Indian Equities Outperformed All Asset Classes In The Long Term, Finds Study

Indian equities have outperformed all other asset classes like gold, real estate, and debt in the long term, the online investment platform FundsIndia said in a report for July 2023. 

The report titled “Wealth Conversations July 2023” reveals that Nifty 50 TRI 24.5 per cent returns in three years, 14.0 per cent in 10 years, and 16.7 per cent in 20 years. 

In contrast, the US equity S&P 500 TRI delivered 16.3 per cent, 16.5 per cent, and 13.2 per cent in the same timeframes.

On the other hand, gold gave 5.5 per cent in three years, 8.3 per cent in 10 years, and 12.1 per cent in 20 years. In the case of real estate, it was 4.8 per cent, 4.8 per cent, and 9.0 per cent in the same period, respectively. Debt returned 5.1 per cent, 7.4 per cent and 7.2 per cent.

It shows that Indian equities have been the clear winners, growing 22 times in 20 years as on June 30, 2023. For example, the Nifty 50 TRI grew 1.9 times in three years, 3.7 times in 10 years, and 22.1 times in 20 years. For S&P 500 TRI, it was 1.6, 4.6, and 11.9 times in the same period. The same goes for gold, real estate, and debt assets when it comes to slow asset growth.
 
 Stocks Across Market Caps Register Growth 
While stocks across market capitalisations registered growth, mid and small caps saw the highest returns, about a compound annual growth rate (CAGR) of 18-20 per cent in the last 10 years as on June 2023. The Nifty 50 has grown at a CAGR of 13.7 per cent or 68 times since July 1990.

The large-cap S&P BSE Sensex TRI returned 24.4 in three years and 14.3 per cent in 10 years. The Nifty 50 TRI saw 24.5 per cent, and 14.0 per cent, respectively, in the same timeframes.
On the other hand, the S&P BSE Mid Cap TRI grew 31.6 per cent, and 18.5 per cent, while the Nifty Midcap 150 TRI grew 34.7 per cent and 20.5 per cent in the same period.

Likewise, the S&P BSE Small Cap TRI grew 39.2 per cent and 20.4 per cent, respectively, and the Nifty Smallcap 250 TRI returned 38.6 per cent and 18.7 per cent.

Equity Mutual Funds Outperform Index

Also, the report says many “well-managed” diversified equity mutual funds have outperformed the index over the 10-year and 20-year horizons.

For instance, the Large Cap Franklin India Bluechip (Growth) returned 12.6 per cent in 10 years and 17.7 per cent in 20 years. The HDFC Top 100 Fund (Growth) gave 14.6 per cent and 19.5 per cent in the same period.

The Mid-Cap Franklin India Prima Fund (Growth) grew 18.5 per cent, and 20.5 per cent, and Nippon India Growth Fund (Growth) saw 19.1 per cent and 23.1 per cent.

The Flexi Cap Aditya Birla Sun Life Flexi Cap Fund (Growth) saw 17.1 per cent and 20.1 per cent returns, while the Franklin India Flexi Cap Fund (Growth) 16.2 per cent and 19.8 per cent, and HDFC Flexi Cap Fund (Growth) returned 16.7 per cent and 20.5 per cent.

According to the report, 82 per cent of the time, equities more than doubled in seven years, with no instance of negative returns in the period. Seventy per cent of the time, the equities have tripled in 10 years, and 80 per cent of the time, they multiplied four times in 12-13 years.
The report said the Longer the time frame, the lower the odds of negative returns. 

Power Of Compounding 
FundsIndia explains this with this example. Suppose you need Rs10 crore at 60 years, with 12 per cent returns per annum through a monthly systematic investment plan (SIP). In that case, you must start investing Rs 15,000 via monthly SIP at 25 years. At 30, you will need a monthly SIP of Rs 28,000; if you delay it to 40, the monthly SIP will be Rs 1,00,000.

The power of compounding can be understood with the 8-4-3 rule. It takes eight years to reach the first Rs 50 lakh, but it takes only four years to get the next Rs 50 lakh, and it takes only three years for the third milestone of Rs 50 lakh. And by the time you reach the 20th year, you will be adding Rs 50 lakhs almost every year.

In conclusion, the report shows that equities can provide inflation-beating returns over the long term (10-15 years). On the other hand, debt historically has delivered 6-8 per cent over five-year horizons. However, high credit quality and short-duration debt funds must be part of the core debt portfolio. Gold, however, has underperformed equities over more extended time frames, although they provide returns above inflation in the long term.