Is It Time For Long-Term Equity Investors To Re-Think Strategy?
Outlook Money|August 2020
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Is It Time For Long-Term Equity Investors To Re-Think Strategy?
The 10-year rolling returns for Nifty50 declined from 19 per cent in the year ending July 2013 to 8 per cent in the year ending July 2020, which is less than even the returns on FDs
Rashmi Pratap

In May this year, ace investor Warren Buffett’s conglomerate Berkshire Hathaway reported its biggest-ever loss at 50 billion dollars in the March 2020 quarter as the coronavirus pandemic took a toll on the Oracle of Omaha’s investment portfolio. The next day Berkshire Hathaway dumped all of its holdings in the airline sector, raising questions over decades of Buffett’s wisdom on holding stocks for the long-term. In a world that stands changed forever due to the COVID-19 pandemic, investment strategies are also changing swiftly. And India is no exception.

As things stand, the Indian stock market is currently favouring short-term traders over the patient long-term investors, at least going by the performance of the broader market in the last decade. The tenyear rolling returns for Nifty50 declined from 19 per cent in the year ending July 2013 to a record low of 8 per cent in the year ending July 2020, which is less than even the returns on bank and post office fixed deposits (FDs) an investor would have earned over the same period. And gold is up 26 per cent in just the last 12 months. The analysis is based on the assumption that investor buys an asset whether equity, gold or fixed deposit and stays invested for ten years. In equities for example, the July 2020 returns is for a portfolio bought 10-years ago and redeemed in July this year.

Comparisons between equity and other assets (as in the table) are based on 12-month average value of Nifty 50 index for the year ending July every year.

Failing the investors?

“The Indian stock market has been a very disappointing asset class in the last five to six years. The returns are not even matching fixed deposit returns. If stocks and FDs both give you similar returns, then also FDs are better because they don’t face the volatility of the stock market. The return on FDs is a straight line. There is no comparison between the stock market and the basic return available to anyone in India through FDs,” says Shankar Sharma, Co-Founder and Chief Global Strategist, First Global.

As numbers show, equity has not lived up to the promise of providing superior returns as compared to any other asset class. “It happened till 2014 – the numbers were good and it worked out to 14-15 per cent long term compounded returns. But from 2014 till now, the returns have just fallen of the cliff,” he says.

Siddharth Sedani, Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers, says there are euphoric times when short term traders, day traders make money. “We have seen this in 2017 and also in the last two months. There is nothing wrong in it. You get on a horse which is moving and you get down when it stops,” he says.

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August 2020