Understanding Equity Market Valuations And The Importance Of Asset Allocation

Dalal Street Investment Journal|November 25 - December 8, 2019

Understanding Equity Market Valuations And The Importance Of Asset Allocation
Brijesh Dheman Consultant, Candura Advisors

Imagine you have to save ₹50 lakh for your child's higher education expenses within 20 years. Your child is exceptionally talented and you want to give her/him the best education possible. You know equities/stocks are potentially the best asset class in the long-term and decide to use this route to save & invest. You find out the Sensex is at 40,000, bank FDs offer 7% annual interest and gold is quoting at ₹39,000 per 10 gms. What would you do?

Investors become uncomfortable about investing when they see Sensex, Nifty absolute levels. As a result, the financial goal is put on the backburner or the investment is put in some low-yielding investment avenues. Ideally, what they should do is assess the value of each asset class and understand the relative attractiveness of each before investing in a mix of assets.

Investing is a long journey. If you cannot afford to take a plane, you must take a train & a bus to continue your quest. Later when you can, take the plane and travel faster. But, most investors avoid this smart route and waste precious time and money. These are the reasons why investors must understand the importance of equity market valuations and how they fit into the asset allocation pie.

Valuation is Understanding Worth

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November 25 - December 8, 2019