Indian Equity Returns struggle compared to Gold and Global equities
A comparison of returns across asset classes tells us why Indian equities are struggling. FPIs have reduced their Indian equity AUC from $950 billion to under $700 billion.
EQUITIES ARE SELLING OFF BECAUSE THEY ARE UNDERPERFORMING
A comparison of returns across asset classes tells us why Indian equities are struggling. FPIs have reduced their Indian equity AUC from $950 billion to under $700 billion. You get a clear picture if you look at returns on Indian equities compared to other asset classes over the last 3 years, 5 years, 10 years, 15 years, and 20 years.
Equities are supposed to be long term assets, but even over a 15 to 20-year period, Indian frontline equities have given CAGR returns of just 10-11%. If you rank various asset classes (shown below) on CAGR returns over different time horizons; then Nifty-50 and Nifty 100 (large cap indices) do not feature in the Top-5 in any of the time frames.
| Ranking Index Key | Rank 1 | Rank 2 | Rank 3 | Rank 4 | Rank 5 |
|---|---|---|---|---|---|
| Asset Class | 3-Year CAGR | 5-Year CAGR | 10-Year CAGR | 15-Year CAGR | 20-Year CAGR |
| Nifty 50 Index TRI | 10.0% | 10.0% | 12.5% | 10.7% | 11.2% |
| Nifty 100 TRI | 11.2% | 10.3% | 12.6% | 11.1% | 11.5% |
| Nifty 500 TRI | 13.2% | 11.9% | 13.5% | 11.7% | 11.5% |
| Nifty Mid-Cap 150 TRI | 20.3% | 17.5% | 17.5% | 16.0% | 14.2% |
| Nifty Small-Cap TRI | 18.3% | 16.3% | 14.5% | 13.1% | 12.3% |
| US Equity S&P 500 TRI | 23.5% | 17.7% | 18.2% | 19.0% | 14.7% |
| US NASDAQ TRI | 28.0% | 19.2% | 23.4% | 23.9% | 19.5% |
| Gold (in INR) | 38.4% | 28.4% | 18.1% | 13.5% | 15.1% |
| Real Estate | 5.6% | 5.9% | 5.2% | 5.6% | 7.9% |
| Debt Instruments | 6.9% | 6.0% | 6.9% | 7.6% | 7.5% |
Data Source: Funds India
INDIAN EQUITIES STRUGGLED ACROSS MEDIUM AND LONG TERM
- Gold and Global equities have been the star performers in terms of CAGR returns. This applies to all categories of returns; from 3-year returns to 20-year returns.
- While Gold has been the best performer over 3-year and 5-year time horizons; NASDAQ has been the star across 10-year, 15-year, and 20-year time frames.
- Even if you take a generic index like the S&P 500, it has been ranked second on two occasions and has been ranked the third best on three occasions.
- Mid-caps have put up a better show; being ranked third on one occasion and being ranked fourth on the remaining 4 occasions. Large caps have outright lagged.
THERE IS MORE TO THE INDIA EQUITY SELL-OFF STORY
Since the FPI optimism peak of September 2024, FPIs have net sold Indian equities worth $(37.80) billion. While returns are one side, there is more to the India equity story.
- The index returns mentioned here are the rupee returns. If you adjust for dollar value appreciation, the effective dollar returns would be much lower for Indian equities.
- If one looks at the returns; large cap returns even over longer time frames, is around 10-11% compounded. That is sharply lower than the median returns 10 years back.
- This is for the first time that the Indian large cap equities are persistently lagging the performance of Gold and Global equities across all possible time frames.
- Another factor is the extent of underperformance of large-cap equities. Nifty has underperformed Gold and Global Equities by 400-800 bps on an average, across.
- For the FPIs, lower asset class returns on large cap equities have combined with higher Buffet Ratio of stocks, slowing earnings, and disruption risks of AI.
- We shall not read too much into equities outperforming debt and realty; as the latter are very heterogenous asset classes and tough to compare with.
The moral of the story is; investors must project large cap equity returns over long term at a more conservative 10-11% pre-tax; and 9-10% post tax. That will be more realistic!
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