The article’s author is Karan Aggarwal, CFA, a Founding Member & CIO of Elever Investment Advisers, offering WealthBaskets on our platform. Check out their portfolios here.
Elever is SEBI-registered RIA offering investment advisory services to retail and HNI segments. With a combination of sophisticated factor-based investing, thematic research, and traditional asset allocation models, Elever portfolios are designed to create long-term alpha for investors across risk profiles in a scientific and responsible manner.
Our conversations with big investors mostly revolve around concerns that Indian markets have not fallen enough to reflect the bloodbath in US and European markets. Moreover, they are spooked by a mainstream narrative that US and Indian markets have decoupled in 2022 and that decoupling is a new development that might not last long.
In reality, US and Indian markets have been moving differently since time immemorial.
For the period 2000-2010, S&P 500 provided returns of only 15%, while the Nifty 50 provided returns of 460%. On the other hand, during the period 2010-2020, Nifty 50 provided returns of 158% (80% in USD terms), while S&P 500 provided returns of 266%.
In the year 2002, S&P 500 declined by more than 22% while the Nifty 50 remained steadfast at a 5% return. In the year 2011, India saw a de-rating on its structural issues and the Nifty 50 declined by 24% while S&P 500 remained steadfast at 2%. The year 2022 seems to be a repeat of 2002 as the US is facing a deep rout and the Indian market is facing pressure but resisting sharp drawdowns.
Ironically, since the late 1980s, US investors have been sold 100s of funds and portfolios providing exposure to India and other emerging markets with the promise of diversification. Trillions of dollars have been poured into these funds over the last 3 decades on the value proposition that countries like India are decoupled from the US.
When we say that India has decoupled recently, we are practically labeling the biggest portfolio managers and fund houses in the US as ‘frauds’. Even if the ‘recent decoupling’ theory is correct, we are talking about a few cents in a gold rush.
India is expected to be a US$ 15 Trillion economy by the mid-2030s. Taking GDP to the stock exchange market cap ratios of peers like the US, China, and Japan into account, the market cap of Indian companies is expected to expand from US$ 3 Trillion at present to US$ 25 Trillion by 2035 – a 7x growth. Entering the market at 10%-15% lower levels would account for a fraction of additional gains after a decade.
Finally, some lessons from history. In Aug 2013, INR was the worst-performing currency in the world backed by dangerously low forex reserves. Add high inflation, sub-5% growth prospects and declining credit rating to the mix and the somber picture is complete. The financial press was crowded with dire predictions but guess what? Nifty 50 Index provided 50% returns in the next 1 year. Those Nifty 50 levels of 5000-6000 were never seen again as, despite short-term headwinds, the long-term India story remained intact.
Note that you can always do cost-averaging if the stock market goes down. However, if you are sitting with cash and markets take a bullish turn as in Aug 2013, the opportunity cost of missing a rally would be too high. Generally, in these cases, such investors keep hoping that markets would return to old levels before realizing that markets have entered a bullish phase and have missed out on a good part of the rally.
