Indian and Global Share Markets: A Comparative Evaluation..!

Indian and Global Share Markets: A Comparative Evaluation..!

From SEBI Investor Survey 2015 (SIS 2015)

The Indian equity market has grown in size and value since the economic liberalization in 1991.

Despite the post- Global Financial Crisis (GFC) muted global growth, there has been an increasing interest in the stock markets, both from retail investors looking for yields and companies looking to raise capital.

As the economic slowdown in China has compelled most global central banks to keep interest rates artificially low, commodity prices have been plummeting.

Thus, yield-chasing investors (both retail and institutional) have started moving into equity markets (including emerging economies), fuelling a sharp upturn in the securities markets.

The S&P 500 is up more than 200% since its 9th March, 2009 lows while the BSE Sensex is up 220% in the same time period (as of 31st December, 2015).

According to data from the National Securities Depository Limited (NSDL), Foreign Portfolio Investors (FPI) / Foreign Institutional Investors (FII) have invested Rs. 7,55,400 crore since 2000–01 and Rs. 5,80,983 crore in the post-GFC period (since 2009–10), and this number increases by about 50% when debt is included.

Despite negative growth in 2008–09 at the peak of the GFC and in the last fiscal year, the trend line in Figure 2.4 shows the steady and significant rise in foreign investments.

Figure 2.4: Foreign Portfolio Investments / Foreign Institutional Investments (FII) in Indian Equities Market (in Rs. crore)

An analysis of S&P BSE Sensex’s long-term data provides a persuasive rationale that can help clarify India’s investment success story (as observed in Figure 2.5), especially among other emerging economies.

The 1991 financial liberalization and the ensuing development of an open market-based economy led to widespread growth in all sectors of the economy. In fifteen years, the Sensex increased by 386 percent - from 5,205 in early January 2000 to 26,117 on December 31st, 2015 - despite the largest global financial crisis and a correction in the current year.

Correspondingly, the MSCI Emerging Markets Index (a broad measure of performance for EM equities) has also moved up 178%.

On the other hand, developed markets like the US or Europe have significantly underperformed emerging economies during this phase.

For example, the US’ Dow Jones Industrial Average is up 60% while the Stocks 50 Index for Europe is down 31% in the same time period.

Figure 2.5: Comparative Performance of Indian and Global Stock Market Indices

In spite of this documented long-term positive growth, which reflects fundamental economic growth, short-term movements in the equities market are driven by investor sentiments or in Shleifer and Summers’ words: “noise traders” (1990).

In the long run, arbitrageurs stabilize market inefficiencies.

Since this survey was last conducted in 2008–09 (published in 2011), the Sensex has moved up more than 44 percent in value (Figure 2.5) while developed markets have significantly outperformed India or / the EM Indices.

This is primarily due to the effects of the Global Financial Crisis (GFC) of 2008–10. During this time period, EM stocks (and economies) did not face the complete rout seen by US or / European markets.

The recent short-term performance of the Indian markets, which sometimes tends to have an outsized effect on survey responses due to the salience of immediate events, has been bleak.

The Sensex was down 6.8% in 2015, which might have affected the answers of some respondents of SIS 2015.

Share: