside in the numbers from when the markets were at their bottom most, but imagine, even if you invested a little here and there, you would still be in a massive positive.

But the story doesn’t end here. Now you may think that all this is okay. But what if the markets are heading towards the next crisis?’

In fact not just markets, but even quality stocks that faced the heat of negative sentiments in the stock market were the first one to recover when markets started showing signs of revival.

Let’s take an example of Tata Elxsi. The stock fell down by 52% in Nov 2016. Many investors took this opportunity to accumulate this stock owing to its fundamental strength. Come now, the stock is now trading at INR 1,000, which is a gain of 87% in just two years after the fall. Even though the prices may fall, if the fundamentals are intact, there is no reason to worry about the value the stock can deliver for you in a long run.

But, there is a flip side of the same as well. Just take a look at the below table.

As you can see in the above table, these stocks corrected sharply but unfortunately failed to create recover. Suzlon, JP associates or DLF were actually the blue-eyed stocks of their time. However, when their fundamental strengths were tested, even though there were eye candies of many investors, they never bounced back.

For a successful investor, he would not just invest or hold on to just about any stock that has fallen, but, he would look to latch on to fundamentally strong business that are showing strong growth prospects.

Having said all this, ask yourself a simple question. What’s the most common way to create wealth in the stock market? You may think that it is buying low and selling high, and yes you are absolutely right. Share Market corrections provide you an opportunity to buy quality businesses at low levels. And as a smart investor, you should leverage on to this opportunity of a lifetime to accumulate stocks at a bargain valuation.

Well, by now you must have understood about share market corrections and its importance to create wealth. Keep watching this space for more such informative articles on wealth creation.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

With Indian benchmark indices Sensex and Nifty trading significantly below their new highs achieved in May 2019, many best stocks to buy are available at cheap valuations. But cheap valuations should not be the only criteria to look at while choosing the best stocks to buy. Rather an investor should bet on performing companies.

To understand why performing companies can be considered as the best stocks to buy, let’s go back to history and see what happened during the great crisis of 2008. While markets were crashing badly worldwide as a result of the American sub-prime crisis, there were few stocks which stood out and outperformed.

In American markets it was Coca-Cola which outperformed, while in Indian markets it was Hindustan Unilever. Despite the BSE Sensex and NSE Nifty losing nearly 53 per cent and 52.5 per cent respectively the FMCG giant, Hindustan Unilever gained over 20.45 per cent between January 1, 2008 and December 24, 2008.

Two other stocks which gave positive returns in the otherwise gloomy year were Hero Motorcorp, India’s largest two wheeler manufacturer, which gained 16.6 per cent, and pharma giant GlaxoSmithKline which returned 9 per cent.

Now let’s look at the kind of gains one would have made if they would have still held on to these stocks over a eleven year period between Aug 2008 to Aug 2019.

So you can see that performing companies have not just given good returns during difficult times but also highly rewarded investors who have maintained a long term perspective. All above three companies are market leaders in their respective fields with consistent and growing earnings.

The above examples demonstrates the importance of betting on performing companies rather than buying because stocks are available at cheap valuations.

The below pointers will help you to find the best stocks to buy in India:

Do fundamental analysis while choosing stocks

Fundamental analysis can help you in choosing stocks which can give excellent returns in the future despite external factors, short-term market volatility, market correction etc. Some key ratios which can help you in fundamental analysis of stock market investments are Price-to-Earnings Ratio, Price-to-Book Ratio, Free cash flow ratio.

Look at the growth potential

When looking for the best stocks to buy in India, always choose a company based on its future business prospects. Opt for companies which can scale up its business with time.

Check the debt levels of the company

Look for companies with low or zero debt.

To conclude the above factors can help you identify the best stocks to buy in India. However, it is equally important for investor to maintain a long term perspective to enable the business to grow and realize its true potential which will ultimately reflect in its share price.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

As I was walking towards my office yesterday, I heard a loud sound. My heart skipped a beat, as I turned around and saw that some cables of a crane perched on the top of a nearby under construction skyscraper had snapped.

The load of concrete blocks which it was carrying dangled dangerously, held back by two of the remaining cables which were still in place. Within a split second, few of the concrete blocks started rushing down at great speed.

There were vehicles and people passing by on the road adjoining the building. These concrete blocks could kill anyone instantly, I thought. But what happened next was quite unbelievable for me.

