A whole series of articles published over the last few months have outlined why equity market returns over the coming years will be far lower than what we have seen in the past 30. McKinsey, BCA, GMO and many others have produced studies on just this topic. Returns over the past 34 years have been strong, with the S&P 500 index delivering a compound annual growth rate (CAGR) of 11.5 per cent (from January 1, 1982, to December 31, 2015), despite the bursting of two bubbles. Returns were truly spectacular between 1982 and 1999, an 18-year period where equities compounded by nearly 19 per cent (CAGR).
In the last 18 months we have rediscovered an interest in equities as domestic investors have come back into the asset class. I feel this is a structural shift into financial assets, linked to demographics, lower inflation and the weakness of property and gold. Indians are still very underweight on equity; this shift into stocks will continue for many years.
Developed markets in general, but US financial assets in particular, are coming off three decades of strong performance. Many of those same drivers of performance are visible in India, for our financial markets, as we extend our time horizon. History may not repeat itself exactly - but it does often rhyme. While it will be bumpy, and not a straight line we may have the best years still ahead of us in terms of financial returns. India should deliver strong equity returns over the coming five years. The next six months? Frankly, no one has a clue.
For full article please refer the link: http://www.business-standard.com/article/opinion/akashprakash-india-s-equity-returns-story-116051901797_1.html
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