Prashant Jain of HDFC Mutual Fund has a peculiar problem. As head of a mutual fund, his target audience is the average Raju sort of retail investor.
Now, average Raju has a peculiar temperament. When the markets are in the doldrums and stocks are available at rock-bottom valuations, Raju is not interested in stocks in the fear that the stock prices could plunge further.
Then, when the markets are booming and stock valuations surge, Raju is still wary of investing in stocks in the fear that they are now overvalued and could plunge.
So, Raju has one excuse or the other to avoid investment in stocks. Prashant Jain has the difficult task of persuading him to do otherwise.
In May 2012, the apathy towards stocks was so great that Prashant Jain was driven to the Wall. In desperation, he turned to the scriptures and quoted from Kabir’s Doha on how like we pray to God in bad times but not in good times, we should invest in stocks in bad times.
Today, the situation is the reverse. There is great interest in stocks with the headlines screaming about how the Sensex is at an all time high. However, Raju, having missed the bonanza, is cowering in fright that the valuations are now “exorbitant”. He is waiting for the “correction” which appears elusive.
In his latest article “Equities are the real gold over long term”, Prashant Jain has again undertaken the difficult task of persuading Raju to stop waiting and part with his money. “Gold has given returns that are close to inflation, thereby merely preserving the purchasing power. On the other hand, sensex has delivered nearly 9% excess returns over inflation. Over long periods, this has made a big difference” Prashant says.
He adds that the reason equities are the better option is because “Equities over time grow in line with the growth of underlying businesses. As businesses comprise the economy, the nominal growth of the economy (real growth plus inflation) is a good proxy for the average growth in businesses.”
Prashant Jain also taunts Raju for letting the FIIs get the better of him. “…in the last 22 years or so that FII have been allowed to invest in stocks in India, the FII ownership has gone up from nil to 24% — roughly 1% per year. The sellers obviously have been domestic investors…. In effect, domestic investors have been exchanging a ~17% CAGR asset for a ~10% CAGR one. This certainly is not a smart thing to do” he states.
At the end of a passionate presentation, Prashant Jain assures Raju that “Equities are the real gold” and that he should not hesitate anymore.
Will Raju bite and buy stocks is the million dollar question?