The concrete blocks did not fall to the ground, instead fell on a safety net which was placed between the 1st and 2nd floor of the under-construction building.

It seemed that the site-in charge had anticipated such disasters and put safeguards into place right from the start, which essentially meant they had put a margin of safety in place.

There is a concept called ‘Margin of Safety’ in stock market investing too.

Most investors in stock markets must have heard of Warren Buffet. But many have probably not heard of British-born American investor Benjamin Graham, the man whose investment principles, Warren Buffet followed to become a successful investor and still follows while investing.

So What Exactly Is Margin Of Safety In Investing?

The margin of safety is a principle of investing in which an investor only purchases securities when their market price is significantly below their intrinsic value.

Benjamin Graham has explained this in a very simple way in his famous book, The Intelligent Investor.

The below illustrations will give you a better picture of how the margin of safety works.

Stock B looks clearly overvalued and hence there is no margin of safety. On the other hand stock A, has an adequate margin of safety.

Why Margin Of Safety?

The margin of safety is a safeguard against market volatility. Change in factors affecting a stock’s price could change the intrinsic value rapidly and that is why Warren Buffet recommends buying stocks with a higher margin of safety.

This is well reflected in his quote, ‘’When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it‘’.

Just like the safety net at the construction site, the margin of safety provides a cushion against errors in analyst judgment or calculation.

While investing in a stock, there are few risks we are aware of and few risks we simply fail to identify.

Benjamin Graham called these as ‘Unknown Risks’ and emphasized the fact that the margin of safety concept not just protects your investment but also boosts it. The margin of safety not only increases the probability of better returns but also helps in avoiding big losses.

Through examples, Graham reiterated that all experienced investors not only recognized but also used the concept of ‘Margin Of Safety’. For example, while choosing a bond of a company which apparently is a loan, any investor would definitely check whether the company in past has been able to generate at least 4-5 times of the interest payment. Or a bank would never lend to a company who has just enough cash flow which barely services the interest or principle repayment.

Graham used the same concept on stock valuations. He simply ensured that the company has been generating satisfactory cash flow historically & has the strength to generate the same in future too.

The whole concept of Value Investing catapults on the “Price” at which you are acquiring the stock. Because as the legendary Warren Buffet says in the 2008 letter to the Berkshire Hathaway’s shareholders:

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

It is strongly recommended to conduct due diligence and exhaustive research to gauge the qualitative and quantitative aspects of a company, which in turn will help you determine margin of safety.

Definitely, it does require some homework, time and calculations. But trust me it’s worth it.

To make things easier for you, we have shortlisted 15-20 business opportunities with enough margin of safety that has the potential of multiplying your wealth by 4-5 times over the next 5-6 years. This portfolio has delivered 77.96% returns for more than 6,000 investors over the last 32 months. Do not let this opportunity pass away.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

There are many investors who are adopting a cautious approach while investing in NBFCs. Before we start why, let us brief you a quick background on the recent developments in the NBFC space.

Non-Banking Financial services (NBFCs), including Housing Finance (HFC), segment has been in the eye of storm for the past one month. There has been an incessant flow of negative news, both macro as well as micro, that has caused this ‘confidence deficit’ towards the sector.

Chain of events that started with IL&FS defaulting on its debt obligations led to the fear of liquidity crunch in markets, this was followed by Reserve Bank of India (RBI) expressing its view of introducing stricter monitoring norms for NBFCs and the most recent development being default by some real estate developers on their debt payments to banks, raising doubts over the quality of mortgage assets held by NBFCs/HFCs.

We at R&R have analysed the facts on ground and strongly believe that markets today are driven by fear rather than the fundamentals. Stocks have been beaten down due to expectation of liquidity crunch in the market. Many believe that post-IL&FS default, both mutual funds and banks would be reluctant to lend to the NBFC sector.

We urge our clients to consider the following factors and decide for themselves, how probable is this scenario, where our economy is projected to grow at 7.3-7.5% YoY without NBFC contribution.

