Indian Equities – Past, Present & Future

By
Hemant Beniwal
47

You must be thinking does this article still make any sense. From last five equity markets have not made any progress, investors have lost money & hence the faith. On the contrary,  I think this is the best time to introduce this article to try to regain the lost faith for equities in you. I am planning to write series of article on EQUITY – hope those will be helpful.

Desmond Tutu said “we learn from history that we don’t learn from history” but Warren Buffet said, “If past history was all there was to the game, the richest people would be librarians.” Nevertheless, let us try to bring some balance, check the history, and try to gaze future. This article will revolve around my story. 🙂

Image courtesy of pakorn at FreeDigitalPhotos.net

Note: this article is purely based on facts and figures but still as they say “past performance does not predict future returns” so you should take this with pinch of salt.

Indian Equities - Past, Present & Future Click to Tweet

Past 2003

This was beginning of my career, just finished my MBA & I was desperately looking for a job in financial sector. During MBA I had lot of interest in reading investment & business magazines – due to this, I won all business quiz I participated in – and that’s the reason I was preferring job in financial sector. Finally, through reference of one of my senior, I found a job in one of the distribution house – biggest name in investment advisory services at that point of the time. And the journey started.

2003 was one of the worst periods for equity & mutual fund investor’s life. Year 2000 is infamous for tech bubble burst across the globe including India. We were facing aftermaths of that; lot of money was lost in technology sector stocks and IT sector funds that were selling like hot cakes in 1999-2000. There were lot of clients walking in our office but must of them were holding statements with huge negative returns. (Even real estate was going through secular bear market)

Media was having surplus supply of red ink so they were not missing any chance to use that. As they say, stock market is barometer of economy, so even that was down with fever. Things started moving a bit after mid 2003 but got some rude shock in 2004. NDA, which was promoting “India Shining” lost elections and market was falling like ninepins. I still recall we were at office and watching this meltdown… People lost complete faith in equities and were looking for safe avenues.

Read – Sector Fund – Should you invest?

Present 2013

After 10 years, I am still in financial industry but left my job & running my own financial planning practice. Happy with my practice, small contribution to financial planning profession & financial literacy, my book and family. Regulations have become more stringent, financial markets have developed & India has definitely progressed in comparison to 2003. UPA is promoting ‘Bharat Nirmaan’, not sure about election results but economy pundits believe change will be good for equity markets. (Real estate has seen secular bull market, properties have become almost unaffordable)

However, as an investor if we compare situation of 2013 with 2003, there is not much difference. Again, media’s oversupply of red ink continues, investors are in pain, economy is in pain & economists are writing death warrants. Investors are looking for safe investments and getting rid of existing equity investments including Systematic Investment Plans.

But I thought; let’s check things that have happened in these 10 years with investors who kept faith in equity in 2003.

Chart 2003 to 2013

 

Indian Equities 10 years 2003 to 2013

Also Check – Why invest in Bad Times – check historical data

This shows that money has grown by approximately 400% in 10 years – which is not at all bad. With whatever you have faced in last couple of years average returns from equities are 15% CAGR. Now you will say 2003 we may have undervaluation or period after 2003 saw an exceptional bull run and market turned 6-7 times in 4-5 years. You may be right but do you think anyone was having slightest clue in 2003 that how things will shape up in future. It is as simple as that – who will participate in equity markets will get that returns, and if you will be with it in bad times, it will be with you in his good times.

Valuations 2003 vs Present

Last year Morgan Stanley Shared a report – Sensex at 2003 levels.

Sensex at 2003 levels

You can check full report here. Hope you got the message…..

Future 2023

I am sure that I will be running my financial planning practice and hope you will be reading TFL blog in 2023.

