We Are Bullish On Indian Equities

05 May, 2022 0 Comments

            We Are Bullish On Indian Equities

For many investors, buying foreign stocks allows them to diversify by spreading out their risk, in addition to giving them exposure to the growth of other economies. Many financial advisors consider foreign stocks a healthy addition to an investment portfolio. But is the above true of all economies?

Nominal GDP Growth vs Performance of Equity markets

We did a comparison to see how GDP growth rates compared to each country’s equity index. Nominal GDP growth is calculated as Inflation + GDP against the performance of the major equity indices.

The below chart depicts the country wise ratios for the past 20 years.

India’s GDP grew at a 16% nominal rate for the past 20 years and the SENSEX mimicked the same. In the US as well, the broader Index S&P 500 tracked and mimicked the growth of the nominal GDP.

However, In China, while the nominal GDP growth was 16.1%, the Shanghai equity index grew at only 4%.

In Europe, the UK & France equities are unable to grow even at the nominal GDP rate.

GDP Growth of Major Countries

The below chart depicts the past 20-year GDP growth of India, the US and other key countries.

It clearly shows a secular growth trend for the Indian GDP growth.

Meanwhile, with regard to UK, Germany and France – Their current GDP numbers are at the same levels as of 10 years back … What? No growth in the past 10 years? The EU, as a whole, is the second wealthiest and second largest economy in the world, below the US by only about $5 trillion.

The GDP growth in US is slow but remember that is on a very large base.

GDP level of Brazil has plummeted massively, while Japan has stagnated more than dropped.

Performance of Equity Markets

As per the below charts, India’s growth is secular, while the European equity markets (UK, France) are trading at their respective year 2007 levels.

Chinese equities are trading at their 2007 levels (13 year low).

Equity markets in USA, Germany are witnessing growth along with Japan. However, the Japanese indices are still below their 1990 lifetime high.

In the US – The XIRR return of the S&P 500 is 7.3% & the NASDAQ 100 is 12.4% XIRR.

GDP vs Equity markets in India and China.

Since 2001, the Chinese economy grew 13X ($1.3 trillion to $17.45 trillion), while the Indian economy only grew 6X ($0.49 trillion to $3 trillion). However, Indian equity markets returned 21X in the same period while the Chinese market has just doubled.


  1. Many of the European economies are unable to grow due to various reasons including aging population, less / negligible population growth, saturation in income and consumption growth, etc.
  2. In the US, the growth is moderate. However, most US companies are innovative due to the inherent environment. They are able to grow and some of the companies are even global monopolies.
  3. Due to the aged demography in Japan, the economic growth is stagnant and the Japanese equity index has not been able to cross its lifetime high of the past 40 years.
  4. Despite massive economic growth in China in the past 20 years, their equity markets have not generated wealth due to following reasons,
    • Government regulation and intervention
    • Overall transparency levels are tepid
    • A commodity-based economy, and only in the recent time, it is moving into advanced technologies /manufacturing processes
    • Prevalence of Unprecedented level of uncertainty across sectors and corporates due to Govt
  5. Big forces are enabling and ensuring sustained secular growth in India’s case
    • Strong domestic market
    • Stable government, supportive and predictable regulatory regime
    • Consistent improvement and implementation of various policy reforms
    • Young and aspiring demography
    • Transparency levels on corporate disclosures are comparatively high
    • The following mega-trends support the growth of Indian equities and benefit the economy
    1. Joint family system to nuclear family and subsequent consumption growth
    2. Unorganized to organized movement across sectors
    3. Formalization and digitalisation of economy across the segments
    4. Financialization of savings from Real estate to Gold
    5. Urbanization
    6. More openness to equity in their asset allocation

Overall,when it comes to allocation to international equities, the US markets alone provide a better risk-reward, stable and transparent investment climate along with growth. Other advanced economies in Europe are languishing for growth.

When it comes to China, we will not be able to invest due to restrictions on investments by foreigners. Furthermore, Chinese equities have not created wealth. Hence,investment in India ensures the growth and with regard to geographical diversification, US equities are sufficient. Just for the sake of diversification to international equities, it is not beneficial to invest in countries which are not growing.

We urge you to have conversations with financial advisors who have seen and navigated these cyclical rises and falls. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.

We urge you to have conversations with financial advisors who have seen and navigated these cyclical rises and falls. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.

Reach out to us

We can help you understand how to maximise your investment goals or leave a comment below on your thoughts.


For More Details Contact :  Mr. Rajanish -  +91 9900130321 |  Mr. Saisri -  +91 9740013581 |  Email - contactus@sinhasi.com