Answering Is Buy And Hold Still A Good Strategy In India: A share market is referred to a place where shares are issued and traded in.
With the emergence of the digital age, almost everyone is allowed to make investments in the share market and work to fetch strong and healthy returns.
The stock market can become a lucrative investment mode only if you understand and follow investment practices. Investors continue to debate the merits of “active” versus “passive” investing.
Active investing needs a hands-on approach, and it needs an investor of dynamic nature. In such an investment strategy, the investor focuses on outperforming the benchmark by entering and exiting the position frequently.
On the contrary, passive investing means a strategy that involves a lesser number of transactions as compared to Active Investing.
Here, investors believe in a “buy and hold” strategy and they often end up buying index funds or other mutual funds.
However, is buy and hold still a good strategy in India? The “Buy and hold” strategy has worked in the past in India, especially where the investment has been done in quality companies.
The only attributes that are required in the “buy and hold” strategy are patience and the power to hold on to quality stocks.
So yes, a buy-and-hold strategy has worked well in India and will continue to work. However, there have been certain exceptions, but if you study the company well, the returns can be mind-boggling.
Still, there are individuals who find it hard to believe. Therefore, this article will focus on the basic question at hand, “Is buy and hold still a good strategy in India?”
Buy And Hold Strategy – The Purpose
Before answering the question, is buy and hold still a good strategy in India, let us quickly understand the purpose behind the buy and hold strategy.
Buy and hold is referred to the long-term passive investment strategy in which investors tend to maintain a stable portfolio despite short-term fluctuations.
Experts believe that the buy-and-hold strategy is a long-term bet, which would give attractive returns in the long run.
Equities are riskier instruments, but with a longer holding period, they can turn out to be a fairly lucrative investment strategy.
Therefore, the purpose behind buy and hold strategy is to ride out the short-term volatility and correction in the stock market.
Investors who believe in this strategy do not worry about short-term fluctuations as they believe that their holdings will deliver returns in the long run.
Buy And Hold Strategy – Pros And Cons
Every investment strategy has advantages and disadvantages, and “buy and hold” is no exception. Let’s take a look at some of the pros and cons of buying and holding.
|1||Followed by big investors such as Warren Buffett and Peter Lynch.||It takes longer to see good returns.|
|2||Cost-effective as it has lower brokerage, admission, and management fees.||Money is locked in for too long.|
|3||Backed by the historical performance of the market.||Market crashes and bear markets could wipe out all gains|
|4||great for long-term capital gains||You could miss out on better opportunities by having to buy and hold stocks|
Buy And Hold Strategy In India – Why It Has Worked?
Let us now see how is buy and hold still a good strategy in India. Indian stocks have delivered strong returns to investors who believe in buy and hold strategy. There are several reasons behind the resilient nature of the Indian stock market.
- India initiated its growth in the year 1992 with the post-liberalization of the economy. However, real growth has been seen since 2003. Therefore, due to the expansion of the economy, real growth started to take off.
- Private sector companies in India that operate in sectors such as automobiles, metals, FMCG, and banking were small in comparison to global standards. But with government support and favourable policies, Indian companies got room to grow and several investors saw investment opportunities.
- Consumer demand gets supported by higher income levels. In the last 20 years, India’s per capita income moved up sharply. However, still it is extremely low in comparison to global standards. Higher per capita income exhibits a rise in consumer demand, which is positive for wealth creation in the stock market.
- The companies operating in critical sectors such as automobiles, telecom, and PSU banking were not listed in the stock market for a very long time, or they existed in a very small way. Over the last few years, such sectors added billions in market cap. As a result, investors saw wealth creation for equities.
- Technology and communication together created a lot of wealth in India. The availability of mobile telephones, internet access, the spread of smartphones, and smart ERP solutions contributed significantly to lowering the costs and improving the efficiency of the companies operating in India. As a result, Indian companies made their presence felt.
- The global market presented several opportunities for India in a big way over the last 25 years. Therefore, sectors such as technology, pharma, auto ancillaries, etc. have all jointly benefited significantly due to their access to global markets. Therefore, companies in these sectors have created maximum value over the last 2 decades. As a result, the concept of buy and hold has worked perfectly for such companies.
- Up until the mid-90s, interest rates have been high in India. Post-2001, India consistently maintained a dovish interest rate scenario. Bond yields are inversely related to equity value. As a result, equity values have gone up in the same time frame which contributed to wealth creation. Therefore, this is also one of the important reasons why the buy-and-hold strategy worked in India.
- Sustained interest from FIIs (foreign institutional investors) has been one of the critical reasons for the success of the buy-and-hold strategy. FIIs tend to support investors and such investors have been bellwethers for spotting long-term wealth creators. Participation of such investors has been the main reason for the success of the buy-and-hold strategy in India.
- India has seen several mid-cap companies being converted into large-cap companies. Due to the rising nature of the Indian economy, companies like Lupin, Eicher, etc. created huge wealth in a shorter life span.
The moral of the story is that the buy-and-hold strategy does work in India. A number of individuals who invested a long time back in Indian companies have seen their wealth grow tremendously. For better and strong returns, it is of utmost importance to identify good and quality stocks and hold them for the long term.
Identification of quality winners and holding onto them for the long term are the key measures that should be taken into consideration while making investments in the stock market. Therefore, buy right and sit tight works in the Indian context.
With the opening of global doors, experts believe that India still has some strong and reliable investment opportunities. Therefore, several global investors believe in India’s growth story.
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