Our Assessment

• We would like to draw attention to a very important fact that the Indian GDP growth story of 7.5%-8.0% is primarily driven by the “STRENGTH OF THE INDIAN CONSUMPTION DEMAND”. The same will get derailed if there’s a prolonged credit crunch in the system.
• Asides, any default will be a systemic risk on the Indian financial system, which will have its ripple effects on the country’s credit rating, it would derail the FDI/FII flows and will be a huge negative for the current government in the run-up to the upcoming general elections.
• Having said that the asset-liability mismatches and near-term Mutual Fund debt maturities at some of the NBFCs may bring volatility; however, we firmly believe this situation will be managed by intervention by the regulators. It is largely the paper maturing in Oct-2018 and Nov-2018, which is of significant quantum. If this can be tide over, then the overall situation should be manageable. We have seen in the past too, RBI coming in at the time of crisis on liquidity, putting in steps like opening up the Repo window for a mutual fund, etc.
• Our view is that the concerns of this liquidity constraint cascading into distress is very much exaggerated. Having said that, the current situation warrants stricter regulation on asset-liability mismatches, which will go a long way in strengthening the NBFCs.
• We remain long-term investors in NBFCs & HFCs that have strong asset as well as liability franchises, with access to lower cost of funding, strong liquidity with lowest risk asset-liability mismatches and leadership in product segments, wherein they have pricing power backed by their strength of distribution network and swifter turnaround times for credit sanction & disbursal with healthy asset quality and provisioning coverage. In fact, we are of the firm view that many stronger players would use this opportunity to grab further market share and consolidate their position in the sector.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

Post the Union Budget for 2019, and subsequent correction in the market due to FPI surcharge many investors were confused about how they should proceed to invest in equity. The rollback of FPI surcharge offered some boost to the market and investors who had earlier preferred to adopt a wait and watch approach are now back in the market.

But given the uncertainty surrounding US-China trade wars and signs of an upcoming recession signaled by the America’s inverted bond yield curve the question “How to invest in equity?” still looms large across minds of most investors.

To find the answer to this question, let’s look back in time to the last union budget of 2014. When Narendra Modi rode to power in 2014, one of the top priorities announced by the government was the cleanliness mission emphasizing on hygiene and construction of toilets for all under the Swachh Bharat Abhiyan.

After Prime Minister Narendra Modi’s Independence Day speech, the ministries involved in the Swachh Bharat Abhiyan disbursed funds for sanitation campaigns. Investors who priced in the benefits expected to accrue as the Swachh Bharat Abhiyan mission progressed made substantial gains as the share prices of companies engaged in manufacture of sanitary ware products increased.

The below table reveals how the budget allocation and Prime Minister Narendra Modi’s push for Swachh Bharat Abhiyan helped leading sanitary ware manufacturers indirectly.

So you can see that the budget 2019 too gives some definite clues to investors which can help in answering the question “How to invest in equity post budget 2019?”

Electrical vehicles and infrastructure, the best two sectors to invest in equity currently

In the Union Budget for 2019, the government has specified its intention to promote electrical vehicles as an alternative for petrol and diesel vehicles. This move is expected to not only bring down huge import bills of fossil fuels as well curb rising emissions which cause huge health problems.

This presents a huge opportunity for companies which manufacture electrical vehicles as well those into manufacturing batteries for electronic vehicles. According to estimates the market for electric vehicle battery itself is estimated to reach $300 billion by 2030. The electric vehicle segment offers a big opportunity for investors who wish to invest in equity currently.

Another sector which received a huge boost in the form of a 100 lakh crore allocation is infrastructure sector. This amount will be mainly used for development of water grids, modernization of railways, and construction of 60,000 kms of national highways, regional airports, ports, new townships and urban centres.  This massive push in infrastructure announced in the budget 2019 will be highly beneficial for companies operating in the construction, cement, capital goods & engineering sector. Hence investors looking forward to invest in equity can definitely consider investing in some of the top performing companies in the infrastructure sector.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Recently I met a cousin of mine, Pranay who asked me, “Should I go for high growth stocks or look for value stocks?’’

His question took me by surprise, given the fact that he had just started investing, but I assume he must have read up about these investing styles somewhere.

It was even more surprising for me because till date, nobody had asked me this important question, not even people I know who have been investing for several decades now.

Nevertheless, I told Pranay what legendary investor Warren Buffet had told the shareholders of Berkshire Hathaway many years ago, “Value and growth are joined at the hip’’.

“What does this mean? Can you explain in detail” he asked with a confused look on his face.

Even as you read this, I am sure you too must be having the same doubt after reading Warren Buffet’s comment.

Well what it means is growth is one of the parameters an investor needs to look at while investing in high value stocks. Irrespective of the fact, whether growth is positive or negative, it is an important factor which should not be ignored.

