stock market: India exciting on a multi-year horizon despite
When we last spoke, Nifty was at 5,800; today at 18,000, a lot has changed. We are still in the midst of the Covid pandemic. While we have done great from the pandemic lows over the last two odd months, the flows to India have faltered a little bit and some flow has shifted to China. Are there non-fundamental reasons to believe that there is going to be a sustained bid for Indian equities in the foreseeable future?
The answer is clearly yes. Before we look forward, let us look back again and go back to March 2011 period as a benchmark. Since then, the S&P has outperformed the Nifty in local currency terms and in dollar adjusted terms, even more so. The Nikkei had probably surprised the people at that time after having gone through a big earthquake, 10 years later it is up about 3X. So, yes the market has done very well over the past decade but most of that performance has come just in three years 2014, 2017 and then 2021 is one of those years. So relative to the expectation from about a decade ago, I would say that the Indian market has done very well but it probably has undershot the expectations I had at the time.
That is not a cause for dismay. It is a great thing because we are allocating capital to these markets today and when we focus on the next 10 years, it means that there are more returns in-store for the Indian market. Now why do I talk about multi-year horizons? A) Because that is the horizon on which our firm invests, but also B) it is impossible to predict when these big performance years will come.
We could have another year in 2022 that is just as good if not better than this year. Or it could be a down year relative to 2021. But the point is that the Indian market is one that is best seen on a multi-year horizon. So picking and choosing which year or quarter is difficult and timing the entry and exit from the Indian market, based on flows in and out of China or some other reason, is difficult.
But on a long-term horizon, it is very exciting because the purchasing power, investing power increases, participation in the market increases and almost 200 companies will list in the next two to three years and these are going to be sizable listings and sizable capital raisings. They could in aggregate add between $300-500 billion worth of market cap to the Indian market. So the market cap will be well over $4 trillion in just a few years. Those are some of the non-fundamental reasons to be very excited about.
Do you think it would perhaps be prudent to bring down return expectations for India and maybe say that the best in the near term may be behind us with the performance that we have had in the last 18 months?
I would probably say yes. If we look at how the market has done from not just the March lows but…
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