Welcome Samvat 2077
Hi Friends,
At the onset let me wish you all a very Happy Diwali and prosperous new year. While nobody of us would have thought that we are entering such a turbulent phase in capital market, in hindsight it looks like it was once in a decade opportunity. In last 20 years we have seen that nifty crashes 30/50 percent once in 10 yrs and post that eventually we are poised for multiple returns (e.g. Crash of year 2000-2001, 2008-2009 and now 2020). We hope for next many Diwali our equity portfolio keeps shining and enriching us with good dividends and capital gains.
Outlook on Equity
While we all get fascinated towards Equity for earing faster and higher returns, the fact is that last 10 years return on equity are not encouraging. If we take index (nifty) returns it’s just 9% cagr and large cap or multicap funds would have given us some 10/11% return as at 30th Sep 2020. (average return of top five funds by AUM). (This is well lower than rate as which some of us lend in grey market). Small cap funds would not have matched that also.
Than is there now a case for equity Investment? Since now in this COVID situation a lot looks gloomy and doomy. Let’s try to address this question.
If we see in last 10 years US equities have outperformed major world indices
USA indices: S&P 500 (like BSE 500): is up from 1200 to 3600 (3 times) from 1st April 2010
Russell 2000 (mid cap like index in USA :) is up from 700 to 1700 (2.5 times)
NASDAQ: is up from 2400 to 12000 (5 times)
India: Nifty: is up from 5400 to 12000 (2.25 times) almost 9% cagr (we have very clearly underperformed)
Reason being A) easy liquidity
- B) Composition of their index (NASDAQ having outperformed others since it has high weightage of technology shares Facebook, Amazon, Netflix, Google i.e. FAANG which have done very well)
- C) Consistent dollar appreciation year after year against Indian Rupee making FII returns very miniscule to may be negative ( nifty has doubled in last 10 years and rupee has depreciated 70% )
So what now?
Among various other reasons, we feel one of the strongest case for Indian equity is a very high probability of dollar weakening against other currencies. A lot of unproductive money printing has happened in last 10 years especially post covid. Dollar weakness can lead to a good 2/3 years of sustained rallies in emerging markets.
If you compare below chart with Indian equity markets ,rallies have mirrored dollar weakness. (eg bull market of 2002 to 2008)
One more reason in support of equity is this governments approach towards keeping inflation low and consequently easy monetary policy and low interest rate.
- CA JAYESH GANDHI
Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are certified investment advisors yet to be SEBI registered. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.
