ETMarkets Smart Talk: Achieve Your Crorepati Dream by Earning Rs 1 Lakh Monthly
ETMarkets.com Furthermore, we may witness a significant decrease in SIP investments in the future due to the government's announcement of a new tax regime.
"Diversifying one's portfolio is crucial, especially in the current times. The main focus should be on investing money in highly liquid assets that can easily be converted into cash during times of crisis," suggests Hemant Sood, the Founder of FinDoc, in an interview with ETMarkets. He also adds, "As a developing economy, it is inevitable to rule out investments in equity in the long run as the index is expected to grow." Here are the edited excerpts:
The Indian equity market has experienced negative returns for the past three months, and we anticipate that the volatility will persist in the coming months due to geopolitical tensions, the collapse of a bank in the US, and the expected peak in interest rates beyond 5.5% by the Federal Reserve. However, factors such as high inflation, the Russia-Ukraine war, and higher interest rates in the US have resulted in increasing yields. This has led investors to shift from a risk-on to a risk-off strategy. They prefer a risk-free return of 4-6% rather than investing in a country where the currency deflates 4-6% annually.
So, what should be the ideal asset allocation for someone who has just started earning Rs 12 lakh per annum? How can they embark on a journey to become a crorepati? Would SIP be effective, and what amount should be saved every month?
Diversification remains crucial for any portfolio, and in today's world, it is essential to invest in highly liquid assets that can be easily converted into cash during times of crisis.
The ideal asset allocation varies from person to person and depends on factors such as age, risk appetite, and one's expectations from investments. For instance, a person in their early twenties starting their career would have a higher risk tolerance and can allocate a larger portion of their money to volatile markets in order to achieve profitable returns. The belief that "the higher the risk, the higher the return" applies here. On the other hand, a retiree may have a lower risk appetite and may prefer more stable investments.
For an individual earning Rs. 1 lakh per month, their ideal asset allocation would also depend on these factors mentioned above. Considering that India is a developing economy with potential for growth, investments in equity cannot be ignored in the long run. Starting with SIPs in equities is a beneficial strategy as it helps with cost averaging. Diversification should include investments in both large-cap (blue-chip) and small-cap stocks, as well as ELSS schemes for tax savings. Gold bonds should not be overlooked either, as gold has proven to be one of the best assets for hedging against inflation. Additionally, a portion of the funds should be allocated to risk-free investments for fixed and secure returns.
As we enter FY24, which sectors are likely to be leaders and laggards? The start of the new fiscal year has brought numerous investment opportunities in the Indian equity market, especially as other economies around us are facing instability due to the recent crisis in US banks. According to S&P forecasts, India's GDP is projected to grow at a rate of 6.3% until 2030, making it the third-largest economy. Certain sectors are expected to play a major role in the country's growth over the next decade and in the new fiscal year. It is advisable to build a long-term portfolio and continue expanding its size. Some sectors to consider are the automobile sector, [insert other sectors here].
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In the year 2022-23, there has been a remarkable surge in demand within this industry. The month of October in 2022 witnessed an increase in demand in all segments, attributed to a prosperous Festive season. When discussing the most popular segment, Electric Vehicles (EVs), sales reached their highest point at 429,217 units in the financial year 2022, experiencing a growth of 218% Year-on-Year from 134,821 units in the financial year 2021. This growth is primarily the result of the efforts and support provided by the Government. Additionally, industry giants like Tata Motors and Hero Honda are leading the way. These factors instill hope in us for a prosperous 2023 for the Automobile Sector.
• Renewable Energy
As the global search for alternative fuel sources continues, the renewable energy sector has garnered significant attention. Furthermore, the increasing concerns regarding the environment have placed this sector in the spotlight. Currently, the capacity for renewable energy in India has doubled due to extensive Government support and a shift in focus from Engineering, Procurement, and Construction (EPC) projects to energy generation and transmission. The capacity has increased from 76.4 GW in March 2014 to 151.4 GW in December 2021. Moreover, the Government has even more ambitious plans to further escalate it to over 500 GW by 2030.
