Markets move fast, but compounding moves faster: A Balasubramanian on why the next decade will be transformational

There was no Nifty.
A Balasubramanian: There was no Nifty. I think Nifty came 95-96 after the nse got opened up. It was only Sensex. We have seen only BSE and and grey market.

So, when you look back and you say that okay if the Sensex has gone up from 1,000 when you have tracked to 80,000, what is that one thing you wanted to do differently when you look back and analyse your career or your investment style, I mean what is it one thing you said oh, I wish I would have done this differently, I would have created more wealth for my unit holders or created more wealth for myself and my family.
A Balasubramanian: Of course, it is about the deep understanding of how the compounding works. See, most of us when you think about investing, we always underestimate the compounding theory and so, I just give you a simple example, that when I started my career, so I used to also believe in creating a long-term investing through the life insurance policy, so that is how we all started, then we must have 30-year policy for your daughter and son for education without understanding the compounding impact on that relatively lower as against the market investing.

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So, this was a lack of understanding of how it can work. So, if you look back in my own, in the investment style, maybe at any point of time you take a conservative call, therefore you remain underinvested in assets which has got a long-term compounding from a wealth creation point of view. Wealth is not the only one that one should target. It is all about building the future, what do you call security, which everyone has to do from a point of view of having the right amount of wealth and for various purposes which will include giving back, which will include making the assets available for the families and so on and so forth, spending, and as well as for giving. So, for which the market provided an opportunity. Therefore, staying convinced on power of compounding is something I would say one of the area where we keep debating, keep discussing that is why you look at a 1,000 index and 80,000 index, it is nothing but as the economy grows, of course, market has to reflect that in terms of market cap.

I always tell my friends and folks, who ask me that okay what is the biggest mistake I have personally done. I said I started preaching power of compounding in my 20s, but I started implementing in my 30s. I wish I would have started in my 20s and that 10 year is what I feel and in my 40s now if I would have that 10-year advantage, my 50s and my 60s would have been very different.
A Balasubramanian: As I always said, it is a better late than never and that is the beauty. See, even today we are still talking about $10 trillion economy and Viksit Bharat 2047 which essentially mean $30 billion economy, which means maybe the next 10 years will be faster. As I always believed in telecom industries.

China probably would have taken 35 years to implement telecom revolution, whereas India took maybe about 10 years to bring in telecom revolutions. So, the world is moving faster, compounding is becoming faster. The more and more companies are coming.

How would you describe the current leg of the market? In Jan, everybody wanted to sell all asset classes and move back into dollar. Just sell everything and go back to dollar. Now it is the reverse. Suddenly everybody wants to sell all dollar assets and move to other assets. Bitcoin is going higher. Emerging market flows are coming back. Six months, I love you dollar to long live dollar to we do not want to own dollar assets. Why the world is changing so rapidly within not even six months, actually four months.
A Balasubramanian: I think that the way I see is the number of people who are participating in the market have been rising and each of the segment of the market players have got towards asset classes differently.

The traditional investors, they do look at earnings and therefore they continue to invest in equity, building businesses, and seeing the earnings coming out of the building businesses, generating revenue, generating employment, and generating a profit after paying taxes and so on and so forth that is actually the way any business model is built.

But other asset classes, as we always used to say gold has got only storage value, but at the same time it is a hedge against dollar, hedge against inflation, and there are set of people who also loves these kind of asset classes because though they not have the industrial productions value, but there is a demand-supply situation comes in.

There is a demand-supply situations drive those prices. So, therefore, these asset classes will remain. But ultimately in the long run what sustains actually the asset classes which is driven by the earnings and basis you can apply certain kind of assumptions in terms of the terminal value of these companies and so on and so forth.

So, wherever those clarity is not there, those asset class will always remain a speculative asset class. But the question is how much of the speculative asset classes one wants to own in the portfolio and then how you want to shift your asset class from one to other is something will always remain a big question mark, not in today’s world, even going forward this will remain.

This will be one of the challenging area even for the people of investing in the market, how to avoid this in asset classes or how much to own or not to own these decisions will always remain critical, but given the fact the whole, the set of people who are investing in the market have got different kind of mindset to deal with these kind of classes, We have to watchful. We have to watch it, at the same time remain focused on the allocations.