Veteran investor Madhusudan Kela has shared significant insights regarding the future of the Indian stock market and the strategy investors should adopt in the current economic climate. According to Kela, the era of extraordinary, multi-bagger returns in a very short span may be cooling off. He suggested that investors should now align their expectations with reality, targeting an average annual return of 10-12%. According to his perspective, this level of return is sustainable and sufficient for long-term wealth creation, especially considering the global economic shifts and the maturing nature of the Indian equity markets.
Realistic Return Expectations in Current Market
According to Madhusudan Kela, the exceptional performance of the stock market over the past few years had created a perception among new investors that high returns are a permanent feature, while however, he clarified that markets don't move in a linear fashion indefinitely. Given the global economic uncertainties, geopolitical tensions, and fluctuating interest rates, an annual return of 10-12% should be considered a healthy performance. He emphasized that instead of chasing 'blind profits,' investors should focus on stability and quality, while according to him, discipline is the most potent tool in a volatile market, and those who remain invested with patience will eventually see success.
Volatility as a Strategic Entry Point
Kela maintains a positive outlook on market volatility, viewing it as a strategic advantage rather than a threat. According to him, when the market experiences a downturn or heavy fluctuations, retail investors often panic and resort to selling. However, for a prudent investor, these are the moments when high-quality stocks become available at attractive valuations. He stated that instead of fearing volatility, one should embrace it as a friend. According to his observations, market movements provide the necessary window to build a solid portfolio for the future. He attributed market fluctuations to natural processes driven by budgets, international trade deals, and inflationary trends.
The 'Jockey' Principle in Stock Selection
When it comes to selecting companies for investment, Madhusudan Kela shared a simple yet effective philosophy known as the 'Jockey' principle, while he explained that just as the jockey is more important than the horse in a race, the leadership or promoter of a company is the primary driver of its success. According to him, investors must evaluate the competence of the person running the company and their ability to navigate through challenging times. He noted that companies with strong and ethical promoters tend to outperform in the long run. He further suggested looking for companies that are leveraging new technologies, such as Artificial Intelligence (AI), to enhance productivity and margins.
Potential in Small-cap and Mid-cap Segments
Kela believes that large-cap indices have reached a stage of maturity where the scope for massive returns might be limited. According to his assessment, the real opportunities for significant wealth creation lie within the small-cap and mid-cap segments. ' According to him, many small and medium-sized companies are innovating within their sectors and possess the potential to become the large-caps of the future, while however, he also cautioned that this segment carries higher risks, making thorough research and a background check on the promoter's credibility absolutely essential before committing capital.
Power of Compounding and Disciplined Investing
To illustrate the potential of long-term wealth creation, Madhusudan Kela highlighted the power of compounding, while he shared an example stating that if an individual invests ₹11,000 per month through a Systematic Investment Plan (SIP) for 50 years and receives average market returns, the corpus could grow to approximately ₹100 crore. According to him, this figure demonstrates the magic of investment duration and discipline. He credited domestic investors for the resilience of the Indian market, noting that despite heavy selling by Foreign Institutional Investors (FIIs), the market has remained stable due to the consistent flow of domestic SIPs. Regarding the IT sector, he mentioned that while AI concerns are valid, the technology will ultimately become a tool for increasing productivity rather than a threat.
Disclaimer
This report is for informational purposes only and shouldn't be construed as financial or investment advice. Investing in the stock market is subject to market risks. Please consult with a certified financial advisor before making any investment decisions.