Indian economy is a growth story which can easily go on for a minimum 10 years at an annual growth rate of 7.5-10%. This period is an enormous opportunity of earning through investments in equities. An investor is primarily concerned about the safety of his investments and maximizing his returns. These two are contradictory to each other, for high gains go hand in glove with high risk. However, a return of 20-25% per annum on your investments in equity markets is a reasonable expectation at little or no risk provided one follows the basic principles of investment elucidated below:
- Invest in companies whose P/E lie within 50% to 150% of overall market P/E with EPS of Rs.5.00 or higher for the last three consecutive years and a market cap of at least 1000 crores.
- Always have a diverse portfolio of 4-5 sectors with 2-3 companies in each sector.
- Be with market leaders of a sector.
In a large list of sectors such as oil & gas, energy, engineering, textiles, information technology, sugar, construction, infrastructure etc., it is important to make the right choice of preferred sectors.
Presently avoiding IT, textiles, exports etc. because of likelihood of rupee appreciation and slowing down of developed economies, is advisable. Shunning cement, oil & gas, sugar, fertilizer stocks is sensible as they are subject to government controls.
Infrastructure, power, construction, capital goods are the engines of growth and should be high on list of preferences. Real estate sector has been lagging behind all these years and is due for a lot of catching up and will grow at a rapid pace.
With crude prices rising and limited resources of all conventional energy sources, alternatives like wind power, solar energy, ethanol etc. will be in great demand. Investments in virgin fields of Logistics, Retail, Healthcare and Health insurance have stupendous growth potential in the coming decade. Prosperity will fuel up demand for banking, consumer goods, hospitality, tourism, media and entertainment industries.
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