The Indian stock markets have rallied hard in the last six months.
In January 2016, the benchmark Nifty index stood at 7601. On 5th August, it had risen to 8683. The market return or Nifty returns so far, in 2016 have been 14.35%. This is an annualised rate of 27%.
In 2015, the stock market actually went down from 8284 at the beginning of the year (4th January) to 7963 by 27th December. The losses for 2015 stood at -3.8%.
Therefore the turnaround in 2016 is great by any standards. What makes it extraordinary is this has happened despite the subdued world economy, the slowing down of China, the threat of Britain exiting the European Union, a sluggish European economy, and overall negative sentiments worldwide. If the world economy recovers a little, the Indian economy will do even better.
Additional Reading: Pros and Cons of Investing in the Indian Stock Market
The question to ask is this: is this a good time to invest in the stock market? Or is it too late now that the markets are close to peak figures?
Let’s take a closer look at the situation.
Why is there an uptrend?
The factors driving the recent bullish sentiments are the same factors that drove the market in the run-up to the Lok Sabha election in 2014. There is newfound optimism as the union government seems to have finally got its act together in terms of managing the economy.
After two years of an impasse, the government seemed determined to pass the Goods & Services Tax bill. It was building consensus with various political parties, getting the opposition on board, and convincing state governments on the importance of it. The outcome has been heartening for the corporate sector and for the economy on the whole. The GST bill was passed in August 2016.
There are very few markets in the world trending positively right now. In most developed markets, returns are flat to marginal. China seems to be slowing down. India seems to be the only bright spot that has the capacity to take in enormous Foreign Institutional Investor (FII) investments and provide good returns. In the absence of other opportunities, FIIs are moving to the Indian market.
Not just from a stock market perspective, but also from the point of view of investment in products and services, there are few economies that offer a vastly untapped market. Not surprisingly, FDI in India keeps growing at a respectable pace. In the last financial year alone, i.e. from April 2015 to March 2016, FDI grew at 30% reaching $40 billion.
Finally, there are actions and initiatives by the Government that promise to keep India growing at the current rate. The infrastructure sector has got a boost in investment, railways are modernising, and power sector reforms have got a new push under the current dispensation.
Should you invest now?
The overall scenario looks positive for investors. This rally looks sustainable as the growth rate of the Indian economy is set to better its 8% target after the passage of the GST bill. Top investors are bullish on the Indian economy and see great returns in the long run.
Even though the market has rallied quite a bit in last few months, there is still scope for the market to go up. If the economy grows at 8% for the next few years, there will be tremendous opportunities for investors to earn off the stock market.
Mutual Funds are the better choice for lay investors who don’t have the time or expertise to study and pick stocks. Funds come in many avatars suited for every type of investment need.
Additional Reading: Understanding Mutual Funds
Finally, the stock market performance is subject to many factors. There will be fluctuations, sometimes wild, in the returns. However, investors with a longer-term perspective can invest in the stock market to reap the benefits of Indian economic growth in the decades to come.
Additional Reading: Your First Steps To Investing In The Stock Market