Hypothetical situation in 2023:

Sensex is trading at 60000 but investors are not happy because they have lost money in last 3 years – in 2020 sensex was at 80000 levels – as always investors came to party when markets were high. Everyone is blaming current government for stupid economic policies, onion is bringing tears in the eyes even without cutting as it is selling at Rs 700 per kg, Pakistan infiltrated in Jaisalmer but govt is not reacting. Pre Poll election survey results show Bharat Bachao Alliance (also known as 5th front) looking strong to win general elections – but they have to work hard in new states like Marsthan and Puttar Pradesh. 2G, 3G & 4G cases are still pending in SC – it looks CBI is puppet of current govt. etc etc blah blah blah………

Or

Sensex is trading at 60000 but investors are not happy because they have lost money in last 3 years – in 2020 sensex was at 80000 levels – as always investors came to party when markets were high.  Indian economy is fastest growing economy in last 2 years, crossed Japan to become third biggest economy by GDP. Three Indians are in top 10 of Forbes richest people in world list, surprisingly Ambanis are not in top 50. etc etc blah blah blah………

Not sure what will the picture in 2023 but let us see what one can expect.

GMO (legendary investor Jeremy Grantham’s shop) have published their latest asset-class forecasts. 7-Year (2013-2020) Asset Class Real Return Forecast – as on July 31,2013.

 

GM

They say, “The only opportunity for an average equity return–about 6.5% per year–will come in emerging markets (READ INDIA), which have been demolished lately. (The lower the price goes, the better the future return is projected to be). “

GMO report is not talking about India but emerging markets as a whole but definitely, India is one of the fastest growing economies – even when we are at 5-6%. They are talking about 6.5% real returns (Returns – Inflation = Real Return) – if we add inflation of 7% in that, returns may be around 13.5%, which is again not bad considering equity investments don’t attract tax in long term.

Let us check this data from Finametrica – Indian Equities

The information presented here is from monthly portfolio performance analysis for the period 1 January 1988 to 31 December 2012. The terms Best/Highest, Average and Worst/Lowest mean just that for the period in question. However, the Best/Highest result and the Worst/Lowest result represent extreme outcomes which have occurred only once in that period. A more informative picture of the likely range of results can be obtained by excluding the best/highest and worst/lowest 5%. The term High/Good means a result which was higher than 95% of the results and, similarly, the term Low/Poor means a result that was higher than only 5% of the results.

India Equity Returns

Historical returns over the past 25 years for periods of 1 to 10 years are shown in the above table. For example, over periods of ten years, the average annualised return was 15.1% per annum with a good return being 23.8% and a poor return 5.7%.

So if you notice average returns for all 10 year periods, its around 15% which is the same that we have achieved in last 10 years.

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Oh! You are still reading – hope this article was helpful – if this makes sense, must share with your friends. So, what we should expect in next 10 years – I think now you should answer this question. If you have any questions feel free to ask – I will also try to cover your concerns in next part.

Have you checked our “Goal Focused Investment Planning” Service?

RELATED ARTICLESMORE FROM AUTHOR

47 COMMENTS

  1. Dear Hemant

    Nice article, as usual. Just out of academic interest, have there been periods when Indian equity markets moved mostly sideways for a long long stretch ? Anything that long-term investors can/should no, other than relying on SIPs in such a scenario ?

    best regards

    • Dear YK,
      Worst was starting 1992-93 – there were hardly any returns in next 10 years. But we should remember that at that time market PE was +40.
      I have just added one link in above article – why invest in bad times – check that for Sensex data.

  3. Sory – there was a typo in the last sentence. What I meant was – Anything that long-term investors can/should do, other than relying on SIPs in such a scenario ?

  4. Hi Hemant,
    Started SIPs Last year December in different equity and Mid cap Mutual funds and got this turmoil .
    Your Blog is helping much to keep momentum
    Finger crossed 😉
    Thanks

  7. Hemant,

    Thank you for this good post.

    In the returns for the Indices, it will help if you can account for dividends as well. Typically these are in the range of 1.1 to 1.5% per annum and they do help in the long run.

    Thanks.

    • Hi Nitin,
      You are right but I have created these using some tool. Good to know that my numbers are conservative 🙂

  10. Nice article— morale boosting during these trying times. I believe Investors should sit tight now till the Market settles down– no point selling now & booking losses– if you had to sell you should have done it few months back. I plan to sit tight like a Zen Monk & not worry about notional loss.

