Pros and Cons of Investing in the Indian Stock Market

By BankBazaar | June 2, 2016

Indian Stock Market

The Indian stock market, like any stock market in the world is open to volatility with its days of soaring highs and crashing lows. But the dynamic duo of Narendra Modi and Raghuram Rajan have kept the economy afloat and quite well at that. So much so, that investors around the world are paying more attention to the Indian stock market, affirming that investing in India will definitely yield good return – even if it takes a bit more time.

Of course, there are two sides to every coin. While you will see people laughing all the way to the bank, thanks to the stock market being in their favour, imprudent investing decisions have also spelt doom for some.

Here, we bring to you some of the pros and cons of investing in the Indian stock market:

First, the positives:

  1. Cash in on opportunities

The great thing about the stock market, especially in a country like India is that there’s always an opportunity for growth. The market has been volatile lately and there are two ways of looking at it – being fearful and playing safe or cashing in on the opportunities, as they show up. It’s said that when the market goes into ‘panic mode’, people make decisions based on emotions rather than logic and that’s the time you can get some fantastic ‘bargains’ (if we may use the word) – if you keep your eyes and ears open and play smart.

  1. Get more from stocks 

A couple of benefits that you can get on stocks is capital appreciation and dividends. You don’t get this from most other investments.

  1. Stocks always beat cash

If you do a quick past trend analysis, you will find that the stock market has always performed much better than cash in the long run. Plus, it beats inflation every single time.

  1. Decide your own risk tolerance

Once you’ve got the hang of how the stock market works, you can decide on your risk tolerance. If you want to keep the risk low, you can invest in companies with an established track record of giving low but steady returns. On the other hand, if you’re feeling adventurous, you can get higher returns by investing in fast growing companies. It is a gamble, of course.

Now, the negatives

  1. Impacted by the global economy

Though the Indian economy has been able to hold its own even in the face of the global economic meltdown, it’s not reasonable to think that India will remain completely unaffected. Investors become wary and pull out from investing in stocks. However, unlike other countries India is quite insulated from the global growth story. The proof? Global growth has slowed down to about 2% while India’s growth is galloping at over 6%. These factors do get reflected in stock market prices.

  1. A constant fear of crashes

Your heart races every time the market falls? Stock market crashes can give you sleepless nights if you didn’t do your research before choosing your stocks. The stock market is a result of investors expectations. The onus lies on yo to check whether those expectations are reasonable or not. You need to analyse (or take the help of an expert) whether the stock prices actually reflect the performance of the firm. Once you know you have done your bit, market crashes shouldn’t bother you and you are sure to reap rich returns in the long run.

  1. Never completely risk free

Stock markets will never be completely risk free. The word in the market is that “the value of your investment can go down as well as up”. While this is especially true for stock markets, it holds true for any kind of investment you make. Stock trading involves risk, just like investing in corporate Fixed Deposits or bonds. But, if you do your homework and are capable of thinking on your feet, you have more chances of winning in the long run.

Additional Reading: Tips to Invest

Don’t let the negatives bog you down. You can overcome them if you do some due diligence before investing in stocks. If you don’t have the knowledge, get a financial expert to help you. And be patient because it takes time to get good returns from the stock market. However, you can sure you will get the right returns in the long term.

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2 thoughts on “Pros and Cons of Investing in the Indian Stock Market

  1. Jay Mehta

    The Indian capital market has been performing quite well in recent times, competing shoulder-to-shoulder with the most developed of economies globally in terms of Return on Investment (ROI). Flagship indices such as Sensex and Nifty are at an all-time high, foreign inflows in the Indian market have increased significantly in the past few years, the mutual fund space has also been very active and innovative fintech solutions bring buying and selling securities at the fingertips of the investor. Thanks for sharing a great article.

    Reply
    1. Team BankBazaar

      Hi Jay,

      You’re right. Glad you liked reading this article. Please feel free to share it with people who may find this information resourceful.

      Cheers,
      Team BankBazaar

      Reply

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