Not hit pre-Lehman highs yet: Equities fail to shine in 10-yr return chart

There’s euphoria on how the stock market is now trading at an all-time high, tempting some to name it a bull rally and gathering momentum.However, closer reading of the numbers suggests the markets haven’t delivered really exciting returns in the past decade as compared to other asset classes. From the start of 2007 (then reckoned as a strong bull market year) till date, even as the CNX Nifty (benchmark index on the National Stock Exchange) rose from around 4,000 to 8,924 points till date, the annualised return translates to nine per cent. In comparison, gold and risk-free bonds have returned a 12 per cent CAGR (compounded annual growth rate) and 7.6 per cent, respectively. As equities are a riskier asset class, their returns ought to be higher than risk-free bonds by a good margin. Future & Option Trading Tips

It is possible that had it not been for the Lehman Brothers crisis of late 2008, the brake might not have been applied on Indian equities. The Nifty rose from around 4,000 points at the start of 2007 to 6,287 points by January 8, 2008 (pre-Lehman high).The gain from January 8, 2008, till date is no more than a four per cent CAGR, showing the road to recovery after Lehman has been painfully long. Reliance Industries, Bharti Airtel, Idea, and NTPC are among the stocks yet to rise above their pre-Lehman level. In the previous 10-year period of 1997-2007, equities outperformed the return from gold, at 21 per cent CAGR gain versus the latter's 7.8 per cent. Risk-free returns were about 7.6 per cent.



Experts say there are strong reasons holding back equities from replicating the performance in the rally between 1997 and 2007. “The biggest missing component now is the investment demand cycle,” explains Pramod Gubbi, head of equities at Ambit Capital. “2003-07 was the best capex (capital expenditure) period. While sectors like consumption, information technology (IT) and health care were already going good, the capex cycle lifted others like construction, real estate, infrastructure and even banking & financial services. These sectors constitute 30 per cent of the economy. This piece has been missing in the past 10 years.” Financial Astrology Tips