How to Invest Wisely As the Financial Year Comes to An End
The end of the financial year is just around the corner. You might have received a nice bonus at work, or perhaps you have some extra cash sitting idle.
Here’s some good news for you – the equity markets are the absolute, perfect avenue for you to invest that extra cash. Here are some important tips for you to follow in order to maximize your returns on your equity investments.
The markets have already begun to rally after the Union Budget
2015 was not a great year for the stock markets. In fact, if we look at the Sensex from March 2015 through the end of February of this year, the Sensex fell a massive 22%. And while this might look discouraging at face value, it’s important to remember that the stock market always goes through ups and downs. Every bull run is always followed by a bear run, and vice versa.
The key, of course, is when to know when a downturn is ending. Luckily, we have a strong indicator that the markets have already begun to turn around. After the Union Budget was presented on 29th Feburary, the Sensex has already rallied 10%! This is the perfect sign that the Budget was favorable. The Budget sent all the positive signs to the market that a Bull Run could be expected. The government showed fiscal responsibility while pushing for reforms in infrastructure. A number of growth-friendly initiatives were announced, and the markets have begun to price these changes in.
Stocks are cheap and undervalued
A quick glance at the Price to Earnings (P/E) ratios of some of the top-most companies shows that P/E ratios are very low compared to the past. For example, if we look at the current “Nifty P/E Ratio”, it stands at around 21. This means that the average Price to Earnings ratio of the 50 companies in the Nifty is around 21. So a value of 21 means the Nifty’s value is 21 times the earnings of the underlying companies. One year ago, however, the Nifty P/E Ratio was almost 24!
This is a massive difference. Another way to look at this is that, over the last year, the average price of the top 50 stocks in India fell by (24-21)/24, which comes out to 12.5%. P/E Ratios always “correct” themselves as prices catch up to the historic P/E ratio over time. Therefore, this is another strong indicator that some of the most fundamentally sound companies in India are heavily undervalued.
It’s never a good idea to invest in an “expensive” market, and likewise, it’s always a good idea to invest in a market that’s “cheap” by historic standards.
Costs are at an all-time low
One of the biggest hindrances for users to begin investing has been the high brokerage and trading costs imposed by brokers. However, this is no longer the case. Brokers such as RKSV Securities allow for free trades on the equity segments for investors, and charge as low as Rs. 20 per trade on all other segments. This makes it all the more easier for an investor to churn a profit on his/her investments! Furthermore, the long term capital gains tax for investments held for at least 12 months is zero. It’s incredible how so few investors know about this!
In conclusion, now is the time for one to begin investing and trading on the stock markets. The markets are on uptrend since the Union Budget and are bound to continue trending upwards, stocks are undervalued across all sectors alike, and the trading costs associated with investing are at an all-time low. Don’t make the mistake of missing out on this unique opportunity. You never know when a similar opportunity might present itself again.