World of India!: BizNpersonalfinance : Sense the Sensex ! e

World of India!

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BizNpersonalfinance : Sense the Sensex !

I once had a argument with a former colleague of mine on investing in equity. He had been a manufacturing guy in his earlier job and his wife worked in LIC. Fellow had all his money invested in LIC policies which earned him a pittance of a return or bank deposits, which were equally bad. He argued with me saying that the stock market is a "satta market" and I will get burned one day. I agreed that the possibility did exist for sure, but said that I would rather suffer light burns than die poor with unblemished skin.

After explaining a bit about stock market fundamentals and maybe due to the fact that almost a year before, the market was making record highs everyday, he invested a bit. Two other colleagues of mine who used to join us for afternoon tea and who had participated in our arguments, also invested in equity- one heavily and the other a small amount.

The market fell almost promptly in May 2006 from a high of 12600 to 9000 odd. I lost a considerable amount of profits, finally lost my nerve and sold off my portfolio, to take at least 25% of the remaining profits. The rest of my chellas had invested at the top (11k levels) and lost big time on their capital. Surprisingly, they did not blame me, but blamed themselves for listening to me. I swore not to advise anyone on investments again, even if I was right.

All 3 of them did not sell but held their stocks. Today, the sensex has crossed the magic figure of 13000 and they have made a tidy profit- much higher than the bank deposit returns they used to draw. My advise that they would make money on the medium to long term, if they held on has proved right, not that its an original discovery by me, but all the same, the relief that those people got their money back, and more, is huge.

A few months before, even my father handed over me a significant amount of his savings to invest for him in equity, for the first time in his life,after watching me make money on the market. He has been an Educationist all his life and this must have been a big psychological barrier to cross for him.

Just a few examples to prove that the investor class in India is discovering equity in a big way. And since capital gains is exempt on gains from equity after a year, many of these guys are not selling, even if the market is a bit volatile off and on. That's the answer to the question repeatedly being asked by some market commentators-" why are retail investors, generally speaking, not panic selling, during sharp downturns"?

With that slosh of money cushioning the index and the growth rate chugging along, I think we are set for 15000 in another year or so.

Hopefully this time I will hold on instead of sell and run.

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