Investor returns slow down this decade on policy woes

Contrary to perception, the returns generated by the investors from equity markets in India have slowed down the 2009-19 decade, on the back of policy instability.

A DH analysis of market data for the past two decades shows that the average annual growth rate in the past decade has been lower by 455 basis points (bps) than the 1999-2009 decade for the 50-share index Nifty.

The index showed a compounded annual growth rate (CAGR) of 8.83% in the past 10 years, down from 13.39% a decade before that.

During the last 10 years, the index moved to 12,127 points, from 5,201 points on December 31, 2009 – a growth of 133%.

On the other hand, the Bombay Stock Exchange’s (BSE) 30-share index Sensex has grown by 8.95% in the past 10 years, 436 bps lower than the growth of 13.31% between 1999-2009.

The higher growth in markets in 1999-2009 has been despite the fact that during 2008 and 2009, Indian equity markets witnessed a bloodbath after the global financial crisis in the wake of the housing crisis in the US market. The lower growth in the current decade has been attributed to the policy instability by the successive governments.

“Indian markets are maturing and policy stability is an issue now. We haven’t been as successful in attracting investments as we should have and that’s reflected in the longer-term growth rates,” said Anubhav Shrivastava, Partner, Infinity Alternatives.

In the past decade, there has been a gamut of policy measures introduced by various finance ministers that have negatively impacted the markets -- be it retrospective tax by the then finance minister Pranab Mukherjee in 2012 or the super-rich tax by current FM Nirmala Sitharaman in 2019.

According to some others, global factors have also impacted the lower returns in the markets.

“The global scenario has not been supported with most developed economies and regions growing at a sub-optimal level which is much below the growth rates seen in the previous decade,” said Gaurav Dua, Head, Capital Market Strategy & Investments, Sharekhan by BNP Paribas.

Experts expect the returns to further diminish going forward as regulations get stringer for the markets. “Eventually, return on the stock market is a function of liquidity, the less the liquidity the lesser will be the returns. Going ahead the return expectations have to be muted as the barriers to access capital reduces and tough regulations are reducing the risks for the investors,” said Umesh Mehta, Head of Research at Samco Securities.

When it comes to the returns in the broader indices, the annual returns in the past one year has been even more sluggish.

The SmallCap Index of BSE, that comprises of 840 companies, has shown an average annual return of paltry 4.9% in the decade.

The Midcap has grown by 8.2%, while All Caps have grown by 8.45% during the decade, as the gains in the markets have become more polarised in favour of large-cap blue-chip companies.