Is Market view Important ??

 When you are a long term investor. Is the market view really important. I think to some extent its important. Let us see few examples on the past and how i have reacted to market.

When Midcap and smallcaps fall in 2018, it was unexpected, but i had some cash to fill the porfolio with mid and small caps. That is when i realized to have a better crash fund of the overall portfolio and was ready to look stupid in the short term with FD returns. I was focussing to build a good amount of crash fund and waiting for any decent crashes.

Around late 2018, one of my Friend in cisco asked i have 60 lakhs plus in cash and what should i do. I told him how much i have in cash and said i am waiting for a crash. He asked me when market will crash and i said i dont know, but i am ready to wait, it could be 1, 2 or 3 years but its ok.  In 3 months time he bought a house in Chennai, later when the market crashed he did not had funds much to deploy, but my patience paid off.

The above is about having a crash fund when you see market is long run and expecting a crash. How to react to a market where you dont expect a crash but only corrections. Even here  market view is important.

For people of my age, who have been in the work force for 24 years, the savings will be decent and need to decide how much to deploy. For people with less experience the money to deploy in market will be propotionate.  So for people of my age if i have a view in market for next 5 years, i will not follow asset allocation.  

Let us say if i have a asset allocation of 75 percent in equity and 25 percent in Debt market. If that 25 percent of debt funds can take care of my expenses for next 15 years, will the asset allocation make sense ?? Not really i will not follow such a asset allocation rather i will ensure my debt funds can take care of expenses up to 7 to 8 years and move the rest to equity since i have a bullish view on the market for next 5 years. 

When you have a market view, you dont have to have a fixed asset allocation and ensure you can take  more risk based on the view of the market. Even if the view goes wrong, you have a earning and you have enough in debt funds to manage.  As i mentioned when you are less experienced less savings and market view may not matter. But at some point of time the view and funds deployed based on the view will matter.

Markets and returns - Future Updated View

 The earlier post in Sep 2019 is here

https://personalfinfitness.blogspot.com/2019/09/markets-and-returns-future.html

When this article was posted Sensex and nifty corrected around 11.5% from peak and nifty index was around 11k and sensex was around 36k.  That time the five years view was we are anywhere in midpoint and market would double from there that is sensex would be anywhere around 75k and nifty around 22k.

I also mentioned in the previous article that 2002 to 2008 is the golden period because nifty saw a 700% return in 5 years. Are we going to see the same again, i still doubt. But my view on nifty has changed based on some recent analysis.

From Sep 2019 we are already 2 years and its good to have update on my view based on current market conditions. In the next 5 years i am still bullish on the market and have arrive a figure of nifty hitting 36k.

After 5 years psychologicall people will forget the previous peak of 12450 and will say 2020 market was in 7500 and now its 36k which is close to 500 percent returns.

How to we arrive at a number like 36k.  We might still live in a low corporate tax regime. You can do some work by listing all nifty companies, extrapolate their earnings, profits, growth and arrive at a EPS for next 4 to 5 years and arrive at average EPS of nifty year on year and also have a reasonable forward PE and can calculate where approximately nifty can be. You can include few companies from nifty next 50 which may have a possibility to come to nifty 50 as well.  

Anyways this is just approximation and you can decide how bullish you can be. Even in a ultra bull market, corrections of 5, 10,15 or even 20 percent is going to stay. Lets us hope the low corporate tax is going to stay as well.