The equity market seems to be in a delicate situation with uncertainties looming both domestically and globally. On the domestic front, signs of a slowdown in economic growth, uncertainty over the election outcome and a slew of subdued quarterly earnings have caused volatility in the market.
On the global front, escalating US-China trade war, uncertainty over Brexit and slowdown of the Chinese economy have added to the woes. So, what should an investor do to preserve capital and gain from his investments?
One would suggest safer asset classes and staying away from equity due to the volatility. We believe despite global and domestic uncertainty, equity still remains the best asset class for the long term.
Long-term performance of equities
Equity has been the best performing asset class on a compounded basis in last 3-4 decades. Other asset classes viz. gold, real estate, fixed deposits and debt, too have provided good returns, but have been lacklustre compared with equity returns. A look at the returns of last 40 years shows fixed deposit has multiplied wealth by approximately 26 times, gold by 32 times, real estate by 100 times, while equity, represented by the Sensex, delivered an extraordinary return of approximately 375 times. The CAGR return of equity investment in the same period has been approximately 16 per cent, which is more than that on any other asset class.
Fixed deposits and debt instruments may be considered to be safer compared with equity, but, delivered considerably lesser returns than equity.
Equities always bounce back
Equities are an investment for a long-term investos. In times of global or domestic turmoil, we might observe high volatility in the equity market, but the market has proved to have the ability to always bounce back. In FY2002-03, during the dot com bust, the equity market fell by about 13 per cent. The situation, however, reversed the next financial year, with equities rising 83 per cent and even as other asset classes gave lacklustre returns.
This is true for almost all major crises seen over the past three decades. Equity remains the asset class with highest returns in the past many years (though not in a secular form) and it is expected to continue its run as the best asset class in the future.
One should, however, not put all the eggs in the same basket. It is, therefore, advisable to diversify among various asset classes.
Right investments can unleash the power of equity
Equity markets have historically delivered higher returns over the longer term than other asset classes and the outperformance, in the long run, is likely to continue in the future. India being one of the fastest growing economies in the world and equity market performance being directly proportional to economic growth, we believe equity has a long way to go.
However, an investor should keep a few things in mind.
First and the most important is that equity investments are for a longer duration. In the short term, during periods of uncertainties, it might remain volatile. But in the long run, it has a high probability of outperforming other asset classes.
It is also important to do thorough study/ analysis of a stock before investing. The most important thing is the fundamentals of a business get reflect in stock performance in the long run. In short, invest in companies with sound fundamentals with long-term growth prospects. Always keep your investments diversified.
In times of economic downturn, one should invest through SIPs or in a staggered manner to try and even out short-term volatility.
Equity investments are the best mode for fulfilling your long-term capital requirements. So, we advise investors to continue believing in equity and stay invested.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of