Reference Auto

The year is set to become the year of the bourses with many analysts upbeat that the country’s benchmark index, the Sensex, will breach the 25,000-mark. Last year, JP Morgan, a top investment bank, had predicted that the Sensex could scale the 50,000 points peak in about five years. That is still a far cry though.

Remember the global slowdown of 2008. The world markets crumbled and so did India’s, with the Sensex plummeting to a low of 8,000 after scaling a peak of 20,000. But the Indian economy held firm, prompting foreign investors to turn bullish on India.

The country’s growth has turned buoyant since then. A super show by corporate India, coupled with a high GDP growth rate, and, of course, resilience during the 2008 meltdown has made investors worldwide believe in India’s growth story.

For instance, the Indian stock markets saw a healthy surge of 17 per cent or nearly 3,000 points gain in 2010 and investors pumped in Rs 12 lakh crore.

All these despite the country being riddled with a litany of scams by people like A Raja, Suresh Kalmadi, Niira Radia and Lalit Modi that has rocked the country’s growth story. So, the point is that despite the series of scams along with weak global cues, the Indian market had seen a healthy growth last year.

The Sensex had gone up from 17,464.81 points on December 31, 2009, to 20,509.09 points at the end of 2010. Market analysts are of the opinion that during 2010 the growth story was confined to only a few sectors – auto, banking, pharma and IT stocks. But this year, growth is likely to spread to more sectors. Infrastructure and power sectors could turn hot picks.

Well, there’s a lot of bullishness left in the Indian bourses, and in five years, it could surpass 50,000 points as predicted unless there is a setback like the Harshad Mehta scam or a major war or a catastrophe.

Well, chances of another stock market scandal are remote as regulator, the Securities and Exchange Board of India or Sebi, has brought about a very transparent and an almost foolproof mechanism to check irregularities on the bourses.

Moreover, chances of any other untoward incident occuring are also remote. We can therefore almost safely say that the stock markets of India are set for another upward journey.

So, with long-term prospects looking good, even those who have little knowledge of the stock markets but have an appetite to take risks can enter the bourses via mutual funds and benefit from this new buoyancy (assuming that the stock markets could reach 50,000 in half a decade). If money is already parked into equity funds, our advice would be to stay invested for five more years.

Pick up open-ended growth funds based on track record. This is the single-most important factor while choosing funds. Other factors could be reputation of the fund house, prospects of the sector in which the fund invests, among others.

Alternatively, a five-star rated fund by ValueResearch over a one-year as well as a three-year period is something you must look for.

And, if the Sensex reaches the 50,000-mark in the next five years, money parked in these mutual funds will soar at least five times in five years and these are more likely to be only conservative estimates.