WHY BUY-AND-HOLD STRATEGY HAS WORKED IN INDIA…

buy and hold 1 WHY BUY AND HOLD STRATEGY HAS WORKED IN INDIA…

One thing position traders want to be sure is if a buy-and-hold strategy really works in India. If you look back at stocks like Eicher, Havells, Reliance, Infosys or Wipro, the merits of a buy-and-hold over a long period of time would have been huge. Here let us look at why exactly does buy-and-hold strategies work in India. This is relevant in a market where the Sensex itself have given average annual returns of 17% over 40 years. Here is why it works in India.

Why buy-and-hold strategy works in India?

Huge investments in infrastructure over the last 30 years actually unshackled the growth potential of India. Stocks linked to GDP growth and income levels have been obvious buy-and-hold stocks.
Scale is another important factor. India has companies like TCS, Reliance Industries, Tata Motors and L&T which are of global scale. Buy-and-hold works very well when scale is in your favor. That is when companies graduate from being mid cap to large caps.

Consumption is always a great theme in a country with 1.3 billion people and where purchasing power is growing by leaps and bounds. Consumer stocks have outperformed in India because per capita income levels in India are still way below other countries.
True wealth has been created by new economy companies that were either technology based or technology driven. Today digital plays like Reliance, TCS and HDFC Bank are among the most valuable. The buy-and-hold idea has worked really worked here.

Structurally, India is moving from high interest rate economy to low interest rate economy. This has been driven by lower inflation and RBI action. When rates come down, there is long term wealth creation to a great extent that happens. India has an array of high quality mid caps. Bharti Airtel to Lupin to Sun Pharma to Infosys; were all erstwhile mid-caps that transformed into large caps. That is a kind of virtual assurance that buy-and-hold strategy will continue to work in India.

Global and domestic liquidity means that there is lot of money in the sidelines and these can boost buy-and-hold strategy for a long time to come. Retail investors are getting into equity in a big way. This combination will support buy-and-hold strategy.

Indian markets are poised almost similar to US markets in the 1980s when structural shifts created new sources of wealth. For now, Indian buy-and-hold strategy looks set to continue!

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