Equity is the best bet for long term

Given the current scenario, investment in Indian equities is the best option for wealth creation for the next 5 years at least. The reasons to justify this argument are many;

• The resilience of Indian economy, in the aftermath of the global meltdown, has been proven beyond doubt. India has been one of the few global economies that have bounced back to the normal growth trajectory, whereas most advanced economies are still struggling to cope with the after effects of the crises.
• The Indian growth story is based on a strong domestic demand. Financial savings have been growing steadily in India and are poised to reach 16% of the GDP in the next 5-7 years. India which has a young population is likely to add over 100 million people to the working age category in the next 5 years, giving a further boost to the consumption lead boom.
• The FII inflows into Indian equity market have turned positive, and are likely to remain healthy over the next couple of years. Most developed economies are pursuing low interest rate and expansionary monetary policy, which will ensure ample liquidity in the system. The funds will continue to flow into Indian equity markets to take advantage of the high growth prospects of Indian companies.
• The infrastructure development theme will play out in India during the next 5 years. Heavy investments will continue to pour into roads, ports, airports, power, transport system as well as health and education sectors, as there is enormous growth opportunity in these sectors. The unique ID project will give a big impetus to IT spending in the country.

The moot question is whether this is the right time to invest in equity markets. Based on fundamentals our equity markets at the current juncture are in the region of 'fairly valued to slightly overvalued territory' trading at around 16-17 times forward earnings. On technical charts the markets have created a new range of 4800-5400 on the Nifty. Any dip from the current levels will be an excellent opportunity to invest for the long term. Although it is extremely difficult to predict the rise and fall of the markets, a 10% correction from the current levels will be a good time to accumulate your favourite stocks. Fortunately, the markets have started their downward correction, and are likely to move towards the lower end of the technical range suggested above. this level would take the markets into an attractive valuation zone (at 14-15 times forward PE) once again. Long term investors can loosen their purse strings at levels around 4800-4900 on Nifty, and if the correction extends beyond these levels it will be an added bonus. Wishing you happy investing times!