Indian stock markets often throw up unexpected surprises. Ridham Desai of Morgan Stanley brought out one such anomaly, speaking at an event today. He says that the best 100 days in the last 22 years, have produced a staggering 600% returns! “We have computed the number of trading days since 1995, We’ve had 5,500 trading days. In that period, the index is up about 900%. The best 100 days have produced 600% of this 900% return,” Ridham Desai, Managing Director, Morgan Stanley India said at the conference.
He says that investors, in their urge to time the market, may have missed out on the bulk of these returns. “So, if you missed those 100 days, in your urge to time the market, you’ve missed bulk of the returns which the markets have produced,” he said at the Morningstar conference.
Bringing home the point that the investors should remain invested rather than attempting to time the market, he said, if you had avoided the worst 100 days, your returns would have been 1,400%, which would have been near impossible to identify.
In the same address, Ridham Desai explained that currently equities appear to be cheaper than bonds, as bonds are trading with a high P/E ratio. “Bonds are trading at 16 times earnings. The bond cash flow, the coupon that you get, will terminate after 10 years. The dividends you get go way beyond the 10 year time-frame. This implies that equities are actually much cheaper, and that’s because bond yields are very low compared to India’s own history,” he said adding that if the yields fall further, equity will become even more attractive.
The expert says that the Indian households have taken to investing in equities, as other asset classes are not that attractive. “So no wonder, households in India are piling up on shares. They’re very smart. They make these intuitive calculations and realise that the best returning asset class right now is the stocks,” he observed.
Last month, in an interview to ET Now, Harsh Upadhyay of Kotak AMC said,” The recent cut in interest rates has made investors nervous about returns from bank deposits. That money is now coming into mutual funds.” A long list of banks had slashed the fixed deposit rates in August. SBI cut interest rates to 3.5% for deposits of Rs 1 crore and below. A savings account with Axis Bank will now earn just 3.5% for deposits up to Rs 50 lakhs. Yes Bank has cut rates by 100 basis points to 5% for accounts with balances below 1 lakh. For balances upto Rs 50 lakh, HDFC Bank has cut savings rate by 50 basis points to 3.5%. In the same conversation, the market expert said,” There is lack of appeal of various other asset classes. Going forward, some of the asset classes such as gold, real estate etc are unlikely to give great returns.”
Investors may miss out on the bulk of returns, in their urge to time the market, says Ridham Desai of Morgan Stanley. (Image: FE Graphic)
