From Chasing to Conquering Dreams:
Curious case of Super Cycle of Indian Equities
“Be sure you put your feet in the right place, then stand firm.” Words of Wisdom from Abraham Lincoln.
Rarely one finds oneself at the right time, at the right place and everything seems to be just going right.
“The right man, in the right place, at the right time & he can win millions.”
Such a phenomenal feeling, a feeling of everything happening one’s own way, at one’s pace satiating one’s own desires sometimes creates nervousness as past experiences of one’s own life suggest that such a situation rarely happens.
But what seems to be rare, as time progresses, becomes the new normal and then usual.
Examples of such abnormal normalcy can be witnessed in financial markets as well as in real life.
2008 witnessed a massive jolt, collapse, decline of financial markets worldwide, including equities. Since the great financial crisis of 2008, specifically from 2009 onwards which is nearly twelve and half years or more, US stock markets in particular have not witnessed any systemic prolonged weakness or downturn. Blips, dips, a few percentage points up and down is how equity markets move, but to have significant downside like the one that happened in 2008 or it happened in March 2020 (for a short period of time — knee jerk reaction on covid lockdowns worldwide) is rare.
Looking back at the journey of US equities, it has been infested by consistent crashes. 1990 Crash, When Iraq invaded Kuwait, 1991 fall led by Japanese asset bubble burst, Black Wednesday of 1992 led by GBP withdrawal from European Exchange Rate mechanism, 1997 — Asian Tigers financial crisis, 1998 — Russian currency default, 2000 — Dotcom bubble burst, 2001–9/11 attack on World Trade Towers, 2002- Stock market crash, 2008 — Global Financial Crisis.
In the last decade predominantly the trajectory of US equities or US Stock markets has been single sided beyond Covid crash which lasted for merely a few days.
What holds good in stocks, investments & markets, also holds good in life. If one looks at the history of Afghanistan or Pakistan through last two or three decades, the terrorist attacks on their soil and injuring & severing several thousands of humans have been plenty in number, however if one looks at countries like Norway or Sweden, it is assumed that they are safes places with terrorist attacks far and few and trajectory of Safety will continue to soar in times to come. Thus if one sees reduction in attacks in countries like Afghanistan or Pakistan it will become a new normal for them however it’s usual for countries like Sweden or Norway.
In a nutshell as environment, economic progress, socio –geo-political- economic mix changes the outcome also changes and then it remains constant for longer periods of time until the socio –geo-political- economic composition again gets disrupted.
Two examples in the current world being India and Poland. India broadly a closed agrarian economy was growing at a modest pace with severe ups and down till 1990s. In 1991 India opened up its economy, Liberalized its policies and trajectory has changed in the last 3 decades. Similarly Poland, once a communist economy widely impoverished, allowed FDI flows, foreign capital and reconstrued the way the country will run since 1989 and presently the fastest economy in the EU zone, also known as Engine of Europe.
Indian stock markets from here as is the case for underlying Indian economy and GDP are entering in a zone, where the trajectory of growth will principally be secular. The daily, weekly, monthly, volatile movement of stocks and indices is a normal phenomenon however the direction will be northward.
Whilst strength of the underlying economy is one of the reasons, other factors occurring for the first time, are driving this phenomenon too.
First amongst many being, FIIs, FPIs (Foreign Portfolio Investors) which till now were believed to have the handle of the equities have lost their grip. They have been selling for the past few months, but no correction in sight for the Indian stock markets as yet.
Second, DIIs are also left with limited prowess at present on Indian equities. Last year we saw the mighty Indian mutual funds also selling due to the redemption pressure from investors (apart from SIPs — Systematic Investment Plans which continued to contribute ~ a billion USD in equity mutual funds month on month basis). Despite that, one didn’t witness any significant downturn in the market.
Retail participation with ~ 75% to 80% of daily delivery volumes (the delivery volumes — quantum in INR- have grown over 100% in the last decade) this time has been driving the stock markets assisted by technology, education and ease of execution.
TINA factor continues to remain robust, with debt, gold and real estate (being illiquid) losing sheen in delivering returns.
DE-risked equities, Consistent Equities, Safe equities is the place where investors wish to reach by being patient.
Also the common man on the street has realized, that there are only 3 ways of getting rich, breaking the cobwebs of poverty, anguish and challenge which he faces throughout his life; toiling every day for someone else and after forty or forty two years of hard work (entire work life from start of career to retirement) saving enough to build a small house and educate the children, sometimes not enough to even have a comfortable retired life with adequate healthcare emergency provisions. He finds that he is sometimes JUST AN ILLNESS away from where he started forty two years back at the beginning of his work career.
Whilst a few Industrialists enjoyed the blood and sweat of the common man, he largely remained impoverished.
Finding ways to get out of Pit
The data suggests that the simplest way to move up in the socio economic hierarchy, which is determined by money in the pocket is to be born to rich parents or a rich family and inherit lots of wealth. That always not in one’s hands and hence the second best way is to start one’s own business. Large equity ownership in one’s own business and one working hard can do wonders, with little bit of luck.
If one is not able to start one’s own business, at least one should make an endeavor to be amongst the first few employees, if not the co-founder, then first 50 employees, so that one gets hefty ESOPs (Employee Stock Option Plan) at relatively modest valuation and one’s hard work and dedication gets paid off if the organization takes off. ESOPs always run the concentration risk, with the underlying challenge of — what if the business doesn’t make it big?
After all, not all startups see the light of the day and many perish in their journey before peaking out.
If both of the above are not possible, buy resilient (not-cyclical) businesses which are well established, with proven business model, which thrive on chiefly domestic demand (avoid external noise caused by external factors, plenty at all points in time) with good management who are paid well to ensure ethics, integrity, morale, motivation all exist at the right place working in the right direction enabling the company to grow and thus giving growth in market capitalization of the company.
More often the performance of the business largely is dependent on the socio economic progress and political stability of the country. It’s also been witnessed that once an economy reaches a critical size in terms of nominal GDP, the follow on growth in the GDP from there on and the resultant growth in the barometer of the economy — stock markets, both happens swiftly with effortless efficiency. The Magical number thus seems to be 2 trillion USD. As the economy races to reach the 2.5X of the magical number (USD 5 Trillion), the underlying equity indices also participate in a healthy fashion.
Examples of three countries that have achieved this feat till now have been substantiated below.
United States of America which took 11 years to grow from USD 2 trillion to USD 5 trillion from 1977 to 1988. The Dow Jones (US stock Index) between 1977 to 1988 went from 800 Levels to 2168–2.7X in 11 years and in the interim hit a high of 2662 (3.3X).
Japan took ~ 9 years to go from 2 trillion to 5 trillion from 1986 to 1995 achieving this milestone. Nikkei (Japan’s Stock market Index) moved from 12881 to 19800 in this time frame. During this journey it hit a high of 38586 (3X)
China did this in five years between 2004 and 2009. Hang Seng during this five year period moved from 11942 to 21872 hitting a high in this five year period of 31352 (2.6X)
India touched a 2 trillion USD mark in 2014, 67 years after independence and Sensex in 2014 stood at 27500. A 5 trillion USD for India is in the anvil over next half a decade and one can anticipate the high, the new highs, and the new peaks Sensex, Nifty, Indices, markets will make in the interim.
Are you ready to participate in the Dream Ride?
