Why should retail investor trust Indian Equity/Commodity market?

POSTED BY rahul123 ON November 18, 2013 10:02 am COMMENTS (28)

Considering the lack of good corporate governance in many of the listed companies, i doubt why retail investors should trust Indian stock market?

“As per latest data compiled from disclosures made to the stock exchanges, nearly 1,150 companies failed to comply with the disclosure norms for quarterly and annual financial results, while over 1,000 companies failed to comply with disclosure rules related to shareholding pattern.”

Read more at: http://www.moneycontrol.com/news/market-news/sebi-to-crackdownlarge-scale-disclosure-norm-violations_991432.html?utm_source=ref_article

The return one get in PPF/EPF are very good (as of now, even though going forward it has reinvestment risk).Why one should invest in stocks? I believe, 12-15% annualized return over longer term (more than 5 year) via SIP/MF/direct stock is a myth…and is very difficult to achive as market matures.

28 replies on this article “Why should retail investor trust Indian Equity/Commodity market?”

  1. ashalanshu says:

    Dear Rahul, thanks for the update.

    Thanks

    Ashal

  2. rahul123 says:

    Hi Seenujgs,

    On a closer look i believe it is not a right way of comparison (i.e. Franklin India blue chip Vs FD@ 8.5%).

    I do believe that some of the stocks might give you return much better than FD (but we will never able to predict). But my argument is not for this selected few. My argument is for Equity as a asset class (including – Bluechip, smallcap, largecap, midcap, penny stocks ) in Indian scenario.

    Similarly for mutual funds, the better way of comparison would be as below-

    1. Calculate the returns of all the equity mutual funds available existing one and old one (which doesn’t exist now)
    2. Now see how many of them have given good return (more than FD @8 %)
    3. At the same time we need to take the returns from FD in trusted source (i.e banks or any other government schemes)

    I believe that % of mutual fund which beat the FD will be the deciding factor. Also there are very few examples where banks defaulted in India.

    As i don’t have data,i can not calculate the numbers.

    Equity is an important asset class for good return, but it is not for everybody. First anybody should make sure that they have secured the majority of financial goals and after that they can think of investing in equity. The risk is very very high.

    Thanks,
    Rahul

  3. seenujgs says:

    Rahul,

    Comparison is done ? Please update us the status …

    1. rahul123 says:

      Hi Seenujgs,

      One more thing, go to the last page of this forum, there is one thread (started in 2010) about MF (somebody asked suggestion about the best MF for next 5 years) people gave many options, you can check the returns of those MF’s over past 3 years.

      I hope you will get the answer.

      Thanks,
      Rahul

  4. rahul123 says:

    Sure Seenujgs…I will be on leave next week so will get enough time for this analysis. Will post my result as soon as get some result.

    Thanks,
    Rahul

  5. seenujgs says:

    Dear Rahul,,

    Can I suggest one home work for you ? Consider Franklin India blue chip and analyse its performance since inception and compare this with traditional financial product eg. FD. Assume, a person invested in these two asset class since inception. You can consider RD return as 8.5 % on an average if you don’t have data for whole period.

    Let us discuss this in this forum. I hope it will be interesting.

  6. ashalanshu says:

    Dear Rahul, if you are removing 6Y or 8Y, the effective time frame come down to 14-12 years. the volatility ‘ll play part on your returns here.

    thanks

    Ashal

    1. rahul123 says:

      Ashal,

      Current level of volatility will kill any conservative investor ( even if he is ready to take risk). Hence i am saying, get stabilize financially and then only for better return (with obvious risk) think of equity market.

      Also 2003 to 2008 was a dream run for Indian market, other wise the returns are not that lucrative.

      Thanks,
      Rahul

  7. rahul123 says:

    Dear Ashal,

    I can get data from various sources for analysis. But the result depends on the way you interpret that data. After normalization* of data , the returns which we get are not worth taking the risk. Hence i want more convincing theory.

    Normalization means: if you consider data for last 20 years, remove worst 3 years and best 3 years, and now consider the returns of remaining period….similarly for every 5 year block keep on removing additional 1 years (best and worst)….and now tell me if the risk is justified?

    Rahul

  8. ashalanshu says:

    Dear Rahul, please check the past data from so many resources available online. I already provided you hints in the form of Nifty and sensex. You may add NAVs of some old funds here for your satisfaction.

    Thanks

    Ashal

  9. rahul123 says:

    I agree with you on all the points except one thing….

    “Past data is already there”

    I am interested in this past data.

    Rahul

  10. ashalanshu says:

    Dear Rahul, sorry I can not provide any theory to prove my point. if one has own belief in an asset class, one should invest there. be it Eq., Debt, Real Estate, Gold.

    Past data is already there. If you do not want to base your choice on this data, it’s your problem not mine. If you are not at all hapy with Eq., you should not invest at all.