• Sugar Sector
In the past few years, the Indian Government has implemented various measures that have altered the dynamics of the sugar industry. With the aim to enhance India's energy security, reduce fuel import dependency, preserve foreign exchange, address environmental concerns, and boost the domestic agriculture sector, the Government has been promoting the Ethanol Blended Petrol (EBP) Program. Ethanol blending in petrol has steadily increased in India, rising from 1.53% in 2013-14 to 5% in 2019-20, and further to 8.10% in 2020-21. Currently, the blending level stands at a significant 10.17%. The Government has set a target of achieving 20% Ethanol blending in petrol by 2030. These efforts by the Government fill us with optimism for a momentous 2023 for the Sugar Industry.
Overall, the Fast-moving Consumer Goods (FMCG) sector in India is projected to experience a 7-9% revenue growth in 2022-23, driven by price hikes, while volume growth is expected to remain subdued at 1-2%. According to Crisil, the sector recorded an 8.5% revenue growth and a 2.5% volume growth in the previous fiscal year. It is anticipated that higher minimum support prices for essential crops and a favorable harvest will stimulate rural growth and contribute to the ongoing recovery in rural demand for FMCG products. Rural areas in India account for over 35% of the annual FMCG revenue, making the projected growth in these regions crucial for the overall revival of the sector.
Information Technology (IT) is one of the sectors expected to witness significant development in the upcoming years, given India's growing economy and the increasing need for hardware, software, and other IT services. SWZD's Annual Report on IT Budgets and Tech Trends predicts a 13% Year-on-Year growth in IT budgets in 2023, with a median increase of 5% at the company level. Furthermore, recent reports suggest that India's IT sector is poised to create 300,000 job opportunities in 2023.
• Banking Financial Services and Insurance (BFSI)
From FY16 to FY22, bank credit demonstrated a Compound Annual Growth Rate (CAGR) of 0.62%. By FY22, total credit extended had surged to US$ 1,532.31 billion. It is anticipated that credit growth will reach 10% in 2022-23, marking double-digit growth within an eight-year span. As of November 4, 2022, bank credit stood at Rs. 129.26 lakh crore. Simultaneously, Non-Performing Assets (NPAs) in the country have significantly reduced due to robust policies implemented by the Reserve Bank of India (RBI) and various legislations. Furthermore, bank deposits amounted to Rs. 173.70 trillion as of November 4, 2022. The Indian BFSI sector acts as a guiding light amidst geopolitical tensions, as the monetary policies in the country have successfully managed inflation without compromising economic growth.
The healthcare industry has been prominently featured in the news for quite a while now, particularly due to the ongoing pandemic. This sector encompasses a wide range of industries, including medical equipment, pharmaceuticals, diagnostics, hospitals, medical tourism, clinical trials, and health insurance, among others. From 2016, the industry has experienced a growth rate of 22% compounded annually, and the pandemic has further propelled this growth to a rate of 39% compounded annually. Additionally, the healthcare sector has attracted a substantial amount of foreign direct investment (FDI), amounting to approximately US$ 19.90 billion between April 2000 and June 2022.
Moreover, the Department of Health and Family Welfare is estimated to spend around INR 86,175 crore in 2023-24, which accounts for approximately 2% of the total expenditure by the central government during the same period. This represents a 13% increase from the revised estimates for 2022-23. While we remain optimistic about the long-term prospects of the Indian economy, it is important to acknowledge the prevailing geopolitical tensions and the current state of the global market, factors that could potentially lead to a reduction in earnings per share (EPS) estimates for companies listed in the Nifty Index. Such a scenario could result in a decline in the Indian markets.
One specific concern at present is the escalating Cold War between Russia and Western countries, which has implications for global stability. Additionally, crude oil prices have rallied by approximately 15% in the last 10 days due to a reduction in production by the Organization of the Petroleum Exporting Countries (OPEC). This increase in prices could have a negative impact on several related sectors, including Paints, Tyres, and Oil Marketing Companies.
Given these circumstances, it is crucial to exercise caution when making investment decisions and thoroughly analyze the market. On a different note, what are your thoughts on the recent amendments made by the Securities and Exchange Board of India (SEBI) regarding Alternative Investment Funds (AIF), Debt market, disclosure norms, and ESG? What message do these changes convey to the broader investor community? SEBI's recent announcements, whether related to the introduction of a new fund-blocking facility for secondary market traders or the implementation of a more stringent regulatory framework for Alternative Investment Funds, serve to strengthen the country's securities market and enhance the ecosystem of corporate governance.
