While recording an episode for the Let’s Get Rich With Pattu Podcast, a question that naturally emerged was, “Can I bet on the India growth story and invest in equity?” The question discussed in the podcast has been covered here: What is the probability the Indian equity market will perform well in the long term?
The short answer is: Yes, the India growth story is a reasonable bet to ignore short-term hiccups and put our faith, time, and money into investing in equity. However, there are no guarantees.
The long answer is that the Indian economy is shining and expected to shine in the coming decades. We have a robust democracy. Governments are keen to help businesses and entrepreneurship.
Our population is a good mix of young and old and is still growing. They would like to spend more and more compared to earlier generations. This means there is plenty of scope for all businesses to grow and shareholders to get sustained profits for at least a few decades. This means we will likely be one of the fastest-growing economies for some time.
See:
- An Indian Economic Strategy to 2035 – a study commissioned by the Australian government.
- India’s Growth to Remain Resilient Despite Global Challenges – World Bank
So, Indian equity is indispensable for long-term goals. However, there are many short-term and long-term disruptors, both of which will impact long-term returns.
Short-term disruptors
- Political Uncertainty
- Oil prices, weak currency
- Too much rain or too little rain
- Conflict with our neighbours
- International conflicts
- Natural interest rate cycles
- Bank scams, corporate scandals
Long-term disruptors
- Global warming
- Climate change
- Too much plastic use, etc
If you want to be dismissive about these factors, we urge you to reconsider: World’s first year-long breach of the key 1.5C warming limit.
The developed nations (USA, Canada, Europe, Japan, Australia, New Zealand, etc.) have benefited from an early mover advantage. They became “developed” by the time the destruction of Mother Nature was half complete. India will not have the same kind of freedom.
India has so far done an impressive balancing act – it has succeeded in reducing its emissions rate by 33% over 14 years. India aims to achieve net zero emissions by 2070 and meet fifty per cent of its electricity requirements from renewable energy sources by 2030.
Also see: India’s clean energy transition is rapidly underway, benefiting the entire world.
These are far from easily achievable, but I am glad the government has the right priorities. No one can predict if climate change will or will not curb Indian economic growth, but certainly, we don’t have much wiggle room. In my opinion, beyond the next 15-20 years, it (climate change) can have an impact. That said, I am still reasonably optimistic.
What should investors do?
India ticks almost all the boxes for a thriving economy and stock market sentiment. So, there is a reasonable chance that Indian stock market returns would beat inflation (assuming we expect less and invest enough with a proper strategy). See: Equity MFs are too risky with no guarantees; why should I invest in them?
Nature willing, the outlook is promising, but that will not always reflect in our returns. See: The Stock market always moves up in the long term, but returns move up and down! So we can’t keep investing and leave the fate of our hard-earned money to luck. We need a proper investment strategy that is independent of market conditions.
Long term investors must have a solid systematic risk management plan by gradually de-risking their equity exposure. Our research – explained in the goal-based portfolio management course and incorporated into the freefincal robo advisor shows that this has more than a reasonable chance of success regardless of market conditions. This is also explained here: do not expect returns from mutual fund SIPs! Do this instead!
Such a gradual and systematic equity de-risking is the margin of safety that will make our chances of success reasonably independent of future market conditions and their forecasts.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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