It is the future that you buy into today. When you invest in equity assets, you tap into businesses expected to show profit growth in the years ahead. You buy shares of such companies at low prices today to achieve multi-fold market returns over the next 10-15 years. Share prices of highly profitable companies align with the growth in profits. That is despite short-term volatility in their values due to many market factors.
India’s economic growth prospects play an essential role in the future trend of the stock market. A lot is going for the economy if one must believe experts. A new article published in the Reserve Bank of India’s latest bulletin highlights four key factors that could drive the India story. These include infrastructure creation, digitisation, green transition, and youth empowerment. The government’s focus on these areas was highlighted in the Union Budget presented earlier this month. According to the article, these factors are expected to yield dividends beyond the near term by lifting India’s economic growth.
In the Union Budget unveiled earlier this month, Finance Minister Nirmala Sitharaman allocated a substantial amount towards infrastructure creation. The government proposes to spend R10 lakh crore in 2023-24, a jump of 33% over the previous year. There is also a plan to incentivise the states to spend on infrastructure creation. Capital expenditure on infrastructure leads to productive asset creation. Revenue expenditure provides for running the day-to-day expenses, repaying loans and providing relief through subsidies. However, that has hurt India’s government finances significantly over the years. Governments have constantly paid for an increase in expenditure through excessive borrowing causing more problems. An increased unproductive government expenditure adds to inflation.
Over the past few years, the government has intended to boost capital expenditure and reduce revenue expenditure. It is reflected in the data showing that capital expenditure is higher than revenue as a percentage of total expenditure. It is an excellent time to think about the long-term and look for businesses that ride on the increase in capital expenditure. You can take help from professional advisors or use technology to create a portfolio of stocks or mutual funds that benefit from India’s expansion.
The creation of digital payments infrastructure in India is another significant development. There are over 23 crore unified payment interface or UPI transactions each month, a significant increase from 14 crore recorded in the year-ago period. That shows the convenience of the ‘India stack’ that combines the power of your Aadhaar and the bank account. There is already a pilot launched in major cities with a central bank-backed digital currency or CBDC. Some companies could help you ride the digital payments wave.
The emphasis on green initiatives is another reason to invest regularly. Companies working in technology for green energy, generators of non-conventional power and storage could be your important sectors from an investment standpoint.
The biggest enemy you got against your money is your inertia. You cannot afford not to invest now, or you would do it later are lame excuses to keep your money safe. Inflation is stubbornly high, and the latest credit policy announced last week clearly showed those concerns.
You need to invest regularly to benefit from the India growth story. If you regularly invest through an index or mutual fund, you can quickly spread your risk. The chances of earning a return higher than inflation are higher in the case of equity assets. If you regularly invest for 15 years, you can stop inflation from eating into your money.
If you live in India, you cannot just sit and watch the world go by. You need to change your habits and shed the inertia. There is a fear of loss, a widespread feeling around the world. The key is to stay invested and ride through the market’s up and down cycle. Instead of fearing stock market loss, you may want to constantly think about ways of avoiding them. Investing in an index fund could be your first step.
Staying invested is key
If you live in India, you cannot just sit and watch the world go by. You need to change your habits and shed the inertia. There is a fear of loss, a widespread feeling around the world. The key is to stay invested and ride through the market’s up and down cycle.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)