In the wake of the new inclusion of LTCG and the global markets sell-off, the stock markets witnessed a frenzied reaction from the equity investors followed by a sharp correction to the tune of ~-5.4% since the announcement. Dow Jones witnessed a slump by up to 1175 points and after the rocky patch for two days, it bounced back by in the final hour yesterday by 567 points. However, its rippling effect could be seen worldwide across EU, AU and the meltdown in Indian Indices as well.
The questions many investors still have in their mind is: Is this time a breathing space for the investments, till the volatility on account of LTCG wipes out?
Market corrections and the surrounding investing predicament is not new to the Indian markets. In fact, they have time and again served as a bedrock to put your money to work at a lower level or average out their cost of investments. The news of the Brexit, India’s surgical strikes on Pakistan, demonetization, GST Bill Passage, Donald Trump Presidential Elections and Fed-rate hike entered and slipped away while temporarily tempering the performance of the stock markets. However, the markets quickly absorbed the transitory impact of all these events. Such events can temporarily blow the sentiments of the markets and cause a dip in the prices; however, the outlook of the markets is based on the fundamentals of an economy.
In times of a pick-up in the prices of the stock markets, many investors feel that the valuations are high and they keep waiting for a market correction. Ironically, in times of downward runs, the same investors are sceptical of entering even at low levels. This paradoxical pattern in the investors’ behaviour in times of bull and bear run makes them miss the bus.
If Not Equities, Then Which Asset Class?
The LTCG, prevalent in other countries as well, was long overdue. Even though it may impact the gains on your investments to a certain extent, it should not be a deterrent for investing in the equities market.
The 10% long-term tax on equities above gains of INR 1 lakhs, with notably the capital gains till 31st January to be grandfathered, many investors are comparing equities with other asset classes such as PPF and Fixed Deposits.
Let a simple mathematics answer your dilemma, where every month INR 5,000 is dedicated towards the SIP investment for equities, PPF and Fixed Deposits for 5 years.
The difference is so wide, that it would be a complete injustice to compare equities with other asset classes. On account of the lack of other lucrative investment avenues and considering the significant returns generated by equities even after considering the taxes, LTCG should not interrupt the inflows in the equities markets.
Union Budget Is Not Only About The LTCG Move
If you look at the bigger picture, the government opted for an ‘all encompassed’ approach while consolidating reforms to boost agricultural & farm incomes, spurring demand from rural India, social development and infrastructural advancement. With the increased spending on rural and social development, there would be more disposable income in the hands of an investor, which means increased household savings, and eventually more inflows in the stock markets.
India’s Growth Story
The growth rate of India is pegged at around 7.5-8% for FY2019 and is all set to become a 5 trillion economy by 2025. We are currently at a 2.5 trillion economy, which means that in this fast pace of growth, the opportunities will manifold up to 20 times and potentially more over the next 8-10 years, provided you buy the right businesses.
What Does It Mean To An Investor?
If you are an investor looking to invest INR 5-10 lakhs via SIP’s or lump sum, you should not be paying much attention to LTCG, as there is a high probability that you may land up paying zilch or meagre amount of taxes on LTCG.
Time To Move On…What Is The Road Ahead For The Markets?
After the prolonged subdued growth, the December quarter results reported strong earnings. With the transient negative impact of GST and Demonetisation waning out, consolidation in the reforms and visibility in the recovery in the corporate earnings, the Indian economy looks extremely bullish in the long-run.
With the imposition of LTCG, it is more crucial than before to identify the companies with growth prospects to generate significant wealth. And we, as your partner, won’t let you fail as we are always on the look-out for sound business opportunities on your behalf.
We are proud to announce that our universe companies have reported a jump in PAT by almost 35% on an average basis as compared to 12-15% climb by the Nifty-packed companies for the December quarter.
Our endeavour is to generate returns for our clients by following a simple investment methodology: Stocks with sound fundamentals, agile and credible management, and healthy balance sheet along with the benefit of the power of compounding leads to real wealth.