Equities are the one of the best ways to create wealth over longer periods of time. And, Portfolio Management Services (PMS) are one of the most effective ways to invest in equities.
In the last decade (2010 – 2020 ) equity market delivered very average returns less than 5 % CAGR as SENSEX went up from 20000 to 40000, and the decade prior to that ( 2000 – 2010 ), was one of the best decades for equities as SENSEX went up from 3000 level to around 21000 level. If the pattern is to be extrapolated the decade next 2020 – 2030 could be to be another stellar decade for wealth creation. There are many fundamental reasons for that. Let’s understand them.
With historic fall in interest rates, cost of capital has gone down significantly. This presents a good business case which many entrepreneurs have always chased in India over years. Also, fall in interest rates, from highs of 9% to almost 5% currently, makes the case for valuations to be seen differently, and hence some high valued companies could command even higher valuations as they would be seen for the potential to generate higher return on capital employed over next decade
Indian Economy as measured from Gross Domestic Product ( GDP ) has grown from US $ 1.6 tn in 2010 to US $ 2.8 tn in 2020. An absolute performance of 75%. Significantly higher than performance of equity market as Sensex growth was only 50% during last 10 years. This has led to a multi-year GAP between equity market cap and GDP. Currently market cap - to - GDP stands at ~ 60 %. This ratio has fallen swiftly from ~80% as in FY 19 to ~60% in FY 20. It is today, much below long - term average of 75% and closer to levels last seen during FY 09. The ratio has been quite stable over FY15-19 in the 70-80% band. The lowest in the last two decades has been ~45% seen in FY04. The ratio hit a peak of 149% in December 2007 during the 2003-08 bull run. This GAP in Market Cap to GDP ought to be filled and Market Cap to GDP could surpass 100% mark over next decade.
India is an agrarian economy with nearly 50% of Indians livelihood dependent on agriculture and allied sectors. This year has seen a good Rabi crop and the India meteorological department (IMD) announced that it expects monsoon rainfall to be normal this year. Rollout of long pending Agri reforms like scraping of essential commodities act, allowing farms to sell their produce anywhere in the country etc shall pave a way for corporatization of agriculture sector and should lead to growth of this sector in medium to long term.
FII holdings today stands at the lowest level since 2013, at ~20%, govt holding is also at a record low of at ~ 6.6%, DII holding is at 14%, and retail holding is also at 14%. But, at the same time, Indian promotors have increased their holding and are on the buying Spree where they see their franchises under-valued.
China which is largest manufacturing hub to many multinational companies is facing distress wave. And, most of these companies are looking for another alternative, today. CII & Indian Govt. has made representation to around 1500 global companies for moving production to India. Besides, last 10 years have paved way too many policy moves as well as reforms at fiscal, monetary and tax levels. Current scenario is becoming highly conducive for India to attract potential FDI over next decade.
Fall in global crude oil prices is a huge positive for India. Remember 85% of oil is what we import, and every 1 dollar fall in its price, leads to 1 bn dollars of saving on our import bill. This has cascading effect on lower inflation, lower current account deficit, and accommodative monetary stance.
So , investing in Equity is going to see some interesting times ahead and PMS managed by experienced fund managers are going to be one of the best ways to WEALTH CREATION in the coming decade.
Best 5 PMSes based on the recent past performance (Year 2018 & 2019 ) are :