The new fund-blocking facility aims to protect the funds of retail investors that are held by stockbrokers or clearing members, while also allowing them to earn interest on these blocked funds in their savings accounts. Additionally, this facility facilitates direct settlement with clearing corporations, ensuring greater transparency without the involvement of intermediaries' pool accounts.
Another significant initiative by SEBI is the establishment of the Corporate Debt Market Development Fund (CDMDF) in the form of an AIF. This fund serves as a backstop facility for purchasing investment-grade corporate debt securities during times of market distress.
Moreover, SEBI has updated the Listing Obligations and Disclosure Requirements (LODR) Regulations and introduced a framework for enhanced disclosure of Environment, Social, and Governance (ESG) factors by listed entities. These updates also include the incorporation of ESG ratings in the equity market and increased focus on ESG investing by mutual funds. These measures collectively aim to strike a balance between transparency, simplification, and ease of doing business in an evolving domain.
Moving on, there are concerns about a global recession in fiscal year 2024. While this remains uncertain, as it depends on various factors such as geopolitical tensions, trade policies, rising inflation, supply chain disruptions, and global economic conditions, some experts believe that a recession in 2024 is a possibility. If a global recession were to occur, it would have significant implications for India, similar to other countries. As a major exporter, India would likely experience reduced demand for its goods and services, leading to decreased earnings for domestic companies. Furthermore, foreign investments in India could decline, exacerbating the economic impact.
It is worth noting that more than 50% of small-cap stocks have witnessed a decline of over 60% from their highest price in the past 52 weeks. This raises questions about whether this space could experience a rebound in fiscal year 2024. Unlike the broad-based rally observed after the COVID-19 pandemic, it is unlikely that small-cap stocks will experience a similar trend. Expectations from the US Federal Reserve suggest a potential pause or reversal of interest rates in the latter half of the year. Consequently, small-cap stocks with strong fundamentals and promising future earnings are expected to attract foreign institutional investors (FIIs) as wealth creation is often greater in small-cap stocks compared to blue-chip stocks. This indicates the possibility of doubling or even quadrupling of investments in small caps within a short period of time, which could manifest in fiscal year 2024.
Additionally, there has been a noticeable decline in Systematic Investment Plan (SIP) investments, partly due to attractive fixed deposit (FD) rates and the range-bound nature of equity markets.
Overall, it is important to closely monitor the market and exercise caution while making investment decisions. The economic landscape is affected by various factors, both domestic and global, and it is crucial to adapt and respond accordingly.
• The primary reason for this could be attributed to the increase in interest rates offered by fixed deposits, among other factors. Over the past year, the Reserve Bank of India has raised the repo rate by 2.5%, which has had a positive impact on FDs. As a result, banks are currently offering interest rates ranging from 7% to 8%. These returns are entirely risk-free, making them an attractive investment option for individuals looking to enjoy substantial profits.
• Furthermore, the market is experiencing extreme volatility. Firstly, it is displaying a range-bound pattern, which means that individuals are not receiving favorable returns. In the previous financial year, the Index recorded a negative return of approximately 2%. Currently, the market sentiment is negative, leading to a shift of funds from equity markets towards risk-free investments with higher interest rates.
• Additionally, there is a possibility of a significant decline in SIP (Systematic Investment Plan) investments in the future due to the government's newly announced tax regime. ELSS (Equity Linked Savings Scheme) schemes may be particularly affected, as the tax exemption limit has been raised from Rs. 5 lacs to Rs. 7 lacs. Previously, an individual earning Rs. 7 lacs could receive a rebate of up to Rs. 1,50,000 and save up to Rs. 46,000 in taxes. However, today, individuals are only entitled to tax exemption up to an income of Rs. 7 lacs. Consequently, ELSS investments are expected to decline significantly, leading to a further withdrawal of funds from the market.
(Disclaimer: The recommendations, suggestions, views, and opinions expressed by experts are their own and do not represent the views of the Economic Times)
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