Before we proceed further, let’s take a look at what exactly growth and value investing approach means.

Growth investing is all about looking for companies that have a potential to grow faster than others. Such stocks have low dividend yields and higher price-to-earning (P/E) ratio and price-to-book value (P/B) ratio.

Growth stocks generally tend to perform better when interest rates are falling and company earnings are rising. However, they are the first to fall during economic downturns.

On the contrast, value investing is all about buying undervalued stocks for a market price below its intrinsic value. Such stocks have above-average dividend yields and low (P/E) ratio.

Value stocks, generally do well early in an economic recovery phase but appreciate slowly during a sustained bull market phase.

Most investors feel that ‘Value’ and ‘Growth’ belong to two opposite styles of investing. In fact in his letter to his company’s shareholders, Warren Buffet himself admitted that he too used to think on the same lines previously, but realized that it is not the case.

Here’s an excerpt from Warren Buffet’s letter:

“Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation, except to the extent they provide clues to the amount and timing of cash flows into and from the business. Market commentators and investment managers who glibly refer to “growth” and “value” styles as contrasting approaches to investment are displaying their ignorance, not their sophistication. Growth is simply a component – usually a plus, sometimes a minus – in the value equation.”

In simple words, the phrase ‘Value and growth are joined at the hip’ means that growth and value are closely connected. Instead of looking at growth and value as separate fundamental approaches, an investor should look at growth as a component of value, while investing.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Do you remember the story of the Trojan horse used by Greeks to win the war against the kingdom of Troy?

The city of Troy was protected by a high wall built around the city and Greek warriors had been trying to breach the wall for about ten years. After a failed 10-year siege, the Greeks constructed a beautiful and huge wooden horse, and hid some soldiers inside and pretended to sail away. Trojans were so impressed by the horse that without thinking about anything else pulled the horse into their city as a trophy. That night the Greek force crept out of the horse and opened the gates for the rest of the Greek army, which had sailed back under cover of night. The Greeks entered and destroyed the city of Troy, winning the war. That was the end of Troy.

What happened in the above incident was that the Trojans were so focussed on the horse that they failed to see the bigger picture i.e. the Greek enemy soldiers hiding inside the horse which ultimately led to their downfall.

With an aim to find how many people failed to notice other things (the bigger picture), when asked to focus on a particular task, a thought-provoking study was conducted in the year 1999. In a study conducted by cognitive psychologists Daniel Simons and Christopher Chabris, the participants were told to watch a video and asked to count how many times three basketball players wearing white t-shirts passed a ball. After a few seconds, a woman dressed in a gorilla suit entered the room, faced the camera and even thumped the chest before walking away. Nearly half the viewers missed the gorilla and did not see it.

After a few months, there was a sequel to the video. The viewers were expecting a gorilla, and it did make an appearance. But they were so focussed on the gorilla, that they missed the other prominent changes such as a change in color of the curtains and one player exiting the match.

The question is: How could they miss something so evident? This limitation is not in the vision of the eye, but of the mind. When one develops ‘inattentional blindness’, it is difficult to spot the details they are not looking for.

But why I am telling you this story?

A few weeks back, the stock markets had touched new lifetime highs.

From a high of 38,896.63 points in August 2018, the BSE Sensex has fallen to 34,790.93 losing around 4105.7 points due to unfavourable global cues, depreciating rupee, soaring oil prices and a default by mega infra-finance company, IL&FS. There is a sense of panic among a large section of investors who are worried about the future direction of the markets.

Many investors are watching the market movements and ticker price so closely, that they have almost forgotten that there is a gorilla in the stock market.

But what is this gorilla we’re talking about?

Considering the Q1 2018 – 2019, India’s GDP grew at 8.2%, which is the highest in the last two years. With this, credit rating giant Fitch has upgraded its forecast for India’s growth from 7.4% to 7.8%.

GDP of a country tells a lot about the size of an economy, and the stock markets are nothing but a reflection of the health of an economy.

India’s growth is at an inflection point and the best time is yet to come. There is an uptick in the credit growth, expansion of capacity utilization, acceleration in manufacturing activity as well as the surge in consumption power.

While inflation has moderated, foreign direct investments are at a historic high and foreign exchange reserves have peaked. At the same time, ease of making investments and doing business in India has increased attracting new businesses.

