While this article may seem dated, it does not in any way diminish the importance even at this point in time.The article has been written by D. Muthukrishnan (Muthu) and can be found on his blog
The article has been written by D. Muthukrishnan (Muthu) and can be found on his blog here.
For last 3 years, I’ve made it a practice to give performance comparison of various asset classes- Sensex (Equity), Fixed Deposit (Debt), Gold and Silver and the impact of inflation on them beginning from the financial year 1979-80. Why 1979-80? That is the year from which Sensex came into existence with a base as 100.
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The original post appeared in Economic Times and can be read here.
If you had invested in a bank fixed deposit (FD) or Kisan Vikas Patra (KVP) three years ago, you would not have been even halfway through towards your goal of doubling that investment over eight to nine years. But had you invested the same money in the top 100 stocks, it would have already doubled by now. Here’s how:
But had you invested the same money in the top 100 stocks, it would have already doubled by now.
On June 10, 2013, it would have cost you Rs 80,541 to buy one unit each of the Nifty100 stocks. Today, that amount would have become Rs 1.63 lakh, growing at a compounded annual growth rate of 26.43 per cent.
“We are all familiar with the phrase, ‘Do not put all your eggs in one basket’. That way, a diversified portfolio could have resulted in higher returns. One can’t eliminate risks completely, but manage the risk level,” said Dhruv Desai, Director and COO, Tradebulls.
Diversification reduces stock-specific risks and gives better risk-adjusted return, said Rahul Jain, Head of Retail Advisory at Edelweiss Edelweiss Broking
The return offered by the 100 stocks is higher than most fund managers managed to generate with their multicap funds during the same period.
While sectors from banking, IT to consumer goods carry more than half of Nifty100’s weightage, strong performance by some stocks priced in four digits did the trick for the Nifty100 portfolio.
For example, Eicher Motors, which quoted at Rs 3,600 on June 10, 2013, has surged 5.2 times to Rs 18,800 by now. Bajaj Finance has surged 5.1 times over the past three years. The stock now trades at about Rs 7,700 against Rs 1,500 three years ago.Britannia Industries, Shree Cement and Bajaj Finserv are some of the other high-value stocks whose prices have surged 3-4 times over the past three years.
Britannia Industries, Shree Cement and Bajaj Finserv are some of the other high-value stocks whose prices have surged 3-4 times over the past three years.
“Some growth stocks such as Eicher Motors have performed well because of their niche businesses with dominance play. So they come with higher valuations,” said Mustafa Nadeem, CEO, Epic Research.
Desai said the market usually looks for companies with visible earnings growth. “As soon as they are discovered, investors start chasing them until their valuations become expensive. One should remember that many a times, investors get trapped chasing higher valuations,” he said.
Jain said, “The stocks look expensive on the valuations front, “But the right way is to look at valuations vis-a-vis their growth profile, quality of franchise, earnings visibility and sustainability of margins. Hence, if one looks at these stocks on the parameters mentioned, I believe these are good investments with a long-term horizon.”
The return offered by the Nifty100 stocks was higher than a 12.88 per cent CAGR (or 43 per cent return) growth clocked by the NSE100 index during the same period. It even beat the 14.41 per cent CAGR (or 47 per cent) registered by NSE100’s equal weight index during the same period.