I am Tania Jaleel
On January 21, the Sensex hit a milestone.. it touched the 50,000 level.. this is a 16% year-on-year again
Now even though the benchmark index is down more than 3% from this level, investors are still bullish about the long-term
So, for the average investor, what does the Sensex hitting the 50,000 mark mean?
Dhirendra Kumar of Value Research wrote an interesting column in the latest ET Wealth edition about this
He writes that: There are a number of different points that need to be made about the Sensex hitting 50,000.
Larger numbers by themselves do not have any special meaning. The actual level of the index is in relation to an arbitrarily chosen day some 40-plus years ago when the level was deemed to be 100. If a different, later day was chosen then the number would be lower. The Nifty’s starting point was at a 1,000 in 1995 so it’s only at 14,000 right now even though the two indexes move practically in lockstep.
What’s more important, he wrote that what a change in the level of the index means.
The move from 45,000 to 50,000 is 11.1% and has the exact same significance as the move from 2,000 to 2,222 had two decades ago.
Or, during the days gone by since the beginning of October, the Sensex’ gain of 10,000 points has exactly the same significance as the Nifty’s gain of 2,850 points.
In this time, both the indexes gained 25%. For any serious market watcher, that’s the number that matters.
If you, as an individual investor, understand how the power of visualisation can help you understand what’s happening in the markets then you must switch to graphs with log scales simply because they are proportional to percentage changes rather than absolute changes.
Equity investing in India is still a niche activity and the more ‘outsiders’, including those who are on the verge of dipping their toes in, hear about the better and the big round number definitely helps a lot in that, writes Kumar.
For people who remember the big crashes along the way, this big round number brings home the fact that in time it all gets left behind as the country’s economy and businesses march along, he opines.
The fact that the big falls of the past were overhauled in short order and now seem irrelevantly small is the most important part of the story.
For those who should become equity investors but are waiting to be convinced, this is something that is worth thinking about. Similarly, for those who invest in equity but get a little bit too influenced by the severe ups and downs that happen, the big round number provides some perspective that all things pass, and over a long period, the story is always a cheerful one, concludes Kumar.
In an interview, in the same edition, Ravi Menon of HSBC Global Asset Management India says that equities will continue to be rewarding for those investors who are willing to stay invested
He says that for an investor who has saved for retirement and is approaching that stage, it would be prudent to book regular profits.
For a long-term investor, market movements are of less significance as it is the compounding factor that drives returns in the long run.
India’s growing middle class and expanding working age population is expected to drive the consumption demand and this is a multi-year story with long legs. India is one of the fastest growing large economies and its incremental contribution to world GDP would remain high. This would eventually reflect in the market cap parameters too.
The ingredients are all in place – stable democracy, structural policy reforms and Indian equities are expected to continue to be a rewarding place for investors who are willing to stay invested.
On that note, that will be all for this week
Come back next week for more wealth wisdom
