Will the Indian stock market again witness 10 years of poor returns?

Published: October 30, 2022 at 6:00 am

Two readers recently asked us similar questions. One asked, “Is it possible for the Indian stock market to again go through 10 years of poor returns?” The reference is to the ten years of a sideways market after the Harshad Mehta scandal broke.

For details, see: (a) Sensex at 50,000 & lessons from the 42-year journey (b) Sensex return is 16% plus over the last 41 years, but half of that came from just three good years! (c) 150% profit but only 9.6% return?! Why you should fear sideways markets.

Another reader asks, “The Chinese Stock Market has practically given zero returns (forget real returns even the nominal returns are zero) in the last 15 years. Can such a scenario happen in India in future, considering both countries have some similarities like huge populations etc.? If such a situation happens in India, most of the country would be in real trouble, considering most of us are banking on the stock market, delivering at least 8-9% returns, if not more. Forget early retirement even normal retirement would be impossible in that case. Can you share your thoughts on this, please?”

This situation – 10 years of poor stock market returns, aka a lost decade – can happen in any country, and it has in the past, even in the US. See Dollar Cost Averaging, aka SIP analysis of S&P 500 and BSE Sensex.

So our investment strategy must always consider this possibility, and we must plan for it from day one. This is why our robo advisory tool uses a step-wise equity reduction plan well before the goal due date to combat the poor sequence of returns risk. Without a plan, we would be leaving the fate of our investments to luck. Our hard-earned money deserves better respect.


🔥Enjoy massive year-end discounts on our courses and robo-advisory tool! 🔥
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)
 
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!

Now, no one can answer if India would again suffer a lost decade. However, we can consider the factors contributing to a strong equity market and their likelihood in India.

When we compared the Indian and Japanese economies – Can the Indian stock market keep falling like the Japanese stock market? – we saw that there are many differences between the two countries. The key differentiator was demand and population growth.

We will not dwell much into the reasons for China’s lost decade. It is outside the scope of our expertise. The US-China trade war, low or near-zero foreign investment, lack of institutional support (dominance by retail investors), higher corporate reliance on a fixed income than on equity, and a slowdown in domestic growth have contributed to a volatile stock market peppered with boom and busts. Also, many companies (esp. tech related) prefer to trade in Hong Kong and not mainland China.

Some of the factors that contribute to a strong economy and a strong stock market are:

  • Democracy (including corporate governance). This is China’s biggest problem and plus point for India. Communism is not a financially viable idea. It made India bankrupt. Since the 1990’s globalization (new economic policy), continuous disinvestment, market-linked interest rates and pensions are some of the biggest contributors to India becoming the fifth largest economy.
  • Ease of doing business: India has continuously made it easy for entrepreneurs and start-ups. Naturally, there is a lot of scope for improvement, but we cannot deny the rapid strides in this area.
  • Institutional support: The stock market needs big players for stability. In the 1990s and 2000s, foreign institutional investors called the shots. Now domestic institutions play a big part in stabilizing our stock market.
  • Population growth: We need a human base to drive demand. We have no worries here!
  • Ease of spending: India is fast shifting from a savings-based economy to a spending-based economy. Today is quite easy to get a loan. Too much of this is bad for the stock market but so is too less. As with life, here, too, the right balance is not easy to find!
  • Stable governments: This is essential for sustained market growth. An unstable political climate is one of the biggest contributors to India’s lost decade. We saw seven prime ministers in the nineties!
  • Inflation and interest rates should neither be too large nor too small. Thankfully, both have been on a downtrend over the last 2-3 decades. See: FAQ: How inflation affects our ability to manage money.
  • Stable currency: The rate at which the INR degrades wrt USD has significantly reduced over the last decade. See: Basics: Why does the Rupee fluctuate in value against the US Dollar?
  • Ample foreign reserves: This is crucial for the country’s stability and currency.
  • Peace and stable borders: This requires no further explanation.
  • Stable world order: We cannot have countries often go to war with each other. This is, of course, beyond our control.
  • Global warming and other destructive practices: Stock market returns have almost always come at a huge price: destroying the planet. How well we balance our avarice with preservation will determine our existence.
  • Force Majeure events: We wake up every day taking our lives for granted. A meteorite, a solar flare, or thousand other events can end this real quick! See: Forget market crashes we will lose everything if this happens!

Among these, the factors that worry me the most are stable governments and the progressive destruction of the planet in the name of economic growth. The former only affects market returns, the later our and more importantly, the existence of our children.

Today, the Indian economy and Indian stock market are in a much stronger place compared to what they were in the 1990s and the corresponding situation in China. The relative probability of a lost decade recurring in India is significantly lower. So once we have a goal-based risk management strategy based on variable asset allocation in place, we can rest easy and focus on doing our bit to save the planet.

Do share this article with your friends using the buttons below.

🔥Enjoy massive year-end discounts on our courses and robo-advisory tool! 🔥
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
  • Follow us on Google News.
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Join our YouTube Community and explore more than 1000 videos!
  • Have a question? Subscribe to our newsletter with this form.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)
 
Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
  Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)