Sensex appears to be on a one-way up-journey in the last decade, except for the huge V-shaped fall and recovery in 2020. What are the returns you would have earned in this decade? Had you bought the Sensex at the beginning of the decade, you would have ended up with CAGR returns of 9.93%, excluding dividends.
On the other hand, had you entered Sensex in late 2011, at the decadal bottom of the market, you would be sitting on CAGR returns of 13.22% over 8 years. In a volatile decade, you would have had to be a super-timer of the market to really be able to beat the market. Now for the 10 mega trends that defined the Indian stock markets during last 10 years.
1. Aftermath of the global liquidity infusion
The previous decade ended with the global financial crisis that almost brought the financial markets to the brink. Global markets survived, thanks to the $6 trillion in liquidity infusion. Markets recovered but liquidity became the template for the future. In 2020, when COVID struck, the global liquidity infusion was $20 trillion.
2. Stability and reforms – Modi hai to Mumkin hai
Nifty rally began sometime around 2013 when opinion polls hinted at a Modi-led NDAgovernment. NDA eventually formed the government with an absolute majority. They also repeated the feat of 2014 in 2019, with even better numbers. FPIs celebrated this shift as Modi promised economic reforms to drastically transform the global image of India Inc.
3. Demonetization and GST
Of the reforms initiated in the last decade, these two reforms were the most controversial. There was pain for smaller companies and even for individuals. But both measures had an unlikely positive consequence. Demonetization pushed down lending rates and people fell for digital money. GST forced millions of small businesses to join the economic mainstream.
4. Emergence of passive funds as an asset class
The trend was much bigger globally with passive funds crossing the AUM of active funds and hedge funds put together. In India, growth of passive funds may be restrained, but today passive accounts for 12% of total AUM. That is phenomenal growth from virtually nothing five years back. Investorsliked the absence of fund manager bias and low execution costs.
5. Mutual fund AUM comes of age
It took the Indian mutual fund industry almost 50 years to reach AUM of $100 billion. Between 2014 and 2020, the MF AUM spurted from $100 billion to $400 billion. With over 3.3cr SIP accounts and nearly Rs8,000cr coming into MF SIPs alone, equity funds have surely come of age in India. A young and ambitious India has given wings to this momentum.
6. Rise of Digital; Reliance shows the way
Between 1995 and 2020, Reliance created market value of Rs650,000cr. Almost 70% of this value created in the last 25 years, happened since 2016 after Jio was launched. By 2020, digital and retail were almost contributing as much individually to the market cap of Reliance as oil refining and petrochemicals. This magnitude of corporate strategy transformation is almost unprecedented in Indian corporate history.
7. Biggest corporate tax cut in Indian history
We spoke about controversial reforms like demonetization and GST, but 2019 also saw the biggest tax cut in history. With one historic swipe of the pen, Nirmala Sitharaman cut corporate tax rates from 30% to 22%. It cost the exchequer Rs150,000cr but that single effort allowed Indian companies to recover quickly despite the pernicious COVID effect.
8. Gold emerges as an investment class
Trillions of dollars in liquidity infusion, sabre rattling by China and the tantrums of Trump meant that good old gold looked precious. Gold touched a life-time peak of $2075/oz in the current year but also gave returns of over 30% for 2 years in succession. Over the last 5-year and 10-year time frames, gold was the best asset class in India. Above all, investors are beginning to look at gold as an investment idea and not just an embellishment.
9. Mobile apps defined the decade
If digital was the big story of the last decade then mobile apps was the engine. Today large swathes of India virtually banks, trades, insures, purchases groceries and even consults doctors through mobile apps. Mobile apps have also brought down costs drastically as we have seen the sudden rise of low-cost broking in the last decade. If technology became central to our lives in the last 10 years, we have a lot to thank the mobile apps for it.
10. COVID shakes up the world
Actually, that would be an understatement because for the first time such a large swathe of the world was shut. COVID changed the way people worked, travelled, holidayed, transacted and communicated. The aftermath of COVID is likely to linger for a long time to come. It would undoubtedly classify as the biggest impact event of the decade.