Did the market really live up to the expectations built up around the BJP government? What does the data tell us?
We have looked at the point-to-point performance of some very key sectoral and thematic indices over the last five years and calculated the CAGR returns (annualized). We have considered from the date of the Modi government assuming office in 2014 to the date of their 2019 manifesto release.
|Index||May 26, 2014||April 08, 2019||CAGR Returns|
|Nifty Private Banks||7,487.11||16,971.95||17.78%|
|Nifty PSU Banks||3,869.20||3,258.70||-3.38%|
A cursory look at the above table and some very quick points emerge.
- The returns on the Nifty during the 5-year period at 9.54% were lower than the long period average annualized return of 11.25% on the Nifty since inception. The Nifty returns were higher during the UPA1 and UPA2 periods.
- The clear winner has been the consumption theme. Sectors like private banks, MNCs, FMCG are all proxies of the India consumption story. The last five years have seen lower household savings rates and that is evident in the performance of consumer stocks.
- Public sector has actually underperformed during these years with most sectors ceding advantage to the private sector players. While PSU banks have had problems with NPAs, the problem has been more structural in case of other PSEs.
- Some of the above segments were substantially influenced by the last year. For example, auto sector performance should have been much better had it not been for the 25% correction in the latest fiscal. PSU banks showed a sharp recovery in the last year on NCLT progress; else it could have been much worse. Midcaps and smallcaps had sharply outperformed in the first four years, with the underperformance coming in the last year alone.
Big story could be the financialization of savings
If you add up the net effect of lower interest rates, demonetization, GST and RERA, there has been a clear shift away from traditional assets like gold and realty and towards financial assets like equity and mutual funds.
Some of the numbers pertaining to the financialization of savings during the 5 years of Modi government are staggering. The number of mutual fund folios (accounts) as of March 2019 have gone up to 8.18 crore, of which nearly 6.87 crore belong to equity funds (representing retail appetite). There are more than 2.5 crore SIP accounts with over Rs8,000cr coming through SIPs each month. But the most revealing story of financialization is captured by the chart above. During the UPA2 era, the MF AUM grew by just about 6.09%, while during the five years of the Modi government the MF AUM grew 3-fold at a CAGR of 24.7%.
For a moment, let us forget about Nifty returns and sectoral returns. This massive effort to take equities to the doorsteps of retail investors is probably what stands out about the last five years. Probably, that is the ‘Acche Din’ that nobody really talks about!