India’s structural growth story is just beginning to play out! For long-term investors who wish to ride on India’s ascent story, this market correction is a golden opportunity to accumulate stocks of sound businesses at a bargain price.

In spite of this opportunity, many investors have become cautious and are focussing their full attention on the current volatility just like we discussed in the gorilla story above. However in this process of waiting they are likely to miss-out this untapped goldmine in the market.

While the stock market is loaded with vulnerability, certain proven standards can help investors to support their changes for long term investment.

Market correction is a great time to buy high-quality stocks at a bargain.

For the long-term investor, a stock market correction is a best time to pick up high-quality companies at a good discount because fundamentally strong stocks are first to recover when the market reverses from a correction. In fact, investments over a long run have always delivered better returns on account of the phenomenal effect of the ‘Power of Compounding.’

When asked about the uncertainty in the markets, Warren Buffett in an interview told CNBC, “Don’t watch the market closely. If you’re trying to buy and sell stocks, and worry when they go down a little bit … and think you should maybe sell them when they go up, you’re not going to have very good results.”

Stop focussing on the temporary ups and downs of the market and maintain a long term view. Remember a fall in the price of a fundamentally sound stock does not mean its values have also fallen. It has just corrected as a part of broader market correction. As long as the quality of the stocks in your portfolio remains intact and is in sync with your financial goals, remember this – Doing Nothing Can Be The Best Thing!

Read more:  How Long-term investing helps create life-changing wealth – TOI.

With India aiming to transform from a current USD 2.6 trillion economy to a USD 5 trillion economy over the next 4 to 5 years, there are many long term investment opportunities available in multiple sectors such as infrastructure, banking, non-banking financial companies (NBFC), fast-moving consumer goods (FMCG) and defence.

Even though currently there is some uncertainty in the market due to multiple reasons, there is no dearth of long term investment opportunities for investors who have an investment perspective of more than 5 years.

Post the FPI surcharge announced in the Union Budget 2019 on 5^th July, Indian markets have been experiencing a free-fall. According to data released by National Securities Depository Ltd (NSDL), Foreign portfolio investors (FPI) were net sellers in July, withdrawing around Rs 12,419 crore from the Indian equity market, the highest since October 2018, when foreign investors withdrew Rs 27,622 crore from the stock market.

This huge outflow shows that investors have started shifting to other developing economies in their hunt for higher returns. This has made many investors worry about the road ahead for Indian equity markets. Another big reason for the current volatility is the fresh round of trade wars between USA and China.

However there is nothing to worry for investors who have made a long term investment as India’s growth story remains intact and an analysis of Indian stock market reveals that it follows the path of GDP growth over the long run.

It took around 60 years for India to become a $1 trillion economy but only seven years for its next trillion. Given the current rate of economic growth, India can easily touch the $5 trillion mark over the next 5 years. As the economy grows significantly, businesses will also report better growth and earnings. Currently many of these businesses are available at cheap valuations making them ideal for long term investment.

Here are some of the top reasons which makes India a stock picker’s market for long term investment:

• Growing domestic consumption due to large and fast growing middle class with rising purchasing power, changing lifestyles and rising aspirations

• Indian government’s continuously evolving investor friendly policy

• 100% FDI through the automatic route in several sectors, without the need of government approval

• India’s strategic and convenient location with easy access to markets of Gulf region, South East Asia and Europe.

Global industry experts are of the view that Indian markets will do better than international markets over the next few years. Even foreign investors know the potential for long term investment in India and that is why as per UNCTAD list of Investment, India remains the third-most preferred investment destination after US and China.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Markets are rallying. Few investors are excited about the rally in small-cap and mid-cap stocks. What a start of the month it’s been!

Time and again we spoke about the golden opportunities stock markets have thrown at us, yes, even during times of market correction.

Now since markets have started to bounce back, many investors are asking us: Can Sensex reach 40,000 in 2019?

To answer this, we do expect a few headwinds or difficult phases for the markets. This can be due to the uncertainty around the elections and trade war outcome. Even oil prices and micro indicators such as inflation, fiscal deficit needs to be watched out for.

But we are still optimistic about the times ahead. Allow me to explain why?

Why 2019 is a good year for Sensex?

We are seeing the positives such as earnings revival led by policy reforms, improvement in asset quality, and recovery in corporate capex.

We all know that Sensex is an average reflection of the prices of the top 30 well-established and financially sound companies listed on the Bombay Stock Exchange. So if the Sensex touches 40,000, it essentially means the corporate earnings of those 30 companies forming the index is improving.