    Thanks

    Ashal

  11. rahul123 says:

    Ashal,

    Even 10-12% is luck….I want more convincing theory from you…

    Thanks,
    Rahul

  12. ashalanshu says:

    Dear Rahul, I can not comment for others but certainly I never say that one may get 15% from Stock market in long run. At best one should expect 10-12%. Anything above this is pure luck nothing else.

    Thanks

    Ashal

  13. vijay says:

    Hmm….Don’t know much about the business channels and their euphoria. I stick mostly with few printed materials with real world graphs and data….I agree with you, people should be wary of folks doling out blind prescriptions with misleading sale pitches.

  14. rahul123 says:

    Vijay,

    You are right! But partially…the size of pie matters….A person earning a million rupees per year is more risk averse, he has a lot more potential to absorb the loss…..this is where retail investors can not sustain in the market.

    I agree that one should go in the market if only he is debt free/has done some financial planning for retirement and is ready to absorb the losses.

    My concern is about the general euphoria created for stock market on every other show on Indian business channels. Many of the advisers are blindly telling people to put their money in market for 12-15% return for “long term”….

    Rahul

  15. vijay says:

    Rahul, most certainly the stock picking is nothing short of gambling BUT definitely not in the same league as rolling a dice though. There is a little more bias and reasoning involved in stock pickings that has the tendency to shift the odds in favor of the investor. Of course, we’ll all go through the loss-profit cycle and hope to end up towards a net profit! Aren’t there plenty examples of this already? No denying, there’s the other extreme too where folks have been ‘ponzi-fied’.

    Guess if my CTC was in millions and I lived a fairly ‘Gandhian’ (time and inflation adjusted) life, the PPFs and FDs would work just fine. But with anything <30L, I'll need to look for those educated stock picking that might have a tendency to make the money grow, just like many have done in the past and are doing it still…

  16. rahul123 says:

    Ashal,

    I am still not satisfied with the reasons. How can you justify the risk? And why it is worth taking this additional risk?

    Anshuk,

    How can one identify good companies. See the prices for SBI/BHEL/Reliance… and other bluechips..

    Please don’t say that “stock picking is an art rather than a science”. There is no scientific technique which will predict the returns with 100% accuracy…..your financial modeling/valuations all techniques are big fail

    I need more logical reasoning from you..It’s gambling and nothing more than that….

    Rahul

  17. Anshuk Jain says:

    Also pls don’t put money in companies who are failing to comply with disclosure norms as per that report. There are MANY great companies who are following all the rules..

  18. ashalanshu says:

    Dear Rahul, If you do want to increase your wealth. 🙂

    thanks

    Ashal

  19. rahul123 says:

    Hi Ashal,

    I agree that WE should participate more in market, but again WHY???

    Thanks,
    Rahul

  20. ashalanshu says:

    Dear Rahul, if WE, the retail investor ‘ll not invest in BIG way, how can WE move the market? Regarding burning the finger in 2008 crisis, only those people who stopped their SIPs/redeemed investment are in loss. Those who continued are in profit.

    Thanks

    Ashal

  21. rahul123 says:

    Ashal Bhai, its all ok….but you forget the most important line

    “Please be informed that past performance is not necessarily a guide to future performance.”

    And, also remember that you are dealing with people who burned their hands in 2008 crisis. My point was precisely the same, why retail investors should put their money in market. Big players are moving the market and retail investors are losing (mostly) their money…

    Rahul

  22. ashalanshu says:

    Dear Rahul, what was sensex value in 1980 or 1990 and what is it’s value today?

    What was Nifty value in 1995 and what is today?

    Now you know it with data regarding inflation beating through Eq. investing. If We the indian investors are not putting our own money, the one who is investing ‘ll make the market move. If we want to move market as per our own choices, there should be more Indian participation.

    Thanks

    Ashal

  23. rahul123 says:

    Ashal,

    You are not getting the point..instead of having an healthy discussion you are simply saying that “one is responsible for his own investment”. Even if this is true, i am not expecting this lame argument from Indian stock market supporter.

    Regarding the inflation thing, you have to prove it to convince prospective customer with strong data… other wise my argument regarding preservation of capital holds true. Even if PPF/ PF can’t beat inflation there is guaranteed money , you can not say this about stock market.

    Also for FII inflow, it is pouring money at their whim and hence there is movement in Indian market, this can be seen from the volumes in cash segment on both the exchanges. Please support your argument with data/facts.

    Rahul

  24. ashalanshu says:

    Dear Rahul, why should I prove that Eq. ‘ll beat inflation? Where one is investing or not is his/her personal choice. Regarding the puppet thing, if WE are not going to invest our own money, why should we blame FII for this (PUPPET thing).

    Thanks

    Ashal

  25. rahul123 says:

    Dear Ashal,

    How can you prove that investment in equity will beat inflation?

    My point was that, considering the bad corporate governance and the fact that market rally is driven by FII, don’t you think retail investor is a puppet in the hands of FII?

    Rahul

  26. ashalanshu says:

    Dear Rahul, whatever you said is true so you should not invest in Eq. at all. Be happy with PF and PPF. Do not cry for inflation later on.

    Thanks

    Ashal

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