The Indian equity market has always been generous to patient and disciplined long-term investors. The Sensex has increased around 600 times in the last 43 years and has given a handsome return in excess of 15% on a CAGR basis. The Indian equity market has been resilient to geopolitical tensions, macro-economic events, as well as global central bank action in the long term even as these events, have led to bouts of short-term volatility. So, it will not be an exaggeration to say that India has been in one long mega-bull market for most of the last four decades, albeit with periods of sideway movements and corrections. This stellar performance of Indian equities would have added immense value in the wealth-creation efforts of most investors who stayed the course and helped them meet their key life goals.
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Given this stupendous long-term record of Indian equities, it makes me a tad skeptical regarding the amount of bandwidth consumed by the market participants in trying to time the market by predicting market trends and factoring in the impact of all the possible factors they believe are driving market movements. Time and again such seemingly accurate predictions which make good coffee table discussions miss out the single most important reason which eventually dominates the market movement such as the global financial crisis or the Covid pandemic, which was not predicted by most market participants.
Moreover, even if events happen as they were predicted, the impact of those events on the market might be exactly opposite to the conventional wisdom prevailing before the event. This may be seen from the market impact of events such as Brexit where the market reaction was not in line with what was earlier opined by experts. A long-term investor would do well to tune off from the day-to-day noise amplified 24×7 by the media, which ends up creating heightened volatility in the market. A long-term investor who can invest in a periodic manner and average out the market volatility would benefit from such market movement and stay invested for achieving their key financial goals. This approach helps to unleash the power of compounding returns over long periods and offers an extremely prudent way to invest.
Given this perspective, an investor can make use of the inflation-beating long-term returns offered by the Indian equity market by investing in well-diversified equity funds with a proven long-term track record of consistently outperforming the benchmark. Moreover, investing in a disciplined manner periodically should help them manage the volatility to their advantage and stay invested over many years. For those investors with a much lower risk appetite, they can consider hybrid funds with a mix of equity and debt to manage their asset allocation in line with their risk appetite in a prudent manner.
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In summary, an Indian investor can compound long-term returns for wealth creation through the time-tested Indian equity market rather than attempt to chase short-term returns by seeking to time markets, switch asset classes and deploy leverage. As one says, don’t fix it if it’s not broken.