The revival of corporate earnings is seen as one of the major drivers of stock markets. Subdued corporate earnings in the first 3 quarters of 2018, can be attributed mainly to high input costs for manufacturing companies and high credit cost for banks. We strongly believe that these factors have already started reversing.

A strong consumption-led demand growth, growing economy, a huge consumer market, rising corporate earnings to positive macro-economic factors, India has it all.

In our last few mailers, we already spoke about the sectors that will outperform in the coming years, the reforms that will RE-FORM your portfolio and why this is the golden time to invest.

India is today the fastest growing economy in the world and given the current rate of growth, many analysts even predict that India will become a superpower by 2030.

But when a country becomes a ‘Superpower’?

Superpower is a term used to describe a country that has a major influence on policies and decisions, on a world level. When a country is powerful economically, militarily, and has the latest technology and excellent international relations, it is deemed as a superpower. And if India becomes a superpower, Sensex may be between 40,000-50,000 levels.

But till then, to answer your question: How the Sensex will perform in 2019?

According to a report by Morgan Stanley, the stock markets could start pricing in stronger poll outcome in coming weeks and Sensex could touch 42,000 as early as December 2019.

The brokerage expects earnings growth to accelerate to 7-10 per cent in FY19, and 23-25 per cent in FY20.

India is all set to become a $5 trillion economy. And in this process, many opportunities will grow 10-20-50 times or even more in the next few years.

But the question remains: Are you all set to take your share and grow your wealth while India grows? The opportunities are many, all you have to do is invest in superior quality companies and hold on to them.

We would recommend business with high competitive moats in form of strong business fundamentals, attractive valuations, sustainability and adhere to corporate governance policies.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

Most Indians who are heading towards retirement are either invested in Fixed Deposits or Post Office Savings Scheme. With a minuscule return of 4-7% while inflation remaining stubborn in the range of 4-5%, their earnings have fallen sharply in the last few years. So, my question remains, is there any rescue?

There are mutual funds and equities that cater to the cumulative needs of millennial. They not only give you higher returns than the traditional products but are also liable to a lower tax outgo, thus making the post-tax returns more attractive.

However, many novice investors are confused when it comes to making the choice between mutual funds and stocks. On prima facie, they both may look the same, as equity mutual funds are also invested in equities. Also, both provide the flexibility of investing small chunks at regular intervals rather than an upfront lump sum amount. Lastly, both provide the scope to well-diversify your portfolio to mitigate the risks.

However, the management, flexibility and composition of these asset classes are what makes them truly distinctive from each other. Let’s look at the key differences between the two.

Caveats While Selecting Your Investments

1. Don’t compare apples with oranges: When the markets are in bull-run, both equities and mutual funds deliver impressive returns as compared to fixed deposits, PPF’s or Pension Schemes. Coming to the returns, many investors commit a mistake of comparing apples with oranges. If you’ve invested in mutual funds, then your overall direct equity portfolio needs to be compared with the returns of your mutual funds’ scheme. Again, the composition of mutual funds i.e. growth funds, dividend funds depends on the overall objective of the fund.

John C Bogle, Founder former CEO of Vanguard Group once quoted, “Surprise, the returns reported by mutual funds aren’t actually earned by investors.”

While investing in direct equities, the returns are crystal clear. Also, these returns depend on the selection of the stocks in your portfolio. If these stocks are selected carefully, then equities have the potential to deliver 10x-20x-50x or even more in 10 years. If history is to go by, many stocks such as Eicher Motors, Bajaj Finance, CEAT, Amara Raja, etc. have gone to register returns of 20x and more in the last decade.

2. Identifying right fund vs. right stocks: Lastly, for the beginners, many stock advisors recommend investing in mutual funds as investing in equities demand identifying the right stocks and a lot of efforts. However, this assumption may not always hold true. With more than 2000 primary mutual fund schemes in India, selecting the right mutual that suits your goal and risk requires equal efforts.

“The goal of the nonprofessional should not be to pick winners—neither he nor his “helpers” can do that—but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.” – Warren Buffett

With the arrival of many knowledgeable and credible stock advisors in the investing space along with the level of personalization, the potential of returns and flexibility that direct equities offers, it can be the way forward to create significant wealth for the future.

Read more:  How Long-term investing helps create life-changing wealth – TOI.