A high percentage of Indian stocks have generated over 20 per cent CAGR in the last 20 years in US dollar terms, according to a study. In comparison with China, US and Japan, this performance was outlandish, beating the return produced by them by a huge mile.
“In a 20-year period, 23 per cent of BSE 500’s companies generated 20 per cent+ dollar CAGR versus 1 per cent or fewer in the other three indices,” revealed a study by IIFL Institutional Equity Research.
BSE-500 continues to be made up of very strong return generators — of the current 500 constituents, 267 were in existence 20 years ago, and of those, 60 per cent generated more than 20 per cent returns. The corresponding numbers for the indices of other countries are in single digits, it said. In other words, a dollar invested in each of the stocks of the BSE 500 would have totalled up to $1,445 whereas it would have been $1,381 for S&P500.
Industrials, materials lead
Industrials and materials have done the best, but even the lowest-return sector — real estate — has delivered much more than equal-weight portfolios (EWP) from the other indices, according to the study. An EWP in BSE 500 would have returned 20 per cent vs 5.3-9.5 per cent in the others.
Adani Enterprises, Bajaj Finance, Titan Co, SRF, Havells India and Kajaria Ceramics were the top performers with returns ranging from 35 per cent to 50 per cent.
While the BSE 500 index grew 20.3 per cent in 20-year timeframe, US-500, Shanghai Comp and Topix500 gave 9.5 per cent, 7.5 per cent and 5.3 per cent growth, respectively.
“We show than Indian stock returns’ superiority is regardless of 20-year/10-year/5-year frame, or hit ratio measured on the original index companies or current, or on EWP returns. A counter argument could be that India was a small market back then, but even now India is only 3 per cent of global m-cap,” it clarified.
“We applied the number of companies for which there is 20-year data as the denominator mainly since the Shanghai Composite has had the number of index constituents rise 2.6x in 20 years. So this was one way to make the proportions comparable,” IIFL Research said.
Several factors such as strong bank balance sheets and regulation, a decade of corporate deleveraging and a supportive policy environment will ensure that the outperformance will continue, the domestic brokerage firm said.