One bad part of being in a developed economy is that growth becomes quite stagnant. All the companies grow at a slow pace, and double digit growths are quite unheard of. And this is well reflected in the stock markets too. The US stock market has reached a point where you cannot expect any dramatic returns. Difference in rate of returns between stocks and bonds is gradually diminishing, and you just manage to beat the inflation while being in stock market. Gone are the days when Warren Buffet could invest paltry sums and get huge returns. With the current growth rates, next Warren Buffet might be a few hundred years away.
Investors have long realized this fact, and have started looking around for better opportunities. And the consensus that everyone seems to have reached is that emerging economies offer the answer. These are the economies that have started growing now. Growth rates in these economies are much higher than developed economies. And even the biggest of the companies can boast of double digit growths ( for some smaller companies, the growth rates seem to be quite unreal).
Indian economy is one of the hot favorites among investors. It offers all the right mixture for decent returns. To start with, government has become more open, and private companies are coming up in traditionally state operated functions, such as power generation and distribution etc. Availability of cheap labor has ensured that cost of production remains one of the lowest in India. This has helped Indian companies become global. Other interesting factor is availability of English speaking graduates. This has helped Indian IT companies, like TCS and Infosys, become stalwarts in the world. All these factors seem to have resulted in a ripple effect, and Indian economy is really blooming. And so is the Indian stock market.
Indian stock markets are the place to be if you are looking at making really big money. Most of the large cap companies are growing at double digit rates, primarily because they are adding fresh capacities, going global , gaining economies of scale, and cutting costs. In recently declared results, the Indian IT big wig, TCS , declared more than 8% QoQ !! (On the other hand, recent results of Yahoo made Yahoo’s stock price fall by 13%). And other Indian companies are also following the same pattern. And the best part is that the growth is completely sustainable for a few years to come. So, definitely, this is the place to be.
Having painted a rosy picture about Indian stock markets, I would like to put a word of caution. Indian stock markets have been on a roller coaster ride lately. Driven primarily by large liquidity and availability of surplus money. So, if you are new to this market than directly buying stocks might not be a good idea. You may not know right price to enter, and more importantly, right price to exit. The best way to go is to follow mutual funds route. Most of the good equity mutual funds offered more than 40% returns last year. There are a lot of global mutual funds also available that invest in Indian stock markets. Start with these funds to get a taste of the returns.
But beware, as always, great returns entail great risks. So, if you are a risk averse investor than you might want to stay away for it. For moderate to high risk investors, a portion of Indian stock markets is must in their portfolio.
Ride the tide. Bon Voyage!!