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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Sensex @ 20,000, it is just a level in the journey

Posted by Muthu on September 28, 2010

Please refer to my Sunday’s email wherein I mentioned about our hotmail being blocked and the debate as to who is more intelligent, whether us or Microsoft.

The question of intelligence is not settled yet. But Microsoft has acknowledged that our 14 year old memory is sharper for them to grant the access again.

I would like to thank all my friends at various AMCs who chose NOT to respond to our query regarding our hotmail is being blocked and what to do as the same is the registered id with AMFI and all the AMCs. Gentlemen and Ladies, where you are going to go and where we are going to go? You’ll definitely come back, especially as the next quarter is approaching, I’ll give you a piece of my mind then.

A relative of mine who is working in an AMC is the lone soul who suggested the importance of changing the mail id before the KYD forms. It is a good opportunity for me to share a few words about her.

I’ve been seeing her from her childhood days. She is unassuming, intelligent, hard working, kind hearted and a very helpful person by nature. Life gave her many sufferings and challenges and she has emerged out stronger and courageous. Including one petty lady relative of mine, I’ve seen people poking and passing unnecessary comments about her. She had the guts to ignore all these noises and embark on the path she chose. I’m glad to see her happily married and leading a good life. I wish that life compensates her by providing more joy to offset the sufferings she has gone through.

Today’s article is about a recent interview given by Nilesh Shah to ET Now.

I asked twice yesterday the AMC to which Nilesh Shah belongs to, the unedited transcripts of his interview. They are still waiting for their Mumbai office to respond. I took the help of ‘Uncle Google’ and got the required details. This should convey 2 things: 1) Google is more dependant than AMC sales people 2) AMC people should understand why we value certain relationships better than others.

Enough of appreciations and criticisms.

Nilesh Shah is back again with interesting insights.

Here are the edited excerpts from the interview he gave to ET Now.

There is excitement, no euphoria, and there is no bubble in the equity markets. Our 20000 is backed by pretty strong fundamentals. But my point is that do not look at 20000. It is just a level in the journey. When I started my career, people said 1000 is a level of index which will never be breached. Today who talks about 1000? And it has just happened in the last 20 years or so. So the point is that like 1000 came and went by, 20000 will come and go, provided you can give time to it. So do not just look at this 20000 as a peak. We will cross this many a times over many more years to come.

I will recommend investors not to look at the market. Market goes up and down. 20000 is no different from 10000 and it is no different from 15000. As an investor, it is your job to be always careful about your money. It is your hard-earned money. At the end of the day, you have to balance your risk and return, and whenever the opportunities of return is higher than the proportionate risk you are taking, that is a great investment and whenever your risk is higher than the return, that is the investment which is worth avoiding.

In today’s market, what is happening is that we have different sets of investors who are investing in. As an Indian investor, my risk free rate is, say, 10-year government securities at around 8%. On the same hand, the American investor who is investing in India is looking at his risk free rate of under 3% on a 10-year security. A Japanese investor who is investing in India is looking at under 1% on his 10-year security. So Japanese investor’s risk free rate is 1% and his return expectation could be 5% from Indian equity.

So he can afford to pay much higher prices compared to me. So because of that combination of flows from different sets of people who have different sets of risk profile and return expectations, it is becoming difficult to take a call on whether markets have become expensive or not. What we are saying is that based on our historical average. The Indian markets have traded around 15 to 16 times one year forward earning. Today we are trading at about 18 times one year forward earning. So let’s remember the fact that we are trading above our historical averages of the last 15 to 20 years.

Most of the time what happens is that there is some amount of fundamentals in some amount of flows and which results into action or price movement. The market is a combination of flows as well as fundamentals. Gone are the days where flows could have driven the stock prices without fundamentals for a long period of time. It can always happen once in a while, once in a blue moon, but they are unlikely to sustain over a long period of time. From a professional fund manager’s point of view, we look at fundamentals and fundamentals are easier to predict compared to fund flows. Sentiments are far difficult. So we try to arrive at a reasonable logical conclusion.

In the short term, it is always difficult to predict the market. You are essentially taking a call based on the valuation. The markets can always surprise. It never moves as per the expectations of investors. If the headline tomorrow is that markets are likely to correct, the chances are far brighter that market will actually go up. If the headline tomorrow is that markets are likely to move up, chances are that markets are likely to correct. So the market always gives surprises and shocks. It never moves as per the expectation.

Indian markets are not cheap like they were at end of 2008 or they are neither into bubble zone like they were in 2000 or the 1991-1992 period.

But whether the markets will correct tomorrow or not, I do not know. I do not think anyone can predict that correction consistently. What we are saying is that there is no need for you to worry about whether markets are going to go up tomorrow or going to come down tomorrow.

All you need to do is to give time for investment in the market. One of the simple question which I have been throwing to people is that do you believe a fund manager is better or God is better? Most of you will agree that God is far bigger and better than all the fund managers put together. Now if you want to get a mango, you have to wait for 12 years. If God cannot give you mango before 12 years, how do you expect fund manager to deliver return before 12 years in equity markets?

If you try to get returns in 3 months, 6 months, 1 year, 3 year kind of things, chances of getting a good mango, a bad mango and also a raw mango or khatta mango are much-much higher. So give time to your investments, give time to your equity investments. Do not worry about the short term noises. Markets will keep going up and down, and we will never be able to predict it. But if you give time to your investments, you are most likely to get some returns.

(Courtesy: Economic Times)

One Response to “Sensex @ 20,000, it is just a level in the journey”

  1. k krishnaraj said

    Dear sir,
    Waiting for for 12 years is an easy job. but choosing a good seed is a hard one.

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