Looking back at the Decade that went by

Days pass into weeks, weeks into months, months into years, years into decades and decades into centuries. It’s amazing how time flies. 

2009 was a great year for the markets if you did not remember 2008. Nifty 50 went up by 75%, the best yearly change since its inception and yet it was still 18% below the highs of 2008. Stocks, many of which had been beaten to death a few months earlier were showing great sign of recovery.

While not a single stock on the National Stock Exchange had closed in positive territory in 2008, in 2009 just 50 stocks out of the 1200+ that gets traded closed in negative territory with 600+ stocks doubling from their opening price of the year or more.

When we started this decade, the overwhelming question that was on every investors mind was whether this rally will sustain or its just a mirage before the world ends. Ten years later, the question has remained the same even though the Index is today up 133% from those times with many stocks having generated much higher returns.

Not really surprising given that the past decade that had just ended had seen 2 major crashes – first the dot com bubble burst and then the financial crisis of 2008. But for those who were willing to bet on a brighter future, the returns while not overly fabulous haven’t come with the kind of draw-downs we saw in the decade of 2000 to 2009 either. 

Let’s look at Index returns over the past decade. I have used compounded annual growth rate throughout this post since that offers a better comparison with other asset class returns than absolute.

Your best bet for the decade would have been to be invested in Nifty Private Bank Index. Of course, even better would have been to be invested in Bajaj Finance. The current favorite, Nifty 50 generated a compounded return of just around 8.9% per annum. To give you a comparison, Franklin India Ultra Short Bond Fund – Super Institutional Plan – Regular Plan (Direct Plans did not exist in 2010) had a CAGR of 9.12%.

Total Returns of Nifty 50 would be slightly higher than the Bond Fund but how many of us reinvest all the dividends we receive. The very fact that we are comparing Debt returns with Equity returns is like comparing apples with oranges. 

But what it shows is that even though this was a really great decade, this has been the decade with the lowest return since data starts for BSE Sensex. 

Drawdowns

While the period of 2000 to 2010 saw multiple large crashes (2000, 2004, 2008), in the current decade, the max draw-down never exceeded 30% from the peak (for Nifty 50). This is reflected even in Option Premiums as can be gathered using India VIX which has been trending lower through the decade.

This is not unique to India either as even in the United States and elsewhere, Volatility has just disappeared. Will it come back with a bang in the coming decade, we will need to see. But draw-downs as we have seen in the past can be great opportunities for those who are well prepared.

Political Stability

For the first time in many decades, we have had pretty strong stability when it came to the Central Government. This was missing for decades with the last decade where we witnessed such stability coming maybe in the 1960’s. 

What about Mutual Funds? 

Unlike stocks, Mutual Fund data isn’t clean. Over the decade funds have been merged, renamed and category in which it invests have got changed. So, you have Survivor Biased data, but something is better than nothing, Right?

The best fund for the decade excluding sector funds was Canara Robeco Emerging Equities Fund – Regular Plan which has a CAGR of 18.50% over the period. Small and Mid Cap funds have been the biggest winners. Mirae which has an entry here through Mirae Asset Large Cap Fund was actually a Multi Cap fund until very recently. 

Basically, no Large Cap Funds were able to make it to the top 25 list. My belief is that the next decade would not be different either. But then again, who knows the future

Much better than most Indices but with the benefit of hindsight. 

One reason for the returns for the decade being on the lower end of one’s own expectation could be linked to the fact that earnings growth has been inspid for quite a while. In fact, as the table below (Credit to Sandeep Kulkarni) shows, the last few years have been absolute disasters for a country which is supposedly the fastest growing in the world and the next best bet after China.

International Scenario

Most of us have a very strong home country bias when it comes to investing. Then again, the issue with International Investing is not just having to deal with higher transaction cost and tax liabilities but also with the fact that you need to account for currency movements which can add or subtract from your returns.

Using ETF’s that are traded in USD, here are the best countries and their returns. The Best country to have been invested, the country that brought down everyone else in 2008 – United States of America.

India barely gave any returns when measured in Dollar Terms {I used Invesco India ETF for this exercise). Sensex Dollex 30 has a 10 year CAGR return of 4.80% while Nifty 50 USD 10 year return is 4.43% 

I was recently listening to a podcast of Peter Mallouk where he talked about the importance of allocation and how that can make or break a lot of things. While its important to invest in the right assets, the key to generating wealth is to be able to allocate right.

I believe the coming decade will be one of the better ones for the Indian Markets. As of today, the average age of an Indian is around 29 years. While the earlier generation shied away from markets due to lack of information and resources plus a lack of understanding of risks, I believe that the younger generation is more attuned to it.

What this means is that while currently 85% of savings go into the blackhole called Real Estate, over the coming decade and a half we should see a significant shift to Equities. This along with the fact that unless India grows we will face nothing short of a revolution gives me hope that this could be the start of a new age for Equity Investors.

Wishing you a very Happy New Year and a Great Decade ahead.