If someone has just started investing in Indian equity markets recently than the probability of getting mediocre returns over investment or even negative return is much higher. Well, we bet that's what you haven't heard from your new Mutual Fund or SIP investment advisor touting minimum 25% returns, have you?! Ok let's go through what are the possible future scenarios and you can decide their merit yourself.
1. ) Market keep on chugging 25% annually over next few years
Everybody would love that, wouldn't they?! While everything is possible in this universe, this scenarios is highly unlikely to materialize. Because when every man and his dog has already invested in equities then from where the loads of new money will come from to buy more stocks and keep the markets buoyant. Now free money via QE has either stopped or about to stop from pouring in via various central banks. Instead they are rising interest rates and eventually bonds will start competition with lofty equities.
2. ) Market's remain stagnant
It is likely. If love and peace prevails then nothing will happen to disturb the current equilibrium and investors will be happy to hold whatever they have got at whatever price they have paid while allowing companies to catch up with earnings to such lofty ( and often unrealistic ) P/E multiples. That said, for many stocks, good news from even next century has already been priced in. And if someone still invest in them believing much further appreciation then you know what to call him/her, but let's say no such event happens which can point finger to such valuation then of course it is possible that they just freeze there basking in the moment of glory.
3. ) Market goes down
Very likely. At some point investor lose patience and usually something happens which starts the chain reaction. Every time reason is never the same but things DO happen, no matter how hard you try to prevent them. Markets always oscillate between extremes of greed and fear and that is never going to change.
1. ) Market keep on chugging 25% annually over next few years
Everybody would love that, wouldn't they?! While everything is possible in this universe, this scenarios is highly unlikely to materialize. Because when every man and his dog has already invested in equities then from where the loads of new money will come from to buy more stocks and keep the markets buoyant. Now free money via QE has either stopped or about to stop from pouring in via various central banks. Instead they are rising interest rates and eventually bonds will start competition with lofty equities.
2. ) Market's remain stagnant
It is likely. If love and peace prevails then nothing will happen to disturb the current equilibrium and investors will be happy to hold whatever they have got at whatever price they have paid while allowing companies to catch up with earnings to such lofty ( and often unrealistic ) P/E multiples. That said, for many stocks, good news from even next century has already been priced in. And if someone still invest in them believing much further appreciation then you know what to call him/her, but let's say no such event happens which can point finger to such valuation then of course it is possible that they just freeze there basking in the moment of glory.
3. ) Market goes down
Very likely. At some point investor lose patience and usually something happens which starts the chain reaction. Every time reason is never the same but things DO happen, no matter how hard you try to prevent them. Markets always oscillate between extremes of greed and fear and that is never going to change.
