Just think what if you bought Sensex in 1980 and held on to it now? The answer is: you would have multiplied your wealth nearly by 370 times. There are similar cases as well.
For instance, an investment of Rs 10,000 in Wipro in 1980 would be worth Rs 450 crore today. Also, the investment of Rs 1 Lakh in Eicher Motors in 2002 would be 20 crores today.
Still don’t understand the concept? The examples that we have explained above are real case studies and many stocks have given huge returns in 2021.
There is a story about the company Infosys. In 1995, the company had launched its SME IPO and the one who invested a little amount of Rs 10,000 in Infosys IPO, is now enjoying a huge profit of $1 million.
In 2009, the share price of Eicher Motors was Rs 597.4, now the share price of the same stock is Rs 2,635.
Now the question arises, why do buy and hold stocks work in Indian equities? Buying an emerging stock and holding it for the long term will give you outstanding stock market trading returns in the future.
The Logic of Buy and Hold Strategy
There is no set definition for the term buy and hold but yes the meaning of buy and hold is quite straightforward. Needless to say, investments in equities are riskier than other financial securities. Due to inadequate knowledge about the stock market, worst advisory services, many people have lost a huge amount by investing in equity.
In addition, some people invest in equities for a short time and as a result, they suffer from a loss. However, if people concentrate on buy and hold strategies for stocks, they will eventually achieve greater returns in the future.
Purpose of Buy and Hold Strategy
Buy and hold is a long term passive strategy where investors keep a stable portfolio irrespective of short term fluctuations. As per the statistical data, buy and hold strategy is always a long term bet that will give you attractive returns in the future.
Equities are riskier instruments, but with a longer holding period, it can be turned out to be a fair investment strategy.
In other words, the market goes up more often than it goes down and compounding the returns during the good time of the stock market gives a higher yield than other financial instruments.
Below are the reasons why the buy and hold strategy has always worked for Indian equities:
- India began its growth in 1992 after the liberalization of the economy. However, real growth has been witnessed since 2003. That’s the reason real growth has started as the economy expands.
- As the economy started to expand, the growth of the stocks has also started which in turn increases the GDP of the country. Therefore, the stocks interlinked with the GDP growth gave outstanding returns in the 15 years. The stocks that gave the highest returns are from the sectors such as banking, automobile, consumer goods, capital goods and more.
- In recent times, we have seen a large growth in manufacturing companies. As a result, today India has companies such as Tata Motors, L&T, TCS, Reliance Industries and more.
- Consumer demand is directly proportional to the rise in income levels. In the last 20 years, the per capita income has increased sharply, however it is low according to the global standards. Rising per capita income increases the consumer demand which in turn increases the wealth in the market.
- Known sectors of the country like telecom, automobile, PSU bank have shown comparatively less growth for a long time. However, for the few years, these sectors have shown a drastic growth in the market-leading to wealth creation in the stock market.
- Many investors still invest in old companies. To experience the real growth in your wealth, you need to invest in new companies such as HDFC Bank, TCS, Adani Greens and more. We experience a similar trend in the US market also. For instance, tech-automation companies have managed to create tremendous wealth in the last 15 years. That has encouraged the US people to stock the buy and hold strategy.
- Technology and communication created a huge wealth in India. Smartphone, the internet, the spread of smartphones, smart ERP solution and digital initiative taken by the government for the improvement of efficiency of Indian companies. This, in turn, increases the equities in the Indian stock market too.
- Indian has consistently seen mid-cap companies converting into large-cap companies. Due to the rising economy of the country, the companies such as Lupin, Eicher Cadilla has managed to create huge wealth within a shorter life span.
- FII’s interest in the Indian stock market is also one of the key reasons for the success of the buy and hold strategy. The participation of FII in the Indian stock market has impacted it positively. In other words, FII is capable of maintaining liquidity in Indian stocks. Also, it helps stocks to achieve potential strength.
- Indian corporates enjoy the beautiful combination of their growth and margin mean-reversing consistently. That means, buying quality stocks and holding them for a longer period is now becoming an attractive investment option among the Indian people.
The crux of the story which we have mentioned above is that the buy and hold strategy still works in India. Many people who invested a long time back in equity stocks, now enjoying a whopping return of $1 million. For better returns, you just need to identify good quality stocks and hold them for a longer-term.