Indian equities are popularly compared to the fabled Capital
Hotel, in which guests can enter but can never exit. Usually high volatility in
macro and corporate performance, frequent scams in financial and corporate
sector, rampant malpractices and shallow market depth have ensured that no
secular bull market evolves. Consider the following:
(a)
For buy and hold investors since 1991 the Indian
equities returns might have marginally beaten the bank deposits. A monthly SIP
in Indian equities (BSE 500 that represents 97% of market capitalization)
during January 1991 to July 2013 would have given an 11% CAGR, not much better
than debt return, especially if you adjust it for the high risk.
(b)
For 1991-95 returns were just 1.6% CAGR. Most of
these returns were earned in just six months from Jan92 to Mar 92 which
returned ~150% absolute return over Dec92 closing and Nov93 to Jan94 which
returned 58% absolute return over Oct93 closing. The real return in this period
was hugely negative, considering high inflation.
(c)
For 1996-2000 returns were 5.6% CAGR. The real
return in this period was also negative.
(d)
2001-2005 was the best period for Indian
equities yielding 36% CAGR.
(e)
2006-2010 again yielded positive return of 16%
CAGR. Though most of these returns would have come during Sep07-Oct07 and
Mar09-May09 periods. Volatility was huge and therefore risk very high.
(f)
On annual basis just 10 out of 23 years have
given positive real return. And income funds would have beaten equity returns
even when not adjusted for risk.
The point we are trying to make is that Indian equity market
collectively is a cyclical investment, which could be traded in small
proportions during good times, especially when liquidity is abundant and credit
is easy to access.
Do not bother about buying and holding as yet.
Also read:
Thought for the day
“I am patient with stupidity but not with those who are proud of it.”
-Edith Sitwell (1887-1964)
Word of the day
Ravine (n):
A narrow steep-sided valley commonly eroded by running water.
A narrow steep-sided valley commonly eroded by running water.
(Source: Dictionary.com)
Shri Nārada Uvāca
Can we?
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