Indian stock market delivered higher returns than US, China in last 123 yrs: DSP

Over the last 123 years, the Indian stock market has delivered a real return of 6.6 per cent, which is higher than the returns delivered by US and China markets as well as the world equity markets, according to the Netra June 2023 report released by DSP Asset Managers titled ‘Early Signals Through Charts’. 

This means that India has compounded investors’ wealth at 6.6 per cent CAGR or compound annual growth rate, higher than 6.4 per cent CAGR by the United States and 3.3 per cent by China since the year 1900. The CAGR shows real compounding which means it is adjusted for inflation and takes care of currency depreciation that happens over the years because of inflation, according to DSP.

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Data from the report also showed that the pre-cost and pre-tax real returns delivered by the world equity markets are five per cent CAGR. ‘’This is an excellent rate of return to compound one’s wealth over a century, given that one has the patience to not interrupt the compounding process,” said DSP in its report. For emerging markets, the return delivered is 3.8 per cent since 1900. 

Notably, DSP highlighted in its report that if one were to do an SIP in US equities over the last 123 years, it would have generated a near ~10 per cent inflation adjusted CAGR. This means $100 invested turns into $11.8 million over this period, with its purchasing power intact. 

Stressing on the importance of long-term investing for growing CAGR, DSP highlighted in its report that in the year 1937, the average life span of S&P 500 companies was 75 years. In 2023, the lifespan has reduced to 12 years, which means that every 12 years, a company gets replaced in the index and some just die. 

The importance of concentrating on long-term investments and not getting carried away on trends was illustrated by strategies adopted by ace investors Warren Buffet and Charlie Munger.

‘’Warren Buffett and Charlie Munger sidestepped the Dot Com frenzy and under performed Nasdaq Index by 155 per cent over 1998 and 1999, the peak of the tech bubble. However, over the full cycle from 1992 to 2008, Berkshire Hathaway earned a 14 per cent CAGR vs the Nasdaq which earned an eight per cent CAGR over the same period,” said DSP in its report.

Throwing light on India’s ace investor, DSP noted that the ‘Big Bull’ has amassed tremendous wealth by strategically holding onto select high-quality businesses over extended periods. 

Rakesh Jhunjhunwala’s famous quote, “Funda Ka Ho Gaya Mental,” serves as a real-life testament to the futility of second-guessing market moves. Instead, he advocates staying invested throughout market cycles by adhering to two fundamental principles:

-Avoiding overpayment: By not paying excessive prices for investments.
-Acquiring high-quality businesses: Focusing on companies with the resilience to withstand market fluctuations.

‘’This approach has played a pivotal role in Jhunjhunwala’s success, showcasing the power of strategic investing in generating substantial wealth over time,” said the report.

The Netra June 2023 report also highlighted the annualised rate of returns over a 20-year period by various investment instruments or asset classes such as S&P 500, bonds, EM equity, small caps, among others. It revealed that at 2.9 per cent return delivered between 2001-2020, the average investor return fell behind other major asset classes including homes, bonds, equity, small caps, REITS. 

At 10 per cent, the highest 20-year annualized return between 2001-2020 was delivered by rela-estate investment trusts or REITS, whereas the ‘commodity’ asset class delivered lowest return going below zero and touching negative percentage during the period.

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Updated: 11 Jun 2023, 06:56 PM IST

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