Why Equity Investments in India will do well in the long run - The Interest Rate angle.

Hi Friend,

The equation of Net Profit or Savings = Income – Expenses

For profit / savings to be maximum, Income should be as high as possible and expenses should be as low as possible. 

If expenses increase drastically without a commensurate increase in income, a business or an individual runs the risk of going bankrupt. 

For companies / businesses, “Interest” is one of the biggest expenses. 

As the interest rates increases, their profitability decreases. As profitability decreases less number of businesses will be set up, this in turn results in fewer jobs.

When there are fewer jobs, there are more number of people who are unhappy. Increasing population compounds this problem further. 

In a democracy, when people are unhappy politicians run the risk of losing their jobs. As we all know, no politician worth his salt would like to lose power.

So, it becomes a necessity for politicians in a country with low employment rate and more than a billion people, to reduce the interest rates and keep them as low as possible ( Have you ever wondered why interest rates have come down so drastically from more than 15 % some ten years ago, when a fixed deposit in SBI used to double in 5 years, to around 8% now a days?)

As the population increases the interest rates will go down further. If you have a doubt in my argument, please check the interest rates in the USA where it is almost zero, due to the low employment rate prevailing in that country.

Lower interest rates mean higher profits for companies. 

A person can grow his money by being in two different categories. 

• One is that which lends money( people who invest in Fixed deposits, PPFs, Bonds, Money Back policies etc., where returns are getting dwindled with each passing year for the above reason and are not even compensating loss due to inflation) and 

• The second one is that category which takes the loans and invests i.e. the entrepreneurial category. 

It is needless to say that given the high growth trajectory and low interest rate regime that India is traversing through, It will be profitable to be on the loan takers’ side i.e. on Indian Business owners' side.

Invest in Indian businesses through equity based mutual funds. Be wise. This is not an option but a necessity if you want to preserve the purchasing power of your hard earned money in the long run.

Happy investing.