Invest in Equities: The Best Way to Wealth Creation

The recent  predictions on  the Indian economy by  the  Moody’s who downgraded India’s rating from stable to negative is really very poorly done and  mis- informed. They ignored the fact that  India is regularly getting more inflows from foreign investors, even in the first half of November 2019  they have infused  a net sum of ₹19,203 crore into the domestic capital markets according to the latest depositories data.

India’s GDP will grow to a jaw-dropping trillion numbers and India is rapidly rising in the global rankings as well. We will tell you about how poorly the insiders at Moody’s rate their approach back in 2009 and again in 2015. In an interview, Moody’s former Managing Director, Jerome Fons, had called the rating agencies Standard poor and worth ignoring. But even years after subprime crisis unfolded in 2008, regulators and investors all over the world continue to rely on these rating agencies, the Moody’s indicator, is typically very late to caution on risks. So late in fact, that now it is time to look forward to the upside. Investors who take Moody’s downgrade of India too seriously, will either suffer losses or miss the bus on the upside. They need to revisit their perception of Indian economy  and stop being so “bearish” on India !

Every time, Moody’s has slashed India’s rating below the ‘stable’ category, the economy has bottomed out and a stock market boom followed i.e. smart investors who bought stocks after Moody’s rating downgrade in 1992 and 2002, created life-changing wealth for themselves.

Terrible Track Record of Rating Downgrades

Let me explain why I am very bullish on the stock market :

In 1979, the BSE Index was 100, today it is over 40000, i.e. a return of over 18% per annum and if we consider the dividends received and assume that they were to be reinvested in the BSE-30 Index, then the return is nearly 21% per annum. Over the past 40 years, the Indian economy has grown by a real rate of GDP of 6.3% on average. If we add the Inflation in the 8% range, then we get together (6.3+8) is 14.3%. Then the approximate  nominal rate of growth in GDP is above 14%.

That means, Indian economy grew by 14% per annum for the past 40 years and the BSE-30 Index grew by 21% per annum.

Now let us assume if, over the next 31 years, the Indian economy is to grow by, say 6% per annum and inflation is to be, say 5% per annum then the nominal rate of GDP for the next 31 years will be (6 + 5) = 11% that means if  a 14% nominal rate of growth in the economy between 1979 and 2019 resulted in a 21% average per annum growth in the Index over the past 40 years, then what should a 11% per annum growth in nominal GDP result in over the next 31 years – till the year 2050 ?

The Sensex journey so far :

It is a true reflection of growth of India over all these years.
“We’ve just started. The party has just begun.”
– Ridham Desai, Managing Director at Morgan Stanley India
“India is a big story that isn’t going away for 30 years.”
– Jim Walker, Chief Economist of Asianomics