    To keep myself busy, either I pick up a good hobby like Golf/Swimming etc or do distant education MBA on Healthcare–would keep me busy for the next 2 years.

    Till the elections are over & a new Govt settles in , I feel one should bear with such choppy markets.

  11. I have subscribed for 8 weeks course. I have received only mails for 2 weeks. Later I am not getting any mails. Can you please check once again and send me the Week-3 to Week-8 lessons.

    I have gone through all the articles of week-1 and 2. Sincerely appreciating all your effort, hard work and commitment to make many people learn about investments and clearing their queries with your guidance

      • Hi Hemant,
        Thanks for your response. Initial 2 weeks I got your mail directly to inbox (I have added in my address book). From week-3 onwards I have n’t received any mail. I use to check my mails daily. Is there any possiblity to send now from week-3 to week-8.
        Once again appreciating all your efforts, commitment and dedication.
        Thanks in Advance
        Amar

  12. Looks funny as it is not the right stage we are in to extend it to future . I suggest you do it again after Narendra Modi comes to power as our PM in 2014 !

    • Hi Devadoss,
      Markets don’t wait for the events to happen – there is a famous saying in equity markets “buy on rumor and sell on news”.

  13. it is common sense if you want money for a particular need in 3 yrs time dont put in stock market. i dont know why all these people are crying. even the coconut tree i kept in my grandfather’s house as small boy gives coconut now only.

  14. Dear Hemanth,

    Returns you have shown are for one time investment. I mean, if I have invested certain amount in 2003, return I would get on that amount is 15%. But what about SIPs. SIP returns might be lower. Now a days most of the investors are investing through SIP only. Then how can we take decision based on one time investment returns?
    Please clarify.

    Siva Prasad Ravirala

  15. Dear HEmant,
    Good To be express as Above Title.
    We all understand about history as shown by you that INDIAN MARKET’S HISTORY ITSELF SAY THAT “I AM SAFE FOR LONG TERM”. NO WORRY FOR SHORT TERM. KEEP CONTI. INVESTING IN SELECTIVE ‘SIP’ IN MF.

  16. I must mention here that my Investments in International Equity Funds are appreciating very well in a time when even Liquid Funds & Short Term Debt Funds are showing negative returns— kind courtesy RBI’s policy– remember 16 July ?

    Contrary to conventional teaching , Iam planning to keep it for a period of 01-03 years & book profit any time after one year if these funds start tanking.

    Any views ?

    • Hi Dr Chanda,
      Its good that your that portfolio is performing right now but I don’t agree with your exit strategy.

  17. Nice article.

    Here is my theory. This is similar to USA economy situation.

    UPA will let rupee slide and stock market fall for some more time. As soon as we approach 2014 elections, suddenly you will see Chidu and PM taking some steps that will help sensex boom and rupee back 55 level. They will then take credit for reviving the economy and win elections.

    Keep investing right now. By june 2014 , you will make double returns. Guaranteed. This is life time money making opportunity for everyone.

    • Hi Anthony,
      I am bit afraid – you have used word “Guaranteed” & “This is life time money making opportunity for everyone.”

  23. Dear,
    Many articles i read for investment stratagy, on Equity and MF fund selection.
    Equally opposite i didnt find any good article on exit of the MF or Equity.
    Can you share your views that how goal based planning decide for exiting from MF.
    Thanks
    Jig

  24. NICE ARTICLE -do not invest in stock market or mutual fund for a short term objective if u have 8- 10 years time frame only then go ahead with itn do not look at nav on daily basis n increase ur blood pressure !

  25. Sir,
    I have SIP in mf–
    Icici focused alehi-1000/-
    Icici discovery -1000/-
    Hdfc child gift-500/-
    Hdfc mid cap opp-500/-
    Reliance equ opp-500/-
    Sbi emerging business-500/-
    Bsl top 100 – 1000/-
    Should i continue for 15 years or change if any.

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