In England, it is said, “If winter is here, should spring be far?” In India, we can say- if summer is here, would rainy season be far? Happy days for Equity will be back very soon.

Stock markets rise 300 points on one day, sink 400 points on another to rise by 500 points again! This has been the situation for the past month. However, the good thing to note is that the markets have not fallen below 19000 levels for a long time now. Which means, that with a little bit of positive news, the markets will surge. The positive news could be an RBI rate cut, rains starting off with a bang, Japan and/or US announcing more quantitative easing and infusing liquidity or any such news.

What about negatives? Scams, Poor corporate results, slowing economy, Political instability – all seem to be factored into the price. Don’t believe me? Look at the following.

Markets are at similar levels that they were in January 2008. However, average corporate earnings have grown by 40-45% over the last 5 years (taking a conservative 8% CAGR over last 5 years). Which means, Sensex is at a discount of almost 30% from the levels of 2008. Even if one feels that the market was overvalued in 2008- with a P/E of 21, and fair valuation is 18 P/E, then Sensex should be a 25000 and not 20000. But inspite of undervaluation, we all are glued to the level of 20000-a level where we feel, we should book profits-whether we have made any profits over the last 5 years is immaterial!

It is an excellent opportunity to buy Equity which is available at 20000 when it should have been at 25000. And the day the undervalued market starts to achieve a Fair valuation, the markets will rally as if there is no tomorrow!  Look at what happened to Gold-when gold came down from 30000+ levels to 26000-people flocked to buy and a further fall was arrested.

However, the same is not the case with Equity. Why? Because people feel Equity will vanish into thin air while Gold is Solid! Remember, in the Long Term- since 1979- Gold has given 9% returns while Equities have given 17% returns. Even if you consider the returns since Jan 2013- Gold has given a negative 12% return, while Equity has given close to 12% positive returns.

If you are worried about the daily fluctuations in the Stock market, use a DIYSIP in Front line stock. This gives you to flexibility to select your choice of stocks, invest consistently at various index levels and will give you a strong and good quality portfolio over a period of time.

But above all, remember- Real Estate is stagnating, Bank FD rates are down. Interest rates are coming down, so eventually India Inc is going to start borrowing and expanding again and Happy days for Equity will be back very soon.